Audit and Assurance (Acct 318)

Accounting Group 1

Group Assignment (Group 2)

Lecturer: Dr. Jerry Kwarbai

Assignment: Audit Implications of Environmental, Social, and

Governance (ESG) Reporting.

Objective: You are expected to investigate how auditors assess and

report on ESG factors, including climate change risks, diversity and
inclusion practices, corporate social responsibility initiatives.
 Group 2 Members.

NAMES: MATRIC NUMBERS:

1. Adebayo Adeyosola Grace 21/1308
2. Oyibo Oviereya Elizabeth 21/1409

3. Obimmachukwu Chisom 21/0664

Emmanuel
4. John Love Oluwaseun 21/0033
5. Salau Ameedat Adeola 21/1567
6. Onyechie Faith Tochukwu 21/1154

7. Alliu Fawaz Olusegun 21/2374

8. George-Taylor Kehinde 21/0066

9. Rasak Adeola Khadijat 21/0029

10. Fasawe Oluwadamilare 15/3830
11. Olaniyan Ibukunoluwa 21/1129
Richard
12. Ayim Sylvia 21/0963
13. Akpotareno Merit 21/1668
Avwerosuoghene
14. Ordu Favour Chioma 21/0378
15. Oyekola Aishat Abimbola 21/2852
16. Odukomaiya Taiwo 21/2457
Oyinkansola
17. Grace 21/0757
 Topic Content
1. Introduction to ESG Reporting
○ Definition of ESG factors
○ Importance of ESG reporting
○ Stakeholder expectations
2. Regulatory Framework and Standards
○ Overview of global ESG reporting standards (e.g., GRI, SASB, TCFD)
○ Role of regulators in shaping ESG reporting requirements
3. Auditor's Role in ESG Reporting
○ Responsibilities of auditors in assessing and reporting on ESG factors
○ Challenges and considerations in ESG audits
4. Climate Change Risks and Auditing
○ Assessing climate-related risks and opportunities
○ Impact of climate change on business operations
○ Providing assurance on climate-related disclosures
5. Diversity and Inclusion Practices
○ Evaluating diversity policies and practices
○ Reporting on workforce diversity metrics
○ Addressing bias and promoting inclusivity
6. Corporate Social Responsibility (CSR) Initiatives
○ Reviewing CSR programs and initiatives
○ Assurance over CSR reporting
○ Linking CSR to long-term value creation
7. ESG Reporting Metrics and Indicators
○ Key performance indicators (KPIs) for ESG reporting
○ Measuring progress against ESG goals
○ Reporting on ESG milestones
8. Integration of ESG into Business Strategies
○ Aligning ESG considerations with overall business strategy
 ○ Embedding ESG goals in risk management processes
○ Governance structures for ESG oversight
9. Case Studies and Best Practices
○ Examples of companies excelling in ESG reporting
○ Lessons learned from successful ESG integration
10. Conclusion
○ Recap of the importance of ESG reporting
○ Auditors' role in promoting transparency and accountability
 Introduction.
Environmental, Social, and Governance (ESG) reporting has gained prominence as companies
recognize the importance of sustainable business practices. Auditors play a crucial role in
evaluating and reporting on ESG factors, ensuring transparency and accountability. Key areas
such as climate change risks, diversity and inclusion practices, and corporate social responsibility
initiatives are integral components of this assessment.

Definition Of ESG Reporting

This is a process that enables companies to measure and disclose their performance on
Environment, Social and Governance factors. These factors are critical for evaluating a
company’s sustainability and impact on society, encompassing many issues beyond traditional
financial metrics. ESG factors include but are not limited to, carbon emissions, water usage,
human rights, labor practices, diversity, board structure and executive compensation. Moreover,
ESG reporting can also involve external ratings and assessments by specialized agencies or
investors, which use various methodologies and criteria to evaluate companies’ ESG
performance. ESG provides stakeholders, including investorswith information about a
company’s sustainability efforts.

Importance of ESG Reporting

1. Managing Risks: Companies may detect and control risks related to their operations,
supply chain, and investments using ESG reporting. Companies may lessen their risk of
reputational harm, regulatory penalties, and legal responsibility by evaluating and
disclosing their environmental and social effect.

2. Attracting Investment: Socially conscious investors that give priority to businesses with
high ESG performance might invest in a company thanks to ESG reporting. Transparent
businesses that practice social responsibility and sustainability are more likely to be seen
as reliable and long-lasting, which makes them more appealing as investment
opportunities.

3. Meeting Regulatory Requirements: ESG reporting is quickly becoming a legal necessity

in some industries and regions. For instance, the EU has implemented the Non-Financial
Reporting Directive, which mandates that major corporations publish non-financial
information, such as their performance in the social and environmental spheres.
Companies may ensure they comply with the rules and stay out of trouble by adopting
ESG reporting.

4. Enhancing Reputation and Brand Value: ESG reporting may help businesses build their
image and reputation. Companies may gain the trust of stakeholders, such as consumers,
employees, and investors, by showing a dedication to sustainability and social
 responsibility. Customers will be more loyal, employees will be more engaged, and brand
equity will be more significant.
5. Improving Efficiency and Productivity: Companies may uncover inefficiencies and waste
using ESG reporting and create plans to increase productivity and save expenses. For
instance, businesses may save operational expenses and boost their bottom line by
consuming less energy. Companies that adopt sustainable business practices can also
increase employee engagement and productivity.

