What is sustainability assurance?

[AccountAbility]

What is sustainability assurance?

The recent years have witnessed a rise in demand for increased transparency and accountability from businesses world-wide by employees, customers, the media, governments, NGOs and other stakeholders. In turn, this has lead to more and more companies reporting on wider economic, social and environmental aspects alongside their annual financial statements.

Such reports are named after a wide range of related terms, for example after ‘corporate social responsibility’ or ‘corporate citizenship’, but we refer to them as sustainability reports as they usually cover economic, social and environmental issues.

With the rise in sustainability reporting, an increasing number of companies also seek assurance for their reports. At the most basic, sustainability assurance is about having an external party reviewing and evaluating evidence in order to come up with a conclusion on whether the information disclosed in a sustainability report is presented in a fair and balanced manner.

To find out more about sustainability reporting and assurance you can visit our Assurance portal - AccountAbility AA1000 Wiki

[sceptic]

For me as a sceptic Sustainability assurance is not really useful if it does not get a lot bigger in importance in the world. Everyone needs to join in to make it more important. Similar to financial assurance. But I think that was said here before.

I have also heard to there are mostly smaller companies doing this kind of assurance. This seems strange to me. Any ideas why? I guess Accountability should know right?

Cheers.

[AccountAbility]

Good point!

But one has to be aware of that the field of sustainability reporting and assurance now is at an early stage with much space for developments in the future. Just consider where financial accounting and auditing was at the beginning of last century and which enormous progress has been made since then!

The past few years saw huge increases in sustainability and a raising number of companies seek external assurance. In my opinion, the introduction of legal requirements might slow down developments and pose a barrier to innovations in this field.

You are right in that sustainability assurance is not only provided by big accounting firms, but also by CSR consultants or expert panels. Organisations certainly draw into consideration several aspects when choosing an assurance provider.

For example in Japan we see quite often individual experts giving an independent opinion on a company's CSR efforts and reporting. In this case, it seems that Japanese companies anticipate much more credibility through this form of assurance.

Other reasons might include aspects such as cost and risk, or maybe the fact that accounting firms are bound to their professional standards whereas companies might prefer assurance provided in accordance more innovative standards such as the AA1000AS.

Any comments? Can you think of any other reasons why organisations engage non-accountants for sustainability assurance?

What's your opinion on experts or consultants providing assurance with regard to credibility?

[StewyM]

I believe assurance has a real role to play in business sustainability, however, as the previous post suggests it is still in its infancy. Still in its infancy even though it has been around for 20+ years.

The question is what effect is assurance having currently, is it forwading the cause of sustainability or is it just providing extra maybe undeserved credibility to businesses.

Untill the release of Just Assurance by corporate register.com there have been two major reviews of assurance statements.

1. Ball A, et al (2000) External transparency or internal capture? The role of third-party statements in adding value to corporate environmental reports. Business Strategy and the Environment 9 pg1-23


2. O’Dwyer B and Owen D (2005) Assurance statement practice in environmental, social and sustainability reporting: a critical evaluation. The Business Accounting Review 37 pg 205-229

Both these papers were critical of the assurance process and questioned the motives of the reporting and assuring organisations. Ball et al (2000) found that the verification process showed a lack of independence on the part of the auditors, there was evidence of auditee control over the process, that the verification practice exhibited a managerial wish to retain control rather than a corporate commitment to external transparency and accountability. O’Dwyer and Owen (2005) reported similar findings adding that there may be a wish to keep stakeholders out of the accountability process.

These papers were interesting but neither of them looked at the effect of the assurance statement on the following years report. Is the reporter taking notice of the assuror. I am about to undertake such a study for my dissertation project on my MSc - so lets see. I would also like to hear from anybody involved in this kind of assurance who might consider being interviewed as part of my project.

One thing we all need to be asking ourseleves though is what are we assuring - are we assuring that what a company says is true or are we assuring that a company is acting in a sustainable manner. For instance is it right that BP can receive a credibility improving assurance statement when it is actively looking at extracting oil from tar sands. Apparently one of the most unsustainable activities for planet earth and future generations they could perfom.

Would be pleased to hear what others may think

StewyM

[AccountAbility]

Welcome to the forum StewyM!

You raise some interesting points. It is correct that discussion on managerial capture in sustainability accounting and assurance has been around among the academic community for a while.

Might be worth reading for you also some newer academic articles addressing sustainability assurance:

O’Dwyer B and Owen D (2007): Seeking Stakeholder-Cenric Sustainability Assurance. Journal of Corporate Citizenship Spring 2007, p.77-94; or

Deegan, Cooper, Shelly (2006): An investigation of TBL report assurance statements: UK and European evidence. Managerial Auditing Journal Vol. 21 No 4.

