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A seal of approval for companies' social progress

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As someone who hunts for ethical firms, Tim Smith pores over hundreds of company social reports about labor conditions and community involvement. But how many does he trust?

Far fewer.

"It's not credible if somebody is monitoring and reporting on themselves," says Mr. Smith, director of socially responsive investing at Walden Asset Management in Boston. "You need to do your own review, but you [also] need an independent monitor who has got integrity and is outside" the company.

Call it the "Good Housekeeping" seal of approval for ethical companies. Just as financial auditors probe whether a company's numbers can be trusted, independent social auditors aim to sniff out whether a scandal of sweatshop proportions lurks behind the many photos of happy workers in an annual report.

At this juncture, independent monitoring of social standards is far from the norm in corporate America, which is still getting used to reporting its own progress on social issues. Almost 1 in 3 of America's top 100 companies reported on their social progress this year, according to a June survey from accounting giant KPMG. That's a huge surge from the handful issuing them five years ago. But only 1 in 100 did so with verification from an independent auditor.

That puts the United States far behind Britain, where 71 percent of top companies issued social-progress reports, and more than half of those came with an independent monitor's assurance, the survey found.

Usually, investors can easily determine whether a company has allowed independent monitors to evaluate either its internal reports or its outsourced operations.

They just need to go to the company website.

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