Sustainability Information
1 Introduction
Social, environmental and sustainability matters are a source of risk (and opportunity) to companies:
Bad publicity - for example, disparities between the salaries of male and female employees
Good publicity - for example, a reduction in carbon footprint.
Fines - for example, on operating outside permitted hours causing noise that harms those living nearby.
Compensation - for example, on the release of pollution that affects fish stocks.
Losing customer contracts - for example if a company is implicated in exploiting children.
More supervision by the authorities - if an industry has repeatedly not improved it standards.
Social media allow much greater involvement of many stakeholders - and can also quickly permit harm to be caused to an organisation through Twitter and review sites. Initiatives such as sustainability reporting and the triple bottom line (profits, people, planet) have meant that more and more companies include sustainability information in their annual reports and on their web-sites.
2 Assurance reports
Assurance reports on performance measures give greater credibility to those measures. If no independent assessment were performed why would stakeholders believe what is published? Of course, what company decides to publish relating to these matters is very much the company’s choice (unlike in their financial statements) and the auditor has no power to insist on a particular set of disclosures. However, once the company decides on its disclosures, the auditor can be asked to provide assurance.
In general, the work that the auditor has to carry out for an assurance report is:
Agree the metrics (eg performance measures and sustainability indicators).
Check the client’s measurements, calculations and published figures.
Report compliance.
You should remember the objective and requirements for the disclosure of sustainability information from your SBR studies.
3 Examples of matters included a sustainability report
Social matters (include product responsibility, labour practices, human rights and society), for example:
Production information relating to socially responsible, safe, reliable products
Data showing progress towards equal opportunities for staff (eg male/female proportion, age distribution) and for fair pay policies
Incidence of industrial injuries
Investment in people (eg number of trainees and training costs per employee)
Number of hours spent on socially useful voluntary activities
Conditions for the workforces of suppliers (eg steps taken to stop suppliers using child-labour)
Fair pricing for purchases
Environmental matters:
CO2 emissions/carbon footprint
Release of waste products into the atmosphere or sea or rivers
% of packaging that is recyclable
Reductions in packaging
Freight miles for both purchases and sales
Overall energy consumption
Percentage of energy from renewable sources
Trees planted
Economic matters (include economic performance, market presence, indirect economic effects, procurement practices, anti-corruption and anti-competitive behaviour), for example:
Economic value generated (ie revenue), distributed (ie to employees, suppliers, government and the community) and retained (ie the difference)
Financial implications of climate change
Information about defined benefit plans (eg % employee participation and % contributed by employee/employer)
Government financial assistance (eg tax relief, subsidies and grants)
Infrastructure investment (eg in transport links, health centres)
% of employees paid minimum wage and entry level wage by gender
% of senior management hired from local community (must define both ‘senior management and ‘local’)
Preferential pricing of medicines
Proportion of spending on local suppliers
Number and % of employees who received training on anti-corruption
Number of incidents of and dismissals for corruption
Number of legal actions (eg relating to violations of monopoly legislation)
4 Planning the assignment
Every client could use different sets of measures and different ways of taking measurements and the first step is to find out precisely what work the auditor is expected to carry out. What key performance indicators (KPIs) will be used? What are the comparatives? How and when are the measurements made? What evidence does the client use and which will also be available to the auditor?
Each KPI should be assessed to see if measurement (and therefore auditing) can be reasonably accurate or if the KPI is too ill-defined.
The auditors should consider if they have the appropriate competences to audit the KPIs. If third party experts are needed, their independence and competence will have to be assessed.
When is the work to be done?
What type of assurance is required: positive/reasonable or negative/limited?
5 Potential problems with KPIs and their measurement
Not specific-enough to be meaningful. For example, the company reports on serious industrial accidents. However, this leaves unanswered what is meant by ‘serious’.
Lack of consistency from one period to the next. So, if the definition of ‘serious’, above, were to be altered, the safety record could be manipulated to show improvement.
Comparability across industries is likely to be difficult as different firms could measure an identically described measured differently.
Record-keeping and internal controls might not be sufficient to permit the figures to be audited. For example, how would the auditor know that escapes of waste into the local river are completely recorded?
Is the auditor competent to verify the technology used in the measurements and the calculations that might follow?
6 Example
You are the auditor of Kipper Co, which manufactures paper from wood pulp. In its annual report the company publishes data on some environmental and social measures. The key performance indicators published are:
The company’s carbon footprint.
Its energy efficiency
Release of chemicals into the local river
Incidence of industrial diseases.
Identify the issues raised by each of the key performance indicators.
7 Answer notes
7.1 Carbon footprint
What is included: energy used in the factory, transport, energy used by suppliers? Is there any offset from renewable supplies?
What is the metric? For example, it could be in tonnes of CO2
How does the company assess the chosen KPI?
Does the company propose to use any sort of industry comparatives?
7.2 Energy efficiency
How is this measured? What is meant by efficiency or does it just mean energy consumption?
What is the metric and how is it assessed? Will it be possible to verify the figures?
Is it just the paper-making process or is it the whole undertaking?
Are suppliers’ energy consumption figures included so as to get total energy per tonne of paper produced?
7.3 Release of chemicals into the local river
Does this include all chemicals or just particularly harmful ones? Will the measures be split over different chemicals?
What does the company measure? Litres released is no good without knowing the concentration of the chemicals.
How does the company monitor releases?
How can we verify that retrospectively?
How can we verify that the company procedures work correctly?
7.4 Incidence of industrial disease
How is ‘industrial disease’ defined? What diseases are covered?
Is the company simply looking at current employees or are former employees investigated too? (Some diseases might not show up for some time.)
If former employees are included can they all be located and do they all cooperate?
What sort of medical reports are provided?
Do other, similar industries, use the same measurements?