Impact of ESG on Different Stakeholders

The ESG framework significantly influences various stakeholders, and understanding this impact
can help a company shape its strategies more effectively. Employees, for instance, are
increasingly seeking to work for companies that prioritize ESG issues. They value companies
that show concern for the environment, contribute positively to society, and exhibit good
governance. A strong ESG performance can boost employee morale, attract talent, and reduce
staff turnover, leading to a more productive and engaged workforce.
Shareholders and investors are also giving greater consideration to ESG factors. A growing body
of research suggests a positive correlation between ESG performance and financial performance,
leading to increased shareholder value over the long term. Companies that score high on ESG
metrics are seen as less risky, which can lead to lower capital costs. For customers, companies
with strong ESG commitments can stand out from the competition, enhancing brand loyalty and
customer retention. In the case of local communities, companies that consider the environmental
and social impact of their operations tend to have better relationships with the communities they
operate in, leading to a social license to operate. Lastly, regulators and policymakers are
increasingly requiring companies to disclose their ESG performance. A strong focus on ESG can
help a company stay ahead of regulatory changes, avoid fines and penalties, and shape public
policies.

Role of ESG in Enhancing Stakeholder Engagement and Relations

The ESG framework serves as a valuable tool for communication with stakeholders. It provides a
structured approach for companies to share information about their environmental, social, and
governance efforts. Through ESG reporting, a company can demonstrate its commitment to
sustainability and ethical practices, fostering open dialogue with stakeholders. Such transparency
can significantly enhance stakeholder engagement, as stakeholders are more likely to engage
with companies that openly discuss their impacts and accountability efforts.
Furthermore, the ESG framework can be used as a strategy for enhancing corporate reputation
and trust among stakeholders. In today's business environment, stakeholders, especially
consumers and investors, are showing a heightened interest in supporting companies that
prioritize sustainability and responsible business practices. By committing to ESG principles and
demonstrating progress in these areas, a company can enhance its reputation, gain stakeholders'
trust, and differentiate itself from competitors.
Lastly, the ESG framework serves as a pathway for improving corporate responsibility and
accountability. By adhering to ESG standards, a company can address potential issues
proactively, mitigate risks, and drive continuous improvement in its performance. This proactive
approach can lead to increased stakeholder confidence and improved relations, thereby
contributing to the company's long-term success and transparency in social, environmental, and
financial spheres.

Overview of Global ESG Reporting Standards:

1. GRI (Global Reporting Initiative): GRI standards are widely recognized and used for
sustainability reporting globally. They provide a framework for organizations to measure
and report their environmental, social, and governance impacts.

2. SASB (Sustainability Accounting Standards Board): SASB standards focus on industry-

specific sustainability accounting metrics that are financially material to companies and
investors. They aim to facilitate communication between companies and investors on
sustainability issues.

3. TCFD (Task Force on Climate-related Financial Disclosures): TCFD recommendations

provide a framework for companies to disclose climate related risks and opportunities in
their financial filings. They help investors, lenders, insurers, and other stakeholders make
more informed decisions.

Role of Regulators in Shaping ESG Reporting Requirements

1. Setting Mandates: Regulators such as securities commissions and stock exchanges

can establish mandatory reporting requirements for ESG factors. These requirements
ensure that companies disclose material sustainability information to investors and the
public.

2. Standardization: Regulators endorse or require the adoption of specific ESG

reporting frameworks to promote consistency and comparability in reporting
practices. They may encourage the use of frameworks like GRI, SASB, or TCFD.

3. Enforcement: Regulators enforce compliance with ESG reporting requirements

through monitoring, audits, and enforcement actions. Penalties may be imposed for
non-compliance, ensuring the credibility and reliability of disclosed information.

4. Stakeholder Engagement: Regulators facilitate stakeholder engagement processes to

develop ESG reporting standards that address the needs of investors, companies,
regulators, and civil society organizations.
 5. Market Confidence: By promoting transparent and standardized ESG reporting,
regulators enhance market confidence and trust, which encourages responsible
investment practices and supports sustainable economic development.

Responsibilities of an Auditor in Assessing and Reporting on ESG Factors

Auditors play a crucial role in ESG (Environmental, Social, and Governance) reporting and
compliance. Their role involves assessing and verifying the accuracy, completeness, and
reliability of ESG information provided by companies. A breakdown of the role of auditors in the
context of ESG are as follows:
1. Assurance Services: Auditors provide assurance services related to ESG disclosures.
They evaluate the quality of ESG data, ensuring it aligns with established standards and
guidelines. This verification process adds credibility to a company’s ESG reports.

2. Compliance with Regulations: Auditors ensure that a company’s ESG reporting complies
with applicable regulations and standards. In Europe, for example, auditors may need to
verify compliance with the EU Taxonomy Regulation and other regional requirements.

3. Data Accuracy: Auditors review ESG data to verify its accuracy and consistency. They
assess whether the data has been accurately collected, calculated, and reported. This helps
prevent green washing or the presentation of misleading information.

4. Risk Assessment: Auditors assess the risks associated with ESG factors and how they
may impact a company’s financial performance. They provide valuable insights into
potential risks and opportunities related to sustainability and governance.

5. Materiality Assessment: Auditors help determine which ESG factors are material to a
company’s operations and financial performance. Materiality assessments ensure that
companies focus on the most relevant ESG issues in their reporting.

