Limited vs Reasonable Assurance in CSRD: Differences and Business Impacts

The Corporate Sustainability Reporting Directive (CSRD) introduced new reporting requirements for companies, providing for a gradual transition from a “Limited Assurance” to a “Reasonable Assurance” on the sustainability of the information disclosed. This article explores the differences between these two levels of assurance, what they mean for companies subject to the regulation.

What is Assurance and Why is it Important?

Assurance in sustainability information is a process by which an independent auditor assesses the accuracy and credibility of the data presented by a company. The goal is to ensure transparency and accountability for stakeholders, including investors, customers, and regulators.

The CSRD, which replaces the Non-Financial Reporting Directive (NFRD), requires companies to adopt more stringent reporting standards and have a progressive assurance system in place to improve the quality of the information provided.

Difference Between Limited Assurance and Reasonable Assurance

The primary distinction between “Limited Assurance” and “Reasonable Assurance” lies in the level of assurance and depth of the audits performed by the auditor.

 Limited Assurance

– The auditor provides a moderate level of assurance that the information is free of clerical errors.

– The analysis is based on less thorough review procedures than “Reasonable Assurance”.

– Auditors may use methods of analysis based on interviews, desk reviews, and sample checks.

– The final report indicates that, on the basis of the procedures adopted, no evidence has emerged to suggest material errors.

 Reasonable Assurance

– The level of security offered is higher than “Limited Assurance”.

– Audit procedures are more detailed and include extensive testing of data, internal control systems, and business procedures.

– The auditor must gather convincing evidence in order to be able to conclude with reasonable certainty that the information is accurate and free from material error.

– This level of assurance is comparable to auditing financial information.

The Transition from Limited to Reasonable Assurance

The CSRD provides a progressive path for companies, which starts with “Limited Assurance” and, at a later stage, evolves towards “Reasonable Assurance”. This change has a significant impact on several aspects of business management.

 3.1 Impacts on Corporate Governance

– Companies will need to strengthen their internal governance and control systems to ensure that sustainability information is reliable and verifiable.

– You will need to actively involve the board of directors and audit functions to oversee the reporting process.

 3.2 Higher Costs and Investments

– Reasonable Assurance involves a more rigorous analysis and, consequently, higher costs for companies.

– Investments in technological tools, data management software and staff training will be necessary to ensure accurate and compliant reporting.

 3.3 Adjustments in Data Collection Processes

– Businesses will need to implement more sophisticated data collection systems to ensure traceability and accuracy of information.

– Standardization of reporting processes will become essential to facilitate review and reduce the risk of errors.

 3.4 Increased Risk of Legal Liability

– As the level of assurance increases, so does the legal risk for businesses in the event of discrepancies or errors in the information disclosed.

– It will be critical to establish robust internal control procedures to mitigate the risk of non-compliance.

Benefits of Switching to Reasonable Assurance

Despite the challenges and costs, the transition to “Reasonable Assurance” offers several benefits to companies:

– Increased Credibility and Stakeholder Trust: A higher level of assurance increases the confidence of investors, customers, and other stakeholders in the information provided.

– Better Access to Finance: Companies with robust and verified ESG reporting can benefit from better conditions of access to sustainable finance.

– Better Risk Management: Stricter reporting processes help companies identify and mitigate environmental, social, and governance risks.

– Alignment with International Standards: The CSRD is inspired by international frameworks such as the ISSB and GRI standards, making reporting more globally comparable.