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In late March 2023, the Committee of Sponsoring Organizations (COSO) released “Achieving Effective Internal Control Over Sustainability Reporting (ICSR) – Building Trust and Confidence through the COSO Internal Control – Integrated Framework.” This new guidance is founded on COSO’s 2013 framework for evaluating and improving internal control systems over all types of business information used for external reporting and enterprise decision-making. Called ICIF-2013, this framework (and its predecessor ICIF 1992) has been used internationally to provide internal control over financial reporting  (or, ICFR), as required by United States (US) Sarbanes Oxley legislation, for example. The newly released ICSR applies ICIF-2013 principles to sustainability, allowing the delivery of more reliable and decision-useful data for use by multiple stakeholders.

COSO, which was formed in 1985 to respond to concerns about the quality of financial reporting in the US, is made up of five global accountancy and auditing organizations: the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), The Institute of Internal Auditors (IIA), and IMA (Institute of Management Accountants). Jeff Thomson, recently retired president and CEO of IMA, former COSO board member and a principal author of the supplemental guidance, spoke to the importance of ICSR, and why it is particularly valuable at this moment.

“The short answer is ESG and sustainable business management are going mainstream. Regulators and standard setters both globally and nationally are increasingly requiring that organizations report on the risk of climate-related events to their financial outcomes now and into the future. For example, the ISSB is expected to issue final rules on general disclosures and climate risk disclosures by June 30, and the U.S. SEC is expected to issue its final rule on climate risk disclosures soon.”

The demand for sustainability reporting guidance has grown not only from regulators and standards setters, but also from other organizational stakeholders, according to Thomson.

“There’s a call to action from investors saying to companies that they want to take a multidisciplinary approach for outcomes that also demonstrate the impacts organizations are having to create a stronger society and safer planet – a focus on people, profits, and planet and organizations that genuinely achieve “profits with purpose.” Rating agencies are increasingly evaluating companies not only based on financial ratios but also based on their commitment to sustainability initiatives. And employees want to work for companies that care about sustainability and achieving profits with purpose, which along with increasing emphasis on data analytics and tech is a great way to attract millennials and tell the story of an exciting profession that makes a difference. So if we agree to the premise that ESG and sustainable business management are going mainstream, then we have to ask: do we have trust and confidence in the data? The nature of ESG is different. It is more estimated, qualitative, unstructured and forward-looking, involving many different departments and groups in and outside of the organization’s value chain. Climate risk, the impacts of greener tech, transitions from current energy sources to future sources including data modelling, pricing, funding, and more —we have to have faith in the data for external reporting and internal decision-making involving multiple stakeholders. That’s where internal control comes in. It’s good for business and is a responsibility for all parts of the business even if facilitated by the finance and accounting team.”

The new COSO ICSR supplemental guidance is digitized and uses illustrations, interviews, and case studies to demonstrate how ICIF-2013 with its 5 components, 17 principles and 75+ applications-oriented “points of focus” can be used in this evolving set of business information that serves investors and other stakeholders.

Jeff Thomson emphasized that this is also very much an opportunity for professional accountants, and in particular CFOs and controllers, to tell the whole story of an organization’s performance, from short-term financial outcomes to longer-term impacts on people, society, and the planet whose scarce resources we all share.

“We believe in the CFO team being a convener, which is a key tenet of IFAC and its Professional Accountants in Business Advisory Group. What better team inside the organization to report, manage, analyze, and assess financial and non-financial outcomes in tandem than the CFO team with their data-driven mindset and ethical code? It’s an incredible opportunity for us as professional accountants and strategic business partners to make a difference for multiple stakeholders.”

The Committee of Sponsoring Organizations’ “Achieving Effective Internal Control Over Sustainability Reporting (ICSR)” can be accessed here.

Stathis Gould

Director, Member Engagement and PAIB

Stathis Gould is responsible for IFAC member engagement and leads IFAC’s advocacy for professional accountants working in business (PAIB) and the public sector. A key element of his work is developing thought leadership and guidance in support of enhancing the recognition of and confidence in professional accountants as CFOs, business leaders, and value partners in the context of sustainability/ESG, data and digital transformation, and other emerging business trends and issues.

Before joining IFAC, Stathis worked at the Chartered Institute of Management Accountants (CIMA), where he was responsible for planning and overseeing a program of policy and research that promoted and developed management accountancy. Prior to serving the accountancy profession, he worked in various roles in the private and public sectors in the UK. There, Stathis delivered financial and performance management in the National Health Service and worked for a technology company responsible for delivering the localization of software and content across the globe.

Stathis holds a BA in European Business Studies, an MBA (with distinction), and a postgraduate certificate in Environmental Management, Economics, and Policy. He is a member of the Institute of Management Accountants.

Annie Brinich

Annie Brinich is a communications manager at the International Federation of Accountants. She manages and edits IFAC's Knowledge Gateway.