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.