Accountancy & Management: New environment for company reports: Changing attitudes are putting businesses under increased pressure to recognise - and declare - the impact they have on the ecology, says Roger Trapp

Click to follow
The Independent Online
A CONCEPT can fairly be said to have arrived when the Institute of Chartered Accountants has embraced it. So the recent report by the organisation on Business, Accountancy and the Environment must mean that what had formerly been the preoccupation of the likes of Body Shop has become part of the mainstream.

Indeed, the document published this month by the institute's environment research group is just the latest in a series emanating from all sectors of the business community that to some extent grapple with the notion of the environmental audit.

For instance, a booklet published by the Confederation of British Industry fully two years ago seeks to introduce the uninitiated to the idea by describing the environmental audit as 'the systematic examination of the interactions between any business operation and its surroundings'. This, it adds, includes all emissions to air, land and water, legal constraints, effects on the neighbouring community, landscape and ecology and the public's view of the company in the local area.

Like many ideas of this sort, it originated in the US, where companies had to ensure compliance with new anti-pollution regulations. But other forces have been at play.

Changing consumer attitudes, for example, have forced companies to show that their products and the methods used to make them are environmentally friendly at the same time as offering marketing opportunities for goods perceived as green.

Slowly but surely, Europe and the UK have followed. As a recent conference in Scotland heard: 'It is clear that the general thrust of regulation in the UK, the EC and elsewhere is to be very much tougher on the whole issue of pollution.'

British companies have already started to get used to the 1990 Environmental Protection Act. But with the second part of the Act due to come into force next spring, many lawyers are spreading alarm. Charles Smith, head of the environmental law group at the Edinburgh law firm Brodies, said the legislation could mean landowners finding themselves responsible for cleaning up land polluted by anyone using it.

Meanwhile, others are already starting to help clients respond to the new climate. For instance, Edward Keeble, a solicitor with the big City firm Slaughter and May, pointed out in a recent issue of Practical Law for Companies magazine how sellers could strike back in transactions at a time when purchasers were making increasing demands about environmental liabilities.

But although regulation is likely to continue to be the main spur for action, the Confederation of British Industry is keen that environmental auditing not stop at compliance with legislation. 'Nor is it a 'green-washing' public relations exercise, although done well, it could bring a company considerable positive PR,' it says. 'Rather it is a total strategic approach', requiring - like all management initiatives - commitment, leadership and resources.

Fine. But where do the accountants come in? The simple answer is because there is considerable pressure for environmental information to be included in financial reports, and accountants play an important role in their compilation. But there is also the question of liabilities.

While lawyers establish the fault or otherwise, the accountant is concerned with its effect on the company's bottom line.

Earlier this year, the environmental working party of the Hundred Group of Finance Directors - a body that claims as members the vast majority of the finance directors of Britain's biggest companies - issued a statement of good practice on environmental reporting on the grounds that organisations needed to understand the impact of their operations on the environment. 'By setting out what we see as minimum standards of good practice for annual reports, we believe this statement will act as a spur towards improving the openness of business generally on its environmental performance,' Hugh Collum, the chairman, said.

Similar thinking appears to be behind the report by the Institute of Chartered Accountants' body. It says it believes legislation and market pressures are forcing companies to put environmental performance high on the agenda.

In a foreword, Ian Plaistowe, president of the institute, said: 'Good environmental practice is an integral part of good business practice and should permeate all aspects of the business.'

Among the disclosures that the report recommends should be part of the annual reporting cycle are the company's environmental policy and objectives, the extent of compliance with regulations and industry guidelines and significant environmental risks not required to be disclosed as contingent liabilities.

At a time when the scope of the audit is under review for reasons of corporate governance, this all seems likely to add to the burden of the auditor in addition to the company accountant. As a result, not only companies need to look closely at this area. The accounting firms serving them must review their procedures.

Since companies of all sizes can potentially be polluters, this is not just the big firms. Even a comparatively modest practice such as Cape & Dalgleish is incorporating systems and checks to assess clients' environmental responsibilities and any financial impact on their business.

(Photograph omitted)

Comments