Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. Like the utilities then?
  (Mr Rintoul) Yes; exactly. And I think the other thing I would say there is, regarding the broadening of reporting, and I will agree here with Tom, as well, different organisations will actually deal with that in different ways, and they may produce integrated reports, may produce separate reports, and you look at some of the utilities, and particularly United Utilities, they produce a family of reports. I think that what happens, the companies and the organisations who are looking at this broader piece may well choose different platforms and vehicles in which to report, but they are all considering very similar issues. And, coming back, finally, to agree with Roger, it depends on the status and the robustness of their internal systems when they feel they are ready to do so.

Mr Thomas

  101. Can I just follow on one thing. Dr Woollard, you mentioned that some of the poor sectors here, which are the finance and possibly the new telecommunications companies, and so on, did not seem to think they had a major environmental impact, therefore they were not really keen to do the environmental reporting, but they do have a huge social impact, in terms of sustainable development, and that aspect of where environmental reporting may now be going, and the triple bottom line reports, and these sorts of things. Are they at least preparing for that type of reporting, do they have the internal systems that Mr Adams mentioned, and are they actually starting to think about this thing? I am aware of the Co-op and its stakeholder type approach to the social and ethical issues; how many other of these companies are now looking at that aspect of environmental or sustainability reporting?
  (Dr Woollard) Yes, these companies are looking at the social dimension and reporting on it, certainly, and there are four telecoms companies that are in the process of developing social into their reporting mix. I think the issue for these companies is struggling with what is the environmental impact of their business, and often they do not see themselves as having a direct impact.


  102. What about mobile `phone masts? That is one thing which is a huge issue in many of our constituencies; certainly, ordinary people think there is a health and environmental consequence of that?
  (Dr Woollard) Yes; with hand-held `phones as well, the sort of cancer scares. Those are big issues; but they are also strategic issues. Some of the discussions I have been having with telecoms companies, it seems to me that the company that can explain the nature and variety of the social and environmental impacts and benefits, there are advantages and disadvantages, the company that says, "Look, if we come into a new region in the world we can make a difference to the environmental profile of that region; a region that has well-developed telecommunications will have a different environment profile from a region that does not have well-developed communications technology." The company that can understand that and explain it and communicate it, it seems to me, is the one that has a competitive advantage to say, "We understand this issue, at least, both direct, whether it be masts or `phones, but also strategic, long-term, social, home shopping," these kinds of things. If home shopping does take off and people can do all their banking through their `phone then they do not need to drive to the local high street. The profile of the region and the local area will change.

Mr Thomas

  103. So you mean losing local shops, and services as well?
  (Dr Woollard) Absolutely.

  104. This is the sort of thing that has got to be considered.
  (Dr Woollard) People may stay at home all the time; but it seems to me that, the telecoms company, there is competitive advantage in being the one that understands that and communicates it, and perhaps writes the position paper on it, when BT or Vodafone come into a region, and, let us say, in Eastern Europe, or in the States, or overseas. Instead of having overhead lines, it can all be done with masts or satellite communications, certainly for the areas of expansion that these companies see that they should take advantage of it. As I said, my discussion with these sorts of companies is that they are well aware of this and that they are going through a sort of social but also environmental understanding, but they are at early stages.
  (Mr Adams) Just on the sectoral issue, and the financial industry has been mentioned a couple of times in negative terms, but I think the Committee should be aware of the, I think it is, DTI finance project, Forge, which includes seven major financial services players, from both insurance and banking, across the range of the financial services industry. They have already produced draft guidelines on environmental management systems for each aspect of the sector and on specific reporting requirements for different parts of the sectors, dealing more with the indirect effects than with the direct, how we recycle our computer printout type of stuff. It is more about the way in which environmental issues are built into the lending issues, how environmental issues are built into the financial products which are offered, in terms of ethical portfolios, this type of thing; there is a major industry initiative, a sector initiative, going here, which does have broader implications than environment. I do not know whether the others would agree, but I think we do see sometimes the sectoral initiatives as being the most effective way to indicate to all players within a sector that there is a range of generic indicators and generic issues which they can and should be dealing with.
  (Dr Woollard) Can I take a slightly different line from that.


