Limited vs reasonable assurance in sustainability reporting

With the introduction of the proposal for the Corporate Sustainability Reporting Directive (CSRD) by the European Commission (EC), the world of assurance services for sustainability information faces a profound change. This proposal stipulates that sustainability information must be audited with limited assurance by the external auditor. The main objective is to increase the reliability and credibility of sustainability reporting within the European Union (EU). This limited assurance will be expanded to reasonable assurance in the future.

Limited assurance

From the year 2024, limited assurance becomes mandatory for reported sustainability information. Limited assurance is the first step in ensuring the accuracy and transparency of sustainability reporting. An independent auditor must certify that the reported information is in accordance with established standards. At this level of assurance, which is less extensive than reasonable assurance, the aim is to verify that no significant errors have been made in the statement of sustainability information during the reporting process. Additionally, it is verified that this information is consistent in all material respects with the relevant reporting standards. In this context, the organisation can expect the auditor to interview management and to inquire about, review and approve the methodology of data collection.

Reasonable assurance

Reasonable assurance represents a higher level of assurance compared to limited assurance. More extensive audits and procedures are carried out to obtain a high level of assurance regarding the compliance of sustainability information with relevant standards. This results in a statement from the auditor confirming that, based on the audit performed, the sustainability information is in their opinion correctly presented. During a reasonable assurance engagement, the auditor will adopt a more thorough approach. This includes various activities such as performing control tests, assessing and evaluating identified risks, collecting and verifying data, and evaluating the assumptions and methods applied in calculating emissions. However, this may result in higher costs for the organisation, as the auditor works more frequently, at different locations and for longer periods.

The gradual introduction of reasonable assurance gives companies time to develop processes and systems for transparent documentation and more thorough audits of their sustainability reports under the CSRD. This will ultimately provide assurance about the accuracy of reported information, contributing to greater transparency and strengthening stakeholder confidence in companies' sustainability efforts. The CSRD thus represents an important step towards more sustainable and transparent business operations within the EU.