Elevating Sustainability Strategy Through Assurance

This week, Climate Decoded is thrilled to present a captivating conversation between two professionals in the sustainability arena. Kristina Wyatt, Chief Sustainability Officer at Persefoni, sits down with Kristen Sullivan, a trailblazer who leads Sustainability and ESG Services at Deloitte & Touche LLP. Kristen brings a wealth of knowledge on sustainability risk, governance, strategy, reporting, and the increasingly important role of assurance. Join us as they explore Kristen's decade-plus journey in the field, the evolving dynamics of Environmental, Social, and Governance (ESG), the growing consensus on the need for high-quality standards that can enable reliable sustainability data and reporting, and why assurance is an important consideration to driving trust in today's ever-changing sustainability landscape.

Wyatt: Kristen, we’ve been friends for years, and, for as long as I’ve known you, you’ve been deeply involved in the world of sustainability. Even before sustainability was cool. How did you get started?

?Sullivan: I’ve been with Deloitte for almost 28 years – a very long time with many opportunities to do different things! I am a financial statement auditor, a CPA licensed in the state of CT and MO, by background, and I happened to be at the right place at the right time when Deloitte was beginning to focus on the growing universe of information companies were providing around corporate responsibility. This was 10+ years ago, and the profession had the foresight to see that as organizations share more of this information, no matter what avenue they're providing it, it will likely be relied on at some point in the future.?

Trust in capital markets can be reinforced by supporting the rigor, completeness, and quality of information that companies report. This can drive insight into how management tracks and understands the emerging ESG risks and opportunities.

?“Today, the financial and economic implications of climate and ESG matters are manifesting in a very measurable way. That's why many investors care. That's why an increasing number of regulators care.” - Kristen Sullivan

Wyatt: Zooming out, I feel like the broader business community is collectively a teenager, ready for a growth spurt. Does that resonate with you? Where are we in the ESG journey?

Sullivan: Companies have been providing ESG information to the market for 20+ years. What and how much ESG information has been shared has evolved tremendously during this period. For example, in 2011, 20% of the S&P 500 provided some form of sustainability disclosure to the market. This year, the most recent stats indicate that 98% of the S&P 500 is doing so.

That shows a recognition of the value of transparency in ESG. The progress we've seen in the market is accelerating, and the voluntary standards and frameworks have been important in bringing more standardization, consistency, and credibility to ESG. However, even as ESG reporting increases, other attributes that signal trust and confidence to act on and integrate that information into economic decisions— such as the assurance of that information—are still at very low rates.

Today, the financial and economic implications of climate and ESG matters are manifesting in a measurable way. That's why many investors care. That's why an increasing number of regulators care. And that's why there's such a push to rapidly mature the progress made over the past 20+ years into investor-grade information that's timely, comparable, consistent, and reliable. We've come a long way, but we’re likely not there yet. There’s still a lot of change that can be made to move the needle and unlock capital to finance this energy transition.

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Wyatt: When we think about the timely, comparable, and consistent information you mentioned, it's hard not to think about the convergence driven by the International Sustainability Standards Board (ISSB). Can you talk about that?

Sullivan: Absolutely. Part of the information inefficiency we've seen in the market and the reporting fatigue many companies have been feeling is very much due to ESG’s legacy reputation of being alphabet soup. Investors, companies, and other stakeholders have complained about this for years. While the ESG data ecosystem has been inefficient, we've seen progress toward harmonization. This is really good news.?

In particular, the role of the ISSB, which was formed only two years ago under the oversight of the IFRS Foundation, has played a large role in this evolution. The fact that the IFRS Foundation already had the respect of the capital markets and is known for providing process and rigor gave the ISSB a huge head start. We now have a body with global support and authority endorsed by regulators around the world.

The good news, particularly for US companies, is that the ISSB has consolidated the leading standards that US and global companies have been using for years, including the legacy SASB standards. And now the TCFD is moving under the oversight of the IFRS Foundation. The ISSB has not only been consolidating and collaborating with all of these bodies, it has also established very clear relationships and alignment efforts in the market to help companies understand the standards infrastructure. A good example is the Memorandum of Understanding (MOU) with the Global Reporting Initiative (GRI), the most widely adopted global sustainability reporting standard.?

As we always say, quality standards can drive risk protection, strategic adherence to materiality determinations, and enable assurance.

While we know the objectives and policies of ESG and climate regulation will vary across jurisdictions, the one anchor for global companies will likely be the ability to refer to a common baseline of standards, the ISSB. By instituting governance and control environments, gaining confidence around measuring information, and then tailoring it for the various disclosure objectives worldwide, this anchor becomes an important point. This global baseline of standards can accelerate capital markets' attention and potentially unlock capital to drive the decarbonization outcomes committed to by governments around the world.

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Wyatt: In this world with fragmented standards and claims of greenwashing, it's clearly important that investors have confidence in the numbers. Why is assurance important?

Sullivan: Assurance can be pivotal. It’s no accident that assurance is a central feature across all of these developments. So far, we've had a lot of voluntary disclosure; most organizations are not starting from scratch. What's different — and this may be game-changing — is pulling forward that reporting into a systematic, rigorous, well-controlled process, with adherence to criteria and standards.

