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Since early 2013, a group of stakeholders involved in non-financial reporting has been working under the auspices ofAfnor to draft a guide for conducting verification missions by independent third-party organizations (ITOs), as provided for in the regulations (Decree No. 2012-557 of April 24, 2012, and Order of May 13, 2013, published in the Official Journal on June 14, 2013). Analysis of the guide and projection of the expected benefits of non-financial verification.
The guide for conducting verification missions as provided for in Article L. 225-102-1 of the Commercial Code (Afnor FD X30-024) is an educational and practical document, which aims to harmonize practices for verifying the presence and accuracy of mandatory financial information for companies that meet the thresholds and statuses provided for in the implementing provisions of Article 225 of the Grenelle 2 law. It should be noted here that, according to the implementing decree, listed companies must provide 42 items of social, environmental, and societal information, while unlisted companies are explicitly required to provide only 29 items of information. The "double list" was to be replaced by a single list, but the amending text has yet to be published.
Thus, from a compliance perspective and by way of example, a listed service company with 40 employees will have to provide evidence of its commitment to safety by reporting "workplace accidents, in particular their frequency and severity, as well as occupational illnesses." However, an industrial company with more than 5,000 employees and a turnover of more than €1 billion will not be required to do so.
It is therefore understandable that unlisted companies now have an interest in anticipating these changes, if only to give greater meaning to their reporting and to adopt a approach to reporting on the company's overall performance. Moreover, Article 1 of the implementing decree is consistent with this approach. One could even say that the spirit of non-financial reporting is set out in Article 1, which specifies that "the report of the board of directors or the management board referred to in Article L. 225-102 shall, in accordance with the provisions of the fifth paragraph of Article L. 225-102-1, the actions taken and the directions taken by the company and, where applicable, by its subsidiaries ... to take into account the social and environmental consequences of its activity and fulfill its societal commitments in favor of sustainable development."
The scope to be taken into account
Article L.225-102-1 of the Commercial Code sets out the criteria applicable to entities considered to be autonomous legal persons. It does not refer to consolidated accounts but rather to the balance sheets, turnover, and number of employees of each entity. With regard to the workforce, the Afnor guide specifies that the company must base its calculations on "the average number of permanent employees during the financial year, taking into account the new Article D.123-200 of the Commercial Code."
Definition of the audit engagement
The Afnor guide specifies that while listed companies must obtain a certificate of presence and a statement of sincerity, unlisted companies with more than 500 employees and a turnover of more than €100 million must have the required information validated from the 2014 financial year onwards. This is an important point to note, as the second edition of the Tennaxia study on CSR and CSR reporting practices shows that many companies believed they were exempt until the 2016 financial year.
As for the accuracy of the information, theOTI ensures the robustness of the reporting process and, to this end, carries out "detail tests on certain information." Long criticized by some stakeholders in non-financial reporting, the Afnor guide endorses the principle of detail tests, which apply to both quantitative data and qualitative information. It should be noted here that Article 225-3-I of the implementing decree specifies that "For numerical data, the tests include, in particular, calculations to ensure the effectiveness of the information collection processes provided for in Article R. 225-105-1. For qualitative information, such as studies, diagnoses, or examples of best practices, these tests include, in particular, consulting documentary sources and, if possible, their authors."
Scope of the audit engagement
Legislative and regulatory texts provide no guidance on how to determine the information to be verified or on the number of sites/entities where detailed tests will be conducted. The choice will therefore be based on the observation of best practices, or at least relevant practices, and will be the subject of consultation and ultimately negotiation between the company and the Independent Third Party Organization (OTI) accredited by COFRAC.
The guide specifies, but only by way of example, that OTI practice converges towards a coverage rate of around 20%. It should be noted that the Afnor guide makes no mention of the moderate and reasonable assurances previously provided by auditors using the ISAE 3000 standard, which were included in voluntary audits requested in particular by companies previously subject to the NRE Act. This can be seen as a decision aimed at truly harmonizing practices between statutory auditors and certification bodies that have positioned themselves on verification and do not work with ISAE 3000. However, the Afnor guide does not specify how coverage rates are calculated. For social issues, established practices indicate that the percentage of the workforce covered by audits gives the coverage rate. On the other hand, for environmental indicators, it does not make sense to take into account the size of the workforce or turnover; the reasoning will be based more on the percentage of volumes issued.
Choosing the OTI
The Guide confirms that Independent Third-Party Organizations (ITOs) are companies accredited by the French Accreditation Committee (COFRAC) – or by any other accreditation body that is a signatory to the multilateral recognition agreement established by the European coordination of accreditation bodies – on the basis of its competence, independence, and impartiality in carrying out CSR information verification missions in accordance with Article L. 225-102-1 of the Commercial Code.
The benefits of non-financial auditing
If this guide is now going to be implemented by OTIs (and we can imagine that COFRAC will use it as a basis for issuing its accreditations to OTIs), will companies be able to derive legitimate benefits from verification, beyond the regulatory requirement?
In previous articles, we shared our perspective on the benefits of CSR reporting. These articles developed a conviction that we strive to implement with our clients:
- CSR (Corporate Social Responsibility) is a lever for overall performance (integrated into the business model with challenges, operational commitments, key performance indicators, objectives, an action plan, and steering indicators).
- CSR reporting is a tool for managing overall performance (with software specifically designed for CSR and consulting services to ensure that the content is as relevant as possible).
- The CSR report reveals the company's overall performance to its stakeholders (a multimodal architecture that allows it to address identified stakeholders, meet their expectations, and generate and maintain dialogue with them).
As for the benefits of CSR reporting verification, our analysis of the assignments carried out for our clients by OTIs leads us to summarize them as follows:
- Firstly, and most visibly, non-financial auditing lends credibility to the company's non-financial information and communications and validates its compliance with the legal framework.
- Secondly, through its diligence at the corporate level and at the level of the audited sites, the verification will contribute to the improvement of the company's management systems.
- Thirdly, auditing challenges the company's reporting. It contributes to:
- involving the reporting teams,
- making reporting procedures more reliable,
- improving the set of indicators and the collection process.
Thus, with verification, non-financial reporting is part of a process of continuous improvement and should therefore help to strengthen the implementation of social responsibility within companies, with CSR making a real contribution to their performance.
Photo credit: Andres Vera