What is health, safety, and environmental reporting? What is corporate social responsibility reporting? What is the triple-bottom line? What is sustainability reporting?
Some entities have been reporting on their performance with respect to health, safety and environmental (HSE) matters for a number of years. HSE reports cover such matters as employee health, on-the-job accident rates, emissions of certain pollutants, spills, volumes of waste generated and initiatives to reduce and minimize such incidents and releases. HSE reports are typically found on a company's Web site, but may be issued on a CD ROM or published in hard copy.

Corporate social responsibility reporting is similar in concept to HSE reporting but with a broadened emphasis on social matters such as ethical labor practices, training, education and diversity of work force and corporate philanthropic initiatives.

The concept of the triple-bottom-line focuses not only on the economic value an entity produces but also on its environmental and social impacts. The term is used more as a concept than as the actual title of an entity's report on environmental, social and economic performance.

As corporate reporting on environmental, social responsibility and economic performance has evolved and gained wider acceptance, the types of reports discussed above are increasingly being described as sustainability reports, even though they may not cover all the matters typically required by a sustainability framework, such as the Global Reporting Initiative's (GRI) Sustainability Reporting Guidelines. Sustainability reporting is designed to provide information on an entity's environmental, social and economic performance and impacts and their initiatives for improving their performance in these areas. It should be noted that the term "sustainability" does not mean that a corporation or other entity is "sustainable" or that it will continue in existence for any specified period of time.

What is the difference between sustainability reporting and sustainable development?
The term and concept of sustainability reporting has grown out of a related concept known as sustainable development. In the 1980s, the United Nations set up the World Commission on Environment and Development, also known as the Brundtland Commission. The Commission produced a 1987 report titled, "Our Common Future," otherwise known as the Brundtland Report. That report defined sustainable development as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs."

One interpretation of the concept and principles set forth in the Bruntland report is "sustainable development means conducting business in a way that meets the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources needed tomorrow" (International Institute for Sustainable Development, 1992).

Why are companies issuing sustainability reports? What is the value proposition for sustainability reporting?
Companies are issuing sustainability reports for numerous reasons, including the following:

• To demonstrate their interest in the health of the environment, their employees and the communities they serve
• To demonstrate their commitment to and efforts involving human rights and fair labor policies
• To promote transparency and solicit feedback on their performance from a growing number of stakeholders including non-governmental organizations (NGOs)
• To demonstrate their efforts to build and maintain relationships with external parties such as the community and other stakeholders
• To better manage and communicate risk
• To enhance or protect their reputation
• To grow shareholder and brand value
• To increase market share

Pressure to issue reports on non-financial measures also emanates from a growing body of stakeholders including competitors and peers, customers, shareholders, potential investors, the media, employees, and lobby groups. For a number of entities, highly publicized examples of their failure to address non-financial value issues have resulted in significant adverse publicity, payment of heavy penalties, and a negative impact on brand value. As a result, entities are becoming increasingly aware of the need to be accountable for all aspects of their performance, not just financial performance, and, moreover, to act responsibly by reporting on it.

There is also demand for socially responsible investing (SRI) from church groups, environmentally conscious citizens, e.g., members of environmental groups, and others. A growing number of mutual funds have been formed that consist of investments in companies that have been screened for certain social responsibility criteria.¹ In some countries, pension funds are required to disclose whether social and environmental criteria are used in their investment decision making, and legislation requires corporate disclosure of environmental and social policies and performance.

Are U.S. companies preparing and issuing sustainability reports?
Companies are at various stages in reporting this type of information. A number of companies have started by reporting on environmental matters, have added social responsibility disclosures incrementally over time, and have ultimately reported on their sustainability performance.

