Corporate Environmental reporting can be defined as a catch-all term that describes the various means by which companies disclose information on their environmental activities. It is important to distinguish between the terms environmental reporting and corporate environmental reports (CERs). Corporate environmental reports (CERs) are only one form of environmental reporting defined as publicly available, stand-alone reports issued voluntarily by companies on their environmental activities. Environmental reports can be considered a sort of small world where many crucial points in the relationship between a company and its stakeholders meet together. There can be said to be three categories of environmental disclosures: 1. Involuntary disclosure - the disclosure of information about a company’s environmental activities without its permission and against its will. Examples of involuntary disclosures are environmental campaigns, press and media exposes and court investigations. 2. Mandatory disclosure - the disclosure of information about a company’s environmental activities that is required by law. 3. Voluntary disclosure - the disclosure of information on a voluntary basis. There are two types of voluntary disclosures: confidential and nonconfidential. Confidential voluntary disclosures are those required by banks, insurers, customers and joint venture partners that are not publicly available. Non-confidential voluntary environmental disclosures are
practically any environmental information the company voluntarily makes available to the general public.
PURPOSE OF ENVIRONMENTAL REPORTING:
Corporate environmental reporting serves many different purposes for different stakeholders. 1. It empowers the people the information they need to hold corporations accountable, and invites stakeholders more fully into the process of corporate goal setting.
2. It permits the investor the harness the power of the capital market
3. It allows companies and their stakeholders to measure companies
adherence to standards set forth in their statement of environmental principle, and their various goals and objectives.
4. Environmental risk is the internal part of the risks facing every
organization. Reporting can help to identify such risks, and where they could arise, and thus prevent damage to reputation from negative publicity on an environmental issue.
The benefits derived from environmental reporting can roughly be divided in two categories: financial and strategic. 1 FinancialIf a company can demonstrate good environmental performance and an acceptable level of environmental liability to its stakeholders, it may benefit financially in that its share price may increase.
2 StrategicPotential strategic benefits include improving the company image and building better relations with relevant stakeholder groups.
How is it used?
Like financial reporting, environmental reporting forces a high level of organizational transparency. Senior management often uses environmental reporting as a mechanism to review environmental performance and establish targets and action plans for further improvement. A variety of stakeholders use corporate environmental reports to assess the performance of companies. Environmental reports provide insight into how well a company is managing its operations to reduce risk, avoid potential liabilities, satisfy public and other stakeholder expectations, and pursue innovative solutions. Environmental reports provide more than just insight into the environmental performance of an organization; they offer an understanding of the overall environmental management framework used by the company. Environmental reporting is becoming increasingly common, and is now being utilized by several sectors, including private companies, academic institutions and local government. Environmental reports often contain a number of common elements
• • • •
Introduction to the chief executive. Background information about the organization. The organization’s environmental policy. The organization’s overall performance with regard to the environment and frequently broken down into smaller business sections for large organizations.
Progress made towards specific targets established in previous reports. Setting of targets for improving the organization’s environmental performance.
Who Uses It?
1. Industry Corporate Environmental reporting is a mechanism used by companies across all sectors of the economy to communicate environmental initiatives and performance to stakeholders. Customers, financial institutions, investors, insurers, regulators, community groups, employees, environmental activists, trading partners and other interested parties are asking companies for more detailed, information about their environmental performance. Meeting the information needs of these stakeholders is encouraging the implementation of environmental reporting by companies. Environmental reporting has become standard practice in many large companies and sometimes is included with financial and social information in an overall sustainability report. 2. Government Governments promote the use of environmental reports by business as a means of ensuring transparency and responsible corporate behaviors. Government agencies and departments prepare their own environmental reports as a means of informing the public of their own operations and how environmental considerations are taken into account in the decisionmaking process.
3. Financial Community Banks and insurers are increasingly interested in environmental risks and liabilities, and are turning to corporate environmental and sustainability reports to gauge companies’ environmental management and performance. Companies that demonstrate they are acting to reduce environmental and social risks and future liabilities can benefit from improved credit ratings and lower premiums. Mutual funds that utilize social and environmental screens also use environmental and sustainability reports to evaluate companies for inclusion in their funds and to compare a company’s performance against other companies in the sector. CHALLENGES: The important challenges of corporate environmental reporting today can be summarized in three words: Continuity, Comparability and Credibility. 1. Continuity It can be ensured by publishing environmental reports with regular intervals, by setting targets and reporting back on progress and by using the same performance indicators over time. 2. Comparability Comparability is a best achieved by using standardized and normalized environmental performance indicators. Mandatory disclosure in the Annual Report and financial statements will also improve the comparability.
3. Credibility It will only be achieved by openness and balanced tone in the report. Engaging stakeholders in dialogue is an important part of the process. Verification of environmental reports will only add credibility when the value of the verification statement is clear and the credibility of the verifier is higher than the credibility of the company itself. The challenge facing the business sector is to develop environmental reporting both as a useful environmental management tool, and as a means to provide stakeholders with credible information about their environmental performance.
FLOW CHART OF ENVIRONMENTAL REPORTING PROCESS
DECIDE TO REPORT
IDENTIFY THE AUDIENCE FOR REPORT
REVIEW AND IDENTIFICATION OF ENVIRONMENTAL IMPACTS
PREPARATION OF ENVIRONMENT POLICY
GATHER DATA AND PREPARE INFORMATION
FINALISE AND PUBLISH REPORT
Trends and Future Importance:
Corporate Environmental reporting has traditionally been a voluntary method of communicating environmental performance to stakeholders. More recently, there has been movement towards making environmental reporting mandatory. Denmark, New Zealand, France and the Netherlands have already introduced legislation on environmental reporting. The international environmental management system standard ISO14001, however, does not specify that company environment performance data be made public. In India, the practice has not yet become popular although some companies in the private sector, vis. TISCO, ITC and a few others have been reporting environmental performance periodically.
Corporate Environmental Reporting In India:
Regulations India has no mandatory environmental or social reporting requirement for public companies, but there are initiatives which encourage such disclosure. The Securities and Exchange Board of India (SEBI) does not make any mention of environmental or social reporting requirements in its “Disclosure and Investor Protection” guidelines. India’s National Environmental Policy (NEP) 2006, scripted by the Ministry of Environment and Forests has recommended the use of “standardized environmental accounting practices and norms in preparation of statutory financial statements for large industrial enterprises.” To date, no such standards have been introduced. In addition, there are several other laws that influence reporting. Under the Environment (Protection) Act of 1986, each organization
covered by the law should submit an annual Environmental Audit Report to its local State Pollution Control Board (SPCB). The environmental report covers items such as water and raw material consumption, and although it does not mandate reporting this information to the public, it forces companies to collect it. The Companies Act (section 217) also requires companies to report on energy conservation in the Board of Directors Report. The latest corporate governance code (2007) for public sector companies requires them to make environmental and social disclosures in the directors’ report. Promotion of environmental reporting in India There are several local organizations that are promoting environmental reporting. The Institute of Chartered Accountants of India (ICAI) gives out annual “Awards for Excellence in Financial Reporting.” The criteria for the award include criteria for environmental and social reporting. The Confederation of Indian Industry (CII) has established the CII-ITC Centre of Excellence for Sustainable Development, as well as a Centre on Sustainability Reporting. This Centre assists companies to initiate or improve their environmental reporting.
Conclusion Corporate environmental reporting is expanding beyond financial and environmental performance. A major challenge to reporting community at large is to improve comparability among environmental reports and to involve stakeholders. Environmental reporting is becoming increasingly common, and is now being utilized by several sectors, including private companies, academic institutions and local government.