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Stuck on the starting blocks:

The state of sustainability assurance in 2010

clear practical action
certification and standards
sustainable supply chains
staff engagement and training
sustainable business operations
measurement and reporting

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on the state of sustainability

r of Carbon Smart’s report
Welcome to the second yea
and carbon assurance in the
ng continues to
ons tra tes tha t the con text of sustainability reporti
The past year dem streamline corporate
del ine s for nar rati ve bus iness reporting may seek to
evolve; gui ated at length. There is
bon reporting has been deb
reports, and mandatory car utiny of corporate
rea sed aw are nes s and a heightened level of public scr
also inc e that it should
stro ng cal l fro m bus ine ss groups and consumers alik
reporting, with a .
ponsibility at its most honest
demonstrate corporate res
to sustainability reporting,
t, there is no set approach
Within this evolving contex se report s. A host
eem ent on how bes t to verify the claims made in the
is also no agr d in different styles by differe
n approaches exist, adopte
of verification and validatio roaches is assura nce : third
one of the more common app
companies. Among these, reporting processes. This is
’s contents and company’s
party verification of a report statements made.
ny to als o add cre dib ility to the reporting process and
seen by ma
s taken to sustainability
earch has rev iew ed, for a second year, the approache
This res ches compare
ura nce in the FTS E 350 and how well these approa
and carbon ass s in the field, and
t pra ctic e ben chm ark s. Our research reveals leader
to our bes the FTSE 350.
me nda tio ns to imp rove the assurance statements in
identifies recom nce can provide critical,
for me d we ll, sus tainability and carbon assura
Wh en per et the common
t to com pan y rep orti ng. However, when it fails to me
integral suppor ue declines in the eyes of all
of bes t pra ctic e ass urance, we find that its val
ele me nts companies on the
We con sid er the opi nio ns of investors and reporting
stakeholders. n of these results.
e of sus tain abi lity ass ura nce, and provide a discussio
ns will help to inform all
findings and recommendatio
We hope that the enclosed ate about how best
of sustain abi lity assurance in the ongoing deb
stakeh olders meet readership
should be conduc ted, how it can be improved to
practice assurance keholders.
ns, and how to ens ure it adds real value for key sta
expect atio

Ben Murray
Managing Director
Carbon Smart Ltd
April 2011

Copyright 2011 Carbon Smart Ltd 1


We would like to thank the following individuals and Independent Advisory Panel:
organisations for their assistance in making this project
Henning Drager, BDO LLC Ukraine
Freddie Woolfe, Hermes Equity Ownership Services
Jayn Harding, FTSE Group
Gold sponsor:
Joaquim de Lima, HSBC
Karen McCulloch, The Prince’s Accounting for Sustainability

Stakeholders interviewed:
Cindy Rose (Aberdeen Asset Management), Kegan Lovely
(Bank of America, Merrill Lynch), Mike Wilkins (Standard
and Poors), Nigel Haskins (ENDS Carbon), Hans-Ulrich Beck
(Sustainalytics), Valeria Piani and Lorenzo Saa (UN PRI).

Silver sponsors: Stakeholder workshop participants:

Christina Enotiades (AccountAbility), Richard Ellis (Alliance
Boots), Richard Foulerton (Allianz), Steve Coates (Allianz),
Annette Pendrey (Aviva), Jillian Fransen (Barclays),
Vedant Walia (Barclays), Jennie Galbraith (BAT), Michael
Nightingale (BAT), Sudip Hazra (Bloomberg), Tomasz Noetzel
(Bloomberg), Adriana Mazry (BP), Darren Holman (Business
in the Community), Pedro Faria (CDP), Ana Catalano (CII),
David Sanders (Cleantech Advisory), Sarah Dobbing (Defra),
Sue Whitehead (Defra), Carlota Garcia Manas (EIRIS), Coziana
CIurea (EIRIS), Sheila Stefani (EIRIS), Jayn Harding (FTSE),
Russell James (Full Circle Property Group), Mike Wallace
(GRI), Freddie Woolfe (Hermes), Joaquim de Lima (HSBC),
Christine Webber (Imperial Tobacco), Jennifer Kozak (Insight
Investment), Rory Sullivan (Insight Investment), Peter de
Graaf (KLD Research), Kegan Lovely (Merrill Lynch), David
Owen (Nottingham University), Perry Rudd (Rathbones),
Mallika Paulraj (RiskMetrics), Cecile Churet (SAM), James
Farrar (SAP), Martin McCann (SAP), Karen Shaw (Schroders),
Paul Hohnen (Sustainable Strategies), Alice Byers (Triodos),
Elliot Frankal (UN PRI), Lorenzo Saa (UN PRI).

In developing our research we also consulted the

following organisations:
ACCA, Carbon Disclosure Project, Deloitte, Ernst & Young,
ICAEW, KPMG, Pricewaterhouse Coopers, Two Tomorrows,
University of Florence, University of Nottingham, University
of St Andrews.

2 Stuck on the starting blocks: The state of sustainability assurance in 2010


Executive Summary 4

Assurance of sustainability reports 7

Assurance of carbon emissions 11

Key findings 15

Stakeholder perspectives 26

Alternatives to assurance 28

Take home messages 30

Conclusions 32

Appendix 1 – Methodology and Process 33

Appendix 2 – List of companies that do not provide

assured sustainability information 37

Appendix 3 – List of companies not rated for

carbon assurance 39

Copyright 2011 Carbon Smart Ltd 3

Executive Summary

Assurance of sustainability reporting is a discipline in the while value can still be derived from the various forms of
early stages of development. As sustainability reporting assessment, there is significant room for improvement in
matures, driven by government regulation, public demand the majority of them.
and company values, the need for reliability in reported
information is critical. Assurance helps to demonstrate What did we do?
that what is reported is reliable and supported by sound In the eyes of stakeholders, an assurance engagement is
processes. As practised now, sustainability assurance often only as good as the statement it produces. The assurance
does not meet the needs of the reporting companies or its statement should provide sufficient information such that the
stakeholders. This report explores instances of best and worst reader can decide whether the engagement gives confidence
practice sustainability assurance, how failure to meet best in the information reported. The statement should also
practice can compromise value for money, and the future of present an accurate representation of the work conducted
sustainability and carbon assurance. and not mislead the reader.
Why this research? The current diversity of approaches is such that the only
way we can judge an assurance engagement is through its
Sustainability or corporate social responsibility (CSR) description in the assurance statement. We have therefore
reporting is used to communicate a company’s non-financial based our analysis exclusively on the information disclosed in
performance in these areas to stakeholders, and over the the statements.
past 20 years this reporting field has grown to become one
of the core means by which companies’ wider impacts are We rated all sustainability and carbon assurance statements
judged. With the UK Government considering proposals for in the FTSE 350 against a set of best practice criteria. We
improved guidelines for narrative reporting, and mandatory based our definition of best practice on discussions with
requirements for carbon reporting on the horizon, it is crucial stakeholders and the expert opinion of our independent
that companies ensure all elements of their reporting are advisory panel. According to the agreed criteria, best practice
material and accurate. assurance:
Assurance statements are often cited as a means of adding Covers subject matter material to both the company and
credibility to sustainability reporting. Over the last 5 years its stakeholders.
there has been an expansion of approaches to sustainability Is provided by an independent and qualified assurance
assurance, accompanying the variety of CSR reporting. As provider.
a result, it has become more complicated for readers to
Is conducted in accordance with recognised and relevant
compare and interpret assurance statements, and thus
assurance standards.
determine the value of either the assurance engagement or
the report it covers. Provides a level of assurance that corresponds to the work
performed and the evidence gathered.
This year’s research reviews, for the second year, the
assurance statements of the FTSE 350. Our results Results in a transparent assurance statement that
demonstrate that assurance is still only undertaken by a accurately reflects the work conducted and adheres to the
minority of reporting companies. When it is practiced, disclosure requirements of the applied standard.
the diverse approaches followed by companies and their
Who is undertaking assurance?
assurance providers do not always fully balance the needs
of the company with the assurance statement’s readership, We found little change from last year. Few companies in
for example by failing to clearly state what issues were the FTSE 350 are assuring their sustainability reports. We
covered within the engagement. Furthermore, assurance found 79 companies published some form of identifiable
statements often fail to match standards they claim to adhere verification statement of their sustainability reporting; we
to, reducing their overall value to both the company and judged 66 as assurance statements. 46 of these were from
readers. Interviews with assurance stakeholders indicate that the FTSE 100 and 20 were in the FTSE 250.

The state of assurance in the FTSE 100 (2009)

100 Companies with some level of
54 sustainability reporting
47 Reports with some form of
32 assurance
Reports with independent
The state of assurance in the FTSE 100 (2010) Reports with independently
100 verified carbon emissions

4 Stuck on the starting blocks: The state of sustainability assurance in 2010

Executive Summary

These statistics reveal that despite the benefits offered by supporting a company’s sustainability reporting programme
assurance engagements, very few companies are undertaking and strengthening internal risk management processes.
assurance. In discussions with reporting companies We found 5 assurance statements from companies which
regarding the issue of sustainability assurance, commonly provided best practice assurance delivering a clear review of
held opinions included that assurance was an additional what had been assured, to what level, and how. Following
reporting ‘hoop’ through which companies were loathe to close behind, 19 statements were deemed at ‘the front of the
jump, others felt their data was sufficiently robust to avoid pack’ for proving useful and relevant assurance statements
the need for assurance, some felt it was too costly, still others which contained most of our best practice criteria.
were unaware of it entirely. The need for assurance is not All too often, however, our research demonstrated that
universally recognised and this is reflected in the poor level of many statements are lacking in basic elements necessary for
uptake within the FTSE 350. producing assurance statements that clearly communicate
Why does assurance need to improve? to stakeholders the work that has been performed. 23
statements could not provide a clear scope outlining what
Our research reveals that there is great diversity in the data or processes they covered, and only 7 statements
forms of assurance undertaken and how well statements demonstrated the assurer performed a materiality assessment
communicate with their intended readers. The approaches of the scope as part of setting the boundaries of their
taken in assuring a report inherently reflect the company’s engagement. 28 statements contained elements of jargon or
view of where they are in their reporting journey. unclear phrasing potentially confusing to stakeholders.
In stakeholder interviews with investors, we noted how little One of the key issues raised by stakeholders interviewed as
attention is currently paid to sustainability assurance when part of this research was a desire to see greater clarity and
determining investment potential. While there is interest improved discussion of the material ‘game changing issues’
in obtaining this form of non-financial information, the within the scope of assurance statements. At present, our
variety of standards and patchiness of assurance coverage evidence suggests that providers are falling woefully short
among reporting companies makes it difficult for investors of this need.
to consider adopting assurance into their analysis. We noted
that investors are interested in seeing better assurance Conclusions
statements and their allocation of value may shift with a Our research study explores how these various elements
concurrent improvement in availability of robust assurance could be improved throughout assurance statements.
based on recognised decision frameworks. The statistics we reveal demonstrate a widespread lack
of familiarity with assurance standards, independence
How did assurance add value in 2010? requirements, or simple elements of clear communication
Assurance statements which have focused on the company’s in assurance statements. Improvements need to occur
reporting processes and behaviours, and which provide throughout the assurance industry to ensure that all
recommendations and observations for improvement statements are written with the end-user in mind, so
generate value beyond a simple statement. They can be used that they are clear in scope and transparent about the
to improve sustainability management and reporting, and engagement. Without these cornerstones, the ability of
can provide a clear view for stakeholders of the company’s assurance to maintain a valid place in the midst of complex
ability to manage material issues and risks. Equally, an reporting regulations and burgeoning alternatives in
assurance statement providing assurance over reported data validation and verification is questionable.
demonstrates that the company’s internal reporting has We submit the results of this research with the objective of
matured to the point where it is robust enough to withstand empowering reporting companies to seek value for money
external scrutiny. from their assurance statements, to shine light on best
When conducted to best practice standards, we believe practice elements of assurance, and investigate the future of
both approaches to assurance provide excellent value in sustainability assurance

The state of assurance in the FTSE 250 (2009)

202 Companies with some level of
21 sustainability reporting

15 Reports with some form of

6 assurance
Reports with independent
The State of Assurance in the FTSE 250 (2010) Reports with independently
verified carbon emissions
Copyright 2011 Carbon Smart Ltd 5
Sub view
The heading
British American Tobacco

