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Since early 2013, a group of non-financial reporting stakeholders has worked under the aegis of the Afnor on drafting a guide for conducting verification missions by independent third-party organizations (ITPOs), as stipulated by regulatory texts (Decree No. 2012-557 of April 24, 2012, and Order of May 13, 2013, published in the Official Journal on June 14, 2013). This segment provides an analysis of the guide and an outlook on the expected benefits of non-financial verification.
The guide for conducting verification missions as stipulated in Article L. 225-102-1 of the Commercial Code (Afnor FD X30-024) is an educational and practical document aimed at harmonizing verification practices regarding the presence and veracity of mandatory information for companies that meet the thresholds and statuses stipulated by the implementing texts of Article 225 of the Grenelle 2 law. It should be noted that, according to the implementing decree, listed companies must report on 42 social, environmental, and societal disclosures, while unlisted companies are explicitly concerned by only 29 disclosures. The "double list" was supposed to be abolished in favor of a single list, but the amending text is still awaited.
Thus, from a compliance perspective and as an example, a listed service company with 40 employees will have to report "workplace accidents, particularly their frequency and severity, as well as occupational diseases" to attest to its consideration of safety. In contrast, an industrial company with over 5000 employees and a turnover exceeding 1 billion euros will not be required to do so.
It is therefore clear that unlisted companies should anticipate this now, if only to give more meaning to their reporting and to align with a logic of comprehensive corporate performance reporting. Moreover, Article 1 of the implementing decree supports this; one could even say that the spirit of non-financial reporting is set out in this Article 1, which specifies that "the report of the board of directors or the executive board mentioned in Article L. 225-102 shall set out, in application of the provisions of the fifth paragraph of Article L. 225-102-1, the actions undertaken and the orientations adopted by the company and, where applicable, by its subsidiaries... to take into account the social and environmental consequences of its activity and to fulfill its societal commitments in favor of sustainable development."
The Scope of Consideration
Article L.225-102-1 of the Commercial Code sets criteria applicable to entities understood as autonomous legal persons. It does not refer to consolidated accounts but rather to the balance sheets, turnover, and number of employees of each entity. Regarding staffing levels, the Afnor guide specifies that the company must base its calculations on "the average number of permanent employees employed during the financial year, taking into account the new Article D.123-200 of the Commercial Code."
Definition of the Verification Mission
The Afnor guide specifies that while listed companies must obtain a certificate of presence and an opinion on veracity, unlisted companies with more than 500 employees and a turnover exceeding 100 million euros must have the presence of the required information validated starting from the 2014 financial year. This is an important clarification to make, 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 veracity of the information, theITPO ensures the robustness of the reporting process and for this purpose conducts "detailed tests on certain information." Long criticized by some non-financial reporting stakeholders, the Afnor guide endorses the principle of detailed tests, which apply to both quantitative data and qualitative information. Let us recall here that Article 225-3-I of the implementing decree specifies: "For quantitative data, the tests include, in particular, the performance of calculations that allow it to ensure the effectiveness of the information collection processes provided for in Article R. 225-105-1. For qualitative information, such as studies, diagnostics, or examples of good practices, these tests include, in particular, consulting documentary sources and, if possible, their authors."
Sizing the Verification Mission
Legislative and regulatory texts do not provide any indication, neither on how to determine the information to be verified nor on the number of sites/entities where detailed tests will be conducted. The choice will therefore be guided by the observation of good practices, or at least relevant practices, and will be subject to consultation and ultimately negotiation between the company and the Independent Third-Party Organization (ITPO) accredited by COFRAC.
The guide specifies, but only as an example, that the practice of ITPOs, converges towards a coverage rate of around 20%. It should be noted that the Afnor guide makes no mention of the limited and reasonable assurance engagements previously practiced by statutory auditors using the ISAE3000 standard, which appeared on voluntary verifications requested, in particular, by companies previously subject to the NRE Law. 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 the methods for calculating coverage rates. For social issues, observed practices indicate that the percentage of the workforce covered by audits provides the coverage rate. In contrast, for environmental indicators, taking into account the workforce does not make sense, nor does turnover; the reasoning will be based more on the percentage of volumes emitted.
Choosing the ITPO
The Guide confirms that Independent Third-Party Organizations (OTIs) are companies accredited by the French Accreditation Committee (COFRAC) - or by any other accreditation body signatory to the multilateral recognition agreement established by the European coordination of accreditation bodies - based on their competence, independence, and impartiality for carrying out CSR information verification missions in accordance with Article L. 225-102-1 of the Commercial Code.
The benefits of non-financial verification
If this guide is now to be implemented by OTIs (and one 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 obligation?
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 the tool for managing overall performance, (with a software solution specifically dedicated to CSR and consulting to ensure the container has the most relevant content)
- The CSR report reveals overall performance to the company's stakeholders (a multimodal architecture allowing identified stakeholders to be addressed, their expectations met, and dialogue generated and maintained with them).
As for the benefits of CSR reporting verification, our analysis of the missions carried out for our clients by OTIs leads us to formulate them as follows:
- Firstly, and this is the most visible aspect, non-financial verification helps to legitimize the company's non-financial information and communication and validate compliance with the legal framework.
- Secondly, through its due diligence at the corporate level and at the audited sites, verification will contribute to improving the company's management systems.
- Thirdly, verification challenges the company's reporting. It contributes to:
- involving reporting teams,
- making reporting procedures more reliable,
- improving the indicator framework and collection process.
Thus, with verification, non-financial reporting becomes part of a continuous improvement process and should therefore help strengthen the implementation of Corporate Social Responsibility within companies, making CSR truly contribute to their performance.
Photo credit: Andres Vera