Corporate non-financial reporting has entered the business mainstream, with two-thirds of the global FT500 publishing an environmental, sustainability or ‘corporate social responsibility’ report in 2007s.

These reports cover a range of issues, most usually environmental impacts, but increasingly including social, ethical, supply chain and even human rights issues. In ways they’re similar to annual report & accounts, so it’s not surprising that many of them have an external assurance statement to demonstrate that the information has been verified and may be relied upon.

Of the 3,000 CSR reports that will be published worldwide during 2008, around 750 will include an external assurance statement. But while verifications and audits for year end accounts are usually closely regulated and follow a standard format, this isn’t the case for the CSR assurance statements.

These reports are voluntary and the assurance statements aren’t regulated: their scope, the way they’re approached and the format and wording of the published assurance statements differ widely, making this a very confusing field for practitioners and clients alike. There is no ‘common currency’ of methodology, terms and definitions, and although there are various approaches (see below for a brief outline of the two leading ones) there is no single approach accepted and referenced by all provider types.

Our report looks at the individual elements and trends in the CSR assurance market, and gives an overview and guide for the perplexed. Here are some of the report’s findings.

Who’s providing CSR assurance statements?

Although there are several hundred different providers developing CSR assurance statements, three major provider types dominate the market: The Big Four, certification bodies and specialist consultancies. Together these provider types account for around 90% of the market, with non-Big Four accountants providing a further 2% share.

In 2005 The International Auditing and Assurance Standards Board (IAASB) issued ISAE 3000 as a standard for ‘other’ assurance engagements. This standard has been helpful for the accountants operating in the CSR field, so useful in fact that although developed by professional accountants for professional accountants, CSR assurance providers outside the accountancy profession are beginning to use it and reference it in their own statements.

The other specific standard in this field is the AA1000 Assurance Standard developed by AccountAbility (accountability21.net). This standard may be used by any assurance provider, and is used by accountants and non-accountants alike.

What are the trends?

Over the past decade we’ve seen growing professionalism and consolidation of the CSR assurance market. The smaller providers ­ such as broader consultancies, individuals, trade bodies, academics ­ are being edged out, and one of the biggest winners are the Big Four, with their increasing specialisation and global reach.

There are strong regional differences. Just under a third of European CSR reports include an assurance statement, yet in North America this figures drops to around 7%. Why is this? One possible explanation is that US reports do not yet show the depth and breadth of issues seen in European reports. With honourable exceptions, US companies appear more enthusiastic in reporting how money is spent rather than how it’s earned (witness the 8% of top 100 US companies currently producing ‘philanthropy’ reports rather than multi-issue CSR reports) and it may be argued that this type of disclosure does not demand or even benefit from external assurance.

How to ensure a CSR assurance statement is ‘meaningful’?

Our report demonstrates that the approach and communication of a CSR assurance statement are largely dependent on the type of provider engaged to do the work. In other words, an accountant, certification body or specialist consultancy will each have their own specific views on what CSR assurance is all about, with a body of evidence to back up their case. The ‘key elements’ (see box) form a solid foundation for a ‘meaningful’ statement regardless of provider type ­ if they are all included then a client, or an assurer, won’t go far wrong.

However there are a couple of further pitfalls to avoid. If the assurance provider also happens to be the company responsible for writing the report, there’s an obvious potential conflict of interest and a clear lack of independence. Nevertheless, several companies persist in doing just this. If impartiality is fundamental to establishing trust through these reports, they’re missing the mark.

A further variant is the ‘opinion statement’: a glowing statement by an individual, perhaps an academic or even a ‘green celebrity’, with no stated methodology or evidence of investigation. Invariably, such opinion statements are passed off as verification or assurance statements. If you’re a client, despite the superficial attraction, best to avoid this route. As the adage goes, if a job’s worth doing at all, it’s worth doing properly!

The key elements

Using a combination of a best practice review across five countries and references in relevant initiatives & standards, the following key elements have been identified as essential for inclusion in a ‘meaningful’ CSR assurance statement:

Reference to standardised approaches and levels of assurance. The most commonly referenced approach is ISAE 3000, together with two others (AA1000AS and the GRI guidelines). The levels of assurance outlined by ISAE 3000 are the ‘reasonable’ and ‘limited’ levels familiar to accountants worldwide, but other provider types are beginning to introduce assurance levels of their own.

Specific declarations. It’s useful for the statement to include a range of information including but not limited to: the statement’s intended audience, a declaration of the provider’s independence, the respective responsibilities of client and provider, any disclaimers.

Methodology. How has the work been conducted? Has the provider looked only at internal paperwork, or have staff been interviewed, sites visited, data systems scrutinised and external stakeholders questioned? Does the statement cover the entire report or only selected information?

Provider recommendations and opinions. What are the provider’s views about the about the report and the company’s performance? How might the report be improved or performance enhanced? Often such information is provided in an internal report, but it’s useful to include views in the public statement for the benefit of external stakeholders.

Assurance conclusions. The most important key element – should be included in
every statement.

Paul Scott is MD of CorporateRegister.com. Its report, The Assure View, is available as a free download from CorporateRegister.com