As ESG disclosures move from voluntary to mandatory, the role of the ESG auditor is now in the spotlight. Companies that provide ESG auditing and assurance services are no doubt seeing more client requests than ever before, but can they keep up with the demand? Faced with assessing compliance across a broad array of concerns for regulations that are virtually brand new, ESG auditors need systems and processes in place to help them and their clients achieve ESG compliance, even when the pressure is high.
ESG auditors face an avalanche of data
To audit a company’s ESG compliance disclosure, audit and assurance professionals are currently taking a manual approach, combing through vast volumes of documents (regulatory and voluntary reporting) to determine whether a company meets the standards of one or more sustainability reporting regulations or frameworks.
This manual approach is costly and time-consuming, particularly for those auditors (who currently make up a vast majority) without much ESG-specific experience. The new ESG market, which is emerging out of traditional finance and accounting practices, has created inconsistencies in how things are done and new challenges in measurement and data collection. The data that auditors need does exist — it’s just scattered across and hidden within hundreds of pages of documents, often prepared inconsistently and not stored in an easily accessible central location. The manual nature of document review is time-consuming and overwhelming, requiring tedious cross-referencing, fact-checking, and ensuring accuracy across multiple reports.
Assessing a company’s compliance by manually reviewing documents makes auditing extremely time-consuming and prone to errors, eroding profit margins and limiting capacity for taking on new RFPs and meeting the flood of new demand from the market, which will only increase as new regulations, such as the CSRD in Europe, and the SEC’s climate disclosure requirements in the U.S., both of which require third-party assurance.
The stakes for ESG compliance have never been higher
For the companies disclosing ESG data, getting it right has never mattered more. The legal and financial consequences of noncompliance with ESG-related regulations and disclosures are severe, but perhaps the real consequences may be the reputational damage that can result.
Much the same can be said for audit providers. The buck stops with them, and failures to catch inaccuracies or instances of noncompliance can land a serious blow to their firm’s reputation.
Audit teams say assessing ESG compliance is very difficult
Manifest Climate recently surveyed 200+ ESG and finance practitioners. To those that deal with ESG compliance, posed the following question:
On a scale of 1 (easy) to 10 (difficult), how challenging is assessing ESG compliance?
These professionals rated ESG assessments as a 7.8/10 — that is, very difficult. What makes it so challenging? There are three key obstacles standing in the way:
- Keeping up with the volume of requests: On average, participants conducted 200-300 compliance reviews annually — roughly one for every working day in the year.
- Upskilling: A new field facing high demand has led to a noticeable lack of true experts in the ESG space, with many professionals only recently making the leap from other careers. Developments within the ESG regulatory landscape change rapidly, making the learning curve even more challenging.
- Complexity: The global ESG regulatory landscape can seem to change almost overnight. While regulation in other fields, such as finance, may have been in place for years and be well understood, the same cannot be said for sustainability regulation. Given the newness of each regulation, there are few true regulatory experts available to help guide companies through the complexities of disclosure compliance.
The true cost of time-consuming audits
To many — even those in professional service firms — the old adage that time is money is forgotten in the busyness of daily life. Senior auditors may end up doing more themselves rather than delegating to juniors, and entire teams may do work by hand without realizing that a better alternative exists. Yet this has consequences. Here’s how manual audits affects those performing auditing and assurance services:
- At the company level, ESG audit and assurance providers will be unable to deliver on the sheer volume of demand currently coming through their doors. Less bandwidth means fewer proposals submitted, fewer projects won, and fewer dollars in the bank. Leaving money on the table is hardly optimal, but as long as their consultants are tied up in manual assessments, these providers won’t be able to capitalize on the full extent of the demand for their services. (Also, the longer your jobs take, the more expensive they are for the customer.)
- At the team level, ESG audit and assurance professionals are under constant pressure and held to tight timelines — but the vital importance of accuracy leaves them no room for cutting corners. Manual reviews are a surefire way to stretch your team to the brink and risk that something slips through the cracks.
