Global sustainability assurance standard to be developed ‘in line’ with CSRD

The International Auditing and Assurance Standards Board (IAASB) is working closely with the European Commission to ensure its global sustainability assurance standard is suitable for assurance requirements under the Corporate Sustainability Reporting Directive (CSRD), Responsible Investor can reveal.

Last week, the IAASB issued its landmark draft standard, the International Standard on Sustainability Assurance (ISSA) 5000.

Tom Seidenstein, chair of the standard-setting body, told RI that, while the standard is framework agnostic, CSRD will be at its core as Europe is “leading the way on mandatory requirements for sustainability disclosure and assurance”.

ISSA 5000 will apply to sustainability reporting prepared under multiple frameworks, including the International Sustainability Standards Board’s two disclosure standards, the Global Reporting Initiative, and global standards body the International Organisation for Standardisation.

However, CSRD will heavily influence the standard’s requirements since its reporting will require mandatory limited assurance.

“We always look at what is happening within legal environments in different jurisdictions, and CSRD is clearly having a major impact,” said Seidenstein.

“We’re working closely with the European Commission and other EU stakeholders to develop a standard that could be the core of European assurance requirements, in line with CSRD, to address the needs of European stakeholders within a global context.”

While there is currently no formal commitment from the EU to adopt ISSA 5000, Seidenstein is “cautiously optimistic” that the standard will meet the needs of the market, and that European bodies will be able to adopt the standard “when there is an EU-wide requirement”.

The IAASB approved the ISSA 5000 project proposal in September last year to develop a new overarching standard for assurance on sustainability reporting to “drive global consistency and comparability”.

The principles-based draft standard – which is out for consultation until 1 December – is due to be finalised before the end of 2024.

Sustainability reporting under CSRD is due to begin in 2025, covering the 2024 financial year, with the first limited assurance engagements to start in 2024.

There will therefore be an interim period before ISSA 5000 is finalised and an EU-wide standard is implemented where companies will still be required to received limited assurance for their CSRD reporting.

“This is why markets like France have developed additional guidance, based on International Standard on Assurance Engagements (ISAE) 3000 – a principles-based overarching standard for all forms of assurance engagements – and the proposed ISSA 5000, in a limited assurance context,” said Seidenstein.

He noted that other jurisdictions such as Germany are doing similar work.

French auditing oversight body H3C said it has produced CSRD-specific guidance in the absence of a European standard for limited assurance on sustainability reporting, while considering the IAASB’s work on ISSA 5000 to “harmonise European and international practices”.

Developing ISSA 5000

Seidenstein said the IAASB was prompted to launch sustainability-specific assurance guidance following growing market demand for both voluntary and mandatory ISAE 3000 and sustainability reporting – and consequently assurance – as well as a “surge” in sustainability reporting standards.

“There is real momentum towards having a global baseline on the sustainability reporting side, as well as on the assurance side, which makes sense for interoperability purposes,” he said. “It is our aspiration that ISSA 5000 will be the global standard for assurance of sustainability reports.”

The standard builds on the foundation of ISAE 3000 and ISAE 3410 – an assurance standard for greenhouse gas statements – with the aim of producing a “robust framework that investors and stakeholders can trust”.

On best sustainability assurance practice, Seidenstein said the data was not currently robust enough because there was a low degree of regulated assurance work.

He added, however, that there was increasing use of both limited and reasonable sustainability assurance engagements, noting that the move from voluntary assurance to mandatory would “build better trust”.

“We will be able to better conclude what best practice on assurance standards looks like once we have high-quality reporting, assurance and effective regulation working in tandem,” he said.

IAASB hopes that a global baseline will be adopted from the outset “so that we avoid fragmentation and the convergence work which will consequently be required”, he added.

“In an ideal world there will be a globally consistent approach, and then each jurisdiction will add specific requirements which correspond to local regulation or demand in the marketplace.”