Scandalous Sustainability Reporting Revealed

The majority of leading UK companies lack credibility in their sustainability reporting.

New research by environmental consultancy Carbon Smart reveals that the vast majority of the carbon and environmental claims made by FTSE350 companies lack credibility and verification. The groundbreaking report, ‘Stuck on the starting blocks – the state of sustainability assurance in 2010’, has been revealed at a well-attended launch event in the City.

Some of the questions addressed in the research and passionately discussed on the evening were around the value of assurance and whether it serves its purpose – i.e. does it make sustainability reporting more accurate and transparent? There is still much confusion in the market and in assurance statements themselves.

Tellingly, only 19% of FTSE 350 companies provided a formal assurance statement for their sustainability reports – i.e. the other 284 companies provide no thorough, independent verification of their claims. Even where assurance was provided, Carbon Smart found that many statements failed to meet minimum requirements that would render them accessible and useful to readers. In fact, only 24% of the assurance statements provided met acceptable standards.

Among the firms that provided an assurance statement of some sort but performed most poorly were companies such as Lloyds Banking Group, WH Smith and Ladbrokes. Other companies that have been keen to promote their corporate sustainability credentials but didn’t provide any kind of assurance on their sustainability report included Britvic and supermarket chains Sainsburys and Morrisons – but these are just the tip of the iceberg.

Ben Murray, Managing Director of Carbon Smart said: “These results are extremely worrying. Verified data is the only credible way to assess whether we are actually lowering our emissions and meeting our targets as a country. Currently we don’t have the data to make that assessment. It is staggering that companies think they can carry on like this. Investors would not accept a financial report which had not been audited, why would anyone think they’d accept carbon data at face value?”

The context of sustainability assurance continues to evolve rapidly, as illustrated by the controversy around the mass resignation of the AA1000 governance board (one of the most recognized assurance standards). Murray revealed that there is an appetite for good sustainability assurance, and the continuing rise of social media means that transparency and accountability are trending upwards. The question is; does assurance deliver the value it should? The answer isn’t clear. It isn’t always well understood by stakeholders, there are low levels of uptake by reporting companies, and it doesn’t always deliver the goods.

Assurance statements often fail to make clear whether the assurer is independent (33% don’t), many were unclear as to what had been covered in the engagement and why (35% lacked clarity of scope), and it remains difficult to be sure the assurance team are appropriately qualified (only 36% of assurance statements listed relevant qualifications). Maybe most worryingly, a whopping 75% of assurance statements did not discuss how KPIs were chosen for review or whether material issues were covered. This was an issue that Jayn Harding from the research advisory panel focused on, as it is seen by the panel as one of the primary challenges in sustainability assurance.

On a more positive note, Murray pointed out that when sustainability assurance is done well, it can provide good value. Some companies providing clear, credible reports were Vodafone, Royal Bank of Scotland Group and British American Tobacco. British Sky Broadcasting Group and HSBC provided excellent carbon assurance.

On the day Carbon Smart released their report on the state of sustainability reporting in the FTSE 350, the Government also announced its latest consultation on Carbon Reporting (including a reference to the original Carbon Smart 2010 report). Maybe this wasn’t a coincidence, as Defra were also represented at the launch. Their spokesperson has been spearheading the development of carbon reporting at Defra, and offered attendees a glimpse into the future of carbon reporting, and the role of assurance.

Frank Krikhaar, the Global Corporate Responsibility Manager from Aegis Group, kept the audience well-entertained with his colourful metaphors illustrating his recent experience of undergoing carbon assurance in a multinational organization. The takeaway message was that whilst by no means straightforward, seeking sustainability assurance is a very valuable exercise and one that can dramatically improve the reporting processes of an organization.

Some businesses have been campaigning for better guidance on sustainability reporting.  One of the most active voices of that campaign has been the Aldersgate Group, whose members are dedicated to improving sustainability in corporate performance – and this is what Andrew Rainsgold, the executive director of the group, discussed at the launch. The response of businesses to sustainability assurance remains poor, with half of the FTSE 350 companies contacted as part of the research having no idea what it is. Murray explains, “This report is a call to ensure more consistency in reporting and assurance standards. We hope it also provides guidance for firms looking to improve their sustainability reporting.”

The final presentation of the evening concerned one of the critical issues governing the uptake and use of sustainability and carbon assurance – the response of investors.  Two representatives from the Co-operative Asset Management concluded the presentations with a compelling double-act that summarized their perspective on sustainability assurance: “Mandatory carbon reporting is a vital step to enable the UK to decarbonise its economy and meet its targets under the Climate Change Act, and also to deliver on its international obligations. Investors’ appetite for emissions data is growing and requires improved reporting to better understand climate change risks and opportunites.”

Following the presentations and questions, attendees continued discussing the pitfalls and opportunities around sustainability reporting and assurance late into the night, whilst enjoying the generous hospitality of the main sponsor of the research, British American Tobacco, and a glorious sunset over the Thames. However the key message of the night was, as Ben Murray of Carbon Smart stated, “if assurance is to get off the starting blocks, there’s still a lot of work to be done”.