ESG Reporting and Assurance Study Notes

ESG Reporting Requirements

  • EU:
    • Companies listed in the EU are required to comply with ESG reporting requirements.
  • California:
    • Businesses operating in California with over 1 billion in revenue must comply with state ESG disclosure rules.
    • Applies to companies with 1B+$$ revenue doing business in the state.

Assurance Types

  • Limited Assurance:
    • Less rigorous than reasonable assurance.
    • Auditor expresses that nothing has come to their attention to indicate misstatement.
    • Lower confidence level.
    • Negative assurance (\"nothing came to our attention…\").
    • Most common in ESG reports currently.
  • Reasonable Assurance:
    • Higher level of confidence based on more extensive procedures.
    • Higher standard, involves more testing.
    • Positive assurance (auditor asserts accuracy).

Emission Scopes (GHG Protocol)

  • Scope 1:
    • Direct emissions (e.g., from company vehicles or facilities).
    • Example: Company vehicles, furnaces
  • Scope 2:
    • Indirect emissions from purchased energy (e.g., utility provider).
    • Example: Purchased electricity
  • Scope 3:
    • All other indirect emissions (upstream and downstream), including supply chain and product use.
    • Example: Business travel, use of sold goods

Data Types in ESG

  • Primary Data:
    • Direct measurements from the company.
    • Real-time, measured data (e.g., energy bills).
  • Secondary Data:
    • Estimates, benchmarks, or external databases.
    • Estimated or sourced from third parties (e.g., industry averages).

Challenges of Limited Assurance in ESG

  • Few numbers, low data reliability—users may not have enough faith in reported ESG data.