CSRD: how to prepare for the audit of the sustainability report?

The objective of the CSRD is to improve the quality of ESG (environmental, social and governance) information published by companies and to harmonize the reporting rules for this extra-financial information.

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To do this, the European Union has published harmonized reporting standards, the ESRS, and requires an audit of all sustainability reports.

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How will the audit of your report take place? What are the points that will be checked by your listeners? How to build your report while anticipating and facilitating the audit? In short, how do you prepare for the audit?

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Here we go over the main steps of auditing the sustainability report so that you can understand what is expected by auditors and thus anticipate and ensure the compliance of your report. In this article, you will also be able to download our guide dedicated to sustainability auditing, in which you will find the analysis of Audrey Leroy, auditor, partner at BDO France and responsible for the firm's ESG offer.

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1. Who is an auditor and how should one be appointed?

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The sustainability report can be audited by an auditor with a “sustainability visa” or by an independent third party organization (OTI) accredited by the French Accreditation Committee (COFRAC).

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The list of professionals who can audit a sustainability report is available on the website of the Haute Autorité de l'Audit (H2A), in following this link.

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You can appoint the auditor who already has the mandate to certify your accounts (provided that he has a sustainability visa) or choose another auditor or an OTI. You can also name one or more listeners.

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The appointment of the auditor is a decision that falls under the ordinary general meeting of the company. The auditor then draws up a mission letter in order to explain the terms and conditions of his intervention.

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2. The main steps of the sustainability report audit

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The audit of the sustainability report is based on 4 audit components:

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• the conformity of the double materiality analysis and the respect of the CSE's obligation to consult
• the compliance of the information with the ESRS
• compliance with the requirements of the Taxonomy framework
• compliance with the marking requirement

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These are these 4 main axes that we detail below.

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2.1 The verification of the conformity of the double materiality analysis

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First of all, let's remember that double materiality analysis is the process that will allow the company to determine its material sustainability challenges and therefore the information that it will have to publish in its sustainability report. This is a fundamental step in the construction of the report and the process to carry out this double materiality analysis is defined in the ESRS. It is this compliance with the ESRS of the double materiality process that will be audited.

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In detail, this means that auditors will check:

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• identification of stakeholders: The auditor ensures that the company has implemented a process to identify its stakeholders and the associated impacts, risks and opportunities.
• understanding the context of the company: value chains, internal documentation...
• identifying and describing impacts, risks and opportunities
• the evaluation (or scoring) of impacts, risks and opportunities: the auditor comes to check the process put in place, for example what are the criteria used by the company to assess the extent, extent and probability of occurrence of positive impacts? Or what are the criteria used to assess the probability of occurrence of risks and opportunities and the potential magnitude of their financial effects? Did the company also take into account the right time horizons?

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Attention, it is the impacts, risks and opportunities (IRO) that must be rated and not the issues. Following the rating, several IROs can be grouped under the same challenge for greater readability but it is not necessary to make the mistake of directly evaluating sustainability issues (see the interview with Audrey Leroy), this is a point that is verified by the auditors.

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Finally, the auditors ensure that the company's Social and Economic Committee (CSE) has been consulted on sustainability information.

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2.2 Monitoring the compliance of information with ESRS standards

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The auditors then check that the information published in the sustainability report meets the ESRS criteria.

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Concretely, this means that the auditors first check that the company has correctly indicated in its report the approach it has taken to establish the information present: scope selected, information on the value chain, etc.

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It is then the presentation of the published information that is audited. Does it respect what European texts require? In detail, the auditors will come to verify in particular that:

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• sustainability information has been published in a specific section of the management report
• the information is well structured in 4 parts: general information, environmental information, social information and governance information
• or when information from other reporting frameworks is published in this report, that the conditions for such inclusion are met.

