Sustainability reporting is breaking new ground in attaching itself to traditional financial reporting after the World Business Council for Sustainable Development has formed some new relationships.
The Committee of Sponsoring Organizations of the Treadway Commission, better known simply as COSO, has formed a partnership with the WBCSD to look at how COSO’s newly updated Enterprise Risk Management framework can be applied to environmental, social, and governance-related risks. The groups have developed a draft executive summary that is meant to help organizations respond to the growth and severity of various ESG risks, from weather events to safety recalls.
The guidance is directed at integrating ESG-related risks and opportunities to help companies get a better understanding of the scope of the risks they face. COSO says the guidance will highlight methods to overcome challenges associated with ESG-related risks, including identifying and assessing the severity of such risks when the financial consequences are uncertain. It also will help organizations develop innovative responses for ESG-related risks and opportunities, COSO says.
COSO developed its ERM framework in 2004 to explain the essential components, principles, and concepts that underpin a successful approach to enterprise risk management. The board updated the framework in 2017, in part to establish a stronger tie between an organization’s ERM approach and its strategy and performance.
COSO is perhaps best known for its Internal Control — Integrated Framework, which virtually all U.S. public companies rely on to achieve compliance with the internal control reporting and auditing requirements of Sarbanes-Oxley. That framework also got an update, issued in 2014. While the framework is most widely used for internal control over financial reporting, COSO has billed it as appropriate for internal control over any number of functions beyond specifically financial reporting.
In addition to its alliance with COSO, the WBCSD also has formed a connection with the International Auditing and Assurance Standards Board to seek a stronger connection between international auditing standards and sustainability reporting. The IAASB says the collaboration is meant to support a WBCSD program that seeks to incorporate sustainability reporting into mainstream reporting while still observing applicable standards.
The IAASB says it is undertaking a “major new project” with support and funding from WBCSD to develop voluntary guidance around using existing assurance standards on emerging forms of external reporting, like sustainability reporting. The board is forming a project advisory panel, searching for 15 to 20 professionals with strong experience in integrated or sustainability reporting to assist with the project.
The project is in its “very early stages,” says Matt Waldron, a technical director at the IAASB. “This comes from the perceived demand from a wide variety of stakeholders, including investors, for some level of assurance around integrated reporting and in other forms of external reporting. It would lend more credibility to those reports.”
The project does not seek to produce new authoritative rules or literature, but some kind of non-authoritative guidance in applying the existing standards to such reporting, says Waldron.