CorpComms Magazine

Almost 98 percent of FTSE companies mention the word 'environment' in their annual reports and accounts but the levels of quantitative disclosure on environmental risks (and opportunities) that are financially material to shareholders remain relatively low, according to a new report.

'Environmental disclosures: the second major review of environmental repor ting in the annual report & accounts of the FTSE All-Share' is published by the Environment Agency.

The UK government has made it clear that environmental reporting is important and should be viewed as a permanent fixture in corporate reporting. Voluntary guidelines and key performance indicators were published in January 2006 and provide a framework for reporting on environmental issues that companies must include in their annual reports and accounts. Since October 2007, directors also have a duty to take account of the impact of a firm's operations on the environment.

The review, which covers the annuals for 537 companies for the year to March 2007, found that FTSE small-cap companies have increased their level of environmental reporting since 2004, with 97 percent now referring to the environment. And 42 percent of companies surveyed provide statistics and figures related to environmental issues in their annual reports and accounts, compared with 27 percent in 2004.

Only 15 percent provide quantifiable disclosure that enables direct comparison of the environmental performance of companies, however. Of those providing data that does allow disclosure, 63 percent report on just one topic out of water, waste and energy use or climate change; 23 percent report on all three. Waste management is the most common environmental issue discussed by FTSE All-Share companies, with 82 percent mentioning it in their reports.

'I am pleased environmental reporting by FTSE-listed firms has improved,' says Barbara Young, chief executive of the Environment Agency. 'However, I am disappointed and concerned that most disclosures still lack rigour, depth and quantification. Given that environmental issues such as climate change are having an increasingly financial significance for business, this survey's findings are worrying. Such inadequate reporting gives investors and shareholders insufficient information to base their decisions on.'

The review, which was conducted by environmental research group Trucost, found that only 15 percent of companies use the key performance indicator (KPI) guidance outlined by the Department for Environment Food and Rural Affairs to produce a disclosure, which is an absolute quantitative figure that applies to the whole company.

What's more, just a fraction of companies that attempt to quantify figures do so in accordance with government guidelines. Only 3 percent report a quantitative figure on water, waste and energy use that is in accordance with the three core KPIs identified by UK government guidelines

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