It is also interesting to see that the focus in this area more and more shifts on sustainability assurance. Witness to this are also latest publictations like

CorporateRegister (2008): 'Assure View';

Ernst&Young (2008): Transparency in Assurance Reports on Corporate Responsibility Reporting;

or with a focus on Germany Clausen and Loew (2005): Mehr Glaubwuerdigkeit durch Testate?

One thing we all need to be asking ourseleves though is what are we assuring - are we assuring that what a company says is true or are we assuring that a company is acting in a sustainable manner

True! This question also came up during the current revision process of the AA1000AS (2008); as it looks at the moment, the new standard will address this by remaining a "principles-based" assurance standard. An assurance engagement using the AA1000AS (2008) will require assurance providers to assess Inclusivity, Materiality, Completeness and Responsiveness not only against disclosure, but also underlying systems, processes and politics that deliver the relevant information and underpin the organisation’s performance.

Is this feature useful? - what do you think?

[StewyM]

Thanks for the references, these look useful

I will get back to you on AA1000 (2008) , I have only just come across it in the last few days and what to have a proper read.

StewyM

[StewyM]

The accountability principles can promote sustainability if they are applied correctly. However, who is ‘policing’ how the standard is being applied.

• For all intents and purposes a person could with no prior experience set themselves up as an assessor and audit against AA1000AS.

• AA1000AS will be interpreted and applied differently and with varying degrees of rigour unless there is some kind of panel providing a standardising effect

In most other fields where standards are applied there is an overarching authority which has control over how the standard is applied. My particular experience is in the pharmaceutical industry and in the UK each manufacturing site has to have a Manufacturing Licence – in effect it’s Licence to Operate. The site earns its licence by meeting the standards expected by the regulatory agency – tested by inspection every 2yrs or so. If in the inspectors view the standards are not being met the site can be summarily closed.

With CSR, companies can choose their favourite assessor, who they pay to provide a service. The assessors though are not accountable to anybody.

Can Accountability take action if you see your std being miss-applied?

The number of sustainability assessors is likely to proliferate should Acountability lobby for a national body to prevent rogue assessors being set up and for proper professional standards to be maintained.

The concept of ‘current good practice’ is well established in the pharmaceutical industry. This is the evolution of a practice resulting in higher standards being applied commensurate with good science and good sense. Perhaps Sustainability needs something like this to be established through a national/international accepted body. Would sectoral guidelines for the assessors be a good idea?

Don’t get me wrong here I am not in anyway putting down what Accountability have achieved to date, I think what they are doing in this area is hugely valuable. I just think there is a potential for the value to be diluted by poor practice unless the practice is better regulated.

Going back the AA1000AS it stands on the inclusivity principle which I like. Identifying and involving the right stakeholders I believe is key to sustainability. One of those key stakeholders I believe has to be ‘future generations’. This is a voiceless group so should this group get an automatic right of representation or a ‘voice’? Perhaps this could be achieved via the std requiring that this stakeholder be addressed rather than leaving it open to identification and prioritization

best regards
StewyM

[sceptic]

Nice post there StewyM.

I agree that Stakeholder Engagement is one of the key elements. I would also be interested in knowing whether there is a way on how to control the correct use of the AA1000AS and what happens if it is being misused.

Any thoughts?

[AccountAbility]

Hey there!

The question how much sustainability reporting and assurance should be controlled or even legislated is a tricky one. My opinion is that today sustainability assurance is still a very young industry and we still need time and innovation. That is why AccountAbility does open source standards and allows all kind of individuals and organisation to use it.

In terms of policing the AA1000AS:

AccountAbility recognizes the problems of bad AA1000AS assurance. At present there is no formal mechanism to root out bad practice. There is a Certified Sustainability Assurance Practitioner qualification administered by IRCA which relates to the AA1000 series but there are no requirements relating this qualification to the AA1000AS. AccountAbility is exploring options relating to organizational accreditation which would provide greater control of practice, but the difficulties are how to implement this and encourage the wider provision and use of assurance. If the barriers are placed too high at this stage it could be a limiting factor.

What do you think: To prove accountability of assurance providers, would it be useful if they disclosed information on any commercial or important informal relationships with clients in assurance statements?

[StewyM]

Hi there Accountability21

thanks for your reply

Re you suggestion that relationships between assessors and clients - yes i think any materially important relationships should be transparent. I don't think assessors can afford to have their credibility undermined or questioned by not disclosing information that could materially affect their independance.

Some other thoughts...

I appreciate that the provision of open source documents is an excellent means of encouraging take up of the standard and as you state you don't want to discourage use by setting barriers that are too high.

Has Accountability considered carrying out research into how the standard is being operationalised and publishing case studies of leading practice - maybe even set up an awards scheme for assessors so that assessors demonstrating good practice are recognised?

By recognising the good assessors it add value to the credibility applied to the clients by the verification process.

If the clients understand they get increased credibility by use of the good assessors it will encourage use of these assessors.

Then hopefully these assessors lead the practice of the not so good assessors forward by the commercial pressure of attracting clients because of their good practice.

best regards
StewyM