There has been a growing demand over the past 10 years for information on corporate behavior, which could include environmental impact, employee health and safety initiatives, community development, supply chain practices, and a host of other topics. A lot of these issues are addressed through sustainability reporting.

Sustainability reporting usually covers the non-financial factors that have potential impact on future performance, income generation, and value preservation. Often a companion to financial reporting, sustainability reports symbolize an ever-growing demand by stakeholders for more transparency.

Although there are no guidelines comparable to GAAP for the form and content of sustainability reports, a steadily increasing number of companies are providing stand-alone reports. This article provides some background on sustainability reporting, and offers suggestions for CPAs who would like to provide assurance services related to sustainability reports.



Sustainability reports include terms such as corporate social responsibility, environmental reporting and triple-bottom line (economic, environmental and social performance). "Sustainability," though, is the most frequently used term. Sustainability encompasses a wide range of corporate initiatives related to environmental impacts, employee programs for healthier living, community development programs, customer safety programs, and fair trade practices. Various stakeholders, such as socially responsible investors, consumers of "green" products, and community groups show interest in these issues. As evidence of this trend, professionally managed assets invested with a social responsibility focus have grown dramatically over the last 10 years.

Efforts to establish standards for this kind of reporting are ongoing. In 1997, the Boston-based nonprofit Coalition for Environmentally Responsible Economies started the Global Reporting Initiative, with the United Nations Environment Programme joining as a partner in 1999. The GRI released its first sustainability reporting framework and guidelines in 2000, and its G2 revision in 2002. GRI's reporting framework outlines principles and performance indicators that organizations can use to measure and report on six categories: environmental, human rights, labor practices and decent work, society, product responsibility, and economic. The framework is in its third generation, introduced in 2006 and updated as G3.1 in March 2011. G3.1 includes expanded guidance for reporting on human rights, local community impacts, and gender.

The G3.1 guidelines set out core content for sustainability reports. Part 1 covers reporting principles, including materiality, stakeholder inclusiveness, sustainability context, and completeness. Part 2 covers standard disclosures that should be included in a sustainability report regarding three areas: strategy and profile, management approach, and performance indicators. The GRI reports that more than 1,500 companies worldwide have adopted G3 guidelines for their sustainability reports.

When electing to use a G3.1 report, companies must self-declare an application level. Application levels provide an indication of the extent to which the sustainability report employs the GRI guidelines. The levels are A, B or C, with a "+" for external assurance by a third party who is "competent in the subject matter and assurance practices who are external to the organization ... follow[ing] defined procedures that can be explained and were documented." A company declares its sustainability report status based on the depth and breadth of data it provides in its sustainability report regarding its G3.1 profile disclosures, management approach disclosures, and performance indicators.

In 2010, the GRI and the Prince of Wales' Accounting for Sustainability Project formed a new committee, the International Integrated Reporting Committee. The IIRC, which includes representatives from the Financial Accounting Standards Board, the International Accounting Standards Board, and each of the Big Four firms, is intended to raise awareness of issues related to sustainability reporting and to develop an integrated reporting framework. The IIRC will also consider whether the standards should be voluntary or mandatory.

There are no regulations requiring U.S. companies to provide stand-alone sustainability reports, but the trend to provide voluntary sustainability disclosures is growing. A KPMG survey on international corporate social responsibility reporting by the Global Fortune 250 and the 100 largest companies by revenue in 22 countries shows reporting rates are highest among Japanese and U.K. global companies. U.S. firms lag behind their European and Asian counterparts, but reporting rates in the U.S. continue to accelerate. While only 32 percent of the U.S. companies surveyed in 2005 issued stand-alone sustainability reports, the reporting rate increased to 73 percent by 2008.



Sustainability reports, in general, are not required to be reviewed by a third party, but third-party assurance gives the reports more credibility. Some argue that third-party assurance is necessary, citing research that finds that the reports tend to focus on positive outcomes and that descriptive information is rarely provided with benchmark data.

