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PAGE 1

A combination of growing awareness

of environmental issues by the

general population and increased

non-governmental organisation

(NGO) pressure and activity has led

many companies to reflect on and

revise their corporate environmental

responsibilities.

Environmental reports have become

highly effective tools for

communicating to stakeholders the

environmental performance of anorganisation. Estimates put the total

number of environmental reports

produced worldwide at 2000. An

excellent environmental report clearly

acknowledges and explains the

environmental impacts of an

organisations operations and

products and demonstrates the

organisations commitment to reduce

them accordingly by publicly

disclosing its policies, targets and

long-term objectives.

Benefits flowing from this greater

transparency may include:

an increase in the number of

customers who consider, respect

or share the same values

accessing preferred suppliers

lists of companies which consider

environmental responsibilityissues upstream to their own

operations

strengthening the relationships

with stakeholders by involving

them in the reporting process

and

general public approval, thus

lowering reputational risk.

Although environmental reporting

has yet to reach the generally

accepted standard of financial

reporting, there has nevertheless

been a rapid evolutionary process

which has contributed to the high

standard of environmental reports

seen today.

Introduction

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PAGE 2

The Environmental Working Party of

the European Federation of

Accountants (FEE) defines the

objective of external environmental

reporting as being:

the provision of information about

the environmental impact and

operational performance of an

entity that is useful to relevant

stakeholders in assessing their

relationship with the reporting

entity.

What is environmental reporting?

Reports are known to have been

published by companies from the

countries indicated on the map

opposite.

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Australia

Canada

Russia

USA

Hong Kong

Japan

India

South Africa

Colombia

Europe

ENVIRONMENTAL REPORTS ARE BEING PRODUCED GLOBALLY

Argentina

Brazil

New Zealand

France

Germany

Hungary

Ireland

Italy

Norway

Portugal

Spain

Sweden

Switzerland

{

Austria

Belgium

Czech Republic

Denmark

Finland

The Netherlands

United Kingdom

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PAGE 4

Organisations are increasingly

coming to realise that, in order to

meet the growing demands made of

them by their competitors, external

stakeholders and the Government,

they need to change the way they

do business. This change includes

becoming more open and accountable

for the economic, environmental and

social consequences of their activities.

This new (and often under-estimated)

dimension of corporate governance

includes taking responsibility for thefull range of positive and negative

consequences arising from corporate

decisions and actions, and disclosing

these impacts in an appropriate

environmental, social or

sustainability report.

The diagram in Figure 1 shows how

companies should identify and

communicate with their stakeholders,

consider and act on their needs and

involve them fully in corporate

business. In order to make their

operations more sustainable,

companies must also begin to

integrate economic viability with

environmental responsibility and

social accountability (core values). To

complete the picture, external

reporting is necessary to communicatecompany performance on its core

values to all stakeholders.

Corporate governance for the 21st century

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PAGE 5

Corporate governance for the 21st century (continued)

Banks and

shareholders

Core values of a sustainable

business

Economic viability

Environmental responsibility

Social accountability

FIGURE 1: CORPORATE UNDERSTANDING OF, AND RELATIONSHIPS WITH, AFFECTED AND AFFECTING STAKEHOLDERS

Local

communities

General public

and future

population

Regulators and

policy makers

Customers and

suppliersEmployees

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PAGE 6

Since environmental reporting in

most countries is a purely voluntary

activity, it is necessary for companies

to perceive some tangible benefits

when establishing the business case

to report. The following are some of

the benefits most commonly cited by

reporters.

It demonstrates coherence of overall

management strategy to important

external stakeholders

By disclosing managementstrategies, systems and policies

relating to the environment, an

organisation can demonstrate to its

stakeholders its holistic approach to

environmental responsibility.

It strengthens stakeholder relations

One of the benefits of increasing

corporate transparency via an

environmental report is that

stakeholder relations are strengthened.