There is a perceived lack of credibility in sustainability We have also worked closely with Ernst & Young to try to
assurance that presents a big challenge for both make the assurance statement more accessible to readers.
reporting organisations and assurance providers. However, it’s still a challenge to make content that is
essentially very formal by nature into something that is
This perception was voiced in a recent stakeholder dialogue meaningful and interesting for readers. A key change has
we held on the issue of integrated reporting, where several been to include selected assurance observations on specific
participants believed that information on sustainability issues directly alongside the relevant content in the Report.
performance, whether contained within a stand-alone report This not only puts Ernst & Young’s comments into context,
or included within the Annual Report, is not currently subject but also means that even without reading the full assurance
to the same degree of internal and external validation as statement, readers are still able to gain insight into the
financial information. assurance process and findings.
With this credibility challenge comes an opportunity for Although we believe we have come a long way in the last
reporting organisations and assurance providers to work decade, we also recognise that we do not have all the
together to help shape the future of sustainability assurance. answers. As a relatively young field that is rapidly evolving,
That is not to say though that the answer is to follow the it is important for us all to keep abreast with changes and
same approach as financial audits. The far more fluid nature emerging best practice. Carbon Smart’s research is a key way
of sustainability reporting would make this very difficult and in which we can do this.
overly restrictive guidelines could result in reporting becoming
About British American Tobacco
formulaic. Indeed, one of the strengths of sustainability
reporting is its flexibility for companies to be able to focus on British American Tobacco is the world’s second largest
the material issues for them and their stakeholders. tobacco group by market share, with brands sold in more
The varying approaches to assurance reflect this diversity than 180 markets.
and with so many differences we need to see assurance Our Group vision is to achieve leadership of the global
statements that clearly define the form and scope of tobacco industry. Our strategy to deliver our vision and build
assurance and present it in a way that is accessible for shareholder value is based on growth, funded by productivity
readers. Carbon Smart’s research provides valuable and delivered by a winning organisation that acts responsibly
information on how to compare the different assurance at all times.
approaches out there and is a great step in helping all We have been publishing independently assured Reports
reporting organisations and assurance providers assess and since 2001 and this year marks our 10th year of reporting.
improve their approach, as well as helping report readers
better understand and review assurance statements. It is In 2007, we developed our sustainability agenda, which
also interesting to see in the results how many reporting focuses on five pillars: harm reduction, marketplace,
companies still have no form of assurance. environment, supply chain and people and culture. It aims to
build value for our shareholders and other stakeholders by
Given the nature of our industry, we understand how addressing our social, environmental and economic impacts.
important it is that our stakeholders can place trust in our
processes and in what we report. We believe that having This means generating returns for our shareholders by
robust assurance plays a large part in creating this trust. doing the right thing by
our stakeholders and the
Over the last 10 years, our approach to assurance has environment. This concept of
evolved from primarily being a verification exercise to sustainable value underpins all
becoming a key tool in helping us improve our sustainability of our sustainability activities.
performance and develop our approach. By taking action to address
Ernst & Young LLP has been our assurance provider for the our impacts today, we help our
last four years and the ongoing dialogue we have with them business to thrive in the future.
is now one of the most valuable aspects of the process. The Our sustainability agenda is an integral part of delivering our
review provides challenge to the business, highlighting our Group strategy and comprises five goals. We will:
strengths as well as improvements that can be made.
Strive to bring commercially viable, consumer acceptable
For example, in our 2007 Report the assurance statement reduced-risk products to market;
noted that improvements could be made to the collection
and collation of data that our companies provide in the Take a lead in upholding high standards of corporate
Group CSR Survey. As a result, we invested in a new system conduct within our marketplace;
that removed the need for a manual collation process and Actively address the impacts of our business on the natural
increased the level of management challenge the data was environment;
subjected to. In response to comments made as part of Work for positive social, environmental and economic
our 2009 Sustainability Report assurance, our 2010 Report impacts in our supply chain; and
includes more detailed information on our economic impact
and presents a more balanced picture of both the successes Work to ensure we have the right people and culture to
and challenges of sustainability activities in our key markets. meet our goals.

6 Stuck on the starting blocks: The state of sustainability assurance in 2010 Copyright 2010 Carbon Smart Ltd
League Tables Assurance of sustainability reports

This league table shows all 66 companies in the FTSE 350 who The expertise of the assurance provider is mentioned but
have undertaken assurance of their sustainability reporting. relevant qualifications are not listed

Out in front The independence of the assurance provider is not clearly

stated. We found a significant number of statements where
Leading companies (>72%) are those where the assurance a potential conflict of interest existed. For example, where
statement was clear and described a comprehensive the assurance provider was also involved in the preparation
engagement. In general the statement: of the report
States that the engagement was delivered in accordance The statement makes reference to the assurance provider
with two assurance standards, i.e. ISAE3000 and using their proprietary protocol rather than adhering to
AA1000AS, or an industry specific standard such as ICMM an international standard. In some cases the proprietary
States that the assurance covers the reliability of all protocol made reference to AA1000AS or ISAE3000
material data reported The level of assurance obtained was limited or there was
Clearly details the scope of engagement, and specifies no reference to the level of assurance
the level of assurance achieved for different KPIs, where Criticisms of and recommendations to the reporting
appropriate company are either very brief or not included in the
Is signed by a qualified independent third party and the assurance statement
basis for the independence is explained The assurer neglected basic elements of good assurance
Provides detail as to site visits conducted as part of the practice such as providing the date of and place where
engagement the assurance engagement was carried out (of statements
claiming to meet an assurance standard, 9 did not disclose
Is transparent and free of unnecessary jargon.
the minimum good practice requirements relevant for that
At the front of the pack standard).

Good performers (60 - 71%) are those where the assurance At the back of the pack
statement was clear but demonstrated limited engagement.
Companies at the bottom of the league table (0 – 31%) are
In general:
those that:
The assurance subject matter, as described in the
Claimed to provide an assurance statement, but in each
statement, concentrates primarily on either the reliability
case the assurer failed to state their independence, or
of data or assurance against the reporting principles, rather
there was cause to believe that the assurer had a conflict
than both
of interest
The statement was signed by a qualified third party. We
The assurance statement failed to clearly disclose most
found 15 statements where the expertise of the assurer
of the following: the subject matter under assurance; the
was defined according to relevant professional standards
competence and independence of the provider; details on
The statement claims that the engagement was delivered the work conducted; and the level of assurance.
in accordance with a single assurance standard, such as
ISAE3000 or AA1000AS Trailing the pack
The statement refers to the work being conducted from 284 companies in the FTSE 350 did not have assurance
headquarters only, as found in almost half of the assurance statements. Of these, we identified 13 companies which had
statements alternatives to assurance, including opinion statements from
non-independent parties or stakeholder panels. We have
The level of assurance claimed in the statement is limited
distinguished between those companies who provided a
(only 5 statements declared a reasonable level of assurance
statement designed to provide assurance of the report, and
for some of the KPIs under the assurance scope, of these, 2
those which provided an opinion statement on the report’s
did not appear to be justified by the level of investigation)
content. More about these alternative forms of statement
The statement is transparent but is limited in its can be found on page 28.
recommendations for improvement.
See Appendix 2 for a list of companies that do not disclose
In the pack any assurance statement.
Average companies (32 – 59%) are those where the assurance The league table ranks companies within these performance
statement lacks clarity. In general: categories. A full description of our methodology can be
found in Appendix 1.
The subject matter of the engagement is not clearly
defined in the statement. We found numerous examples
where the scope included “selected KPIs” but with no
further explanation as to which KPIs had been assured

Copyright 2011 Carbon Smart Ltd 7

League Tables Assurance of sustainability reports

Table 1: Sustainability assurance in the FTSE 350

Rating (% of total available scores) Rank Company Industry

1 Vodafone Group Telecommunications

2 BHP Billiton Basic Materials

Out in front 72% - 100% 3 Associated British Foods Consumer Goods

4 Royal Bank Of Scotland Group Financials

5 British American Tobacco Consumer Goods

6 BAE Systems Industrials

7 Barclays Financials

8 AstraZeneca Health Care

9 Unilever Consumer Goods

10 Marks & Spencer Group Consumer Services

11 FirstGroup Consumer Services

12 Kingfisher Consumer Services

13 BP Oil & Gas

Front of the pack 71% - 60% 14 Anglo American Basic Materials

15 Tullow Oil Oil & Gas

16 BT Group Telecommunications

17 Lonmin Basic Materials

18 African Barrick Gold Basic Materials

= 19 Amlin Financials

= 19 Rolls-Royce Group Industrials

21 Reed Elsevier Consumer Services

22 BG Group Oil & Gas

23 Premier Farnell Industrials

24 British Land Co Financials

25 HSBC Hldgs Financials

26 Xstrata Basic Materials

27 International Power Utilities

28 Smith (DS) Industrials

The pack 32% - 59% 29 Barratt Developments Construction

30 Land Securities Group Financials

31 Experian Business Support Services

32 Premier Oil Oil & Gas

33 Rio Tinto Basic Materials

8 Stuck on the starting blocks: The state of sustainability assurance in 2010

League Tables Assurance of sustainability reports

34 Next Consumer Services

35 Capital Shopping Centres Group Financials

36 Imperial Tobacco Group Consumer Goods

37 International Personal Finance Financials

38 Provident Financial Financials

39 Johnson Matthey Industrials

40 Great Portland Estates Financials

41 GlaxoSmithKline Health Care

42 Aviva Financials

43 Go-Ahead Group Consumer Services

44 Centrica Utilities

The pack 32% - 59% cont. 45 Tesco Consumer Services

46 SABMiller Consumer Goods

47 RSA Insurance Group Financials

48 Whitbread Consumer Services

49 British Sky Broadcasting Group Consumer Services

50 Mondi Basic Materials

51 Pennon Group Utilities

52 Travis Perkins Industrials

53 United Utilities Group Utilities

54 Royal Dutch Shell Oil & Gas

55 Cairn Energy Oil & Gas

56 Big Yellow Group Financials

57 Carillion Business Support Services

58 Man Group Financials

59 Petropavlovsk Basic Materials

60 Lloyds Banking Group Financials

61 Home Retail Group Consumer Services

Back of the pack 0% -31% 62 Pace Technology

63 Diageo Consumer Goods

64 Standard Life Financials

65 WH Smith Consumer Services

66 Ladbrokes Consumer Services

Copyright 2011 Carbon Smart Ltd 9

League Tables Assurance of sustainability reports by industry

The top performers by industry were Telecommunications,

Health Care, Basic Materials, and Industrials.
It is encouraging to see a higher quality of disclosure from
companies within these high impact industries, and overall
improvement in the average scores within the league table.
We were interested to note that in the Utilities sector
Scottish and Southern Energy deliberately chose to cease
assuring their sustainability information. This contributed to
a lower than average score than last year (down from 49%).
This may be a reflection of the additional reporting burdens
placed on such companies; this issue is discussed further in
the Alternatives to assurance section on page 28.

Table 2:
Average rating of sustainability assurance by industry

Industry % of companies with assurance statements Average rating (% of total available score)

Telecommunications 33 78

Health Care 25 60

Basic Materials 40 58

Industrials 13 58

Construction 14 56

Consumer Goods 27 56

Oil & Gas 32 55

Financials 16 51

Business Support Services 8 46

Consumer Services 20 46

Utilities 56 37

Technology 6 22

10 Stuck on the starting blocks: The state of sustainability assurance in 2010

League Tables Assurance of carbon emissions

With an upheaval in regulation of carbon emissions Of the companies clearly including carbon within the
reporting potentially around the corner, we believe it is assurance scope, only 5 companies referenced an assurance
crucial to understand how carbon assurance is conducted at standard related to carbon reporting: ISO14064-3. 12
present. Doing so will allow us to understand what lessons companies made clear reference to recognised carbon
to incorporate into reporting if a mandatory reporting reporting criteria, an increase of 5 on last year.
regime is put in place. Unlike the first league table, for carbon we have only rated
Carbon is often viewed as one of the core indicators of independent standards based statements. These were either
a company’s environmental performance and it also separate assurance statements covering carbon specifically,
represents a significant constituent of an organisation’s or an integrated assurance statement of which carbon or
social impact. Carbon is one of the most readily quantifiable environmental performance data was an identifiable element
environmental metrics available, with standardised under the scope of assurance. Of a total of 66 statements
measurement and reporting guidelines, and associated cost identified as having independent assurance statements, 48
structures providing additional impetus to ensure accurate were scored for carbon assurance and only 4 companies
measurement. Furthermore, as one of the key elements of undertook engagements which related solely to carbon
a low carbon economy, carbon and other greenhouse gas emissions. These 48 included:
emissions will form a cornerstone of corporate reporting and 39 that clearly referred to carbon as falling within the scope
financial markets. of assurance;
9 that included all environmental data within the scope of
“Assessment of carbon impact is assurance. We checked if the company reported carbon
emissions and, if this was the case, we have assumed that
not something that can really be carbon reporting was within the scope of assurance.
taken in isolation; it needs to be We did not score:
seen as part of an overall picture 13 statements where it was not possible to tell whether
carbon was included in the scope of the assurance.
of a company’s impact on the
5 alternative assurance statements.
environment and society at large” See Appendix 3 for a list of companies not scored for carbon
– Ethical Investors assurance.

