Ensuring the Credibility of Sustainability Reporting

Sandy Nessing

Sandy Nessing

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?

About NAEM Staff

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7 Comments
  1. Mehrdad Nazari

    November 9, 2010

    I would agree that stakeholder panels and internal audits both add value and credibility to the sustainability reporting process. However, the former does not involve any sort of testing and verification of data and system, and the latter may not be viewed as adequate as it is, by definition, not an external assurance process. Neither should qualify for the “+” in GRI’s reporting framework as I have blogged when looking at Millipore’s latest report and Scotiabank’s use of term ‘assurance’ in CEO letter of its latest report.

  2. Agneya

    November 11, 2010

    Hi,

    The question in sustainability reporting is becoming – how much assurance is really enough? Internal, GRI or external assurance provider… I guess it is the conviction of the team that has put together the report that is more important than meeting a particular criteria.

    As long as there is a clear improvement in measuring and reporting systems against previous year – the team should be satisfied.

    A early practitioner view – please feel free to comment/criticize.

    Rgds
    Kedar

  3. Mark Walker

    November 11, 2010

    Getting a better picture of true sustainability is key prior to working on assurance. If you are just measuring sustainability within your corporation it is just a fraction of true sustainability. The system needs to embrace customers and trading partners to measure an entire value chain for sustainability. Once these two new entities to your sustainability measurements come on board all three entities will begin to make buying decisions based on sustainability scores. This is truly where the rubber meets the road and again all three entities will be DEMANDING outside verification of sustainability results as it directly effects buying decisions.

    We have a system that monitors entire value chains and are working on outside verification. Next is a launch partner and engaging an entire value chain. If we are making all those hard 180 degree turns in manufacturing practices to get to sustainability it will help if our trading partners and customers aid us in this path. By keeping it all transparent no single action can be labeled “green washing” because all value chain partners are on the same path and some are just further along. Since their pace effects buying decisions up and down the chain efforts will be focused and well considered. It should be a good path?

  4. Rick Love

    November 12, 2010

    I support Sandy’s approach at AEP and believe a set of independent eyes is important in the verification of data included in sustainability reporting. I’ve seen various 3rd party review and attestation letters in corporate sustainability reports, and these range from vague descriptions of workscope and general findings to specific opinions about compliance with a specific reporting standard. To date, we’ve not seen the stakeholder demand for 3rd party verification forecast by Mark, and the value of a 3rd party external review remains unclear.

    I’d be very interested in hearing of any organizations where 3rd party review was encouraged or requested by stakeholders.

  5. Kanwal Jit Singh

    November 14, 2010

    The first key element in reporting is data capture, as indicated in the report. If data is not being captured for internal reporting, then now external reporting is feasible. The difference between sustainable reporting and any other form reporting (internal or external) is the manner in which the raw data is analysed.

    If no data is captured, no analysis is possible. It is this feature that adds value to the corporate through sustainable reporting.

    There is a famous saying, if you want to control something, then you need to monitor it first.

  6. David Newman

    November 15, 2010

    I agree with Sandy’s comments, but also want to provide some insight to Millipore’s thinking around a stakeholder advisory group.

    For us, the sustainability reporting process is even more valuable than the resulting report.

    I support the value of assurance. But we decided in conjunction with our executive steering team that a statement from a third party reviewer that doesn’t know Millipore wasn’t a good place for us to start. We wanted to get thoughtful, live feedback from representatives of the stakeholder groups that are really impacted by our actions. We looked at several options and ultimately decided to convene the stakeholder advisory group–in person–because of the value we thought we would get from a diverse group of environmental advocates, customers, and thought leaders. The group challenged us in ways that made both our sustainability reporting and our implementation practices stronger, and we’ve continued working with some members of this group ad hoc since our 2009 report. Most importantly, their statement provides a degree of transparency—and commitment to our continual improvement—that we take seriously and believe reflects very good practice.

  7. Marcus Krembs

    November 22, 2010

    I applaud Sandy for efforts in exploring third-party assurance for AEP’s CSR report. I’m surprised that no one has mentioned the AA1000 Assurance Principals standard for sustainability reporting (http://www.accountability.org/images/content/0/7/074/AA1000APS%202008.pdf).

    I beleive AEP and Millipore are not alone in their experience and preference for diverse, informed stakeholder input. However, with respect to environmental sustainability and climate/energy/water impacts, third-party assurance/vertification is experiencing a growing market ‘pull’ given the convergence between environmental risk and financial disclosure/performance. Innovators, and service providers alike, share a common belief to trend towards transparency based upon consensus-based metrics.

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