The UK's Advisory Committee on Business and the Environment, in its sixth (1996) progress report reported that the pace of environmental reporting by UK companies had slackened in the last year or two. Only a few of the largest and almost none of the smaller companies have done so while the number of businesses providing financial information about their environmental impacts in their Annual Reports remains, according to ACBE, very small. This poor level of reporting translates, on a world-wide scale, into little over 200 out of approximately 36,000 multi-national corporations, having publicly reported their environmental performance to their stakeholders, according to the Environmental Report produced for the NatWest Group by Westminster Bank. There has not been much in the way of dramatic improvement since 1996 in most company environmental reports given the more difficult economic climate in recent years.

The subject of environmental reporting, according to NatWest, has not readily been taken up by the majority of industry, despite the issuance of numerous sectoral codes and guides. The reasons for reluctance, the Bank says, are no doubt complex, but probably include cost, fear of potential prosecution for admitted short-comings and lack of the required management information.

The financial sector, according to NatWest, has been slow, and few investors, fund managers and analysts have asked for environmental information. Markets, say the Bank, are unlikely to react positively until environmental issues are seen as impacting upon a company's operational and financial performance, as well as its long term well-being.

ACBE reports that the business case for environmental management is now widely accepted, not only among larger businesses, but progressively among small and medium sized enterprises as well. The arguments in favour of environmental management have evolved and been well rehearsed over the years to become encapsulated in a mix of enlightened self-interest and good corporate governance. Together with health and safety management, environmental management has become an integral part of good business practice. Case studies now exist in plenty to demonstrate that detailed inspection of environmental impacts yields opportunities for profit improvement through cost savings obtained from improved materials use and energy utilisation, and from better waste management practices.

It is an apparent anomaly, therefore, given the fairly obvious benefits obtainable from the use of environmental management practices, that businesses seem to have so much difficulty in reporting environmental performance. Much effort, ACBE says, has gone into exploring the reasons for this.

Environmental reports, according to ACBE, are aimed to provide information to a diverse readership but that they appear to be little used by any audience and certainly not by the financial sector. The lack of impact of environmental reports can be ascribed sometimes to being too comprehensive in the case of large stand-alone reports, to their being too superficial and at such a level that stakeholders of influence cannot find information presented in such a way that they can make real use of it.

Some practical clues as to the reasons why environmental accounting has not really caught on in industry can be found in recent studies on environmental accounting commissioned by British Telecom. Ian Ash, BT's Director of Corporate Relations, commented that the company has received regular suggestions that BT's environmental report should include more financial information. On the surface, he says, this sounds eminently sensible and straightforward. Dig a bit deeper, however, and he says that it soon becomes clear that there are not standard accounting rules for reporting environmental costs and benefits, nor any consensus view on how such data would be evaluated. How, for example, he asks, will a high environmental cost be interpreted ? Will it be seen as a sign of environmental commitment, or will it symbolise an earlier failure to integrate environmental considerations into the company's project and product planning processes ? There are many hidden issues on the interpretation of financial data on environmental performance. For example, for any particular activity or issue, there are likely to be both direct and indirect costs and savings. A decision to use recycled paper for all photocopying might reduce total paper costs, but may also increase costs of copier maintenance. The degree to which direct and indirect costs or savings are considered make standardisation and interpretation of any financial data uncertain.

While much of the very limited environmental reporting which has taken place has sought to quantify environmental performance in terms of physical impacts or outputs, few have attempted to produce a comprehensive assessment of the economic costs and benefits of good environmental management.

Environmental reporting in the USA, according to ACBE, appears to have reached a substantially higher level of public attention than it has in the UK. Major reasons for this include the activities of the Securities and Exchange Commission (SEC), the US Environmental Protection Agency (USEPA), the Freedom of Information Act and the power of public interest groups with a willingness to employ litigation. Moreover, the financial penalties for poor environmental management are, ACBE reports, more likely to be material to the viability of a business that would be the case in the UK.

According to ACBE and both the studies commissioned by BT, there is a lack of accepted definitions and as to what should, and should not, be included in a set of environmental accounts and as to how these should be categorised and presented. However, the overall conclusion is that at present UK companies do not have to do a great deal to match the current reporting activities of US companies.

ACBE is now in the process of producing a draft set of guidelines on good practice, aimed primarily at the producers of reports which contain environmental information. This will cover the three standard communication channels through which businesses can demonstrate that it has given proper consideration to environmental matters: the audited financial Accounts, management's Operating and Financial Review, as contained in the Annual Report, and the information in a separate environmental report. The guidelines will seek to integrate and unify the information contained in each to facilitate better understanding and use of environmental information by the UK financial markets. This development can be nothing other than beneficial.

Peter Doyle