Audit committees will have enhanced responsibilities under the new directive. Along with monitoring the company’s sustainability reporting process and submitting recommendations to ensure the integrity of the sustainability information provided by the company, they will need to:
- Monitor the effectiveness of the company’s internal quality control and risk management systems and its internal audit function
- Monitor the assurance of annual and consolidated sustainability reporting
- Inform the company’s administrative or supervisory body of the outcome of the assurance of sustainability reporting
- Review and monitor the independence of the statutory auditors or audit firms
Role of auditors
Under the proposed directive, there will be a requirement for the company’s statutory auditor, or an independent assurance services provider, to provide limited assurance around a company’s reported sustainability information.
All providers of assurance around sustainability information will need to be subject to the same high level of standards, qualifications, objectivity, independence, ethics, quality assurance and oversight that statutory auditors of financial statements are subject to currently.
Oversight and enforcement
EU Member States will be required to extend their current frameworks for providing public oversight of statutory auditors and audit firms to cover assurance of sustainability reporting.
The individuals within the company, who are responsible for the annual report will be required to confirm, to the best of their knowledge, that the management report is prepared in accordance with the sustainability reporting standards.
In future, the EU CSRD will contribute to a fully sustainable economic and financial system in accordance with the European Green Deal and the UN Sustainable Development Goals. With ESG emerging as a critical concept for stakeholders and organizations, all large and listed companies in the EU will need to make significant changes to how they disclose sustainability information, leading to far-reaching changes that will strengthen the nature of corporate performance and financial reporting. The first set of sustainability reporting standards is expected to be developed as early as October 2022.