Be reasonable: Increasing Confidence in Companies’ Climate-Related Disclosures (Part 1)

05 May 2025

Businesses are facing growing pressure for credible climate-related disclosures as expectations for corporate climate accountability increase. Regulators, investors, and other stakeholders are demanding reliable underlying climate-related data; confidence is critical.

Let’s explore why assurance is the foundation for building trust in companies' climate-related data and disclosures.

Climate-related disclosure requirements are becoming increasingly uniform and standardized, posing new regulatory challenges for businesses. The International Sustainability Standards Board’s (ISSB’s) International Financial Reporting Standards S2 guidance on climate-related disclosures has been widely adopted (wholesale, or with adjustments) by regulatory worldwide. These standards require companies to disclose in detail the material climate-related risks, opportunities, and financial impacts they face in the near- and long-term.

One of the key metrics of these standards is greenhouse gas (GHG) emissions, namely Scope 1, 2, and 3. GHG emissions require accurate and verifiable data to calculate.

Scope 1: Direct emissions from owned or controlled sources. Scope 2: Indirect emissions from the generation of purchased electricity consumed by the company. Scope 3: All other indirect emissions, such as those from the supply chain or the use of the company’s products.

Multiple climate-related disclosure regulations have included assurance requirements, recognizing them as essential for consistent, credible, and comparable reporting. But what does “assurance” mean? Besides regulatory compliance, what can companies gain from conducting assurance activities?

Generally speaking, there are two different types of assurance: limited assurance (LA) and reasonable assurance (RA). Let’s take a look at how each type affects a company’s reporting.

	European Union	Australia	Brazil	South Korea	Singapore
ISSB-Aligned?	Yes	Yes	Yes	Yes	Yes
Assurance	LA	LA > RA	LA > RA	LA	LA

ISSB = International Sustainability Standards Board; LA = limited assurance; RA = reasonable assurance.

Near-term ISSB alignment and assurance requirements in major regulatory jurisdictions. Australia and Brazil will eventually require RA   for financial years commencing in 2028 and 2026 respectively.

Comparing Limited and Reasonable Assurance

Limited assurance: it’s like snorkeling

If you’ve ever tried snorkeling, you know it gives you a glimpse of the seabed and lets you dive a little, but your view and time “beneath the surface” is limited.

In a similar way, LA is the most commonly sought assurance—‍it’s less resource-intensive, but still provides meaningful information. This route is often enough for assurers to assess the reliability of a company’s controls and processes.

Given this “limited” approach, conclusions derived from LA are expressed in a “negative” manner: for example, “there is no evidence to suggest that the reported results are not materially correct, are not a fair representation of the data, or are not prepared in accordance with the criteria/standard.”

Reasonable assurance: dive up close

Diving, unlike snorkeling, lets you get close to the corals and appreciate the details.

Similarly, RA consists of more detailed and comprehensive checks than LA. Rather than pursuing limited conclusions in a “negative” manner, RA conclusions are based on actually reducing the risk to an acceptably low level. Hence, assurers need to “dive deep” into the company’s operations, data, controls, etc., even performing mandatory site audits, to gain that high assurance level.

The comprehensiveness of RA allows conclusions to be expressed in a “positive” manner: for example, “the reported results are materially correct, are a fair representation of the data and information, or are prepared in accordance with the criteria/standard.” 

The table below summarizes the key differences between LA and RA.

Aspect	Limited Assurance	Reasonable Assurance
Risk level	Higher, but acceptable risk	Lower, but not absolute assurance
Procedures	Fewer, but still results in meaningful assurance	Much more detailed and comprehensive
Resources Used	Fewer, with quicker turnaround time	Considerably more time and resources
Conclusion	“Negative” expression	“Positive” expression

The Case for Reasonable Assurance 

It’s natural for businesses to gravitate towards a cheap and quick option. However, as companies are increasingly asked by their stakeholders to identify and manage their climate-related risks, opportunities, and financial impacts with evermore certainty, there is a growing case for proactively seeking RA.

Today, many climate-related financial disclosure regulations require a form of assurance, which is gradually progressing towards a form of RA. Companies can benefit from seeking RA early and being ready once regulatory changes set in.

But RA is not only about anticipating regulatory hurdles: it’s also about opportunity recognition. RA activities help companies:

• Ensure complete reporting: GHG emissions must adhere to principles of completeness and relevance. This means that companies should account for all emission sources and activities ”, and their GHG inventories should appropriately reflect their emissions. Ensuring these principles are met can be challenging, especially when starting a GHG inventory for the first time. RA can overcome these challenges by looking extensively into the company’s activities and clarifying its organizational and operational boundaries.
  
  
• Set solid foundations: Obtaining high-quality primary data takes time, especially when it comes to supplier data. Data quality is the foundation of any GHG effort: it influences choices of calculation methodology (especially for Scope 3 reporting) and has critical outcomes on the results of the calculations. This is particularly important when establishing base-year emissions. Material misstatements in base-year emissions could have cascading consequences for setting reduction targets, implementing decarbonization strategies, and tracking performance; a foundational data error would require a company to recalculate its base-year and any subsequent-year emissions. By pursuing RA from the beginning, companies reduce this risk by diving not only into their data, but into their data collection/ management systems and calculation methodologies, and ensuring the right standards are followed closely from the start. With an early foundation in RA, companies can fine-tune internal operations with ease in the future.
  
  
• Validate decarbonization strategies: As companies progress and set reduction targets, they will need to identify cost-effective and feasible decarbonization actions. This naturally comes with risks, as certain decarbonization efforts require significant investment. RA can help validate the effectiveness of pilot projects and build a stronger case before significant investment is made.

Overall, the benefits of undertaking RA early outweigh the initial cost. RA helps companies make complete, accurate, and comparable disclosures that directly influence internal and external decision-makers—‍and key stakeholders—‍in both the near- and long-term.

This forms Part One of a two-part series on RA for climate-related disclosures. Stay tuned for Part Two, “The finer details: preparing for RA”.