Benefiting from independent assurance
Benefiting from independent assurance
Corporate reporting of the social responsibility and sustainability issues are becoming increasingly important to businesses of all sizes in order to be more transparent and accountable to their stakeholders. This article focuses on two organisations that use LRQA’s assurance services, explores the reasons for their choice and the benefits they derive.
LRQA has been the assurance provider to British Telecommunications plc (BT) for its social and environmental report for a number of years. BT has a long history of non-financial reporting. Environmental reports were published annually from 1992 to 2000, with a social report published in 1999. Since 2001, an integrated social and environmental report has been available on the BT Better World web site.
The approach
Dunstan Hope, Manager Social Policy Development for BT, explains the organisation’s approach: “We have taken a leadership role in relation to non-financial reporting and there are a number of reasons for this. First, we believe it’s the right thing to do. Accountability and transparency are values to cherish in a modern democratic society and market economy. It also builds trust, providing an open insight into our social and environmental performance and helps maintain confidence in BT. And finally, it facilitates improved social and environmental performance. For example, our target setting process establishes stretching objectives across the company.”BT has chosen to have its social and environmental report independently assured to provide evidence to report users that:
- the right things are in the report – that all major issues that are relevant to stakeholders are included
- the things in the report are right – that the data is reliable and that the claims are not exaggerated.
Dunstan expands: “We try to achieve these things regardless of the assurance process. However, working to this level of assurance further maintains the trust of report users. We also find that, in practice, the assurance process will identify a number of areas where errors can be rectified – errors that it is much better to identify in advance of the report’s publication date.”
Using AA1000 AS
To carry out the assurance LRQA and BT were involved in performing a number of processes to verify the validity of the report. LRQA carried out a review of existing stakeholder consultation outputs. The aim of this process was to identify that all issues material to BT’s stakeholders were included in the report. BT wanted evidence that its key performance indicators (KPIs) reflected those issues most important to its stakeholders. BT carried out a review of sustainability reports from other telecommunications companies. This helped BT to identify if any important material issues were missing from its report.
“We found that the AA1000 Assurance Standard provides the basis for a systematic and robust approach to the assurance of non-financial reporting. We did observe some imperfections and faults with both the GRI Guidelines and AA1000 Assurance Standard. However, I believe that these result from them being new initiatives rather than any fundamental flaw of design. It would be wrong to expect instant perfection and progress will only be made when companies and assurance providers put standards into practice.
Deborah Evans, LRQA’s Business Manager for Corporate Reporting and Assurance, was involved in the assurance process and comments:
“Another process involved LRQA discussing in detail with BT’s Corporate Social Resposibility team the reasons and justifications for particular content decisions. We questioned the selection of some of the KPIs and challenged their actual indicators. Such information is reflected in the assurance statement we produced for the Better World web site. We also carried out interviews with senior BT staff to find out if BT’s targets were fully supported by top management and establish if the results of stakeholder consultation are integrated into the organisation’s decision making.”
The assurance process
Last year, the British government’s white paper on company law proposed that companies should produce an operating and financial review (OFR). This requirement has yet to pass through parliament and ministerial working groups are currently developing guidelines on the range of information to be included. Such legislation is unlikely to become company law until after 2005.
However, when OFRs are incorporated into company law, BT’s directors will be required to establish an audited process to define which of their non-financial issues should be considered material to the business and consequently reported. In this regard BT’s new non-financial KPIs and the approach taken by AA1000 Assurance Standard, provide a potentially helpful and complementary framework through which BT can respond to new disclosure expectations. Dunstan concludes:
“We found that the AA1000 Assurance Standard provides the basis for a systematic and robust approach to the assurance of non-financial reporting. We did observe some imperfections and faults with both the GRI Guidelines and AA1000 Assurance Standard. However, I believe that these result from them being new initiatives rather than any fundamental flaw of design. It would be wrong to expect instant perfection and progress will only be made when companies and assurance providers put standards into practice.
“Overall, we believe that reporting facilitates improved performance through target setting and a more joined-up approach to the management of non-financial issues. And high quality assurance is an integral part of the reporting process.”
Lafarge Cement enters into emissions trading
Lafarge Cement UK (LCUK), formerly Blue Circle Industries, has used LRQA’s services since it introduced an environmental management system (EMS) in 1994. The initial systems enabled each cement works to be certified to BS 7750, and then to ISO 14001. Continual development and improvement of systems enabled a multi-site EMS in 2001. This included all LCUK’s cement operations, which were certified to ISO 14001 and registered to Eco-Management and Audit Scheme (EMAS). LCUK is recognised as being the first company to receive multi-site EMAS registration in Europe.
