Auditors are experts at navigating specialist abbreviations, acronyms, concepts and terms of reference (see Rapid reference, below). Just keeping track of the standards and frameworks that shape auditing requires your familiarity with a lengthy list. FRC, GAAP, IAASB, IFRS 9, ISA (UK) 240 and ISQM 1 are just a few of the many. But that extensive professional lexicon of letter and number combinations (and even the associated changes) may seem much less demanding to monitor and maintain when they are compared with the vast and fast-changing world of sustainability reporting.
As corporate reporting on matters related to environmental, social and governance (ESG) and sustainability grows in importance, so do the abbreviations, concepts, frameworks, principles, standards and other moving parts for auditors to keep sight of – and 2022 has been a busy year.
Audit and Beyond provided an overview of some recent and ongoing developments that are shaping sustainability reporting in May and followed up with some pointers to resources from ICAEW in the July/August edition. With so much happening, however, it’s time for another update.
Direction of travel
Over the past 20 years, players on the sustainability reporting landscape have proliferated. But during 2021 and 2022 there has been a marked trend towards collaboration and consolidation among many (but not all) of the long-established organisations on the sustainability-reporting landscape.
Some of the recently emerging standards relate to financial information (see ‘Global standards’); some relate to non-financial information (see ‘European standards’). They are not, it is important to note, the only standards out there relating to corporate reporting on financial and/or non-financial matters connected with disclosures and reporting on ESG and sustainability. If you want to get the bigger picture, you will also need to consider existing and emerging initiatives and requirements in various national jurisdictions, particular industries/sectors, and some long-established principles, guidelines, frameworks and standards, such as those available from pioneers at AccountAbility and the Global Reporting Initiative. This article focuses on some of the more recent developments that may have relevance to the widest and greatest number of auditors, and the abbreviations and acronyms they need to keep track of.
Global standards
The IFRS Foundation created the International Sustainability Standards Board (ISSB) in November 2021, to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. Since then, it has assimilated a number of organisations that had long aimed to advance sustainability reporting (see Rapid reference, below).
In March 2021 the ISSB put forward proposals for sustainability-related disclosure standards in its first two Exposure Drafts (EDs):
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and
- IFRS S2 Climate-related Disclosures (at tinyurl.com/AB-IFRSDisclosure).
Learn more about the EDs, comment letters and other related resources on the IFRS website.
Keep up to date with developments at the ISSB by visiting its home page at and news output.
European standards
Sustainability reporting standards are also being developed in the European Union (EU). The EU’s Corporate Sustainability Reporting Directive (CSRD) is scheduled for adoption in November 2022 and European Sustainability Reporting Standards (ESRS) will be key to this: the CSRD determines which companies must report, on what topics, where, when and the level of assurance; the ESRS will clarify the information to be disclosed and how this should be reported.
In parallel to the CSRD legislative process and at the request of the European Commission (EC), the ESRS are being developed by the European Financial Reporting Advisory Group (EFRAG, which was established in 2001), and its Sustainability Reporting Board. With so many intricate moving parts (and the bureaucracy of the EC) the development of the ESRS can be tricky to engage with. You may need to assimilate more than a few new abbreviations and acronyms. So initially, it may be helpful to focus on outputs.
The number and variety of ESRS (below) reflect the complexity and interconnectedness of almost all things sustainability-related.
On 29 April 2022, EFRAG launched a 100-day public consultation on drafts of the ESRS EDs. Since then, EFRAG has been considering responses, plus stakeholder feedback from outreach events.
EFRAG is expected to deliver the first set of EDs to the EC for consideration in November 2022.
The consultation included two general (and cross-cutting) proposed standards:
- ESRS 1 General principles; and
- ESRS 2 General, strategy, governance and materiality assessment disclosure requirements
It also included draft EDs for five environment standards (ESRS E1 to ESRS E5), four social standards (ESRS S1 to ESRS S4) and two governance standards (ESRS G1 and ESRS G2)
For the latest information on the ESRS.
Information on the draft ESRS ES consultation and responses.
The bigger picture
How soon and how much auditors will have to know about these global standards from the ISSB and EU standards from EFRAG will depend on many factors. These may include, but are unlikely to be restricted to: the particular needs of your firm/network/client base; investor expectations; future collaborations between multiple standard setters; and decisions made in certain sectors and by national jurisdictions about what they will/will not require in terms of disclosures, reporting and any associated assurance.
Some auditors will be well aware of the implications of such developments. Depending on the sort of engagements your firm has undertaken over the years and the types of assurance your clients have opted for, you may have encountered the standards of well-established organisations such as the GRI.
Despite recent consolidations (see Rapid reference), the GRI continues its work and both EFRAG and the ISSB are collaborating with it. Then there are the climate-related financial disclosure recommendations of the Task Force on Climate-related Financial Disclosures (TCFD, an initiative of the Financial Stability Board).
Many auditors in the UK will be aware of the mandatory requirements for certain organisations to report against the TCFD recommendations on a comply or explain basis. Some may be aware of the climate-related proposals from the Securities and Exchange Commission in the US. All UK auditors should be aware of what’s expected of them when it comes to the consideration of climate-related risks in an audit of financial statements.
The future
Although there is some uncertainty about the future of various ESG and sustainability-related reporting standards, auditors cannot afford to ignore what’s happening. The direction of travel and changes on the horizon will require many more auditors to become familiar with developments around standards for ESG and sustainability-related disclosures and reporting – and their assurance. Before you know it, your extensive professional lexicon of letter and number combinations will have expanded to include the likes of IFRS S1, ESRS E3, ESRS G2 and any companions they acquire in the future.
Find out more
Explore the resources in ICAEW’s sustainability hub
ICAEW’s non-financial reporting hub
Rapid reference
Abbreviations – at a glance
CDSB: Climate Disclosure Standards Board (now consolidated into the IFRS Foundation)
EFRAG: European Financial Reporting Advisory Group
ESG: Environmental, social and governance
ESRS: European Sustainability Reporting Standards
GRI: Global Reporting Initiative
IIRC: International Integrated Reporting Council (merged with SASB to become the VRF, now consolidated into IFRS Foundation)
ISSB: International Sustainability Standards Board (part of IFRS Foundation)
SASB: Sustainability Accounting Standards Board (merged with IIRC to become VRF, now consolidated into IFRS Foundation)
TCFD: Task Force on Climate-related Financial Disclosures
VRF: Value Reporting Foundation (now consolidated into IFRS Foundation)
Definitions and terms of reference
ESG: Environmental, social and governance matters are often referred to in the context of sustainability and can come together as part of a company’s non-financial narrative.
Sustainability: One widely used definition comes from the 1987 Brundtland Commission report for the United Nations and defines the concept as ‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’. There are, however, myriad variations.
ESG vs Sustainability: ESG and sustainability can mean very different things. Some see the former as centred on risk and returns, while the latter also focuses on supporting and protecting the planet for future generations. Often, the two terms are used interchangeably.
When the words ‘reporting’ and/or ‘disclosures’ are used in close proximity to either ESG or sustainability their meanings can be easier to grasp, as this often happens in the context of principles, frameworks, standards and other clearly defined requirements.
Sustainability disclosure standards vs sustainability reporting standards: The ISSB is developing sustainability disclosure standards, such as IFRS S1 and IFRS S2.
For the EC, EFRAG is developing sustainability reporting standards, such as ESRS 1 and ESRS 2.
Audit & Beyond
This article was first featured in the November 2022 edition of Audit & Beyond.
