Large companies are increasingly turning to audit firms to have the accuracy of their sustainability reports checked, according to new research by KPMG International.
There has been a rise in the demand for assurance services and consulting work among the leading 2,200 companies during the past three years, benefitting audit firms that specialise in these services.
The KPMG International Survey of Corporate Reporting Responsibility 2008 notes that despite increasing demand, assurance is still a minority exercise, with only 40 percent of the Global Fortune 250 (G250) and the 100 largest companies in 22 countries containing formal assurance statements within sustainability reports. Of these, half of the organisations chose to have parts of their report assured, while the rest opted for full assurance.
Assurance is most common among companies in the mining (100 percent), utilities (75 percent), and oil and gas (59 percent) sectors, and least common in the construction and building materials, and the forestry, pulp and paper sectors.
European companies led the pack in terms of assurance (see graph below) while North American counterparts lagged behind. The survey also revealed that 27 percent of sustainability reports included other forms of third-party commentary in place of assurance, such as stakeholder panels or subject matter statements. It is important to note that assurance on sustainability reporting is not mandatory, unlike the assurance that must accompany financial statements in a company’s annual report.
KPMG Sustainability Services global head Wim Bartels tells The Accountant the voluntary nature of sustainability reporting assurance and the fact that sustainability reports are still a relatively new concept means that companies and stakeholders remain divided on the value of formal assurance.
“When you look at the full life of sustainability reporting, it’s about 10 years,” he says. “So this is the 10th time that a company could have asked for assurance, which is not a lot. Some companies conclude that assurance is something outside of our business, its something you don’t really need because there is not so much demand for it from stakeholders.
“I think that it isn’t so clear in all cases for companies and stakeholders to determine what the value of assurance is. We are still in a phase of demonstrating what the value of assurance is.”
Bartels says that more KPMG clients are beginning to see the value in sustainability reporting and assurance, and predicts this will increase as investors crave more non-financial information.
“If investors ask for information, they want it to be accurate and complete. So it is changing and investors have been looking into this for three to five years. That could change the landscape for assurance because then it becomes more of a core business issue in terms of reporting,” Bartels explains.
One of the key findings of the KPMG study is that sustainability reporting has become a mainstream activity for the largest companies. Nearly 80 percent of G250 companies issued reports, up from 50 percent three years ago. Likewise, the use of assurance has also jumped, albeit more moderately from 30 percent to 40 percent.
The growing importance of assurance means that information and data checkers are now being called upon to play a wider role throughout the whole reporting process.
“When you look three to five years ago, we were mainly focusing on whether the information was accurate and that was our role at the time,” Bartels says.
“Now, clients need to show us how they make sure the information is complete so that they have the right issues within reports. Within the issues they must provide all the relevant information and show us the process on how to do that.
“Companies are now increasingly asking how they should design the systems and processes and how to link these to their management agendas. Those questions are coming to us but within assurance engagements, we need to keep our role clear. So, if we are an assurance provider, we can’t take the consulting role, but the demand is there.”
Regulation could increase demand and the level of integrity associated with sustainability reporting assurance. One reason why companies are reluctant to pursue assurance is that it is voluntary. Bartels believes that as sustainability reporting matures regulation will follow, but this needs to be market driven rather than imposed upon companies.
“There should be a need for real trustworthy information and as soon as this demand is fully there, that’s the moment to say ‘let’s now regulate it to make sure we work consistently on the same basis with the same standards’,” he says.