Introduction
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 an
organisation. 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
organisation’s operations and
products and demonstrates the
organisation’s commitment to reduce Although environmental reporting
them accordingly by publicly has yet to reach the generally
disclosing its policies, targets and accepted standard of financial
long-term objectives. reporting, there has nevertheless
been a rapid evolutionary process
Benefits flowing from this greater which has contributed to the high
transparency may include: standard of environmental reports
• an increase in the number of seen today.
customers who consider, respect
or share the same values
• accessing preferred suppliers’
lists of companies which consider
environmental responsibility
issues 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.
 What is environmental reporting?

PAGE 2

The Environmental Working Party of Reports are known to have been

the European Federation of published by companies from the
Accountants (FEE) defines the countries indicated on the map
objective of external environmental opposite.
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.’
 {
Austria France Norway The Netherlands
Belgium Germany Portugal United Kingdom
Europe Czech Republic Hungary Spain
Denmark Ireland Sweden
Finland Italy Switzerland

Russia

Canada

Japan
USA

Hong Kong

India

Colombia Brazil

South Africa
Australia

Argentina

New Zealand

ENVIRONMENTAL REPORTS ARE BEING PRODUCED GLOBALLY

 Corporate governance for the 21st century
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 the
full 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 communicate
company performance on its core
values to all stakeholders.
 Corporate governance for the 21st century (continued)

PAGE 5

General public
Regulators and
and future
policy makers
population

Core values of a sustainable

business

Economic viability
Banks and Local
Environmental responsibility
shareholders communities
Social accountability

Customers and
Employees
suppliers

FIGURE 1: CORPORATE UNDERSTANDING OF, AND RELATIONSHIPS WITH, AFFECTED AND AFFECTING STAKEHOLDERS
 The benefits of environmental reporting
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 management
strategies, 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 their
stakeholders. 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 an
emerging 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 (continued)
Target setting and external reporting
drives continual environmental
improvement
Public disclosure of targets act as an
internal driver, continually improving
an organisation’s 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
PAGE 7
can openly report on all aspects of It enhances employee morale
their performance, thus giving a A company which has a more open
more complete and transparent view and transparent style of business
of the organisation’s managerial will motivate its employees.
strategy and operations, are more
likely to achieve ‘preferred supplier’ Improved profitability
status. Improved environmental
performance will often have a direct
It reduces corporate risk, which may and measurable impact on
reduce financing costs and broaden profitability (the financial bottom
the range of investors line) through costs saved or avoided
In the reporting cycle, it is common or through new revenues generated.
to identify areas of environmental
risk 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.
 Stakeholders and their information needs
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
(NGO’s): 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 entity’s 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 (continued)

PAGE 9

Many environmental reporters make We recognise the importance

a considerable effort to identify who of accountability to
their primary stakeholders are and
stakeholders and are learning
establish an ongoing dialogue with
to be more open, through
them to ensure that the published
greater engagement with our
reports meet their needs. A
comprehensive stakeholder survey is stakeholders, the publication
an essential prerequisite for of this report and providing an
publishing a first environmental opportunity for people to tell
report. Thereafter, companies may us what they think of our
set up stakeholder panels or focus performance.
groups to maintain the process of
dialogue and feedback. Feedback
Shell ‘How do we stand?’,
forms are usually included in
The Shell Report 2000
published environmental reports and
web-based reports normally
incorporate a mechanism for
delivering feedback through the
website itself.
 Components of an environmental report
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, the
markets 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 This section can include information
reporting environmental performance on:
against specific targets. • prosecutions and complaints
• physical data
Targets and achievements • financial data.
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.
 Components of an environmental report (continued)
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.
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 and
offer recommendations for systems
improvement and reporting practice.
PAGE 11
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 first
companies to publish an
environmental policy and to
publish an annual
environmental performance
report.
‘How we manage the
environment’, BT’s 2000
environmental report
 Different approaches to environmental
reporting
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.
Table 1: Different approaches to environmental reporting
Reporting methodology
Compliance based
reporting
Toxic release inventory
(TRI) based reporting
Eco-balance reporting
Performance based
reporting
Description
Reporting the level of compliance with external regulations and
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.
Many US companies are required by law to publish lists (detailed in
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.
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).
Perhaps the most common form of environmental reporting. Reports
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) and
Novo Nordisk (Denmark) are good examples of this approach.
 Different approaches to environmental reporting (continued)

PAGE 13

Table 1 (continued) When reporting their environmental

information, companies have also
chosen different disclosure methods.
Product focused reporting Volvo (Sweden) has produced an ‘environmental product declaration’ Apart from the increasingly popular
report that evaluates the total environmental effect of one specific
standalone paper-based environmental
Volvo model. Issues covered include: operation, recycling,
manufacturing and environmental management. In this case, report, some companies have also
environmental responsibility has extended beyond the factory gate. chosen to include an environmental

