Setting the standards for fair trading practices

Paul Gosling looks at the new world of social auditing

A single pan-European institution to represent, govern and accredit social auditors is to be established. Businesses that place social concerns at the heart of their operations, including the Body Shop, Traidcraft and the Co-operative Bank, have backed the proposal.

The creation of an Association of Social and Ethical Accounting arose from discussions at a meeting in Tuscany last month of the Social Venture Network, a body that brings together a variety of social enterprises from across the European Union. The network is based on a similar, successful organisation in the US.

There has been a rapid growth in the number of companies that engage social auditors to produce annual social reports, to be placed alongside annual accounts. The process provides external verification for companies that claim they trade fairly, and can assist businesses in countering accusations of poor trading practices.

The Body Shop is this year joining the likes of Traidcraft in undergoing a social audit, after three years of environmental audits. David Wheeler, the company's head of ethical auditing, says: "Our environmental audits have pointed out weaknesses, and this year's social audit will be verified by the New Economics Foundation, which will set up an independent panel of experts to ask the right questions.

"I don't think anyone, other than a few neanderthals, would argue that business today is only run for one stakeholder - there are several, including the shareholders, the customers, the staff and the suppliers."

Where environmental audits examine such matters as pollution control, use of raw materials, energy consumption and waste disposal, a social audit will examine these plus a range of other factors, including wage rates and the effect of a company's operations on trading partners, particularly in the Third World.

Mexx International, a retailer based in the Netherlands but with stores in Birmingham and elsewhere in Britain, is enthusiastic about the principle of social auditing. The company buys clothing from 32 countries, and is keen that suppliers are good employers.

"We work with producer companies, which we call co-makers, and examine their working relations," says Sonia Sin, licensing manager for Mexx. "We look seriously at child labour - and I don't think any of them use child labour - hazardous materials and the disposal of hazardous wastes."

Ms Sin says it is important that there is a single, verifiable standard for social auditing for Europe as a whole. "We can't have different countries using different standards when we are measuring the same things," she says. Future meetings of the Social Venture Network over the next few months will agree details on the standards and accreditation to be adopted. Academics from Germany and the Netherlands, where social auditing is well established, are to make detailed proposals on how individuals and firms will become qualified and licensed.

Simon Zadek of the New Economics Foundation is recognised as a leading practitioner of social auditing, and he has just returned from a conference in South Africa, sponsored by KPMG, where there was a high level of interest in the subject. "There are a whole lot of consultancies moving into the field, and the next stage is to pull together non-governmental organisations and academics to set the standards and accreditation," he says.

There is a determination to avoid the fragmentation that has not only affected the accountancy profession in England, but has already damaged the still young specialism of environmental auditing, which has three representative bodies in Britain alone.

Unfortunately, social auditing is also establishing a new language which has to be learnt. Social auditors are now talking of "footprints", "shadows" and "rucksacks". Which is a very complicated way of saying that companies will be expected to pay a fair price for what they buy, and that their impact on Third World trading partners needs to be inspected if they are to be given a clean social audit.