Forum on Environmental Reporting
COMPANY ENVIRONMENTAL REPORTS
Guidelines for Preparation
Fondazione Eni Enrico Mattei (http://www.feem.it)
(for more information: ranghieri@feem.it)
Contents:
Company Environmental Reports
THE TIP
OF THE ICEBERG
WHY
COMMUNICATE USING AN ENVIRONMENTAL REPORT?
THE TARGET
AUDIENCE
THE FORUM ON ENVIRONMENTAL REPORTING
OBJECTIVES
CONTEXT
FRAMEWORK FOR
THE INITIATIVE
PARTICIPANTS
THE CONTENT OF COMPANY ENVIRONMENTAL REPORTS
Structure
Qualitative
Information (Notes to the balance-sheet)
Quantitative
Information (The Balance Sheet)
On January 1994 the Fondazione Eni Enrico Mattei launched a working group, called Forum on Environmental Reporting, that during the year discussed the guidelines on how to write company environmental reports.
Environmental reports are documents published by companies with the aim of communicating with stakeholders on the most relevant environmental issues. While environmental reporting is a practice of increasing importance, particularly in Europe and the US, the quality and the kind of information collected in environmental reports is not always satisfactory and it is impossible for stakeholders to evaluate, even in an approximate manner, a company actual environmental performance.
The environmental report is just one among several modern instruments of environmental management and it is published on voluntary basis, showing a proactive attitude of the company towards the protection of the environment. The voluntary nature of environmental reports is an explanation of their rapid success, but it can also be considered to be the cause of the lack of homogeneity and comparability of such documents. On the one hand companies have been stimulated to distinguish themselves from competitors in the field of environmental communication; but on the other the voluntary nature and the associated lack of legislative standards have contributed to the growth of poor quality and low information content reports, which have actually worked against those firms who adopted a more serious approach to environmental reporting.
In order to guarantee a minimum standard of this voluntary document, the Fondazione Eni Enrico Mattei therefore decided to invite some large companies emerging in the field of environmental management and reporting, and some of the interested target groups for environmental reports, environmental groups and public administration to work together to draw up guidelines.
The Forum on Environmental Reporting, lies within a rapidly changing legislative framework (particularly the EU EMAS regulation and the Italian "green 740", relating to the annual declaration of environmental data) while aiming to define a reference framework for company environmental communications.
The objective of the Forum on Environmental Reporting is to set guidelines for companies seeking to produce an effective environmental report, providing stakeholders with the information needed to evaluate the firm's environmental performance.
A number of large companies, representatives of environmental groups, public administration officers, industry confederations and other institutions constituted the Forum on Environmental Reporting.
COMPANY ENVIRONMENTAL REPORTS
The environmental report is a communications document in which the most important links between a company and physical environment are described. It is produced by the company with the objective of establishing a dialogue and promoting co-operation with the various stakeholders concerned about environmental issues.
The trend towards environmental reporting has grown rapidly in Europe and North America where large industrial companies increasingly use such documents as the main channel for environmental communications.
The rapid spread of published environmental reports has to be considered as a part of the general change in company attitudes regarding disclosure of information on environmental issues. The increasing importance of a strategic approach to the environment allows companies to define policies and investment programmes with a large time scale and to increasingly involve stakeholders in environmental management.
The decision to report on environmental issues usually coincides with innovations in management systems involving all the business units. The environmental report is therefore the tip of the iceberg, the rest of which is constituted by the system of controlling and planning the most significant strategic issues of environmental management.
WHY COMMUNICATE USING AN ENVIRONMENTAL REPORT?
Companies decide to adopt the environmental report as a tool of environmental communication in order to make the relationships with stakeholders stronger. Environmental groups, local communities, employees, shareholders, banks, insurers, and customers push companies to continuously improve the environmental performance of production processes, products and logistical management.
The choice for the environmental report does not exclude, but positively requires, other activities: the environmental communication strategy forms part of the firm's environmental management system that also includes various instruments such as eco-audit, life cycle assessment and eco-label.
