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By Bruce Bolger
Treating people and the environment with respect is such a compelling marketing message that leading organizations are known to distort their commitment to the environment, their stakeholders and governance, committing what otherwise is known as greenwashing. Unfortunately, even audited corporate sustainability reporting does not ensure the integrity of the reports. The issue of certified auditing reporting will rise to the fore as the impact of the European Union Corporate Sustainability Reporting Directive, which requires independently audited corporate sustainability reports, begins to take effect starting with the first published reports in 2025 for 2024 compared with 2023 metrics.
Today, the only types of audited human capital reports involve ISO 30414 human capital reporting, ISO 30415 Diversity, Equity, Inclusion, and ISO 10018 people engagement, and only a few companies have claimed to have received any of these certifications in the few years since they were published. Because of the anarchic nature of ISO (International Organization for Standardization) standards, and the lack of general understanding of the concept and principles of standards, there are already signs that major organizations are investing in certifications inconsistent with the basic principles of standards.
This issue will quickly emerge as a major issue in the face of the new European Union Corporate Sustainability Reporting Directive that requires large companies (over 250 people and financial thresholds currently starting at $44 million) to provide independently audited certification of stakeholder capital related to not only employees, but customers, distribution and supply chain partners and communities—a challenge given that almost no one has any training in conducting the type of stakeholder management and metrics audits required by the law. Much of the information in this article will apply to the implementation of the European Union Corporate Sustainability Reporting Directive.
An overview of the principle of ISO standards. ISO standards are based on a laborious, consensus-based process by volunteer specialists from around the world to help industries create common frameworks to enhance efficiency, performance, and stakeholder experiences. ISO standards emerged out of the Marshall Plan following World War II as a means of facilitating commerce between the nations under reconstruction. Since then, tens of thousands of standards guide countless technologies, systems, and processes, the most famous being the ISO 9001 quality management standards, with over 70 standards specifically focusing on business management processes and the rest related to technologies, materials, research instruments, machines, etc.
While technical standards need to be precise in order to ensure compatibility between systems, business process standards focus on providing a guide for effective practice in the form of guidelines, stated as “should” or recommendations, or, in the case of auditable standards, “shalls”, requirements viewed as essential to effective implementation of the standard. For instance, this could include having a continuous improvement process in a total quality management system that might consist of various essential aspects, but much leeway is given as to how to address the continuous improvement process. The analogy would be a road map: the robust US interstate highway system provides a wide variety of ways to travel from New York to San Francisco. ISO guidelines provide a framework for how to find the best route for the driver’s desires or needs; they don’t dictate what specific route to take.
ISO Working Group 260 was created on the impetus of Lee S. Webster, then a human resources manager of the University of Texas Medical Branch, with the support of Dr. Ron McKinley, head of HR there at the time. Together they organized an international effort that has since produced 30 standards, including ISO 30414 human capital reporting and ISO 30415 diversity, equity, and inclusion. Because ISO does not report on the sale of its standards, there is no way to know how many are being put to actual use. ANSI is now the secretariat of the working group.
The difference between standards implementation and auditing. In most cases, organizations use ISO standards as guidelines for business practices that do not require independent outside auditing for verification because they are not used for public reporting purposes. ISO 9001 quality management standards are an exception, because manufacturers committed to the standards require verifiable compliance from their supply chain partners. The ISO 9000, now 9001, logo became a mark of a commitment to quality in the 1990s when the US brand for quality in manufacturing had tumbled in the face of the Japanese commitment to total quality management. Implementation firms help their clients benefit from applying the standard to their processes; auditing firms independently review the purpose, goals, and objectives of the process and the strategies and tactics against the metrics and continuous improvement system.
Implementation firms help organizations benefit from the standards by using their understanding of the standards and prior experience with other firms to help clients reduce the time wasted trying to implement the standards on a self-learning basis, ie, the choice many make between choosing to learn a musical instrument on one’s own versus hiring a teacher. Those organizations that outsource the process presumably employ advisors not only well versed in the standards themselves—generally the easy part—but on their practical application toward achieving the purpose, goals, and objectives of their implementation. If the audit firm goes beyond conducting a basic gap analysis with the company, and becomes involved in the practical implementation, it is automatically disqualified from an ethical standpoint from conducting an audit for obvious reasons. Realistically, as is known in the world of ISO 9001 quality management standards, a significant percentage of companies view standards as a “check off the box” endeavor and look for implementors and auditors willing to look the other way.
Audit firms independently review all the claims made in the corporate sustainability report or other endeavor for veracity. Depending on the standard, they review the purpose, goals, and objectives of the effort and the documentation supporting the process. They interview key stakeholders, review the methods by which the purpose, goals, and objectives of the process are addressed, along with the metrics and calculations used to measure outcomes and the continuous improvement process. In the case of the EU CSRD standards, it is unclear how the companies authorized under the law to conduct audits—the traditional major and other financial auditing firms—will have the expertise to so quickly learn how to audit business processes in a way that doesn’t conflict with the management consulting services they provide their large clients.