Emissions trading is developing internationally. The Kyoto Protocol envisages global trading in greenhouse gases from 2008, the European
Commission proposes EU-wide trading at a company level starting in 2005 and the British government launched a pioneering emissions trading scheme (ETS) during 2002. ETS was introduced by the British government as part of the drive to reduce carbon dioxide emissions in line with the Kyoto targets. The UK ETS contains 34 direct participants and they are required to submit baseline and annual emission figures that have been independently verified in order to be entitled to financial incentives.
Why verify emissions?
LCUK entered into the UK Emissions Trading Scheme in 2002, Danny Lawrence, title LCUK, looks at the organisation’s main reason for getting involved in the scheme. He comments:
“The ETS offers LCUK the opportunity to work towards one of its key aims: to continually improve its environment performance by working alongside government bodies (when possible), whilst ensuring that its operations remain as commercially competitive as possible.”
The ETS targets for LCUK were based on a reduction in carbon dioxide emissions from the cement making process. LCUK also committed to energy efficiency targets under the Climate Change Agreement (CCA). For CCA, verification was needed to demonstrate to the Department for Environment, Food and Rural Affairs (Derfa) that targets, agreed by the cement making sector, had been met. As a member of the ETS, the amount of carbon produced needs to be verified before trading can commence. As part of these schemes, LRQA verified the data submitted. LCUK’s existing EMS gave it a basis on which to provide the additional information required by the ETS and CCA, Danny explains:
“We were able to add an extra procedure to our existing EMS. This procedure ensures that information is obtained, collated, calculated, aggregated and audited effectively with responsibilities identified at each stage. It also enabled the process to be effectively managed whilst building upon existing practices and minimising unnecessary extra workload and made the process of combining the verification processes required for ETS and CCA much easier.
“EMAS requires us to produce an environmental statement, as part of this we need to keep track of the annual emissions for each of our cement works. For CCA we need to look specifically at the use of energy and for ETS at information about the amount of decarbonation in the cement kilns. The new procedure provides for the additional data and rigour that is needed for CCA and ETS. ”
Meeting the extra requirements
LCUK’s alternative fuel programme demonstrates its approach to providing information for CCA and ETS. Alternative fuels, such as tyre chips, can replace the use of fossil fuels. This helps to preserve fossil fuels and recover energy from society’s waste. The amount of alternative fuels in place at each plant is used to meet the CCA’s targets. For ETS, LCUK’s procedure identifies the amount of raw materials, such as limestone, to evaluate the degree of decarbonation in the cement kilns. There are data links between the EMAS environmental statement and
‘LRQA’s verification process confirmed LCUK’s EMS had identified all of its emission sources and it was following the procedural requirements of obtaining information and audit’
CCA and ETS which until completion of the verification process were not clear. Through the verification process, LCUK was able to identify the links and other areas of overlap. LCUK has now developed a common process spreadsheet which will ensure that data required for EMAS, ETS and CCA can be traced to one common source. It also encapsulates all the statistics in one format which will save significant time and resources on data preparation and verification.
As an independent third party, LRQA provides verification of the data that is needed by LCUK for CCA and ETS. Anne-Marie Warris, LRQA’s Environmental Product Manager, explains LRQA’s involvement:
“LRQA’s verification process confirmed that LCUK’s EMS had identified all of its emission sources and was following the procedural requirements of obtaining information and audit. In addition to ensuring LCUK had an effective system, its emission figures, as submitted in the returns to Defra, were verified by sampling raw monitoring data, checking for calculation errors and establishing the level of materiality.“
Assurance matters
The EMS has helped LCUK manage its cement operations and enabled it to provide reliable and independently audited information to stakeholders. Danny expands: “The external verification of LCUK’s performance data is not just an important authentication exercise; it also has considerable benefits for the company when communicating with its wider stakeholder group. The stakeholder group has provided positive feedback on the rigorous corroboration system by an independent, qualified body and the continued development of LCUK’s environmental policy.”
CCA and ETS which until completion of the verification process were not clear. Through the verification process, LCUK was able to identify the links and other areas of overlap. LCUK has now developed a common process spreadsheet which will ensure that data required for EMAS, ETS and CCA can be traced to one common source. It also encapsulates all the statistics in one format which will save significant time and resources on data preparation and verification.
LCUK has also found that investors are taking a greater interest in an organisation’s environmental performance. Investors are playing an increasingly high profile role through LCUK’s stakeholder group and have participated in site visits which provide an insight into the EMS. Danny concludes: “Through its work with LCUK in relation to EMAS, CCA and ETS, LRQA plays an important role in ensuring that we continue to demonstrate our business conduct in a responsible and professional manner.“
These two case studies demonstrate that companies are becoming increasing conscious of the growing demands from stakeholders and governments organisations. Independent verification and assurance can help provide more credible information to satisfy these groups.
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