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Commercial Angles' Newsletter - April 2002

Environmental reporting in Europe

The European Commission in 2001 proposed non-binding guidelines on how companies should report on environmental issues in their published accounts. It is very likely that these guidelines will become the European standard for environmental reporting. The main objectives of the recommendation are:

the provision of guidance on how existing accounting directives are to be applied with regard to environmental matters.
the encouragement of better coordination and consistency of environmental reports, annual reports and statutory accounts.
the inclusion of environmental disclosures in the statutory accounts which will complement the more detailed environmental reports, and
the provision of information to investors which indicates the company's attitude to environmental performance.

The European Commission's proposals aim to encourage companies to adopt a common set of fixed definitions of environmental issues and they set out which types of expenditure and liabilities will be classified as environmental in the company accounts. Some of the proposals are:

environmental expenditure should be analysed between that incurred on decontaminating polluted areas and that incurred on preventing new pollution arising.
companies should include quantitative eco-efficiency indicators such as consumption of water, energy and materials. These figures should be expressed in absolute rather than relative terms, and in physical rather than monetary units.
costs that improve the environment as a by-product of their main purpose are not to be included in the report, and
fines paid for breaching environmental rules should not be included in environmental expenditure.

The European Commission's proposals are intended to apply to all companies covered by the EU accounting directives (4th and 7th Company Law Directives) - which is a very broad coverage indeed. The European Commission wants member states to apply its environmental proposals to accounting periods commencing this year. Therefore many companies will have to get to grips with the issues in the next few months.

The UK government has produced a number of guidance notes on environmental reporting:

DEFRA general guidance on environmental reporting
DEFRA guidance on measuring waste
DEFRA guidance on water issues
DEFRA guidance on getting started in environmental reporting
DEFRA guidance on reporting on greenhouse gas emissions

An older report (168 pages) produced in 1999 for the European Commission is available online. The report surveys the annual/financial reports of a large number of mainly EU companies in order to identify best practice and to evaluate the relevance and comparability of the environmental information that is disclosed. It also recommends ways of improving the reliability and usefulness of the disclosures.

UK Centre for Economic and Environmental Development (UK CEED) has a web site promoting their sustainable development programme. The programme focuses on the development and dissemination of practical guidelines for sustainable business, the means of creating higher levels of environmental awareness within organisations, and new tools for evaluating the sustainability of companies and their products. Details are given of projects in such areas as environmental accounting, corporate environmental reporting and the use of EMAS.

Articles from previous newsletters