Why we need external assurance

A bold statement, maybe, and one with ulterior motives, you could say. But if you understand the rational, arguments and value behind assurance, perhaps you would agree and not dismiss external assurance as another cost to the whole sustainable development and reporting process.

So what is assurance? There are many different definitions but assurance is "a statement intended to inspire confidence" (Wordnet). Accountability defines assurance as "an evaluation method that uses a specified set of principles and standards to assess the quality of an organisations subject matter and the underlying systems, processes and competencies that underpin its performance".

The International Federation of Accountants defines an assurance engagement as one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users about the evaluation or measurement of a subject matter against criteria.

Assurance is the outcome not the methodology. The intended outcome is to influence stakeholders directly or indirectly. Verification or auditing are quite simply a means or a method to achieve a certain level of assurance.

The concept of an audit comes from ancient times when the accounts of an estate, domain or manor were checked by having them called out by those who had complied them, to those in authority. Auditing in Latin means "he hears".

Modern day financial auditing has its roots 200-300 years ago in the first division of interest between those engaged in a business undertaking (the entrepreneurs) and those who made the finance available without necessarily becoming directly involved in the day-to-day management. The bursting of the infamous South Sea Bubble is one of the many examples of fraud and corporate governance failures that led to the need to protect investors.

The business case for sustainable development, let alone reporting and assurance , is still finding its feet in a very cynical world. But times are a changing and more and more emphasis is being place on non-financial issues in terms of performance and the capital different stakeholders (human, social, environmental, economic) bring to the organisation. This is illustrated by:

* Investors taking into account governance and social responsibility when making investment decisions. Socially responsible investment index are being created by various stock exchanges around the world and socially responsible investment funds are on the increase

* Sustainable development issues forming part of a businesss license to operate such as industry charters
* The improvement in the identification of risks and opportunities and more appropriate response strategies
* Genuine cost savings
* Competitive edges being created
* Brands and reputation being built
* Sanctions such as consumer and employee boycotts being avoided
* Business partners attracted
* Business activities legitimised despite the growing global anti-capitalist sentiments being expressed
* Genuine economic and social development taking place in developing countries
* The "feel good" factor is created for employees
* And there is a growing awareness and concern for the "environment", in its broadest sense, that we leave for our children

Doing business right and doing the right thing, as articulated above, is the business case for sustainable development. If you accept that, you recognise the need to communicate/report with/to stakeholders so as to influence their actions and decisions. External assurance has to be the next step. Why? Surely stakeholders should believe what you tell them and blithely carry on giving you their capital! In an ideal environment the answer would be but in the real world, no.

Scandals of extravagance, inefficiencies, ineptitude and deceit in the 18th century forced financial auditing. There have been no real scandals around sustainability reporting to date but there is certainly disbelief and scepticism about claims made, performance delivered, promises made and the balance of some reports.

Transparency can be seen as the main driver to external assurance as it helps to build trust with external stakeholders. The integrity of the information reported is challenged and substantiated as part of the assurance process which protects the directors and reduces the risk of publishing inaccurate data, statements and claims. Improvements in the reporting and data collections processes can be identified through the assurance process, which not only helps the external reporting and but ensures management are making decisions with accurate and complete data.

Finally, some organisations place great value on who provides the assurance. Credibility by association should not be undervalued and can help demonstrate the organisations commitment to sustainable development. And this does not just mean the big four auditing firms. Technical consultants, "gurus", critics and subject matter experts can all aid the credibility of the report.

As there is no legal requirement to have sustainability reports assured, the value depends in part on what you assure. Stakeholder needs should be paramount in this decision. Assurance can be over many different aspects, for example:

* Whether the report has been prepared in accordance with external reporting standards, for example, GRI
* The accuracy of claims made about performance
* Assurance over some or all of the items included in the report, for example, business principles, climate change commitments
* The appropriate consideration of stakeholder views
* Appropriate consideration of what should be included in the report
* The balance of the report
* The underpinning sustainable development business and reporting processes
* The accuracy of some or all of the data reported

Due to the lack of maturity in sustainable development and its reporting, assurance does not have to be the same for all. You need to understand what you need and what is feasible. There is no point testing something you know is not in place. You also may have a good level of internal assurance, so build on what is in place as opposed to replicating it.

These latter points are however creating challenge for assurance at present - for those wanting to engage assurors and for those wanting to use the sustainability report and the assurance in some way. Consistency and comparability of scope, procedures and conclusions is lacking which makes it very difficult for all. Legislation and prescribed standards is not the answer at this stage, but the industry assurors, reporters and guiding bodies - need to work together to find common ground and make it possible for stakeholders to understand, compare and analyse the level of assurance they receive.

Why do we need external assurance? Quite simply if you understand the business case for sustainable development; if you want stakeholders to make relevant and reliable decisions about where to invest their specific "capital", then the information published has to be assured to give stakeholders confidence in their decision making process and trust in you as an organisation.