S&P 500 Analysis: ESG Reporting Continues to Evolve

Throughout my career, I’ve been focused on better understanding our financial reporting landscape, which continues to evolve at a rapid pace. One area that I have found myself particularly immersed in has been environmental, social and governance (ESG) reporting. It first hit my radar over a decade ago. Over time, large investors increasingly demanded that public companies be more transparent about the impact of climate-related risks on their business (the ExxonMobile shareholder vote in 2017 stands out as a watershed moment). Since then, discourse around ESG has only increased and global ESG reporting rules and regulations have established this area of corporate reporting as a fixture.

When I joined the CAQ in 2021, I became part of a several year effort to better understand how public companies are reporting and assuring ESG-related information. This effort, which analyzes S&P 500 companies and their ESG reporting practices, answers questions such as which reporting standards and frameworks companies are using, if they’re seeking assurance on this information, which organizations are performing the assurance services, and what standards those organizations use to perform their assurance engagements.

With the majority of companies in the S&P 500 reporting some form of ESG information, this is an area of corporate reporting that I believe is here to stay, though it is likely to continue to evolve. Here are my top observations from our 2024 S&P 500 ESG Reporting and Assurance Analysis.

Multiple standards and frameworks continue to be used to report ESG information

According to our latest report, which covers 2020 – 2022 reporting, S&P 500 companies continued to reference a variety of ESG reporting standards and frameworks, which they used to varying degrees. In 2022, we noted increases in the use of the SASB, TCFD, and GRI standards/frameworks with a slight decline in references to the Integrated Reporting Framework. In 2022, SASB, GRI and TCFD remained the most frequently mentioned reporting standards or frameworks. With the formation of the ISSB, we also found that 17 companies mentioned the ISSB in their ESG reporting – a number we expect to increase in 2023 and beyond.

While voluntary ESG reporting has continued to evolve, so too have regulatory reporting requirements. In the U.S., under the SEC’s final climate rule, public companies will be expected to provide climate-related disclosures in their annual reports and registration statements beginning with annual reports for the year ending December 31, 2025. In this blog, I share an overview of the rule’s final requirements.  Further, the 2023 California climate disclosure laws (SB 253, SB 261, and AB1305) and the EU’s Corporate Sustainability Reporting Directive will impact certain US companies’ ESG reporting going forward.

Assurance over this information continues to increase, including assurance from auditors

In 2022, there was an increase in companies obtaining assurance or verification over ESG-related reporting. The CAQ observed that 340 S&P 500 companies disclosed receiving some form of assurance or verification over certain ESG metrics in 2022, representing a 6% increase from the 320 companies that did so in 2021. Overall, 70% of reporting companies obtained assurance over some ESG information. The percentage of companies that obtained assurance and engaged public company auditors to perform their assurance engagements continued to increase, shifting from 18% in 2021 to 21% in 2022.

These insights reaffirmed what we know to be true: public company auditors play a critical role in serving the public interest and supporting the flow of reliable information for decision-making. Auditors comply with rigorous requirements for independence, firm systems of quality control, and subject matter competency. Auditor assurance over ESG metrics can enhance stakeholder trust and confidence in management’s assertions, data, and disclosures.

The scope of information subject to assurance continues to increase

The specific disclosures that S&P 500 companies sought assurance over varied. Some companies obtained assurance over select metrics related to GHG emissions and others sought assurance over a wider range of ESG metrics like water, energy, and waste metrics. Overall, the scope of information subject to assurance continued to increase with most companies assuring their greenhouse gas (GHG) emissions and at least 1 – 3 other ESG metrics. This differs from what we had seen in prior years, where most companies had elected to assure only their GHG emissions.

Certain assurance/verification providers’ descriptions of compliance with assurance standards indicate limited compliance

Looking at both the public company auditors and other assurance/verification providers who used the IAASB’s assurance standards to perform their assurance engagements, we explored how each described their application and adherence to certain ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information, requirements.

We looked for the assurance/verification provider’s adherence to the following reporting requirements:

The requirement to include (in the assurance provider’s assurance report):

• A statement that the engagement was performed in accordance with the assurance standard.
• A statement that the quality standards ISQC 1 or ISQM 1 (or other requirements that are at least as demanding) were applied and
• A statement that the assurance provider complies with the independence and other ethical requirements of the IESBA Code (or other requirements that are at least as demanding as the IESBA Code).

Overall, other assurance/verification providers’ descriptions of compliance indicated limited compliance with these requirements: roughly 20% did not indicate that their engagement was performed in accordance with the assurance standard, 43% did not mention use of any quality standards and 14% did not mention use of any independence or ethical requirements. Further, of the 64% of other assurance/verification providers that indicated use of an equivalent ethics code, the majority indicated that they had used their own code of conduct. In contrast, all public company auditors that applied the IAASB assurance standards, indicated compliance with each of the above IAASB requirements. Compliance with the IAASB assurance standards results in more consistent application of the standards and more comparable outcomes for report users like investors and other stakeholders.

In the report, we observed several other trends, such as increased reporting and assurance of all 15 different Scope 3 emissions categories and increased disclosures of net-zero or carbon neutral commitments.

With ESG remaining a topic of focus for our profession and as we monitor the impact of the U.S. Securities and Exchange Commission’s final climate-related disclosures rule, the CAQ remains committed to developing resources to support public company auditors navigating this landscape. Explore the full S&P 500 ESG analysis here.