Confidence and trust between the

two parties are improved when

organisations include stakeholders in

the reporting process by actively

engaging with them. Stakeholder

dialogue is increasingly used by large

companies to help identify the key

issues which are of concern to theirstakeholders. These issues should

then be addressed in the

environmental report.

It increases competitive advantage

(the first mover effect)

An organisation which demonstrates

full responsibility for its environmental

impacts and then reports on them,

benefits from gaining a competitive

edge over its peers in the same

sector which are not as open and

transparent about such issues.

Public recognition for corporate

accountability and responsibility

The growing expectations of anemerging environmentally aware

public need to be met. An

organisation will gain external

recognition as a responsible

organisation if it produces a complete

and credible environmental report.

The benefits of environmental reporting

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PAGE 7

Target setting and external reporting

drives continual environmental

improvement

Public disclosure of targets act as an

internal driver, continually improving

an organisations performance.

Effective self-regulation minimises

risk of regulatory intervention

By adopting high environmental

standards, an organisation is

prepared for current and future

environmental regulation.

It may improve access to lists of

preferred suppliers of buyers with

green procurement policies

Corporate environmental stewardship

now includes consideration of upstream

processes. Suppliers who share the

same high environmental values and

can openly report on all aspects of

their performance, thus giving a

more complete and transparent view

of the organisations managerial

strategy and operations, are more

likely to achieve preferred supplier

status.

It reduces corporate risk, which may

reduce financing costs and broaden

the range of investors

In the reporting cycle, it is common

to identify areas of environmentalrisk which previously went

unnoticed. By actively lowering

these corporate risks (and therefore

increasing the compliance rate and

decreasing liabilities) an organisation

can enhance its investment

potential.

The benefits of environmental reporting (continued)

It enhances employee morale

A company which has a more open

and transparent style of business

will motivate its employees.

Improved profitability

Improved environmental

performance will often have a direct

and measurable impact on

profitability (the financial bottom

line) through costs saved or avoided

or through new revenues generated.

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PAGE 8

Whereas published financial data is

assumed to be important primarily to

shareholders, lenders and potential

investors in enabling them to make

economic decisions relating to the

reporting entity, with environmental

reporting there is no such certainty.

There is potentially a much wider

audience for environmental data.

The principal users of environmental

data and their related information

needs are summarised below.

Internal managers: to monitor

compliance; to assess progress; to

demonstrate accountability and

progress to other stakeholder groups.

Non-governmental organisations

(NGOs): can improve communications

and build greater trust.

Lenders: need to ensure that

secured assets are not impaired in

any way; conformity with ethical

lending policies.

Suppliers: provides a convenient

review of the entitys overall

environmental policy and strategy.

Investors: assurance that poor

environmental management will not

translate into financial risk;

conformity with ethical investment

policy; knowledge of performance

relative to other companies.

Neighbours / communities: site

specific data relating to emissions

and waste policies.

Customers: may have strict

environmental procurement policies.

Employees: assurance on health and

safety grounds.

Regulatory agencies: demonstrates

corporate commitment and progress;

may help in minimising future

regulatory intervention.

Stakeholders and their information needs

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PAGE 9

Many environmental reporters make

a considerable effort to identify who

their primary stakeholders are and

establish an ongoing dialogue with

them to ensure that the published

reports meet their needs. A

comprehensive stakeholder survey is

an essential prerequisite for

publishing a first environmental

report. Thereafter, companies may

set up stakeholder panels or focus

groups to maintain the process of

dialogue and feedback. Feedbackforms are usually included in

published environmental reports and

web-based reports normally

incorporate a mechanism for

delivering feedback through the

website itself.

Stakeholders and their information needs (continued)

We recognise the importance

of accountability to

stakeholders and are learning

to be more open, through

greater engagement with our

stakeholders, the publicationof this report and providing an

opportunity for people to tell

us what they think of our

performance.

