With an increased focus on sustainability, companies are now making claims left and right about what they’ve achieved or how close they are to meeting their ambitious carbon reduction goals.
But how accurate are those statements? Now when trust is at an all-time low, stakeholders need verifiable information about your company’s performance. Fall short on this request, and you might be accused of greenwashing or reporting false or misleading information.
One way to avoid the hot seat is to have your ESG disclosures verified or assured. Third-party reviews check the veracity of both financial and non-financial reports so your readers and benchmarking organizations can trust that your reports are accurate. This additional step can also identify issues in your reporting methodology and underlying data, which can result in substantial improvements to your broader ESG program.
Assurance, Verification, Alignment: Defining Third Party ESG Checks
Many of the terms are used inconsistently, which can cause confusion. While they all describe validation processes, they differ when it comes to precision and coverage. So let’s first get these definitions straight:
- Assurance: a data check process that requires the same methodologies and standards as financial data and must be performed by an accredited auditor.
- Verification: a data check process used when reviewing non-financial data and collection processes compared against predefined criteria; does not require a formally accredited professional, but is generally executed by a third party.
- Alignment: an established methodology (e.g. a rationale for how it was prepared, what was included and excluded, and why these decisions were made) that a report follows.
So What’s the Difference? Let’s Dive Deeper
Assurance and verification are often confused because they are both data checking processes. However, the depth of data and process review as well as the application to disclosure checks varies.
Verification can only be provided for non-financial data (since there is no “standard” – yet) and does not need to be performed by an accredited professional. When reports are verified, the data itself has been checked, but often the calculations and analyses made on the reports have not undergone the same accuracy assessment.
Assurance, however, confirms that reports are held to the same standard as financial data, which has stricter standards than non-financial data, and must be performed by an accredited third party auditor (such as pWc, LRQA, or Deloitte). Reports with assurance will have calculations, data collection, analysis processes, and data quality checked. Within assurance, there are two common levels:
- Limited assurance: less detailed level of assurance; limited assurance is often applied for annual ESG disclosures.
- Reasonable assurance: more detailed review of data and processes often held to the same standards as financial assurance.
Alignment is the most stringent of these third party quality checks. Alignment requires a specific methodology for the reports, an explanation on why key decisions were made, and ensures all information provided is accurate.
Why Assurance and Verification Matter
Third party assurance and verification providers ensure your reports – both financial and non-financial – are of the highest quality and accuracy. Think of these reviews as a seal of quality approval: they are the next step in filling the gap between ESG disclosures and investor trust. These processes can also improve your benchmarking performance.
Having your reports assured or verified can also increase your GRESB and CDP scores. GRESB provides additional points for having your energy, GHG, water, and waste data assured or verified. CDP offers a list of approved verification activities that can get you closer to the required review of both Scope 1 and Scope 2 emissions for A-List status.
The Next Step: Investment Grade ESG Data
The market seems to be flooded with an overabundance of sustainability-related certifications, many of which simply cause clutter without adding value. To cut through the noise, there are growing efforts to develop industry-accepted standards around ESG data quality. Though these efforts are ever-evolving, the need is clear: ESG disclosures require accuracy and integrity worthy of your investors.
Simply put, Investment Grade ESG Data means your data and disclosures are of the highest quality, and that the information you provide can truly be trusted.
This blog was originally published on April 19, 2017. It was updated to reflect the latest on assurance and verification practices.