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Auditing ESG reports about climate change and sustainability

Auditing ESG reports about climate change and sustainability

Auditing ESG reports on climate change and sustainability

Marie-Laure Delarue is the global assurance vice chair at EY and discusses how accounting firms can offer audit and assurance services to assist companies with their ESG reporting as well as the formation of the International Sustainability Standards Board.

Below is the transcript

Michael Cohn: (00:03)
Hello, welcome to another episode on the air accounting today’s podcast. This is Mike cone of accounting, and Deko global insurance, vice chair at St. Young, joins us today. Welcoming lo

Marie-Laure Delarue: (00:16)
Thanks, Michael. It’s great to be with your today. Oh,

Michael Cohn: (00:20)
It is. It’s great to get to know you. Marie Lauren, you attended the 26th United Nations Cup climate change conference in Scotland. Uh, what did you hear about sustainability reporting?

Marie-Laure Delarue: (00:34)
That was, that was, fantastic because the ISS B, uh was officially launched. It was really, um… a long, more delayed launch because it’s something that investors preparers regulators, auditors really expect to have. It was an important announcement not only for reporting but also for the progress in ESG, uh.

Michael Cohn: (01:21)
Yeah. Yeah. I have been hearing a lot about this IB, and it seems like it is starting to, to be a global standard centre for sustainability reporting. I now understand that the value reporting foundation, which includes the sustainability accounting standard board and the international integrated report council, is going to be merged into that along with climate disclosure standards board. Um, do you think that all this consolidation around standard setting is going to help with, um? Sustainability reporting?

Marie-Laure Delarue: (01:54)
Yes, it is, it will certainly help. We also know that the other standard sets are also working on disclosures. Although they might not all end at the exact same place, having ISS be the custodian, what we can refer to as a global baseline, will provide consistency and clarity. It is important that regulators in more countries are mandating ESG disclosures. They also make sure that auditors, corporates, and auditors provide clear, comparable information. Sometimes, they will even request assurance from third parties. So, I believe that this will accelerate, not only consistent metrics adoption but also the adoption, uh., of plans to really make progress towards, or in line with, the famous 1.5 degree objective. Oh,

Michael Cohn: (03:10)
That’s right. Yeah. That’s for, the, um, the uh… the number of degrees in Celsius that they want to prevent the global warming from accelerating to. And you think that sustainability reporting can help in achieving these types of goals?

Marie-Laure Delarue: (03:29)
Yes, definitely. But once again, reporting, uh. Michael is only the output. However, if we’re in a situation where we must disclose the output it will certainly accelerate the, um, buildup of, not just announcements around bold net zero targets but also the buildup, you know?, of real plans, milestones and steps that can be disclosed. It is the beauty and purpose of reporting that ensures that anything that is material to financial statements or to other stakeholders is consistently measured and reported. It goes beyond reporting. It’s about, um, you understand, making people accountable, making corporate corporations, uh… organizations accountable, and uh… making progress towards something that is truly important for society as a whole. Once again, auditors accountants, preparers are going to play an important role in the, um…in, in, towards, uh…a more sustainable, you know, planet.

Michael Cohn: (04:53)
I understand that UI has done some surveys about sustainability reporting, and how companies, accountants, auditors, and others accept it. Can you please tell me about some of your findings?

Marie-Laure Delarue: (05:08)
Yes, we have done two surveys. Um, investor survey and also, um… CFO survey. It’s really fascinating, Michael. First, it’s clear that the pandemic accelerated the focus on ESG metrics. Just because prob was a wake-up call for all of us, it shows that our planet is important and we need to take care of it more. It is also important to note that the private sector plays a significant role in this. It’s not just government. This is vital. So in the investor survey, it is clear that investors have radically changed how they view ESG metrics. They now consider it and take it into account. They have developed more sophisticated risk management strategies. They have improved their skills.

Marie-Laure Delarue: (06:04)
They have also adopted the methods. It’s encouraging. 89% of the investors we surveyed said they want ESG disclosure to become mandatory. This tells me something about their desire to have comparable and standardized metrics. It’s clear that investors view ESG from a CFO. There is an increase in awareness about the fact that their finance, in reporting, uh., in their controlling roles, they need ESG. After some pushback, I must admit, but now they recognize it. It’s clear that investors require more and that finance organizations need to focus on what is truly material. Survey respondents believe that finance organizations already provide the Metro part of the information needed to invest.

Marie-Laure Delarue: (07:18)
There is a gap. And I believe that the first goal of CFOs is to close this gap. They should also meet with investors to discuss future standards and make sure that they produce the metrics and information that investors actually need and take into consideration. That’s the first gap. The second issue is that finance organizations must be the ones to bring the ESG agenda into the core of corporate strategy. They must be present to accelerate adoption. This is quite clear. EY had also engaged in a broad dialogue with, um…, audit committee chairmen and board members. It is clear that more board members view the finance organization, the controllers as being at the spare head for, uh ESG measures, and ESG, um. adoption in the corporate strategy. Once again, it’s not finance and finance can do everything. Finance, however, is not able to do everything. However, they need to be more effective at promoting corporate adoption of ESG measures and targets beyond just board announcements.

