Three Things Learned Three Weeks Before Sign-Off
You are the newly appointed head of sustainability at a listed industrial group. Three weeks before the sustainability statement is due for approval you learn three things. First, the firm that will issue limited assurance on the statement is also drafting the group's climate transition plan under a €340,000 consulting contract signed by the CFO. Second, the general counsel tells you that an environmental permit exceedance at one plant, which led to a €120,000 fine in January, should not be mentioned because "it is not material at group level and it is legally privileged". Third, a junior analyst shows you that an emission factor used for 14% of Scope 3 category 1 appears to be copied verbatim from a competitor's published report, including an obvious typographical error in one of the units. The CFO wants to file on time and has asked you to "keep it simple and not create problems three weeks out".
1. What is your assessment of the assurance firm also drafting the climate transition plan, and what do you do about it?
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This is a self-review threat that cannot be managed by safeguards alone.
Drafting the climate transition plan is a management responsibility, and the plan is one of the matters the assurance provider will later opine on - including whether the plan is supported by evidence and consistent with the rest of the statement. The practitioner would be evaluating work it produced. Under the IESBA Code and the sustainability assurance standards, that combination impairs independence: a firm cannot objectively assure its own output, and the fee relationship also creates a self-interest threat.
Actions:
- Document the facts: contract value, scope, who signed, the dates, and the assurance scope.
- Escalate to the audit committee, which is responsible for the assurance relationship - not to the CFO who signed the consulting contract.
- Choose one. Either the firm withdraws from drafting the transition plan (handing drafting to another provider and limiting its own role to factual review), or the assurance engagement moves to a different firm. There is no version where the same team does both.
- Review the wider relationship - other services, fee dependence, secondments - and confirm whether any part of the transition plan will appear in the assured statement.
- Disclose the independence assessment where governance disclosures require it.
The filing deadline does not change the answer. A delayed or qualified conclusion is cheaper than an independence breach discovered after publication.
2. How do you respond to the general counsel's instruction on the permit exceedance and the fine?
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"Not material" and "legally privileged" are different arguments, and neither disposes of the question.
- Materiality. €120,000 may be immaterial in financial terms, but materiality is not only financial. The exceedance may indicate a material negative impact on the environment (pollution), a governance matter (fines and incidents), and a weakness in the group's compliance controls. Assess it as an impact, risk and opportunity - including whether the permit breach is isolated or systemic - not as an accounting entry.
- Privilege. Legal professional privilege protects legal advice; it does not authorise omitting a required disclosure from a management report. Ask the general counsel to put the reasoning in writing, including whether the underlying facts are already public - permit registers and enforcement notices frequently are.
- Your position. Record the instruction, your assessment and the evidence. Escalate to the audit committee. If you are asked to sign or endorse something you believe misstates the position, refuse. For a listed group, a misleading statement in the management report also engages market-abuse rules and directors' duties.
- Practical resolution. Proportionate disclosure - the incident, the fine, the remediation and the control change - is almost always less damaging than silence discovered later by a regulator or an NGO. Frame it that way to the CFO: disclosure is the lower-risk option, not the higher one.
3. What do you do about the suspected fabricated emission factor, both for this report and for the process?
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A verbatim copy carrying the same typo is strong evidence of fabrication, and no disclosed figure can rest on it.
- Quarantine the factor. Identify every datapoint that used it - it feeds 14% of category 1 - and treat those figures as unsupported until replaced.
- Substitute a defensible secondary source (industry average, published database, input-output factor) and disclose that this portion of the category is estimated and why.
- Ask the supplier for the underlying calculation, the source of the factor, and the boundary it covers. Their answer, or their silence, is itself evidence.
- Record everything - what you found, when, who you told - and preserve the original. Do not delete it.
- Escalate through the speak-up or whistleblowing channel if you suspect deliberate misstatement, and inform procurement and legal so that the supplier relationship is reviewed.
- Tell the assurance provider proactively. They will test category 1; discovering it themselves converts a data-quality issue into a credibility issue for you.
- Fix the process. Require a documented source for every factor, a supplier data-quality questionnaire, and a sampling check on supplier submissions before they reach the consolidation.