From financial to climate assurance: what this means for accounting firms’ PI coverage

From financial to climate assurance: what this means for accounting firms’ PI coverage

As of January 2025, Australia has entered a new chapter in corporate accountability with the implementation of mandatory sustainability reporting under the Australian Sustainability Reporting Standards (ASRS). This shift, driven by the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024, mandates climate-related disclosures and introduces phased assurance requirements under standards like ASSA 5000 and ASSA 5010.

While this presents a significant opportunity for accounting firms to expand their service offerings into sustainability assurance, it also introduces new risks, particularly from a professional indemnity (PI) insurance perspective.

The insurance gap: a hidden risk in sustainability assurance

Sustainability assurance, though increasingly in demand, is not universally covered under existing PI insurance policies. Some insurers are hesitant (or outright unwilling) to cover services related to climate-related disclosures due to:

• Unclear liability frameworks around sustainability data and emissions reporting. 
• High reputational risk if assurance is later found to be inaccurate or misleading.
• Lack of historical claims data, making risk assessment difficult for underwriters.

This leaves accounting firms exposed to potential litigation or regulatory scrutiny without the safety net of insurance. Before offering sustainability assurance services, firms are strongly encouraged to review their PI policies carefully and engage with brokers to clarify:

• Scope of coverage for sustainability-related services.
• Exclusions that may apply to climate or environmental assurance.
• Premium adjustments or endorsements required to extend coverage.

Beyond insurance: risk factors that influence coverage and confidence

Accounting firms should consider the following, not only for operational readiness, but because these factors also directly influence how brokers and underwriters assess risk and structure PI coverage.

1. Competency and accreditation

Firms should ensure their teams have the appropriate qualifications and training to deliver sustainability assurance. Demonstrating alignment with standards like ASSA 5000 and investing in professional development helps build credibility and reduces the likelihood of errors - factors that insurers may consider when assessing risk.

2. Client education

Clear communication with clients about the scope, limitations, and expectations of sustainability assurance helps prevent disputes. Firms that proactively manage client understanding are better positioned to avoid claims and demonstrate a lower risk profile.

3. Technology and data integrity

Robust systems for collecting, verifying, and reporting sustainability data are essential. Reliable platforms and strong internal controls help ensure accuracy and transparency - key elements in managing liability and demonstrating operational resilience.

4. Legal and regulatory alignment

Keeping pace with evolving regulations, including ASIC guidance and the Corporations Act, is vital. A clear compliance framework not only protects a firm but also signals to insurers and clients that the firm is operating with diligence and accountability.

5. Strategic partnerships

Collaborating with environmental experts, legal advisors, or technology providers can strengthen a firm’s offering. These partnerships show that a firm is taking a holistic approach to risk and quality assurance, which can positively influence how services are perceived and insured.

Conclusion: a balancing act of opportunity and risk

Mandatory sustainability reporting presents a significant opportunity for accounting firms to expand their service offerings and support clients in meeting new disclosure obligations. Firms that strategically approach this by aligning their capabilities, risk management practices, and insurance coverage, can strengthen their position in a growing and increasingly important area of assurance. The opportunity is immense, but firms that rush in without proper due diligence may find themselves exposed to risks that traditional accounting never anticipated.

How can Howden assist?

Howden supports clients in navigating this evolving landscape by offering tailored guidance on sustainability reporting requirements – including calculating greenhouse gas emissions, setting decarbonisation strategies, and identifying and managing climate risks and opportunities. We recognise that no single entity can be a specialist across every aspect of the ASRS; therefore, we partner with best-in-class organisations such as Parvate ESG to deliver comprehensive, expert-driven solutions. In partnership with Parvate ESG, we help our clients navigate ASRS requirements and strengthen their capacity to anticipate and manage emerging risks through data-driven insights and scenario analysis. 

Our Financial Lines team works closely with insurers to secure better outcomes on PI insurance policies, helping clients demonstrate risk maturity and unlock more favourable terms.