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Business enterprises have been publicly reporting information on their strategies, operations, compliance, and financial performance for decades—on company websites and fact sheets, in investor presentations, and through securities filings. In the 1980s, companies began reporting on environmental performance, with health and safety performance being gradually included; and the 1990’s saw the inception of sustainability reporting.

This article examines the drivers, trends, and best practices in sustainability/corporate responsibility reporting, with a focus on verification of these reports, its value and associated best practices.

Sustainability Reporting and Verification Trends

Sustainability embodies the underlying tenets of environmental stewardship, social responsibility, and economic value. These three elements extend well beyond their historical meanings – environmental and health and safety (EHS) compliance, revenues, and profits – and are component parts of the ‘triple bottom line.’ In effect, sustainability implies managing an enterprise to enhance the value of its “capitals,” including financial, manufacturing, intellectual, human, social, and natural capitals. With this perspective in mind, the potential scope of a sustainability report extends well beyond EHS compliance and performance, and revenue and net income. This evolution of EHS and sustainability-related reporting is illustrated in Figure 1.

EQ Winter 2015 - Sustainability Figure 1

Environmental reporting, followed by gradual inclusion of health and safety data, began in the 1980s, particularly by chemical companies. Companies began sustainability reporting as early as the 1990s.

Disclosure of environmental compliance issues, risks, and liabilities has been required in U.S. Securities and Exchange Commission (SEC) annual and quarterly reports (10K, 10Q) for more than four decades. In recent years, environmental, social and governance (ESG) information is being increasingly included in securities reports globally, as well.

There are several sources of statistics and trends on sustainability reporting and verification, which include the Global Reporting Initiative (GRI), Coalition of Environmental Responsible Economies (CERES), CDP, Governance and Accountability Institute, KPMG, The Corporate Register, and others. Some recent trends noted among these organizations include the following:

  • More than 90 percent of the 250 largest global companies (G250) reported on their corporate responsibility activities in 2011, up from only 35 percent in 1999.
  • Based on 2011 statistics, more than 80 percent of the G250 utilized the GRI framework as a basis for their sustainability reports.
  • The number of sustainability reports that follow the GRI guidelines and are declared as ‘integrated’ is on the rise, although the vast majority of reports are not truly integrated (i.e., the primary source of ESG and financial performance data).
  • There has been a steady rise in verification of GHG inventories reported through the CDP investor and supply chain questionnaire, as well as verification of sustainability reports.

Why has sustainability reporting, and verification of these reports, experienced such significant growth? These trends can be attributed to several factors:

  • Regulations – While sustainability reporting is in large measure voluntary, selected countries require annual reports. For example, companies in Brazil’s power generation sector must prepare annual sustainability reports and listed companies in Japan must prepare annual environmental reports.
  • Voluntary reporting and disclosure guidelines – Several organizations provide a framework for companies to report ESG performance, including but not limited to GRI, CDP (i.e., climate change disclosure, as well as water, forestry, supply chain and other initiatives), Climate Disclosure Standards Board (CDSB), the International Petroleum Industry Conservation Association (IPIECA), and others.
  • Socially responsible investing/stakeholder activism – Stakeholders (including shareholders) are wielding more influence over how companies operate, with socially responsible investing continuing to grow. This is achieved through investments in companies that consider ESG criteria in rating their securities, and by shareholders submitting resolutions that address ESG issues to company Boards for consideration and vote.
  • Sustainability reporting indices – Various indices are used to rate performance of publicly traded companies and private enterprises, including but not limited to the Dow Jones Sustainability Indices, FTSE4Good, Calvert, The Newsweek Green Rankings, and many others. These indices utilize ESG criteria to rank performance, and the rankings are publicly disclosed. Additionally, The Global Initiative for Sustainability Ratings is developing a generally-accepted ratings framework for assessing the sustainability performance of companies.
  • Integrated reporting and non-financial disclosure initiatives – Two initiatives are actively developing principals and standards for incorporating ESG considerations into mainstream financial reporting—the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). Additionally, securities reporting requirements in the EU include some form of ESG disclosure in financial reports.
Sustainability Reporting is a Process

EQ Winter 2015 - Sustainability Figure 2The format and content of sustainability reports can vary widely, even if the reports are prepared in accordance with the GRI guideline. However, preparing such a report is a challenging process. An excellent illustration of the process is provided in Figure 2, adapted from the IPIECA sustainability reporting guidelines.

