Assurance: Buckle up for safety! Photo: Michael White
More on assurance!
Assurance on Sustainability Reports
Two weeks ago, I attended a GRI sponsored event Enhancing credibility and trust of sustainability reporting hosted by Bloomberg in NYC. The purpose was to gather opinions on how to enhance the credibility of sustainability reports.
We had some interesting discussions! One topic in particular stood out for me. Why would companies have their sustainability reports assured when in many countries the reporting is still voluntary? This a great question! Presumably, they would have their reports assured because they get something out of doing so. There is value added when reports are assured but what will it take to increase the assurance rate?
I read a recent article in Forbes by Cindy Lubbers of CERES about how to get more companies to provide environmental, social, and governance (ESG) disclosures. The suggested solution was for stock exchanges to require more ESG disclosures. I think this is a great idea. The same would be true for assurance.
If stock exchanges can require more disclosures, they can surely require assurance of the information. This would definitely improve the information being provided to investors. If investors are relying on this information to make decisions, they should be able to have confidence that the information is reasonably accurate. Security exchanges are in a unique position such that they can set the standards for the companies that list with them. It is in their best interest to promote transparent and efficient capital markets. Adding a layer of assurance is a way to build trust and create long-term value.
In my next blog, I will talk about the qualities I think are needed by assurance providers.
Indiana Memorial Union Fountain. Credit: Gwen White
This is a reminder of an upcoming GRI + Integrated Reporting training offered by the ISOS Center for Social Responsibility in collaboration with the School of Public and Environmental Affairs (SPEA) . Please join us for the CSR Institute at Indiana University in Bloomington, Indiana, September 24-26.
During the three-day training, participants will learn about managing the sustainability reporting process, identifying critical risks and opportunities and communicating sustainability objectives. Participants will be given hands-on instruction on the most up-to-date GRI G4 sustainability reporting framework using sustainability reports from leading organizations as case studies.
Sustainability and integrated reporting practitioners and users of sustainability and integrated reports will find value in the integrated reporting workshop. For reporting practitioners, it should provide information about acquiring competitive advantage through implementing an integrated reporting process. For users of these reports, it should provide knowledge about integrated reporting from the users perspective.
I hope to see you there!
One of SpaceX’s “assurance” modes. Credit: SpaceX/Roger Gilbertson
Assurance on sustainability reports – How is it perceived?
As companies start to invest in assurance for their sustainability reports, they have to wonder “is it worth it?” Academic studies can shed some light on this.
In a 2105 study, researchers at the University of New South Wales in Australia looked at whether assurance of environmental, social, and governance (ESG) indicators affected investors’ willingness to invest in a company.
Researchers presented a sustainability report with ESG indicators to graduate students in a master’s of financial analysis program. These were students who were “sophisticated” users of financial information. They were told that they had inherited some money (lucky for them) and were to indicate their willingness to invest the money in a company. The researchers varied which students were given sustainability reports with assurance vs. no assurance and whether the company’s strategy and ESG indicators were aligned. For example, assume a retail grocery’s strategy is aimed at supporting products that are based on environmental stewardship. A strategically aligned ESG indicator would be the percentage of animal products sold that are sourced from sustainable agricultural practices.
What did they do with their inheritance? Study participants, aka, investors, were more willing to invest if the company had its ESG indicators assured. Assurance made a statistically significant difference! It also mattered to these investors if the ESG indicators had a high relevance to the companies’ strategy. This is an important result, especially as companies decide on what sustainability metrics to report. Just reporting for the sake of reporting does not mean as much as reporting what matters. This sounds very much like the essence of the GRI G4 Sustainability Reporting Guidelines.
This is just one study, but an interesting one that supports the role of assurance in giving credibility to sustainability reports. There are other assurance studies that I will talk about in future blogs.