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September 15, 2005
Taking Account of Corporate Social Responsibility Reports
by William Baue
A Pleon survey of CSR reporting finds differing opinions on best practice for report assurance and
verification amongst respondents as well as professional experts.
SocialFunds.com --
The term "accounting" carries two primary meanings--it refers both to auditing and to explaining.
It also relates to the term "accountable," or answerable, and ties into the phrase "of some
account," or esteemed. The title Accounting for Good merely hints at how this new report on
corporate social responsibility (CSR) reporting uncannily encapsulates these multiple connotations.
The subtitle--The Second World-wide Survey on Stakeholder Attitudes to CSR
Reporting--accurately (if more mundanely) describes the scope of the work, produced by the
Europe-based international business consultancy Pleon.
 It reports the results of a survey of 495
readers of CSR reports from 58 countries, down from the 1,700 respondents to the 2003
survey--likely due to "questionnaire fatigue" (the condition of being overwhelmed by too many
requests for social and environmental data) according to Pleon.
The most significant
survey finding concerns the auditing of CSR reports, an emerging area also sometimes referred to as
"independent assurance" or "external verification."
"There is now a clear majority (59
percent) of international stakeholders who want CSR reports to be 'verified by a professional
assurance or verification body,'" states the report.
Support for such assurance or
verification is strongest in the financial community (comprising investors and analysts--71
percent), next amongst nongovernmental organizations (59 percent), then academics (57.6 percent),
and finally employees (45.6 percent). The means of "accounting" (or creating credibility) for CSR
reports also varies, though preferences all hover around the half-way mark.
For example,
52.5 percent of respondents want formal external verification, 49.7 percent prefer honesty about
mistakes, 48.5 percent favor the Global Reporting Initiative (GRI), 46.3 percent support independent third party
assessment, and 45.5 percent desire documentation of dialogue with stakeholders. It does not take
an accountant to recognize that these percentages add up to more than 100, meaning respondents
chose more than one option.
These survey numbers tell one version of the "accounting"
story; another version of the story comes from a series of commentaries by CSR reporting experts
included in the report. Their opinions confirm, amplify, and flesh out the survey findings.
"We believe that external assurance is a key component in providing credibility to our
reporting," states Dr. David Bickerton, head of external communications at BP (ticker: BP), which
incidentally produced the second-best CSR report behind Shell (RD) according to the survey. "The
process of data verification and narrative challenge that we get from Ernst & Young is important in ensuring that our reporting is both accurate
and balanced."
The representative NGO voices the polar opposite opinion.
"[W]e
don't consider accountancy firms to be reliable or independent auditors of CSR report," says Simon
McRae, corporate and investment campaigner for Friends of the Earth UK (FoE). "Firstly, they lack the skills and knowledge to be able to
assess social and environmental impacts."
"Secondly, they rarely seek the view of
stakeholders apart from employees and management," he adds. "Generally we would be quite skeptical
of any CSR report that has not been 'independently verified' by stakeholders."
This
perspective is not lost on some in the corporate community, who recognize the elusiveness by which
they gain the esteem of those who judge them by their CSR reporting.
"When considering
whether a formal external verification can add value to the report one should clarify what is to be
verified," says Uwe Bergmann of the corporate sustainability management department at Henkel (HEN.DE). "Are we
talking about the reliability of our data management or about the question whether we address the
relevant challenges and adequately describe our performance?"
"Companies are judged by
their performance, but external expectations and sustainability priorities differ between regions,
markets, and particular stakeholders," he continues. "Therefore, we believe a verification
statement does little to help our stakeholders assess our performance."
Voices from the
academic community cite their own recent research (More Credibility with Assurance
Statements?) that reconciles the seemingly conflictory perspectives by pointing out that
multiple factors contribute to credibility (as the survey results suggest.)
"Obviously, it
is very well possible for a non-verified report to be credible since there are many factors
determining credibility," state Thomas Loew, founder of the Berlin-based Institute 4 Sustainability and
Jens Clausen, director of the Hanover-based Borderstep Institute for Innovation and
Sustainability. "It is equally possible that an externally verified report would still be
regarded as less credible by its readers when other credibility factors are not seen as being in
line with it, for instance in case of ongoing public criticism of certain aspects of a company's
sustainability performance."
"Consequently, it is not wrong to say, as stated in the
report, that 'credibility is achieved by an external accountant,...' but the thesis should be
reformulated as 'credibility in CSR reporting can be achieved through several factors,'" they
conclude. "For example, a well-known sports shoe brand is planning to abandon external report
verification in future sustainability reports and to focus instead on the external verification of
its activities to improve working conditions and environmental management with its suppliers."
In other words, being accountable to their stakeholders can spur CSR reporters to choose the
options that provide the most robust accounting mechanism, be it formal auditing, independent
assurance, external verification, or other means, according to Mr. Loew and Dr. Clausen.
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SRI World Group, Inc. All Rights Reserved.
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