12th October, 2007

Directors of the UK’s leading companies urged to disclose more on environmental risks to their shareholders and potential investors.

The Environment Agency has published Environmental disclosures: The Second Major Review of Environmental Reporting in the Annual Report & Accounts of the FTSE All-Share for the year ending 31st March 2007. Its first review was in 2004.

The research, carried out for the Agency by Trucost, found there has been some improvement in reporting since 2004.  About 98% of FTSE All-Share companies now mention the environment in their annual reports & accounts, an improvement on 89% in 2004. Some 35% made their environmental disclosures in the audited sections of their annual report & accounts, compared to just 10% in 2004.

More than 40% of companies disclosed quantitative environmental data, a marked increased on 15% in 2004. However, only 29% of companies reported quantified figures on energy use or other climate change related topics. Just 15% of companies reported on one of the environmental key performance indicators (KPIs) recommended by Government, and 3% disclosed absolute quantified, comparable figures on all three core KPIs of water, waste and climate change impacts. 

The Environment Agency is concerned that the levels of quantitative disclosures on environmental risks (and opportunities) that are financially material to shareholder and potential investors remain relatively low.

Speaking at the launch of the report on 11 October, Barbara Young, Chief Executive of the Environment Agency, said: “I am pleased environmental reporting by FTSE listed companies has improved since our previous study in 2004. 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 and this isn’t good for the environment or the economy.”

The UK Government has made it clear that environmental reporting is important, and it views this as a permanent fixture in corporate reporting.  In January 2006, Defra published voluntary guidelines on reporting of key performance indicators (KPIs) to provide a framework for reporting on significant environmental issues, which companies must include in their annual reports & accounts. Under the 2006 Companies Act, companies must now report on significant environmental matters in a Business Review in their annual reports & accounts.

As of 1 October 2007, Business Reviews must disclose environmental KPIs where appropriate, or explain lack of disclosure. Also as of this month, directors have a duty to take account of the impact of a company’s operations on the environment.

Simon Thomas, Trucost chief executive, said: “The abandonment of plans for an Operating and Financial Review and subsequent phased introduction of environmental reporting requirements has left many businesses confused about their obligations. Current levels of environmental disclosure provide a foundation for wider uptake of recommended KPIs such as waste, water and climate change, as companies look to meet the reporting requirements now in force.”

The Environment Agency wants to see more companies adopt and use the Government guidelines on corporate environmental reporting and environmental KPIs in their future annual reports & accounts. It plans to repeat this study again in 2009/10.

Copies of the FTSE All-Share Environmental Disclosures Report 2006 can be downloaded from www.trucost.com.  Copies of the Government’s guidance on environmental reporting and KPIs can be downloaded from http://www.defra.gov.uk/environment/business/envrp/pdf/envkpi-guidelines.pdf