ENVIRONMENTAL REPORTING: MANDATORY OR VOLUNTARY?

The main objective of environmental reporting is to demonstrate a company's commitment to the environment and to communicate environmental performance. Other objectives include acknowledging share responsibility for the environment, differentiating the company from its competitors, obtaining social approval for operating practices and demonstrating regulatory compliance.

Requirements

Environmental reporting has a mixture of mandatory and voluntary requirements. Not all companies report on environmental performance and those who do report often focus on only selected aspects of performance. Typically, only the leaders in environmental reporting that report in a comprehensive manner.

In the UK, environmental reporting is voluntary although disclosure of environmental matters such as the business's impact on the environment is encouraged. Accounting standards on non-current assets, provisions and research and development costs mention the need to disclose environmental effects. In Denmark and the Netherlands, environmental reporting is mandatory for the larger companies. In the USA, the SEC/FASB environmental accounting standards are obligatory.

The International Accounting Standards Board has not issued a standard in this area. However, IAS 37 Provisions, contingent liabilities and contingent assets requires the disclosure of potential environmental liabilities in certain circumstances.

Guidelines

There is a range of codes of practice and environmental reporting guidelines that have been published. Examples include:

• The Global Reporting Initiative's Sustainability Reporting Guidelines  
• The UNCTAD Report on 'Environmental Financial Accounting and Reporting at the Corporate Level'  
• The ACCA Guide on environment and energy reporting   

Under the Eco Management and Audit Scheme (EMAS), companies can sign up to agree to a specific code of practice, but the report must be validated by an accredited environmental verifier. In addition, the Companies Act 2006 now requires the directors of UK quoted companies to report on environmental matters, the company’s employees and social or community issues.

Environmental reports can enhance a company's reputation and the use of environmental reporting will expand. However, until regulations and standards are developed, the completeness and consistency of environmental reports will not be achieved.