Among these instruments, the environmental report is actually the most versatile because it is a technical document that has to address a wide spectrum of target groups. This is one explanation for the rapid success of environmental reports: a considerable number of environmental reporting awards have been launched, important organisations like the United Nations have issued recommendations on the subject and some hundreds of companies have already published their environmental reports in Europe.
under heavy pressure from environmental groups and local communities, the chemical industry has been the leader in implementing environmental management systems and in adopting the environmental report as one of the most important environmental communication tools.
The oil sector, with a strong emphasis on internationalisation, has shown an open approach to reporting, following a serious crises in relations with environmental interest groups (there are several examples of disasters associated with crude oil transport).
The electronics sector, even if it not strongly under stakeholders pressure, has also implemented a disclosure strategy showing an attitude to innovation both in terms of product development and management systems concepts.
In countries where there is a significant level of environmental awareness, companies operating in major consumer products sectors (such as cosmetics or house cleaning products) have already started to communicate using environmental reports, paying particular attention to packaging, product design and raw material consumption.
Clearly, environmental reporting is a practice which is more and more common in sectors where pressures for environmental protection measures are able to stimulate changes in management systems. The environmental report demonstrates the degree to which a company has taken the responsibility for environmental impacts caused by production activities. It also demonstrates increased openness towards stakeholders and the importance of strategic environmental management.
In order to properly prepare an environmental report, the environmental manager must identify the target groups. The general expression "stakeholders" is not sufficient for determining precisely and comprehensively the information required for an effective and meaningful environmental report.
Among the stakeholders there are different categories of groups that cannot be considered as a homogeneous target; therefore, before starting the reporting process, company must rank and define its communication priorities, keeping in mind two important constraints: comprehensiveness (the environmental report must cover many different topics) and the level of detail (it is impossible to completely satisfy all the stakeholders at the same time).
Local communities, environmental groups and public administration represent the most important target groups for the environmental report. For this purpose, many companies structure their environmental reports using site by site data and present the document at a local level involving to communities, environmental groups, public administration and employees. In this context, the environmental report represents an effective tool for consolidating the relations between site and society.
Company responsibility is increasingly involving "cradle to grave" activities as a consequence of consumer pressure. Environmental reports of companies operating in cosmetic, consumer electronics and house cleaning product sectors demonstrate that customers are emerging as a key target for environmental reports. It is important to underline also that small and medium sized enterprises will be increasingly asked to evaluate and demonstrate (also with an environmental report) their environmental "efficiency".
Even if the financial community - banks, insurance companies and shareholders - has not so far been considered an important target group, it is expected that in the near future they too will have significant needs for environmental information.
Environmental risks, contingent liabilities, environmental expenditures are some of the types of information that the international financial community is calling for before investing, defining insurance premiums and giving loans.
Since the environmental report also serves as an internal document for the company, it must underline the importance of each employee's contribution to environmental protection targets. Accordingly, environmental reports could contain a description of issues (programmes and initiatives) in the area of the management of risk for employees and the environment. Many companies have indeed stated that employees are the most important communication target; although such issues have so far found little room in environmental reports. Some reports of companies located in the United States and United Kingdom contain information on incidents and threats to employee health while in many other countries environmental reports show only the "good news".
THE FORUM ON ENVIRONMENTAL REPORTING
Growth in the quantity of environmental information has been remarkable during recent years, in the form of reports and other communication instruments, while the qualitative improvement has been poor. The development of environmental reporting has followed different directions, with some companies taking a distinct leadership role, while many others followed without real conviction in the instrument. In particular, publishing the report even without an accepted methodology has been the philosophy adopted by many companies in different sectors. Such reports have not been accepted by stakeholders as providing meaningful information and many are still waiting for more significant reports to be published.
Thanks especially to the action of environmental groups, in North America and Europe, companies wishing to prepare environmental reports have now to compare their documents with some sophisticated benchmarks, or otherwise risk some undesired feed-back.
In order to promote the adoption of satisfactory company environmental reporting standards it is necessary to find the common ground between stakeholders' needs for information and companies' commercial confidentiality constraints.
