The regulatory environment for environmental, social and governance (ESG) reporting has undergone significant changes in recent years, which has put increased pressure on organizations to meet the ESG information needs of their stakeholders by disclosing information on their sustainability performance. As companies increasingly report ESG or sustainability-linked information, there is growing demand for CPAs to provide assurance on ESG reports and disclosures. This renders it crucial for CPAs to familiarize themselves with frameworks, standards and regulatory requirements governing ESG reporting.  

Commonly used Frameworks and Standards

The standard-setters that have established frameworks governing ESG reporting include the following:

• The Global Sustainability Standards Board (GSSB) is the global standards-setting body that pioneered sustainability reporting and set the world’s first globally accepted sustainability reporting standards called the global reporting initiative (GRI) standards.
• The Sustainability Accounting Standards Board (SASB) was founded to standardize the reporting language of sustainability efforts. SASB developed industry-specific standards for 77 industries to identify and disclose sustainability risks, opportunities and financially material sustainability information.
• The International Financial Reporting Standards (IFRS) Foundation consolidated the Value Reporting Foundation and Carbon Disclosure Standards Board (CDSB) at the COP 26 UN Climate Change Conference in November 2021 to establish the International Sustainability Standards Board (ISSB), which was charged with developing a globally consistent baseline of sustainability-related disclosures. The creation of the ISSB signaled the first step towards a standardized and consistent framework for sustainability-linked financial disclosures.
• The Financial Stability Board (FSB) established the Task Force on Climate-Related Financial Disclosures (TCFD) to develop recommendations on climate-related financial disclosures to help stakeholders understand material financial risks relating to climate change. TCFD’s 11 disclosure recommendations focus on governance, strategy, risk management, metrics and targets.

There are a number of standards currently in place, including the following:

• GRI Standards: The GRI Standards are bifurcated into a universal series (101-Foundation, 102- Disclosures, and 103-Management Approach) applicable to every organization preparing sustainability reports and a topic-specific series (200-Economic, 300-Environmental, 400-Social). Companies select from topic-specific standards based on relevance and materiality.
• SASB Standards: SASB provides sector- and industry-specific sustainability accounting standards for more than 70 industries, identifying the sustainability-related risks and opportunities most likely to affect a company’s financial and operating performance.
• ISSB Standards: In June 2023, ISSB issued its first global sustainability disclosure standards. IFRS S1 covers general requirements for the disclosure of sustainability-related financial disclosures and IFRS S2, based on TCFD recommendations, requires companies to disclose information on climate-related risks and opportunities.

Existing and proposed disclosure requirements include the following:

• SEC proposed climate disclosure rules: On March 21, 2022, the SEC put forth rule changes that mandated companies to incorporate certain climate-related disclosures in their published reports. The proposed rule would require SEC registrants to provide the climate-related financial statement metrics in their climate-related disclosure in a separate section of their registration statement or annual report (10K).
• California climate change reporting laws: On October 7, 2023, California’s governor signed two climate disclosure bills:
  • The Climate Corporate Data Accountability Act (SB 253) requires companies to disclose and obtain assurance on Scope 1, 2 and 3 greenhouse gas (GHG) emissions in conformance with the Greenhouse Gas Protocol.
  • The Climate-Related Financial Risk Act (SB 261) mandates companies to disclose climate-related financial risks in accordance with TCFD recommendations.

Additional Resources

Accounting bodies all over the world are ramping up their efforts to provide resources to their members, students and affiliates on ESG and sustainability reporting. CPAs can use the following links to acquaint themselves with ESG reporting: 

• GRI Academy
• AICPA’s Transformative Skills Pack on Sustainability Mindset
• NJCPA ESG knowledge hub
• AICPA Sustainability Reporting and Assurance resources
• ACCA Sustainability resources