6. Verification Statements: After their review, auditors issue verification statements or

opinions on the accuracy and reliability of ESG disclosures. These statements are
valuable for investors, stakeholders, and regulators in assessing a company’s commitment
to ESG transparency.
 Challenges and considerations in ESG (Environmental, Social, and Governance) audits
1. Data Availability and Quality: Obtaining reliable and standardized data on ESG metrics
can be challenging due to the variety of sources and lack of consistent reporting standards
across industries and regions.

2. Scope and Materiality: Determining which ESG factors are material to a company's
operations and financial performance requires careful consideration and may vary
depending on industry, geography, and stakeholder perspectives.

3. Regulatory Landscape: Keeping up with evolving ESG regulations and reporting

requirements adds complexity to audits, as companies must ensure compliance with
multiple frameworks and guidelines.

4. Integration with Financial Reporting: Integrating ESG considerations into financial

reporting processes poses challenges in terms of data integration, materiality assessments,
and ensuring transparency and consistency in disclosures.

5. Risk Management: Assessing and quantifying ESG-related risks, such as climate change
impacts, supply chain vulnerabilities, and social license to operate, requires specialized
expertise and tools.

6. Stakeholder Engagement: Engaging with a wide range of stakeholders, including

investors, regulators, employees, communities, and NGOs, is essential for understanding
ESG risks and opportunities but can be resource-intensive.

Climate Risks On Business

When it comes to climate change risks, businesses face a range of challenges. These can include
physical risks, like the increased frequency of extreme weather events that can damage
infrastructure and disrupt supply chains. Transition risks are also a concern, as new regulations
and policies aimed at reducing emissions could impact industries and require businesses to adapt
their operations. Additionally, there are reputational risks associated with public perception of a
company's environmental practices, which can affect consumer trust and loyalty.
To assess these risks, businesses can conduct climate-related audits. These audits involve a
comprehensive evaluation of a company's emissions, energy usage, supply chain practices, and
overall resilience to climate impacts. By understanding their specific vulnerabilities, businesses
can develop strategies to mitigate risks and identify opportunities for sustainable growth.

For instance, businesses can explore implementing renewable energy sources, improving energy
efficiency, and adopting sustainable practices throughout their operations. These actions not only
help reduce their carbon footprint but can also lead to cost savings and enhance their reputation
among environmentally conscious consumers.

Auditing climate-related risks and opportunities is crucial for businesses to adapt to the changing
climate, meet regulatory requirements, and stay ahead of market trends. It's a proactive approach
that can benefit both the environment and the long-term success of businesses.

Climate Change On Business Operations

Climate change can affect businesses in various ways. For instance, rising temperatures can lead
to increased energy demand for cooling, impacting operational costs. Changes in rainfall patterns
can affect agriculture and water-intensive industries, leading to supply chain disruptions and
potential price fluctuations. Extreme weather events, such as hurricanes or floods, can damage
infrastructure, interrupt production, and cause financial losses.

Furthermore, businesses may face regulatory changes and policies aimed at reducing greenhouse
gas emissions. This can require companies to invest in cleaner technologies, adapt their
manufacturing processes, and implement sustainable practices. Failure to address these changes
may result in reputational risks and potential loss of market share.

To navigate these challenges, businesses can adopt strategies to mitigate climate risks. This can
include implementing energy-efficient practices, diversifying supply chains, investing in
renewable energy sources, and incorporating climate resilience into their long-term planning. By
doing so, businesses can not only reduce their environmental impact but also enhance their
operational efficiency, cost-effectiveness, and overall competitiveness.

It's important for businesses to stay informed about climate change impacts, engage in
sustainable practices, and collaborate with stakeholders to create a more resilient and sustainable
future.
 Providing Assurance on Climate related disclosures.
Providing assurance on climate-related disclosures is an important aspect within the broader
context of Audit Implications of Environmental, Social, and Governance (ESG) reporting.
Climate-Related Disclosures: Climate-related disclosures refer to the information that
organizations provide regarding the impact of climate change on their business operations,
strategies, risks, and financial performance.
Examples: This may include details on greenhouse gas emissions, climate-related risks and
opportunities, strategies for mitigating environmental impact, and the organization's overall
approach to sustainability.

A roadmap to the assurance of climate-related financial disclosures.

1. Maturity analysis: When deciding what to disclose it’s important to start with a
materiality assessment. This will determine which climate metrics and targets are most
material to the business and its stakeholders.
2. Reporting criteria: As the TCFD is a framework and not a reporting standard, the
company needs to set out its own reporting criteria, for example on carbon emissions.
3. Establishing necessary controls: Specify what quality controls are needed to underpin
the robustness of data that feeds through to those disclosures.
4. Identifying systems & platforms to be used: Management will need to assess the
systems and the platforms being used to prepare and produce the information in the
disclosures.
5. Identifying associated risks: Address any reporting risks identified, for example
inconsistencies across other external reporting/website.
6. Establishing consistency: Ensure the data being reported is consolidated consistently
across the business.

Diversity And Inclusion Practices

 DIVERSITY refers to the presence of a wide range of human differences within a group,
organization or society. It encompasses differences in race, ethnicity, gender, sexual orientation,
age, religion, disability, socioeconomic status and more. INCLUSION is defined as an
organizational effort and practices in which different groups or individuals having different
backgrounds are culturally and socially accepted and welcomed. It involves creating an
environment where everyone, regardless of their differences, feels welcomed, respected, valued
and supported. DIVERSITY AND INCLUSION PRACTICES refers to the intentional efforts
by organizations to create environments where people of all backgrounds feel valued, respected,
and empowered to contribute. This can involve policies, programs, and initiatives aimed at
promoting diversity in hiring, fostering inclusive cultures, providing equitable opportunities, and
addressing biases and barriers to inclusion.

