Independent Verification

As we have observed , although no company would imagine that it would be trusted to perform its own financial audits or to certify itself for a quality standard such as ISO 9000 without independent, third-party auditing, many companies are still determined to provide verification of compliance to these internationally recognized standards for social and environmental performance themselves . Few shareholders, however, and certainly no pressure groups, are willing to accept a company at its word ” issuing a statement of commitment to worthy principles without providing some sort of verifiable evidence of real performance. The dangers of this unvalidated approach are obvious, as companies will have an incentive to write social and environmental reports that emphasize the areas in which they excel, and ignore the areas where they perform badly . Even if they don t do this, skeptics will suspect that they have.

All of this means that some form of external verification is necessary in order to bring credibility to the social and environmental reporting movement. The GRI provides both a consistent approach to gathering information and a consistent format for reporting that information ”providing a level of standardization to the nonfinancial reporting process that up until recently has been plagued with widely varying report formats, and enormous differences in emphasis and quality.

You don t even have to be a good corporate citizen, says Allen White. All you have to be is a smart businessman to recognize that full disclosure is essential to business credibility; is important to business reputation. Emerging research demonstrates that transparency pays in terms of lower cost of capital, longer- term investors, and less share price volatility.

Whether you are reporting on an environmental risk, a social issue or a nonfinancial economic issue, he concludes, all of these can be bundled up into nonfinancial information that has real value added to companies. And whether you prepare a separate GRI report, integrate it into your financial statement, or weave it into your 10K filings, it doesn t fundamentally matter. What matters is that the information is available, and that it is credible. ^{[16 ]}

Although initially resisted by many companies, the concept of independent-auditing is becoming more broadly accepted as important and necessary. In fact, third-party scrutiny using independent auditors to verify what a company has claimed in its sustainability report is considered the leading practice, and independent verification is already done by most of the Top 50 companies that appear on SustainAbility s Global Reporters 2002 Survey. Some 68 percent of the reports benchmarked in 2003 by SustainAbility, for example, had been independently verified, a total up from 50 percent in 2000 and a frail 28 percent in 1997.17 Again, perhaps reflecting the different levels of acceptance and dedication to this type of reporting, the Global Fortune 250 (mostly American-owned companies) independently verified only a quarter of all its sustainability and CSR reports. ^{[18 ]}

In order not to frighten potential participants away, the GRI has purposely left the question of third-party validation to the discretion of the individual company. All that is necessary to affirm compliance with the framework is a signed statement by the board or the CEO certifying that the report was prepared in accordance with GRI guidelines, and that the result represents a balanced and reasonable presentation of our organization s economic, environmental, and social performance. And although in order to be in accordance a company must note the reasons for any omission of core indicators, an organization is still free to take that course.

^{[16 ]} Interview, August 12, 2003.

^{[18 ]} Beyond Numbers, KPMG Assurance and Advisory Services Booklet, p. 17.