Page 10 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.83, # 1, 2026, pp. 4-19

The technical differences are major: limited disclosure provides a “moderate” level of
confidence based on “questioning and analytical procedures”, while reasonable
reporting provides a “high” level of confidence through “substantial testing, inspection,
observation”. Critics fear that the market could overvalue the guarantee offered by
limited reporting, creating a false sense of security. This fear has recently been
reconfirmed, with some authors emphasizing that, given the complexity of
sustainability data, the risk that the public will not understand the difference between
the two levels is as high as ever [e.g. Burlaud, A., Niculescu, M., & Predescu, L., 2024].

Theme 3: Collateral Benefits – Audit as an Internal Management Tool
A third theme, which emerges strongly from both academic studies (Gillet-Monjarret,
2018) and practical analyses, is that the value of sustainability auditing goes beyond mere
external credibility. The audit preparation process acts as a powerful internal catalyst.

The literature shows that organizations that undergo an audit are forced to improve
their data governance and internal processes. Specifically, auditing helps to “improve
internal controls and data quality” and to “identify gaps in ESG processes.” This is
crucial: even if the audit is imposed from the outside, its main long-term benefit could
be internal organizational maturation, transforming ESG reporting from a PR exercise
into an integrated business function.

Theme 4: Critical Operational Challenges of Implementation
Finally, perhaps the most pressing theme identified, especially in the recent literature,
is the immense operational challenges that the move to mandatory auditing entails.
While voluntary auditing was the preserve of mature companies, CSRD brings into
play thousands of companies that are not ready. Our synthesis, corroborated with
specialist analyses, highlights three major barriers:

Reporting and Governance: The literature highlights that sustainability reporting processes
are often “still in their infancy compared to financial reporting”. Many organisations “lack
robust controls, documentation and evidence”. A fundamental issue is governance and
accountability, with “full cross-functional engagement” being difficult to achieve.

Data Quality & Lineage: This is perhaps the biggest technical challenge. Auditing requires
“complete, traceable data”. However, ESG reporting (particularly for complex indicators
such as climate) relies on systems that “were not designed for the rigour required for
sustainability reporting”. This leads to immense pressure on data availability, with many
organisations struggling to obtain “high quality ESG data with sufficient detail”.

Model Risk: A recent challenge identified in the literature is the increasing reliance
on “quantitative models” to analyse performance or estimate data. These models
introduce their own risk, as "complexity in design and operation can lead to
inaccuracies", and auditors need to develop new skills to be able to verify them.

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