Auditors the world over are gearing up to audit companies’ sustainability credentials as shareholders increasingly demand assurance as to the impact businesses have on the environment.
Ajen Sita, CEO of EY Africa, said that while auditing companies’ climate impact services were still emerging, he expects that they could rise to more than 10% of existing assurance work of the Big 4 audit firms within a decade.
“Companies will only attract capital if they are progressive in their environmental response – and will have to report to stakeholders about what they're doing. Naturally, there will be an expectation that auditors will provide assurance around those sustainability and climate reports.
"As the financial weight of sustainability risks increases, it makes sense that companies are investing more in sustainability assurance.”
He said that the growth of carbon regulation as well as an increasing realisation that sustainability is a source of competitive advantage and reputation enhancement will drive investor interest in firms’ sustainability performance.
To meet stakeholders’ growing need for information, companies are increasingly disclosing non-financial key performance indicators (KPIs) such as metrics around environmental, social, and governance (ESG) factors which help to measure their sustainability.
He noted that companies now operate in an extremely transparent world where environmental or social vulnerabilities can surface rapidly—and directly impact corporate performance.
“Against this backdrop, transparency can be a tool to promote resilience and adaptability when a disruptive environmental or social event occurs.
“Increasingly we are asked to help companies go beyond traditional financial reporting and deliver a more holistic view of corporate performance.”
To gear up for greater audit demands requires a different skill set from traditional audits.
Said Sita:” We have and will continue to recruit engineers and climate change specialists and institute specialised training to our teams to provide sustainability assurance reports. These reports deal not only with environmental performance, but also the social and broader economic impacts of business that go beyond only financial metrics. These teams bring skills in capital allocation, technology, understanding sustainability drivers, benchmarking and efficient workplace practices.
“One of the many lessons of the last number of years, and the pandemic in particular, is that we've got to pay more attention to the environment, whether it comes to energy security, food security or just the wellbeing of the population as a whole.
“The focus on long-term value reporting and on climate and sustainability will become critical,” Sita concluded.