ESG Guide for Audit Committees by KPMG
- TY Lee
- May 5
- 2 min read
Updated: May 10
The ESG Guide for Audit Committees by KPMG provides insights into the evolving landscape of Environmental, Social, and Governance (ESG) auditing, focusing on regulatory trends, financial statement impacts, and assurance considerations.
Key Highlights:
🔹 ESG Reporting Standards: The guide reviews major sustainability reporting frameworks, including ISSB, SEC, CSA, and EU standards (e.g., CSRD). It highlights ongoing shifts from voluntary to mandatory ESG disclosures.
🔹 Financial Implications: ESG risks—especially climate-related ones—are increasingly affecting financial statements. The guide discusses internal control requirements, climate risk disclosures, and how ESG factors influence impairments, provisions, and fair value measurements.
🔹 Audit Committee Oversight: Given the rapidly evolving ESG regulations, audit committees must ensure data integrity and compliance. This includes monitoring internal controls over ESG reporting, enhancing board oversight, and preparing for investor-driven ESG scrutiny.
🔹 External Assurance Trends: Organizations should begin preparing for limited or reasonable assurance over ESG disclosures. The guide discusses assurance frameworks (e.g., CSAE 3410 for greenhouse gas statements) and how businesses can strengthen data governance to meet future assurance requirements.
In short, ESG audits are becoming more rigorous with tighter reporting standards, direct financial impacts, and growing investor expectations. Companies must proactively enhance governance, reporting accuracy, and external assurance readiness.
Breakdown of ESG Standards & Assurance Details
📌 ESG Reporting Standards
The guide covers various global ESG disclosure frameworks that impact audit committees:
- ISSB (International Sustainability Standards Board): Investor-focused disclosures aligned with IFRS. Designed for integration into mainstream financial reporting.
- SEC (U.S. Securities and Exchange Commission): Requires disclosures on climate risks, financial statement impacts, and Scope 1 & 2 greenhouse gas (GHG) emissions.
- CSA (Canadian Securities Administrators): Canada's ESG disclosure proposal is evolving and expected to align with SEC and ISSB rules.
- EFRAG (European Financial Reporting Advisory Group): The EU's Corporate Sustainability Reporting Directive (CSRD) mandates detailed sustainability disclosures, including double materiality (financial + impact reporting).
- TCFD (Task Force on Climate-related Financial Disclosures): A foundational ESG framework influencing global regulatory proposals, emphasizing corporate transparency on climate risks.
📌 Financial Statement Impacts
ESG considerations are increasingly integrated into financial reporting, affecting:
- Asset impairments & fair value adjustments (e.g., stranded fossil fuel assets).
- Provisions & contingent liabilities from environmental risks and litigation.
- Onerous contracts & increased operational costs due to carbon pricing and regulatory shifts.
- Going concern evaluations, as ESG risks affect access to capital and investor sentiment.
📌 External Assurance for ESG Reporting
ESG disclosures are increasingly subject to independent verification to ensure credibility:
- Limited Assurance: Moderate level of verification using analytical procedures (e.g., inquiry-based reviews).
- Reasonable Assurance: A higher standard akin to financial audits, requiring extensive testing and internal controls validation.
- CSAE 3410: Specific assurance standard for Greenhouse Gas (GHG) emissions in Canada.
- ESG Assurance Frameworks: Many firms now seek third-party verification for their ESG metrics, especially carbon emissions and sustainability-linked financing.
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