The following is a partial list of U.S. companies that have reported on environmental, HSE, corporate social responsibility, or sustainability performance:

Company	Primary Industry
Agilent Technologies	Communications, electronics, life sciences
AMD	Microprocessors
American Home Products	Pharmaceuticals
Anheuser-Busch	Beverages, theme parks
Arizona Public Service	Energy utility
AT&T	Telecommunications
Baxter International	Medical products/services
Bristol-Myers Squibb	Pharmaceuticals
Chiquita Brands	Agribusiness
Conoco	Energy
Dow Chemical	Chemicals
Dupont	Chemicals
Ford	Vehicle manufacture
General Motors	Vehicle manufacture
Georgia Pacific	Consumer and building products
Green Mountain Energy	Energy retailer
Intel	Microprocessors
International Paper	Paper and forest products
Johnson & Johnson	Health care products and services
Marathon	Energy
McDonald's	Restaurants
Mead	Forest products
Nike	Apparel
Pacific Lumber	Forest products
PepsiCo.	Consumer products
Procter & Gamble	Consumer products
Sunoco	Petroleum
Timberland	Footwear and apparel
University of Florida	Academic institution

What are the criteria for sustainability reporting?
There are several different sets of criteria relevant to the field of sustainability performance and reporting including AA1000, Framework for Social and Ethical Accounting, Auditing, and Reporting [issued by the Institute for Social and Ethical Accountability (UK)], the GRI's Sustainability Reporting Guidelines, the International Organization for Standardization (ISO) 14001 for environmental management systems and ISO 14031 for environmental performance evaluation, and the Coalition for Environmentally Responsible Economies (CERES) Principles. Also, companies develop their own set of criteria for reporting on HSE, corporate social responsibility, or sustainability performance.

The GRI is an international, multi-stakeholder effort to create a common framework for voluntary reporting of the economic, environmental, and social impact of entity-wide activity. It was convened by CERES and the Tellus Institute in 1997. Shortly thereafter, the United Nations Environmental Programme (UNEP) joined the GRI as a key partner. The GRI mission is to elevate the quality and comparability of sustainability reporting practices worldwide. They have developed a set of sustainability reporting guidelines (www.globalreporting.org) for reporting on environmental, social responsibility and economic performance.

The GRI recognizes that providing assurance about the trustworthiness of a sustainability report is, like sustainability reporting itself, at an early stage of development. Reporting entities have adopted a variety of strategies for providing stakeholders with assurance, including stakeholder consultation panels, internal audits, independent reviews and systematic independent assurance processes.

The GRI encourages the independent assurance of sustainability reports and the development of standards and guidelines for providing such assurance. In developing their assurance policies and practices entities should demonstrate a progressive approach, each stage of which adds to the credibility of their reporting.

The GRI exposed draft 2002 Guidelines for public comment in April 2002; the revised Guidelines are expected to be released in the summer of 2002.

What is the relationship between sustainability reporting and financial reporting?
Sustainability reporting communicates a wide range of subject matter about environmental, social and economic impacts arising from an entity's activities, products and services. Economic impacts include but are not limited to financial performance in meeting the expectations of investors and lenders. Financial reporting, on the other hand, communicates about an entity's performance in creating value for investors and its accountability for monetary resources invested in it. Sustainability reporting and financial reporting both communicate about risks and intangibles, but do so in ways that are different and partially complementary.

Why should the public accounting profession get involved in sustainability reporting?
Sustainability reporting by corporations is much more prevalent in Europe than in North America and Europe has a longer history of such reporting. Denmark, The Netherlands, and the UK have introduced mandatory environmental reporting requirements for certain companies. France introduced mandatory reporting on a set of social and environmental indicators for all companies listed on the "premier march" of the Paris stock exchange; the new requirements take effect with annual reports for 2003. As sustainability reporting increases in Europe, U.S. companies doing business there may want or need to adopt the local custom of providing such information. As a result, these companies will need to understand and comply with local sustainability reporting requirements and practices (even if they are not mandatory). Over time, those companies may also decide to adopt the concept and principles of sustainable development company-wide, not just in Europe, and report accordingly on their worldwide operations. Additionally, some U.S. companies currently view sustainable development as a valuable strategic and operating concept and have adopted sustainability reporting as one of the ways to communicate the results of implementing such policies. Others will likely face increasing market demand for sustainability information about their own entities.

