Getting to grips with Third party Assurance

The Facts

In terms of numbers, third-party assurance for CR reports is growing, and this growth appears healthy.

A closer look reveals that in terms of the proportion of reports including assurance, growth is stagnant and has been for several years, hovering at just above one fifth of all CR reports. 

Some of the underlying reasons for this situation are examined in our 2008 ‘Assure View’ study, freely downloadable from  One of the most revealing statistics shows the differing proportion of assured CR reporting according to the region where the reporting company is headquartered - US business in general appears far more averse to assurance than, say, Europe: 

However, even frequency and distribution combined do not give a full picture here. In the field of CR reporting there is no ‘common currency’ of globally accepted definitions, methodologies and formats for assurance. Instead, a wide variety of assurance providers approach the subject in their own way, from the ‘Gold standard’ of AccountAbility’s AA1000 Assurance Standard to individual practitioners commenting on aspects of the report. The three most active types of assurance provider may be characterised as the ‘Big Four’ auditors, certification bodies (SGS, DNV, LRQA etc) and specialist CR consultancies. Each has an individual approach and report assurance statements differ widely in scope and quality - see ‘Assure View’ for more detail. The best are very good with clear methodologies, findings and recommendations. 

What is interesting in CR reporting is the extent to which the big auditors are dominating the market, in the same way as they may be expected soon to dominate the integrated reporting market. These two charts show the proportion of CR assurance statements prepared by the major players. ‘Others’ refers to a wide range of further bodies including independent panels, NGOs and academic institutions.

The Opinion

Including an independent third-party assurance statement in a CR report is a key step towards establishing the report’s credibility. In the same way that financial reports are audited, stakeholders should have confidence in the integrity of the CR report development process and the accuracy of the report’s content. There’s more – rigorous assurance process also benefits the reporting company by exposing their internal systems to independent external scrutiny.

There are several aspects of current CR assurance which give cause for concern:

  • The proportion of CR reports with assurance is far too low - it should be at least double the current rate and preferably three times.

Recommendation: An ‘Assure or explain why not’ approach could be used here. An appropriate organisation or coalition might consider setting this in motion.

  • There is no ‘common currency’ of assurance definition, methodology and elements for inclusion in the statements. Reporting companies therefore obtain widely differing services according to the type of assurance provide they commission. There needs to be more market transparency to help companies in selecting their service partners.

Recommendation: A charter signed by leading providers, setting out definitions, accepted methodologies, independence, ethics and minimum standards, would be one way to address this. Companies engaging charter signatories could be confident that the CR assurance follows best practice.

  • CR assurance take-up differs across regions but the low rate in the US is particularly worrying. For 90% of US CR reports not to include an assurance statement sends the signal that these are not serious business documents.

Recommendation: CR stakeholder organisations in the US should consider making an appeal to US reporters to assure their reports. They might also point out that assured reports would be viewed far more favourably (ratings, reviews, awards) than non-assured equivalents.

  • The market is in danger of domination by one group of service providers. The ‘Assure View’ report demonstrated in 2008 that CR assurance statements from the ‘Big 4’ were in many respects less informative and less useful to external stakeholders than equivalent statements by certification bodies and specialist consultancies. The market is fragmented, and the current consolidation is set to continue.

Recommendation: Leading assurance providers outside the ‘Big 4’ need to start discussions on synergies and common approaches.

  • The CR assurance standard AA1000AS, for which provides the official register and statistics, is in need of an update. It needs marketing and branding activity to increase awareness of its many advantages, and it needs support and nurture not only to ensure its survival, but also to cement its position as the gold standard in CR assurance.

Recommendation: AccountAbility, the organisational steward for AA1000AS, should engage in a major marketing and branding programme. AccountAbility should also engage with all CR assurance stakeholders to review and develop the standard, as an integral part of its stewardship.

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Getting to grips with GRI reporting

The Facts

The Global Reporting Initiative needs no introduction to reporters, it’s the framework against which many are expected to report. Companies first reported using a GRI framework a decade ago, and now just over 40% of all reports profiled on follow the GRI to some degree. At current growth rates by 2015 around half of all reports will be using the framework.  