There's a lot of latitude in some of the voluntary standards, and that's why we're seeing a greater degree of rigor and discipline in the ISSB standards, which have strengthened many of the voluntary frameworks and what’s coming out of Europe. But when you apply an assurance lens throughout the readiness process — accelerating timeliness, putting controls in place, and even developing policies and procedures — you can see that this is not very different than accounting policies for certain financial reporting objectives and standards.?

Applying the discipline and control of financial reporting to ESG is important, and tech enablement can be helpful to not only build repeatable and assurable controls and do so in a way that can equip the company to provide the disclosure themselves. Companies should build the capacity to obtain assurance on their ESG disclosures. Tech can help, but this typically takes time. We are talking with clients across all jurisdictions, and the message is clear: without a doubt, the time has come for action.

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Wyatt: I agree, about both the role of technology and the urgency to take action. How do you see this playing out over the next couple of years?

Sullivan: 2024 seems to be the year of preparation. Building your capacity for assurable ESG disclosures is often a multi-year process. Companies should begin so they can discover where their gaps are, how to prioritize, and how to build the strategic roadmap that can get them to assurable ESG reporting in the most efficient way possible.?

One step that we encourage clients to plan for is assurance readiness. In essence, you introduce a test run of the company’s controls and procedures to stress test the system at any point in the preparation process. It's a helpful tool to quickly highlight opportunities in the processes and controls to, first and foremost, enhance the quality and timeliness of the data. At the end of the day, it's all about having the appropriate data to inform your strategic decision-making, your understanding of risk, and the financial and economic implications of the choices you might make. Of course, assurance readiness can help strengthen the quality, confidence, and reliability of the reported information.

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Wyatt: Any last advice for the readers grappling with these topics?

Sullivan: Get started. The standards are clear, and the regulations will continue to evolve. Recognize the time it's going to take to get prepared. This is about recognizing that this is going to take time. If you were involved in SOX, you know.?

And finally, the requirements for assurance are clear in the professional standards. Certain conditions have to be in place for an assurance provider to be able to perform the work and conclude. Companies should get started.?

This article contains general information only, and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

About Deloitte?

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.?

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Copyright ? 2024 Deloitte Development LLC. All rights reserved.

Other ESG and Climate News

Update from Europe: EFRAG issues draft reporting standards for listed SMEs?

In the latest development towards the implementation of the Corporate Sustainability Reporting Directive (CSRD), the European Financial Reporting Advisory Group (EFRAG) has published an Exposure Draft outlining new sustainability reporting standards for Listed Small and Medium Enterprises (SMEs) under the CSRD. This significant move, open for feedback until May 21, 2024, is set to enforce reporting requirements for these SMEs starting in the fiscal year 2026.?

Notably, the proposed standards mandate the disclosure of scope 3 greenhouse gas (GHG) emissions, aligning with existing standards for larger corporations. Additionally, EFRAG has introduced an Exposure Draft for Voluntary Standards aimed at private SMEs and small listed companies. While not compulsory under the CSRD, these standards provide a framework for voluntary reporting, primarily focusing on scope 1 and 2 emissions. This proactive approach by EFRAG underscores just how fundamental GHG emissions data is in business operations and highlights the broader shift towards environmental accountability in the corporate sector.

EU Passes the Directive on Empowering Consumers for the Green Transition

The European Commission has passed Directives 2005/29/EC and 2011/83/EU in regards to empowering consumers through better information and protection against unfair practices. This directive requires all businesses offering products or services in the EU to provide detailed information about their environmental impact, including aspects like lifecycle impact, GHG emissions, water usage, and recyclability. The move aims to empower consumers with reliable information to make sustainable choices. Specifically, it prohibits generic environmental claims without proven excellent environmental performance and bans lower-carbon or carbon-neutral claims not backed by clear, objective, and independently monitored commitments. This directive is designed to accelerate the green transition by ensuring transparent and verifiable sustainability claims.

SBTi updates its Forest, Land, and Agriculture (FLAG) guidance?

The Science-Based Targets initiative (SBTi) has updated its Forest, Land, and Agriculture (FLAG) Target-Setting Guidance to enhance accessibility and comprehension. These updates are in response to the vulnerability of food production systems to climate change, as recognized in the first global stocktake. The revisions focus on improving transparency in FLAG target validation and reporting, emphasizing emission reductions over removals. The updates also mandate separate target coverage for FLAG scopes 1 and 3 emissions and enhance data quality for FLAG target validation. These changes are crucial for businesses in land-intensive sectors to set effective science-based targets, supporting the global goal of a nature-positive future and aligning with the objectives of the EU Green Deal.

Events You Can't Miss

• GreenBiz 2024 is coming up this February 12-14 in Phoenix, Arizona. This conference will provide insights into cutting-edge trends, sustainable business practices, and the future of corporate responsibility. Join Persefoni’s Chief Global Policy Officer, Emily Pierce, as she leads a discussion on “CSRD Implications for Companies in North America.” Don't miss this chance to be at the forefront of sustainable business. Register now.?
• Persefoni is proud to sponsor the 2024 IFRS Sustainability Symposium. This event offers an in-depth exploration of the ISSB's latest sustainability reporting standards, providing attendees with essential knowledge to navigate new compliance landscapes. It's an invaluable opportunity to gain insights from ISSB experts, discuss global sustainability practices, and connect with industry leaders. Register now to be a part of the conversation during this critical junction for the ISSB.

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