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In the previous installment of our Building a sustainable business blog series, we discussed various best practices for gathering data.
Once the hard work of data collection is done, businesses are eager to put it to use, evaluating organizational sustainability performance and reporting this progress to stakeholders.
But before that step, assurances are needed that the data that has come from all corners of the organization is sound and trustworthy. In this post, we share data validation approaches.
Ensuring data integrity
Any evaluation of an organization’s sustainability performance will depend on the accuracy of the data. Given the rising scrutiny on sustainability reporting, it is important to build trust in this data as any questionable information can draw unwanted scrutiny and reputation loss. Moreover, there is every indication that not far from today, certain governments will mandate publicly traded companies to disclose their sustainability metrics.
The need for assurance of sustainability data crosses stakeholder groups. Customers need it to validate their supply chains, investors want to make sure there isn’t greenwashing in their portfolios, and reporting bodies are requiring more and more assurance. To address this growing requirement, now is the time to double down on bolstering our systems and mechanisms to validate the accuracy of our sustainability data. There is more than one way to achieve assurance for your organization’s sustainability practices.
Internal audits
At Flex, our data validation mechanisms involve multiple layers, and our first line of accuracy checks is carried out via internal review processes which we instituted eight years ago.
We assign an internal reviewer to each of our three regions: the Americas, Asia, and Europe, Middle East included. Whenever monthly data sets are submitted by our sites, these auditors verify them against their data sources. For instance, some of our sustainability data are derived from invoices; each site sources its water consumption data from its water bill. In turn, our auditors will review the accuracy of this line item based on an invoice copy. As issues come up, each auditor works closely with the collaborators at their assigned sites to resolve them including making necessary adjustments. Beyond reviewing for data entry error, internal auditors also look to uncover inconsistencies and irregularities. If we see unseasonal spikes in electricity consumption, we will investigate and explain the anomaly.
The next accuracy filter comes at the end of each quarter when we analyze the data using a dashboard of trendlines and graphs. These visualizations help us surface and seek explanations for any irregularities not detected during the monthly audits.
The next checkpoint is our annual audit performed ahead of the publication of our annual sustainability report. During this final screening, we collate the data in multiple ways and confirm they add up even as they are sliced and diced. For instance, we ask our sites to classify the monthly volume of waste generated as landfill, recyclables, and hazardous waste. During the annual audit, we perform cross-checks by reviewing the breakdown of the annual recycled waste by material, such as glass, cardboard, and aluminum. We expect agreement between the sum of recyclable waste by material and the sum of recyclable waste by volume over the last 12 months.
Our risk management team, which is part of our finance organization, also runs an analysis of our data through the lens of risk assessment. There is no regularity to how many times this audit occurs – and that is best practice for us as it promotes agility.
We employ a proactive, continuous process to track key performance indicators which in turn helps us spot anomalies as we monitor progress towards our targets. Additionally, these ongoing checks instill greater confidence in the data as we track our progress. As a result, we avoid resolving unanticipated inconsistencies when we’re up against deadlines or receive audit notices from our CFO office.
Auditing our suppliers
As we ensure the business practices of our vendors align to our sustainability goals, we also employ a process to audit them.
We require suppliers to complete a Supplier Assessment Questionnaire (SAQ) and Flex’s requirements, a social and environmental assessment based on principles covered in the Responsible Business Alliance (RBA) Code of Conduct. Part of our vendor assessment process involves auditing the suppliers’ responses to the questionnaire which includes a complementary internal risk assessment. At the conclusion of these steps, we determine whether a further, physical audit is required; if so, we follow up with our suppliers through emails, phone calls and onsite visits, as required.
Third-party audits
As is practice for many companies, Flex engages the services of an external assurance vendor that is qualified in verifying the accuracy of various aspects of our sustainability reporting; indeed, there is data that cannot be easily or readily verified, such as the number of employees volunteering in our community programs.
As seen on the last page of our latest sustainability reports, an auditor provides a stamp of assurance, in the same vein that accounting auditors sign off on published financial results. Our auditor validates certain qualitative and quantitative data by selecting about 30 of our sites, interviewing operations leaders, health and safety staff and other subject matter experts.
Considerations for obtaining assurance:
- While sustainability auditing can offer basic assurance, it is still prematurely lacking a uniform global, mandatory standard.
- Certain rankings and claims require certifications and validations from recognized third parties. For instance, the RBA provides a widely accepted audit framework for sustainability in our industry of electronics manufacturing. A key RBA program is the Validated Assessment Program (VAP), which relies on preapproved outside auditors to verify compliance standards.
- While an auditor’s signoff is not mandated by any jurisdiction today, survey the standard practices in your industry and jurisdiction.
- If auditing practices in your jurisdiction and industry are difficult to manage, the complexity of your data should be weighed. Flex shares detailed data wherever possible; for example, we break down Scope 1, 2, and 3 emissions. The more granular the data, the more potential for error which must be managed — and this is where validation by a third party can be valuable.
There are many resources for organizations to get started. Organizations such as the Responsible Business Alliance and International Organization for Standardization can help. External audit firms that are used for risk and financial audits such as PwC, EY, Deloitte, and others are a recommended starting point. Communicating with the Enterprise Risk Management team or team members responsible for external reporting in Finance can also be advantageous. Starting small and building assurance programs over time is key.
Ultimately, stakeholders will appreciate the data collected, and the richer the better. Whether internal or external, audits are critical to instilling confidence in the reliability of sustainability information.
Explore related posts in our series, Building a sustainable business.
