As the end of the year approaches, companies are gearing up for their next round of sustainability reporting. What will be different about the next crop of reports in 2011?
I suspect quite a bit.
Under pressure from stakeholders for more transparency of, and accountability for, business strategy, operations and performance, companies are facing a new imperative: How accurate, trustworthy and credible is the information that is being reported? How is it represented in the context of risk management, cost initiatives and decision-making?
This shift is forcing more and more companies to seek some type of assurance of their reporting. At American Electric Power Co., Inc. (AEP), we took that step in 2010 by inviting our internal auditors to audit our Corporate Accountability Report. It was painful for the organization, largely because the voluntary nature of sustainability reporting means there are fewer systems in place for data tracking where compliance is not involved. It remains a challenge, but investors, analysts and other stakeholders now have a greater degree of assurance that what we’re reporting is accurate and relevant.
This type of reporting may be voluntary today, but the tipping point is approaching. The Securities and Exchange Commission (SEC) opened the door earlier this year with its guidance on climate risk disclosure. Transparency is clearly a priority. Those companies with more robust voluntary reporting will be in a better position to meet the challenges under new regulations and mandates.
Many companies already seek third-party assurance of their sustainability reporting. While some advocate for it, I’m not entirely sold on its value, especially since there is no universal set of rules like there is on the financial side. Although I believe it will become necessary as we move toward integrated reporting, we’ve only taken baby steps in that direction and I think it’s too soon to force the same rigor as financial reporting without similar reporting requirements. For now, I think the internal audit review, coupled with our partnership with risk management and external stakeholder reviews of our reports, are more than sufficient.
What do you think about this approach? What are you doing in your company to verify the accuracy of your sustainability reports?