Task 5

Verify and Report on Progress

What are CSR verification and reporting?

CSR is ultimately about performance. As such, verification and reporting are important tools to measure whether performance has actually taken place, giving interested parties an opportunity to see how well the firm is meeting its commitments and what effect that is having.

Verification (also known as conformity assessment or assurance) is a form of measurement that can take place in any number of ways: internal audits, industry (peer) and stakeholder reviews, and professional third-party audits. Firms should tailor their approach to verification to suit the corporate culture, and the context for and objectives and content of their CSR strategy and commitments.

Verification involves on-site inspections and review of management systems to determine levels of conformity to particular criteria set out in codes and standards to which the firm may have agreed to adhere (see examples in Appendix 4). Many of these codes and standards offer third-party certification and auditing.

Reporting is communicating with stakeholders about a firm's economic, environmental and social management and performance. When done well, reporting should address how societal trends are affecting a firm and, in turn, how the firm's presence and operations are affecting society. As such, reporting can demonstrate a company's motivation and willingness to position itself in a broader context. There is a delicate balance between providing sufficient information to be open and transparent, on the one hand, and burdening employees and stakeholders with excessive data, on the other. The objective is to share information with stakeholders to gain their trust and be viewed as credible. The reporting itself can also be verified, with third parties assessing the report's reliability.

Emerging initiatives such as the Global Reporting Initiative, AA1000 (see Appendix 4) and the Canadian Institute of Chartered Accountants' management discussion and analysis guidance (see text, below) are influencing CSR reporting. Discussion in this section draws extensively on the Government of Canada's Sustainability Reporting Toolkit.

Guidance on management discussion and analysis
The Canadian Institute of Charted Accountants' guidance on management discussion and analysis ( MD&A ) sets out six principles and a five-part framework of recommended disclosure practices to help companies enhance their MD&A reports. The financial statements and MD&A together form the foundation for business reporting: investors must read them together to get an integrated and forward-looking understanding of a company's performance and prospects. The institute has also developed 20 questions for audit committees or boards of directors to ask when overseeing MD&A .

Why does CSR verification and reporting matter?

There is an old saying, “What gets measured gets managed.” In the CSR field, proof of CSR progress is crucial to a firm's success. It can provide the basis for informed decision making by interested parties who may wish to purchase the firm's products, invest in the firm or support the firm's activities in their community. The firm can also use it itself as the basis for further improvements, risk assessment and support for new directions and opportunities.

Verification and reporting can also be important for obtaining and maintaining a firm's licence to operate, improving internal operations and building relationships. Communities, customers, investors, employees and their representatives, regulators and non-governmental organizations wishing to know about a firm and its activities are likely to consult the firm's CSR verification reports. However, verification activities and reporting not done in a rigorous, professional manner, and not seen as credible, will undermine a firm's credibility and reputation, thereby shutting doors to opportunities and diminishing profitability.

How to do verification and reporting

Verification and reporting are more complicated than they seem: each firm is unique, so there is no one approach to carrying out these activities. Firms that agree to adhere to third-party-assured initiatives have information to report drawn from the conformity assessments undertaken as part of such initiatives. The Sustainability Reporting Toolkit describes a number of approaches to CSR or sustainability reporting being used in Canada .

Some firms, such as Vancity Savings Credit Union, have their report formally assured by an independent third party. The advantage of this approach is that when the third party has the credibility and experience to do this properly the verification is less vulnerable to criticisms of conflict of interest and it can more likely reveal problems that might not otherwise be brought to light. On the other hand, third-party verification is typically expensive and it can be difficult to find verifiers who can bring substantive expertise to the table, not just conformity assessment expertise.

Some firms, such as Nexen, engage in internal reviews. The advantage of internal reviews is that they can typically be conducted more expeditiously than can external review processes and at less cost. On the other hand, internal reviews are not likely to have the credibility of those conducted by external parties and are vulnerable to criticisms of conflict of interest.

Some firms, such as Placer Dome and Dow Chemical, use the services of community or expert advisory panels. Panel members provide advice on how to optimize the public reporting process and on achieving transparency in terms of the scope of report content and the thoroughness of the reporting. An advantage of this approach is the credibility such panels and processes can offer, since the parties involved bring experience or concerns to the table that might be lacking in an internal review or third-party conformity verification. The drawback is that this type of review might not be as thorough or professional as those undertaken through either internal or professional third-party approaches.

Firms such as Talisman draw on testimonials or statements from external stakeholders in addition to other approaches. An advantage of this approach is the control the firm has over how verification and reporting are undertaken and their low cost. A disadvantage is that this approach may lack credibility in some quarters.

