Time for polluters to come clean: Tessa Tennant on how environmental accounting will add up a company's cost to society

Accountancy is not noted for its dynamism and rarely commands media attention. So it may come as a surprise to find the profession at the forefront of the environmental debate with its exploration of the field of environmental accountancy.

Against a backdrop of increasing industrial pollution and the continued depletion of natural resources, environmental accounting appears logical. Every business should account for its environmental impact.

If this were taken literally, and markets responded, many businesses would face an environmental deficit that would leave them bankrupt. Luckily for industry, an analyst will rarely take a good look at a company's environmental profile. This means companies have a chance to put their environmental houses in order.

At the environmental reporting awards made recently by the Chartered Association of Certified Accountants, Mike Bett, deputy chairman of award-winning British Telecom, pointed out that BT's report had shattered the public delusion that it was a 'clean' company.

Few people had realised the company used CFCs, consumed 1.2 per cent of the country's electricity and burned 125 million litres of vehicle fuel annually. So why publish this report?

Mr Bett said: 'Some time ago, we in BT projected that all companies, in all industrial sectors, would soon be expected to address the environment as a serious business issue and, more especially, would need to demonstrate to their shareholders that they were doing something positive about it.'

Publication of the report has helped to formalise BT's internal accounting systems. It allows for targets to be set, demonstrates commitment and puts the company ahead of competitors in a market-place where environmental factors are becoming a common feature of industrial procurement policies.

So far, BT is just one of a handful of companies that have taken this approach. But further evidence that environmental accounting is a matter of when, not if, can be found in the European Commission's current action programme on the environment. Based on the principle 'polluter pays', the emphasis is on 'getting the prices right'. The objective is full accounting of costs, including environmental costs to society, of the production of goods and services.

To achieve this by the year 2000, the EC has asked the accounting profession to help.

Many feel recent proposals to cut red tape by introducing self-regulation to the control of pollution amount to a backward step. But in the area of financial analysis, the UK has taken a strong lead. The Government is considering its reply to a report published last month by the financial sector working group of its advisory committee on business and the environment.

The group makes several recommendations to improve both the quality and extent of environmental reporting, including a suggestion that the Stock Exchange should consider requiring environmental disclosure by companies, as a condition for a listing.

It is probably fair to say that, just as the 1970s will be remembered as the decade when industry made its first faltering steps along the green road, so the 1990s will be seen as marking the environmental birth pains of the financial community as it comes to terms with its role in protecting the natural world.

Tessa Tennant is director of Jupiter Tyndall Merlin Investment Managers, and its head of environmental research

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