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Comments from ACCA
September 2005

ACCA is pleased to comment on the above document. As a long-time proponent of increased and improved non-financial reporting ACCA welcomes the issue of the guidelines as an opportunity to reflect on the current state of environmental reporting guidance in the United Kingdom.

In summary, ACCA welcomes the exposure of a set of well developed environmental KPI’s. We believe that, for the most part, these KPI’s are consistent with those being recommended elsewhere (notably in the 2002 GRI sustainability reporting guidelines) for use in environmental reporting and they should provide useful assistance for companies commencing on environmental reporting for the first time or seeking to converge their reporting around a set of generally accepted indicators.

We do, however, have some reservations concerning the “reporting” part of the guidelines and it is upon this area that this response focuses. Our comments and recommendations flow from our own experience in dealing with environmental reporting over a 15 year period and from our close engagement in developing the reporting and assurance frameworks developed by both the Global Reporting Initiative and AccountAbility.

For the following reasons we do not believe that the material set out in Chapter 1 of the consultation paper is helpful.

OFR reporting vs. stand alone reporting

The paper contains no explicit encouragement for UK business to engage in comprehensive environmental reporting. Nor does it discuss in any detail the relationship between environmental reporting and wider forms of disclosure such as sustainability reporting.

The material presented does not satisfactorily separate out or clearly identify the purpose and essential characteristics of reporting on environmental issues through the Operating and Financial Review statement as against reporting on such issues via a stand-alone environmental or sustainability report. In our mind these are two entirely separate activities and any reporting guidance needs to commence from a full consideration of the reporting avenue before proceeding to recommend the disclosure content.

We think, however, that there is an implicit assumption that this guidance is aimed primarily at environmental disclosures made in the annual report and accounts package via the OFR. If this is not the case then we think that the final guidance should make this clear.

Common principles and processes

This section seems to confuse principles which are appropriate for dealing with data collection with principles relating to the quality of the data itself. The frameworks of reporting principles developed by the International Accounting Standards Board (for financial reporting) and by the Global Reporting Initiative (for sustainability reporting) are more successful in separating out these two issues.

It is also fair to say that many of the descriptions / definitions provided on pages 11 and 12 of the consultation document do not tally with parallel descriptions / definitions provided by bodies such as the GRI and AccountAbility.

The eventual guidance should distinguish between recommended good practices under-pinning the processes relating to environmental reporting and the qualitative characteristics of the reported data itself. We note that the processes required for compiling an OFR statement will almost certainly differ from those employed in the preparation of a comprehensive environmental report. Similarly, the assurance processes will also differ quite considerably.

Stakeholder engagement

We note that the section dealing with principles and processes says little about why consultation “within the business, with shareholders and other stakeholders” is important, nor does it provide the user with guidance as to how such consultation should be carried out.

The 25 indicators which appear in Chapter 2 are described on P13 as being “significant to UK businesses” but no evidence is presented that the recommended indicators were themselves determined from a formal stakeholder consultation process. Nor indeed does the paper suggest how “significance” itself is defined.

Sectoral relevance

We think that there should be more discussion of sectoral issues in the first part of the guidance. Driven by a clearly identifiable user demand, GRI has embarked on an ambitious programme of developing sectoral supplements.

Risks, policies and performance assessment

The paper has a narrow approach to contexting the activity of environmental reporting. As a result its general guidance on reporting is incomplete and therefore unhelpful.

In OFR reporting there will need to be some consideration of the actual and strategic environmental risks – operating or financial – faced by the reporting enterprise. In stand alone environmental reporting there will need to be discussion of the environmental policies and risk management approach adopted, as well as a discussion of environmental governance and leadership, operating performance and targets.

Biodiversity and land use

We are not clear why disclosures relating to bio-diversity and land use have either been relegated to footnote status or ignored completely. For many companies and stakeholders these are significant issues.

Reporting boundaries

We do not believe that the material in this section fully represents the complexity of the ongoing “boundaries” debate and we recommend that the section be redrafted to reflect some of the discussion appearing in the new GRI pilot protocol on reporting boundaries.

Direct and indirect KPIs

At page 16 the document indicates that “the Government expects business to report on their significant environmental impacts regardless of whether they are direct or indirect”. We regard this as a major statement of policy since few established environmental / sustainability reporters have yet established a methodology for reporting on indirect impacts. This section should be linked with the previous section on boundaries and carefully considered in the redrafting process.

Small and medium-sized enterprises

We know from experience that environmental reporting is not widely practised amongst small and medium sized enterprises. The consultation draft could have done more to identify the sorts of environmental issues which SMEs could usefully (and profitably) focus on. It could also make the point that, for SME’s, reporting KPIs is not necessarily a major priority. Rather, it is the use of standardised KPIs for internal environmental management purposes which is the key issue.

Eco-efficiency indicators

Although not as popular a topic as it was some years ago, the paper could also usefully address, and provide some clear examples of, eco-efficiency indicators. Given the seeming bias of the paper towards the use of indicators in OFR reporting, some guidance on the calculation and interpretation of eco-efficiency indicators would not be out of place.

Environmental fines and expenditures

We approve the recommended disclosures but wonder if, in addressing these issues, the paper once again confuses the separate issues of OFR and stand alone environmental reporting. The former, as we understand it, is intended to be strategic and forward-looking in nature whereas the latter has a stronger accountability intent. Disclosures relating to fines, liabilities, capital and other environmental expenditures are generally more suited to the stand alone reporting context. For such disclosures to have meaning within the OFR they must be linked to strategic issues.

Conclusions

We welcome DEFRA’s initiative in seeking to standardise the reporting of significant environmental performance indicators and we recognise that the paper has set clear limits regarding its scope. While we have little quarrel with the description and composition of the indicators recommended, however, we feel strongly that the material which surrounds those recommendations is poorly structured and presented and could be improved considerably. We would be glad to assist in this process if the Department thinks our input would be useful.

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