Guidelines for green reports

For companies whose financial years began on or after 1 April 2005 the
mandatory Operating and Financial Review is being replaced by the simplified
Business Review in line with the requirements of the European Union Accounts
Modernisation Directive.

Gordon Brown scrapped the OFR at the end of November following intense
lobbying from the business community. And despite a legal challenge by Friends
of the Earth, which accused the government of acting unlawfully when doing so
and led to the consultation being reopened, few believe the Business Review will
be affected.

The Business Review will retain the narrative reporting required by the OFR
and companies should employ financial and non-financial key performance
indicators (KPIs) relevant to the particular business. This includes details on
employee issues and environmental issues. Director General of the CBI Sir Digby
Jones believes that “whether you are a plc or a large private company you will
need to report to investors on how environmental issues will affect your
profitability”. Indeed, every company could benefit from producing a detailed
Business Review.

The Kyoto protocol, which came into force on 16 February 2005, imposes a
legally binding greenhouse gas reduction target on the UK of 12.5% by 2008-12.
The Environment Agency estimates that the British manufacturing industry could
save 7%, equivalent to £2bn to 3bn, a year by adopting best practice waste
minimisation.

To help companies achieve such goals, the Department for the Environment Food
and Rural Affairs (DEFRA) has published guidelines on 22 KPIs which companies
should use to help produce their Business Review. KPIs should be measurable and,
therefore, quantitative in nature, but, in addition, a general narrative should
accompany them explaining their purpose and impact.

The four general topics for KPIs are: emissions to air; emissions to water;
emissions to land; and resources.

To compile the report on KPIs companies are advised to:

• Classify the sector of the company;

• Assess direct KPIs;

• Assess indirect KPIs; and

• Measure and report on KPIs.

The government expects businesses to report on the significant environmental
impacts whether they are caused by direct or indirect means. In simple terms
this means the emissions caused, or the resources used by a company, would be
classed as “direct impact”, with everything else falling into “indirect impact”.

However, as purchased electricity and water can be considered indirect
impacts, the government feels that responsibility for these should be shared.
For example, an electricity generating company can reduce its carbon use (direct
impact), while a company which purchases that electricity can improve its energy
efficiency (also direct impact). In this example, both companies could improve
their performance by directly reducing emissions.

The 22 KPIs are:

Emissions to air

• Greenhouse gases: Certain gases which increase the Earth’s surface
temperature, such as methane and nitrous oxide;

• Acid rain, eutrophication and smog precursors: Emissions into the air,
which are dispersed over great distances via rain, snow or smog;

• Dust and particles: Matter that can be inhaled, such as particles emitted
from vehicles;

• Ozone depleting substances: Substances that are harmful to the Earth’s
atmosphere, such as hydrochloroflurocarbon used in air conditioning systems, but
are often only emitted into the environment by accident;

• Volatile organic compounds: A group of chemicals that evaporate when
exposed to air. They are commonly used as cleaning agents and degreasers, but
are also a by-product of fossil fuel combustion;

• Metal emissions to air: These can be emitted through burning coal or oil.

Emissions to water

• Nutrients and organic pollutants: Waste such as human sewage, oil and
contaminants discharged into bodies of water;

• Metal emissions to water: Discharges of metal waste which can poison the
aquatic environment.

Emissions to land

• Pesticides and fertilisers: Distributed predominantly on farmland to
increase production and limit damaging affects to crops;l Metal emissions to
land: Can be found in sewage sludge, which is used as a fertiliser, but is
extremely toxic to certain types of agriculture;

• Acids and organic pollutants: Any process which uses oil-based fuels can
leave a discharge as well as spillages;

• Waste (landfill, incinerated and recycled): Waste incineration is a
significant source of renewable energy. However, it produces vast amounts of
carbon dioxide;

• Radioactive waste: A by-product of nuclear fuel and production of
electricity.

Resource use

Most of these resources are considered non-renewable and their continued
extraction will lead to their depletion. The extraction itself can also have
detrimental effects on the environment.

• Water use and abstraction: Due to climate change, depleting water resources
are a concern ­ companies should use water more efficiently and reduce waste,
such as sewage and chemical companies;

• Natural gas: Ethane which can be refined and turned into liquid gas;

• Oil: fossil fuel;

• Metals: The most commonly used are gold, silver and aluminium;

• Coal: Fossil fuel, used as an energy source;

• Minerals: Diamonds, salt and graphite;

• Aggregates: Crushed stone, sand and gravel;

• Forestry: The harvesting of wood products, although considered a renewable
resource, over-exploitation can lead to depletion;

• Agriculture: Including meat and fish.

The guidelines have been designed as far as possible to be compatible with
other reporting guidelines and frameworks. Each industry sector will need to
report on a maximum of 10 KPIs with most (80%) reporting on five or fewer.
“Companies that understand their links with the communities they operate in and
their impact on the environment are most likely to prosper in the long-term,”
says Sir Digby.