Evaluating Diversity And Inclusion Policies And Practices

DIVERSITY AND INCLUSION POLICIES AND PRACTICES encompasses a range of
strategies and initiatives implemented by organizations to foster an inclusive and equitable
environment for all individuals. The following are common elements of effective diversity and
inclusion policies and practices:
1. Diversity recruitment initiatives.
2. Inclusive hiring practices.
3. Diversity training and education.
4. Leadership commitment and accountability.
5. Performance metrics and reporting.
6. Diversity in leadership and decision making, etc.
Diversity and inclusion policies and practices should be evaluated so that organizations can
identify areas of strength and areas needing improvement, in order to foster a more inclusive and
equitable environment for all stakeholders. The following are some key aspects to consider in
evaluating diversity and inclusion policies and practices:
1. Training and development.
2. Employee engagement and feedback.
3. Leadership commitment.
4. Measurable goals and metrics.
5. Community engagement and partnership..
6. Recruitment and hiring process, etc.

Reporting On Workforce Diversity Metrics

 DIVERSITY METRICS is defined as the measurable numerical values that help human
resource (HR) to see workforce demographics and assess the efforts of the company towards
inclusive practices. They are assigned quantitative values that helps employer assess strategies to
achieve a more diverse workforce. Reporting on workforce diversity metrics involves collecting
and analysing data on various aspects of employee demographics, such as gender, race, ethnicity,
age, disability status, sexual orientation, etc. This data is then used to track progress towards
diversity and inclusion goals, identify areas for improvement, and hold organizations
accountable for their efforts to create diversity and inclusive workplaces. Common diversity
metrics include:
1. Hiring and recruitment metrics.
2. Retention and turnover rates.
3. Pay equity analysis.
4. Diversity training participation.
5. Representation rates.
6. Employee engagement and satisfaction surveys.
Transparent reporting of these metrics helps organizations to assess diversity and inclusion
efforts objectively and to communicate their progress to stakeholders.

Addressing Bias And Promoting Inclusivity

Addressing bias and promoting inclusivity in an organization involves implementing strategies
and initiatives to mitigate unconscious biases, foster an environment of belonging, and ensure
equitable opportunities for all employees/individuals regardless of their background within the
organization. Some key approaches include:
1. Awareness and education: Providing training and resources to raise awareness of unconscious
biases and their impact on decision making processes.
2. Bias mitigation strategies: Implementing processes and systems that reduce the influence of
biases in hiring, promotion, performance evaluations and other organizational practices.
3. Inclusive leadership: Cultivating leadership behaviours that prioritize diversity, equity and
inclusion, and holding leaders accountable for creating inclusive environment.
4. Diverse representation: Actively seeking out and promoting diverse perspectives in decision
making bodies, leadership positions, and employee resource groups.
5. Inclusive policies and practices: Reviewing and updating policies and practices to ensure they
are inclusive and equitable for all employees, such as flexible work arrangements, inclusive
language and accessible facilities.
6. Continuous evaluation and improvement: Regularly monitoring progress on diversity and
inclusion goals, soliciting feedback from employees and making adjustments as needed to
address gaps and promote a culture of inclusivity.
By actively addressing bias and promoting inclusivity, organizations can create environments
where all employees feels valued, respected and empowered to contribute their unique
perspectives and talents.

Reviewing corporate social responsibility (CSR) programs and initiatives

This involves assessing various aspects:
1. Mission and Values Alignment: Evaluate how well the CSR initiatives align with the
company's mission and values.
2. Impact Measurement: Analyze the actual impact of the initiatives on society, environment, and
stakeholders. Look for tangible outcomes rather than just activities.
3. Transparency and Accountability: Assess the transparency of reporting and accountability
mechanisms in place to ensure the effectiveness and integrity of the initiatives.
4. Stakeholder Engagement: Review how well the company engages with stakeholders
(employees, communities, customers) in designing and implementing CSR programs.
5. Innovation and Creativity: Consider the level of innovation and creativity demonstrated in
addressing social and environmental challenges. Etc.
Assurance over CSR reporting
Corporate Social Responsibility (CSR) reporting provides assurance to stakeholders that a
company is operating ethically and responsibly. It involves transparently disclosing
environmental, social, and governance (ESG) practices and impacts.
1. Scope Definition: The first step involves defining the scope of the assurance engagement,
including the specific CSR areas and reporting frameworks to be assessed. This may include
aspects such as environmental impact, labor practices, community engagement, and governance
structures.
2. Risk Assessment: Assurance providers assess the risks associated with CSR reporting,
considering factors such as the industry, regulatory environment, and potential reputational risks.
This helps determine the level of assurance required and the focus areas of the review.
3. Criteria Evaluation: Assurance providers evaluate the CSR reporting against established
criteria, such as internationally recognized standards (e.g., Global Reporting Initiative - GRI,
Sustainability Accounting Standards Board - SASB) or industry-specific guidelines. They also
assess adherence to applicable laws and regulations.
4. Evidence Gathering: Assurance involves collecting evidence to support the accuracy and
completeness of the reported information. This may include reviewing documentation,
conducting interviews with key personnel, and performing site visits or inspections.