This is the objective of the Forum on Environmental Reporting organised by the Fondazione Eni Enrico Mattei to create guidelines for environmental reports, satisfactory to both stakeholders and companies.
The Forum on Environmental Reporting has to be considered in a very dynamic context surrounding the "right to know" environmental information. There are indeed many examples of public administration initiatives and self-regulatory industry codes aiming to standardise environmental reporting information.
The public sphere operates on both a voluntary and mandatory basis. In Europe and North America there is a growing amount of legislation concerning environmental information disclosure. The Council of the European Union has adopted the eco-management and audit scheme that foresees, together with other requirements, the publication of an environmental statement. In The Netherlands a law bill on environmental reporting is on the current parliament agenda and the US Security and Exchange Commission requires quoted companies to disclose some environmental information (in particular concerning environmental liability).
Industries have launched self regulation initiatives like codes of conduct such as the PERI Guidelines (Public Environmental Reporting Initiative), or the CEFIC (the European Confederation of chemical companies) with the Responsible Care programme promoted in Italy by Federchimica, or the ICC-WICE (International Chamber of Commerce-World Industry Council for the Environment) that represent interesting International initiatives demonstrating the strong effort towards environmental reports standardisation.
The Forum on Environmental Reporting, as distinct from other initiatives in the field, is neither promoted by government and nor an industry code of conduct.
It can instead be defined as a heterogeneous working group born to define the contents for a good environmental report, satisfactory for companies and for the various stakeholders. The most important characteristic of the Forum is the negotiation that took place among different parties.
Forum meetings and papers take the shape of discussions about issues such as public access to environmental information and the need to differences in position on certain key issues.
Matteo Bartolomeo (Fondazione Eni Enrico Mattei and
Agip Petroli)
Duccio Bianchi (Legambiente and Istituto Ambiente Italia)
Giancarlo Boeri (Ministero dell'Ambiente)
Giancarlo Caputo (Rohm & Haas)
Giancarlo Coccia (Enichem)
Cesare Costantino (Istat)
Ada Lucia De Cesaris (Istituto per l'Ambiente)
Stefano Dionisio (Ernst & Young)
Antonio Donatelli (Ministry of Industry)
Mario Dubini (Istituto per l'Ambiente)
Alberto Fangareggi (Dow Italia)
Domenico Gaudioso (Enea)
Paolo Giuiuzza (Federchimica)
Alessandro Lanza (Fondazione Eni Enrico Mattei)
Maurilio Leboffe (Confindustria)
Ernesto Longo (Consultant)
Roberto Malaman (IRS and Fondazione Eni Enrico Mattei)
Mario Molteni (Università Bocconi)
Gianfranco Pedrocchi (Enel)
Cristina Rapisarda Sassoon (L'Impresa Ambiente)
Giuseppe Sammarco (Fondazione Eni Enrico Mattei)
Roberto Scaccia (IBM)
Giorgio Rowinski (FIAT spa)
Domenico Siniscalco (Università di Torino and Fondazione Eni Enrico Mattei)
Luigi Scopesi (Snam)
Maurizio Urbani (Ministry of the Environment)
Marco Viviani (WWF Italia)
Gianfranco Zanoni (Agip Petroli)
Participants to the Forum on Environmental Reports are not individually responsible for the suggestions of this document.
Companies and organisations that attended the Forum on Environmental Reports did not make any commitment to implement the whole body of Forum proposals.
THE CONTENT OF
COMPANY ENVIRONMENTAL REPORTS
An environmental report is ideally made of two parts: a commentary (which contains qualitative information) and secondly a presentation of the most important figures regarding the relationships between company and the environment (quantitative information).
Such a structure is very similar to the standard company annual report where the balance sheet itself is accompanied by a description of corporate policy, programmes and objectives.
Considering this structure, the Forum's suggestions can be divided into qualitative (notes to the balance sheet) and quantitative information (balance sheet). This structure improves report understandability and it is useful for companies to maintain the distinction between the two types of information.
For each section, the Forum has identified certain issues that should be addressed in an environmental report.