Environmental and Pressure is mounting for companies to widen their scope for
section in the annual report and
social reporting corporate public accountability, and many are responding by accounts. Other communication
including social data in their reports. Examples of social measures channels used include the corporate
include: employee statistics and conditions, community support and
Intranet (for employees), community
involvement, and stakeholder consultation information. Companies
publicly reporting on their social issues include the Co-operative
briefing sheets and, increasingly, the
Bank, BP Amoco and United Utilities (all UK) and Ben & Jerry’s (US). Internet. Individual site-based
reports are also common.
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).
 Mandatory environmental reporting
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.
PAGE 15
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.
 A balanced view
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 complete in all material respects.
explores both the objective of the Credibility is further enhanced when
verification exercise and the findings non-superior performance is
– both positive and negative. highlighted and explained in terms
that all categories of stakeholder can
An excellent environmental report understand. Being fully transparent
should enable the reader to form a in the environmental report also
complete view of that organisation’s builds trust with an organisation’s
operations and environmental stakeholders and helps maintain
impact. Once the completeness of brand loyalty.
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
 Global examples of environmental reporting

British Airways UK Shell UK Baxter USA SCA Sweden

www.britishairways.com www.shell.com www.baxter.com www.sca.se

Novo Nordisk Denmark Fiat Italy South African Breweries Neste Fortum Finland
www.novo.dk www.fiatgroup.com www.sabplc.com www.fortum.com
www.neste.com
 Sustainability reporting: the next step
PAGE 18
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
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 (continued)

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
P&G USA BP Amoco UK Bristol Myers Squibb USA
www.pg.com www.bp.com www.bms.com

TXU Europe UK
www.txu-europe.com

ITT Flygt Sweden Landcare Research NZ

www.flygt.com www.landcare.cri.nz
 Appendix: ACCA UK ERA
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 (continued)

PAGE 21

reporting approaches and reporting Corporate accountability is not

disclosures which deserve specific an optional extra, to be
commendation.
addressed when a company
suits. It is both a duty, both
See Table 2 overleaf.
in corporate citizenship terms,
ACCA UK ERA ON THE WEB and, just as important, in
The report of the judges, ERA criteria terms of shareholder value
and additional information are
available to download from the South African Breweries plc,
ACCA website at Corporate Citizenship Review
www.accaglobal.com/soc_env.html
2000
 Appendix: ACCA UK ERA (continued)

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

COMPLETENESS 40%

An excellent environmental report should enable the reader to form a Indicators: specific aspects of the reports to be judged
complete view of that organisation’s operations and environmental • Corporate context
impact. In summary, what is being sought in a report is for the reader to – major products/and or services
be able to develop a complete mental picture of the organisation: what it – financial performance
does, the extent of its operations and the scope of the report in – geographical location(s)
conjunction with its entire activities. Once the completeness of the – employment information
report has been established the credibility of the information presented • Key (direct and indirect) environmental impacts of business
then becomes important. considered and explained
• Environmental policy and management commitment
A complete view has two parts. First, there should be clarity with regard • Rationale behind choice of environmental performance indicartors
to the definition of the reporting entity for the purpose of that used in report
environmental report. There is an expectation that entities which have • Environmental targets and objectives
been reporting for some time will include all their operations in an • Product or service stewardship (e.g. design, life cycle analysis,
environmental report unless they produce a range of reports. The second disposal policies)
aspect of completeness is the extent to which, for the reporting entity, all • Supplier procurement policies and issues
significant aspects of environmental impact are presented in the report. • Scope of the report (by entity)
Where reports are not complete in the manner outlined above there • Reporting and accounting policies (e.g. reporting period,
should be some indication of the extent to which completeness has not consolidation)
been achieved and some estimate of the impact of this lack of • Report audience identified
completeness should be attempted. • Linkages between environmental reporting and sustainability issues.

Table 2 (continued)
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.
Indicators: specific aspects of the reports to be judged
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
Appendix: ACCA UK ERA (continued)
• 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, DETR’s 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.
 Appendix: ACCA UK ERA (continued)

Table 2 (continued)

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.

Indicators: specific aspects of the reports to be judged

• 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.
An Introduction to
Environmental Reporting
 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
© The Certified Accountants Educational Trust (CAET) 2001 students in 160 countries.
March 2001
ISBN 1 85908 334 X
ACCA/RJ1/002

The Association of Chartered Certified Accountants

29 Lincoln’s Inn Fields London WC2A 3EE United Kingdom
tel: +44 (0)20 7396 5980 fax: +44 (0)20 7396 5730 www.accaglobal.com