Regional uptake of the framework is very variable, and we’ve seen almost exactly the same regional pattern for several years.  South America, especially Brazil, is enthusiastic about the GRI, as are Spain and Portugal, the two European countries where use of the GRI is highest.

A pattern we have also previously identified is that many of the world’s leading reporting countries (the UK, Japan and Germany are three of the four leading CR reporting countries) are precisely those where reporters are most reluctant to adopt the framework. This is such a striking phenomenon that it appears worthy of research. 

Just under half of 2011 GRI reports came from Europe (once again, Europe accounts for half of most aspects of reporting). Asia has a strong showing, with most Asian countries outside Japan keen to adopt the framework.

Over the years the reported GRI application levels are moving steadily upwards. The ‘Application level undeclared’ segment is slowly shrinking, although it does seem strange that a reporter going to the trouble of compiling a GRI contents index should then decide not to declare an application level at all. 

The Opinion
Conceived in the late 1990’s when it became clear that reporters and their stakeholders needed some form of guidance to ensure consistency and comparability, the GRI gave birth to the first widely-used framework, the ‘G2’, in 2002. This was followed by G3 in 2006 and now, in 2011, we await the arrival of G4.

The strength of the GRI lies in the fact that it is the only global cross-sectoral reporting framework, so companies wishing to align themselves with perceived best practice have no choice but to adopt it. It is beyond dispute that a reporting free for all, without guidelines, principles or accepted parameters would benefit nobody.

Many GRI reports are excellent, with a clear GRI index identifying where relevant information may be found, and with this information communicated using accepted methodologies such as the Greenhouse Gas Protocol (GHG) for carbon. The sector supplements are also very useful, and if used properly would enable companies to report using common indicators specific to their sector, in a way that makes them easily comparable.

That is GRI reporting seen from a favourable perspective. From a less favourable viewpoint, there are several shortcomings which in some cases go to the heart of meaningful reporting:

  • The ‘A, B C’ application level gives the impression that ‘A’ reporting is better than ‘C’ as in a school grading, and top management often sees reporting to the highest level as a competitive issue. This often gives rise to pages of box-checking GRI contents listings, as reporters try to include the maximum number of indicators. We have many examples of GRI contents exceeding 40 pages, and even one of nearly 60 pages. What we need is meaningful information based on ‘materiality’ - the issues which impact on the company’s business. Often the material issues become buried amidst the welter of immaterial ones. This leads to a situation where ‘C’ level reports are in fact often more useful to stakeholders than some ‘A’ level reports.

Recommendation: Consider developing a more neutral system of application levels where companies can choose the most appropriate level without the inherent judgement of ‘first, second, third class’.

  • There is inadequate quality control. Companies may self-declare to whatever level they wish, but the GRI will not blow the whistle even where the declared level is hopelessly wrong. Even where the application level is appropriate, the GRI contents often do not constitute a real index – links or page numbers are often not included.

Recommendations:  GRI should stipulate that an index must include html links or page references. GRI should introduce spot-checks of application levels to encourage more rigorous declarations.

  • Together with the application level, a ‘+’ indicates that a report has been assured. Here again there is no quality control, and an assurance statement might cover the entire report or a couple of paragraphs or even just a couple of KPIs.

Recommendation:  GRI should define a minimum scope for any assurance statement, but ideally it should encompass the entire publication.

  • The KPIs used by companies within the same sector, even if they use a sector-specific supplement, are often not comparable. This was the finding of a study we conducted with WestLB looking at sectors such as food processing and automotive. It was discovered that sector supplements (those examined) have been drafted in such a way as to allow companies to choose different KPI definitions, thereby making any direct company comparison meaningless.

Recommendation: GRI might review current sector supplements and consider updating them to ensure consistency of KPIs. GRI should not publish new sector supplements containing inconsistent KPI definitions.

We are in a situation where many leading companies prefer not to follow GRI guidelines, and where the highest proportion of non-followers is to be found in the most productive reporting countries such as the UK, Japan and Germany. Something needs to change.

This year the GRI will be introducing the next iteration of its framework, ‘G4’. We hope all the issues above will be addressed, as it is clearly in the interests of CR reporting for organisations to use a consistent, generally accepted and meaningful reporting framework. We’ll report back this time next year.

