In the era of climate change and social scrutiny, South African companies — particularly those in mining, automotive, and manufacturing — face a new imperative: being "pre-assurance ready" for sustainability reporting.
The International Sustainability Standards Board (ISSBs), IFRS S1 and S2 standards take effect for annual periods beginning 1 January 2024. IFRS S1 covers all sustainability-related risks and opportunities, and IFRS S2 addresses climate-related risks and opportunities. Both are explicitly investor-focused: they require disclosure of any sustainability or climate issue that "could reasonably be expected to affect the entity's cash flows, its access to finance or cost of capital".
Companies must examine everything from carbon emissions and water use to social and governance factors with the same rigour as financial metrics. South African regulators are already aligning with these global norms – the Johannesburg Stock Exchange (JSE) recently updated its ESG disclosure guidance to mirror IFRS S1 and S2 requirements. New Companies Act amendments now embed ESG duties (for example, linking executive pay to sustainability outcomes) at the board level. In this fast-changing landscape, delay is not an option.
What Does "Pre-Assurance Ready" Mean?
Becoming pre-assurance ready is not a matter of filling in a template. It is essentially a mock audit of your ESG reporting process. The goal is to test your data, systems and controls before any formal external assurance. As one assurance provider explains, pre-assurance readiness provides early feedback on your sustainability information, systems and controls, enabling you to fix issues before the real audit. In short, it's a confidential "dry run" that finds gaps and weaknesses in advance. This proactive approach can save companies from potential regulatory fines, investor scepticism, and reputational damage, thereby protecting their bottom line and market.
Typical pre-assurance steps include:’
- Gap Analysis: Review existing ESG processes and disclosures against IFRS S1/S2 (and other relevant frameworks) to identify missing data or methodology gaps.
- Data Alignment: Check that key metrics (e.g. emissions, waste, social indicators) and targets are consistently defined and tracked across the enterprise.
- Control Review: Examine how sustainability data is collected, verified and approved internally – i.e. the robustness of your information systems and internal controls.
- Mock Assurance Report: Receive a confidential report flagging weaknesses (missing disclosures, weak controls, misaligned data) so you can address them before a formal assurance engagement.
Pre-assurance readiness is not just about quality assurance for ESG. It's an opportunity for companies to think like auditors, ensuring that everything from their carbon calculation methods to their board's governance disclosures, is audit-ready. Identifying issues early, such as incomplete Scope 3 emissions data or an unvalidated methodology, significantly reduces the risk of a qualified assurance opinion or embarrassing corrections later. This process not only mitigates risks but also instils confidence in your ESG reporting, setting you apart in the market.
Risks of Delaying Readiness
Delaying the pre-assurance process carries serious consequences. Regulators, investors, and business partners are raising the bar on ESG credibility. In South Africa, failing to meet these standards now exposes companies to multiple risks. It is crucial to act now to avoid these potential pitfalls.
- Regulatory Non-Compliance: IFRS S1 and IFRS S2 are quickly becoming expected practices. As noted, the JSE has already updated its rules to follow IFRS standards. New company law also demands ESG governance (e.g. a social ethics committee), has transparent ESG-linked remuneration. Companies that ignore these mandates risk fines, audit qualifications, and even losing their listings or licenses to operate. Any one of these consequences could significantly impact their business operations and reputation.
- Investor Scepticism: Global investors and lenders have wanted high-quality ESG data. As KPMG warns, "companies that fail to address ESG with actionable strategies and clear reporting meaningfully will face increased funding challenges". In practice, this means any company with superficial or inconsistent ESG disclosures will struggle to raise capital. Major banks and asset managers – including over $130 trillion of global finance pledged to net-zero under the Glasgow Financial Alliance for Net Zero (GFANZ) – are shifting their funding to lower-emitting firms. Those lagging behind are deemed higher risk and find their cost of capital rising.
- Cost of Capital: Weaker ESG performance already translates into higher borrowing costs. Financial institutions increasingly base lending and insurance on ESG performance. As one industry report notes, "as funding decisions shift to ESG, they will begin to impact all businesses and sectors". In other words, companies that can demonstrate robust ESG management will secure loans and insurance more easily, while others face premiums or refusals.