Linking CSR to Long Term Value Creation

Corporate Social Responsibility (CSR) is increasingly recognized as a critical element in long-
term value creation for businesses. By integrating CSR practices into their operations, companies
can generate sustainable value not only for shareholders but also for other stakeholders,
including employees, customers, communities, and the environment. Here, we'll explore how
CSR is linked to long-term value creation across various dimensions.
1. Enhanced Brand Reputation and Customer Loyalty:
 Engaging in CSR initiatives helps companies build a positive brand image by
demonstrating their commitment to social and environmental causes.
 Consumers are increasingly making purchasing decisions based on a company's
CSR practices. A strong CSR reputation can enhance customer loyalty and trust,
leading to repeat business and higher revenues over time.
2. Reduced Operational Risks:
 CSR activities often involve adopting sustainable practices, which can lead to
reduced operational risks related to environmental regulations, resource scarcity,
and supply chain disruptions.
 Proactive measures to address social and environmental issues can mitigate
potential legal, reputational, and financial risks, thereby safeguarding the
company's long-term viability.
3. Attracting and Retaining Talent:
 Companies that prioritize CSR tend to attract top talent who are aligned with their
values and purpose.
 Employees are more likely to be engaged and motivated when they feel that their
work contributes to positive social and environmental impacts, leading to higher
productivity and retention rates.
4. Innovation and Market Differentiation:
 Embracing CSR can drive innovation by encouraging companies to develop
sustainable products, services, and business models.
 Companies that innovate in response to societal challenges can differentiate
themselves in the market, gaining a competitive advantage In summary, CSR is
intricately linked to long-term value creation for businesses through improved
 brand reputation, risk management, talent attraction, innovation, access to capital,
stakeholder engagement, and sustainable growth. Companies that embrace CSR
as a core part of their strategy are better positioned to navigate complex
challenges, seize opportunities, and thrive in an increasingly interconnected and
conscious world.

ESG Reporting Metrics and Indicator

ESG factors are becoming more and more crucial for investors, customers, regulators, and other
people interested in knowing how sustainable and responsible a company is. But how do we
measure a company’s ESG performance? And why do the measurements vary depending on the
industry? In this article, we’ll answer these questions and give examples of ESG metrics and
indicators used in different sectors.
What Are ESG Factors Metric And Indicators?
ESG metrics and indicators are quantitative or qualitative measures that capture a company’s
environmental, social, and governance performance and risks. They can be based on ESG
reporting standards, rating frameworks, regulations, or custom criteria. ESG metrics and
indicators can help companies track their ESG progress and performance, identify areas of
improvement, set goals and targets, and communicate their ESG story to their stakeholders. ESG
metrics and indicators can also help investors and analysts evaluate a company’s ESG score,
ranking, and risk profile, compare it with its peers, and make informed investment decisions.
ESG metrics are indicators of a company’s environmental, social, and governance performance
and risks. They are used by companies to track their ESG progress and performance, and by
investors and analysts to gauge a company’s ESG score, ranking, and risk profile. ESG metrics
can vary across industries, depending on the material issues and impacts that are relevant for
each sector.
Some examples of ESG metrics for different industries are:
Technology: Energy consumption, greenhouse gas emissions, data privacy and security, diversity
and inclusion, innovation and R&D, board independence and oversight.
Manufacturing: Water use and quality, waste management, health and safety, labor rights,
product quality and safety, supply chain management, and anti-corruption policies.
Financial services: Lending and investment practices, customer satisfaction and retention,
financial inclusion and literacy, employee engagement and retention, executive compensation
and incentives, risk management, and compliance.
Healthcare: Patient outcomes and satisfaction, access to care and affordability, clinical trials and
ethics, product safety and quality, employee well-being and development, data privacy and
security.
There are various ESG reporting standards and frameworks that guide how to measure and
disclose ESG metrics. Some of the most widely used ones are:
1) The Sustainability Accounting Standards Board (SASB), which provides industry-specific
standards for measuring and reporting on material ESG issues.
2) The Global Reporting Initiative (GRI), which provides a comprehensive set of standards for
reporting on economic, environmental, and social impacts.
3) The Task Force on Climate-related Financial Disclosures (TCFD), which provides
recommendations for disclosing climate-related risks and opportunities.
4) The World Economic Forum’s Stakeholder Capitalism Metrics (SCM), which provides a set
of universal ESG metrics aligned with the UN Sustainable Development Goals (SDGs).
Why do ESG metrics and indicators differ across industries?
ESG metrics and indicators can vary across industries because different sectors have different
material issues and impacts that are relevant to their ESG performance. Material issues are those
that reflect a company’s significant economic, environmental, and social impacts, or that
influence the decisions of its stakeholders. For example, greenhouse gas emissions may be a
material issue for the energy sector, but not for the healthcare sector. Similarly, data privacy may
be a material issue for the technology sector, but not for the manufacturing sector. Therefore,
ESG metrics and indicators should reflect the specific context and characteristics of each
industry.

How To Use ESG Metrics And Indicators Succesfully

To use ESG metrics and indicators effectively, companies should:
1) Conduct regular ESG materiality assessments to identify the most relevant issues and impacts
for their industry and stakeholders.
2) Choose appropriate ESG metrics and indicators that reflect their material issues and impacts,
and align with the expectations and standards of their stakeholders.
3) Collect reliable and accurate data on ESG metrics and indicators, using consistent
methodologies and definitions.
4) Report their ESG metrics and indicators in a transparent, comparable, and verifiable way,
using recognized reporting frameworks and formats.
5) Analyze their ESG metrics and indicators to evaluate their performance, identify gaps and
opportunities, and set goals and targets for improvement.
6) Communicate their ESG metrics and indicators to their stakeholders in a clear, concise, and
engaging way, using stories, visuals, and interactive tools.