As a result of the growing activity in reporting, demands for independent assurance are increasing. Various third-party firms, e.g., public accounting, consulting, certifying and engineering firms, have provided assurance on such reports in Europe but no standardized approach exists. To augment the credibility of their environmental or sustainability reports, a first wave of leading companies is now seeking to have them verified independently. The public accounting profession in the U.S. must be ready to respond to this demand, help shape marketplace expectations, standardized approaches and reporting criteria, and, ideally, become recognized as the preferred service providers for such assurance services.

Another reason for the public accounting profession to become involved is to help develop the framework for sustainability reports so that such a framework will meet the requirements for suitable criteria. If the sustainability reporting criteria do not meet the requirements for suitability in Chapter One, "Attest Engagements," of SSAE No. 10, Attestation Standards: Revision and Recodification, CPAs will not be able to provide assurance on such reports. (See subsequent Q&A titled "What tests do the criteria for sustainability reporting have to meet to permit a practitioner to perform an attest engagement?")

What types of services could CPAs provide with respect to sustainability?

• Advisory services to develop systems to capture information related to sustainability reporting
• Advisory services on strategies to reduce the size of the entity's environmental footprint
• Advisory services to promote improved dialogue and relationships with employees and communities in which operations are located
• Certification for environmental management systems under ISO 14001
• Due diligence services in connection with mergers and acquisitions
• Benchmarking
• Assurance services (examination, review or agreed-upon procedures attest engagements) with respect to a sustainability report
• Assurance services (examination, review or agreed-upon procedures attest engagements) with respect to the effectiveness of internal control over sustainability reporting

What needs to be done before CPAs can provide assurance on sustainability reports? What are the major roadblocks to providing services with respect to sustainability reports?

• Suitable criteria for sustainability reporting need to be developed (see following Q&A)
• Companies reporting on sustainability matters need to develop reliable and effective systems to provide such information
• CPAs will need to gain sufficient knowledge in sustainability reporting and expertise in certain non-financial matters related to sustainability reporting
• CPAs will need to hire or engage specialists on certain matters related to sustainability reporting
• CPAs will need to develop a marketing strategy to position themselves as providers of assurance services related to sustainability reporting.

What tests do the criteria for sustainability reporting have to meet to permit a practitioner to perform an attest engagement?
In order for a practitioner to accept an attest engagement with respect to a sustainability report, the criteria for such reports must meet the requirements of the third general attestation standard, which states "The practitioner shall perform the engagement only if he or she has reason to believe that the subject matter is capable of evaluation against criteria that are suitable and available to users" (see Chapter One, "Attest Engagements," of SSAE No. 10, Attestation Standards: Revision and Recodification). Criteria are the standards or benchmarks used to measure and present the subject matter and against which the practitioner evaluates the subject matter.

Suitability
Suitable criteria must have each of the following attributes:

• Objectivity-Criteria should be free from bias
• Measurability-Criteria should permit reasonably consistent measurements, qualitative or quantitative, of subject matter
• Completeness-Criteria should be sufficiently complete so that those relevant factors that would alter a conclusion about subject matter are not omitted.
• Relevance-Criteria should be relevant to the subject matter.

Availability
The criteria should be available to users in one or more of the following ways:

• Available publicly
• Available to users through inclusion in a clear manner in the presentation of the subject matter or in the assertion
• Available to all users through inclusion in a clear manner in the practitioner's report
• Well understood by most users, although not formally available (for example, "The distance between points A and B is twenty feet;" the criterion of distance measured in feet is considered to be well understood)
• Available only to specified parties; for example, terms of a contract or criteria issued by an industry association that are available only to those in the industry.

For more guidance on suitability and availability of criteria see paragraphs 1.23 through 1.34 of Chapter One of SSAE No. 10.

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¹ The Kinder Lydenberg Domini (KLD) Broad Market Social Index consists of all companies within the Russell 3000 that meet the KLD's screening criteria. The Domini 400 Social Index (also a KLD index), modeled on the S&P 500, is a socially screened capitalization weighted index of 400 common stocks. According to the Web site www.sustainability-index.com, the Dow-Jones Sustainability Indexes are designed to include only the leading sustainability companies worldwide.