In October, the Institute issued the Ethics Standards for Sustainability Assurance and Other Revisions to the Code Relating to Sustainability Assurance and Reporting (Sustainability Ethics Standards) to address critical risks impacting the integrity, quality and effectiveness of sustainability reporting and assurance. These risks include bias, conflicts of interest, pressure to act unethically, fraud such as greenwashing, noncompliance with laws and regulations (NOCLAR), and threats to practitioner independence. The Sustainability Ethics Standards establish fundamental ethical principles to be adhered to throughout sustainability reporting and assurance engagements.
Ethics Standards for Sustainability Reporting
Parts 1 to 3 in Chapter A of the Code of Ethics for Professional Accountants (Code) have been enhanced with specific ethical provisions for preparers of sustainability information. These provisions apply to professional accountants (PAs) and also offer useful guidance for non-PAs involved in preparing sustainability information.
Ethics Standards for Sustainability Assurance (ESSA)
Incorporated as Part 5 in Chapter A of the Code, ESSA is designed to uphold public confidence in sustainability assurance reports by strengthening the ethical conduct and independence of sustainability assurance practitioners (SAP). ESSA establishes the same high standards of ethics and independence for sustainability assurance engagements (SAEs) as those that apply to audits of financial statements.
Key features of ESSA
Independence standards
The independence standards under ESSA apply to assurance services in which a practitioner expresses an opinion on sustainability information that:
- Is reported in accordance with a general purpose framework designed to meet the common information needs of a wide range of users. The framework may be a fair presentation or compliance framework. Examples include the HKFRS Sustainability Disclosure Standards and the ESG Reporting Code issued by The Hong Kong Stock Exchange (HKEX); and
- Is required to be provided in accordance with law or regulation (e.g. HKEX Listing Rules); or is publicly disclosed to support decision-making by investors or other users.
(Ref.: paragraph 5400.3b and the Glossary in ESSA; HKICPA Key Impacts-ESSA)
NOCLAR
The Code already includes a framework that guides PAs in acting in the public interest when they become aware of an actual or suspected illegal act (i.e. NOCLAR), committed by a client or employer. For SAEs, and unless prohibited by law or regulation, ESSA requires the SAP to communicate any identified or suspected NOCLAR to the client’s auditor if the auditor is from the same firm. Taking into account the factors specified in ESSA, the SAP should consider communicating the NOCLAR to the client’s auditor if the auditor is from the same network or to a different firm or network (ref.: paragraph 5360.18b A1 in ESSA).
Group sustainability assurance engagements
ESSA defines “group sustainability information” as sustainability information covering more than one entity or business unit, with specific provisions for group SAEs detailed in Section 5405 of the Code. ESSA establishes independence requirements for the SAP in relation to entities within the reporting entity’s value chain, when such an entity is a value chain component (VCC) and assurance work is determined to be performed for the purposes of the group SAE. In these circumstances, SAP must comply with the requirements set out in paragraphs R5405.30A to 5405.34 A2 of ESSA. The IESBA’s Staff Questions & Answers (i.e. Questions 18 & 19) further clarify what constitutes “performing assurance work at a VCC” and outline the related independence implications.
Fee disclosures
To enhance transparency of SAP’s independence with the clients, ESSA requires public interest entity (PIE) clients to publicly disclose sustainability assurance fees, fees for other services paid or payable to the firm and its network firms, and fee dependency information. Where a PIE client does not make such fee-related disclosures publicly (and is not required to do so by law and regulation), the SAP should encourage the client to provide this information. Section 5410 of ESSA requires the SAP to discuss with those charged with governance the benefits of such disclosures for the client’s stakeholders and the information that would help users better understand the fees and their implications for the SAP’s independence (ref.: paragraphs R5410.30 and 5410.30 A1). If the client continues to withhold the relevant disclosures, the SAP is required, subject to certain exceptions, to publicly disclose the fee-related information of the client, for example through the SAP’s website or in the SAP’s transparency report, etc. These disclosure requirements do not apply to non-PIEs.
Effective date
Except for the specific provisions relating to VCCs (Sections 5405 and 5406 which take effect on 1 July 2028), the standards apply to SAEs for periods beginning on or after 15 December 2026; or as at a specific date on or after 15 December 2026. Other revisions will take effect from 15 December 2026.
This article was contributed by Cherry Yau, Associate Director of the Institute’s Standard Setting Department.
