Deliver ESG assurance that withstands regulatory scrutiny

Regulatory landscape

CSRD scope and timelines

CSRD expands the scope of the EU’s prior Non-Financial Reporting Directive, bringing large EU companies, EU-listed SMEs (with optional deferral until 2028), and certain non-EU parent companies with significant EU operations into the sustainability reporting regime.^{Directive (EU) 2022/2464} Reporting is required for financial years starting on or after 1 January 2024 for large public-interest entities with over 500 employees, 2025 for other large companies, 2026 for listed SMEs, and 2028 for qualifying third-country parent groups. Disclosures must be prepared in a digital, machine-readable format (XHTML) using the European Single Electronic Format taxonomy.

CSRD mandates limited assurance initially, with the European Commission authorized to adopt reasonable assurance standards by 2028. Member states must transpose the directive into national law, designate competent authorities, and ensure sanction mechanisms. Companies must file sustainability statements as part of their management reports, subject to the same filing deadlines and liability regime as financial statements.

European Sustainability Reporting Standards (ESRS)

The ESRS comprise two cross-cutting standards (ESRS 1 General Requirements and ESRS 2 General Disclosures) and ten topical standards covering environmental, social, and governance areas.^{Commission Delegated Regulation (EU) 2023/2772} ESRS 1 sets overarching concepts such as double materiality, value chain reporting, estimation uncertainty, and data governance. ESRS 2 prescribes disclosures on governance bodies, strategy, impact-risk-opportunity assessments, policies, targets, and metrics. Topical standards—such as ESRS E1 (climate change) and ESRS S1 (own workforce)—specify metrics including greenhouse gas emissions, transition plans, energy consumption, workforce diversity, and working conditions.

Companies must perform double materiality assessments, considering both financial materiality (effects on enterprise value) and impact materiality (effects on people or the environment). Documentation must explain the methodology, stakeholder engagement, thresholds, and resulting topic prioritization. ESRS also require value chain transparency; companies must disclose data coverage, limitations, and plans to improve completeness.

SEC climate disclosure requirements

The SEC’s 2024 climate disclosure rule mandates registrants to disclose climate-related risks reasonably likely to have a material impact, governance processes for managing those risks, and the role of the board and management.^{SEC Release No. 33-11275} Large accelerated filers must disclose Scope 1 and Scope 2 greenhouse gas emissions, subject to limited assurance starting in fiscal year 2029 and reasonable assurance by fiscal year 2033. Accelerated filers follow a delayed schedule, while smaller reporting companies and emerging growth companies are exempt from emissions disclosure.

Registrants must also describe material climate-related financial statement metrics in a note to audited financial statements, subject to internal control requirements under the Securities Exchange Act. The rule requires disclosure of any climate-related targets or transition plans, including interim targets, baselines, and use of carbon offsets. Attestation engagements must be performed by independent assurance providers meeting SEC independence requirements.

Assurance standards and oversight

IAASB ISSA 5000 provides principles-based requirements for assurance practitioners on planning, performing, and reporting on sustainability information engagements.^{IAASB ISSA 5000} It addresses acceptance and continuance, engagement team competencies, risk assessment, materiality, evidence gathering, and reporting. Although not yet mandatory, regulators including the European Commission and national oversight bodies are considering how ISSA 5000 or equivalent standards will underpin CSRD assurance.

The UK Financial Reporting Council introduced a minimum standard for audit committees overseeing sustainability reporting in 2024, emphasizing governance, challenge of management judgments, assurance planning, and transparency with investors.^{UK FRC Minimum Standard} Other jurisdictions, including Canada and Australia, have issued guidance aligning sustainability reporting with securities law obligations. Companies with global footprints must track jurisdiction-specific expectations while building a unified assurance program.

Operating model for ESG assurance

Effective ESG assurance requires an operating model that integrates sustainability subject matter experts, finance, risk management, IT, and external assurance providers.

