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Why Your Sustainability Report Needs Third-Party Assurance

Originally posted November 27, 2018

Assurance now, too? Sustainability professionals are used to the siren call of another urgent need and face the challenge of answering that call with limited time and resources. Although third-party assurance for your voluntary sustainability report might sound like a bridge too far, there are benefits – real, financial, bottom-line benefits – to third-party assurance.

Because you are here, you probably know what a sustainability report is. Still, you might not have thought about assurance, which is more commonly associated with financial statements, in the context of your sustainability report.

What is assurance?

Assurance is simply the process of having a third party check your report for completeness and accuracy. (This process is also sometimes called verification, which is similar but does not require a formally accredited advisor. This article provides further information on the distinction.)

As boards of directors and investors increasingly analyze sustainability reports to inform decisions, the information contained in the reports needs to be robust, complete and independently verified.

Assurance can cover an entire report or only parts of it. A whole report can be assured regarding its adherence to a specific reporting framework such as being in accordance with a particular option (Core or Comprehensive) of the GRI Sustainability Reporting Standards. Assurance can also be limited to certain disclosures, sections or metrics. For example, an organization might decide to get third party assurance on its environmental metrics like greenhouse gas emissions or the data in its labor and human rights disclosures.

Financial benefits of assurance

There are direct financial benefits to acquiring assurance. A recent research study, Understanding and Contributing to the Enigma of Corporate Social Responsibility (CSR) Assurance in the United States by Ryan J. Casey and Jonathan H. Grenier, showed that corporate social responsibility assurance (CSRA) “is valued by equity markets.” Having a sustainability report assured results in significant capital market benefits that include:

  • A reduction in the cost of capital

  • Lower analyst forecast errors

  • Lower dispersion around analyst forecasts

Casey and Grenier provided a comprehensive literature review that sets the stage for their investigation into the relationship between CSRA and capital markets. An evaluation of 2,649 U.S. CSR reports, which included 230 assured reports, revealed that CSRA is far less common among companies based in the United States than among those based outside the U.S. The authors posit several theories for this discrepancy: concerns about accounting firm litigation, ineffective marketing of accounting firm CSRA services to their large U.S. clients and “regulation...acting as a substitute form of credibility enhancement in the U.S. market.”

None of those is a great reason to forgo assurance. In fact, this is an opportunity for forward-thinking companies to become leaders by seeking assurance services for their sustainability reports. This leadership has more than reputational rewards.

Casey and Grenier found that benefits of assurance exceeded the costs for over half of the U.S. companies with assured sustainability reports. For these companies, the decrease in the cost of capital was estimated to be more than the sustainability assurance fee. In essence, the assurance provided had a direct connection to a lower cost of capital, which is tied to lower risk.

Sustainability reports by themselves provide useful information about a company’s management of its environmental and social risks that affect a firm’s long-term viability. Casey and Grenier contend that CSR reports and CSRA add value to the capital markets because more information is available and assurance improves the information.

Your investors want to know your organization’s sustainability report is genuine and has addressed any material risks that your company faces. Show them it is with third party assurance.

What are the next steps for your organization?

Now that you know more about sustainability assurance, you may want to take the next step to get assured.

ISOS Group offers a number of External Assurance services, including:

  • External assurance of GRI sustainability reports

  • External verification or assurance of data submitted through the CDP Questionnaires: Climate Change, Water and Supply Chain

  • External verification or assurance of public disclosures submitted through the Global Real Estate Sustainability Benchmark (GRESB)

  • External verification or assurance of public disclosures submitted through the Dow Jones Sustainability Index (DJSI) Investor Questionnaire

Contact ISOS Group at 1-619-832-1282 or info@isosgroup.com for further information.