The trends in improving carbon assurance appear positive,

but the overall numbers of high quality carbon assurance
statements remain low.
A disappointing number of companies fail to specifically
reference carbon clearly within the assurance scope. Of the
66 companies who assured their sustainability information,
39 also assured their carbon data. We found 13 statements in
which it was not possible to tell whether carbon was covered
in the assurance scope. Some of these reporting companies
appeared to have comprehensive carbon reporting, but the
scope of their assurance engagement fell short of this level
of detail. We recommend that if assurance of performance
data within the report is to be undertaken, then it should
be clearly stated whether carbon emissions fall within the
assurance scope.

Copyright 2011 Carbon Smart Ltd 11

League Tables Carbon emissions

Table 3: Assurance of carbon emissions

Rating (% of total available scores) Rank Company Industry

1 British Sky Broadcasting Group Consumer Services

2 British Land Co Financials
Out in front 75%-100%
3 Amlin Financials
4 HSBC Hldgs Financials
=5 Next Consumer Services
=5 Royal Bank Of Scotland Group Financials
7 Royal Dutch Shell Oil & Gas
=8 Anglo American Basic Materials
=8 BHP Billiton Basic Materials
=8 Kingfisher Consumer Services
=8 Lonmin Basic Materials
=8 Centrica Utilities
Front of the pack 74%-60%
13 Mondi Basic Materials
= 14 RSA Insurance Group Financials
= 14 Vodafone Group Telecommunications
= 16 Barclays Financials
= 16 Experian Business Support Services
= 18 Lloyds Banking Group Financials
= 18 Tesco Consumer Services
= 18 Travis Perkins Industrials
= 21 Associated British Foods Consumer Goods
= 21 Marks & Spencer Group Consumer Services
= 23 GlaxoSmithKline Health Care
= 23 Smith (DS) Industrials
= 25 BG Group Oil & Gas
= 25 Reed Elsevier Consumer Services
27 Man Group Financials
= 28 Rolls-Royce Group Industrials
= 28 Rio Tinto Basic Materials
= 28 Unilever Consumer Goods
The pack 59%-25%
= 31 Cairn Energy Oil & Gas
= 31 Big Yellow Group Financials
= 33 Diageo Consumer Goods
= 33 Go-Ahead Group Consumer Services
= 33 Carillion Business Support Services
= 36 Aviva Financials
= 36 Barratt Developments Construction
38 Tullow Oil Oil & Gas
39 International Power Utilities

12 Stuck on the starting blocks: The state of sustainability assurance in 2010

League Tables Assurance of carbon emissions by industry
One more company than last year clearly mentioned carbon
as lying under the scope of their assurance engagement. Of
these 39 companies, 31 were in the FTSE 100.
We were disappointed to note that in none of the industries
did more than 25% of constituent companies seek
assurance of their carbon emissions. In industries with high
environmental impacts, such as Construction, where only
1 company had an external assurance statement, this low
level of carbon assurance was surprising. We would expect
to see a more proactive and transparent approach to carbon
reporting taken by the high impact industries presently sitting
at the lower end of the league table.

Table 4:
Average rating of carbon assurance by industry

% of listed companies that clearly have

Industry Average rating (% of total available score)
had their carbon emissions verified

Basic Materials 25 67

Consumer Services 11 67

Telecommunications 17 67

Financials 10 66

Health Care 13 59

Industrials 7 59

Business Support Services 8 57

Consumer Goods 14 55

Oil & Gas 21 54

Utilities 22 52

Construction 14 39

Technology 0 0

Copyright 2011 Carbon Smart Ltd 13

Sub heading
Letter from the
Advisory Panel

To ensure that this research was properly and Assurance standards have sidestepped this issue in the
impartially carried out, we appointed an Advisory past, but there is now a strong need for a thorough form
Panel. The Advisory Panel agreed the criteria for of materiality review. In the early days of reporting it was
standard to have an environmental effects register. Now that
the research, reviewed the scoring process, and need has evolved into the need for a materiality matrix to
has been integral in shaping the recommendations identify the material sustainability issues for the company
in this report. The panel has brought together a and its stakeholders.
number of backgrounds and opinions to this study. Ultimate responsibility for ensuring that reporting focuses
Whilst they have discussed many issues relating on materiality rests on the reporting company. How well
to assurance over the course of this research, they this translates into assurance statements may result from a
wish to share some of their thoughts on the issue company’s willingness to include this as an item in the brief
of materiality. This topic is of key importance in to their assurance provider. For this to be most effective
creating valuable reporting, yet is covered by very we would suggest that transparent methodologies be
adopted by companies to demonstrate the materiality of
few of the assurance statements. their reporting which could then be reviewed by assurance
In sustainability, material issues can incorporate a wide range providers as part of their statement. Companies may disagree
of areas. From a company’s perspective the management of with the conclusions of their assurer on identifying material
material issues enables better identification of associated issues, but we would hope to see a transparent discussion of
risks and opportunities leading to better long-term this in both the assurance statement and company report.
performance. Investors are interested in the material issues
Increased transparency should result in increased
affecting companies for the same underlying reasons, with
accountability and in turn better performance by reporting
the outcome that good identification and management
of material issues reduces risk and improves sustainable
profitability of the company. Other stakeholders may be The Panel encourages reporting companies and assurers alike
interested in wider social and environmental impacts. While to take up this challenge.
material issues vary between companies, the common
denominator of good practice is early recognition and active
management of key risks and opportunities. If company
reports do not transparently demonstrate that they are
appropriately addressing material issues they provide limited
value to their target audiences.
Carbon Smart’s research demonstrates that only 11% of
assurers actively reviewed the materiality of KPIs included in
company reports.
Assurance providers need to have a good understanding
of the reporting company’s business in order to review the
materiality assessments in a company’s report. At present,
however, there is little discussion in assurance statements
which clarifies whether such a process of review or testing
has occurred. In many statements where assurers covered
only selected KPIs there was no discussion as to how or
whether the assurance provider had queried the bounds of
their engagement to test materiality of the reported topics. It
is not possible to determine whether this is a result of limited
disclosure in the assurance statement, or whether it reflects
an internal limit placed on the engagement by the reporting
company’s brief.
We discussed whether a transparent, standardized
methodology should be adopted by companies to
demonstrate the materiality of their reporting. This would
be an element which could then be reviewed by assurance
providers as part of their statement. (Ultimately we did not
agree on whether a standardised methodology is universally
desirable, or whether even between similar companies
different risk appetites would prevent them from adopting
such a methodology. We welcome further discussion on this

14 Stuck on the starting blocks: The state of sustainability assurance in 2010 Copyright 2010 Carbon Smart Ltd
Key Findings Scope clarity and materiality

It can be difficult not only to determine what has Both the reporting company and assurance provider
been assured, but whether the issues covered are should ensure that the scope of assurance covers all issues
material to the company. material to the company and its stakeholders, and should
refer to this decision making process.
Why is this important? Best practice examples
Clearly defining the scope of the assurance engagement is We identified several methods within assurance statements
the first step in providing readers with a good understanding of clarifying the scope of the engagement and addressing the
of the quality of information provided in the report. The verification of issues material to the company.
description of subject matter covered should be clear, and
should also demonstrate alignment with the company’s For example:
material impacts in order to reassure the reader that critical RBS’s report provides two separate lists for reporting
compliance is being met. Assurers should demonstrate that processes and performance data assured. All KPIs are listed
they have undertaken a process to identify material impacts with references to corresponding page numbers within the
of the company, and that these impacts lie within the scope report.
of assurance. Kingfisher’s report clearly addresses the issue of materiality
and the assurer states that ‘we are not aware of any
Evidence material reporting units which have been excluded from
The majority of assurance statements within the FTSE the scope of the data reported’.
100 provided a high degree of clarity when describing the
Astra Zeneca’s statement was clearer than last year in
scope, but 50% of FTSE 250 companies providing assurance
listing the elements under assurance, which contributed to
had an ambiguous statement.
its improvement in the league table placement this year.
When companies limited the scope of assurance to only
cover part of their report, it was not always clear whether
the elements excluded were material. For example, stating
that ‘Selected verifications [were] conducted on the
The dictum “roughly right not
environmental and community investment performance precisely wrong” applies to
data’ does not provide the reader with any understanding
of what exactly was assured, or why.
sustainability assurance (ENDS
Carbon). Given the inherent
When describing the subject matter, the statement should inaccuracies in the data, stakeholders
ensure that all issues or KPIs under the scope of assurance
are clearly identified.
may put more weight on assurance
that clearly covers material aspects.

Key Findings – Clarity of scope

65% 33% 2%

The statement clearly describes what the assurance engagement has verified
The statement describes what the assurance engagement has verified but is not clear enough
No reference to assurance scope

Key Findings – Materiality of scope

11% 14% 74% 1%

Assurance engagement covers adherence to recognized reporting principles and the assurance of all performance
data deemed material to the reporting company
The assurance engagement covers the reliability of all performance data deemed material to the company
The assurance engagement covers either adherence to some of the recognized reporting principles or data checks
of some of the performance data in the report, with no discussion of how material criteria were chosen or applied
No reference to scope or not possible to tell what the scope of the engagement is

Copyright 2011 Carbon Smart Ltd 15

Sub heading
Letter from BP

Frequently, the simplest research is the most About BP

effective. While this benchmark is not complicated BP is one of the world’s leading international oil and gas
in its methodology, its messages are clear: uptake is companies. We operate or market our products in more
low and quality is variable, verging on poor. than 80 countries, providing our customers with fuel for
transportation, energy for heat and light, retail service and
Our own internal research shows that increasingly analysts
petrochemicals products for every day items. BP began
and investors are using non-financial data in their portfolio
reporting its non-financial performance in 1987 with an
analysis. It is not the prime factor in their decision making,
environmental report, and has developed that into today’s
but it is no longer an add-on either. The analysts we have
integrated model of print and online sustainability reporting.
spoken with look to assurance of our sustainability reporting
as a hygiene factor: they expect it and they expect it to be
done well. Given this, I still find it surprising in this research
that so few of the FTSE350 have their reports assured, and of
those that do, over half is of questionable value.
A limitation of this research, which is not a criticism, is that
assurance is a process that is richer than the dry statements
in the back of reports would indicate. In fact, they are its
worst enemy. Done well, assurance begins at the inception
of the report and ends with the reader of the report. Reading
an assurance statement, even those that are highlighted
as being current best-practice, it is still hard to see how
the process of assurance has shaped what is reported and
improved the end product. Perhaps if companies publishing
reports could see this, then they would see the value and
invest in an assurance programme for their reporting.
BP’s latest sustainability report, which followed the Gulf of
Mexico oil spill, was probably one of the most important
and hardest to create and publish in the company’s 20-
year history of non-financial reporting. Assurance was a
key pillar to our strategy to help produce a credible report.
Having our assurance provider present at critical stakeholder
engagements, interviewing executives and senior managers,
and having access to primary sources of data, meant that
they could challenge us and provide the balance needed. In
post-publication follow-up we have had numerous comments
from investors on the value added from our assurance
provider’s observations – a clear indication that with the right
approach you can engage people on aspects of assurance.
Of course, as the research points out, we are not one of the
leaders, so obviously there is still work to be done.
Future research will need to start to explore how this type of
assurance examined in this research will fit into an integrated
reporting model. There are examples of two-track assurance
for integrated reports, but is this a workable model for
the future if we see the global emergence of integrated
reporting? And will it be the auditing of carbon data that
will drive convergence? Or will it be an emerging risk such
as water, which has multiple dimensions that will require
assurance from a wider universe of reporters in a unified way.
These questions and the many others I am sure the readers
of this research will have, should provide a rich source of
material for future benchmarks and discussions to come.
Nick Robinson
Head of corporate reporting