Identifying ESG KPIs

Key performance indicators (KPIs) refer to measurements used to assess an organization’s
overall performance. ESG KPIs, specifically, gauge performance on environmental, social, and
governance topics such as greenhouse gas emissions, water consumption, waste, diversity and
human rights, and executive policy and oversight. These KPIs can be either broad or very
specific.
What are ESG KPIs based on?
ESG KPIs are based on an organization’s sustainability strategy, goals, and material topics. ESG
reporting frameworks and standards may also serve as helpful guides.
Effective sustainability reporting requires auditing and assurance. To achieve greater
comparability and transparency, sustainability reports must be reliable. The forthcoming ISSA
5000 auditing standard will create the basis for sustainability auditing and assurance. Auditors
use financial reporting criteria to evaluate a company. External stakeholders rely on accurate
reporting that faithfully represents the company's condition and is comparable over time and with
other entities. The International Auditing and Assurance Standards Board's draft expands upon
these criteria along five dimensions: relevance, completeness, reliability, neutrality, and
understandability.

According to ISSA 5000, sustainability information pertains to information about sustainability

issues. It covers various topics and aspects of those topics, including climate, energy, water and
effluents, biodiversity, labor practices, human rights and community relations, customer health
and safety, and economic impacts. These topics are analyzed across managerial and governance
processes, such as governance, strategy, risks and opportunities, risk management and
mitigation, innovation, metrics, targets, internal control, scenario analysis, and impact analysis.

To measure financial materiality, the International Sustainability Standards Board requires

companies to disclose sustainability-related risks and opportunities that could affect their
prospects. Metrics disclosed by an entity shall include metrics associated with particular business
models, activities, or other common features that characterize participation in an industry.
Companies must accentuate the connections between risks and opportunities and provide
longitudinal explanations to increase reliability, trustworthiness, comparability, and relevance in
sustainability reporting.

 The main principle for selecting a KPI should be that it provides relevant insights from a
managerial perspective. It should inform management about the status and direction of
something meaningful to the organization. The chosen vocabulary should be simple and
familiar, and everyday language should be favored. The text should be direct and concise,
and sentences should be kept short and only include necessary information.

Examples of ESG KPIs

While the list of potential ESG KPIs is nearly endless, we’ve provided some broad examples
below. Keep in mind that the applicability of some metrics may overlap; for instance, having a
Supplier Code of Conduct may fall under both Social and Governance realms.
Environmental: Energy demand and consumption Water demand and consumption Greenhouse
gas emissions (scopes 1, 2, and 3), including metrics on emissions intensity and reduction
Resource efficiency metrics, including energy, water, and other material resources
Social: Worker health and safety practices Diversity and inclusion metrics related to human
rights and labor policies
Governance: Board and management diversity metrics Executive compensation (e.g., approved
by shareholders, tied to ESG performance) Disclosure and reporting programs (e.g., does the
company publish a sustainability report, set targets and report progress, engage with reporting
frameworks?)
What makes a good ESG KPI? How can my company set its own KPIs?
Consistency is key. Calculation methods should be consistent from year to year in order to
ensure accuracy and clarity in your data tracking. The criteria for a KPI having been met should
also be consistent from year to year.
Another key point to keep in mind is “purpose.” Why are you tracking ESG metrics? Ultimately,
KPIs should provide context to shareholders and investors. They should help you tell your story
and communicate the aims of your organization.

Measuring Progress Against ESG Goals

Measuring progress against Environmental, Social, and Governance (ESG) goals involves
tracking key performance indicators (KPIs) and assessing the organization’s performance
relative to predefined targets or benchmarks. Here is a systematic approach to measuring
progress against ESG goals:
1. Establish Clear ESG Goals: Define specific, measurable,
achievable, relevant, and time-bound (SMART) goals for each
ESG focus area.
2. Select Appropriate KPIs: Identify relevant KPIs for each ESG
goal. Choose metrics that accurately reflect performance and
progress.

3. Baseline Assessment: Conduct an initial assessment to establish

baseline data for each selected KPI.

4. Implement Monitoring and Reporting Mechanisms: Implement

systems to monitor and collect data on selected KPIs regularly.

5. Track Progress and Performance: Continuously track performance

against established KPIs.

6. Review and Adjust Goals as Needed: Regularly review progress

against ESG goals and KPIs. Assess whether goals remain relevant
and achievable in light of changing circumstances, stakeholder
 7. Engage Stakeholders: Involve stakeholders in the goal-setting
process and keep them informed of progress.

8. Celebrate Successes and Learn from Challenges: Acknowledge

and celebrate achievements and milestones reached. Learn from
challenges and setbacks encountered along the way, using them as
opportunities for improvement.

Benefits of Measuring ESG Performance:

1. ESG measurement and reporting can help reduce a company's operational costs. More
data means more transparency and opportunity for improvement.
2. It is also important for enhancing a company's brand at both local and international
levels.
3. ESG assessment and reporting are particularly useful for businesses seeking to gain
support from their investors and customers.
4. Compliance with various regulations and policies necessitates ESG assessment and
reporting.
5. Measuring a company's ESG performance assists in developing long-term strategic plans,
preventing a reliance on short-termist thinking.