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Getting to grips with Integrated reporting

The Facts

Integrated reporting has been the hot reporting topic of the past two years, with debates and plans for a broad transition from CR reporting into integrated financial and non-financial reporting.

During 2011 integrated reports made up around 6% of CR reporting and annual growth is modest but steady Integrated reports by year

Half these reports are from Europe (this seems to be the case for anything to do with reporting) and the regional picture is fairly consistent year on year. Australia produces most integrated reports, but since 2004 worldwide growth has swamped this output.

Australia’s output is impressive, given that this reporting is voluntary. South Africa’s legislation for companies listed in the Johannesburg Stock Exchange has led to the production of many ‘integrated’ reports. The reason more South African reports of this type are not profiled on is because they are still predominantly annual reports with short sustainability sections. Our site definitions provide that we profile annual reports with at least six pages of relevant non-financial information, but most ‘integrated’ South African reports fall below this threshold.

 The 350 integrated reports identified to date as published during 2011 come from a range of sectors. Taking the top 10 of these, it’s revealing that Banks are dominant. The financial sector itself shows most interest in integrated reporting, and banks have relatively straightforward direct environmental and social impacts - far easier to assess and map than mining companies, where impacts are many and complex, and current sustainability reports regularly exceed 300 pages.

The Opinion

So, what will this new beast look like? There are at least three different views. Where some maintain that there should be one combined report, others such as Paul Druckman, CEO of the IIRC argue in favour of connected reporting, where the information may be available from multiple linked documents and data sources. So far the popular perception and certainly the practice in published reports is to weave non-financial or ‘sustainability’ data into the weft of an annual report resulting in an ‘annual report plus’. At the moment this is hit and miss – the ‘hits’ can be seen on pages 16-17 of the Report.  ‘Misses’ can be seen in many of the integrated reports coming out of South Africa, essentially annual reports with short additional sustainability sections. This third approach of ‘annual reporting plus’ could mark a step backwards for CR reporting if it replaces stand-alone CR reports, but of course if it results in net additional CR information then it should still be welcome.

Where the history of two decades of CR reporting shows single-issue reporting evolving organically into today’s comprehensive multi-issue CR and sustainability reports, we now have the idea of integration taking shape, with an organisation to support it. The ‘International Integrated Reporting Council’ (IIRC) has a framework of Council, committees and taskforces, Board, Secretariat et al working out what integrating reporting should look like. Well-organised and well-connected, and necessary in order for recommendations to be taken seriously and implemented. But a look at the 40 person Council composition leaves me with the overwhelming impression that this is an organisation dominated by accountants, auditors and finance. There’s some civil society representation (WWF, Transparency International, CERES) and several large corporates, but given the Council’s composition my apprehension is that CR reporting may soon be subsumed into conventional annual reporting. Organisations guiding conventional financial reporting have not played a leading role in the development of CR and sustainability generally (and spectacular corporate failures of recent years have demonstrated that all is not well with accountability and transparency in our financial reporting models – perhaps the IIRC should start here), and yet my feeling is that they have somehow appointed themselves to this new reporting role, on behalf of us all.

If CR reporting becomes subsumed, we’ll see many changes. Presumably the auditors will edge the remaining CSR consultancies and certification bodies out of the assurance market (no representatives from these two constituencies are represented on the IIRC council) and the auditors’ ISAE3000 assurance standard or a new variant will reign supreme. It is extremely likely that the focus for integrated reports will be the investment community, perhaps exclusively so. From a corporate perspective the expertise needed to develop these reports will only be offered by a few multinational specialists, no more niche CSR consultancies here! I expect this new breed of report to be reassuringly expensive.

Meanwhile important corporate issues, such as human rights, so long overlooked by investors and accountants, will not go away and nor will those stakeholders who use CR reports to find information about them. A report geared to one audience cannot serve all audiences, and companies will still need to meet the expectations of their many stakeholders.

I think it probable that if companies are serious about corporate responsibility, when they are required to switch from publishing separate annual and CR reports, that they will switch to ‘integrated’ (some are doing this already) but continue with the CR reports, which are simply too useful to be abandoned.  Both should be connected, of course.  Plus ca change…

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