16 Stuck on the starting blocks: The state of sustainability assurance in 2010 Copyright 2010 Carbon Smart Ltd
Key Findings Independence

Claims of independence are not always justified. Recommendations

Why is this important? Independent assurers can add value to a report by
providing a greater level of scrutiny and a more robust level
As with any form of high quality assurance, it is important of assurance.
that sustainability assurance should be conducted by an
The provider’s independence should be clearly stated and
objective third party to improve confidence in the reporting
supported by references to: professional codes of conduct,
and assurance statement. We have defined “independent”
disclosure of potential conflicts of interest and safeguards
engagements as those where the statement makes it clear
put in place.
that there is no conflict of interest that may influence the
objectivity and opinion of the assurance provider. If the assurer has provided additional services to the
reporting company during the current or previous year, the
Evidence assurer should clearly state how conflicts of interest have
It was encouraging to note that the majority of assurance been managed and avoided.
statements appear to have been delivered by independent
third parties, 59% of statements expressly declaring a basis
for independence this year, as opposed to only 38% last “Stakeholders will give special
We found 6 instances where there was a claim to
notice to reputable assurers.”
independence, but evidence provided either by the Standard and Poors
assurer, the reporting company, or online searches
suggested otherwise. This included examples where: Best practice examples
• The assurer had assisted in preparing the report, BAE System’s assurance statement provides a detailed
or had provided related additional consulting overview of the independence of the provider’s
services throughout the year; responsibilities in providing assurance to the report, the
• The assurance statement was prepared by a body provider’s independence from BAE Systems itself, and also
funded in part by the reporting company. how conflicts of interest were managed. They reference the
IFAC Code of Ethics and describe how this is supplemented
Within statements demonstrating a lower level of
by internal practice, to assure that “we have maintained
independence, no reference was made as to how conflicts
our independence and objectivity throughout the year,
of interest were avoided within assurance providers; there
including the fact that there were no events or prohibited
was a lack of reference to any accepted professional codes
services provided which could impair that independence and
of conduct.
objectivity in the provision of this engagement”.

Key Findings – Independence

23% 36% 8% 9% 24%

The independence of the assurer is declared and explained in a detailed manner

The assurer’s independence is declared, there is no conflict of interest or potential conflicts of
interest have been managed effectively
No explicit declaration of independence is made by the assurer but they have an affiliation
which implies independence and there is no obvious conflict of interest
The assurer makes no statement of independence and there is no relevant affiliation that
implies independence listed in the statement AND/OR there is an apparent conflict of interest
Non independence is declared OR there is cause for alarm AND there is conflict of interest

Copyright 2011 Carbon Smart Ltd 17

Sub heading
Letter from the
Department for Environment, Food and Rural Affairs

Defra are pleased to be asked to contribute to Carbon Smart’s research is a useful and timely contribution
CarbonSmart’s review on the use of assurance in to the debate. We will consider the results of this research
corporate sustainability reporting. carefully.

The Government is committed to taking action to cut carbon About Defra

emissions, create the conditions for green growth, and The Department for Environment, Food and Rural Affairs
improve resilience to climate change, especially as all these (Defra) is responsible for the publication of guidance for
elements contribute to the development of a sustainable companies on how they should report against environmental
green economy. key performance indicators. Defra published “Environmental
As part of the process of contributing to developing a Key Performance Indicators: Reporting Guidelines for UK
sustainable green economy, companies need to ensure that Business” in 2006 and is currently reviewing and updating
they measure their key environmental impacts, take action these guidelines.
to reduce those impacts and disclose relevant information. Defra has also published “Guidance on how to measure
Good environmental reporting helps convey what businesses and report your greenhouse gas emissions”. This guidance
are doing to make their business more sustainable, and this explains how organisations can measure and report their
information is of interest to a wide range of stakeholders, but GHG emissions as well as set targets to reduce them. The
can be particularly important in ensuring investors are able to guidance is aimed at all sizes of business as well as public
take informed decisions about their investments. and third sector organisations. Defra also publishes annual
As part of Defra’s role in delivering a green economy, greenhouse gas conversion factors to assist companies
we provide guidance to companies on how they should in calculating their emissions. More information on the
report on their environmental impacts; and will continue guidance can be found at
to encourage companies to produce reports that present environment/economy/business-efficiency/reporting/
relevant and accurate information in a transparent way that
is useful to stakeholders.
Third party assurance can provide increased confidence in
the accuracy and completeness of the content of a company’s
sustainability report. This is important for the reporting
company but also for those reading the report. It is therefore
surprising to note that - as Carbon Smart’s research shows
- levels of assurance of sustainability reports are variable
and that only 66 of the FTSE 350 companies see a need for
assurance on these reports. Even more surprising is that the
number of companies that seek assurance of their carbon
reports was substantially lower, with only 39 companies
specifically seeking assurance of their carbon data.
As Carbon Smart’s report makes clear, familiarity of assurance
standards and requirements is not widespread and, as
such, this report plays an important role in highlighting
best practice in sustainability assurance. The report makes
a number of recommendations for the assurance industry,
businesses and readers of reports and we look forward
to seeing the impact these recommendations have on
sustainability reporting in future.
In the context of carbon reporting, the Climate Change
Act 2008 gives the Secretary of State powers to introduce
regulations to require UK companies to report their
greenhouse gas emissions as part of their Directors Report.
The Government will either introduce regulations by 6
April 2012 or explain to Parliament why not. Prior to taking
a decision, the Government will consult on whether to
introduce regulations in this area. As part of that consultation
process we will consider whether companies should be
obliged to seek some kind of assurance or verification on
their emission report; and, if so, whether internal verification
or external third party assurance is the most appropriate. We
are keen to hear the views of companies, investors and other
interested parties on what role, if any, assurance should play
in any potential regulation in this area.

18 Stuck on the starting blocks: The state of sustainability assurance in 2010 Copyright 2010 Carbon Smart Ltd
Key Findings Qualifications

The majority of assurance statements make only Recommendations

vague references to relevant qualifications, if that. Assurers should provide the details of the qualifications of
those staff conducting the assurance statement, rather than
Why is this important? relying on the perceived competence of the organisation
Assurance providers must demonstrate specific technical itself.
knowledge and experience in auditing assurance processes, as If an assurance provider refers to the general expertise
well as on the subject matter of assurance. The non-regulated of the team without citing any qualifications, but states
status of sustainability reporting within the UK translates that qualifications are available via a link to their website,
into significant variations in expertise and knowledge among it should be possible on that website to determine the
providers. relevant qualifications of team members who worked on
Evidence the engagement within the current reporting year.
Professional bodies should provide clear guidelines on the
The level of expertise and experience of the assurance
experience and qualifications assurance providers should
provider disclosed is closely tied to the average score of the
have. Relevant qualifications such as IRCA CSAP should
statement. The average score for those statements with
become more common among assurance providers.
no reference made to the competence of the assurer was
30%. In comparison, those statements disclosing relevant Best practice examples
sustainability assurance qualifications of the assurer scored
69% on average. Marks and Spencer’s assurance statement specifies that the
work was “led by a Lead Sustainability Assurance Practitioner
We found examples where the content of the statement as defined by AccountAbility and International Register for
illustrated that the provider lacked the necessary skills for Certified Auditors”.
the engagement. For example, we found statements which
referred to providing a ‘limited’ level of assurance, but Premier Farnell’s assurance statement notes the team
phrased conclusions in a positive manner, demonstrating a ‘comprised auditors registered with IEMA (Environmental
lack of understanding about the basic meaning of the level Auditor) and IRCA (Certified Sustainability Assurance
assured to, or claimed to assure performance data while Practitioners)’.
providing no conclusions as to the reliability of the specified
Compared to last year, overall the disclosure of
qualifications improved slightly; and we found 6% fewer
statements in which no reference was made to the assurer’s

Key Findings – Qualifications

2% 34% 56% 8%

The assurer makes a reference to IRCA CSAP for the assurance team or lead assurer
The assurer does not make reference to IRCA CSAP but makes reference to other appropriate professional qualifications
Expertise or experience is mentioned but not clearly defined, with no professional qualifications listed
No reference by the assurer to competence / qualifications or clear evidence of lack competence

Copyright 2011 Carbon Smart Ltd 19

Letter from the Co-operative Asset Management

Environmental, social and governance (ESG) analysis About the Co-operative Asset Management
is increasingly accepted as an effective aspect of The authority and legitimacy of Responsible Investment
mainstream investment. (RI) as an essential activity for The Co-operative Asset
As responsible investors and end users of sustainability Management (TCAM) comes from the highest level: ‘social
reports we welcome the additional weight carried by the responsibility’ is one of the five employee-chosen principles
validation statements provided by the assured companies. that explicitly guide the way The Co-operative Financial
There is a considerable reputational risk in disclosing Services (of which TCAM is a part) does business. In 2005
misleading data and sustainability assurance keeps in we sought a mandate from all of our customers to engage
check the value and authenticity of the data published by on ESG issues that concern them. The resulting Ethical
companies. As long term investors we are keen on companies Engagement Policy (based on the feedback from some
integrating sustainability metrics into executive incentives 30,000 who responded) provides the framework for our
and welcome the growing number of companies who choose engagement on ESG issues. However, there are also strong
to instill such measures at the highest levels. Assurance reasons besides purely ethical ones to pursue RI/ESG. This
has an underpinning role to play as we would not want is because in our experience ESG issues are material to
companies to be basing bonuses on performance measures companies’ financial performance and this is something
that are not covered by the appropriate verification. which is recognised in the way we do research, integrate that
research into financial analysis and conduct engagement.
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 opportunities. Just as disclosure is
often taken as a proxy to the level of awareness on the issue;
assurance provides investors with the necessary confidence
in respect of the quality of data. The push for improved
reporting and disclosure goes hand in hand with assurance.
Consistent with our call for mandatory reporting we use
the resolution to adopt the Annual Report and Accounts at
company Annual General Meetings to reflect concerns over
greenhouse gas emissions disclosure. We believe this is in
line with the duty for directors of listed companies to report
on ‘environmental matters’ as specified in section 317 of the
Companies Act 2006. In 2010, we abstained or voted against
the Annual Report and Accounts at 47 companies and wrote
to the Company Secretary explaining why, opening the door
for engagement on the matter.
From the trends in this year’s Carbon Smart report we see
the momentum for sustainability assurance has temporarily
stalled. Just as investors would not rely on an unaudited
financial statement, neither can they be expected to rely on
sustainability data without independent assurance. Whilst we
do not advocate a box ticking approach assurance can also
help the consistency of information disclosure.
However, as more investors sign up to the Stewardship
Code and the Principles for Responsible Investment we fully
expect the role of assurance to be brought to the table in
shareholder dialogues. Investors have the power to change
the trends visible in this report, leading to an increase in the
number of companies providing this high level of credibility
and an indication of commitment to the long term outlook of
the company for their investors.
Abigail Herron
Corporate Governance Manager

20 Stuck on the starting blocks: The state of sustainability assurance in 2010

Key Findings Adherence to assurance standards

Many statements which claim to be based on Best practice

a standard such as ISAE3000 fail to meet the British American Tobacco’s statement provides a good
minimum level of disclosure necessary. example of a statement incorporating all best practice
disclosures relevant to the ISAE3000 and AA1000AS
Why is this important? (2008) reporting standards used to conduct the assurance
Developed standards such as ISAE3000 and AA1000AS engagement.
provide comparable methodologies for assurance upon Barratt Developments was one example of a report which
which stakeholders can rely. Such standards govern the level increased its score significantly compared to last year as a
of detail required in an investigation, the level of surety which result of conducting the assurance engagement in accordance
may be applied to any findings made, and help to ensure that with a recognised standard.
a company’s material issues are reported in a comprehensive
manner. Claiming adherence to a standard, yet failing to
meet it, can demonstrate a lack of understanding by the
assurance provider. “Ideally all environmental and
Evidence social quantitative data would be
7 statements claim to be in accordance with two relevant assured/verified by a third party
assurance standards. These statements scored an average in accordance with international
of 73%.
There was a 13% increase in statements following an
standards. Our clients do not
assurance standard compared to last year. Those statements exclude companies if their CSR
which followed a standard scored an average of 58%.
Statements using a methodology based on a known
Reports have not been externally
standard scored an average of 49%. verified. However, because we grant
Among the 3 statements which failed to reference an more points to companies that
assurance standard, the maximum score achieved was 35%.
Among the 32 statements claiming to adhere to a single
have their CSR Report externally
standard, 19% of these did not disclose the minimum verified, the opportunity for these
information required under the standard.
companies to be industry leader is
higher (best-in-class approach)”.
If a statement claims to be ‘in accordance’ with an
assurance standard, it should meet all of the disclosure Sustainalytics
requirements of the standard.
The assurer should point out to the reader where a
standard such as AA1000AS is used to assess compliance
with reporting processes, but does not extend to a
verification of reported data (so that the engagement is of
Type 1 rather than Type 2).
Standards bodies should more actively oversee compliance
with their standard.

