“As the proliferation of non-financial reporting increases - in terms of volume and channels - it is more important than ever that the information is trustworthy,” says Rigby. She describes non-financial reporting as ESG [environmental, social and governance] performance information in the front half of the annual report and accounts or a standalone sustainability report.

Volume is an issue for stakeholders. She reveals that for companies in the FTSE 350, “on average 21% of the length of the Strategic Report in 2020 was taken up by ESG reporting. This is astounding when you consider everything else a company is required to include in the Strategic Report”. Often, the ESG information is discussed further within an organisation’s website or standalone sustainability report, as well as lifted into investor presentations. 

But while there is a lot of information disclosed, Rigby acknowledges there is a question around the extent to which current reporting standards are providing the information stakeholders need. “Organisations are grappling with an ‘alphabet soup’ of current non-financial reporting frameworks to disclose against,” she says. “Investors and other stakeholders are increasingly vocal about this, including their concerns about the potential for cherry-picking, which may lead to concerns over greenwashing”. She is hopeful the formation of the ISSB and the development of prototype standards will be the big first step forward companies and stakeholders need to ensure consistent, reliable and comparable reporting.

‘Front half’ disclosures are not currently subject to mandatory assurance. She points out that investors and other stakeholders are increasingly calling for assurance over ESG data. She cites PwC’s 2021 survey of 325 investors globally, which found nearly 80% said they trust reported ESG information more when it’s been assured, with about three-quarters saying they want this to be assured at the same level as financial reporting. 

The question some stakeholders are asking is: is the profession ready to provide this?

All parts of the profession must evolve and upskill

A number of different parties make up the ecosystem of ‘the profession’: the accountants and finance professionals who prepare the data and disclosures; the auditors who challenge and provide assurance on them; and the standard setters, regulators and training providers. And it is clear that all must evolve and upskill in some way.

Accountants and finance professionals in particular “need to be more heavily involved for accurate quantified disclosures to be released into the public domain,” Rigby says. “The game has changed and their skill and experience are needed now more than ever”. 

To successfully play their part within a cross-functional group in the organisation to produce these disclosures, she believes they need to be sufficiently educated and trained on the disclosures and what sits behind them.

Assurance of non-financial information is increasing but significant challenges remain

As an assurance professional, Rigby is passionate that assurance can provide the trust stakeholders need. For her, that means an intense focus on quality. She was particularly struck by the findings in PwC’s investor survey that show the high standards investors think assurance providers should have. For example, 81% of investors think assurance work should be done by a team that has expertise in both providing assurance and the subject matter covered by the assurance; 83% said the assurance work should be conducted using a recognised assurance standard; and 80% said a firm and its employees should be subject to regulated ethical standards and independence requirements.

Rigby said even when those attributes exist, there are some common challenges that she sees when she tests ESG metrics and provides assurance on them. Rigby lists these as:

Existence of suitable ‘reporting criteria’ 

Written reporting criteria must be created by the organisation for the assurance provider to evaluate the organisation’s underlying subject matter (eg GHG emissions, waste data, gender pay gaps) against and be made available to intended users. Referencing frameworks like The GHG Protocol is not enough, without specifics on the reporting boundary, underlying calculation methodology, significant judgments and estimates. 

Accurate and complete underlying data and a suitable ‘audit trail’

Common data issues include:

• application of a consistent reporting boundary. For example, whether a financial or an operational control approach is taken, it must be applied consistently across the data set. 
• availability of suitable evidence and complete evidence. For example, third party consumption invoices or weight records, rather than internal spreadsheets. 
• application of suitable estimates applied consistently across the data set. For example, how to estimate for missing electricity KwH in the absence of a third party bill or meter reading. A policy should be agreed and communicated for all sites to collect and report data in the same way. 

Appropriate governance

Quite often ESG data does not sit in any sort of system or flow through anything like the same level of processes and controls that financial data does.

Another challenge Rigby describes is the organisation’s understanding of the intricacies of this data and what data needs to be captured. Full Scope 3 emissions disclosure requires data from deep into the supply chain and out into the value chain including how the product is used and what happens at the end of its life. This is far beyond the boundary of financial accounting, and therefore is not data that is typically collected in current financial systems. 

Rising to the challenge

As for how these challenges can be overcome, Rigby says the answer lies in an urgent and sharp focus by companies on the accuracy and completeness of their non-financial data. “But we shouldn’t be afraid of this. These principles and rigour are not new; they are already applied to the organisation's financial reporting”. Further, companies should keep in mind that estimates and extrapolations are okay because it is a journey – but transparency and openness are key.

In the same way that the profession has adapted to the changes in data collection and reporting that came with implementing IFRS 9 following the financial crisis, members possess the deep skill, analytical thinking and agility to respond to these new non-financial reporting disclosures, including around the climate scenarios that could impact the business, and build the trust in ESG data that stakeholders need.