The GRI identifies six qualities for external assurance of sustainability reports that follow the G3 guidelines. They should be:

Conducted by groups or individuals external to the organization who are demonstrably competent in both the subject matter and assurance practices.

Implemented in a manner that is systematic, documented, evidence-based and characterized by defined procedures.

Assessed as to whether the report provides a reasonable and balanced presentation of performance, considering the veracity of the data as well as the overall selection of content.

Conducted by groups or individuals who are not unduly limited by their relationship with the organization or its stakeholders to reach and publish an independent and impartial conclusion on the report.

Assessed as to the extent to which the report preparer has applied the GRI Reporting Framework (including the Reporting Principles) in reaching its conclusions.

Issued in an opinion or set of conclusions that is publicly available in written form, and with a statement from the assurance provider on their relationship to the report preparer.

There are several sources of external assurance, including public accounting firms, stakeholder panels or other external groups. KPMG reports that the majority of G250 companies that use third-party assurance rely on a major accountancy organization. While stakeholders appear to be concerned with the accuracy of claims made in sustainability reports, 60 percent of companies surveyed by KPMG for its 2008 report did not use any form of external assurance, compared with 70 percent in 2005.

There are global sets of standards available to assurance providers when auditing sustainability report content, especially when those sustainability reports have been created according to GRI guidelines. Originally issued in 2000, the ISAE 3000 International Standard on Assurance Engagements "established basic principles and essential procedures for, and to provide guidance to, professional accountants in public practice for the performance of assurance engagements other than audits or reviews of historical financial information."

An alternative to ISAE 3000 is the AA1000 Assurance Standard. Issued in 1999 and revised in 2008 by AccountAbility, a nonprofit concerned with transparency in corporate responsibility reporting, AA1000AS "provides a methodology for assurance practitioners to evaluate the nature and extent to which an organization adheres to the AccountAbility Principles." The principles-based standard provides a framework for sustainability assurance, while also providing flexibility to adapt to individual organizations.

Assurance providers should combine the straightforward framework for non-financial assurance engagements of ISAE3000 with the specific principles and assessment guidelines of AA1000AS when planning an assessment of a sustainability report for adherence to G3 guidelines and adequate reporting of the information required by those guidelines.



There are challenges in providing sustainability assurance. This is a new type of reporting for many companies. Since there is no standardization in what comprises a sustainability report, a company may not have considered data reliability or third-party assurance when setting up its data collection system. Although sustainability reporting should be as reliable as financial reporting, the systems in place for gathering the data are not necessarily as sophisticated. A company may want third-party assurance, but prior to the engagement there should be a preliminary assessment of the processes and internal controls for sustainability reporting to make sure that the system is robust enough for a review.

Knowing the company is critical. What are the corporate objectives to be achieved through sustainability reporting? What metrics are needed to demonstrate achievement of sustainability goals? For example, a company that reports on employee safety initiatives might report on serious injury/illness rates, lost workdays, or fleet rate accidents. Reports on environmental impact could include hazardous waste generation, water usage or CO2 emissions, among others. The team reviewing the sustainability report will have to be knowledgeable about the specific topics covered in the report, or be able to engage an outside expert.



A substantial untapped market exists for the external assurance of sustainability reports. In 2010, 1,793 global companies filed sustainability reports with the GRI, but only 37 percent claimed external assurance of those sustainability reports. Also, the number of companies filing sustainability reports with the GRI has increased steadily in the five years since the G3 guidelines were instituted, with 2010 showing an increase of 247 percent over 2005 filers, and a 20 percent increase over 2009 filers. Other companies are producing separate sustainability reports but are choosing not to file them with the GRI, making the total number of 2010 companies filing sustainability reports even larger. Many Fortune 500 firms have not yet provided sustainability reports to the GRI, but many smaller companies are filing sustainability reports and are in need of external assurance services.

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