A case of credibility

Paul Scott, director of Next Step Consulting, discusses verifying environmental reports

Companies are communicating more on CSR. In the UK and across the world, thousands of companies are producing CSR statements, policies and sections on their websites. More importantly, many are publishing non-financial reports, giving detailed information on impacts, strategy and performance.

So if all these companies are telling us how responsible they are, isn't the world becoming a better place and shouldn't we all be grateful? Surely we can sit back as the volume of reports increases, secure in the knowledge that all these companies are making responsible profits?

But wait a moment - these companies all seem to be using the same language and doing the same things. Is this a sign of cultural change or an indication that their PR agencies have all been attending the same CSR courses? When we see advertisements for products made by any of these companies, don't we know they should be taken with several pinches of salt?

So if CSR communications are becoming mainstream, exactly how much salt is recommended? After all, even Enron published a CSR report.

Relevance and credibility

The truth is that for a CSR report to be useful it needs to be both relevant and credible. In the UK the work on materiality within the framework of the Operating and Financial Review is attempting to address the first of these points. On the second, if a report is not credible, it becomes indistinguishable from the PR guff we all bin on sight.

Companies need to establish the credibility of their reports. In some cases, companies are trusted brands and readers tend to give them the benefit of the doubt, especially if they have not been the subject of NGO campaigns and don't operate in contentious sectors. Reports by the Co-operative Bank and The Body Shop have always been well received. The converse is also true - no matter how transparent the reporting - if a company has become a campaign target or operates in a contentious sector such as nuclear energy or tobacco. Their reports are fair game for criticism.

Forfeiting credibility

There are several areas where companies can forfeit their credibility. Reports which are entirely self-congratulatory, never mention shortcomings as fines and prosecutions or unmet targets, feature pages of stock glossy photographic clich├ęs - smiling kids and spectacular landscapes are standard for dodgy companies - and are garnished with such hand-wringing phrases as "striving to achieve", can safely be consigned to the marketing promotion report pile.

Which brings us to the most significant issue: third party assurance. Surely, if a report has been inspected by an independent, specialist third party, and a page headed Verification Statement graces the report, it has achieved the highest degree of credibility? And surely a company submitting to such a process can, in a sense, buy credibility?

Well, sadly, no. What exactly do such statements tell us? How credible are the companies purporting to confer the credibility? Are there lingering suspicions that the statement doesn't tell the whole story? Certainly, many verification statements use such closely guarded terminology that it becomes very difficult to see exactly what has been done, and what degree of reliability can be ascribed to the report. Many of the largest statement providers seem more interested in minimising their own risks than in offering insights - and many of them state expressly that their findings cannot be relied upon by third parties. There are no internationally accepted guidelines for this process, despite several attempts to establish them.

A 'push' market

The situation is that a company approaches a verifier, the verifier says what it will do, what fees this will entail, and a statement is eventually produced. At the moment, the market is based on 'push' - the verifiers stipulate what they will do and at what price - rather than on 'pull' with the client armed with the insights and information needed to negotiate issues, methodology and final form.

The inevitable conclusion is that the whole area is a mess - and certainly not credible. What is needed is transparency in the third party assurance process, opening up the market, informing business managers as to alternative approaches and the information they need to make their decisions. Using this information they can bring market mechanisms to bear and increase the value of the statements. Business managers need to know which issues they can influence, which questions they should ask their verifiers, which aspects they should insist are included in the final statement. After all, the fees for these statements sometimes exceed the development costs for the entire report.



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