According to the Global Reporting Initiative 95% of the top 250 global companies now produce a sustainability report as a means of communicating their environmental and social governance to their stakeholders. However, while the financial information provided in the annual report must by law be verified by an independent, accredited auditor, the information presented in the sustainability report is under no obligation for review. This summer, Carbon Smart has once again undertaken a comprehensive investigation into the state of sustainability assurance amongst the FTSE 350 companies. To date the annual research and report has been instrumental in highlighting the need for advancements in this area. Often referred to as ‘the wild west’ of sustainability reporting; assurance, the process of verifying the reliability of the information contained in the report and the processes involved in shaping it, is an unregulated area. As a result there are no requirements to comply with standards; the way in which it is carried out varies hugely and this raises questions amongst stakeholders regarding its legitimacy, and ultimately, its value. Robust assurance standards have been developed, such as AccountAbility’s AA1000AS Standard and the International Standard on Assurance Engagements 3000, which require minimum levels of professional conduct and methodological rigour. However, the lack of obligation to adhere to these standards means the quality of sustainability assurance varies hugely.
Assurance is seen by many companies as a box-ticking exercise with little value attached. Carbon Smart’s research challenges the business community to review the way in which it carries out assurance and to better align it with the needs of their stakeholders. Since the release of our first report in 2010, significant progress has been made, and this is reflected in the Carbon Smart annual league tables of assurance. The uptake of assurance has risen by 10% and there has been keen interest from companies to improve their positions in the league table.
The increased scrutiny and pressure companies now face from stakeholders and government, to report transparently and accurately, means the degree of reputational risk associated with assurance is ever increasing. Companies are using our report and best practice guide to extract real value from the process; challenging their assurance providers to fully engage with their sustainability reporting goals, and to produce a statement that meets the requirements of their external stakeholders. We have seen this manifested in many ways from stipulations in Requests For Proposals (RFPs), to companies talking about the advances they have made in quarterly earnings calls to investors.
Once again the release of this year’s report, due to take place in October, will highlight this year’s leaders as well as those requiring improvement. Using strict criteria based on the requirements of established assurance standards, each statement is scored to reflect how well it meets stakeholders’ needs. In a wide ranging consultation with stakeholders, these needs include: a clear expression of the scope of the assurance, a discussion around materiality, competency and independence statements by the assurance provider, use of recognised assurance standards and a clear, consistent statement that does not mislead.
In light of the increased demand from stakeholders on companies to report accurately, transparently and materially, and the associated demand for better assurance from the public, press and government, this report promises to continue to focus attention on the assurance sector. With each report issued by Carbon Smart, better standards of practice are being adopted. This year’s report will be released mid-October at our annual launch event and we look forward to disseminating the key messages of this year’s research.