What is certification in the context of ESG?

This formal attestation or confirmation of certain characteristics could be sustainable and/or ethical practices or related data. It is designed to enhance the reliability of information for the intended users.

Certification may be required at two levels:

• by the entity with the characteristics (for example a business or charity). This will usually be by the Board or director on behalf of the Board, with the certifier, typically a Board member, stating that they are satisfied that what they are certifying is true; and
• by independent external parties with sufficient expert knowledge to form a view.

How does the level of certification impact the user of the certified information?

For the user of the certified information, the weight of these two certifications will be different.

Certification by a director indicates that the entity has taken ownership of the information and that the individual making the certification believes it to be true. However, the certifier is not independent and therefore unable to demonstrate the objectivity of an independent person.

Certification by an independent external party should have more significance as they can demonstrate the objectivity and the basis for the certification should be set out. However, in relying on that certification, the user also needs to consider the competence of the independent party.

Consideration of certifications

Whichever type of certification is chosen, there should be a clear and documented basis for that certification. 

For the certification by a director this may include:

• confirmation of the aims, values and strategies of the entity;
• in a regulated firm, the Senior Management Function (SMF) that has responsibility and oversight;
• the key controls relied on; 
• any specific assurance obtained; and
• a confirmation that they are not aware of anything that is contrary to the facts certified.

For the external certification the assessment will typically be made by undertaking a review against a specific standard or set of disclosed criteria. The qualification of the reviewer to make the certification should also be disclosed along with their independence. The certification also needs to make clear whether it is giving:

• Reasonable assurance, which provides a positive statement to the user of the report that the reviewer has carried out sufficient checks to be satisfied that there is a low risk of the subject matter being materially misstated.
• Limited assurance, which provides the user of the report assurance that having carried out a range of checks nothing came to the attention with a lower level of comfort that the subject matter is not materially misstated, but is still meaningful.
• A different type of conclusion based on defined levels of grading.