Shell How do we stand?,

The Shell Report 2000

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PAGE 10

Many environmental reporting

guidelines have evolved over the past

decade to provide organisations with

a framework of what to include in an

environmental report. The following

list highlights the main components

of an ideal environmental report:

Organisation profile

An overview of the organisation in

terms of its size as represented, for

example, by turnover and number of

operational sites and employees, themarkets served, and its key

interactions with the physical

environment.

Environmental policy statement

A public commitment to pursue

particular goals and objectives in

terms of managing, measuring and

reporting environmental performance

against specific targets.

Targets and achievements

A comprehensive set of targets that

cover all key environmental issues

faced, ranging from the establishment

of effective management systems to

the responsible use of natural

resources and control of waste

generation and emissions.

Performance and compliance

Detailed performance data form the

central feature of the best

environmental reports. Such data

comprehensively illustrate success

(or failure) in making progress

towards achieving the stated targets.

This section can include information

on:

prosecutions and complaints

physical data

financial data.

Components of an environmental report

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PAGE 11

Management systems and

procedures

The provision of reliable performance

information is impossible without

adequate information systems having

been established in the first instance.

This section typically describes the

environmental management system

in place, acknowledges the external

acreditations achieved (e.g. ISO

14000/EMAS) and identifies key

managerial responsibilities for the

various aspects of the system.

Components of an environmental report (continued)

BT believes that reporting of

our environmental and social

performance is a valuable tool

to engage with our

stakeholders on these issues.

We were one of the firstcompanies to publish an

environmental policy and to

publish an annual

environmental performance

report.

How we manage the

environment, BTs 2000

environmental report

Independent verification statement

Without independent assurance,

most organisations have realised

that their environmental report will

have little standing with any external

audience. Verification statements

cover systems compliance issues

and provide assurance as to the

completeness of the report (see

appendix for further information on

completeness). The best verification

statements also report on the

acceptability of performance andoffer recommendations for systems

improvement and reporting practice.

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PAGE 12

The lack of generally accepted

environmental reporting standards

has led companies to develop their

own unique methods. As

demonstrated in Table 1, a variety of

different approaches are currently in

use.

Different approaches to environmental

reporting

Table 1: Different approaches to environmental reporting

Reporting methodology Description

Compliance based Reporting the level of compliance with external regulations and

reporting consent limits is often the core feature of the environmental reports

of heavily regulated utility industries such as water and electricity.

Anglian Water and TXU-Europe (both UK) are good examples of

reports driven by a regulatory imperative.

Toxic release inventory Many US companies are required by law to publish lists (detailed in

(TRI) based reporting physical quantities) of emissions of specific toxic substances. These

mandated disclosures often take precedence over voluntary performance

based disclosures. Examples include IBM, Texaco and Monsanto.

Eco-balance reporting Some companies (including many from Germany) construct a formal

eco-balance a detailed account of resource inputs and outputs (in

terms of product output and waste / emissions) from which they

then derive performance indicators. Examples include Kunert

(Germany) and NSK-RHP (UK).

Performance based Perhaps the most common form of environmental reporting. Reports

reporting are usually structured around the most significant areas of

environmental impact. Performance improvement targets are then

set and appropriate performance indicators developed and disclosed

annually. British Airways, BT (both UK), Neste Fortum (Finland) andNovo Nordisk (Denmark) are good examples of this approach.

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PAGE 13

Table 1 (continued)

Product focused reporting Volvo (Sweden) has produced an environmental product declaration

report that evaluates the total environmental effect of one specific

Volvo model. Issues covered include: operation, recycling,

manufacturing and environmental management. In this case,

environmental responsibility has extended beyond the factory gate.

Environmental and Pressure is mounting for companies to widen their scope for

social reporting corporate public accountability, and many are responding by

including social data in their reports. Examples of social measures

include: employee statistics and conditions, community support and

involvement, and stakeholder consultation information. Companies

publicly reporting on their social issues include the Co-operative

Bank, BP Amoco and United Utilities (all UK) and Ben & Jerrys (US).