Qualifications for implementation firms and auditors. In either case, practitioners need to not only understand the standard and its intent but most importantly the business practices vital to its practical application. While the auditing practices are similar for most ISO human practices standards in terms of documenting the authenticity of claims made in reports—document reviews, on-site walkarounds and meetings with management, analysis of metrics and verification of calculations—the implementation practices are more complex and diverse. Only people with practical experience in the fields related to a standard can be reasonably expected to provide informed counsel on the best road to follow in developing a process consistent with the industry, business model, purpose, and other aspects particular to each organization. Today, Linkedin provides a good way to begin evaluating the qualifications of implementors or auditors.
Certifications for ISO 30414 standards. The US and most countries do not have a certification authority to validate any human capital standard, and if so, those authorities are one step away from the volunteers who helped create the standard. Even the widely followed ISO 9001 standard has no overall certification body in the US. Rather, any implementation and audit organization can technically create its own version of an ISO standard and can even use the letters ISO in a logo, provided it does not bear a direct resemblance to the official ISO logo. The credibility of any ISO implementation and certification is no greater than the expertise and experience of the individual companies and people standing behind it.
In the case of ISO 30414 human capital and ISO 10018 people engagement standards, there are no more than several dozen people in the world involved in the actual creation of the standards in the ISO working groups.
How to evaluate credibility. Because there is no international governing body to sanctify an ISO audit, organizations need to use some common-sense measures to evaluate the potential implementor or auditor.
1. Capabilities. What is the training of the implementor or auditor on the overall issues of human capital management, metrics, and reporting? Review the training, experience, and in the case of auditors, actual auditing experience.
2. No conflict of interest. Does the implementor or auditor adhere to ISO ethical practices? ie, the company that audits the report cannot be the same that helped create it. Note that in the case of European Union Corporate Sustainability Standards, the major consulting firms involved with auditing the reports will not be able to generate income through helping companies implement the standards without violating conflict-of-interest ethics.
3. Source of the training. To evaluate the credibility of a certification announced by an individual, review the source of the training behind it, as there are very few sources of training on human capital standards. Training on stakeholder capital management, metrics, and reporting is inluded in the Enterprise Engagement Alliance curriculum membership program, and its sister International Center for Enterprise Engagement certifies education with verifiable content and outcomes.
4. Publication of a formal human capital report and proper disclosure of the auditors. Should a company decide to undergo an audit of its human capital or stakeholder management report, the report should be published prominently on its web site with a link to it from any media or other public announcement. The report should include the certificate from the auditor, clearly stating the name of the individual or organization that provided it. Announcements of ISO 30414 certification without such information are likely to be automatically viewed as greenwashing, as there is no way to evaluate either the substance of the report audited or the qualifications of the author. Note that the EU CSRD law was specifically designed to discourage greenwashing, which is why it requires independently audited reports published in a public database.
5. Adherence to ISO logo use. The mis-use of the official ISO logo by placing it on a company’s web site or announcement about an ISO certification signals a lack of understanding of standards that should raise a red flag.
Note of caution. Following the above practices in corporate sustainability reporting or any standard does not guarantee either the expertise or ethics of the advisors assisting with implementation or auditing. It does provide enough transparency for people to distinguish between credible and likely non-credible reports more effectively and it increases the public relations risks if the organization is caught cheating.
Proper practices. Here are two companies that have followed the above transparent practices. Again, their doing so does not mean the organizations are perfect or incapable of greenwashing or other misdeeds; it means they are committed to a level of transparency that would make unsavory practices more apparent and damaging over time.
- Allianz, the international financial services company, publishes its human capital report on its web site along with the certificate provided by the auditor, 4C GROUP Management Consultancy, a leading human capital management firm whose Board Member Dr. Heiko Mauterer serves on the ISO 30414 working group.
- Jetruby, a US-incorporated app development company providing the US with development resources from throughout Eastern Europe and the Middle East, published a human capital report last year audited by David Simmons. He received his certification from Dr. Ron Mckinley, who was a managing director of the International Center for Enterprise Engagement at TheICEE.org at the time. The ICEE does not provide any education but rather certifies that the source of a certification comes from an identifiable source and maintains a means of keeping track of dubious reports.
Improper practices. Here are two organizations that did not follow the above transparent practices.
- The Dubai Customs Bureau announced an ISO 30414 certification without publication of a report and no information on the auditor.
- Similarly, the Bank of India announced an ISO 30414 certification without publishing the report and with no information on the auditor.
- Note, both were contacted for more information about their certifications and received no reply.
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