Governance and accountability

Establish an ESG steering committee chaired by the chief sustainability officer or an executive sponsor with board oversight. Include finance, legal, risk, supply chain, HR, and IT leaders. Define decision rights for materiality, data standards, target setting, and disclosure approvals. Align with audit committee oversight; the audit committee should review assurance plans, monitor remediation of deficiencies, and assess assurance provider independence in line with the UK FRC minimum standard.^{UK FRC Minimum Standard}

Develop a RACI matrix covering double materiality assessments, data collection, control execution, assurance coordination, and disclosure drafting. Document escalation paths for significant findings, data limitations, or control failures. Schedule quarterly steering meetings with agendas focused on regulatory updates, data quality, assurance readiness, and stakeholder feedback.

Policy and control framework

Create an ESG reporting policy referencing CSRD, ESRS, SEC rules, and other applicable regulations. The policy should address materiality methodology, value chain data expectations, estimation techniques, data retention, assurance engagement protocols, and reporting timelines. Map ESRS disclosure requirements to control objectives and assign control owners. For SEC registrants, integrate climate-related controls within the Sarbanes-Oxley control framework to ensure consistent evidence standards.

Design controls across the reporting lifecycle: data capture (e.g., utility meter readings, HR systems), data aggregation (calculations, conversion factors), review and approval (management review controls with defined precision), and disclosure (final checks, legal review). Incorporate IT general controls for sustainability systems, including access management, change management, and backup procedures.

Assurance provider coordination

Select assurance providers with sustainability expertise, sector knowledge, and independence credentials. Determine whether to engage the financial statement auditor or a specialized firm; evaluate conflicts and regulatory independence requirements. Define the assurance scope (limited vs. reasonable), criteria (ESRS, GHG Protocol, internal policies), and reporting format.

Develop an assurance readiness plan that includes pre-assessment walkthroughs, control testing dry runs, data traceability checks, and management’s evaluation of estimation uncertainty. Share documentation in secure portals with granular permissions. Align on timelines for interim procedures, draft findings, management responses, and final assurance reports. For CSRD, coordinate with statutory auditors to integrate sustainability assurance into the overall audit opinion structure.

Data architecture and technology enablement

ESG assurance hinges on data integrity across diverse sources, including energy consumption, supplier metrics, workforce data, and governance records.

Data inventory and lineage

Create a comprehensive inventory of ESG data sources, detailing system owners, data frequency, granularity, location, and transformation steps. Include external data such as emissions factors or supplier audits. Develop lineage diagrams that trace reported metrics back to source systems, noting manual adjustments and estimation methods. CSRD requires transparency regarding data coverage, data gaps, and plans to improve reliability.^{Commission Delegated Regulation (EU) 2023/2772}

Implement metadata management tools to catalogue datasets, owners, data quality rules, and access permissions. Use automated data profiling to flag anomalies such as missing values, out-of-range data, or inconsistent units. Document remediation actions and integrate results into assurance documentation.

Technology stack

Adopt sustainability reporting platforms capable of consolidating data, applying calculation engines (e.g., greenhouse gas emissions using the GHG Protocol), and generating ESRS-aligned disclosures. Ensure the platform supports audit trails, role-based access, and integration with ERP, energy management, and HR systems. Evaluate whether the platform provides XBRL tagging aligned with the European Single Electronic Format taxonomy.

Implement workflow tools for data submissions across global business units. Configure validations to enforce mandatory fields, unit consistency, and data approval by local managers. Provide dashboards for progress tracking, exception management, and status by disclosure topic. Use APIs or secure file transfers to ingest data from IoT devices, meters, or supplier portals.

Controls over technology

Establish IT general controls for sustainability systems: user access provisioning, periodic access reviews, change management for calculation logic, and incident response procedures. Align controls with existing IT governance frameworks to enable SOX reliance where applicable. Document how patches, upgrades, or configuration changes are tested before deployment and how rollback plans are executed if issues arise.

For manual data uploads, implement automated validation scripts and require dual approvals. Maintain logs showing who submitted data, when approvals occurred, and what adjustments were made. Retain original supporting documents such as utility invoices, supplier attestations, or HR reports in the evidence repository.