Key Findings – Adherence to assurance standards

11% 45% 20% 21% 3%

Engagement methodology carried out in accordance with both the AA1000AS (2008) and ISAE3000 standards
Engagement methodology in accordance with either the AA1000AS (2008) or the ISAE 3000 standard
The assurer uses their own methodology which is based on either the AA1000AS (2008) or the ISAE3000
standard and may additionally refer to another accepted international standard such as ISO 14001, ISO19011 etc
The assurer uses their own methodology without reference to either the AA1000AS or ISAE3000 standards or
other international standards
No mention of a methodology in the assurance engagement

Copyright 2011 Carbon Smart Ltd 21

Key Findings Level of assurance and depth of investigation

Stakeholders will place greater weight on It is important to understand how sites were selected for
statements assured to a reasonable or high level, investigation, to ensure that the assurance engagement
therefore it is critical to ensure this level is justified. has reflected the business units with significant potential
impacts. Only 6 statements provided details of the
Why is this important? materiality process involved in choosing sites to review.

The level of assurance must be supported by the appropriate Compared to last year, there was a slight reduction in the
work effort. It refers to the assurance provider’s confidence number of assurance engagements conducted without
in the data supporting the claims in the sustainability report. site visits, however the spread of engagements conducting
The provider needs to gather sufficient evidence to form site visits and stating relevant levels of assurance remains
their conclusion. comparable.

Standards such as ISAE3000 and AA1000AS define levels of

assurance. A limited assurance engagement provides a lower
level of assurance and is phrased negatively. For example,
a limited assurance statement would say that “nothing has
come to our attention to indicate that there are any material
misstatements in the report.” A reasonable level of assurance
is not equivalent to absolute assurance. A reasonable level
of assurance means that the depth of investigation has been
sufficient to lower the risk of misstatement to a reasonable
level. In this case the statement is phrased positively (see
Terminology Section in Appendix 1).
AA1000AS clearly states that in order to achieve a “high”
level of assurance, the provider needs to conduct sufficient
sampling at lower levels within the organisation. Where
company operations are carried out from a number of
different sites, this will require site visits.

Companies should ensure they

are aware whether the type of
investigation their assurer is
conducting is consistent with the
level of assurance sought.
We analysed whether the investigation was conducted from
headquarters only, or whether site visits were included as a
proxy to assess the depth of investigation and the extent of
evidence gathered. This does not suggest that conducting site
visits will automatically lead to a higher level of assurance,
but that site visits are a key element of gathering evidence at
all levels of the organisation to support a reasonable or high
level of assurance

There were 5 statements claiming that all issues under
scope were assured to a high or reasonable level, 4 of
which came from the FTSE 100. Of these 5 statements,
only 3 conducted site visits, and 2 appeared to have been
conducted from HQ only.
21 statements did not include reference to a level of
assurance. Of these, some were phrased in positive terms,
with the potential for the reader to erroneously conclude
that a ‘fair’ ‘complete’ and ‘accurate’ check was in fact
equivalent to a reasonable or high level of data verification
against a technical standard.

22 Stuck on the starting blocks: The state of sustainability assurance in 2010

Key Findings Level of assurance and depth of investigation

Recommendations Best practice examples

It is important to state the level of assurance and the depth GlaxoSmithKline’s assurance statement provides the full
of investigation conducted, to ensure claims of ‘reasonable’ details for the eighteen sites visited and analysis of activities
or ‘high’ assurance are justified to the reader. conducted at each site. It also goes further to explain the
Demonstrating site selection based on a suitable basis for these site selections on “those submitting high
materiality basis can strengthen the claim to a ‘reasonable’ proportions of key data and all parts of the GSK business”.
level of assurance and allow for a fair and balanced BAE System’s report provides an example of a statement
investigation. that improved significantly on the basis of an improved
Although the terms high/reasonable and moderate/limited discussion of which site visits were undertaken, and why
can be used interchangeably, the conflicting terminology they were chosen.
may lead to confusion among readers. Therefore we
recommend that the standards bodies should agree on a
common terminology.
Companies should ensure they are aware whether the type
of investigation their assurer is conducting is consistent
with the level of assurance sought.
d ou
rie ly
ed ar s on ed
rm c
s er lc ud
o rfo wa art in
to h s pe n
o qu on
ce a g ati ead g ati
ren on w ti h
es ate es
fe v v
re gati n
e i po
r n
e i sit
No vesti Th cor Th e vi
in at sit

15% 12%
High/Reasonable for all issues
under the scope
5 %

Combination of High/Reasonable
Level of assurance

and Moderate/Limited for all

issues under the scope 3%

Moderate/Limited for all issues

under the scope 0% 2% 6%

No reference to level of
assurance 0% 3% 5%
Depth of investigation

Level of assurance strongly supported by the depth of investigation

Level of assurance correlates to the depth of investigation
Level of assurance not supported by depth of investigation

Copyright 2011 Carbon Smart Ltd 23

Key Findings Assurance of carbon emissions

Carbon assurance is gaining popularity; however Recommendations

the majority of companies are a long way from Where assurance engagements cover carbon emissions
providing transparent assurance. they should state so clearly; it is not sufficient to refer to
other environmental metrics and ask readers to assume
Why is this important? whether or not carbon is also covered.
Carbon is considered one of the core metrics of If assurance engagements follow an AA1000AS ‘Type
environmental reporting, and over the past few years means I’ process, and review the processes and materiality of
of measuring and verifying carbon emissions have both reporting, it is misleading for assurers to state that carbon
advanced and proliferated. Stakeholders report that they data is covered by the scope of assurance. It is imperative
would prefer a standardisation of approaches in carbon that assurance providers clearly state that such a scope
reporting and assurance, as the first step in achieving does not extend to performance data, but just covers
coherent and comparable sustainability assurance. More reporting processes.
reputable assurance, with a clear methodology and basis for
Given the proliferation of standards, certification schemes
the level of assurance drawn will be viewed more favourably
and reporting protocols in this area, we would welcome
by investors. This is one area in which performance data is
development of a clear and standardised reporting
often verified rather than reporting processes; reflecting
protocol distinguishing between internally achieved
the need for accuracy in costing carbon for tax and pricing
standards and external verification, and guiding companies
to determine when each would be recommended or
Evidence required. We look forward to reviewing the approach taken
by the forthcoming ISAE3410 standard for Assurance of
Of the 66 assurance statements for the FTSE 350, 39 Greenhouse Gases.
specify that carbon is under the scope of assurance.
5 statements referenced the carbon specific assurance Best practice examples
standard ISO 14064-3, an increase of 3 on last year. Royal Dutch Shell’s assurance statement lists in clear steps
12 statements referenced a carbon reporting criteria the full details of the greenhouse gas emissions scopes under
such as the WRI GHG Protocol or the Defra Guidelines; an assurance, and from which business units. The approach is
increase of 5 on last year. then discussed as being in accordance “with ISO 14064-3...
to seek to provide limited assurance that the Shell GHG data
7 statements explicitly exclude carbon from the assurance
and information as presented... has been prepared taking
into consideration ISO 14064-1 and the American Petroleum
Of the 4 statements claiming a high or reasonable level of Institute (API) Compendium of Greenhouse gas Emissions”.
assurance for carbon emissions:
Another example is Anglo American’s report, which provides
• 1 failed to mention the carbon emissions scopes* a clear breakdown of the carbon KPIs assured and to
covered by the engagement, or provide details of any what standard: “Total CO2 emissions from processes and
site level investigation; fossil fuels... on page 45 (reasonable assurance); Total CO2
• 3 statements covered scopes 1 and 2 within the emissions from electricity purchased in million tonnes on
engagement. page 45 (reasonable assurance)”
14 statements assured scopes 1 to 3 to a limited level. In
6 of these, the engagement stretched beyond assurance
of business travel and covered issues such as emissions
from water consumption, or assurance of carbon neutrality

* The WRI Protocol for Greenhouse Gas reporting identifies

three main sources, or “scopes” of carbon emissions.
Scope 1 covers emissions arising directly from business
operations; Scope 2 covers emissions associated with
electricity consumption; and Scope 3 refers to indirect
emissions from other sources, including business travel,
water, waste and paper consumption.

24 Stuck on the starting blocks: The state of sustainability assurance in 2010

Key Findings Assurance of carbon emissions

Key Findings – Clarity of carbon assurance statement

17% 42% 13% 20% 8%

Assurer has specified which scopes have been verified

Assurer has mentioned carbon in the assurance statement
The scope mentions the assurance of the whole report or environmental data, which includes CO2 emissions reporting
Cases where the scope of the engagement is vague – reference to verification of selected data but not possible to say
whether carbon is under the scope or not
Carbon emissions data has CLEARLY been excluded from the scope of assurance

Key Findings – Scope of carbon emissions under assurance

13% 27% 46% 4% 10%

Scopes 1-3 covered in the assurance engagement with detailed, clear reporting
Scopes 1-3 have been covered in the assurance engagement
2 out of the 3 scopes covered in the assurance engagement
Only one scope covered in the assurance engagement
The scope of carbon emissions data has not been specified

Key Findings – Carbon related methodology – Depth of investigation

10% 17% 42% 31%

Statement references underlying systems and data checks, and makes reference to site level accuracy checks including
references to the checking of data at source
Statement references underlying systems and data checks at corporate and site level
Statement references either underlying systems checks or data accuracy checks in detail
Statement makes a vague reference to either underlying systems or data checks
The statement makes no reference to how the verification exercise was carried out

Key Findings – Level of assurance of carbon data

8% 4% 63% 25%

All carbon emissions assured to a reasonable or a high level

Selected carbon emissions assured to a reasonable or a high level, and others to a limited or moderate level
All carbon emissions under the assurance scope have been assured to a limited or a moderate level
No reference to assurance level

