Investors are increasingly focusing on the performance of companies in the ESG (environmental, social, and governance) area, which directly affects their brand image and the purchase decisions of consumers. Audit committees on supervisory boards play a crucial role in ensuring the accuracy and transparency of non-financial data, which they are responsible for reporting in the context of ESG. By working closely with the management teams, audit committees help define which information is significant for stakeholders, a process that bolistically enhances an organization’s credibility and positively impacts its reputation.
Interaction between financial and non-financial reporting
New regulations and the growing significance of climate risk directly affect business finances. Although the exact estimation of climate impacts remains a challenge, a comprehensive analysis of climate risk is essential in the context of detailed ESG requirements.
Implementing effective controls over the preparation of sustainable development disclosures is one of the main challenges, especially for large organizations with diverse structures. The data obtained for creating sustainable development reports come from various sources and systems, and their quality is not uniform within the organization. Establishing a cohesive ESG reporting process, including defining the roles and responsibilities of individual units and the rules of data flow and verification, is key for ensuring consistency and trustworthiness of reporting.
As the importance of sustainable development reporting grows, also shown by the regulatory requirement to attest to these reports in the EU, many companies are considering transferring the burden of ESG reporting to financial departments. These units have experience in maintaining the data quality control required by auditors, and documenting the reporting process at a level mandated by new regulations. – Tomasz Kołodziejczyk, Director, ESG services leader for the financial sector, KPMG in Poland
Role of audit committees in monitoring internal controls
One of the main challenges associated with ESG reporting is crafting a coherent methodology for assessing and monitoring ESG indicators. The data, originating from various sources within the company, was not previously subjected to such rigorous controls as financial data. Rapid regulatory changes further complicate the implementation of uniform internal controls across the organization. Therefore, managers should focus their efforts in this area.
Audit committees, in cooperation with management boards, should establish and oversee a policy defining the process and monitoring ESG in a company – from strategy to information disclosure.
Verification of non-financial reports strengthens the credibility of disclosed information
In response to the demand for precise and objective guidelines for non-financial audits, the International Auditing and Assurance Standards Board (IAASB) developed a draft standard ISSA 5000 – the new global standard for the attestation of sustainable development reporting.
The new standard, approved in September 2024, aims to standardize sustainable development reporting processes by ensuring consistent, high-quality audit services that will cover all sustainable development areas, regardless of the legal frameworks of reporting. This standard will come into effect for reporting periods beginning on or after December 15, 2026. However, until the European Commission adopts an appropriate attestation standard (ISSA 5000 or another standard), member states may use national standards.
The Polish Chamber of Statutory Auditors published a draft national standard (KSUA 3002PL, to be read in conjunction with standard KSUA 3000 (Z)) on October 31, 2024, applicable to the attestation of sustainable development reporting, ensuring limited assurance.
Strengthening the credibility of ESG reports is a key element of building stakeholder trust and enables audit committees and administrations to make more informed strategic decisions in the area of sustainable development. Increasing reporting demand has placed audit committees to face the challenge of monitoring rapidly evolving ESG standards and regulations. At the same time, companies expect a uniform and accurate verification of key ESG indicators. Such a reliable and consistent approach to non-financial auditing ensures that organizations are better prepared to respond to investor expectations and regulations. The verification of sustainable development reporting by an independent statutory auditor plays a crucial role here, enhancing the assurance and transparency of the entire reporting process. – Jarosław Fąfara, Partner, ESG Assurance, Audit, KPMG in Poland.
Source: https://managerplus.pl/zarzadzanie-ryzykiem-i-transparentnosc-komitety-audytu-a-jakosc-raportow-esg-65042