Materiality, risk assessment, and controls

Materiality assessments and risk management form the backbone of defensible ESG reporting.

Double materiality process

Design a structured double materiality methodology: define stakeholder categories (investors, employees, communities, regulators, suppliers), gather qualitative and quantitative inputs, and score impacts based on scale, scope, and likelihood. Align scoring criteria with ESRS guidance and document thresholds for determining material topics.^{Commission Delegated Regulation (EU) 2023/2772}

Conduct workshops and surveys to validate findings, capturing minutes, participant lists, and evidence of challenge by management and the board. Update assessments annually or when significant events occur (mergers, new products, regulatory changes). Maintain audit trails showing how material topics map to disclosures, targets, and controls.

Risk management integration

Integrate ESG risks into enterprise risk management (ERM) frameworks. For each material topic, document risk statements, inherent risk scores, control activities, residual risk, and monitoring mechanisms. Align climate risks with scenario analysis, transition plans, and financial statement impacts to satisfy SEC disclosure expectations.^{SEC Release No. 33-11275}

Develop key risk indicators (KRIs) such as emissions intensity variance, supplier code of conduct breaches, health and safety incidents, and regulatory investigations. Establish escalation triggers and reporting frequencies. Link KRIs to management review controls and board dashboards.

Control activities across the value chain

Design control activities that cover data capture, consolidation, review, and disclosure. Examples include automated emission factor calculations, reconciliations between sustainability platforms and general ledger data, variance analysis of energy consumption, and review of supplier sustainability questionnaires. Ensure controls specify frequency, responsible roles, documentation, and precision thresholds.

For value chain data, implement supplier engagement programs requiring standardized data submissions, attestations, or third-party verification. Track supplier response rates, data quality scores, and corrective actions. Where data gaps exist, disclose estimation techniques, assumptions, and plans to improve reliability, as mandated by ESRS.

Assurance readiness and execution

Effective assurance engagements depend on structured preparation, collaboration, and evidence.

Pre-assurance diagnostics

Conduct pre-assurance diagnostics at least six months before the reporting deadline. Review control design, walkthroughs, documentation, and data lineage for each disclosure. Validate estimation methodologies, such as climate scenario models or social impact calculations. Confirm that evidence is complete, accurate, and tied to reported metrics.

Perform mock assurance testing on high-risk metrics—greenhouse gas emissions, energy consumption, diversity statistics, human rights incidents—to identify control gaps or documentation weaknesses. Address deficiencies with remediation plans, owner assignments, and timelines aligned with reporting deadlines.

Evidence management

Centralize evidence in secure repositories with indexing by disclosure topic, control, and reporting period. Include source documents, calculations, review notes, data validation logs, and approvals. Provide assurance teams with read-only access and maintain logs of document access.

Develop evidence checklists aligned with ISSA 5000 requirements for sufficient appropriate evidence.^{IAASB ISSA 5000} Document how management evaluates the reliability of external data, such as third-party emissions factors or supplier certifications. Retain documentation of expert qualifications when using external specialists.

Execution and reporting

During assurance engagements, maintain regular status meetings with assurance providers to track request lists, evidence submissions, and emerging issues. Document management responses to findings, including control enhancements or disclosure revisions. Ensure independence rules are respected; any non-assurance services provided by the assurance firm must be evaluated for potential conflicts.

Review draft assurance reports for accuracy, clarity of scope, and alignment with regulatory requirements. For CSRD, ensure the assurance report is included with the management report submission. For SEC filings, integrate assurance conclusions within Form 10-K or 20-F as required. Communicate results to the board and investors, highlighting remediation plans for any identified deficiencies.

Reporting, communication, and stakeholder engagement

Transparent communication strengthens credibility with regulators, investors, and employees.

Disclosure management

Develop disclosure checklists aligned with ESRS datapoints, SEC climate requirements, and jurisdictional obligations. Use structured authoring tools to manage narratives, tables, and cross-references. Implement version control and legal review workflows. Tag disclosures for XBRL in accordance with CSRD digital reporting requirements.

