Author Archives: Gwen White

Circular Economy Disruptive Innovation Festival 2015

Flyer DIF2015_Open Mic

We are delighted to contribute to the Disruptive Innovation Festival (DIF) 2015, curated by the Ellen MacArthur Foundation. Our session is a two-part event entitled: “Nothing Abandoned: No Place for Rust Belts in the Circular Economy.” Part one is a roundtable discussion, scheduled for October 29th in Indianapolis, with a panel of Midwest sustainability and circular economy professionals. A video recording of part one will be available at the start of the DIF 2015 on November 2nd. During part two on November 13th, 9:00 – 10:00 am EST (14:00 – 15:00 GMT), we will summarize the October 29th discussion and host a live Q&A session.

Please join the DIF 2015 and engage with a global community dedicated to mainstreaming the circular economy.

Our goal is to highlight all the positive actions taken in Indiana and the Midwest to revive this region’s economy along its industrial and farming traditions and competence. We will discuss the opportunities provided by the circular economy framework. Our panel will showcase organizations and activities in the Midwest that represent examples of positive and sustainable transformations in this region.

New Book Available Now!

Sustainability Reporting: Getting Started, 2015 (2nd edition). Gwendolen B. White

Sustainability Reporting: Getting Started, 2015 (2nd edition). Gwendolen B. White

My new book is now available at Business Expert Press! This latest edition presents the rationale for reporting along with a discussion of the major sustainability reporting frameworks such as the Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines, the Integrated Reporting Framework, and the Sustainability Accounting Standards Board Standards. You will find detailed examples of the GRI G4 Guidelines from actual company reports such as UPS, Nestle, and Weyerhaeuser, to name a few. These examples show how major companies have applied the GRI guidelines. This book can help get your organization started on its reporting journey.

 

Idea for Assurance on CSR Reports

An idea for improved sustainability report assurance.

An idea for improved sustainability report assurance.
Photo: Gwen White

In my last blog, I wrote about VWs limited assurance report on its latest sustainability report. I think limited assurance makes sense for sustainability reports after a high level of assurance has occurred. In VW’s case, this high level of assurance never had occurred.

How do we get companies to have their sustainability reports assured at a higher level? I suggest that high level assurance be done every other year with limited assurance to be performed in the years in between. This idea has some parallels to financial statement audits.

Every year public companies publish full financial statements, which are audited once a year. In an audit, considerable testing is performed on the systems that provide the data and the data itself. This testing includes gathering corroborative evidence such as checking calculations, obtaining third party confirmations, inspecting assets, and comparing valuations to external markets.

In the accounting profession, a “review” engagement of financial information is limited assurance and is often done in the interim period between the publication of full financial statements. In the interim period, companies issue financial information but not complete statements. During a review engagement, testing or other corroborative procedures are not done; instead, the auditors make inquiries and flag and research inconsistencies. After these limited procedures, the auditors state that they are not aware of any “material” modifications that should be made to the  interim financial information for it to be in accordance with the relevant accounting principles. “Material” means it is big enough that it would affect your decisions about the company.

To illustrate, this is an example schedule for audits and reviews.

  • Audit, big deal done every year
    • Review, first quarter
    • Review, second quarter
    • Review, third quarter
  • And back to the audit

When these review engagements are done between audits, there is in essence an audit benchmark. During the audit, the data systems and controls have been evaluated; extensive testing has been done. The audit provides reasonable assurance that the information is not misstated in a major way due to errors or fraud. Limited assurance can be done in between audits because the audited financial statements serve as a benchmark upon which to assess subsequent financial information.

This could work for sustainability reports where limited assurance (review engagement) occurs between high level assurance. The costs would be less than doing a high level of assurance every year. As demand for assurance on sustainability reports increases, this would be an important step in achieving higher level assurance.

VW and Assurance

Better Assurance = Fewer Injuries Photo: Michael J White

Better Assurance = Fewer Injuries
Photo: Michael J White

VW cheated and harmed us all. Some of us are more harmed than others. If you own stock, you have seen your net worth decline. If you own one of the affected cars, your troubles are just beginning. If you work for VW, your job may be jeopardy. If you live on the planet, your air is  more polluted.

VW’s story is one of fraud, but why is it so troubling? All frauds are troubling, but VW’s lies seem particularly egregious. VW cast itself as a sustainable company. In their 2014 sustainability report, the company declared the following:

“For the Volkswagen Group, sustainability means that we conduct our business activities on a responsible and long-term basis and do not seek short-term success at the expense of others.”

In the report, they also listed the environmental performance of their specific car models. Many people believed them. In 2014, CDP put VW in its Climate Performance Leadership Index  and in 2015, the Dow Jones Sustainability Index (DJSI) listed VW as the most sustainable automaker. (It has since been delisted by the DJSI.)

Could the fraud have been prevented or detected earlier? Perhaps. I contend that assurance of sustainability reports could make a difference. In audits of financial statements, the auditor’s opinion states whether reasonable assurance has been obtained that the financial statements as a whole are free from material misstatement, whether due to fraud or error. Following professional auditing standards, auditors obtain this reasonable assurance from substantial testing of data systems and underlying information.

Audits do not provide absolute assurance; nothing can. Frauds will occur and have always occurred. Detecting fraud is difficult when multiple people collude to hide it. We can make it harder for them to do.

Was VW’s sustainability report assured? Yes, but it was a “review” or  “limited” assurance. What does limited assurance mean? The procedures were limited to inquiring of key personnel, understanding the company structure, documenting systems, visiting sites, performing data comparisons, and examining internal and external documents. Limited assurance is just that, limited.

If we are going to depend on the information in sustainability reports, we need more than limited assurance. We need “reasonable assurance.” This can be done using procedures similar to that of an audit of financial statements. Will this cost money? Sure, but the fallout from fraud is much more costly for all of us: company, employees, customers, suppliers, and the environment.

More on Assurance

Assurance: Buckle up for safety!

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.