Sustainability reporting The next step beyond environmental and social reporting is

sustainability reporting, which involves integrating environmental,

social and economic performance data and measures to produce one

report. Companies currently producing sustainability reports include

Bristol Myers Squibb, Interface and Procter and Gamble (all US),

BAA and Shell (both UK), and ITT Flygt (Sweden).

When reporting their environmental

information, companies have also

chosen different disclosure methods.

Apart from the increasingly popular

standalone paper-based environmental

report, some companies have also

chosen to include an environmental

section in the annual report and

accounts. Other communication

channels used include the corporate

Intranet (for employees), community

briefing sheets and, increasingly, the

Internet. Individual site-basedreports are also common.

Different approaches to environmental reporting (continued)

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PAGE 15

Although on the whole environmental

reporting remains very much a

voluntary activity, legislation for

specified companies to report on

their environmental impacts does

exist in some countries.

WHERE LEGISLATION EXISTS

1. The Netherlands

The legislation applies to the

most polluting companies (which

number about 300)

2. Denmark

Companies which have been

identified as having the greatest

environmental impact are

required to publish green

accounts

3. USA

Companies which have more

than 10 employees have to

report specified toxic emissions

to the US Environmental

Protection Agency.

Mandatory environmental reporting

A variety of environmental reporting

legislation is also being introduced in

the following countries throughout

the year 2000:

Australia

Sweden

Norway

New Zealand.

The UK Government has hinted at

the introduction of mandatory

environmental reporting if it is

dissatisfied with the level of

voluntary reporting in the next few

years.

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PAGE 16

An organisation is exposed to

reputational risk if it selectively

chooses to publish only good news

in its annual environmental report

and appears to systematically

exclude bad or neutral performance.

In addition to mainstream

performance data, the best reporters

worldwide also include information

on their prosecutions and fines,

environmental liabilities,

underachieved targets and poor

performance figures (whether social,

environmental or economic). This

balanced disclosure of both positive

and negative information makes for a

more complete report and therefore

ensures greater credibility for both

report and reporter. This credibility

can be greatly enhanced by the

addition of an independent external

verification statement that clearly

explores both the objective of the

verification exercise and the findings

both positive and negative.

An excellent environmental report

should enable the reader to form a

complete view of that organisations

operations and environmental

impact. Once the completeness of

the report has been established (and

this includes dealing with such

current hot potatoes as out-

sourcing, indirect effects and joint

venture arrangements) the credibility

of the information presented then

becomes important. This is the stage

at which the benefits of authoritative

independent external verification

should take effect. Credibility flows

from the knowledge that a report is

A balanced view

complete in all material respects.

Credibility is further enhanced when

non-superior performance is

highlighted and explained in terms

that all categories of stakeholder can

understand. Being fully transparent

in the environmental report also

builds trust with an organisations

stakeholders and helps maintain

brand loyalty.

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Global examples of environmental reporting

British Airways UK

www.britishairways.com

Shell UK

www.shell.com

Baxter USA

www.baxter.com

Novo Nordisk Denmarkwww.novo.dk

Fiat Italywww.fiatgroup.com

SCA Sweden

www.sca.se

South African Brewerieswww.sabplc.com

Neste Fortum Finlandwww.fortum.com

www.neste.com

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PAGE 18

integrating environmental, social and

economic performance data and

measures.

The Global Reporting Initiative (GRI)

is a long-term, multi-stakeholder,

international undertaking whose

mission is to develop and

disseminate globally applicable

Sustainability Reporting Guidelines

for voluntary use by organisations

reporting on the economic,

environmental and social dimensions

of their activities, products and

services. Since its inception in

1997, the GRI has worked to design

and build acceptance of a common

framework for reporting on the linked

aspects of sustainability the

economic, the environmental, and

the social.

In March 1999, an exposure draft of

the Guidelines was released for

public comment and as part of a test

period with 21 leading international

companies.

