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Environmental Disclosures: in the Annual Report & Accounts of companies in the FTSE All Share
15 July 2004
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Key Findings
- 89% of FTSE All Share companies discuss their interaction with the environment in their Annual Reports and Accounts. However, the vast majority lack depth, rigour or quantification and 11% disclose nothing at all.
- 72% make a reference to environmental policies but less than 50% report on a subject other than their environmental policy, which in itself is not a measure of environmental performance.
- 58% report on one topic out of water, waste, energy use and climate change but only 10% report on all three.
- Only 24% of the FTSE All Share make any quantitative environmental disclosures. Companies with environmental management systems do so more frequently.
- Only 17% of the FTSE All Share refer to climate change risks.
- Only 12% make environmental disclosures in the audited sections of their Annual Reports and Accounts under existing tests of materiality. 89% do not regard the environment as a material business risk.
- Only 11% of FTSE 350 companies link environmental issues to financial performance.
- Only 5% of FTSE 350 companies link environmental issues to shareholder value.
- Only 4% mention the Environment Agency, yet information provided to the agency could be useful to shareholders.
- FTSE All Share companies need to pay more attention to environmental issues in the Annual Reports and Accounts.
- Guidance on relevant key performance indicators would help companies decide which environmental disclosures are necessary to meet the requirements of the forthcoming Operating and Financial Review.
Extract
The environmental disclosure study aims to establish a baseline of current reporting levels prior to the implementation of the Operating and Financial review (OFR) and other mandatory reporting requirements (some of which are from EU directives on company law, others derive from anticipated environmental regulations). It aims to inform Environment Agency thinking and policy on corporate environmental disclosures with specific reference to emerging international, European and national legislation and guidleines.
The analysis of the FTSE All Share constituents is based on a high-level screen of diclosures in Annual Reports and Accounts, and identifies, where possible, the drivers behind disclosures in the current regulatory and business environment. It is complemented by a more detailed analysis of the scope and quality of environmental reporting in the Annual Reports and Accounts of the FTSE 350 Index and in companies with dual listings in the stock markets of more than one country.
Why did the Environment Agency commission the research?
The Environment Agency commissioned Trucost to produce this study of environmental disclosure within the statutory Annual Reports and Accounts of FTSE All Share companies because the Environment Agency believes companies’ interactions with the environment are of significant financial importance and this study is therefore focussed on environmental disclosures within Annual Reports and Accounts.
The report was intended to provide a baseline of the current environmental disclosures of the FTSE All Share companies before the new Company Law regulation, which required listed companies to produce an ‘Operating and Financial Review’, and the implementation of various EU environmental regulations such as the Emissions Trading Scheme and the Environmental Liability Directive. The study was intended to be repeated in 2006.
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