The UK Minister for Trade and Technology, Ian Taylor, remarked at a recent seminar held by the Advisory Committee on Business and the Environment, that financial institutions have shown little interest in environmental reporting. Such an attitude is unfortunate for industry, its shareholders, employees and customers who are all likely to be adversely affected by such indifference to environmental performance.

Businesses operating in areas subject to greater public scrutiny are more likely to feel the need for better environmental and safety reporting. For example, Hickson International - a chemical company which has experienced a number of major industrial accidents in the UK and the Republic of Ireland in the last few years - recently appointed an independent supervisory board to oversee health, safety and environmental issues and in doing so became the first UK chemicals company to constitute such a board.

The announcement by Hickson's reportedly follows from suggestions made by the recently appointed non-executive chairman, Mr. James Hann who is also the part-time chairman of Scottish Nuclear, and based upon his experience in the nuclear industry where such boards have existed for some time. The measure, according to the Financial Times has been designed largely to reassure investors and community groups following the recent accidents experienced by the company. Hickson now plans to spend about 30% of its total capital expenditure to improve health, safety and environmental performance. The new board is to headed by the chairman and managing director of the French chemical group Rhone-Poulenc and a former president of the Chemical Industries Association.

While Hickson's announcement must be welcomed by all concerned parties, it is nevertheless regrettable that it is taking place against a background of such serious recent accidents.

Turning to the reasons as to why most financial analysts ignore environmental pressures on companies, a recent survey of top analysts conducted on behalf of Business and the Environment revealed a number of important findings. Chief among these were the difficulty of pricing environmental impacts and a lack of trust about self-published details of company environmental performance. Most analysts reportedly think that most environmental issues are either emotional or moral in nature and therefore irrelevant to their job of making rational assessments. Perhaps more surprisingly, over seventy five per cent of analysts surveyed didn't even consider the environment to be an important competitive issue.

The `fundamental inadequacy' of environmental reports, according to Derek Higgs, chairman of the merchant bank SG Warburg, is clearly a major factor restricting the ability of financial analysts to take greater account of the environmental performance of companies. The trend within the European Community if away from prescriptive legislation and more towards the greater use of voluntary and fiscal measures to encourage improvements in environmental performance.

Notwithstanding these deregulatory trends, Greenpeace has issued a comprehensive statement calling for legislation on environmental reports to ensure that they carry the same weight as financial accounts. The Business in the Environment survey also indicated that financial analysts regarded legislation as being essential before environmental reports could become useful documents. Touche Ross have additionally pointed out that the use of more rigorous accountancy standards would help, for example, in the disclosure of contaminated land liabilities.

Although more environmental data is being released in company annual reports, wide discretion is available to a company in deciding what to report and it is clear that many companies will use this discretion liberally unless they are put under more pressure by their stakeholders. In the absence of firm regulation on disclosure, developments will most likely take place in a somewhat haphazard manner, despite the existence of several good examples of voluntary initiatives led by various industry associations.

Examples of the significant financial implications of poor performance in the health, safety and environmental fields on companies are now fairly plentiful right across the scale of business activity, ranging from small local or regional companies with no aspirations to trade in international markets, to large national and multinational companies.

The effects of the first claims relating to asbestosis, dioxins, and oil spills at sea, for example, have had far more profound effects than could possibly have been foreseen at the time when such incidents first attracted attention. Besides the initial adverse effects on the, usually individually affected companies and their stakeholders, the ramifications of adverse health and safety or environmental effects has extended at varying speed, to affect whole industrial sectors.

The nature of such claims is potentially entering a new phase in which the potential for long term environmental effects could begin to feature more strongly in assessments of company performance. Claims are, for example, made in a recent report commissioned by Greenpeace from the Delphi Group of financial consultants, that the effects of climate change presents a major long term risk to investors in the carbon fuel cycle. The report has already reportedly had some impact on investor thinking. Written by Mark Mansley, a former director and chief securities analyst with Chase Investment Bank, the report warns investors to avoid maintaining long term positions in the oil, gas and coal industries until risks associated with climate change and global warming are adequately discounted.

Despite the fact, therefore, that many financial analysts reportedly ignore environmental reporting, long term financial threats to company performance are taken seriously. The use of money may indirectly, therefore, yet be extended to the measurement of ethical values in the environmental field and all the moreso because alternative usable measures are hard to identify. As money is increasingly used to measure the lack of environmental performance, the more it will usefully feature in company environmental reports and be taken notice of.

©Peter Doyle BSc MSc.