There are three confidence-building practices.
They can be summarised as:
- Governance and systems of internal controls - ensuring ESG reporting objectives are communicated by the organisation’s highest governing body, that clear responsibility areas are outlined and that controls are embedded in routine, daily processes.
- Internal audit and verification - ensuring that the systems of internal control are verified by a separate, independent function.
- External assurance - provides the highest form of impartial assurance of data and processes.
Other CBMs, such as RI labels and ESG audit of holdings are out of the scope of this paper as they are not directly related the PRI Reporting Framework. In practice, organisations will be at varying stages of implementing CBMs, or may have different processes for different data. This paper aims to provide the possible next steps appropriate to different organisations. It identifies substantial value adds from implementation of verification methods. In general, these benefits include:
- Facilitating a review of practices and processes across the organisation, and highlighting where improvements can be made to achieve organisational objectives more efficiently.
- Identifying risks and opportunities in the internal data collection and reporting mechanism. This will enable management to understand and reduce risks and can contribute to developing clearer roles and responsibilities in the data collection process.
- Increasing confidence in the reported ESG information, both internally and externally.
The 2017 data shows that the majority of PRI signatories conduct the most basic CBMs consisting of internal verification over parts of their Transparency Report. The practice of more stringent measures such as third-party assurance on RI activities is generally less common. With respect to PRI reporting, measures would be needed to enable wider use of external third-party assurance by PRI signatories over parts, or the entire PRI Transparency Report, especially with regarding their RI processes (see below).
Introducing confidence-building measures to PRI signatories' reported data
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The value of confidence-building measures