Copyright 2011 Carbon Smart Ltd 25

Stakeholder Perspectives

We gathered opinions from investors about the 10 Principles for Sustainable Development as standards
value they attribute to assurance. against which to assess the materiality of their report’s
contents, and discussed these in detail. Using common
Who reads assurance statements? principles in this manner helps to standardise the criteria
used for assessing KPIs within an industry, which was cited
Many of our interviewees feel that the audience for
as desirable by stakeholders seeking comparable metrics
sustainability assurance is growing in significance, and
between companies.
the potential readership extends far beyond the status
quo. Our stakeholders reported that in their experience, Stakeholders also wished to see more in-depth analysis
SRI consultancies and investors with environmental or SRI of ‘game-changing’ issues. We found 12 companies which
portfolios have traditionally read assurance as part of a provided a high level of detailed discussion on areas of
regular research process. Conversely, up until now those who strategic importance presented through observations
placed lower levels of emphasis on sustainability in general, and recommendations; for example, Centrica’s statement
such as credit auditors, may only review statements when provides discussion on their recent investments in nuclear
assessing organisations in particular high risk industries, such energy, a potentially controversial stakeholder area. In this
as utilities. context, assurance statements can provide valuable scrutiny
There is a belief that an increase in the materiality of on company strategy and performance, helping to draw out
sustainability assurance would drive an increase in risks and improve dialogue between companies and their
readership. Early identification and management of high risk stakeholders.
issues in sustainability, which can range from reputational
What level of disclosure would you like to see?
risks or legal compliance to business strategy, is essential
to good business operation, and is therefore a key issue for Stakeholders from all backgrounds agreed that a qualified
any stakeholder. While assurance statements often address statement can add to the credibility of the assurance process
themselves to company management, it is clear that their by improving the transparency of the reported data. At
conclusions may be considered by a much wider audience. present 25% of companies appeared to have a qualified
statement, however only 9% discussed this in sufficient detail
How clear and relevant are assurance statements? to clarify why statements were qualified.
As readers of assurance statements, our respondents find One respondent raised the issue that while such statements
that there is room for improvement in the clarity and scope can improve the quality of assurance, they may also raise
of sustainability assurance as it is presently performed. concerns about the reporting company’s ability to manage
In our research, we found 29 examples of statements material environmental issues. As the field of sustainability
which contained jargon or unclear phrasing which would reporting develops, it is natural that companies with multi-
be potentially confusing to stakeholders. Additionally, 10 site operations may find it difficult to develop an internal
of these statements were also unclear in addressing the reporting process that is robust enough to meet the
scope of the assurance engagement. Investors from all requirements of an assurance engagement. It is therefore
backgrounds agreed that assurance statements which were encouraging that assurers can help to improve transparency
clear in outlining what had been covered by the engagement within these systems and highlight potential management
provided greater value. issues before they become embedded.
This desire for clarity also focused on the need for
Does assurance add value to CSR reporting?
intelligent assurance coverage to be provided as a means of
complementing the company’s report. Respondents cited The common view among respondents is that at present
the ability for assurance to review materiality of reporting assurance does not act as a major driver in investment
as a key aspect to be developed further. One of the best decisions, and provides only an insignificant role in achieving
practice examples highlighted by our research was African a rating position. While it is fair to say that assurance is not,
Barrick Gold, who used the five ICMM Subject Matters and and is unlikely ever to be the “clincher” in an investment

How many statements are qualified?

9% 7% 9% 75%

Statement clearly states a KPI for which it is qualified, with clear and detailed guidance as to what element is qualified.
Alternatively, it is explicitly stated that there is no need for qualifications on the assurance scope
Assurance statement clearly states an element for which it is qualified, but does not provide specific detail
Statement conclusions are phrased in a way which suggests the statement is qualified, but no further details are provided
The statement makes no reference to qualification

26 Stuck on the starting blocks: The state of sustainability assurance in 2010

Stakeholder Perspectives

decision, the presence of a good assurance statement can effectively deployed, can influence the development
help to strengthen the underlying opinion of a company’s of reporting processes, as well as the end-result.
performance. The middle ground is inhabited by those who believe
Assurance is increasingly being taken into account by that assurance can provide additional credibility in the
benchmarking organisations, with independent third party same manner as financial assurance does for company
verification often providing a greater positive weighting than reporting. While it does not discredit the work done by the
alternative forms of assurance. Certain respondents felt that reporting company, instead assurance adds an additional
with widespread improvements in statements, and increased level of security and surety when considering the effective
comparability between assurance statements, good quality management of and reporting on sustainability issues.
assurance on material and quantifiable issues will add Investor responses felt that third party verification is
positive value to a company’s rating. valuable for exactly this reason; to distinguish between
those companies providing reliable data and meeting their
Do companies lacking in assurance provide reliable additional requirements, and those that aren’t.
and verifiable sustainability data?
Opinions on the ability of companies to deliver reliable
sustainability and carbon data without external assurance “Assurance is a journey continuum;
were extremely divided.
likely to improve over time.”
At one end of the scale fell the opinion that there are
sufficient examples of companies at present failing to provide Merrill Lynch
a true and fair view of their impacts to warn for caution in
the market, and therefore encourage external assurance of What is the future for sustainability and carbon
sustainability data. assurance?
This is supported by the opinions of some companies The outlook for the future of sustainability assurance is a
undertaking assurance; for example, BG Group provided a positive one. Opinions suggest that as much as sustainability
corporate response to their assurance statement that reviewed and carbon reporting are still emerging disciplines, assurance
in detail the recommendations made by their assurer, and set of these reported elements is also undergoing significant
sustainability targets in response to address the issue raised of evolution in the market. With regulation and government
improving data quality, amongst other matters. guidelines moving towards integrated reporting in the
At the other end of the spectrum some respondents held UK, there is a belief that sustainability assurance must
that public scrutiny and associated reputational risks increasingly bring focus is to areas of material significance for
associated with publishing misleading data would provide the reporting company.
sufficient incentive to ensure a high quality of reported The form that future assurance might take is not yet clear.
data without having it assured. Given that even financial Narrative reporting guidelines are likely to harmonise
statements, associated with greater levels of scrutiny, would corporate reporting structure, but whether this will draw
never be published without undergoing external verification, assurance approaches into a likewise harmonised form is
this statement was surprising. undecided. The general views are that the assurance industry
The point of view, however, appears to be indirectly is still too young, and companies’ needs too diverse, to be
supported by a number of reporting companies. Of the FTSE encompassed by a single existing standard.
350 companies contacted as part of this research, many Some respondents saw an interesting dynamic between
felt they had good checks in place however few considered European and North American regulations on sustainability
assurance to be a necessary part of a CSR programme. and company reporting. With international corporations
Where we did encounter companies questioning the value of balancing the needs of local and international reporting
sustainability assurance, we found evidence of sustainability requirements, will assurance approaches be reconciled or
fatigue. This was common for companies which are required split? Again, it is too early to tell.
to comply with additional, audited sustainability schemes;
for example a utilities company discussed at length the While there may be no clear vision for what sustainability
other audit measures they are required to undertake as assurance may look like in 10 years time, the key hopes of
part of the EU ETS and to meet Ofgem requirements. Other stakeholders are clear. Assurance statements should be
companies quoted external audit requirements of other clearer in setting their limits, and discuss the relevance
government regulators as being stringent enough for their of these boundaries. Where there is an opportunity
purposes. Others considered internal certification processes for assurance statements to provide observations or
such as achieving a Carbon Trust Standard as sufficient, in recommendations of strategic value to a company, this can
their view, to provide third party checks of their sustainability be of great value to its stakeholders, and assurers should
performance. take this opportunity where practicable. In developing
these approaches, assurance has the opportunity to provide
It is interesting to note that these schemes and certifications greater value to a company and its stakeholders.
all review the outputs of reporting, whereas assurance, when

Copyright 2011 Carbon Smart Ltd 27

Alternatives to assurance

Our league table this year specifically excluded those All of the statements that we excluded clearly stated that
companies which used an alternative form of assurance. they were not assurance statements and not intended
These forms of statement included: to be relied upon as such. Their titles indicated that they
Stakeholder panel review. were ‘Opinion Statements’ or similar. We consider this
a best practice form of distinguishing such statements
Opinion statements from a non-independent organisation: from independent, standards based external assurance
an advisor or consultant who had worked with the statements, as it minimises confusion for the reader and
reporting company during the reporting year provided allows an immediate assessment of reliability.
an opinion statement as to the methodology used and
reliability of the dataset.
Opinion statements from a non-independent individual: a
person had provided an opinion statement on the general
performance of the company, without specifying that they
had undertaken any verification activities on the reported

Table 5: Companies with alternative forms

of assurance

Company Industry
Petropavlovsk Basic Materials
Berkeley Group Holdings Consumer Goods
Unilever Consumer Goods
Home Retail Group Consumer Services
Inchcape Consumer Services
Kingfisher Consumer Services
Ladbrokes Consumer Services
Marks and Spencer’s Consumer Services
Partygaming Consumer Services
Reed Elsevier Consumer Services
Sainsbury (J) Consumer Services
TUI Travel Consumer Services
Derwent London Financials
Grainger Financials
Hammerson Financials
Investec Financials
Land Securities Group Financials
Legal and General Group Financials
Rathbone Brothers Financials
RSA Insurance Group Financials
Segro Financials
Shaftesbury Financials
Standard Life Financials
Balfour Beatty Industrials
Carillion Industrials
Royal Dutch Shell Oil and Gas
Pace Technology
United Utilities Group Utilities

28 Stuck on the starting blocks: The state of sustainability assurance in 2010

Alternatives to assurance

Of these alternative assurance forms, we specifically

excluded from our scoring those statements which made
clear they were not intended as assurance statements:

Table 6: Alternative forms of assurance which were

excluded from the benchmark

Statements which specifically refer to themselves as non-independent and non-assurance statements

Balfour Beatty Stakeholder panel
Berkeley Group Holdings Consultant opinion statement
Derwent London Consultant opinion statement
Grainger Consultant opinion statement
Hammerson Consultant opinion statement
Inchcape Internal audit statement
Investec Internal audit statement
Legal & General Group Internal audit statement
Partygaming Opinion statements
Rathbone Brothers Plc Consultant opinion statement
Royal Dutch Shell Stakeholder Panel
Sainsburys (J) Opinion statement from an individual
Segro Consultant opinion statement
Shaftesbury Plc External audit statement
TUI travel Internal audit statement

The alternative forms of sustainability assurance undertaken reporting. It is important to note that neither these schemes,
can all be considered to have value over and above that of nor the types of engagement discussed above, are equivalent
the company’s reported figures alone. Certain best practice to external assurance, and cannot by their very nature
elements which can be drawn from such statements include: provide the same level of scrutiny that an independent
Stakeholder panels which actively engage with the assurance engagement would.
company and provide frank commentary as to the There is clearly more work to be done to convince many
weaknesses in materiality of the reported scope companies that undertaking sustainability assurance does
An opinion statement which provides observations provide value for money. Some companies are already
and highly specific recommendations, for example by convinced of the benefits of assurance. When discussing
highlighting areas where performance has declined in the the sustainability process of a privately owned company in
past year, and suggesting improvements for the year ahead the construction industry, one CSR manager said, “When we
started producing a dedicated CR Report, the first thing we
An opinion statement which discusses the limitations or did was engage with a third party assurance provider. This is
problems with reliability experienced in the dataset. simply because as a team we had to identify ways in which
All of these engagements can support a reporting company we could add value to the business. ... CR teams can no
in developing a more robust reporting strategy, when they longer be just a reporting overhead but business beneficial;
provide frank criticisms and help the company develop in high pressure commercial sectors such as construction any
relevant targets on material areas of impact. The massive advantage has to be utilised and one of these was external
range of variety in form, content, and detail of such assurance.”
statements makes them difficult to compare and their The message that external assurance can help companies
external value difficult to measure. This is a continuing develop robust and valuable sustainability reporting is one
problem highlighted by investors interviewed. that did not spread in 2010. It is unclear whether companies
Following the discussion from the Stakeholder Perspectives will continue to choose these other verification processes as
section, when contacting companies in the FTSE 350 who an alternative to assurance, or whether the pressures from
did not have assurance many cited participation in schemes new reporting guidelines will cause companies to reconsider
such as the Business in the Community scheme or Carbon external assurance.
Disclosure Project as a suitable alternative, in their mind,
to obtaining independent verification of their sustainability

Copyright 2011 Carbon Smart Ltd 29

Take home messages Report users and investors

We have seen that sustainability and carbon assurance can add value for stakeholders, when it is well
structured and covers material issues. We recommend that report users may wish to consider the following
issues when approaching an assurance statement:

Questions to ask Watch out for...

Are material issues under the scope of the assurance ... statements which make broad claims that issues within the
engagement? Both the assurance provider and reporting report have been verified, but do not clearly list which topics
company should ensure that all of the company’s most material are covered under scope, or how a selected list of KPIs was
issues are covered in the report and under the assurance chosen.
engagement. It is important that claims of material reporting
are supported by a statement from the assurer which discusses
how these claims have been identified and verified.

Does the statement describe the competence and ... potential conflicts of interest in the engagement, such
independence of the provider? It is up to the reader to decide as involvement in preparing the sustainability report or the
whether the level of competence and independence meets provision of other consulting or auditing services. Can you
his or her expectations. At a minimum, we expect statements determine from the available information if all potential
should be transparent enough to allow the reader to make such conflicts of interest have been managed, and safeguards put in
a judgement. place?

Do statements provide enough detail in the observations and ... broad brush observations which ask for a company to
recommendations to the reporting company? It is up to the improve (for example) ‘stakeholder engagement’ activities
reader to decide what is of interest and use for them in reading without explaining where they found weaknesses or
an assurance statement, however we believe it is critical that opportunities in the reporting structure.
assurance providers challenge the company they are assuring to
ensure they have reviewed all material information and can be
confident in their conclusions. This is reflected in the scope of
observations and recommendations made in the statement.

