Businesses increasingly want a second pair of eyes to verify their corporate sustainability reporting.¹ Why? It’s important to give stakeholders comfort that the information is credible and to uncover areas for performance improvement.
CEOs and boards are recognizing the benefits of corporate responsibility reporting: increasing their profitability, reducing supply chain risks and costs, and garnering sustainability ratings and recognitions, to name a few. Leadership and external stakeholders are setting higher standards for sustainability performance goals such as reducing water use, waste, or greenhouse gas emissions throughout the company and its supply chain; setting revenue goals for products that have environmentally friendly attributes; and lowering costs by improving energy efficiency. Therefore, on corporate websites, in press releases, in annual reports, and in corporate responsibility reports, companies are disclosing their own metrics on sustainability variables such as greenhouse gas emissions, safety records, and community contributions.
Simply by disclosing commitments and performance goals, companies imply that the information can be used for determining a company’s health. But companies are still new at this practice and many are using rudimentary and manual methods to collect data. A more rigorous tracking and data collection process, then, will enable companies to better assess risks and opportunities at all levels of the business; to feel confident that their baseline measurements are accurate; to be able to enhance trust with stakeholders; and to ensure fewer errors and restatements.
When companies use data that are outdated or when they restate key metrics from year to year, chances are their reporting programs are not reliable. Certainty with regard to ranges also matters. Half of the companies surveyed for the 2010 Carbon Disclosure Project reported greenhouse gas emissions within a 5 percent range of certainty. But 25 percent of those same respondents did not disclose information about uncertainty ranges, or they do not evaluate uncertainty at all.²
Equally important is the publication in which metrics get reported. Many executives are reluctant to publish sustainability data in their companies’ financial reports, fearing that stakeholders would scrutinize the sustainability performance metrics as carefully as they do the companies’ financial results. Those who do publish are implicitly sending the message that the environmental and social data have the same rigor as the financial data—but chances are they don’t.
To win stakeholders’ trust, companies need to be credible with respect to sustainability. How? New software programs exist that will enable companies to automate reporting functions and improve performance metrics. Aside from building a process of disciplined data collection and analysis, companies can also subject their sustainability data to independent, third-party verification. Already, two prominent rating organizations—the Dow Jones Sustainability Index and the Carbon Disclosure Project—seek some level of independent verification as part of their assessments.
While reporting gives stakeholders visibility into company practices, that’s not the endgame. Ultimately, companies need this information to drive operational efficiencies and facilitate innovation.