By Amanda S. Marcy, CPA, DBA

The three pillars of information most pertinent to quality sustainability reporting for corporate entities are environmental, social, and governance (ESG) measures. The American Institute of CPAs (AICPA) defines each as follows:¹

• Environmental: Information on corporate risks and opportunities related to climate, natural resource scarcity, pollution, waste, and other environmental factors.
• Social: Information on corporate values and business relationships, including labor and supply-chain information, product quality and safety, employee well-being, and diversity and inclusion efforts.
• Governance: Information on corporate governance structure (which includes the board of directors), executive compensation, responsiveness and resilience, and policies for lobbying, political contributions, bribery, and corruption.

In recent years, corporate stakeholders have shown increased interest in companies’ qualitative and quantitative metrics relative to ESG risks, opportunities, and strategies. While commonly separate from the annual filings with the Securities and Exchange Commission (SEC), most large U.S. public companies (approximately 90% of S&P 500 Index Companies in 2019) do voluntarily provide sustainability disclosures in proxy statements, annual and quarterly reports, and on company websites.² However, many recent market and regulatory trends are pushing companies to include ESG information with their SEC submissions. Here are a few examples:

• In their 2020 reports, both the Task Force on Climate-Related Financial Disclosures (TCFD) and the World Economic Forum International Business Council called for ESG disclosures in companies’ mainstream financial filings.^3,4
• The SEC amended Item 101 of Regulation S-K in 2020, requiring companies to disclose a principles-based, individualistic description of their human capital measures and objectives addressing the attraction, development, and retention of personnel.⁵
• The SEC announced in March 2021 the creation of the Climate and ESG Task Force of the Division of Enforcement, with a focus on identifying material gaps or misstatements in climate risk disclosures and analyzing disclosure and compliance issues related to ESG strategies.⁶ The SEC’s Division of Examinations announced that its 2021 examination priorities would include a greater focus on climate and ESG-related risks.⁷ Furthermore, the SEC requested public input on climate change disclosures.⁸ This was in response to various SEC committees (including the SEC Investor Advisory Committee and the ESG Subcommittee of the SEC Asset Management Advisory Committee) urging the SEC to update the reporting requirements for issuers regarding decision-useful ESG factors.⁸

In line with these developments, the AICPA Center for Audit Quality (CAQ) published in February 2021 its ESG Reporting and Attestation: A Roadmap for Audit Practitioners. This roadmap includes general guidance for audit practitioners in assisting clients with ESG reporting goals, including where and how companies report ESG information, whether companies should engage an independent accounting firm to perform an attestation engagement on the ESG information, and where companies should include the attestation report and reference such information. It also draws attention to risk and legal matters that audit practitioners should consider when performing attestation engagements on ESG information. The roadmap also highlights the following considerations:

• Assurance Level: Examination engagement or review engagement.
• Engagement Scope: Entire sustainability report or select metrics/disclosures.
• Reporting Criteria: Sustainability reporting standards/frameworks or company-developed/custom metrics. The roadmap also provides an overview of the most commonly used sustainability reporting standards (such as Sustainability Accounting Standards Board Standards and the Global Reporting Initiative Standards) and frameworks (such as TCFD Recommendations and Integrated Reporting Framework).
• ESG Information and Attestation Report Usage: SEC (i.e., Form 10-K, Form 8-K, proxy statement) or other (i.e., company website, other filings under the Exchange Act or Securities Act) submissions and postings.
• Other ESG Matters: Reporting consistency and comparability; frequency and timing; governance and controls over reporting; management selection of metrics; materiality of disclosures for SEC reporting purposes; and practitioner implications given attestation report reference in SEC submissions and applicable federal securities laws and regulations.

The roadmap only provides general guidelines, so the AICPA urges practitioners to use additional resources to familiarize themselves with sustainability reporting frameworks and standards and the related attestation requirements. In addition to the pertinent Statements on Standards for Attestation Engagements (SSAEs), the AICPA published additional guidance, including a practice aide, Attestation Engagements on Sustainability Information (including Greenhouse Gas Emissions Information); a self-study course, Sustainability Assurance Engagements; and a sustainability toolkit including pertinent sustainability reporting and assurance information. Audit practitioners can access the AICPA’s roadmap and other related resources at www.aicpa.org/sustainability.

¹ Attestation Engagements on Sustainability Information (Including Greenhouse Gas Emissions), AICPA
² https://www.ga-institute.com/research-reports/flash-reports/2020-sp-500-flash-report.html 
³ https://www.fsb.org/2020/10/2020-status-report-task-force-on-climate-related-financial-disclosures 
⁴ http://www3.weforum.org/docs/WEF_IBC_Measuring_Stakeholder_Capitalism_Report_2020.pdf 
⁵ https://www.sec.gov/rules/final/2020/33-10825.pdf 
⁶ https://www.sec.gov/news/press-release/2021-42 
⁷ https://www.sec.gov/news/press-release/2021-39 
⁸ https://www.sec.gov/news/public-statement/lee-climate-change-disclosures

Amanda S. Marcy, CPA, DBA, is an assistant professor of accounting at the University of Scranton in Scranton, Pa. She can be reached at amanda.marcy@scranton.edu.

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