Environmental Reporting - Earth watch
Green laws are set to hit the balance sheet, says Joanne Offer.
Green laws are set to hit the balance sheet, says Joanne Offer.
Under some sections of the North Sea, the debris from oil-drilling sites is two metres or more deep. For local marine life, the underwater sea-scape has been transformed into a lunar desert.
Had it not been for protests from Greenpeace in 1995, as well as a Europe-wide public boycott of Shell petrol stations, the Brent Spar oil rig would be lying at the bottom of the sea too. But the Brent Spar story is not one of triumph for the green lobby. In fact, it illustrates how incomplete our information about the environment is.
Shell, famously, bowed to public pressure and towed the Brent Spar back to port. But Greenpeace was later forced to backtrack when it found that sinking the rig would not have been as harmful as it first thought. The pressure group had mobilised public opinion and forced the oil company’s about-turn on the basis of faulty reasoning.
The whys and wherefores of environmental reporting are also still very much up for debate. Governments, accountants and finance directors are divided as to the usefulness of ‘green reports’. This may be set to change if president of the Board of Trade Margaret Beckett, in her review of company law later this year, has an ear trained in ACCA’s direction. Roger Adams, head of technical services at the institute, says he will be recommending a core of environmental disclosure in annual reports.
In the meantime, environment minister Michael Meacher has warned companies to shape up their environmental reporting standards or face mandatory action.
Some in the profession approve. ‘It is vital that we have some kind of accepted standard, simply to improve the ability to compare between companies. And, in a way, I think that mandatory action would be useful, as it would serve to encourage further and better reporting,’ says Jan Vernon, head of KPMG’s environment practice.
Ernst & Young’s director of environmental services Paul Wenman, says: ‘Market pressure is leading companies to publish their information and to improve their standing. If they don’t, it is there in black and white for all to see. The issue is being driven by the relationship between industry and the public, rather than the government.’
But the UK’s finance directors remain sceptical, as Alan Spall, chairman of the 100 Group of FDs environmental committee, explains: ‘The 100 Group senses the whole issue about environmental reporting is still in a developmental stage. It is much better to have a non-mandatory environment when the industries being reported on are as diverse as fleet distributors, packaging and power generators.’
Most FDs would prefer to retain the current flexibility in green reporting rather than face a rigid reporting standard. There is concern that strict standards of reporting could lead to a witch hunt for those who are not complying with the letter of the law.
Current reporting standards are limp. According to the Pensions Investment Research Consultants, 65% of FTSE 350 companies already report in some form on environmental issues. But the amount of information published can vary by anything from one sentence to several pages in a company’s report and accounts.
Data that is made available is often not compatible across industry sectors, reports are not always distributed to shareholders, and environmental impact is frequently discussed but not quantified.
‘Environmental reporting has been a PR exercise in the past and continues to be so. Companies have been jumping on the bandwagon without giving it too much thought,’ says E&Y’s Wenman.
There are signs, however, that the financial community wants to see more information made available in reports. A Norwegian report published this year reveals that, while banks and insurance companies expect to see information on environmental policy and risk management, brokers and analysts are beginning to call for more details on any environmental harm caused by companies plus details of any fines levied. When banks invest in companies, they are likely to want consistent details, so that they can assess environmental liabilities.
And certainly, UK environmental law on polluted water and contaminated land, in particular, means that the accountancy profession is likely to need more information for the purpose of company valuations and insolvencies, for instance.
The needs of the business community to face up to these alterations in legislation will drive gradual change. The important thing for government will be to frame meaningful regulation.
If companies are made to feel cosy because they have a government-approved balance sheet to hide behind, real improvements to the way businesses treat the environment could be a long time coming. Joanne Offer is a freelance journalist
MEASURING YOUR ENVIRONMENTAL BURDEN
At its 1997 Environmental Reporting Awards, ACCA praised such companies as BT, Glaxo-Wellcome, ICI and BP for showing how green reporting can be presented.
But the UK’s lack of environmental reporting standards has not been a hindrance to chemicals giant ICI, according to finance director Alan Spall.
ICI is leading the way with its ‘environmental burden’ approach to reporting.
‘Just reporting that the company has produced one tonne of a particular waste product doesn’t help anyone gauge what impact this tonne might create on the environment,’ says Dr Dick Watson, ICI’s environmental communications manager.
‘A tonne of cyanide could have a very different impact to a tonne of salt. Environmental burden reporting attempts to describe what the impact of a waste product could be and what the severity of that impact might be,’ he says.
Smaller companies are following ICI’s lead. Magnox Electric, the nuclear power company, was praised by ACCA for its inclusion of environmental costs in the accounting section of its annual report.
‘The inclusion of costs is something that accountants are keen on. They like to see money in nice little columns, but it is not something that I personally get very excited about,’ says Dave Heman, senior engineer in the health, safety and engineering department at Magnox.
‘Most reports have a similarity to them, as new entrants to reporting have looked at the bigger organisations and done a copy job rather than spending ages on research and trying to find something different.’ ‘But I still like to see something novel and it will be a shame if we have to standardise reports. That wasn’t what Michael Meacher meant – he just wants to see more companies reporting,’ says Heman.