The Committee of Sponsoring Organizations of the Treadway Commission (COSO) created a framework for companies seeking to achieve effective internal control over sustainability reporting (ICSR).
COSO’s guidance, published Thursday, expands on a 2017 report that examined how to improve confidence in sustainability performance data. At the time of the 2017 report, few companies had undertaken any effort to understand sustainability data, COSO said, never mind implementing controls and governance processes over the collection, review, and reporting of sustainability information.
Since 2017, there has been a “sea change” in corporate attitudes toward sustainability and environmental, social, and governance (ESG) reporting, the guidance said, leading COSO to create a framework for firms to design and implement ICSR for sustainable business information.
The guidance defined “sustainable business” as activities and transactions an organization conducts to “achieve long-term survival as a going concern and concurrently deliver value that meets the expectations of all stakeholders that contribute resources for the organization to achieve its objectives.”
Environmental data most commonly collected by global corporations is greenhouse gas emissions but can also refer to data on climate change, energy use, water use, and more.
The Securities and Exchange Commission (SEC) is developing a final version of its climate-related disclosure rule, which would require public companies to issue climate-related disclosures in their financial statements. The final version of the rule is reportedly being tweaked by the SEC in response to comments related to its materiality and emissions disclosure mandates.
Considering sustainability issues in financial reporting and investing has also come under intense criticism from Republican lawmakers.
Nearly every global company issues some form of external reporting on sustainability, the COSO guidance said. But applying effective ICSR is still in its infancy.
“In many ways, sustainable business reporting is still subject to evolution and innovation. As a result, it will be a process of continuous improvement, including building internal capacity and relevant assurance,” COSO Chair Lucia Wind said in a press release.
The COSO guidance, built off the organization’s framework around internal control over financial reporting, applied 17 principles of ICFR to sustainable business reporting, with the goal of creating a process designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.
“Effective internal control is good for business and applies well beyond external financial reporting,” Wind said. “… All organizations are on a learning and growth journey to enhance and build trust and confidence in sustainable business information for internal and external decision-making.”
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