  105. Good; we encourage diversity.
  (Dr Woollard) There are lots of initiatives and there are lots of guidelines and lots of standards. The FTSE 100 clients I work with have a serious problem with reporting, which is, basically, they have a very small audience, they get very few responses, they produce 35,000 copies of their report, they send it out, they are lucky if they get 10, 20, 50 responses. When they go out and ask the public what they think of their reports, or even their shareholders, they are fairly bored with it, they have a fairly boring content, a boring, technical, detailed content, about pollution issues and standards and systems, and it is not a riveting read. These companies are interested in communicating, clearly, with potential customers and stakeholders. The slight concern I want to voice, I guess, is that if we make reporting too standardised, in my view, these reports will get even more boring, and possibly even less well read, it might actually almost dumb down the whole reporting thing. Because what has happened over the last five years is there has been this sort of competitive edge, where a company in a particular sector has produced a stunning report, they have got new indices, they have got new ways of reporting things, they have got more snazzy at communicating, and you can see that being picked up by other companies in the sector; that freedom is quite important, in my view, to ensure that the communication aspect of reporting stays and does not disappear.
  (Mr Rintoul) I think, the sector issue, I actually do not think Tom or Roger are necessarily saying different things here, because initiatives in sectors can be formalised, badged, organised, or they can actually be almost sort of naturally evolving things, like we see perhaps in the utilities, and you have just been describing there, Tom, where you get somebody who is at the leading edge of development of report production, who sets at least a temporary standard or target to be hit by other players in the sector, in the same way, when they look at their financial returns and investment returns, and so on and so forth. So I think you naturally do get initiatives and step changes by sector, as one of the players in the sector sticks their neck out further in one particular year and gets, usually, some kudos for it. So I think you do see this very much driven within sectors. I think one of the difficulties, and, again, I agree with you, Tom, is coming across all the sectors, it is one of the problems I think which is happening with the GRI, and it is a problem that needs to be worked through, is finding a framework, not a prescriptive template, because I do not think that will work, I think you would have all the potential disadvantages therefore Tom described, but having a framework which all the major sectors can subscribe to, and I think that all the more formal initiatives that are being discussed, broad initiatives, are coming up against this particular hurdle, or fence. And the one that finds its way through this is going to be the one that is actually going to win the day.

  106. But, surely, there is not necessarily incompatibility between a standardised approach, or some sort of framework, for which comparisons can be made, and boring, unsnazzy reports?
  (Mr Adams) I think that is absolutely right. These developments in reporting are happening exactly at a time when the technology, particularly the Internet technology, for delivering reports is evolving here very rapidly. You do not have to deliver what Body Shop were delivering in 1995, a 200-page values report, it was probably a great report, but even the judges on our panel of judges for our environmental award scheme would never have pretended it was a communications vehicle, it was an exploration of what was possible at the corporate level, a company driven by values. Now, I think, GRI is trying to grapple with this issue about flexibility and standardisation, or some sort of comparability. At the end of the day, I think the reporting does need to have comparable characteristics to it, there is a range of ethical and environmental fund managers out there, investors, who are looking for some information about environmental performance, about eco-efficiency and other issues, which they wish to use for investment purposes. I think that you have got to try to get that balance between some form of generic performance standards and some sort of flexibility in making it a jolly good read, for the NGOs, for the neighbourhood communities. The web gives you a way of fragmenting that information and presenting it which was not there five years ago, before people were really exploring.
  (Ms MacGillivray) Some of the developments we have seen where industries may be trying to address this include the water industry, where we have worked with them to develop some sustainability indicators across the sectors, so that they can really explain what it is about their sector and benchmark themselves against each other, without appearing in a sort of league table that shows them in a very bad light; the aviation sector, another sector that is probably fairly misunderstood, in terms of its immediate and its long-term impacts, are looking at doing the same thing. And perhaps by using a combination of generic indicators and then more jazzy reports you can get that combination of flexibility and comparability that people need, without standardising and making sure that everybody produces a very dull report.

Mr Jones

  107. Some time ago, Mr Rintoul was making some comments about the extent to which the regulation of an industry was likely to lead to more reporting, which then drove a tendency towards environmental reporting; that is one way of looking at it. The other possible way of looking at it, it is companies' perception of vulnerability to various pressures which drives them towards environmental reporting. Companies which are heavily regulated, it is extremely important for those companies to influence the way they are regulated, and would environmental reporting be seen by the company as a way of influencing the type of regulation that they are going to be subjected to?
  (Mr Rintoul) Without a shadow of a doubt; without a shadow of a doubt.

