Ensuring quality

More companies are attempting to demonstrate their environmental and social credentials by producing sustainability reports. All too often, however, these are dismissed by NGOs and other stakeholders as glossy marketing fluff, rubber-stamped by an auditing firm that has a far too cosy relationship with the reporting company itself.

March saw the launch of the AA1000 Assurance Standard – guidance to filling the credibility gap by helping auditors make tougher assessments of company reports.

“This is one of a kind,” explains Simon Zadek, chief executive of AccountAbility, the organisation that masterminded the standard’s creation. “There is no other non-commercial, non-proprietary standard for sustainability assurance – and anyone can download it from the internet, completely free of charge.”

“The standard’s three principles of completeness, materiality and responsiveness offer the best basis for verification,” explains Dr Vernon Jennings, vice-president of stakeholder relations at Danish pharmaceuticals firm Novo Nordisk. The company, a leading reporter, has just published its latest sustainability report with a verification statement guided by a draft of the new standard. “I would encourage others to adopt it – not least because we need improved quality and meaningfulness in reporting,” he adds.

Quality control

Demands for a method of assuring the credibility of

sustainability reports did not just come from stakeholders. “The reporting companies were dissatisfied with assurance providers not delivering something that was good for business,” Zadek explains. The assurance providers in turn argued that they had no basis to make the sort of qualitative assessment of reports that both firms and external stakeholders are now demanding.

The new standard will guide auditors in making exactly that qualitative assessment of a firm’s sustainability report. “It’s not just about asking whether the information in a report is accurate, but whether it is meaningful,” Zadek continues. Firms’ future commitments, in particular, will come under the spotlight. “Assurance providers will be testing whether these commitments are robust. They will be asking: ‘Where are the budgets and where are the people for these projects?’ – just as a financial investor would.”

Stakeholder concerns

Inclusivity is the watchword for the new standard. Identifying stakeholder concerns and ensuring that these have been taken into account within the reporting process are central to audits guided by the new standard.

Auditors are expected to challenge any failure by firms to tackle issues flagged up by stakeholders. “The most important thing to remember is that assurance providers are there to represent stakeholders and no one else,” argues Richard Evans of independent social accounting consultancy, ethics etc… who has been using the standard in his work.

Zadek takes up the point. “Assurance providers will be asking tough questions about what is missing from a report.”

For example, BP might produce a sustainability report detailing the quantity of carbon dioxide emissions released from its production processes, he explains. But stakeholders might want the report to assess the quantity and impact of emissions from the use of these products after sale. It is the auditor’s job “to tease out the differing views”, and – where appropriate – comment on any gaps in the information provided. It is not an easy task, Zadek admits.

A crucial third element is the guidance to reporters on how to ensure that the auditors are truly impartial. “Independent assurance is a basic requirement of all sustainability reporting initiatives,” says Paul Monaghan, head of sustainable development at the Co-operative Bank. Auditors for the bank have been employing the draft standard, and Monaghan says they will continue to specify its use “without exception”.

The core assurance standard document only runs to 30 pages, but it is supported by a number of technical guidance documents for use by both auditors and reporters. One covers the standard’s compatibility with the guidelines produced by the Global Reporting Initiative (GRI). “The AA1000 Assurance Standard plugs the gap left by GRI,” Paul Monaghan says. “It may even prove to be more important.”