Figure 2 shows the process flow from establishing vision, strategy, governance and management systems; through compilation and evaluation of the ESG information to be included and its internal quality assurance; and independent external verification of the report. This cycle is iterative since sustainability reporting is not just a one-time project, but a process of continual improvement. While written for the petroleum industry with involvement from an independent external stakeholder panel, this process applies to sustainability reporting in virtually any industry.

Sustainability Report Verification and Best Practices

What is verification?
To better understand verification, consider these informative definitions:

“Assurance is an evaluation method that uses a specified set of principles and standards to assess the quality of an organization’s subject matter and the underlying systems, processes and competencies that underpin its performance.” 1

“Verification is an objective assessment of the accuracy and completeness of GHG information and the conformity of this information to pre-established GHG accounting and reporting principles.” 2

Several key points are worth noting:

  • Verification (or assurance) is an assessment, conducted in the framework of a systematic process.
  • The process is designed to determine whether the verified information conforms to a defined set of principles, standards, and criteria.
  • The process addresses not only the subject matter, but the underlying systems, processes and competencies.

Like any auditing process, verification is based on a consistent set of underlying principles:

  • Independence – Maintaining independence from the activity being verified, and being free from bias and conflict of interest
  • Ethical conduct – Demonstrating trust, integrity, confidentiality, and discretion throughout the verification process
  • Fair presentation – Verification activities, findings, conclusions, and reports are reflected truthfully and accurately
  • Due professional care – Exercising diligence in performing verification, having the skills and competencies, and applying the necessary skill and judgment

These underlying principles should be familiar to any auditor of compliance, management systems, internal controls, financial statements, or sustainability reports.

Verification is a Process
EQ Winter 2015 - Sustainability Figure 3It is essential to understand that verification is a process in itself, and a component part of an overall sustainability reporting process (see Figure 2 above). However, verification can be performed in several ways, as illustrated in Figure 3.

Most commonly, verification is performed through assurance of the reported data/information. Verification or conformance with an established standard (e.g., AccountAbility 1000 Assurance Standard) can be performed. Additionally, the general content and balance of reporting can be verified by an independent stakeholder committee. Certain companies may employ more than one type of verification, as well (e.g., stakeholder panel for holistic assessment, with assurance of GHG emissions by a verification provider).

Verification Standards
By necessity, verification is conducted in accordance with standards. For instance, there are several GHG verification standards/frame-works3 that have been established, including but not limited to:

  • ISO 14064-3
  • EU Emissions Trading Scheme
  • California AB-32
  • The Climate Registry (TCR) General Verification Protocol
  • Canadian Provincial Verification standards
  • Carbon Offset Registry standards
  • International Standard on Assurance Engagements (ISAE) 3410, GHG Statements

The ISO 14064-3 standard is at the core of many of these frameworks, although not all (e.g., AB-32, ISAE 3410). Note that CDP allows companies to utilize any of over two dozen standards for verification of submitted GHG inventories.

For the broader subject matter included in sustainability reports, there are fewer international standards. Selected examples include:

  • International Standard on Assurance Engagements ISAE 3000, International Federation of Accountant
  • AA 1000 Assurance Standard (AS), Accountability

The ISAE standard is specifically intended for use by financial accounting/auditing professionals. The AA1000 standard includes provisions for assurance of subject matter, as well as conformance of the report to AccountAbility’s Principles (i.e., inclusivity, materiality, responsiveness).