Are statements labelled correctly? The statement and its ... statements that are titled “independent assurance” but are
wording should reflect the work conducted. For example, an signed by a non-independent third party or give no description
internal audit should be labelled “Internal Audit Statement”; a of the provider’s independence.
commentary from a stakeholder panel or an internal consultant
should be labelled “Opinion Statement” and so on. ... statements that claim to follow a standard without meeting
the relevant disclosure requirements

On carbon:

Questions to ask Watch out for...

Does the statement specifically mention carbon? It should be ... statements which do not specifically refer to carbon but refer
possible to tell not just whether carbon or greenhouse gases are to all ‘environmental KPIs’.
covered by the assurance engagement, but also what scopes of
emissions (1, 2 and/or 3) are verified. ... statements which cover the procedures and processes of
reporting, rather than the performance data. It is important to
understand the distinction in these engagements when drawing
conclusions from the report.

Has carbon been calculated in accordance with a recognised ... statements that simply state adherence to best practice,
methodology such as Defra/DECC’s GHG Reporting Guidelines without giving details of which standard was followed.
or the WRI Greenhouse Gas Protocol.

Has the right standard been used to verify carbon emissions ... statements that claim to verify carbon but do not say which
such as ISO 14064-3? carbon related standard or reporting criteria have been used.

What level of assurance have the carbon emissions been assured ... statements which are not clear as to which KPIs have been
to? Where an engagement states that all of the KPIs under assured to what level.
assurance have met the same standard, this is clear, however
where some are assured to a moderate/limited standard, and
other to a high/reasonable standard, they should be identified.

30 Stuck on the starting blocks: The state of sustainability assurance in 2010

Take home messages Reporting companies

As the bodies commissioning assurance engagements, reporting companies share a responsibility with the
assurer in the outcomes of engagement. Companies may wish to take the following into account when
considering how to add value to their assurance engagement:

Possible action Comments

Select the right boundaries and scope for the assurance The most critical issue when determining a sustainability
engagement. assurance engagement is ensuring that your most material
impacts are under the scope of the engagement. This exercise
may involve reviewing industry reporting guidelines, running
stakeholder engagement sessions, an internal review process
or consulting external organisations for assistance. The result
should be a clear determination of the issues, data, and
geographical boundaries to set for your engagement.

Select the form(s) of assurance that you think will offer you Our stakeholder perspectives section identifies that
the most value. By choosing a relevant standard that will stakeholders will be interested in gaining information on
improve your own reporting processes and provide a useful end material issues, in whatever form it is presented. Your choice
result, you will be able to communicate more effectively with of standard should be influenced by whatever will offer you
stakeholders. the most value as a company in developing your reporting

Identify whether the assurer has provided other services to Both you and the assurer should be able to guarantee the
the organisation that may give rise to a conflict of interest. assurance exercise is independent.

Avoid buying “cheap reasonable/high assurance”. The level of You should work with an assurer to determine together what
assurance claimed needs to be supported by the depth of the level of scrutiny is suitable for the assurance engagement.

Agree with the assurer on a robust sampling plan to achieve Companies should facilitate the necessary site visits for the level
the desired level of assurance. of assurance they have commissioned. Site visits can add value
by identifying areas for improvement.

Make sure the final statement is transparent to the reader. It is the assurer’s job to ensure the statement contains all
relevant disclosures necessary to meet the standard, however
the reporting company should take responsibility for checking
that the statement is transparent as to the work conducted and
conclusions reached, free from jargon, and understandable to
an interested stakeholder.

Include a corporate response to the assurance statement. While not an essential part of the engagement, the inclusion of
a corporate response can afford the opportunity to discuss in
greater detail some of the observations or recommendations
made from the assurance engagement. This can improve
discussion of material issues and demonstrate active
management of higher risk issues.

Copyright 2011 Carbon Smart Ltd 31


This year’s report has found that sustainability and carbon value that same engagement. Sustainability and carbon
assurance stalled in 2010. Compared to last year, we found assurance is not straightforward, and the distillation of this
a small reduction in the number of companies gaining complex process into a single statement, sometimes of less
sustainability assurance. We believe that the value of than a page in length, deliberately limits the description
assurance is not yet universally recognised, and poor practice of the engagement. This limitation is necessary, however
in some existing statements impacts confidence levels in reporting companies and assurance providers should be
sustainability assurance. These factors may be acting as wary of limiting the contents of the statement to a point
significant barriers to wider levels of uptake. Such issues need where external stakeholders cannot judge the quality of
to be rapidly addressed to aid companies in meeting new the engagement. Minimum disclosures should be made
regulatory standards, and ensure the UK economy stays on clearly and transparently to give readers confidence that
track to meeting its low carbon goals. the engagement has met a suitable level of assurance. This
balance between the full engagement and final statement
Best practice in assurance has yet to be struck by many assurance statements, and
Our analysis of the FTSE 350 sustainability and carbon the potential value of sustainability assurance is still to be
assurance statements has indicated that there are clear reached.
leaders and laggards in the field. Within those making the
mark this year, the statistics are encouraging. The number of
Future of sustainability assurance
companies obtaining a best practice score has increased from As discussed in our Stakeholder Perspectives section, the
3 to 5, and the average score of all assurance statements has future of sustainability assurance is unclear. Stakeholders
risen by 13%. would like to see better discussion of material issues,
The lessons learned, particularly from those companies and improved comparability both between companies’
which rose in the league tables, have demonstrated that sustainability reports and their assurance statements. So far,
small but significant improvements in the assurance no one standard has taken the lead in providing a unified
statement can enhance the readership experience and thus approach to sustainability assurance, and companies have
communication with stakeholders. adopted a myriad of assurance methods as a means of
exploring their reporting capabilities. This may be reduced
Value for money if regulation acts to standardise sustainability reporting,
however whether assurance forms will simplify to follow
The Key Findings sections of the report illustrate that in
report structure remains to be determined.
many instances assurance statements fail to provide a
clear, relevant, or independent review of the company’s We have seen that there are many perceived alternatives
report. That can be misleading both in terms of conclusions to assurance. While these may not provide the same
reached and in the reliability of those conclusions. We level of investigation and disclosure as an assurance
have provided evidence throughout of these instances, and engagement, many companies adopt these alternatives
recommendations as to how each pitfall may be avoided as an easier and more accessible means of validating and
both by the reporting company and assurer. We hope that communicating their performance. While sustainability and
these recommendations will enable both parties to take carbon assurance continues to provide statements of mixed
action to improve their assurance statements for readers. quality to reporting companies and their stakeholders, it is
questionable as to whether it will be adopted beyond the
We note also that the assurance statement is only the end
minority who practice it at present. If sustainability assurance
result of what is usually a long, complex and often costly
wants to get off the starting blocks, it needs to meet the
engagement process. Companies gain substantial value
needs of its stakeholders.
from the process of assurance, yet this end result is the
only element on which external stakeholders are able to

Best practice in sustainability assurance in the FTSE 350

5 19 34 8 284

Out in front
Front of the pack
The pack
Back of the pack
Trailing the pack

32 Stuck on the starting blocks: The state of sustainability assurance in 2010

Appendix 1 Methodology and process

1 Methodology overview
Our research followed the steps below:

1. We developed a set of fifteen criteria that set out what best practice assurance for sustainability and
carbon reporting might look like
2. We identified all companies in the FTSE 350 with an assurance statement
3. We developed a weighted scoring system to quantify how well each assurance statement met our criteria
4. We compared the assurance statements against the developed criteria and rated each company’s effort. In
addition, we produced an overall rating to encapsulate our view of the quality of the entire assurance effort
5. Finally, we have used our findings to make recommendations for improvement for reporters, investors
and assurance providers

What have we included in the scope – what is Following last year’s research process, our independent
assurance? advisory panel once again reviewed our criteria to take into
account lessons from our previous benchmark exercise.
Assurance can take many shapes and forms. Among the FTSE
350 we have found a variety of statements that define an Our criterion on scope was subdivided into two parts (1a and
assurance approach: “Independent assurance statement,” 1b), to better account for both the clarity of scope itself, and
“Opinion statement from stakeholder panel” or “Internal disclosure of materiality in determining the scope. While the
auditor review,” to name just a few. This year we have weighting of this criterion as a whole remained the same, the
used a narrow definition of assurance to fairly rank only subdivision into two parts allowed us to be more accurate with
those statements which term themselves an “Assurance our allocation of scoring. This has resulted in some companies
statement”. The companies we included in the review are gaining more marks under this section than last year.
those listed in the FTSE 100 and FTSE 250 as of November In addition, the weightings were reviewed, with assurance
2010. We have ranked only publicly available statements. approach (scored last year) being removed from the final
weighted score. The weighting attributed to this element was
How did we identify the criteria for best practice re-distributed between the other ‘Execution’ criteria, which
assurance? has improved the overall scores achieved for some reports.
The criteria were based on the views of a representative
independent advisory panel that debated and agreed a
common view of what best practice assurance should be.
We integrated the most useful aspects of the relevant
assurance standards into the criteria. This includes ISAE3000,
AA1000AS (2008), ISO 14064-3, the California Climate
Action Registry General Verification Protocol and the IAASB
Consultation Paper on Assurance of Greenhouse Statements.
In addition, we reviewed papers on sustainability assurance
by professional and academic bodies, including ACCA, ICAEW,
The University of St Andrews, The University of Nottingham
and The University of Florence.
It was decided that two sets of criteria were needed: one
for the assurance of sustainability reporting in general and a
more specific one for the verification of carbon emissions.
We then tested the criteria with a selection of investors and
reporting organisations in an interactive workshop setting.
We further refined the criteria by consulting a number of
academic sources and assurance professionals.

Copyright 2011 Carbon Smart Ltd 33

Appendix 1 Methodology and process

Overview of criteria (assurance of sustainability reports)

Issue Weighting Comments

1.a Clarity of scope – What issues or KPIs does the assurance cover, and are these clearly identifiable
from the statement?

1.b Defining materiality – How has the engagement identified what issues are material to the
Defining 50%
2. Qualifications of the provider – does the assurance provider have internationally recognised

3. Independence of the provider – is the assurance provider independent or has it been engaged by
the reporting organisation in any other way that may affect its objective judgement?

4. Standards used – if a standards based approach is used, does the assurance provider use
internationally recognised standards, e.g. AA1000AS, ISAE3000, etc.?
Execution 25%
5. Investigation – how representative of the organisation was the sample taken by the assurer?
Did the assurance take place at corporate level only (HQ) or were site visits included?

6. Level of assurance – has the organisation achieved a high / reasonable or moderate / limited level
of assurance or a mix?

7. Quality of the statement – does the assurance statement meet all or some of the disclosure
requirements of the AA1000AS / ISAE3000 standards?
Outcome 25%
8. Clarity of the statement – is the statement easy to read and free of unnecessary jargon?
Is it understandable by readers?

9. Opportunities for improvement – quality of disclosure on opportunities for improvement.

Does the statement add value?

Overview of criteria (assurance of carbon emissions)

Issue Weighting Comments

10. Clarity of scope – does the statement clearly state whether carbon emissions are under scope of
Defining 60%
11. Emissions coverage – which emissions have been covered? We have used Scopes 1 – 3 emissions
as defined by the WRI GHG Protocol

15% 12. Assurance standards – has a carbon specific assurance standard been used, e.g. ISO 14064-3?

5% 13. Reporting criteria – against what criteria has the data been assured e.g. WRI GHG Protocol?
Execution 30%
14. Investigation – what investigation approach has been used, e.g. high level data checks, sampling
or source data at site level?

15. Level of assurance – has the organisation achieved a high / reasonable or moderate / limited
Outcome 10% 10%
level of assurance or a mix?

