Independent auditors provide assurance services for ESG information disclosure
Kathryn Kaminsky, Vice Chair of PwC US and Co-Leader of the Trust Solutions practice, noted that ESG information disclosure is becoming an important indicator of corporate trust. Although the United States has not yet established a unified ESG disclosure framework, regulatory pressure and investor demand are driving companies to strengthen their disclosures. Leveraging their professional expertise, independent auditors can provide reasonable assurance on ESG data similar to that of financial reports, thereby enhancing market confidence.
As environmental, social, and governance (ESG) issues gain increasing attention, the way companies approach ESG matters is undergoing profound change. Regulators, investors, and other stakeholders' demand for relevant information is prompting companies to accelerate the development of more forward-looking policies and enhance the transparency of their disclosure practices.
In numerous conversations with clients, ESG has remained a core topic. Clients want to address this issue in a prudent and efficient manner, as ESG has become an important measure of corporate trustworthiness. Strategic ESG initiatives not only benefit stakeholders, communities, and broader society, but also help improve corporate financial performance. As many companies strive to enhance ESG transparency, obtaining consistent, accurate, and comparable data is crucial for maintaining trust between institutions and capital markets. Here are several reasons why I believe there is unprecedented market demand for high-quality ESG data assurance.
Updates to Disclosure Processes
Although the United States has not yet adopted a standardized ESG disclosure framework, investors are making decisions based on this information. They expect the same level of confidence from climate and other non-financial information as they do from financial disclosures—this is both a reasonable demand and a rightful expectation. However, we must be cautious: relying on individual organizations to establish the necessary internal controls to ensure ESG data consistency carries risks, as many companies are not yet familiar with such reporting. We must remain vigilant.
The Biden administration and the leadership of the U.S. Securities and Exchange Commission (SEC) have begun pushing for enhanced regulation and standardization of climate and ESG reporting. Recently, the SEC issued a proposal on climate disclosurerequest for comment. This provides companies with an important opportunity to participate in shaping how information is shared with governments, regulators, investors, and consumers. Although federal disclosure requirements may still take time, companies should not wait for more regulations to be issued, but shouldbegin ESG reporting immediately。
After all, data shows that90%of S&P 500 companies have published some form of ESG report. Since ESG data is so important that it is widely disclosed, publishing this data in a reliable and credible manner is undoubtedly the right choice.
The Importance of ESG Disclosure
The successful functioning of capital markets depends on high-quality information, whether financial or non-financial. Frankly speaking, high-quality data is crucial for building andmaintaining market trust and confidence—a principle that applies equally to ESG disclosure. Investors need accurate, consistent data to compare and evaluate companies across industries and make informed decisions.
These data are significant. Independent third-party assurance—similar to that required for financial disclosures—helps enhance confidence in the quality of ESG information and increase its credibility. And such confidence is indispensable for the proper functioning of capital markets.
A Key Role for Auditors
Some may question whether auditors have the professional capability to assess ESG data, but I hold a different view. External auditors possess the independence, skills, knowledge, and experience to provide assurance on ESG disclosures. As PwC noted in its recentcomment lettersubmitted to the SEC, "reasonable assurance"—similar to that provided for financial statements—would help deliver the high-quality information the market needs and support the goal of transparent disclosure. Anything less could undermine market confidence.
This is where auditors come in—helping to enhance confidence in the quality of both financial disclosures and ESG reporting.
Driving Impact Through Change
This may initially be a challenging adjustment, but we believe it is essential to place equal importance on the interests of stakeholders and shareholders. Business decisions should not only benefit a company's financial performance and employees, but also society as a whole. Enhancing corporate transparency on climate change and other ESG issues, and providing independent assurance on these disclosures, holds the potential to positively impact companies, regulators, capital markets, and the communities and stakeholders they serve.