- At the customer level, with regulations coming into effect, customer expectations and demands for fast turnarounds are increasing. Many companies are undergoing this exercise for the first time and won’t understand the time investment required.
Introducing the secret advantage of ESG audit and assurance teams
With the technology that’s available today, no team of highly trained professionals should be pouring over documents manually to find the data they’re looking for. A number of highly sophisticated solutions can help to streamline document review, such as automation tools, AI, and advanced data management systems. Though these tools are not yet widely adopted in the realm of ESG audits, the need for innovation in the field is urgent.
Manifest Climate is the AI compliance review tool for audit and assurance teams — the secret advantage that offers a first-pass attempt at compliance reviews for voluntary and mandatory ESG regulations . ESG audit teams can put Manifest Climate to work to review and pull data from hundreds of documents in minutes, producing a first-pass compliance review with full completeness that pinpoints areas of potential noncompliance and shows you where to focus your efforts on your second pass.
Document search or BYOD (bring your own documents)
Sometimes, even simply finding the right reports and documents containing the information you need is a challenge. Manifest Climate searches our repository of up to 80,000 available relevant reports (both regulatory and discretionary) from publicly traded companies within the Russel 3000 Index (includes the S&P 500 and DIJA, 97% of US companies). You can also upload your own documents. Between your own documents and our comprehensive database, Manifest Climate will pull the relevant data you’re looking for and reference where it found it, allowing you to trace back to the original source to review on anything that requires a closer look.
Processing speed
If you’ve seen ChatGPT write an essay, then you know just how fast AI can be. Manifest Climate’s AI-powered compliance review is instantaneous. Instead of consultants spending hours reviewing documents, Manifest Climate does this in seconds, providing a first-pass compliance review that consultants can work from. Straight away, this gives consultants a clear picture of what they’re working with, and starting points to dig into around noncompliance. This then makes their second pass (and ultimately their turnaround times) much faster — not to mention more accurate. Manifest Climate has been shown to be more accurate than humans when reviewing documents for ESG data. It references sources for every data point, pointing you to the exact paragraph, page, and document.
With manual reviews, saving time often comes at the expense of cutting corners. However, this is not the case when leveraging the help of an AI tool trained by years’ worth of manual reviews by ESG experts. With AI taking on the work of pulling documents and conducting a first review, ESG audit teams can conduct multiple levels of QA quickly, as all documents and data are organized and annotated.
AI trained by ESG experts
While a handful of AI tools are being explored for their potential to ease the burden faced by ESG audit and assurance teams, these are frequently created by technology experts, not ESG experts. True ESG experts are few and far between, but we have a whole team of them at Manifest Climate. Our proprietary AI has been built, trained, and QA-ed by our team of former climate and ESG consultants who have spent their entire working lives helping companies develop and report on sustainability initiatives. These experts know just how difficult it can be to get a clear picture of disclosure compliance, and have shaped our tool to provide exactly what ESG audit and assurance teams need to do their jobs better.
Multiple global regulations
Manifest Climate’s AI compliance review vets any company against SEC, CSRD, and OSFI B15 standards. In time, we plan to add more global regulations to our platform.
Conclusion: New tools for savvy ESG audit and assurance teams
Many ESG audit and assurance professionals believe they are being paid for their time. In reality, they’re paid for a job well done. In every profession, technology (and particularly AI-driven technology) is taking care of more and more of the manual tasks needed to get a job done, freeing up humans for the critical strategic work.
As audit and assurance providers, you can continue offering compliance reviews manually, or you can explore the few tools available today that can allow you to get the job done several times faster and with a higher degree of accuracy. Getting these tools working for you doesn’t take long, and it can very quickly allow you to offer a faster, and higher quality of service than your competitors. It will also cost you far less to produce, allowing you to either lower prices to increase market share or keep prices stable and capitalize on the difference.
The demand for ESG auditing and assurance is about to skyrocket.
Do you have the tools in place to capitalize on it?
