The International Auditing and Assurance Standards Board (IAASB) has put forth a proposal for a new assurance standard focused on climate disclosures. Major legal and financial professionals would do well to pay close attention to this matter, given the extremely pertinent nature of the topic for businesses globally. The link to the proposal can be found here.
As noted by a 2021 article in the Wall Street Journal, there is a considerable challenge facing regulators and companies alike in terms of carbon emissions data. The central issue is two-fold: the difficulty in actually measuring the data and in verifying it. A cited academic explained the problems specific to “Scope 3” (a category that includes activities from assets not owned or controlled by the reporting company, but that the company indirectly influences). The academic described the ‘measurement, target-setting, and management of Scope 3 as a mess.’
These issues have led to what’s colloquially termed as “greenwashing”, which occurs when companies give a false impression of their environmental friendliness. This can manifest through misleading climate change data or overstatements of their green initiatives. As a result, both investors and other stakeholders are frequently concerned about the reliability of corporate disclosures about their environmental impact.
IAASB’s new assurance standard aims to address this problem directly, offering a framework for how companies can improve verification of their emissions data and other climate-related disclosures. This step is particularly crucial given the rapid growth in investor demand for reliable information on company’s climate risks and opportunities.