The Guidelines include a wide variety

of reporting and disclosure requirements

ranging from support by the CEO,

profile of the reporting entity,

identification of key indicators,

policies, organisation management

systems and commitments on the

development of sustainable

performance, a description of

stakeholder relations and engagement

practices, compliance with legal and

other international regulations and

standards, operational performance

and product performance.

Sustainability reporting: the next step

Pressure is mounting for companies

to widen their scope for corporate

public accountability and many are

responding by measuring and

disclosing their social impacts.

Examples of social measures

include: philanthropic donations,

employee satisfaction levels and

renumeration issues, community

support, and stakeholder

consultation information. The next

step beyond environmental and

social reporting is sustainability

reporting which includes the

economic element of sustainability

(such as wages, taxes and core

financial statistics) and involves

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PAGE 19

By 2002, the GRI will be established

as a permanent body, with a multi-

stakeholder governance structure.

Its core mission will be stewardship

of the Guidelines through their

enhancement and dissemination.

www.globalreporting.org

Sustainability reporting: the next step (continued)

Landcare Research NZ

www.landcare.cri.nz

P&G USA

www.pg.com

BP Amoco UK

www.bp.com

Bristol Myers Squibb USA

www.bms.com

ITT Flygt Sweden

www.flygt.com

TXU Europe UK

www.txu-europe.com

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PAGE 20

UK companies have engaged the

reporting agenda very successfully

and the ACCA UK Environmental

Reporting Awards (ERA) scheme has

been running since 1991. The

objectives of this scheme are to

identify and acknowledge innovative

efforts to communicate corporate

environmental performance.

However, the aim is not to judge or

reflect on the underlying

performance itself.

The Awards have proved influential

in the development of corporate

environmental reporting in the UK

and the scheme has been mirrored

by many other countries worldwide.

It has also been a significant

contributor in the founding of the

European Environmental Reporting

Awards scheme.

REPORT OF THE JUDGES

Each year a report is produced

which gives an overview of the

findings of the judges in that

particular ERA cycle. The report

highlights the qualities of the

winning environmental reports and

summarises the judges reactions to

all the entries submitted that year.

In addition to addressing the

strengths of the reports, the ACCA

UK ERA judges provide comments

on areas which they perceive need a

greater emphasis, or where greater

experimentation and originality is felt

to be required. The ACCA UK ERA

judges report offers valuable pointers

to future developments in the field of

environmental reporting and

highlights emerging issues in this area.

ERA CRITERIA

Although the judging criteria are a

significant factor in the selection of

the initial shortlist, they are not the

only issues to be considered. Once

the shortlist has been established, it

is assumed that all shortlisted

reports have performed well across

most of the criteria. Thereafter, the

panel of judges uses the criteria as a

guide but does not apply a strict

point scoring system. Other factors

considered and discussed among the

judges include current reporting

trends and environmental themes,

specific sectoral issues, innovative

Appendix: ACCA UK ERA

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PAGE 21

reporting approaches and reporting

disclosures which deserve specific

commendation.

See Table 2 overleaf.

ACCA UK ERA ON THE WEB

The report of the judges, ERA criteria

and additional information are

available to download from the

ACCA website at

www.accaglobal.com/soc_env.html

Appendix: ACCA UK ERA (continued)

Corporate accountability is not

an optional extra, to be

addressed when a company

suits. It is both a duty, both

in corporate citizenship terms,

and, just as important, interms of shareholder value

South African Breweries plc,

Corporate Citizenship Review

2000

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Table 2:The criteria are grouped around three elements (completeness, credibility and communication).

Indicators: specific aspects of the reports to be judged

Corporate context

major products/and or services

financial performance

geographical location(s)

employment information

Key (direct and indirect) environmental impacts of business

considered and explained

Environmental policy and management commitment

Rationale behind choice of environmental performance indicartors

used in report

Environmental targets and objectives

Product or service stewardship (e.g. design, life cycle analysis,

disposal policies)

Supplier procurement policies and issues

Scope of the report (by entity)

Reporting and accounting policies (e.g. reporting period,

consolidation)

Report audience identified

Linkages between environmental reporting and sustainability issues.