For these areas, the minimum requirement identifies a point that should necessarily be included in a reliable and comprehensive environmental report; when the requirement is recommended the inclusion of the related information is desirable even if its omission does not affect environmental report value.
Qualitative Information (Notes to the balance-sheet)
1. COMPANY DESCRIPTION
Information about the company activities is necessary to establish a dialogue with all the groups interested in that production activity and its environmental impacts.
Environmental reports mostly contain the CEO's or President's description of the company at the beginning of the document. This underlines the strategic importance of environmental protection. In this section, the description of production processes and their environmental impact has to be a simple introduction to the most important environmental issues.
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2. ENVIRONMENTAL POLICY
The environmental policy section states the company philosophy concerning and approach to environmental protection. Its introduction, although simply a declaration of general objectives, outlines the company's efforts towards strategic management of environmental issues.
The environmental report could also contain the objectives and the capability of the company to achieve them. There are only a few examples of companies that have disclosed their medium term targets and even in these few cases, during the subsequent years, there has been no critical analysis about success and failures.
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3. ENVIRONMENTAL MANAGEMENT SYSTEMS
The environmental report should contain a description of the management system implemented by the company. It is important to underline that the EC regulation on EMAS (the Eco-Management and Audit Scheme) for the first time officially introduced the concept of "eco-management and audit". The regulation represents a reference for companies willing to introduce a formalised environmental management system.
The standardisation of the environmental management system is also on the agenda of some standards bodies (ISO and the Italian UNI) that are working to define environmental standards similar to quality standards.
Therefore, the environmental report could include a description of the environmental management system and eventually the certification by regulators by standards bodies.
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4. RISK MANAGEMENT
Company environmental performance described in the report do not always underline clearly enough efforts in the field of risk management.
In many industry sectors environmental risk represents the most important threat for the surrounding environment. For a long time local communities and environmental groups have been asking companies for a strategic management of environmental risks and even when companies complied with this request a proper dialogue tool was missing. In this context the environmental report could describe programmes and achievements of audit activities and clean-up operations.
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5. COMPLIANCE WITH ENVIRONMENTAL LEGISLATION
Implementation of Italian environmental legislation is characterised by weak enforcement and a gap between recognition of non-compliance and legal action. This frequently implies unequal treatment among companies which is difficult to be explained in an environmental report.
Nevertheless, it could be worthwhile for companies to establish co-operative relationships with public administration, environmental groups and local communities. The environmental report (as well as stakeholders) should then be in a position to face, without prejudices, the controversial issues related to environmental legislation.
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6. PRODUCT POLICY
The environmental impact of a company frequently depends on the products it makes. Although the environmental responsibility of a company is not yet related to product impacts, there is increasing concern regarding a company liabilities due to its products use and disposal. Currently, the incentives for companies to improve its products environmental quality are largely voluntary due to savings in raw materials consumption, competitive advantages and logistical efficiency. Product policy does not have the same importance for all sectors and the incentives for product innovation can be different from company to company.
Moreover, even considering that the environmental report has to be reasonably short and simple, much information on a company's product policy could be usefully disclosed, with level of detail depending on the importance of product policy in the relationships between company and the environment.
These considerations can be extended to packaging.
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7. CONSERVATION OF NATURAL RESOURCES
Pollution prevention is closely related to the quantity and quality of raw materials consumed. In a context of growing company responsibility, ecosystem protection and savings of natural resources (renewable and non renewable) consumption represents one of the guiding criteria of company environmental policy. Considering the wide spectrum of measures that companies can undertake, special attention can be given to energy saving and water savings. Each production sector can undertake more specific initiative that could be usefully disclosed in the environmental report.
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8. STAKEHOLDERS RELATIONS
The environmental report is a way for the company to establish a dialogue with its public on environmental issues. It is therefore desirable that the environmental report stimulates relations with those stakeholders.
EIA (environmental impact assessment) procedures and voluntary agreements are examples of the participation of stakeholders in company environmental management.
Marketing strategy frequently could be an opportunity of exchanging ideas by involving customers, consumers and local communities.
