The Environment Agency has commissioned Trucost, the environmental consultancy, to repeat a study of environmental disclosures in Annual Report and Accounts of FTSE All-Share companies. Initial findings in advance of the full study to be produced in the autumn show that whilst many companies have improved their discussion of environmental issues, the level of quantification of environmental performance remains low.
Speaking to FSN, Richard Mattison, Managing Director of Trucost said, "Companies are still very confused by the legislation and what information they are required to report. Many are also unaware that fund managers and pension funds are considering environmental factors in their valuation models."
But Howard Pearce of the Environment Agency, told FSN that a lack of systems and processes is partly to blame. He said, "Businesses are very good at measuring financial performance but do not put the same effort into environmental reporting. They have information about their electricity costs but they do not routinely convert this into carbon emissions because the systems are not in place."
Frustrated by the demise of the OFR and the relevant accounting standard (RS1)
following Chancellor Gordon Brown's u-turn, it appears that environmental reporting has lost momentum with companies confused by the requirements of the EU Accounts Modernisation Directive (AMD) and the latest aspects of the Company Law Reform Bill.
But the AMD, which comes into effect for year ends commencing on or after 1 st April 2005, requires an analysis and KPIs relating to environmental factors "to the extent necessary for an understanding of the development, performance and position of the business of the company."
"What we are hoping companies will do routinely is to measure their energy and water consumption i.e. inputs, plus their waste and emissions or outputs. We're setting the bar very low and think that most companies should be able to cope with these four things," added Pearce.
The advance findings from the Environment Agency appear to show that for the time being, companies with March year ends, who are the first required to comply with the AMD, have concluded that they do not need to quantify their environmental impacts. A preliminary review of the 79 FTSE All-Share companies that have published their Annual Report and Accounts, shows that 96% discussed their interaction with the environment in comparison with 86% in a similar 2004 survey. The most common disclosure, 76%, was regarding waste management and disclosures regarding climate change dramatically increased, 51% up from 17% in 2004. However, quantification of environmental impacts remains low with, for example, less than 20% of companies reporting on Greenhouse Gas Emissions. The full study is due later this year and a deeper analysis including all FTSE All-Share companies is expected in the Autumn of 2007.
One unknown factor is the impact of the Company Law Reform Bill, currently making its passage through parliament, which will require companies to explain why they have not reported information about environmental matters if they fail to disclose. Furthermore, a key proposal of the Bill is to require directors to make a statutory statement of directors' general duties including the impact of the company's operations on the community and the environment. The Environment Agency believes that "this will add significant weight to environmental matters as they are discussed in UK boardrooms."
Time will tell if the Environment Agency is right but for the moment at least, it seems that many companies are sitting on the side-lines, waiting to see what others do.
