Sustainability Reporting and the Way Forward for Sustainability Assurance

The rise of sustainability reporting has sparked apprehension among stakeholders and investors regarding its credibility. In this article, our experts concentrate on the IFRS Sustainability Disclosure Standards, established by the International Sustainability Standards Board (ISSB). Notably, the Financial Reporting Council of Nigeria (FRC) announced its intent to be an early adopter of these standards during the 27th Conference of Parties (COP 27) held in Sharm El-Sheik, Egypt. We delve into the reliability and effectiveness of these standards, addressing concerns surrounding their application in the realm of sustainability reporting.

Environmental, Social, and Governance (ESG) concerns are contributing to the emergence of sustainability reporting. In addition, stakeholder pressure, environmental pollution and degradation, labour issues, and ethical considerations, among others, have all contributed to the need for sustainability reporting. Sustainability reporting is now an essential part of an organization's decision-making process since it influences investment decisions; however, many stakeholders, particularly investors, users of an entity's general purpose external reporting and regulators, to name a few, are concerned about the reliability of sustainability reporting. As a result, the demand for assurance on sustainability reporting has increased. There are several applicable sustainability reporting standards; however, our focus is on the IFRS Sustainability Disclosure Standards by the International Sustainability Standards Board (ISSB), which the Financial Reporting Council of Nigeria (FRC) announced its intention to be an early adopter at the 27th conference of parties, COP 27 held in Sharm El-Sheik, Egypt. The IFRS sustainability disclosure is driven by the need for a global baseline for sustainability reporting.

The ISSB, on 26  June 2023, issued inaugural global sustainability disclosure standards, IFRS S1, General Requirements for disclosure of sustainability-related financial information, which sets out the overall requirements of an entity’s disclosure of all its significant sustainability-related risks and opportunities and IFRS S2, Climate-related disclosures which build upon the recommendations of the Task Force on Climate-Related Financial Disclosures(TCFD) and incorporates industry-based disclosure requirements derived from Sustainability Accounting Standards Board(SASB ). The issuance of the standard is an action noteworthy and commendable. The IFRS sustainability disclosure standards will help to further increase sustainability reporting and the need for assurance. IFRS S1 and S2 will be effective for annual reporting periods beginning on or after 1st January 2024.

Sustainability Reporting

IFRS S1: General Requirements for Disclosures of Sustainability-related financial information – According to the ISSB, the objective of IFRS S1 is to require an entity to disclose information about its sustainability-related risks and opportunities useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity. These sustainability-related risks and opportunities result from interactions between the entity and its stakeholders, society, the economy, and the natural environment throughout its value chain. The entity shall use all reasonable and supportable information available to it at the reporting date to identify these sustainability-related risks and opportunities and to determine the scope of the entity's value chain concerning each of the sustainability-related risks and opportunities.

Reasonable and supportable information utilized by an entity in preparing its sustainability-related financial disclosures should incorporate both entity-specific and general external environmental conditions. This comprises information on previous events, current conditions, and forecasts of future conditions when assessing the sustainability-related risks and opportunities that are reasonably expected to affect an entity's prospects. In the case of a significant event or significant change, an entity is required to reassess the scope of all affected sustainability-related risks and opportunities throughout its value chain.

IFRS S2: Climate-Related Disclosures – According to ISSB, the objective of IFRS S2 is to require an entity to disclose information about its climate-related risks and opportunities that are useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity. Climate-related risks and opportunities that could not reasonably be expected to affect an entity’s prospects are outside the scope of this Standard. IFRS S2 requires an entity to use climate-related scenario analysis to assess its climate resilience, using an approach commensurate with its circumstances.

To assess its circumstances, the entity shall consider its exposure to climate-related risks and opportunities and the skills, capabilities, and resources available to it for the climate-related scenario analysis. When performing a climate-related scenario analysis, an entity should also assess its circumstances. According to IFRS S2, an entity shall determine an approach to climate-related scenario analysis that enables it to consider all reasonable and supportable information available to the entity at the reporting date without undue cost or effort.