- Operational Disruption: Climate change and social issues directly affect business operations. Extreme weather (floods, droughts) can halt mines or factories; social license issues (community protests, labour disputes) can delay projects. South African corporates already feel these pressures, and the scrutiny cascades to suppliers. As one analyst puts it, decarbonisation demands on large corporates "cascade to the many smaller private companies in their supply chain". Failing to quantify and manage these risks now means nasty surprises (and costs) in due course.
- Reputational Damage: Finally, poor or insincere ESG reporting invites charges of "greenwashing" and erodes trust. Assurance (and pre-assurance) helps prevent this. Assurance providers explicitly warn that robust audits "reduce legal risks" and help companies "avoid greenwashing". In contrast,inadequate processes can lead to public scandals or loss of stakeholder confidence – a far higher price to pay than investing in thorough preparedness.
Together, these risks are urgent. IFRS S1 itself stresses the need for complete, verifiable disclosures: a "complete set" of sustainability reports must "present fairly all sustainability-related risks and opportunities" facing the entity. Likewise, IFRS S1's qualitative framework requires that disclosures be "comparable, verifiable, timely and understandable". In practice, this means you need the same level of data governance and audit trail on ESG data as you do on financial statements, which only comes from deliberate systems and controls.
Turning Readiness into an Advantage
The good news is that the companies moving quickly to get pre-assurance ready will benefit. Early movers gain a competitive edge in several ways:
- Better Access to Capital: As noted, global finance is flowing to ESG leaders. By having assured, investor-grade ESG reports, companies can qualify for sustainability-linked loans, attract green funds, and potentially secure a lower cost of debt. In contrast, late adopters will pay a premium to borrow or be cut out of some markets entirely.
- Market Differentiation: Transparent and credible ESG reporting signals responsibility to customers, partners and regulators. In high-impact sectors, this is increasingly a purchasing criterion. For example, raw materials or components buyers may require their suppliers to have sound climate strategies. Companies that can credibly demonstrate this (via robust, assured reports) will stand out.
- Operational Resilience: Building the systems for rigorous ESG data often drives efficiency. For instance, measuring resource use and emissions can highlight waste or inefficiency, leading to cost savings. It also forces companies to plan for future scenarios (such as potential carbon pricing or water shortages), which builds resilience against shocks.
- Risk Management: A structured approach to ESG metrics (often guided by IFRS and frameworks like SASB) means management has an earlier warning on issues like community grievances, labour practices or biodiversity loss. This foresight can prevent disruptions.
- Reputation and Talent: Finally, investors are not the only stakeholders paying attention. Employees and communities favour companies taking sustainability seriously. Demonstrating progress and transparency can boost the brand and help attract the new generation of talent that cares about corporate purpose.
Many South African companies are already seeing these benefits. Firms that appointed Chief Sustainability Officers or created integrated ESG teams have begun building stakeholder trust and saving costs through efficiency gains. Being pre-assurance ready – and communicating that rigour – can thus become a business advantage, not just a compliance hurdle.
Preparing Now: It's Not a Checkbox
Becoming pre-assurance ready is an enterprise-wide project, not a quick disclosure template. It requires cross-functional coordination: finance, operations, sustainability, and internal audit teams must work together. Finance teams must ingest ESG data into reporting cycles; operations must upgrade measurement systems; and the board must incorporate ESG oversight into its governance processes. IFRS S1 even explicitly requires companies to disclose who (which board or committee) oversees sustainability issues.
In other words, you must treat sustainability information rigorously as financial data. That means investing in IT systems and controls to ensure data is accurate, complete and auditable. As IFRS emphasises, applicable disclosures must be "verifiable" – implying audit trails and internal checks. It also means defining material issues carefully: IFRS S1 demands a "complete set" of material sustainability disclosures, so companies need a robust materiality process (often guided by sector standards like the SASB or TCFD frameworks).
For many firms, this will involve cultural change. Executives and managers must embed sustainability goals into strategy and operations, not treat ESG as an isolated report. One department should not be responsible for ESG reporting; it must be enterprise wide. While this sounds daunting, companies that tackle it early can smooth the learning curve. By the time mandatory assurance becomes the norm, they will have mature processes that actually reduce risk – and inspire confidence among investors and regulators alike.
The bottom line: The race is on to build rigorous ESG reporting systems. Those who delay do so at their peril – facing regulatory exposure, higher financing costs and strategic disadvantage. But those who act now can meet compliance efficiently and even turn it into an opportunity for innovation and credibility.