Finance: Auditing for a greener future

ANYBODY WHO has seen a company's annual report or attended a results presentation will understand the lengths often reached in the interests of putting the best possible gloss on financial figures. So when the Co- Operative Bank recently presented a self-proclaimed all-encompassing "warts and all" picture of itself it probably looked to many as something slightly perverse, even for an organisation that flew in the face of convention through promoting itself on who it will not lend to rather than who it will.

The Partnership Report, published at the end of last month, is so named because it sets out to assess the bank's operations from the point of view of such groups as consumers, suppliers and the general community as well as shareholders. For example, it showed that the bank had in its 1997-98 financial year demonstrated its commitment to the environment by reducing its company car fleet by 15 per cent and cutting the number of business miles by 350,000. Customer satisfaction levels were well above 90 per cent for individuals and businesses. But the document also pointed out that, while 45 of the 68 targets covering a range of social, ethical and environmental issues set out in last year's initial report had been achieved and progress made on a further 10, it had failed to achieve 13.

In particular it had not delivered on a commitment to produce a policy for encouraging a more diverse workforce. So Mervyn Pedelty, chief executive, declared in the current report that he will take "a personal interest" in ensuring the bank publishes a revised equal opportunities policy by the end of this year.

Simon Williams, the head of corporate affairs, accepts some people would say the organisation is putting itself at a commercial disadvantage by revealing so much. After all, when the cosmetics retailer, The Body Shop, turned social auditing pioneer several years ago, critics worked hard to find evidence of it failing to live up to its ideals. But he says: "This year-on-year review is as important as our financial audit, because it indicates whether our business is sustainable in the long term."

The bank says it is the only major UK company to have undertaken such an exercise for two consecutive years, with independent verification of all data and commentary. Further evidence of a lack of UK interest in this sort of reporting came last week, when the launch of a stock market index based on sustainability saw British companies described as among the worst in the world in terms of commitment to the environment and social issues.

But things are changing. The north-west group, United Utilities, followed the likes of Shell and BP Amoco in producing such a report. For years the Association of Chartered Certified Accountants has encouraged companies to go down this route by presenting annual environmental reporting awards.

Pressure from the Environment minister Michael Meacher for companies to report on social issues has led to predictions that as many as 150 UK companies could produce such reports next year.

Companies in continental Europe, North America and Japan are often much more committed to complementing their financial reports in this way. But all this activity is creating a problem. There are not enough experts qualified to check on company claims in these areas. Nor are all companies judging their performance by the same measures.

Since the Institute of Social and Ethical Accountability was launched four years ago it has tackled these issues. It has devised draft standards - according to which the latest Co-Op report was compiled - which will be formally set out at a conference in Copenhagen in November. One aspect is an attempt to increase the number of people qualified to audit these reports, and Surrey and Glasgow Universities are to be the first institutions to offer the qualification.

The institute's Robert Beckett believes the qualification can develop to the point where many organisations will have internal experts to help them keep abreast of developments through the year, just as they have internal accounts looking at the finances continually rather than waiting for an auditor to check at the end of the year.

"It's not about corporate philanthropy," says Mr Williams. "It's about being good business people. It's a very valuable management tool and puts a magnifying glass on everything we do."