Such determination involves selecting inputs for the climate-related scenario analysis and making analytical choices about how to carry out the climate-related scenario analysis. In terms of measurement approach, inputs, and assumptions, an entity is required to disclose information about the measurement approach the entity uses in accordance with the Greenhouse Gas Protocol, the applicable method in a case where the entity is not using the greenhouse gas protocol and the emission factors the entity uses.

Sustainability Assurance

Although the International Standard on Assurance Engagements, ISAE 3000 (Revised), ISAE 3410, and the non-Authoritative guidance on Sustainability and Other Extended External Reporting Assurance Engagements (EER Guidance) are widely accepted and used to perform sustainability assurance engagements, there is still a need for standards that provide more specificity for assurance. The International Auditing and Assurance Standards Board (IAASB) intends to meet this need.

The Way Forward for Sustainability Assurance

Due to the demand for the development of an overreaching standard for assurance on sustainability reporting, the IAASB is currently working on a project that is responsive to the public's needs, supports the consistent performance of quality sustainability assurance engagements, is suitable across all sustainability topics, discloses information about those topics and their reporting framework, and is implementable by all assurance practitioners.

The following sub-topics provide some critical insights on sustainability reporting and assurance as it relates to the Nigerian business environment:

Stakeholders Impacted

  • Investors and Financial Institutions: Sustainability reporting gives information about the company's environmental, social, and governance (ESG) performance. ESG elements are now being considered by investors and financial institutions when making investments or providing loans to any organization.
  • The Community: Sustainability reporting reveals the company's efforts to reduce environmental pollution and degradation; and other relevant ESG issues. This contributes to developing trust between the company and the community in which it operates.
  • Business partners, government, and regulators: Business partners want to know about the ESG performance of the companies with whom they do business. Any negative impact the firm has on the environment might have a direct effect on its operations.   Sustainability reporting assists the government and regulatory bodies in monitoring compliance with existing regulations and assists the regulatory authorities in identifying the need for a new one.

Market Readiness and Impact

The passing into law of the Climate Change Act (2021), the launch of the Nigerian Energy Transition Plan [NETP] on August 24, 2022, and other innovative financing options like the debt for climate initiative show that the Nigerian market is more prepared than ever. Also, the FRC's commitment to early adoption of the ISSB's IFRS sustainability disclosure standards indicates that Nigeria has taken a proactive stance and undertaken a leading role. The Nigerian Exchange Limited (NGX) also announced a partnership with the International Finance Corporation (IFC) in the fourth quarter of 2022 to streamline the issuance of green, social, and sustainability bonds in Nigeria to improve financing for projects addressing climate and social issues. The partnership would promote knowledge sharing with market stakeholders and other exchanges in Africa with expertise in issuing green and sustainability bonds, as well as support the training and development of local verifiers for green bonds and the establishment of a sustainability board. Organizations would need to report their ESG performance to relevant stakeholders. As such, this would increase the need for sustainability reporting and assurance.

Challenges Envisaged

Greenwashing, the process of giving erroneous or misleading information about how environmentally and socially friendly a company's products are, is a likely challenge. With this perceived risk, transparency and stakeholder confidence in non-financial sustainability disclosures would be crucial. The choice of assurance in the context of sustainability, which could be limited or reasonable, may result in a risk of significant misrepresentation and a new expectation gap. Other challenges are anticipated, such as gathering valuable information on ESG performance, which will necessitate extensive data collection, internal coordination, and stakeholder participation, as well as determining the material ESG peculiar to a firm, as some firms may find it challenging to identify the most significant sustainability impact on their business.

How to prepare for the future

Organizations should stay informed, conduct a materiality assessment, improve data management, embrace evolving reporting practices, promote sustainability culture, and strengthen stakeholder engagement to prepare for the future of sustainability reporting and assurance.


Mazars in Nigeria provides sustainability services to meet clients’ needs for listed and non-listed businesses. These professional services include reporting and assurance, strategy and due diligence, Implementation and transformation, and sustainable finance, which provides support to financial institutions in responding to regulatory expectations, adhering to sustainability principles, and, more broadly, navigating the complex risks and making the most of opportunities emerging from the transition to a sustainable future.

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