This article was first published in the April 2011 Singapore edition of Accounting and Business magazine.
After centuries of being pushed to the back seat in the industrial, business and corporate world, the last two decades have seen Mother Earth regain her prominence and ‘ask’ to be given due recognition and importance in corporate reporting.
Since the 1990s, environmental reporting among corporations has grown in leap and bounds. Engaging Stakeholders, published by SustainAbility in 1997, highlighted the reasons behind the growing importance of environmental reporting:
- A new and growing focus on verification, environmental benchmarking, performance indicators, full-cost accounting and the implications of sustainability.
- Demands for environmental performance data increasingly coming from market users (eg customers and financial stakeholders).
- Corporate environmental reports increasingly being used to monitor, benchmark and rank companies.
- An increasing demand for mandatory rather than voluntary reporting.
- Leading report-makers seeing the social dimension of reporting as a critical new area.
This global environmental reporting phenomenon is also taking off in Malaysia, especially among listed companies. Bursa Malaysia has dedicated a portal for sustainability in its efforts to encourage corporate Malaysia to take business sustainability seriously.
It states that voluntary environmental reporting allows companies to manage the impacts of their operations beyond current regulatory requirements, mitigate potential risks associated with key environmental issues and capitalise on business opportunities.
Reporting beyond current minimal legislative requirements also means that mandatory requirements can be better managed in the future.
Environmental reporting began to make its way into corporate reporting due to mandatory or legislative requirements. Denmark was the first country to adopt legislation on public environmental reporting. Starting with the fiscal year 1996, companies with significant environmental impacts were required to publish a ‘green account’.
In the Netherlands, the Environmental Reporting Decree enforced in January 1999, among others, require corporations to publicly report on the adverse effects on the environment caused by the establishment; and the technical, administrative and organisational measures taken by the establishment in order to protect the environment.
In the US, there is the Toxics Release Inventory Program and the Securities and Exchange Commission and Financial Accounting Standards Board make environmental reporting obligatory (under International Financial Reporting Standards, there are currently no disclosure requirements for environmental matters). In Asia however, including Malaysia, there are a lack of mandatory environmental reporting requirements.
Nevertheless, voluntary reporting seems to have mushroomed in this part of the world. ACCA’s 2004 report, The State of Corporate Environmental and Social Reporting in Malaysia, noted that the number of companies reporting on environmental performance increased from 25 companies in 1999 to 43 in 2002, reaching 60 companies by 2003.
The manufacturing sector is the largest sector to engage in environmental reporting over five years, comprising 28% of the reporting companies in 1999 and reaching 32% by 2003 followed by the plantation sector at 20% for 2003.
This encouraging trend in Malaysia is not alienated from the global increase in voluntary reporting on corporate social responsibility (CSR). KPMG’s 2008 International Survey of Corporate Responsibility Reporting found that nearly 80% of the Global Fortune 250 (G250) companies worldwide issued corporate responsibility reports, up from about 50% in 2005.
The report highlighted that such ‘reporting is now the norm, not the exception, among the world’s largest companies. Since motivations for reporting have shifted away from reactive and risk management factors and toward aspirational and innovative ones, we expect reporting to become more common at the national level and in smaller companies in the near future’.
Climate change has emerged as one of the most important and urgent corporate responsibility issues, fuelled by pressure from media, consumers, investors, non-governmental organisations and governments.
Sixy-four per cent of G250 companies and 34% of the 100 largest companies by revenue, described how they were going to mitigate the business risks associated with climate change. Nearly 60% of G250 companies also saw the flipside and described new business opportunities associated with climate risk.
The survey also revealed that nearly half the G250 cohort disclosed carbon emissions for its own operations, and an additional 8% expanded this to include their value chain, as well as measures to reduce carbon footprint.
Although there is no compulsory method or contents for reporting (except for compliance-based reporting driven by legislation), the most common framework used globally in environmental reporting is the Global Reporting Initiative’s (GRI) sustainability reporting guidelines, which also incorporate a section on environmental reporting. KPMG’s survey showed that 77% of the G250 and 69% of the N100 reporting companies use the GRI guidelines.
Besides that, there are a number of published guidelines and codes of practices including the ACCA Guide to Environment and Energy Reporting, The Confederation of British Industry’s guideline, Introducing Environmental Reporting, and the CERES formats for environmental reports.
In the limelight
A number of social and environmental reporting awards have also been launched since 1990. These include the UK Environmental Reporting Awards, set up by ACCA in 1991. The first European Environmental Reporting Awards were presented in May 1997, sponsored by professional accounting organisations in the UK, Denmark and the Netherlands.
With the recent focus on social reporting, ACCA and the Institute of Social and Ethical Accountability launched the first Social Reporting Awards in May 2000.
ACCA Malaysia’s Sustainability Reporting Awards is the Malaysian version, which ran for the ninth year running in 2011. In 2010, ACCA Malaysia received 53 reports, compared to only 11 when first launched, demonstrating rising awareness and the importance placed by companies on such reports.
The aim of the awards schemes and rating/ranking of environmental reports is to reward innovation and commitment to reporting, while promoting best practices.
It can encourage innovation and leadership and reward companies for their efforts. These awards and ratings often get much attention from the media, and in this way they promote a wider adoption of environmental reporting.
Corporations that are dedicated to environmental reporting include the UK’s British Airways and Shell, the US’s Baxter, Italy’s Fiat and Finland’s Neste Oil.
It is undeniable that corporate responsibility and environmental reporting has now taken its place in mainstream reporting and is a critical investor-relation tool. It not only provides valuable insight on a corporation’s performance, but also invaluable information on future opportunities for growth, innovation and improvement in the rapidly changing corporate landscape.
Environmental reporting will most definitely be a discerning part of corporate reporting in the near future; one that will be valued, sought after and may be even demanded by various stakeholders.
Corporations that are most likely to come out on top are the ones that do right by Mother Earth.
Ramesh Ruben Louis is a professional trainer and consultant
- IIIEE’s report, Corporate Environmental Reporting, 2002
- KPMG’s 2008 International Survey of Corporate Responsibility Reporting
- ACCA’s Sustainability Reporting Guidelines for Malaysian Companies, 2005
- An Introduction to Environmental Reporting, ACCA, 2001
- Rising Number of Sustainability Reports, The Star, 9 November 2010