The name and address of the managers responsible for various sections in the environmental report contributes to the transparency of the environmental report.
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9. CERTIFICATION
Credibility is one of the most important characteristics of the environmental report. The best way to ensure this is in terms of report quality: comprehensiveness, comparability, transparency and simplicity.
External certification of the environmental report can increase its credibility. At the same time a credible certification can be guaranteed only by professionals with certain skills. EMAS verifiers could play an important, but not strictly necessary, role for the certification of environmental reports.
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Quantitative Information (The Balance Sheet)
1. ENVIRONMENTAL EXPENDITURES
Data on environmental expenditures contribute to demonstrating company's effort towards environmental policy objectives. The financial community (banks, insurers and shareholders), one of the most important target groups for company communication, judge companies on the basis of their environmental liabilities and environmental expenditures.
Nevertheless, many companies that have already chosen the environmental report as "the tool" for environmental communication, did not include information on environmental expenditure in their documents. The reason lies in the difficulty of accounting for environmental expenditures with common criteria and of establishing a relationship between environmental expenditures and environmental performance.
Accounting for environmental expenditures, even in the same company, can face many problems of deciding whether the expenditure has to be considered environmental or whether it is undertaken only for economic reasons. The adoption of a new technology often implies an improvement in environmental performance even if the investment is made without considering environmental issues. From a practical point of view, the need is clear for re-shaping company's accounting criteria in order to include classifications of environmental expenditures.
As regards accounting criteria in Italy, an important reference comes from ISTAT (the national statistical office) that, according to the European EUROSTAT, has already started to provide incentives for companies to account for environmental expenditures.
Even when expenditures are properly accounted for, data could be misunderstood by stakeholders. A company undertaking expensive investments for environmental protection should be considered proactive or is it just paying for years of mismanagement of the environment? The problem can only be partially solved by explicitly showing the links between improvements in environmental performance and expenditures. Sometimes this is not possible; for example, how to demonstrate the reduction of environmental risks in relation to expensive measures?
The environmental report could therefore contain information on environmental expenditures with an explanation of accounting criteria (possibly those of EUROSTAT or ISTAT), programmes and achievements. The value of the information could increase when expenditures are accounted for on a site by site basis.
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Minimum Requirement (whether or not the company decides to include information on environmental expenditures ) |
2. EMISSIONS AND CONSUMPTION OF RAW MATERIALS
The heart of the balance sheet is represented by the quantitative information on inputs and outputs to production processes. Even if in many cases stakeholders are not able to understand the meaning of data reported in this section, it is a requirement to include tables showing quantities of raw materials consumed, energy flows and pollutant output.
The Forum's suggestions have to be considered not tailored for a single sector and therefore each company must identify the most relevant figures to describe its interaction with the environment
The more these data are reported using tables (such as input-output matrices), at site level and with a comparison with previous years, the more the environmental report is valuable.
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3. ENVIRONMENTAL PERFORMANCE INDICATORS
Environmental information is clearly a multi-disciplinary field and therefore it is frequently difficult for interest groups and individuals to understand it.
Environmental performance indicators ideally are an instrument to render environmental data more understandable and comparable. These characteristics can be achieved only by adopting objective, demonstrable, relevant and comparable indicators.
The adoption of environmental performance indicators is not free of dangers: making aggregations in order to keep the information understandable implies a loss of precious detailed information. This is the reason why indicators have to go with raw data for the year of reference.
The most common indicators link physical data on emissions with figures like quantity of production, sales, value-added and transformation cost. Depending on normalisation procedure, the information may be different as it comes from comparisons between sites, companies, sectors.
For example, shifting from sales to value-added as denominator, a company transforming raw materials into products shows an improvement of environmental performance compared with a commercial company.
Making a social judgement of the importance of a company, value-added gives a clear idea because the indicator relates emissions (that in some way cause damages and externalities) to the social benefit of the company (which frequently is described by added value).
It would be meaningless to try comparing companies using a single kind of denominator and therefore the simultaneous use of different kind of indicators is suggested.
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