Assessing and Improving the Quality of Sustainability Reports: The Auditors’ Perspective
Summary (2 min read)
Introduction
- Sustainability reporting has become a mainstream practice in the communication of corporate commitment to and performance on sustainability issues (Fonseca et al., 2014; Hahn and Kühnen, 2013; Junior et al., 2014; Perego and Kolk, 2012).
- Finally, by investigating the outcomes of assurance statements through the lens of the GRI principles for the content and quality of reports, it is possible to shed further light on reporting organizations’ compliance with these principles and the extent to which they are seriously taken into account by assurance providers themselves.
- First, the literature on the assurance of sustainability reports and its contribution to the reliability of reporting practices is described.
The assurance of sustainability reports
- Instilling confidence in sustainability reporting Sustainability reporting has been defined as “the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development” (GRI, 2006, p.3).
- A third party assurance process is generally considered to be the main response to restore or enhance public confidence in these reports (De Beelde and Tuybens, 2015; IansenRogers and Oelschlaegel, 2005; Kolk and Perego, 2010; Manetti and Becatti, 2009; Park and Brorson, 2005).
- These aspects are frequently addressed in the statements which, according to the assurance standard AA1000, are based on “a set of findings, conclusions and recommendations” (AccountAbility, 2008, p. 21).
- Since nearly half of assurance statements seems to contain specific recommendations for the reporting company (Gürtürk and Hahn, 2015), the analysis of this type of information through a large sample of statements seems relevant to shed further light on the quality of sustainability reporting in the eyes of auditors.
- Similarly, the literature on assurance statements has not focused on the limitations of reports and recommendations for improvement, although the existence of these elements has been briefly mentioned in a few studies (Ball et al., 2000; Deegan et al., 2006; Gürtürk and Hahn, 2015; Junior et al., 2014; Kolk and Perego, 2010; Manetti and Becatti, 2009).
Methods
- The objective of this study is to analyze the opinions of assurance providers regarding the quality, the limitations and the recommendations to improve GRI-based sustainability reports in the mining and energy sectors.
- More specifically, regarding the data analysis methodology, qualitative content analysis of statements was used.
- The study focused on sustainability reports from the mining and energy sectors published between 2006 and 2013 with an A+ application level of the G3 GRI framework.
- As a result, the sample of this study included most GRI G3 reports with the A+ application level published in the mining and energy sectors before the introduction of the G4 version.
- To facilitate data analysis, all reports selected were in English and included a statement from assurance providers.
Findings
- The main outcomes of the assurance process Assurance statements may cover various themes, including the criteria for report presentation, the objectives of the assurance process, the scope of verification and information on assurance providers.
- This proportion seems relatively low considering that the raison d’être of assurance statements is to improve the credibility of sustainability reports in the eyes of stakeholders and to better respond to their concerns (GRI, 2006; Gürtürk and Hahn, 2015; Manetti and Toccafondi, 2012; O’Dwyer et al., 2011).
- The degree of completeness that can be expected from sustainability reports is unclear.
- These recommendations cover various aspects such as dialogue with stakeholders (Midland Power, 2011), procedures to identify key stakeholders (Bharat Petroleum, 2008; Lihir Gold, 2010; Sesa Goa, 2011), clear descriptions of stakeholder engagement (Novatek, 2011) or enhancement of stakeholder responsiveness (Korea Midland Power, 2011).
- Improvements to the frequency and rigor of this process (De Beers, 2007; Vedanta Resources, 2013), involvement of each reporting unit (Hess Corporation, 2012) and the management of the sustainability database (Xstrata, 2007) have been highlighted.
Discussion
- The objective of this study was to analyze the quality of sustainability reports, their limitations and avenues for improvement from the perspective of the assurance providers in charge of the verification of those reports.
- Conversely, important criticisms related to the GRI principles that have been stressed in the literature, such as the lack of balance and comparability of reports (Boiral and Henri, 2015; Cho and Patten, 2007; Cho et al., 2015; Hahn and Lülfs, 2014; Talbot and Boiral, 2015), are very rarely mentioned in the assurance statements.
- First, this study sheds more light on the conclusions of assurance statements through a content analysis of a large sample, and it is focused on issues that have been overlooked in the literature.
- Generally speaking, the compatibility between reporting and verification standards should be improved to encourage more substantial verification, particularly on issues that tend to be overlooked by assurance providers, such as the sustainability context, the balance of reports and the comparability of information.
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Frequently Asked Questions (10)
Q2. What are the future works in "Assessing and improving the quality of sustainability reports: the auditor's perspective" ?
Limitations and avenues for future research The limitations of this paper and its empirical findings suggest various avenues for future research. Future studies could interview assurance providers and managers to investigate the gap between the information disclosed in assurance statements and their actual opinions on the quality of sustainability reports. Future studies could investigate the extent to which the outcomes of the verification process are seriously taken into consideration by managers and how they may influence organizational reporting practices.
Q3. What is the main reason why the lack of explicit references to the limitations of reports is compensated?
The lack of explicit references to the limitations of reports is partly compensated for by frequent suggestions for improvement, which are proposed in half of all statements.
Q4. How often does the language used by assurance providers mention limitations and deficiencies related to the reporting process?
Although the language used by assurance providers is optimistic and rarely critical, 23% of statements from the mining sector and 20% from the energy sector explicitly mention some limitations and deficiencies related to the reporting process or auditability of information.
Q5. How many statements suggest that the reporting companies clarify their sustainability objectives and action plans for the future?
2009, p.85)Sixthly, 11% of statements suggest that the reporting companies clarify their sustainability objectives and action plans for the future.
Q6. What is the significance of the isomorphism of assurance statements?
In line with the legitimacy theory (Meyer and Rowan, 1977; DiMaggio and Powell 1983), the isomorphism of assurance statements is shaped by the search for legitimacy of organizations.
Q7. How many statements suggest improvements in the control and internal verification process of reporting companies?
(Korea Midland Power, 2011, p.73)Secondly, 21% of statements suggest improvements in the control and internal verification process of reporting companies.
Q8. What are the ethical questions of the capture of assurance statements?
As highlighted by Hummel et al. (2017), such capture of assurance statements raises important ethical questions in terms of independence, professionalism and objectivity of assurance providers.
Q9. What should be done to improve the compatibility between reporting and verification standards?
Generally speaking, the compatibility between reporting and verification standards should be improved to encourage more substantial verification, particularly on issues that tend to be overlooked by assurance providers, such as the sustainability context, the balance of reports and the comparability of information.
Q10. What is the ethical implications of camouflage?
Such camouflage has ethical implications because it conveys a misleading picture of confidence and rationality to stakeholders, including the socially responsible analysts and investors who use sustainability reporting to assess the corporate performance in this area.