Environmental Reporting – Creating the right environment.

Environmental Reporting - Creating the right environment.

As Britain's first Environment Week comes to a close, Elizabeth MacKay looks at the benefits of environmental reporting for business both large and small

The number of companies publishing some sort of environmental report has increased exponentially over the last 10 years. The bigger corporate polluters in the energy, extraction and construction sectors have been publishing health, safety and environmental data for a long time.

Many now produce separate environmental performance reports and, as the environmental bandwagon gathers momentum, other companies have been venturing into social reporting. Both BT and NatWest recently produced their first social reports and Rio Tinto has combined a social and environmental report for some years.

Environmental reporting usually involves quantifying the direct impacts of a company’s activities on the environment and virtually all reports include data on carbon dioxide, sulphur dioxide and other greenhouse gas emissions. Attempts are being made to move towards ‘sustainability’ reporting, which takes account of a company’s indirect impact on the environment, as well as direct impact.

The boundaries of sustainability reporting are difficult to draw, however, because indirect impacts include not only the impact of, say, customer and supplier activity, but can extend ad infinitum through the supply chain. ‘Triple-bottom-line reporting’ – the idea that measures of economic and social impact together with measures of sustainability, can be integrated – is still some way off.

Even so, each year sees new reporting formats and more companies producing environmental reports for the first time. The environmental reputation of a company still has virtually no effect on its market valuation and there is, therefore, no direct financial benefit to publishing environmental reports. Companies produce environmental reports partly out of a growing concern for the environment, but mostly because they get into trouble if they don’t.

There is now significant pressure from the government and the environmental lobby for companies to publish environmental and social data, particularly those that operate in the third world, although there are still no mandatory reporting requirements.

The DETR, among many others, has issued detailed guidance for the measurement and reporting of environmental performance for those companies that choose to do so. Large companies that don’t report are ‘named and shamed’ by environmental pressure groups and those that do don’t get away with publishing just anything.

The ACCA presents annual awards for the best environmental and social reports and included in the key criteria applied in all categories are the balanced reporting of good and bad news, and the reporting of actual performance against targets. The environmental reports of most heavy industries now tell you exactly how many employees and subcontractors died in accidents while at work during the year.

An increasing number of companies have their environmental reports verified.

There is no requirement to verify environmental reports and research that shows the benefits in terms of added credibility are negligible, but companies do it anyway.

The verification work is performed by the consulting arms of the Big Five and the larger firms of consultants such as Aspinwall, Ashridge and Lloyd’s Register.

There is something of a turf war going on between these two camps. The Big Five trade on their audit experience, their sophisticated audit methodologies and their global brands. The consultants trade on their specialisation in environmental consultancy and their environmental expertise.

The Big Five employ environmental specialists and the environmental consultants employ auditors. They both poach each other’s staff and KPMG’s environmental audit division was augmented some years ago by a mass defection of environmental audit experts from a client – The Body Shop.

The Big Five often have the advantage of inside knowledge of a company’s operations because they act as external auditors. The disadvantage is that they are sometimes seen as lacking in independence, expensive, and not as committed as the consultants who really need the work.

The consultants can also be relied on to use words such as correct, accurate and complete in their reports; auditors generally balk at saying anything much stronger than ‘properly collated’. The auditors think that the consultants are a soft touch, the consultants think that the auditors should stick to what they’re good at.

Whatever the reasons, the consultants seem to be gaining the edge. More environmental reports in the UK are verified by firms of consultants than by firms of auditors and it seems ironic that the auditing procedures now used by most consultants are substantially based on the auditing standards painstakingly developed by the Auditing Practices Board over the last 20 years.

Three years ago, a number of consultants were still using the term ‘true and fair’ in their verification statements, in line with the requirements of SAS 600, something no auditor would dream of doing.

Furthermore, the environmental reporting agenda is being developed outside the UK. In Washington, the Coalition for Environmentally Responsible Economies (CERES) has issued a draft set of sustainability reporting guidelines, which amount to a framework for environmental reporting and in Brussels, FEE has issued a discussion paper titled Providing assurance on environmental reports. Nothing comparable is being developed in the UK.

Environmental reporting and assurance are not high on anyone’s agenda and it seems unlikely they will be, at least until the international position has been finalised.

But this situation is risky because once the international position is settled, the UK will find itself in a position of having to harmonise with a framework developed to suit the needs of the USA, continental Europe, and more importantly, the environmental consultants who are active internationally.

However, at the end of the day, standard-setters in the UK have limited resources. Environmental reporting is high-profile but not that important because it is expensive and likely to remain confined to voluntary reporting by large companies for some time to come.

Whilst contribution to international developments is not the same as being in the driving seat, it does not make sense for standard-setters in the UK to devote a great deal of time or effort to the subject because the vast majority of accountants and auditors are not, and are never likely to be, involved in environmental reporting.

Environmental reporting is probably one issue with which we have to be content to take a back seat for the time being. There are bigger battles to be fought.

– Elizabeth MacKay has worked for the Big Five and for regulators in the UK and abroad. She writes and lectures on global audit and regulation

THE RISE OF ETHICAL REPORTING

The current interest in ethical or environmental reporting has been around for little more than a decade and followed some key events.

Perhaps the first was the discovery of the lethal properties of asbestos in the early 1980s. To this day the insurance market Lloyd’s is involved in a legal action over the fire retardant that poisoned thousands of people.

The Bhopal disaster, and the Rio Conference of the early 90s were next in line to raise the profile of environmental issues.

However, the seminal event came in 1987 with the publication of the Bruntland report, titled The Common Future, commissioned by the United Nations.

As a direct result Norway created what was to become known as the Petroleum Fund which stockpiled income from North Sea oil with the express purpose of providing an investment fund to generate income of future generations. A major condition of the fund’s management was that all investment was to be conditioned by environmental responsibility clauses.

GM RAPESEED ISSUE COULD COST UP TO #3M

Environmental issues are never far from the headlines. Only last week, the government announced that some 4,700 hectares of rapeseed accidentally grown on farms in the UK from genetically modified seed must be destroyed.

This, like many environmental impact stories, has resulted in a tug of war between environmental values and economics. UK farmers will not be compensated for the destruction of fields already planted, the Ministry of Agriculture, Fisheries and Food has said.

They will have to pursue Advanta Seeds for replanting and reduced yields costs. The National Farmers Union estimates this cost at #3m.

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