COMPLETENESS 40%

An excellent environmental report should enable the reader to form a

complete view of that organisations operations and environmental

impact. In summary, what is being sought in a report is for the reader to

be able to develop a complete mental picture of the organisation: what it

does, the extent of its operations and the scope of the report in

conjunction with its entire activities. Once the completeness of the

report has been established the credibility of the information presented

then becomes important.

A complete view has two parts. First, there should be clarity with regard

to the definition of the reporting entity for the purpose of that

environmental report. There is an expectation that entities which have

been reporting for some time will include all their operations in an

environmental report unless they produce a range of reports. The second

aspect of completeness is the extent to which, for the reporting entity, all

significant aspects of environmental impact are presented in the report.

Where reports are not complete in the manner outlined above there

should be some indication of the extent to which completeness has not

been achieved and some estimate of the impact of this lack of

completeness should be attempted.

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CREDIBILITY 35%

There are two aspects to credibility: internal credibility and external

credibility.

With internal credibility one would be seeking assurance (from the

presentation of evidence) that there are organisational structures,

processes and controls in place to enable the organisation to present

accurate information on its environmental impacts. This includes having

an environmental policy, appropriate personnel in place, an

environmental management system (EMS), ways of gathering

environmental impact data and having targets which are designed to

meet the environmental aims of the reporting entity.

External credibility relates to the extent to which there is evidence that,

where appropriate, the internal systems and information have been

tested and the views of external parties have been incorporated into the

report. This includes stakeholder interactions as well as third party

statements on the report.


Internal credibility

Headline environmental achievements in current period

Named board member responsible for environmental issues

Contact name and details for person in charge of report

EMS and its integration into the business process

Contingency planning and risk management

Internal audit

Compliance/non-compliance record

Environmental impact data (showing absolute, normalised and

comparative data with trends over time and within sector). For

example (where appropriate):

inputs (energy use, raw materials, water consumption, packaging)

outputs (emissions to air, water and land, product and waste

output)

transport (fleet description and fuel consumption)

land contamination and remediation

Conventional finance related data (environmental investments,

provisions, contingent liabilities, fines etc)

Environmental financial statements and full cost accounting.

External credibility

ISO/EMAS accreditation/certification

Adoption of reporting best practice (e.g. GRI, DETRs CO2

indicator)

Approaches to stakeholder dialogue

Use of stakeholder feedback

Third party statement factors the panel will bear in mind include:

remit and scope

indication of site visits and site specific testing interpretation of data/performance reported

identification of any data/information omitted that could/should

have been included

independent comment on corporate targets set and impacts

identified

shortcomings and recommendations.


Table 2 (continued)

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COMMUNICATION 25%

The final area on which an evaluation could be made is the extent to

which the environmental report communicates to the declared target

audiences. This is, at least in part, an assessment of the media by

which communication has been attempted.


Layout and appearance

Understandability, readability, accessibility and appropriate length

Frequency

Communication and feedback mechanisms

Innovative approaches

Availability of a summary report and/or executive summary

Comprehensive navigation through report

Use of Internet

Reference to website and other reports (e.g. financial, social)

Appropriateness of graphs, illustrations and photos

Integration with financial statements.

Table 2 (continued)

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An Introduction to

Environmental Reporting

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ABOUT ACCA

The Association of Chartered Certified

Accountants (ACCA) is the largest,

fastest growing, accountancy body in

the world. We currently work with

250,000 ACCA members and

students in 160 countries. The Certified Accountants Educational Trust (CAET) 2001

March 2001

ISBN 1 85908 334 X

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ACCA/RJ1/002

The Association of Chartered Certified Accountants

29 Lincolns Inn Fields London WC2A 3EE United Kingdom

tel: +44 (0)20 7396 5980 fax: +44 (0)20 7396 5730 www.accaglobal.com

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