More companies are seeking external assurance for sustainability reports that follows GRI (Global Reporting Initiative) sustainability guidelines.
It’s still early days for sustainability reporting in the US, but companies are becoming more aware of the need to go the extra mile if they want their disclosures to be trusted by investors and other stakeholders. Sustainability reporting encompasses an organization’s economic, environmental and social impacts with an eye toward meeting ‘the needs of the present without compromising the ability of future generations to meet their own needs,’ as stated by the World Commission on Environment and Development in 1987.
Going the extra mile means seeking external assurance for a sustainability report that follows GRI sustainability guidelines. It’s akin to a company having its financial statement audited and approved by a third party, except that in the case of sustainability reports assurance is merely recommended by GRI and done on a voluntary basis by companies. By having a third party verify data for such key performance indicators as electricity, fuel, water use, solid waste and emissions of greenhouse gases and/or volatile organic compounds, as well as the processes it uses in reporting, a company boosts its credibility, makes the information it reports more trustworthy and demonstrates its commitment to transparency. As sustainability reporting matures and more stakeholders come to depend on the availability of reliable data, demand for external assurance will increase, according to a report released in early April by the Global Reporting Initiative’s (GRI) Focal Point USA.
Sustainability reporting grew at a faster pace among US companies than the global average between 2010 and 2011, the year for which latest data was collected, according to the new report, ‘Trends in external assurance of sustainability reports:spotlight on the USA’. But the analysis, on which GRI collaborated with its US data partner, Governance & Accountability Institute, shows that domestic companies still lag foreign ones in both integrated reporting and external assurance. (Integrated reporting combines sustainability with financial reporting.)
The report shows that 26, or just 10 percent, of 269 GRI-based sustainability reports by US companies that applied the GRI sustainability framework obtained external assurance in 2011. That compares with 38 percent of companies outside the US that reported on their sustainability efforts the same year. Reporting by US companies rose by 44 percent from 2010 to 2011, according to GRI’s Sustainability Disclosure Database, more than double the 20 percent increase seen worldwide. In 2011, US companies obtained a total of 30 assurance statements, with some companies seeking more than one.
Earlier research by the G&A Institute, published in ‘2012 Sustainability Reporting – Does it Matter?’, found that 53 percent of all companies in the S&P 500 Index and Fortune 500 now publish sustainability reports, up dramatically from about 20 percent in 2011.
Companies reporting sustainability data self-declare the transparency of their reports as one of three levels, labeled A, B and C. The most prevalent level among US companies in 2011 was B, the middle level, while the majority of foreign companies declared the highest level of transparency. Of the six US organizations that declared the highest transparency, five were from extractive industries, such as energy, chemicals and mining, while the sixth was the Pacific Northwest National Laboratory, a government agency.
‘Regulations for extractive industries are pushing them toward sustainability reporting,’ Louis Coppola, executive vice president of G&A Institute, told Corporate Secretary. ‘Companies with high environmental or social impacts that are in the public crosshairs tend to report more for sustainability and tend to take it to the next level to have their reports assured.’
An indication of where to find assurance statements from external providers usually appears near the end of the sustainability report a company publishes on its website, in the GRI content index, which will link to a PDF or a separate website, says Coppola.
For 16 of the 30 assurance statements obtained, a wide range of sustainability areas were assured, but the report notes that some engagements covered only key performance indicators, while others were more thorough by verifying underlying internal control processes as well. Seven of the 30 statements said that assurance had been done only on greenhouse gas emissions, and another seven confirmed assurance only of environmental sustainability topics such as water, carbon and waste. Eleven of the statements failed to specify the level of assurance.
Cost is a key factor in determining the level of assurance a company seeks from a third-party provider, according to Coppola. The assurance level also depends on how mature a company is in its sustainability reporting.
The report concluded that the range of areas for which companies sought to have their sustainability reporting verified argues for a closer look at self-declarations of external assurance and should encourage companies and their stakeholders to better scrutinize these claims.
After analyzing the assurance statements, the G&A Institute conducted phone interviews with participating US companies to gauge how valuable they found the practice of external assurance. ‘If data is important enough to spend time analyzing, it should be a natural step to check it with another source to ensure more confidence,’ a representative of one company was quoted in the report. ‘Assurance of sustainability reporting is right in line with the overall goals of the company.’