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AI assisted sustainability assurance can address market capacity shortage

April 24, 2023

80% of ESG reporting had limited assurance in 2021, a 3% drop from 2019

Technology can help the market improve its sustainability assurance regimes as the industry does not have the capacity “to mobilise armies” to conduct assurance, according to Ben Taylor, EY’s global climate change and markets leader.

In February 2023, the International Federation of Accountants (IFAC) published its sustainability disclosure and assurance trends from 2019-2021. The findings highlighted that 80% of ESG reporting had limited assurance in 2021, a 3% drop from 2019.

“I don’t think the market has the time and capacity to just assume we can mobilise armies of people doing that assurance, so the role of technology becomes very interesting and exciting.

“We’ve started investing quite significantly in the use of AI and machine learning to help analyse where we see problems or inconsistencies in that data,” says Taylor.

Taylor notes that most companies’ reporting is completed manually, so the use of technology allows firms to automate its reporting and delve deeper into where their challenges might lie.

“Even simply looking at a company, analysing the company’s production over all their sites, and then correlating that with all the carbon and water and waste reporting, and when you start seeing anomalies, you can think well why is that?” Taylor states.

One specific area where AI can help is by adding traceability for firms looking at carbon credits on a blockchain.

“Essentially, you’d have the traceability and the quality of the carbon credit linked into the blockchain, so you know what your credit is linked to,” he adds.

While the accountancy industry has already undergone a journey with analytics and technology regarding financial reporting, Taylor believes it is now an opportunity to apply this discipline to ESG reporting.

Digitising the ESG data process
Taylor suggests there will be an evolution around digitising the ESG data process within a company’s data reporting.

“I’ve talked to some companies that will email late at night, the night before reporting or sharing WhatsApp’s on specific data requests. That’s going to be quite hard for auditors or internal auditors to run any technology on,” notes Taylor.

He expects digitalisation to accelerate rapidly in the coming years, seeing multiple opportunities for improvement across everything from data sourcing to site assessment.

“You’re talking about getting safety data from factories, carbon data from energy consumption, pollution data from people, people at the waste facilities, all those different data sources.

“So using data technology for that, but also managing the workflow across all the different functions, through to analysing for exceptions through to generating reporting, it’s a big opportunity for companies to drive efficiencies,” he adds.

Is there a level playing field across the industry?
To try and ensure a level playing field across industries, Taylor says firms must understand the technology that is already out there and leverage what they already possess because many do not employ systems like Governance, Risk and Compliance (GRC) that are currently available to the market.

EY has worked in alliance with IBM to add a sustainability lens to its asset management systems, allowing firms to think about issues like carbon intensity.

Taylor states: “It might be cheaper for a company to replace the system earlier than they might have done if you take into account things like carbon tax. Such taxes can lead firms to replace old equipment when it might still work, and it still might be safe, and it might be cheap to run, but increasingly it’s carbon-intensive, and it’s going to drive up carbon cost.”

Moreover, there are several startups providing firms with carbon accounting solutions that supply scope, 1,2, and 3 emissions data that can be used on a subscription basis. Taylor believes this is a far more economical method rather than firms implementing their own solutions.

[Accountancy Age]

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