Sustainability Reporting Program Elements

Sustainability reporting is part of a process the goal of which is to ensure the transparency, consistency, and credibility of the reported information. Critical elements of a sustainability reporting program include:

  • Executive leadership, accountability, involvement, and support – The ‘Tone at the Top’
  • Multifaceted organizational participation and accountability – The relevant data extend well beyond EHS
  • Defined roles and responsibilities – The endeavor is complex and the team must work together to accomplish the objective
  • Competent and trained resources – The data can be complex and requires considerable and diverse subject matter knowledge
  • Effective procedures and management controls – A clear, consistent. and effective process is essential
  • Information technology – Leverage systems and their integration to improve accuracy, consistency, efficiency, and reliability of the reported data and information
  • Transparency – While there’s no shame in reporting good news, be prepared to address performance issues to build credibility and stakeholder confidence

Key Elements of Verification
Verification includes several key elements to ensure that the underlying principles for reporting are achieved and that appropriate verification standards are satisfied:


Objectives & Scope. What is the ultimate objective of verification? Is it focused to the veracity of the data management and reporting processes? Is it intended to provide stakeholders with a clear understanding of a company’s commitment to sustainable operation? Which parameters or key performance indicators (KPI) will be verified?

Criteria. Verification criteria should be defined early. There are many sources of information on appropriate criteria, including the GRI Guideline, AA 1000 AS, ISO standards, The GHG Protocol (for GHG inventories), and others.

Level of assurance. It is important to note that there is no such thing as absolute verification (or assurance). To do so would require the review of all reported information by the verifier. As such, verification is conducted at either a ‘reasonable’ or ‘limited’ level of assurance (‘high’ or ‘moderate’ per the AA 1000 AS). The former considers procedures, internal controls, systems, and data at all operational levels within an entity. The latter focuses on the corporate-level organization, with limited review of operational or facility processes or data. This distinction implies a much different level of effort, provides less risk mitigation, and is a risk management mechanism for the verifier.

Materiality. Generally, a matter is considered ‘material’ if an interested party would reasonably want to know about or rely on it. The core of this definition stems from securities reporting (e.g., SEC), where investors utilize reported information to make decisions on whether to buy, sell, or hold securities. For sustainability reports, stakeholders’ reliance on the reported data is considered. When verifying numerical data, the materiality level is defined in terms of accuracy (e.g., +/- 5%) for reported data.

Risk Assessment. Because it is not practical to verify all information in a sustainability report, a mechanism is needed to focus the effort. A form of risk assessment is utilized to assess the potential for ‘material’ misstatement of the reported data. Risk of potential errors, omissions, and misrepresentations includes: (i) inherent risk (i.e., risk in the absence of any management controls), (ii) risk that the management controls will not prevent or detect a material misstatement, and (iii) risk that the verifier will not detect a material misstatement.

Reporting. The product of verification includes the opinion that provides the overall conclusion, offered considering the scope, objectives, criteria, materiality, and level of assurance, as well as any discrepancies to which the opinion does not apply. A report to management can be provided, as well, that identifies potential opportunities for improvement. In the practice of GHG verification, global and registry-specific standards provide strict requirements on the content of such reports.

Verification Best Practices
The key consideration in performing verification is to PLAN AHEAD! Aside from having a clear understanding of scope and objectives, level of assurance, criteria, and materiality, proper planning is required by the verifier and the entity to be verified:

  • Agree on a complete agenda for the effort and ensure that the team is available when required.
  • Provide sufficient time for all verification activities, including interviews, document review, and inspections/observations.
  • Anticipate that staff from functions other than EHS will participate (e.g., energy management, human resources, supply chain, finance, legal, etc.).
  • Essential documentation should be available and assembled prior to the verification, and expect that the verifiers may ask for more. The verifier should be exercising a healthy level of professional skepticism.
  • If data access will occur through a management information system, ensure that logistics to obtain access are addressed beforehand.> Anticipate the unexpected, as the verifier must be satisfied that their inquiries have been suitably addressed.

Companies that embark on sustainability reporting should have a long-term perspective. The objective should be to gradually improve reporting, consistent with their improvement in sustainable performance. Indeed, verification is a component part of a continual improvement process.

For further information, please contact John Fillo, Principal Consultant, at (724) 996-1946 or

1 The Future of Sustainability Assurance, ACCA / AccountAbility.
2 The Greenhouse Gas Protocol, WBCSD / WRI.
3 It is not unusual for companies to restrict the scope of verification to the GHG emissions data reported in their sustainability reports.