Benchmark studies confirm poor progress on stakeholder reporting

Inconsistent environmental reporting is preventing investors from judging corporate practices, and only 17% of the biggest publicly quoted UK firms have even produced a report, according to a survey by investment consultants.1 Difficulties in judging between firms have been confirmed by two recent benchmarking exercises which produced contradictory rankings.

"The lack of consistent, comparable and relevant information" is preventing companies and investors from judging good practice, according to a survey of FTSE top 350 firms by Pensions & Investment Research Consultants (PIRC).

PIRC found that 65% of the top 350 companies reported on environmental issues - mostly alongside their annual accounts. But only 60 (17%) have produced a separate environmental report. Only 75 said they had an environmental management system. And just 40 reported on waste production, 36 on energy and 23 on raw materials.

PIRC concludes that an initiative is required to develop reporting standards to allow shareholders to assess performance. It suggests that the Government should consider prescribing minimum requirements in the forthcoming Companies Act.

Such legislation would not be without precedent. According to the consultancy SustainAbility, around 2,000 firms will fall under a 1995 Danish law requiring "green accounts" to be produced by 2000. And 300 Dutch industrial companies will have to produce annual environmental reports from 1999.

Poor progress in environmental disclosure is suggested by a comparison of two recent exercises in corporate benchmarking. In January, Business in the Environment (BiE) issued its latest "index of environmental engagement", covering 75 of the FTSE top 100 companies. It revealed improvement over the past year and concluded that companies are "demonstrably geared up to manage their environmental affairs."2The previous month, SustainAbility and the UN Environment Programme (UNEP) published their 1997 survey, benchmarking 100 corporate environmental reports from around the world.3 Ten UK companies in the UNEP survey also appear in BiE's, permitting a comparison of the findings. ENDS found that four firms ranked by BiE in its top quintile - in which "companies can all claim to be more or less fully engaged on environmental management" - lie near the bottom of the list in UNEP's exercise.

The contradictory position does not invalidate either exercise; it stems from the fact that they compare different aspects of environmental policy. One purpose of benchmarking is to help firms rethink their policies. But the results show that stakeholders should treat such exercises with great caution.

The main difference between the two surveys is that UNEP used information in company reports, while BiE surveyed firms using questionnaires. A firm with a particular environmental management initiative in place might not have made the leap to disclosing full details - perhaps explaining some differences in the results.

BiE calculated a score based on the answers to ten questions such as whether the company had an environmental management system (EMS). The answers were randomly audited against BiE's guidance. For example, an EMS had to "address all key impacts", be "comprehensive and systematic" and cover all sites. Extra points were awarded if it was externally certified.

UNEP's survey addressed similar topics to BiE's but was far more detailed. It assessed corporate reports against 50 criteria, including management systems and responsibility, targets, measurement of waste and raw materials, links with stakeholders and reporting of environmental costs.

BiE says that industrial sectors such as utilities, oil, gas, chemicals and minerals score highest in its survey because they "lead the way" on environmental management. The group does not feel that its approach is biased towards them.

In contrast, UNEP admits that its approach can be unfair to the service sector. It plans to focus future effort on analyses within sectors - and to try benchmarking environmental performance, rather than just management, with help from trade bodies. BiE is also working on measuring performance.

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