5 Misconceptions about Sustainability Reporting Assurance
By Dave Knight, Director of USA & Canada Sustainability Services, DNV GL Business Assurance
First, let’s clarify what assurance is.
In this context, assurance is a third-party review of the reliability of a sustainability or corporate responsibility report. It often includes the checking of the data and claims in these reports. Best practice also includes confirming the report focuses on the right things (material issues).
The intention is to increase the clarity and trustworthiness of information, while improving the robustness of the methods used to gather it.
Assurance is what we are seeking to achieve, building stakeholder confidence and internal engagement by helping confirm that a report appropriately and reliably describes what’s happening within an organization.
However, because sustainability reporting is not yet a mature business practice, there are still misconceptions about the value assurance offers. Let’s take a look at five big ones:
1. Won’t assurance expose our vulnerabilities and turn off stakeholders?
This is an understandable—but unnecessary—concern for organizations that worry their data and systems won’t stand up to scrutiny.
Responding to sustainable development challenges and opportunities is a journey. As long as a company is making progress, it’s normal to have room for improvement. A good assurance process will reflect this journey.
Acknowledging that certain parts of the business or particular indicators are less developed than others demonstrates transparency. This will actually build stakeholders’ confidence and trust, rather than damage it.
2. Report assurance is just like auditing. We already verify our environmental data.
While auditing data is both valid and useful, it only covers part of the assurance spectrum.
Report assurance looks to confirm not only the validity of data but also an organization’s priorities. The process helps a company recognize whether or not it’s placing appropriate emphasis on what matters most to stakeholders—what is material.
More attention in terms of business strategy, decision-making and reporting can then be given to areas of greater materiality. This type of clarity, which is often combined with a risk and opportunity model, provides tremendous strategic value.
The best assurance processes mirror this thinking and place more emphasis on investigating the areas of higher materiality.
3. Broader report assurance is expensive. We don’t see the value.
Companies often spend large sums auditing their financial disclosures. As these companies are increasingly judged by more than just financial metrics, they will need to adopt similar practices and levels of assurance to ensure non-financial disclosures are just as accurate and reliable.
The management and reporting of sustainability activities is a key factor driving aspects of financial performance, making it both important and valuable. Furthermore, the scope of sustainability assurance services is variable, meaning it doesn’t have to be expensive.
A limited or moderate level assurance can be reasonably priced for the value provided.
4. Stakeholders don’t care about report assurance.
The recent Green Quadrant survey by Verdantix showed there were a range of drivers for commissioning assurance including giving confidence to internal stakeholders such as managers, board and the CEO.
Additionally, external stakeholders such as customers, NGOs and wider society often don’t trust business outright. The most recent Edelman Trust barometer for 2014 shows that only 54 percent of people in the U.S. trust business to do what is right.
Good quality reporting together with assurance helps build trust.
While some stakeholders don’t care specifically about assurance, they expect companies to manage and report on the things that do matter to them. The assurance process makes sure a company knows what those things are and provides a proxy for stakeholders concerns.
5. Very few companies are leveraging assurance in the United States. Why should we invest in it?
Assurance is increasingly being adopted to enhance business competitiveness and meet the changing expectations of society in the U.S. and abroad.
The 2013 KPMG survey of Corporate Responsibility Reporting showed steadily growing rates of assurance. Nearly 60 percent of the world’s largest 250 companies currently engage reporting assurance. We expect this trend to continue and for more sophisticated approaches to assurance to become commonplace in the U.S.
In certain sectors, industry bodies such as IPIECA (oil and gas) require assurance. And in others, like the Real Estate Investment Trust (REIT) sector, it’s quickly becoming the norm. In addition, many Indices and benchmarks award higher scores to those companies who assure their disclosures.
So, is it possible to provide 100 percent assurance that companies are performing exactly how they say and meeting the expectations of all their stakeholders?
Well…no, total assurance is not possible. However, a well-designed and executed assurance process can deliver significant value to organizations and their stakeholders. This, in turn, helps to professionalize companies’ efforts to play a key role in transitioning to a sustainable economy.
DNV GL convened a half-day event on Tuesday, December 9, 2014, in San Francisco which explored assurance of Integrated Reports. The outputs have fed into the International Integrated Reporting Council (IIRC)’s consultation on the topic.
Dave Knight will be leading a tutorial session on the science of science based goals on Tuesday 17th February at the GreenBiz Forum 2015 and also facilitating a breakout session on the future of materiality on Wednesday 18th.