An increasing number of users have an interest in environmental matters, either as socially responsible investment (SRI) analysts, private investors, banks, employees or customers. In cases where there are material environmental impacts, they will normally expect to see something in the annual reports.
Required:
What might users expect to see in a company’s annual report to indicate that environmental concerns are receiving adequate attention? (9 marks)
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- In cases where there are material environmental impacts, they will normally expect to see a statement of corporate commitment, policies and strategy, showing the importance attached to such issues. There could well be a competitive advantage to be gained from being seen as a leader in responsible environmental practices. The statement would usually deal with the overall control over such issues, whether through a committee of the board or a senior manager with practical experience of environmental issues in a corporate context.
- Most users, particularly investors and lenders, will also be concerned to know whether there are any material financial impacts, actual or potential, arising from environmental issues. Where this is the case, discussion of environmental risks and
uncertainties in the annual report, together with the related action taken, may therefore be appropriate as well as information about environmental performance. Depending on the nature of the entity, there could be a call for information about
matters such as site remediation, disposal of waste, resource recycling or supply chain performance. In identifying the environmental matters likely to be of particular concern to report users, some form of stakeholder engagement is beneficial. - Many fund managers have a department dealing with SRI. In reviewing a company’s annual report, the environmental matters attracting attention will tend to vary according to its nature, size and geographical location but, where environmental
matters are significant, will generally fall within the following main areas:
** Commitments, policies and strategies.
** Environmental management/EMS and ISO 14001 certification.
** Principal environmental impacts.
** Environmental performance – absolute and relative.
** Fines, penalties or awards. - In appropriate cases, it is often helpful to users if reference is made to compliance with voluntary codes, such as EMAS or The Natural Step, or certification of the EMS to a particular standard, such as ISO 14001 or Project Acorn. This would normally help to demonstrate the adoption of desirable environmental policies. (Any 3 points)