Despite an increase in environmental, social, and governance (ESG) disclosures that is expected to continue, a significantly low number of public companies have obtained audit firm assurance regarding that reporting, according to a new study.

The Center for Audit Quality (CAQ) issued a report on the landscape of recent S&P 500 public company ESG reporting and assurance. As of June, 95 percent of companies made their detailed ESG information publicly available. However, only 6 percent received assurance on the data from public company audit firms.

The information provided was mostly in the form of standalone ESG or sustainability reporting, outside of Securities and Exchange Commission (SEC) filings. Most of the other 5 percent of companies issued high-level ESG policy information on their Websites.

“We are in a watershed moment for the state of ESG reporting, because more investors want information; the large shift in investments to sustainable funds in 2020; and increase in the SEC’s interest,” said Dennis McGowan, vice president, professional practice at the CAQ.

More than half (54 percent) of the S&P 500 companies published 2020 ESG data, compared to 37 percent for 2019. Most reported annual data or disclosed their intent to report annually in the future.

Although more than half (264) of the companies had some form of assurance over their ESG metrics, public company audit firm assurance was limited to only 31 companies and mostly covered greenhouse gas (GHG) emissions, along with a select number of additional ESG metrics. Nearly half (47 percent, or 235) of the companies received assurance from engineering or consulting firms that were not CPA firms, primarily covering only GHG metrics. There were 236 companies that had no assurance or verification of their ESG information at all.

“We expected that public company auditors weren’t going to be the only provider of assurance,” McGowan said. The assurance that was provided by public company auditors was most often performed using American Institute of Certified Public Accountants (AICPA) attestation standards for examinations or reviews, and most provided limited assurance over select information.

Assurance statistics will likely trend upward as ESG reporting continues to become more mainstream. The SEC is looking into proposals to require additional public company ESG disclosures in the near future.

“Increased SEC focus and mandates for additional ESG disclosures in SEC filings could change assurance from being market-driven to more regulatory-driven,” McGowan said.

McGowan also noted as different types of ESG data beyond climate are increasingly used over time for decision-making (e.g., human capital), there will likely be an increased need for assurance over the reliability of that data.

“The level of assurance provided by audit-affiliated firms over ESG reporting in the U.S. may also increase as ESG reporting becomes more mature and if it is required to be included in annual reports, as it is in countries outside of the U.S. that have more ESG requirements and regulation,” he said.