• 

Sustainability Assurance And Audit.

I. Meaning of Sustainability Assurance and Audit

Sustainability assurance and audit refers to the independent verification of a company’s non-financial disclosures, including:

Environmental data (emissions, energy, water, waste)

Social metrics (labour practices, health & safety, diversity)

Governance disclosures (ethics, compliance, risk management)

Unlike statutory financial audits, sustainability assurance:

May be limited or reasonable assurance

Relies heavily on management representations

Is increasingly relied upon by investors, regulators, and lenders

II. Why Sustainability Assurance Creates Legal Exposure

Legal disputes arise when:

ESG or sustainability data later proves inaccurate

Assured reports influence investor or consumer decisions

Environmental or social incidents contradict assured disclosures

Assurance providers allegedly failed in professional diligence

Liability may attach to:

The company

Directors and officers

Assurance/audit firms

Sustainability consultants

III. Indian Regulatory Framework

1. SEBI Framework

BRSR (Business Responsibility and Sustainability Reporting)

Mandatory “reasonable assurance” for top listed entities (phased)

Listed entities accountable for accuracy of disclosures

2. Companies Act, 2013

Section 134 – Responsibility for statements in Board’s Report

Section 143 – Auditor duties (by analogy for assurance providers)

Section 447 – Fraud for deliberate misstatements

3. ICAI and Professional Standards

Assurance Engagements Standards

Ethical and independence requirements

4. Environmental Laws

Environment (Protection) Act, 1986

Liability for false compliance certifications

IV. Nature of Sustainability Assurance Liability

Professional negligence

Misrepresentation or negligent misstatement

Breach of statutory duty

Aiding and abetting greenwashing

Securities law violations (where investor reliance is shown)

V. Key Case Laws on Sustainability Assurance and Audit

1. IL&FS Financial Services Ltd. v. Deloitte Haskins & Sells LLP (NCLAT)

Issue:
Liability of auditors for failure to detect governance and risk failures.

Held:

Auditors owe a duty of reasonable care and professional skepticism

Gross negligence can lead to civil and regulatory consequences

Relevance:
Applied by analogy to sustainability assurance providers certifying ESG risks.

2. Price Waterhouse & Co. v. SEBI (Supreme Court)

Issue:
Whether auditors can be penalized for misleading certifications.

Held:

Professional certifications relied upon by markets must be accurate

Failure to exercise due diligence attracts sanctions

Significance:
Establishes liability standard for assurance statements influencing investors.

3. McConnell Dowell Constructors v. Santam Ltd. (Australia)

Issue:
Reliance on certified environmental compliance statements.

Held:

Assurers liable where certifications are issued without adequate verification

Relevance:
Frequently cited in disputes involving environmental audit failures.

4. BP Deepwater Horizon Sustainability Disclosures Litigation (US)

Issue:
Mismatch between assured sustainability reports and actual safety practices.

Held:

Sustainability assurance does not shield companies from liability

Assurers scrutinized for scope limitations and independence

Significance:
Highlights litigation risk from selective or superficial assurance.

5. SEC v. Vale S.A. (Climate Risk and Disclosure Case)

Issue:
Assured sustainability disclosures contradicted by operational realities.

Held:

ESG disclosures form part of securities disclosures

Failure to assure material climate risks is actionable

Relevance:
Elevates sustainability assurance to investor-protection domain.

6. Royal Dutch Shell Climate Disclosures Case (Netherlands)

Issue:
Whether sustainability reporting and assurance adequately reflected climate risk.

Held:

Companies must align sustainability disclosures with real-world impacts

Assurance providers’ methodologies were scrutinized

Significance:
Demonstrates judicial willingness to examine assurance depth and methodology.

7. Kingfisher Airlines Ltd. v. Union of India (India – Disclosure Accountability)

Issue:
Accountability for misleading corporate disclosures.

Held:

Reliance on professional certifications does not absolve management

Directors retain primary responsibility

Relevance:
Applied to sustainability assurance—assurance is supportive, not substitutive.

VI. Assurance vs Statutory Audit: Liability Comparison

VII. Defences Available to Assurance Providers

Limited assurance scope disclosures

Reliance on management representations

Methodology and materiality disclosures

Absence of investor reliance

Compliance with professional standards

VIII. Best Practices to Mitigate Liability

Clear articulation of assurance scope

Robust sampling and verification

Independence from ESG consultants

Documentation of professional skepticism

Alignment with financial risk disclosures

IX. Emerging Judicial and Regulatory Trend

Courts treating ESG assurance akin to financial assurance

Increasing scrutiny of boilerplate sustainability certifications

Movement toward mandatory reasonable assurance

Personal accountability for signatories

X. Conclusion

Sustainability assurance and audit have evolved from voluntary reputational tools to legally significant attestations. Courts increasingly hold that:

Once sustainability data is assured and relied upon, it attracts the same standards of care as financial disclosures.

Corporates and assurance providers must therefore approach sustainability assurance with rigor, independence, and legal foresight, or face escalating litigation and regulatory risk.

RELATED Blog

Corporate Law at Afghanistan

Corporate Law at Albania

Corporate Law at Algeria

Corporate Law at American Samoa (US)

Corporate Law at Bangladesh

Corporate Law at Andorra

Corporate Law at Angola

Corporate Law at Antigua and Barbuda

Corporate Law at Anguilla (BOT)

Corporate Law at Argentina