Green-Backed Growth

Thursday 8 February 2001

Talks designed to agree greenhouse emissions around the world might have crashed in November, but there's little doubt that the impact of business on the global environment remains top of the agenda.

Countries around the world are taking corporate environmental reporting (CER) more seriously, with many countries making such disclosures mandatory and other companies recognising that it makes good business sense to take such issues seriously.

Nevertheless, despite the positive trend, international environmental agencies continue to worry about the impact business has on the environment in general, and the efficacy of voluntary CER in particular.

Will it be yet another compliance burden, or should big business take a wider perspective and think of CER as sound business practice?

In recent years it have become common practice internationally for corporates to publish Environmental Reports. Typically, the reports include a company's environmental policy, environmental programmes or systems, emission and resource consumption levels, compliance with relevant legislation, and any financial or operational effects of environmental issues for companies (greenhouse issues are becoming a major factor).

A 1996 study by KPMG and Lund University found that an average of 71% of public companies in the major developed countries disclose information relating to the environment in their annual reports. Other companies produce stand alone environmental reports.

Why do they do it?

In addition to responding to public concerns about business's impact on the environment, Corporate Environmental Reporting provides companies with a tool for:

• managing business risk associated with environmental issues;
  
  
• identifying potential marketing opportunities within New Zealand and internationally;
  
  
• creating shareholder value through better environmental management (with a proven correlation between environmental and financial performance);
  
  
• responding to shareholder and external demand for information about the environmental effects of business operations;
  
  
• validating the environmental status of a company in order to satisfy trade or investment related queries;
  
  
• providing a means by which investors can assess the likely financial impact of environmental issues for a company;
  
  
• developing a better relationship with regulatory bodies.

They also do it because it represents good marketing practice. The green consumer is a growing target market. These are people whose social conscious shapes their spending habits - even if it means paying more. These are sophisticated, well-educated professionals with high disposable incomes. Image is everything - they want to be seen to be doing the right thing but they are time poor.

Sound like customers your company would be interested in?

The rise of the buying power of this group is not surprising given the change in attitude to our use of the environment.

Several countries have passed legislation making a certain level of environmental reporting compulsory. 3000 Danish companies have had to produce 'Green Accounts' under the Environmental Protection Act since 1996, and 300 industrial companies in the Netherlands are required to produce annual corporate environmental reports every year. Canada, the US and Finland have introduced certain CER requirements and other countries like Sweden and the UK are considering their options.

Closer to home, the Australians have taken a stand. In July 1999 the Australian government amended its Corporation Law to require environmental reporting within annual reports. With the trend towards harmonisation of Australasian laws, this is the clearest indication yet of what lies ahead for New Zealand business.

And what of New Zealand? Well, so far, so little.

New Zealand has rested on its laurels and its reputation of being "clean and green" for too long. A 1997 OECD survey ranked New Zealand a resounding last in the countries surveyed ranked by the number of companies producing environmental reports, and the situation hasn't improved significantly since then. In fact it went further and concluded that New Zealand's clean and green image could not be substantiated.

But we are making the right noises.

In 1997, the National-led Coalition considered amending either the Companies Act or the Financial Reporting Act to require the statutory disclosure of environmental impacts by companies. Today, the Labour-led Coalition has a policy to introduce mandatory reporting although there have been no indications to date when it will be introduced.

Over the past three years, eight New Zealand companies have voluntarily published Corporate Environmental Reports, including Carter Holt Harvey, ECNZ, Solid Energy, Tasman Pulp and Paper, Watercare and Fletcher Energy.

Although New Zealand is well behind the international average, the numbers are likely to increase in the future as New Zealand companies respond to international trade pressure, as well as potential regulation.

In a globalising marketplace our products have to measure up to international not just domestic standards. So while it is not mandatory - smart companies realise that it makes sound business sense and have embraced it prior to legislation.

And its not just traditional polluters like factories that should be undertaking corporate environmental reporting. Every business has an impact on the environment from how its employees get to work to the office recycling policy for its paper.

So while Corporate Environment Reporting remains on a purely voluntary basis in the meantime, legislation is pending and the benefits of CER speak for themselves. It is probably wise to jump before you are pushed and reap the rewards.