Sustainability reporting is becoming increasingly important in today's society and among business stakeholders. In Singapore, more investors are now demanding companies to report their sustainability impact, issues, and efforts, alongside their financial performance. To this end, all Singapore listed companies must provide climate reports as an integrated element of their sustainability reporting on a “comply or explain” basis, starting financial year (“FY”) 2022. Climate reporting will be mandatory for listed companies under the Financial, Energy, Agriculture, Food, and Forest industries from financial year (“FY”) starting 2023, and industries under Transportation, Materials, and Buildings will have their climate reporting mandated by FY2024.
This escalating demand for companies to disclose their environmental, social and governance (“ESG”) actions – and the corresponding increase in greenwashing – has fuelled a need for independent, third-party assurance.
Sustainability assurance is the process of independently evaluating and verifying an organisation's sustainability performance and reporting. It involves assessing the accuracy and completeness of an organisation's sustainability information, and providing assurance that the information is reliable and consistent. The goal of sustainability assurance is to provide assurance to stakeholders that an organisation is managing its environmental, social and governance risks and opportunities in a responsible and sustainable way. It helps organisations to improve the quality, credibility and transparency of their sustainability information, and to build trust with stakeholders.
However, there are five main challenges in sustainability assurance:
- Measurement and reporting: Sustainability can be difficult to measure and report in a consistent and reliable way.
- Standards and regulations: There is currently a lack of widely accepted and standardised sustainability reporting frameworks and regulations, which can make it difficult for organisations to know what they need to report on and how to report it.
- Complexity: Sustainability encompasses a wide range of issues which can make it challenging to identify and prioritise the most important issues to address.
- Data availability and quality: Collecting and analysing the data necessary to measure and report on sustainability can be difficult, particularly for smaller organisations.
- Cost: Implementing sustainable practices and reporting on them can be costly, which can be a barrier for small and medium enterprises and emerging companies.
Notwithstanding the above challenges, we think it is imperative that companies consider sustainability assurance as a means of gaining a competitive advantage because a good sustainability performance and assurance can help attract customers, employees and investors who prioritise sustainability.
In a 2021 study entitled “The State of Play in Sustainability Assurance”, the International Federation of Accountants (“IFAC”) found that, in Singapore, of the 96% of the companies reviewed that provided ESG disclosures, 21% had received assurance, and of these assurance engagements, 54% were performed by audit firms of which the ISAE 3000 limited assurance forms the main type of assurance standard adopted.
In the coming years, we expect this trend to continue to increase, as we believe sustainability assurance is important for a number of reasons:
- Credibility and trust: By providing assurance that an organisation's sustainability information is accurate and reliable, sustainability assurance helps to build credibility and trust with stakeholders, including investors, customers, and regulators.
- Compliance: Many organisations are subject to various sustainability-related regulations and standards, such as those related to environmental protection and human rights. Sustainability assurance can help organisations ensure they are in compliance with these regulations and standards.
- Transparency: Sustainability assurance can help organisations to be more transparent about their sustainability performance and to disclose information about their environmental, social and governance risks and opportunities in a consistent and comparable way.
- Stakeholder engagement: Sustainability assurance can help organisations to engage with stakeholders and understand their concerns and expectations, which can help them to respond to stakeholder needs and build stronger relationships with them.
- Competitive advantage: Companies that have a good sustainability performance and assurance can gain competitive advantage by attracting customers, employees and investors who prioritise sustainability.
This article is contributed by Ivy Xu of the Sustainability Practice.
To find out more about RSM’s Sustainability Practice, please contact our specialists:
T: +65 6594 7876
T: +65 6594 7627