Reporting On ESG Milestones

Reporting on ESG (Environmental, Social, and Governance) milestones is essential for
organisations to demonstrate their commitment to sustainable practices. Here are some key
milestones and developments in ESG reporting for 2024:
1. Sustainability Disclosure Requirements (SDRs):
 Anti-greenwashing rules are set to take effect by May 31, 2024, applying to
all UK FCA-authorized firms.
 These rules extend beyond mere disclosures and cover aspects like website
images, marketing materials, fund documents, and other communications.
 The focus is ensuring that sustainability references meet the "four Cs": Correct,
Clear, Complete, and Comparisons must be fair and meaningful1.
2. Principles for Responsible Investment (PRI):
  Reporting for 2024 is voluntary for signatories who completed 2023 reporting.
 Most signatories are expected to report in 2024 to capture additional scores from
improvements made in 2023.
 Look out for the Progression Pathways Initiative and Reporting
Equivalency to simplify PRI reporting and demonstrate ESG progress1.
3. Sustainable Finance Disclosures Regulation (SFDR):
 Many managers and funds subject to SFDR reporting have already gone through
periodic reporting.
 Attention now shifts to the outcome of the EU Commission's consultation on the
future of SFDR, which closed in December 20231.
4. Corporate Sustainability Reporting Directive (CSRD):
 Starting from 2024, nearly 50,000 companies within the European Union
(EU) are subject to mandatory sustainability reporting under CSRD.
 Non-EU companies with subsidiaries operating within the EU or listed on EU-
regulated markets are also included.

Aligning ESG considerations with the overall business strategy

1).Integrate ESG strategy into your corporate strategy and business planning processes
Companies must first identify ESG material issues and develop ESG initiatives to address gaps
in the business strategy:
• Conducting a materiality assessment — If sustainability professionals do not have strong
relationships with their C-suite or board, a valuable tool to build that relationship is a materiality
assessment. A materiality assessment is a structured exercise that helps a company identify
specific ESG issues that need attention by surveying or interviewing both internal and external
stakeholders on their key priorities.
• Identifying gaps to achieving ESG objectives — Once material ESG issues and associated
indicators have been identified through the materiality assessment, identify gaps in the
company’s current performance and develop a strategy to close those gaps. To ensure that ESG
issues are not addressed as standalone initiatives, it is imperative that these strategies are
incorporated into the company’s corporate strategy and business plans.
• Integrating ESG targets with financial goals — Once an ESG strategy has been identified and
incorporated into the company’s corporate strategy, targets and metrics should be developed
around these issues, while ensuring these metrics are integrated into the company’s financial
goals and addressed as part of the annual planning cycle.
• Offering ESG-focused solutions to current challenges — Sustainability professionals should
also be agile enough to quickly propose ESG-focused solutions or identify ESG challenges in
response to current events (a recent and ongoing example being the COVID

2).Ensure organizational alignment all the way up to the board

• To elevate ESG topics to the highest levels of the organization, sustainability professionals
must engage the right stakeholders at various levels of the company:
• Engaging with the CFO — Bringing the CFO onboard prior to conversations with the board
will be critical to bridging the gap between sustainability and financial performance. As investors
demand more information around ESG risk management, the CFO will be best positioned to
speak value creation associated with ESG initiatives.
• Establishing communication channels — Developing strong communication channels between
the sustainability team and other important internal stakeholders, including the CFO, chief risk
officer, investor relations, and finance, will enable information sharing to inform corporate
strategy.
• Creating an ESG steering committee — Forming a committee for ESG issues ensures that the
right amount of time and expertise is dedicated to ESG initiatives. This committee should
provide formal guidance, oversee and drive the implementation of ESG strategies and activities.
• Leveraging an external advisory council — Creating and managing an external advisory
council, which brings experts to the table across various stakeholder groups such as banks,
NGOs and subject matter experts, can build the board’s expertise and comfort level with the ESG
team while providing validation on the importance of ESG issues from a third party.
• Integrating ESG issues into board-level engagement — A straightforward way to ensure that
ESG issues are elevated to the board level is to focus on a topic that is sure to be discussed
during board meetings (responses to current events such as company initiatives around employee
health and wellness or racial equity policies).
3).Leverage existing reporting requirements to communicate ESG issues
• While reporting is not a new exercise for publicly traded companies, sustainability groups often
find they report according to standards separate from required SEC filings. Sustainability
professionals tend to find themselves needing to explain various non-mandatory sustainability-
reporting frameworks to others in their organization as they conduct data requests and
interviews.
• While there is merit to reporting according to sustainability-specific frameworks, such as
Global Reporting Initiative and Carbon Disclosure Project, integrating ESG issues into a risk
management lens is one of the quickest ways to elevate these topics to the board level.
Developing relationships with financial or risk management groups within the company may be
a challenging task; however, sustainability groups can act as a valuable source of information for
non-financial material information and help companies avoid using boilerplate language that
may not provide investors with relevant insight.
• Reporting frameworks, such as the Sustainability Accounting Standards Board (SASB), aim to
develop clear guidance for companies to identify and report material ESG risks directly into SEC
filings. Such integrated reporting will require complex collaboration across group lines, but it
will also ensure stakeholders across companies are speaking the same language when it comes to
ESG and overall corporate risk.
• Sustainability professionals can start by considering ESG-related risks within the
organization’s overall risk assessment. Many companies will find that applying frameworks
offered by SASB or others is an opportunity to help identify those risks and shape the narrative
into a decision-useful format for investors and stakeholders. Moving beyond traditional silos and
integrating ESG considerations into corporate strategy will enable companies to be proactive in
managing issues material to their business. Integrating ESG strategy into corporate strategy
requires strong collaboration and support from various groups within a company, but it will
prove invaluable as companies navigate the changing business landscape.