Ensure consistency across sustainability reports, financial filings, investor presentations, and website content. Establish a disclosure committee that reviews ESG narratives alongside financial disclosures, similar to Sarbanes-Oxley disclosure controls.

Board and investor communication

Provide the board with dashboards covering materiality outcomes, progress against targets, assurance status, key risks, and stakeholder feedback. Include benchmarking against peers and regulatory developments. Document board discussions and decisions to demonstrate oversight.

Engage investors through sustainability briefings, investor day sessions, and responses to questionnaires. Share assurance reports, methodology explanations, and data improvements. Respond promptly to regulator queries, providing evidence and context.

Stakeholder engagement

Maintain structured engagement programs with employees, communities, suppliers, and NGOs. Document engagement objectives, feedback, and actions taken. Use feedback to refine materiality assessments, targets, and disclosures. Report on engagement outcomes in sustainability statements, highlighting how stakeholder input influences strategy.

Roadmap for ESG assurance maturity

A phased roadmap ensures compliance milestones are met while building long-term capability.

Phase 1: Mobilize (0–120 days)

• Establish governance structures, roles, and policies. Initiate double materiality assessment updates and inventory ESG data sources.
• Conduct gap analyses against CSRD, ESRS, and SEC requirements. Identify disclosure, data, and control gaps with remediation plans.
• Select technology platforms for data collection, workflow, and reporting. Develop integration plans with existing systems.
• Engage assurance providers to define scope, timelines, and documentation expectations.

Phase 2: Build and integrate (120–300 days)

• Implement control redesigns, automation, and data validation routines. Train control owners on documentation standards and assurance expectations.
• Execute double materiality assessments, stakeholder engagements, and risk workshops. Document outcomes and integrate them into disclosure planning.
• Populate sustainability platforms with validated data. Configure dashboards, alerts, and reporting templates.
• Conduct pre-assurance diagnostics, remediate issues, and finalize evidence repositories.

Phase 3: Assure and optimize (300–540 days)

• Support assurance engagements, respond to requests, and document management’s evaluation of findings.
• Finalize sustainability statements, perform disclosure committee reviews, and obtain board approval.
• File reports within regulatory deadlines, publish assurance conclusions, and brief investors.
• Launch continuous improvement initiatives—automated controls, expanded data coverage, advanced analytics—to enhance future reporting cycles.

Resource library

• Directive (EU) 2022/2464 — Corporate Sustainability Reporting Directive, amending Directive 2013/34/EU.
• Commission Delegated Regulation (EU) 2023/2772 — European Sustainability Reporting Standards.
• SEC Release No. 33-11275 — The Enhancement and Standardization of Climate-Related Disclosures for Investors (2024).
• IAASB ISSA 5000 — General Requirements for Sustainability Assurance Engagements.
• UK FRC Minimum Standard for Audit Committees Overseeing Sustainability Reporting — Governance expectations for UK-listed entities.

Monitor updates from the European Financial Reporting Advisory Group (EFRAG), the SEC, the IAASB, and national regulators for evolving guidance on assurance scope, methodologies, and enforcement priorities.

Appendix: ESG assurance checklist

1. Confirm reporting scope, consolidation perimeter, and CSRD applicability.
2. Document double materiality methodology, stakeholder engagement, and topic prioritization.
3. Inventory ESG data sources, lineage, and validation procedures.
4. Design and document controls covering data capture, aggregation, review, and disclosure.
5. Align sustainability controls with existing financial reporting and SOX frameworks.
6. Establish assurance engagement protocols, independence evaluations, and timelines.
7. Prepare evidence repositories with traceability to source documents and calculations.
8. Conduct mock assurance testing and remediate deficiencies promptly.
9. Integrate ESG metrics into board reporting, investor communications, and regulatory filings.
10. Review regulatory updates annually and adjust the assurance roadmap accordingly.

Following this checklist positions organizations to deliver ESG disclosures that are accurate, decision-useful, and ready for independent assurance.