ESG Assurance: How Can It Create Value? 

Environmental, social and governance information is increasingly used by stakeholders in decision-making. As a result, the demand for broader assurance of this non-financial information is growing.  

In this blog, we explore why we need assurance, its objectives, how it creates value for organisations, and how ESG assurance can create value within organisations.  

Why we need ESG assurance.

Today, we face several challenges: 

• The call to collective action on the climate crisis is growing and urgent, 
• Our societies are more complex than ever before, and require stronger governance to function effectively and efficiently, and; 
• Our societies are more diverse than ever, driving the need to ensure our governance structures are diverse and therefore reflective of the organisations that they govern.  

In response to these challenges, we need reliable and credible information for use in decision-making. Assurance was designed to respond to these challenges, critically ensuring: 

• That we build and maintain trust in society, by increasing the reliability and credibility of information, 
• The accountability of those that govern, and;  
• That we continue to improve and focus our attention on the areas that require it. 

The objectives of assurance.

Assurance is designed to ensure the reliability and credibility of information and processes for stakeholders. It can be used to inform, evaluate and focus attention in the right areas. Traditionally, many people might think of assurance in relation to financial statement audits. However, it is a much broader field than this, with applications across many different industries and sectors.  

ESG assurance is a growing field where assurance techniques are being used to increase the reliability and credibility of ESG information, disclosures and commitments.  

The value of assurance.

Reputation matters. Governments, charities, public/private companies and all types of organisations need to build and maintain public trust to be successful.  

ESG assurance is valuable to organisations, banks and investors in order to achieve:  

• Value creation – a good ESG strategy can lead to cost savings through energy efficiency, alignment of values to those of the workforce, improving retention of staff and prevention of fraud and non-compliance through stronger governance. It can also lead to innovation, development of new services/products and reputational gains leading to increased access to market share/competition.  
• Access to and lower-cost capital – companies implementing strong ESG strategies can reduce perceived risks e.g. regulatory, reputational and operational, which can in turn result in access to additional capital at a lower cost. Such sustainably linked finance products are growing in supply and demand. 
• Supporting investment decision-making – more investors are incorporating ESG due diligence into their investment decision-making as implementation of an ESG strategy is considered a critical indicator of long-term financial performance.  
• Enhancing internal control and governance – the process of obtaining external ESG assurance can identify control gaps and improvements to be made that would otherwise not have been identified.  

How can AAB help?

A recent study found that almost half of all FTSE 100 companies had to restate previously published climate and sustainability disclosures this year. This is not a good signal to the public or investors who are increasingly more aware of the value impact of ESG strategies on a company’s business model. The expectation is that if a disclosure is made, it should be right.  

ESG assurance is increasingly in demand and it is easy to see why given the potential for value creation and the impact of incorrect disclosure on a company’s brand. Given the growing societal focus on ESG information, we need assurance to build trust, reliability and credibility. 

At AAB, we work with organisations, investors, private equity, banks and other stakeholders to provide ESG limited assurance services on a range of topics and datasets, from carbon emissions to board diversity.  If you have any queries about ESG assurance or the value it can bring to your business, please do not hesitate to get in contact with Robbie Simpson, or your usual AAB contact.