Firms such as BC Hydro conduct an opinion survey of Aboriginal leaders to see how well the firm's activities live up to its statement of principles and report the results.

Some firms use a combination of approaches. For example, WMC Resource Ltd. employed an external advisory group to provide input to the company on preparing its report, and then used external auditors to verify the report.

Canadian firms interested in improving the quality of reporting may be interested in the workshops provided through The Accountability Project.

Recent activity on verification and reporting

Vancity turns to third-party assurance audit

Vancity Savings Credit Union, Canada's largest credit union, took its first step towards CSR reporting in 1992, when it included a special section in its annual report on the contributions to staff, community and ecological responsibility.

In November 1995, the board of directors adopted a more rigorous social audit, with stakeholder involvement as part of an overall CSR strategy. The social audit follows a two-year cycle and is based on the international AA1000 standard. The audit measures how the company is living up to the Statement of Values and Commitments -- six commitments for how Vancity will live out its purpose and values -- as well as stakeholder and societal expectations. Data are collected and stakeholder consultations take place, allowing Vancity to identify areas of improvement. Recommendations arising from the audit become part of the business planning process and the company strives to continuously improve its performance by setting targets and putting action plans in place.

For Vancity, the key to success is the embedding of the social audit process into existing management systems. Vancity publishes the results of the audit in its accountability report, which is verified by external parties. The company also reports annually on its key performance indicators, a combination of financial, environmental and social data generated internally as well as from stakeholder surveys.

The Accountability Project

The Accountability Project is a Canadian capacity-building initiative aimed at improving the quality of CSR and sustainability reporting. It offers workshops on reporting and assurance to CSR managers and internal and external auditors, based on the AA1000 standard and Global Reporting Initiative guidelines. The Government of Canada, through Environment Canada and Natural Resources Canada, supported The Accountability Project.

hand Make sure to do this
Tailor all reports to the target audience. A large glossy report will not be effective for all audiences. For example, an on-line snapshot of your performance may provide the information most customers require. Those who want further details can download a more in-depth version.

Quick tips

Review reports of others for ideas. There are hundreds of organizations that report on their social and environmental performance annually. A number of websites host these reports and allow online viewing.
Be open about strengths and weaknesses. Reports that talk about just the good news are less credible and open to criticism. Full transparency means talking about areas that need improvement.
A one-size-fits-all approach generally does not work. Indicators need to be relevant to the company and its business, stakeholders and culture.
A helpful tool for report verification is the AA1000 standard (see Appendix 4), designed specifically for assurance of sustainability reporting. This standard works well with the Global Reporting Initiative guidelines (see Appendix 4).

Reality check
“There is a lot of talk about reporting but I haven't seen any proof that it adds value to a company. Given the commitment and cost involved, I am hard-pressed to allocate resources to reporting on our CSR activities.”

There are many reasons why companies would track, measure and report their CSR performance. Some see reporting as an effective communication and reputation management tool, building loyalty with customers, investors and suppliers around important values and issues. Others may choose to use it as a risk management tool. Not knowing the firm's weaknesses and being unable to anticipate when it might come under fire can be very costly. CSR reporting could also bring market advantage by putting firms in a better position to be included in the Dow Jones Sustainability Index or the Jantzi Social Index, which, in turn, would lead to being included in ethical investment funds and portfolios. In any case, CSR reporting is a big step for any company to take, and mapping a realistic plan is very important. A firm may want to begin with a self-assessment, moving into reporting against well-accepted global guidelines, such as those of the Global Reporting Initiative. With the proper steps, this process can evolve into an independently verified report with stakeholder engagement.

CSR and Small Businesses

"We definitely do not have the resources to hire a professional CSR auditor to evaluate our practices or to create fancy publications. How do we check our progress and share information about our CSR efforts despite these limitations?"

In the environmental area, new approaches to checking progress for smaller firms are being developed, drawing on the services of financial auditors. (See, for example, the EnviroReady process associated with the ISO 14000 environmental management standards) At this point, there is no parallel approach for checking progress on social aspects. Designation of a senior employee for this function may suffice at the present time.

The easiest route for reporting is to post information on the company website. This is an inexpensive way to give an update on current CSR initiatives, including both successes and areas for improvement. A small organization can report to its business partners and staff at regularly scheduled meetings. By adding a few sections to basic company literature (brochures, pamphlets), small business owners can communicate CSR activities to their suppliers, customers and community.

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