August 21, 2008
The Assurance Industry Grows in League with ESG Reporting
by Anne Moore Odell
With more companies publishing sustainability reports, more third parties are stepping in to
validate the information in CSR reports.
SocialFunds.com --
In 2008, nearly 3,000 companies are planning to publish some type of corporate non-financial report
or Corporate Social Responsibility (CSR) report, the website Corporateregister.com projects. However, only a
quarter of the companies are also planning to include third-party verification of the information
in the reports. Although the assurance industry is rapidly expanding to meet growing demand, the
lack of third party verification throws into question the majority of CSR reports published.
Corporateregister.com recently produced
"Assure View: The CSR Assurance
Statement Report"" which examines the assurance industry. Its authors' Paul Scott and Iain
McGhee find that even CSR reports that include an assurance statement can suffer from the lack of
common standards and universal guidelines.
Corporateregister doesn't have a specific
definition for what constitutes a CSR report per say, because there is such a wide range of reports
they accept, from purely environmental and EHS reports through citizenship reports to CSR and
sustainability reports. The site does insist a CSR report includes quantified data and a timescale
to differentiate reports from marketing brochures. If there's a relevant section in an Annual
Report or an 'integrated report' that is at least six pages long, Corporateregister also accepts
it.
The inclusion of assurance statements has increased every year for the past 15 years,
with 650 verified reports of the 2600 CSR reports published in 2007, up from 500 verified reports
in 2005, and double the number of CSR reports with assurance statements in 2002. The site doesn't
track whether the reporting companies are publicly or privately owned.
Companies employ
three main methods to assure the information in their CSR reports. These methods include internal
reviews of CSR reports, stakeholder review panels, and hiring CSR consultants or assurance
companies.
"The question of independence goes to the heart of meaningful assurance, which
is why we identify it as a 'Key Element'," said Paul Scott, managing director of
Corporateregister.com. Started in 1998, CorporateRegister.com is a website dedicated to providing
global CSR resources.
Beyond the added credibility of using a third party to verify the
information found in reports, assurance organizations can also help companies gain insight into
their risk management strategies and the management of CSR related issues. Assurance organizations
catch human errors in reports that pull together information from all over the company and, perhaps
most importantly of all, third party organizations can act as sounding boards for companies to see
themselves from an outside point of view.
"One of the key messages of 'Assure View' is
that companies which write the reports cannot at the same time be regarded as offering truly
independent assurance. By taking on both tasks such an organization cannot be considered to be
independent," said Scott.
The report examined assurance statements from 90 large cap
companies from the UK, US, Germany, Australia and Japan, selecting the largest 18 companies in each
country (by market cap) that publish a CSR report with an assurance statement. Using these
assurance statements, the authors identified five "Key Elements" for a meaningful assurance
statement.
The authors identify the first Key Element to a meaningful assurance statement
as the reference to a standardized assurance approach, such as AccountAbility's AA1000AS or
International Auditing and Assurance Standards Board's ISAE 3000. Unfortunately, some assurors are
confusing the UN's Global Reporting Initiative (GRI) as an assurance standard.
"The GRI
Guidelines are a reporting standard/tool, not an assurance standard/tool," said Scott. "We address
the GRI Guidelines at several points in the report where we point out that some assurors give the
impression that they are using the Guidelines as a protocol. This is unhelpful and is creating
confusion - as if we didn't already have enough confusion in this field!"
Other Key
Elements identified in the "Assure View" are the inclusion of specific declarations of audience,
independence and responsibility; methodology stated; provider recommendation and opinions included;
and an assurance conclusion, which Scott and McGee label the most import of the their Key Elements.
Scott explained, "Key goals must be to encourage greater uptake of assurance in CSR
reports and to make this assurance 'meaningful' by which we mean following our identified Key
Elements of assurance best practice. At the moment the three major assurance provider types are all
coming from different directions, and their paths need to converge."
The report also looks
at the type of independent organizations used to verify reports, the sectors most likely to include
assurance reports, and at the patterns of assurance usage across the globe. European companies not
only lead in issuing CSR reports, they also lead in including assurance statements in their reports
with 30% of European reports assured in 2007. This compares to only 7.5% of North American
companies including assurance statements in CSR reports.
"We don't know why, specifically,
North American reporters are so reluctant to use assurance in their CSR reports, but the statistics
show clearly that this is the case," said Scott. The authors write in the report, "US companies
are reporting, but they are not covering the depth and breadth of issues seen in European reports.
The development of assurance provision is contingent upon a foundation of quality disclosure."
As the "Assure View" report is sponsored by four of the largest assurors--SGS, KPMG, LRQA, and The Reassurance Network--it is interesting to think of the
independence of the report itself. However, the conclusions and methodologies in the well written
report all point to assurance statements growing in concert with CSR and sustainability reporting
as companies realize the material risks of social, environmental, and governance issues.
©
SRI World Group, Inc. All Rights Reserved.
Top
|