Embedding ESG goals with risk management processes Governance:

Firms are expected to disclose board and management roles in relation to climate related risks,
• How the board monitors and oversees goals & targets for addressing climate related issues
• The processes by which the board are informed about climate related issues
• The assignment of climate related responsibilities to specific management positions
• The management’s role in assessing and managing climate-related risks and opportunities •
How management monitors climate related issues
• Process by which management is informed

ii)Strategy: firms are expected to disclose the actual and potential impacts of climate-related
risks on the business,
• Describe the actual climate related risks identified for the organization in the short, medium,
and long term
• Describe the impact of climate-related risks and opportunities on the organization’s businesses
• Describe the resilience of the organization’s strategy, taking into consideration different
climate-related scenarios iii). Risk Management: the TCFD recommends that firms describe their
process for,
• Identifying and assessing climate-related risks and their potential financial impacts
• Managing climate-related risks, including how they make decisions to mitigate, transfer,
accept, or control those risks
• Identifying, assessing, and managing climate-related risks are integrated into their overall risk
management
• Metrics and Targets: provide the key metrics used to measure and manage climate-related risks
and opportunities. Organizations should describe how/whether ESG performance metrics are
incorporated into remuneration policy Disclose Scope 1, Scope 2 and if appropriate, scope 3
GHG gases and the related risks. Should be calculated in line with the GHG protocol
methodology Sector specific for example asset managers should describe extent to which AUM
are aligned to a 1.5 degree or 2-degree scenario By adopting a reporting framework such as the
TCFD, organisations should be in a better position to evolve their ERM frameworks to assist in
managing ESG risk. The framework will help facilitate; Coordinate all responsible parties
Prioritise and rank ESG risks Determine risk tolerances Define ESG goals including timelines
and defined metrics Monitor risks and adjust as necessary The use of scenario analysis is also
viewed as useful, especially in the financial sector. It allows firms to is to examine portfolio-
level exposures, and gauge how these would vary in different climate outcomes. As regulators
such as the Bank of England start implementing climate stress tests, an increasing number of
financial institutions, especially banks, are choosing to voluntarily conduct stress tests internally
and not just when mandated by a regulator. Often, the results are then published and used as a
way for institutions to communicate their soundness and solid ERM practices to their own
investors and other stakeholders.

CASE:
For years, Milestone Energy Solutions employed innovative methods of sustainable energy waste
containment. Their proprietary slurry injection process captures waste and carbon more
efficiently than traditional methods of energy waste management, such as land farming and
reserve pits. To communicate this distinction, Milestone needed a way to show that it wasn't an
average waste management company. That's when ESG Reporting Partners stepped in.
ESGRP recognized that Milestone's strengths lay in its unique offering: helping companies
reduce their carbon footprint through superior carbon sequestration. To build up the legitimacy
of that promise, we helped them launch their first-ever ESG report, using in-depth storytelling
and a refined brand strategy. Milestone emerged with a state-of-the-art report and a newfound
purpose, positioning its brand as an invaluable partner in climate response. To reflect a strong,
driving purpose in Milestone's inaugural ESG report, we worked closely with executives to
assess how to incorporate it into the company's overall brand strategy. It was crucial to highlight
that Milestone's brand had potential beyond an energy waste manager: the company was a
partner in sustainability that could dramatically improve the practices of its clients. All Milestone
needed was a powerful sustainability report to reflect this position. Thus, the theme of the report,
"Cleaning Up Energy," was born.

Visualizing Innovation
Since this was Milestone's first time publishing an ESG report, we quickly connected them to our
partners at ESG Lynk, a sustainability reporting firm, to collect the necessary data and strategize
reporting indices. Once we set the groundwork, our team got to work designing the report's
layout and visual strategy, as well as building the wireframes and information architecture of the
digital report using Artisan, ESGRP’s reporting platform. Throughout the process, we
collaborated with Milestone and ESG Lynk to ensure the brand and the report were consistent
with the company's new position as a sustainability partner for the energy industry. An Emerging
Leader
The completed ESG report finally told the world about Milestone's true value: a trusted partner
in carbon management and sustainability risk management. Featuring a comprehensive website
and white paper with in-depth breakdowns of the company's findings in environmental, social
and governance data, Milestone's inaugural report reflected a company ready to take the lead in
changing an industry. It set the brand up to seek new opportunities in sustainable waste
management and form long-term partnerships with clients to develop more responsible practices
Raising the Bar
Changing the position of a brand doesn't happen overnight, but ESG Reporting Partners
collaborated with Milestone to take huge steps toward a bold new promise. Equipped with a
rigorous ESG report, Milestone now had a greater ability to market themselves as a leader in
sustainability. The report's tangible results elevated their credibility, and gave them access to
more capital for sustainability investment.
Milestone and ESG Reporting Partners have built a fruitful relationship over the years, and their
ESG report was yet another successful result of focused, collaborative brand strategy. Now, they
have the tools they need to take the lead in cleaning up energy.

Conclusion
In conclusion, auditors play a pivotal role in evaluating and reporting on ESG factors,
contributing to the transparency and credibility of organizations' sustainability practices. As ESG
reporting continues to evolve, auditors' scrutiny of climate change risks, diversity and inclusion
practices, and corporate social responsibility initiatives becomes increasingly vital for
stakeholders seeking assurance on a company's commitment to sustainable and responsible
business practices.

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