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In a second step, the auditors will look much more precisely at the quality and relevance of the published data. However, given the volume of information expected in the report, auditors will not check the data one by one. They will therefore identify information to be checked specifically in advance. To select which ones they will check, several criteria will be taken into account. Here are a few examples:

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• the complexity of the organization of the company: the controls will not be the same if the company has only one activity on a single site or if it operates in several sectors, on several sites in several countries.
• The number of entities
• commitments made by the company, in particular those that are public
• the environmental, social and governance criteria on which the part of the variable remuneration of managers is indexed
• or the existence of litigation, litigation, litigation or controversies in the field of sustainability

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Once the information to be verified has been selected, how do the auditors work? Concretely, they will be able to carry out physical observations, inspections (on site or not) of documents, use sectoral databases or meet with the company's auditors (including subsidiaries for the parent company's report).

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2.3 Monitoring compliance with the information publication requirements set out in the Taxonomy framework

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The 3rd part of the sustainability report verification concerns the process applied by the company to identify its sustainable economic activities, with respect to the Taxonomy framework. This information should be included in the sustainability report.

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As a reminder, to identify its so-called sustainable economic activities, the company must follow a well-defined process. This requires:

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• determine its eligible activities, i.e. those that fall within the 16 sectors of activity defined as eligible for the Taxonomy by the European Commission.
• determine the aligned nature of eligible activities. To do so, the company must verify that these activities meet several conditions, in particular that they contribute to one or more of the six environmental objectives set by the Commission and that they do not cause significant harm to any of these objectives.
• determine the key performance indicators for eligible and aligned activities.

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The auditors will therefore check the process put in place by the company to determine its eligible and aligned activities, whether the analysis covers all of the company's economic activities (within its consolidated scope), whether the conditions for determining the alignment of eligible activities are respected, what methodologies were used, what methodologies were used or the consistency between the numerical information used for the key performance indicators and the data from the financial statements.

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Again, auditors will select specific information to check, based on numerous criteria, some of which were cited in part 1.2.

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2.4 Checking the conformity of the markup to the unique electronic information format

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Tags in XBRL format should be integrated into the report so that it can be read by computer and thus speed up the comparison between the reports.

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However, the tagging methodology has not yet been communicated by EFRAG. Hard to say more at this point.

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3. Our 3 tips to prepare for the audit of your report

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• Documenting your approach

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Transparency is the key word in sustainability reporting. Remember, CSRD is an obligation to say, not to do. The auditors will come to check that the processes you have put in place comply with the ESRS standards or the Taxonomy repository, that the data you publish is reliable or why you have decided not to publish this or that information. All of this needs to be explained, sourced, documented.

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This transparency will allow you to greatly facilitate your exchanges with the auditors and therefore to take this step much more easily, without the risk of having to look for new explanatory documents or having to go back to part of your report in the event of non-compliance.

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This is all the more true if you anticipate this requirement for transparency. You have every interest in integrating it from the beginning of your approach, especially during your double materiality analysis where you must be able to justify the process you have put in place in order to identify and rate the impacts, risks and opportunities.

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• Set up a team in charge of the project and involve all the key functions of the company

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The information expected in the sustainability report concerns a large number of company departments: from human resources to the purchasing department, including the financial department. The team in charge of the project must be able to integrate as many key functions as possible in order to set up reliable and qualitative processes.

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Moreover, the data to be reported is numerous, often involving subsidiaries, different sites, and different activities. Your data must be collected but also verified and consolidated. To ensure the reliability and traceability of this process and thus facilitate the audit, it is necessary to precisely determine the organization you want to set up.

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• Equip yourself with software dedicated to sustainability reporting

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Transparency, traceability, reliability and governance. Faced with these imperatives, it now seems essential for companies to equip themselves with a tool dedicated to sustainability reporting. It is this software that will allow you to document your approach as you go, to ensure the traceability of your data, to ensure that you do not forget anything in what is requested in the ESRS, to organize the collection and to write your report. The presence of a platform with a space dedicated to the auditor will allow the auditor to navigate your report, your various data and your justifications, thus making the audit phase much more effective and serene.

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In addition, it should not be forgotten that companies will have to integrate XBRL tags on sustainability information and that the management report must be provided in the Single European Electronic Format (ESEF). This is what some tools will allow once the tagging standards have been published.

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