XBRL extended into environmental reporting

13th April 2008

Jones Lang LaSalle very recently published a piece of research into environmental sustainability and the finance function, conducted for them by CFO Research. While more than half the finance executives interviewed for the research recognised that sustainability contributed to higher revenues, lower costs, improved investor relations and increased shareholder value, nearly all those surveyed acknowledged that their role in driving sustainability was limited. Niki Leahy, FSN senior writer, reports how XBRL and Web 2.0 techniques can help.

Key reasons given for the low level of integration of sustainability issues into the finance function included the difficulty most executives felt at measuring the effects of sustainability on shareholder value, an inability to document effects of sustainability actions on financial performance and a lack of standard decision making tools and frameworks that relate to environmental improvements.

Corporate environmentalists have been around for a long time, certainly in industries with high risks and a history of regulation and compliance. By the mid 1990's environmental affairs managers were also increasingly found in more strategic head office functions, and in the last ten years there has been a widespread recognition of the importance of environmental, as well as community and workforce costs and benefits to the top and bottom line. A majority of larger, private and public companies recognise that carbon now has a financial currency – as well as ethical and operational costs. When we face the strong possibility of an intra-national carbon market, those already engaged in tracking and reducing their CO 2 emissions will be favourably positioned. Absolute and relative levels of CO 2 emissions are even seen as gaseous evidence of corporate inefficiency.

The good news for those finance functionaries still struggling with the integration of environmental and economic sustainability is the momentum gathering behind the Global Reporting Initiative, (GRI) in its attempt to establish international protocols for the reporting of environmental and social impacts that directly relate to global financial reporting standards. Last year, the GRI released a beta draft of a taxonomy developed by PwC that created XBRL tags which are mapped to the 2006 G3 Sustainability Reporting Guidelines. This means that a report preparer can use an existing taxonomy to place XBRL tags on the specific content of their report, such as greenhouse gas emissions. XBRL then enables the user to immediately find the GHG emissions information in the document, extract it, present it as raw data and analyse it based on the user's predefined interest. The user could also apply this to multiple reports in order to compare emissions information across many companies.

While the GRI recognise that the creation of the taxonomy was relatively easy, challenges remain in codifying the procedures for obtaining sets of environmental and social data that will be presented in the same order as outlined in the G3 guidelines. For example, while "net profits" appear in about the same place in almost all financial reports, CO 2 emissions can appear anywhere in a sustainability report, and will often require narrative explanations by the reporting entity in support of numbers detailed. More encouraging is that the GRI's XBRL taxonomy is usable now, with companies and investors able to download it from the GRI website and mark up their sustainability reports according to the tags. Collaborative work continues between the GRI, companies and end users such as the SRI community in order to take the taxonomy and map it against the way companies report, and how end users analyse the information. The GRI provide complete sets of on-line technical protocols and report profiles. Recent work published by the German academics, Arndt, Graubitz and Klesinski in 2007 on web based sustainability reports has combined the use of XBRL with topic mapping procedures, (XTM).

A timely example of the use of some of the unique opportunities the web offers as a means of communicating sustainability achievements is BASF's recent publication of its web based Annual Report, 2007. This combines the company's financial and sustainability reporting for the year in a single document. Internet reporting has enabled BASF to make available far more detailed and enriching content on many sustainability topics in the form of videos, flash, diagrams, podcasts and interviews. BASF have also incorporated a series of new service elements which include interactive comparisons of key performance indicators, extensive keyword search facilities, a download manager and direct links to main topics. Users can tailor information to their personal interests via raw data sheets, (Excel), interactive graphs, RSS feeds and email newsletters. In addition, interactive comparison functions can be used to select individual parameters and periods, as well as display results in the form of diagrams. BASF also regularly publish sustainability news releases and update featured case studies, which visualise its innovative and eco-efficient solution to heating houses. A charting tool enables users to analyse emissions to water from 1999 – 2006 with an easy to use interactive tool. Extensive narrative on sustainability strategies adopted by the company provides detail for "value adding growth".

BASF demonstrate how far it is possible to move from a bound and published standalone "CR" or sustainability report, making the traditional reporting format seem antiquated by comparison. They are not alone in developing Web 2.0 techniques to facilitate stakeholder dialogue, with other companies also combining sustainability and financial data, and finding means by which to measure their environmental and social impacts alongside traditional profit drivers. New forms of communication techniques still require robust data, meaningful measurement techniques and relevant KPIs. In future I'll look at the detailed content of the BASF combined report, in order to assess the quality of the information provided alongside the mechanism of its delivery.