“Third party assurance is absolutely critical to building trust and legitimacy in your ESG report. Institutional investors are increasingly pushing for it as standard practice, and if you don’t start soon you will be left behind.”
Or so you’ve probably been told at some point.
But that alone doesn’t address some glaring yet common difficulties that many companies face. If you’re confident in the quality and integrity of your ESG disclosure practices, then the benefits of seeking third party assurance will likely outweigh the cost of the process. It’s the icing on the cake. But what if your company is still catching up? What if your disclosure efforts still leave a lot to be desired? What if your cake is still far from ideal?
We understand that some of you simply do not feel ready to commit to a costly external assurance process. In that case, seeking a pre-assurance service could be a good starting point for helping you improve your ESG disclosure practices. In this post, we give you a basic understanding of the ESG reporting assurance process and its benefits, and explain why a pre-assurance service may be just the thing you need.
WHAT IS ASSURANCE?
The goal of assurance is to increase the quality, accuracy, and robustness of your disclosed information through external verification, in turn enhancing the trustworthiness of your ESG report in the eyes of your stakeholders. The assurance process encompasses three phases: planning, execution, and reporting and feedback.
In the planning stage, significant considerations may include :
Defining the scope and focus of the assurance process : Does the whole report need to be assured? Or only specific disclosures within?
Determining the level of assurance : AccountAbility’s AA1000 standard, for example, differentiates between Type I and Type II assurance levels. The former examines alignment with AccountAbility’s core principles of inclusivity, materiality, and responsiveness, while the latter further adds a comprehensive data verification process. Obviously, a higher level of assurance corresponds to a higher perception of trustworthiness in your ESG report.
Role and degree of support from management : How will management support the assurance process and how much information will they provide the assurer?
The execution stage involves the assurer conducting activities to verify the plausibility of your ESG report content, supported by relevant information provided by the reporting company. This may involve stakeholder engagement, executive or employee interviews, document reviews, and site visits.
At the end, the assurance provider writes an external assurance report that summarises the findings from the assurance engagement, including references to criteria and methodologies used, activities conducted, as well as limitations to the disclosure and assurance process. Depending on the assurance provider, feedback and recommendations may or may not be included in the overall cost. The end product is an assurance statement that can be included in a company’s ESG report for increased legitimacy and trustworthiness.
HOW CAN ASSURANCE BENEFIT YOU?
The assurance process can help you strengthen the robustness and quality of your data collection processes as well as stakeholder engagement practices, in turn leading to more confidence in the quality and integrity of your ESG report. Depending on the assurance standard used however, the benefits to your company may differ. AccountAbility’s AA1000 Standard for example has a particularly strong focus on stakeholder involvement and materiality. Assurance based on that standard will likely improve your stakeholder engagement practices as well as help you build receptivity to stakeholder concerns, and indeed many companies rely not only on ESG reporting, but also the assurance process as a platform for stakeholder engagement.
But external assurance can admittedly be a costly process as well with uncertain returns.
After all, an assurance statement that reveals systemic flaws in your disclosure practices isn’t very reassuring at all. If that’s your primary concern, then rather than investing in third party assurance, a pre-assurance service may better fit your needs.
THE VALUE OF PRE-ASSURANCE
Pre-assurance gives you preliminary feedback regarding current performance, as well as recommendations for improvement of disclosure processes and systems so that you’ll be confidently prepared when the real thing happens. At the same time there are crucial differences between the two. Third party assurance primarily looks at past and current actions to validate what has already been reported. A pre-assurance service on the other hand focuses on giving recommendations to improve disclosure systems and processes for future reporting. If your priority is getting yourself ready for external assurance, e.g. tidy up internal process and ensure data accuracy, then seeking a Pre-Assurance service certainly makes more financial sense.
While third party assurance is not yet mandatory in Hong Kong, there is no reason to ignore assurance completely. Indeed, it is recommended that companies aspire to improve their ESG disclosure practices and systems for future third party assurance in case demand for it does arise, and for that purpose consulting a pre-assurance service is a smart first step toward helping you achieve more accurate, transparent, inclusive, and trustworthy ESG reporting.
Got more questions about our pre-assurance services? Feel free to find out more by contacting Tony Wong at +852 3990 0793.