Lessons in smart assurance from our 4th Annual Index
The fourth edition of the Smart Assurance Index reveals which FTSE 350 companies aren’t backing up their sustainability claims and which are backing them up by carrying out sustainability assurance. This is the process that provides third party verification of the data and procedures upon which reporting rests. CRH, the building materials group has topped the index this year ending Vodafone’s two year reign. CRH are producing a clear assurance statement that effectively communicates to stakeholders and adds to the value of its reporting by increasing the reliability, accuracy and overall robustness. Scoring highly across the 15 criteria Carbon Smart uses to assess these statements, CRH have produced a statement that is clear about the scope of the engagement, uses recognised standards and properly cites the credentials of the third party assurance provider including a declaration and explanation of their independence to the reporting company. Other top performers include British American Tobacco, Diageo, Royal Bank of Scotland and BP (who have significantly improved this year). These are examples of companies who are verifying the claims they are making in a clear, transparent manner.
Big names such as International Personal Finance, Home Retail Group, Travis Perkins and TUI Travel still have work to do to raise the credibility of their sustainability assurance and as a result find themselves in the bottom grouping of the index. These companies are producing statements that: are unclear in the scope of what the assurance covers; lack credentials of the assurance provider; and do not satisfy independence requirements. 280 of the FTSE 350 companies do not carry out sustainability assurance at all. This includes well known companies such as easyJet, Rolls Royce, Sainsbury’s and companies with big environmental impacts in the petrochemical and basic material industries such as Antofagasta, Kazakhmys and Vedanta Resources.
In the context of ever increasing public scrutiny and new regulations making it mandatory for companies to report environmental metrics, the risks associated with reporting inaccurately are rising. The Smart Assurance Index continues to track how well companies are responding to these developments and pressures and reports how the quality of assurance statements has improved over the last four years. Two thirds of companies now produce an assurance statement that is clear about the level of assurance that has been carried out, and the environmental data or processes under review, a 25% increase on what we reported in 2009. BSkyB, for example, are vocal about developing their assurance and expanding it to include more indicators, using that process to enable them to communicate more effectively with their stakeholders. As a result they have significantly improved their position in the index.
However, the report finds that the quality of statements remains poor in two key areas. 50% of statements are failing to state the credentials of the assurance provider. Given assurance is carried out on a voluntary basis, and is not regulated, the value assigned to it relies heavily on the way it is carried out. In addition to this 20% of statements cannot claim to be independent; the declaration is either insufficient or there is reason to believe the provider is falsely claiming independence. Whilst professional qualifications aren’t listed and the independence of the assurer is not explicitly declared, the value in seeking third party verification is limited. Proper accounting and reporting is required if environmental metrics are to stand up next to financial metrics, and companies are to make the transition to more sustainable business models.
The new legislation requiring companies to report their GHG emissions will affect how assurance is carried out. With the risks of reporting inaccurately intensifying as a result, the importance of consistency and comparability in the data being reported is paramount. The report’s analysis of companies’ response to this new piece of legislation reveals that of the 64 companies that assure carbon, a surprisingly high 47% are yet to declare a carbon intensity metric. Where one organisation reports 1 tonne of CO2 per £m revenue, another generates over 18,000 tonnes. Companies vastly differ in what they choose to include in their carbon footprint and this raises both challenges and opportunities: With corporate sustainability performance moving further into the spotlight and more and more data entering the public realm, companies’ data will be scrutinised by stakeholders. It is therefore imperative that these companies are transparent about what they have included in their reporting and that their reporting choices are communicated clearly.