34 Stuck on the starting blocks: The state of sustainability assurance in 2010

Appendix 1 Methodology and process

How did we rate the assurance statements in the Challenges encountered and limitations of our
FTSE 350? research
We developed a detailed scoring system for each of the A number of challenges arose when developing the criteria
fifteen best practice criteria. The first nine addressed and scoring assurance statements:
assurance in general, while the remaining criteria (10-15)
specifically addressed carbon emissions assurance. For each a) Which statements to score?
criterion, we established a high score for best practice in the We were faced with two options: 1. A limited approach,
field. The lowest score for each criterion was for statements rating only those assurance statements written by an
that provided no information. The final rating is a percentage independent assurer and stating that the engagement
of the total available score. followed a recognised standard. 2. Casting a wider net
and rating all forms of assurance based on the quality and
How were the criteria weighted? transparency of the statement. After consultations with
We weighted the criteria to reflect their impact and our advisory panel and assurance experts, we decided to
importance based on the feedback we received from our combine these options and evaluate the whole assurance
investor workshop. The most heavily weighted criteria were approach. If a company had an independent assurance
those for the scope of the assurance and the competence statement, we scored it. If a company had a statement
and independence of the assurance provider, which referring to itself as an assurance statement, but perhaps
collectively received 50% of the total weighting. 25% of the lacked third party independence, we scored it. We excluded
weighting was allocated to the way the engagement was all alternative forms of assurance from our scoring. If a
conducted. The remaining 25% went to the results. See the company had both forms of statement, we scored only the
Table on page 34 for the criteria weighting. independent statement but have referenced the alternative
form in the Alternatives to Assurance section (page 28).
How did we develop the league tables?
For carbon, we only rated independent assurance
After scoring and weighting all published assurance statements. We excluded from our benchmark all companies
statements in the FTSE 350, we created a league table ranking where the scope of assurance excluded carbon data, or was
the assurance statements. We first ranked all assurance insufficiently clear to determine whether carbon was under
statements for sustainability reporting (criteria 1-9) and then the scope of assurance.
we separately ranked those statements where it was clear
that carbon emissions had been verified (criteria 10-15). b) Publicly available information
Comparing the league tables We have relied solely on published assurance statements,
gathered from November 2010 – February 2011. We have
The sustainability and carbon assurance scores cannot be taken assurance statements from company reports which
aggregated. The carbon criteria provide a closer examination were available during this time, which means that our scoring
of issues that are included in the general criteria. They look at includes statements both from 2009 and 2010 reporting
issues including scope, methodology and level of assurance years. Where reference was made within a statement
through a carbon specific lens. to additional assurance information, we contacted the
companies to determine whether this information was
Drawing conclusions on assurance in the public domain; if not, it was not reviewed as part
We have based the findings and conclusions in this report on of the benchmark. In some cases we have referred to
the results of our scoring and league table rankings. We have companies’ sustainability reports, annual reports or websites
provided analysis explaining the possible implications of our to determine the scope of carbon emissions assured. Our
findings and made recommendations where we think there is primary goal, however, remained to assess assurance
room for discussion on the improvement of assurance practice. statements, not sustainability reports. We only sought out
information in sustainability reports where the assurance
statement makes specific reference to a page number or
section of the report.

Copyright 2011 Carbon Smart Ltd 35

Appendix 1 Methodology and process

c) Terminology 2 Process overview

We are aware that many readers of this report may not be External support
too familiar with some of the terminology we have used such
as “level of assurance.” We developed our criteria for best practice assurance with
the assistance of an independent advisory panel, an investor
An “assurance level” defines the level of work behind an
workshop and a range of external consultees. For a full list of
assurance engagement. If assurers were to be completely
companies and individuals who contributed to our research,
certain about every detail of a report, they would offer
please see the Acknowledgements section on page 2 of this
absolute assurance. But of course the constraints of time and
costs versus benefits mean absolute assurance is never given.
Both AA1000AS and ISAE3000 have defined assurance levels Independent advisory panel
but use different terminology. For example, the term “high
level of assurance” as defined by AA1000AS is equivalent The independent advisory panel provided input throughout
to a “reasonable level of assurance” for ISAE3000. Similarly, the research process and assured the objectivity of our
“moderate assurance” is equivalent to “limited assurance” research. Through a series of meetings and teleconferences,
under ISAE3000. the panel helped us review assurance trends, identify best
practice, and develop the criteria that we used to benchmark
FTSE 350 assurance statements. The panel reviewed all of
There is a fine distinction between the technical phrases our final conclusions. In particular, the panel ensured the
‘validation’, ‘verification’ and ‘assurance’. While explanations objectivity of the ratings given to our sponsor companies or
can differ, we have used the following definitions in companies with whom Carbon Smart has worked.
producing this report.
Investor workshop
‘Validation’ = determining whether data or a process
is correct, based on available information and suitable We engaged with a group of investors at a workshop hosted
comparative measures. by Carbon Smart in November 2009. Participants helped
us identify investor expectations of assurance and gave us
‘Verification’ = a process of reviewing, inspecting or testing
further input on our benchmarking criteria.
the data/process of reporting to ensure it meets a certain
standard e.g. EU ETS or ISO 14064. Consultations
‘Assurance’ = a professional service providing verification of A number of external organisations and interested parties
reported data/procedures with the aim of reducing the risk provided feedback as we refined the benchmarking criteria
of material error in the reported data/procedures. and carried out our research.

As part of the 2010 assurance benchmark research
we conducted a series of semi-structured telephone
interviews with members of the investment community.
These interviews were conducted between February and
March 2011. For a full list of Interviewees, please see the
Acknowledgements section on page 2 of this report.

36 Stuck on the starting blocks: The state of sustainability assurance in 2010

Appendix 2 List of companies that do not provide assured sustainability information

Basic Materials Consumer Goods Morrison (Wm) Supermarkets

Antofagasta Barr (A.G.) National Express Group

Aquarius Platinum Ocado Group*

Booker Group
Centamin Egypt Ltd* Pearson
Eurasian Natural Resources Corporation Punch Taverns
Brown (N.) Group
Ferrexpo Rank Group
Burberry Group
Fresnillo Restaurant Group
Hochschild Mining Rightmove
Dairy Crest Group
Kazakhmys Sportingbet
Kenmare Resources Sports Direct International
Howden Joinery Group
Randgold Resources Stagecoach Group*
Talvivaara Mining Company Thomas Cook Group
Premier Foods United Business Media
Vedanta Resources**
PZ Cussons Wetherspoon(J D)
Reckitt Benckiser Group William Hill
Business Support Services Robert Wiseman Dairies
SuperGroup Financial
Tate & Lyle 3i Group
Ashtead Group
Atkins (WS) 3i Infrastructure
Consumer Services
Babcock International Group Aberdeen Asset Management
Aegis Group Aberforth Smaller Companies Tst
Berendsen PLC
Avis Europe Admiral Group
Carnival Alliance Trust (The)*
Capita Group
Carpetright* Ashmore Group*
De La Rue*
Compass Group Bankers Investment Trust
Domino Printing Sciences
Daily Mail & General Trust (A Shs) Beazley
Debenhams BH Macro (GBP)
Dignity BlackRock World Mining Trust
Dixons Retail BlueBay Asset Management
Intertek Group
Dominos Pizza Bluecrest Allblue Fund (GBP)
Michael Page International
Dunelm Group Brit Insurance Holdings
Easyjet British Assets Trust
Enterprise Inns British Empire Sec & General Tst
Rentokil Initial
Euromoney Institutional Investors Caledonia Investments
RPS Group
Greene King Capital & Counties Properties
Serco Group*
Greggs* Catlin Group Ltd
Shanks Group
Halfords Group City of London Investment Trust
Inchcape Close Brothers Group
Stobart Group*
Informa CPPGroup
Construction InterContinental Hotels Group Daejan Holdings
International Continental Airlines Group Dexion Absolute (Ord sterling)
ITE Group Edinburgh Dragon Trust
Bovis Homes Group
ITV** Edinburgh Investment Trust
JD Sports Fashion Electra Private Equity
Kesa Electricals F&C Commercial Property Trust
Taylor Wimpey
Marstons Fidelity China Special Situations
Millennium & Copthorne Hotels Fidelity European Values
Mitchells & Butlers Fidelity Special Values Group Foreign & Col Invest Trust

Copyright 2011 Carbon Smart Ltd 37

Appendix 2 List of companies that do not provide assured sustainability information

Gartmore Group Healthcare Oil and Gas

Genesis Emerging Markets Fund BTG Afren
Hargreaves Lansdown Genus Amec
Helical Bar Hikma Pharmaceuticals EnQuest
Henderson Group Shire Essar Energy
Herald Investment Trust Smith & Nephew Heritage Oil
Hiscox Synergy Health Hunting
ICAP JKX Oil & Gas
IG Group Holdings Industrials Melrose Resources
Impax Environmental Markets* Petrofac
BBA Aviation
Intermediate Capital Group Salamander Energy
International Public Partnership Soco International
BSS Group - delisted
Jardine Lloyd Thompson Group Wellstream Holdings
Charter International
JPMorgan American IT Wood Group (John)
Chemring Group
Jupiter Fund Management
Lancashire Holdings Technology
Cookson Group
Law Debenture Corp
Croda International ARM Holdings
London Stock Exchange Group
Electrocomponents Autonomy Corporation
Mercantile Investment Tst (The)
Elementis Aveva Group
Merchants Trust
Fenner Computacenter
Monks Investment Trust PLC*
Filtrona CSR
Murray Income Trust (Ord)
Forth Ports Fidessa Group
Old Mutual
GKN Hansen Transmissions
Paragon Group of Companies
Halma Imagination Technologies Group
Perpetual Income&Growth Inv Tst
IMI Invensys
Phoenix Group Holdings
Keller Logica
Polar Capital Technology Trust
Kier Group Micro Focus International
Laird Misys
Lamprell Sage Group
RIT Capital Partners
Meggitt* SDL
Melrose PLC* Spirent Communications
Schroders* Telecity Group
Morgan Crucible Co
Scottish Investment Trust
Qinetiq Group
Scottish Mortgage Inv Tst
St.James Place
Rexam Cable & Wireless Communications
St.Modwen Properties
Rotork* Colt Group SA
Standard Chartered
Senior Inmarsat
SVG Capital
SIG TalkTalk Telecom Group
Temple Bar Inv Tst
Smiths Group Smith & Nephew
Templeton Emerging Markets Spectris Synergy Health
Investment Trust
Spirax-Sarco Engineering
TR Property Investment Trust
Ultra Electronics Holdings
TR Property Investment Trust
(Sigma shs) Victrex Drax Group
Tullett Prebon Weir Group Northumbrian Water Group*
UK Commercial Property Trust Wolseley National Grid**
Unite Group Xchanging Scottish & Southern Energy*
Witan Inv Tst Yule Catto & Co Severn Trent*
3i Group * Companies provided us with details of alternative forms of
data verification they pursued for 2009/2010 reporting.
** Companies with no new corporate responsibility report
or assurance statement released in the reporting year.

38 Stuck on the starting blocks: The state of sustainability assurance in 2010

Appendix 3 List of companies not rated for carbon assurance

Statements where it was not possible to tell if carbon was under the scope of assurance

Company Industry
SAB Miller Consumer Goods
First Group Consumer Services
Home Retail Group Consumer Services
Ladbrokes Consumer Services
WH Smith Consumer Services
Whitbread Consumer Services
Great Portland Estates Financials
Provident Financial Financials
Standard Life Financials
Premier Farnell Industrials
Pennon Group Industrials
United Utilities Group Utilities
Xstrata Basic Materials

Copyright 2011 Carbon Smart Ltd 39


40 Stuck on the starting blocks: The state of sustainability assurance in 2010

About Carbon Smart
Carbon Smart puts sustainability at the heart of business – we believe
that sustainability means better business.
Our approach is to take clear, practical action - we focus on tangible results and on what is
possible in each of our clients’ businesses, taking into account the reality of their business,
market and customers. Our sustainability services are each designed to address a key aspect of
building a long term, sustainable business:

Insightful, business-led research

Sustainable business operations
Client communication and promotion
Staff engagement and training
Sustainability certification and environmental standards
Credible measurement, reporting and assurance
Sustainable procurement

Our team of carbon and sustainability experts would be very happy to discuss how we could help
you make sustainability a competitive advantage for your business.

This research has been developed by a specialist team of consultants, researchers and assurers.
Ben Murray, Managing Director
Louise Quarrell, Director
Karen Mecz, Senior Consultant
Miruna Valmar, Consultant
Aaron Matthews, Analyst
Matt Lucas, Analyst

Contact details:
T +44 20 7940 8285
Carbon Smart Ltd
52 Lant Street
52 Lant Street London SE1 1RB
020 7940 8285