Assurance on CSR/Sustainability reporting

Topics: Corporate social responsibility, Business ethics, Social responsibility Pages: 6 (1658 words) Published: May 26, 2014
4. Assurance on CSR/Sustainability reporting

a) In recent years there have been a growing number of organisations voluntarily reporting on their non-financial performance. KPMG’s International Survey of Corporate Responsibility (2011: 6) found that: ‘95% of the 250 largest companies in the world (G250 companies) now report on their corporate responsibility (CR) activities, 66% of non-reporters are based in the US.’ There has been a growing trend in companies (especially in Europe) wanting to show a focus not only on achieving the ‘corporate bottom line’ but corporate social responsibility. According to the GRI Sustainability Reporting Guidelines (2006:38), assurance is an important part of CSR reporting used to verify the quality and accuracy of reports.

However, there is no clear consensus on the issue of whether information in Sustainability Reports needs to be verified with the same rigour that financial statements are. Auditing financial statements is a compulsory part of financial reporting because it pertains to the credibility and therefore usefulness of financial information to stakeholders. The question then becomes why is CSR Reporting assurance not compulsory? Is it less important to verify CSR reports or are there other underlying reasons that complicate the issue of assurance? The discussion below will address the points above as well as give a few case examples.

Proponents of assurance have raised some arguments in favour of verifying Sustainability Reports. Power (1997) argues that assurance processes motivated by ‘true’ accountability to stakeholders should, “enlighten, inform, and enable criticism and substantive change.” According to O’Dwyer and Owen (2005) from a legitimacy theory view point, if companies desire to maintain their license to operate, then verification of voluntary social and environmental reporting represents an important element in this legitimisation process. Thus the main purpose of social and environmental reporting would be undermined unless robust assurances were introduced.

Lev & Penman (1990) argue that businesses that verify their sustainability reports differentiate themselves from their competitors thus gaining a competitive edge. For example, the fact that AMEC has assured their CSR report may make them more credible than their competitors. Ballou et al (2006) stated that: ‘lack of an independent assurance report lowers the quality and usefulness of a CSR’ and will therefore reduce the credibility of the CSR report (Simnett et al, 2007). However, Jones & Solomon (2010) question the true motives of a business that engages in CSR assurance by arguing that it may not be focused on improving corporate accountability but rather on indirectly increase marginal profits by boosting the ‘corporate image’ (Manetti and Becatti, 2008 and Owen et al., 2000). For instance, is AMEC verifying their sustainability report to merely give the impression of being socially responsible in order to appeal to key stakeholder groups such as investors, clients and employees or; are they genuinely focused on providing true transparency and accountability to stakeholders?

Furthermore, due to the current lack of statutory requirements or generally accepted verification standards; the lack of completeness and credibility of CSR reports (Adams and Evans, 2004) and, the measurements that should be relied on to audit are difficult to determine thus audit reports ‘add little value’ (Manetti and Becatti, 2008 and Ball et al., 2000). Who the most appropriate agent is may depend on the company's economic, operational, social, philanthropic and environmental objectives (Ballou et al, 2006). For example, because AMEC’s management appointed its assurance providers (SKM Enviros) this may call into question the credibility of CSR assurance as there may be bias.

In contrast according to Simnett et al (2007) assurance should be done by auditors rather than consultants. An auditor is likely be to less...

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Corporate Register, (2012) http://www.corporateregister.com/aa1000as/licensing/ [accessed on 21st March 2012]
KPMG (2011), International Survey of Corporate Responsibility Reporting, KPMG Global Sustainability Services; Amsterdam.
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Solomon, J, (2010), ‘Corporate Governance’, third edition, West Sussex: John Wiley & Sons Ltd.
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