Michael Cohn: (08:58)
That sounds wonderful. We’ll be taking a brief break, and then we’ll return with more, uh., from our interview with Mercury Law Gall Crew of EY. Hi, we’re back with, uh? accounting today and we’re joined, uh… again by Mar Deru from EY. Marie Lord, apologies. We’ve been talking about sustainability reporting and some of the findings from this survey by EY. I wanted to talk with Marie Lord a bit about the role of accountants, umm, and auditors in all of this. What role do firms such as UI play? And, uh. what kind of services do you offer clients?

Marie-Laure Delarue: (09:50)
Yes, it’s very interesting. There is a lot of media attention around the fact auditors should be the champions for ESG adoption. I believe this is a great opportunity and a fantastic challenge. First, we are all currently in the profession supporting the standard settlements in really defining the right standards. I believe this is, it is very important, you know to support the standard center. We are also preparing to provide more assurance, as we are currently engaging in investor conversations. Investors see financial and not financial reporting as equally important, and as such, expect auditors provide assurance to ensure that these metrics, um, you can be reliable, and are consistently measured.

Marie-Laure Delarue: (10:52)
Auditors must also keep up-to-date their auditing standout so that they are very visible and provide an adequate level of assurance. We also need to, um, really, um…, develop, EY has 1800 professionals who are specialized in climate change, sustainability. We plan to have 3000 by the end, uh. June 2022, and even 7,000 by the end, of fiscal year 25. It’s important because these experts, many are PhDs engineers, you can see, they really help us reskill auditors as well as our finance professionals to help our clients prepare reliable reporting. This includes collecting the right data and then measuring the impact on ESG metrics. Michael, perhaps that is interesting to you.

Marie-Laure Delarue: (12:02)
And I, I, just discovered, um, you’re right, that for the moment we come, when it comes to, uh greenhouse, uh gas emissions, very often we don’t actually measure them. Corporate companies calculate their emissions under certain assumptions. They don’t actually report what they actually, you know emit. This is the difference between measuring and calculating. I think we should encourage this shift towards, you understand, moving away from calculations really, uh? shifting to, um… measuring because at the final, what really impacts, or is it, the planet’s health is really measurement and calculation. This is a significant step that auditors can take by using technology and our people. We really help, um, the ecosystem shift towards real measurement.

Michael Cohn: (13:05)
Oh, and these measurements. Do you think that the new international sustainable standards boards that they’re setting up is going to make those kinds of measurements more comparable. We’ve seen all these different standards from different standard centres. Can this consolidate them, and make it easier to investors and auditors to, um, com compare like different measurements they’re seeing across clients and companies?

Marie-Laure Delarue: (13:31)
Yes, yes, absolutely. This is the essential. This is the most important, because at the moment there are many initiatives. However, these initiative are, you may know, called the famous alphabet soup. They have a lot of companies involved, you might say, in, you would guess, for the good. It is important to really try to move the needle. However, having a standard reporting regulator that aligns the metrics around the common common framework is very important. Also, we need to ensure that we don’t just discuss calculation on measurement but also include targets and how we can measure progress to our targets.

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Marie-Laure Delarue: (14:26)
They won’t share any more information about their physical risk. Okay. What are their transition risks? To ensure that we collectively make progress, it is essential to have these two types of risk, as well as common standards and measures, and auditing standards. This isn’t easy, Michael. This is difficult when you really dive into the metrics, you know, the ESG metrics. You realize that some of them can be quite complex. It is quite difficult to get it right. It is important to be precise and very specific about how you should measure them and disclose them. I always say, “Um, a qualitative description” because it just gives way to the preparer to narrate and explain the plan. A number is a number and you need to be clear about how to prepare it so it can be reliable.

Marie-Laure Delarue: (15:43)
It can be compared and audited. You have functional numbers and you have financial numbers. Although the literature on financial numbers is more advanced than that on non-financial, we still need these standards to be exact and prescriptive in order to measure the same things and make the same progress. This will take some time. We have seen a remarkable acceleration thanks to the support of many, uh. stakeholders. I am confident that there will be an unprecedented UN acceleration in reporting on ESG over the next few months.

Michael Cohn: (16:34)
That sounds amazing. Thank you so much. We’ve been speaking today with Marie Laura de, who is the vice-chair for global assurance at EY. Marie Laura, thank you for joining us today on our podcast.

Marie-Laure Delarue: (16:47)
We are very grateful. Michael, thank-you for your great questions, and for your time with me

Michael Cohn: (16:52)
Thank you everyone for listening to the, on-the air podcast with accounting today. This episode was produced and edited by accounting today with audio production and we whi show market. Please rate us and review our podcast on your favorite platform and check out all of our content on accounting. Dot com. Again, thanks to our guest marking Lo de of EY and for listening.



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