  108. Extending that theme of vulnerability has been the prime driver, that a number of the companies that you have mentioned as showing best practice perhaps in this field are companies which are highly vulnerable to things like consumer pressures, to boycotts, to adverse publicity. You have been exploring the theme over the last ten minutes about seeking competitive advantage, I think, generally, but I would be interested in your views about how companies respond to their perceived vulnerability and how that drives the need to report?
  (Mr Rintoul) I would have to agree totally with you, that is one of the main drivers which causes an organisation to consider not to report; and the fact about, in my view, there is a range of pressures in vulnerabilities, whether it is the consumer pressure, or whatever, although that has coughed and stuttered over the last five years, compared with where it was maybe five or ten years ago, where, certainly in certain market-places, it was a much more evident pressure, a much more overt pressure, I think, in some places, I would say that has actually moved back a notch or two. The point really I would say, to come back to my earlier comment, is that in those industries where there has to be publicly registered permit information, and so on and so forth, that information is already put into the public arena, the company has no argument about that, has no decision to make in that, whether it is by the regulators, or whatever; in these industries and the registers there is a block of their information about their environmental performance, or what targets they have to achieve, which is put into the public domain. In many of these other areas, there are not yet similar blocks of information going into the public domain by other mechanisms, and so they may well respond to some of those vulnerabilities in slightly different ways; do you see the logic of the point I am making? So that is why I am saying that those industries which are heavily regulated may be some of the first, but all of them are considering their vulnerabilities, and how they respond to that might actually vary, depending on what level of public information is already available.
  (Dr Woollard) We surveyed the websites of the FTSE 100 and produced a report of EHS and social websites,—we also did 20 Government Departments as well, but, on the private sector, we looked at the FTSE 100 websites to see the quality and range and diversity of EHS and social information. One of the things that really drew our attention was the fact that there is a plethora of protest websites out there; the reputation of these companies has suddenly become, in our view, slightly more vulnerable and more fragile, because there is a lot of websites that say, "I hate Glaxo," or "I hate Novartis," and they are quite interesting, they are direct, they might be sensationalist, they are quite good fun. There is the corporate risk, there is much spotlight, these are websites that really allow individuals to vent their concerns about companies. They are actually, from a lay person's perspective, I think, more enjoyable than going onto the company website, which says, "Here is our policy, here is our performance data," they do not actually deal with the child labour issue, or the explosion, or the thing that is being raised by these protest websites. So, in terms of reputation, I think, we have got a sort of natural driver in the Internet and in websites. What we noticed, also, is a sort of clustering, you get a clustering of protest websites round a corporate website, and sometimes it is quite difficult to tell whether you are on the protest website or the corporate website. That is my first point about reputation.


  109. Could we see a copy of this survey of websites?
  (Dr Woollard) Yes; we sent it in[1]. The second point is that I think what adds fuel to this vulnerability and reputation is the fact that, as we saw in Seattle, sometimes you cannot just pinpoint one particular NGO, you cannot go to one particular website and find out what the protest is about; you get this clustering effect amongst anyone who can get on the Internet site, they make all sorts of wild connections, and suddenly you get a march, or a protest, or you get a whole load of people coming together, mobilised through the Internet. And so it is getting increasingly difficult for FTSE 100 companies to predict whether they should be tracing Greenpeace's agenda, or Friends of the Earth's agenda, or whether it is just `' and what they might do when they get together and they make certain connections. So vulnerability and fragility in reputations, I think, have increased massively in the last six months to 12 months, and that is probably a good thing for reporting, companies will have to be more intelligent and they will have to make their environmental, health and safety, social websites more `sticky'.

  (Mr Adams) I would add just one thing. I think that, as well as the Big Mac type websites, and so on, if I can call them the more mainstream NGOs, in the UK certainly, and if you want to take Amnesty, or Transparency, or Friends of the Earth, there is a thing called an accountability network, an e-mail network, and actually the focus of that is not so much on environmental reporting, it is saying, "Hey, there's a company law review going on at the moment, there are major issues about corporate responsibility being discussed in the company law review process," and the NGOs are actually targeting the issues about trying to build some of these reporting issues into the proposed operating and financial review, that is discussed in, I think, chapter two of the consultative document. So it is not just a lot of people protesting on the streets, the wild and whacky website, there is a solid core of very, very focused NGOs who are looking at the legitimate, due process of company reporting in this company and trying to change the basis of it.

Mr Keetch

  110. I want to come back to websites, a bit about Government later to sort of compare how Government are doing, because I think ERM have done some report on that; but, just on the private sector reporting, it seems to some people that it is just the preserve of the bigger companies, and that very often they have traditionally done that just for the PR and that they have only done it in areas where there is a direct environmental impact. If it is so boring, is that why that is the case, because smaller companies are involved solely because it is too boring; or are there other reasons why it has remained in the bigger companies?
  (Dr Woollard) I think I will present this as evidence. A company I work for, Glaxo Wellcome, spent five years reporting, and this is 68,000 people in their organisation, these are global statistics; you will not be able to read them from there. This takes an awful amount of work, this is 60 sites round the world, all sending in, filling in a 100-page questionnaire, getting very, very detailed information, they make 35,000 copies of this and distribute it; the target audience for this is their own employees, that is EH&S, their own employees, they send it to their own employees; they send it out to the wider public, they get fewer than 100 comments.

  111. How many do they send out?
  (Dr Woollard) They publish 35,000 copies, and they send out a large number, it will be in the thousands, it will be fewer than 10,000, I would guess; but they get fewer than 100 comments, from anyone. So, as a commercial venture, as a communications exercise, this one is quite expensive to do, in order to get added PR.

  112. Which does beg the question, is it worth it?
  (Dr Woollard) The worth; why they do this, and most of the companies I work for, is not for the PR, they can think of much better ways of getting PR and advertising, but they do it for internal organisational efficiency. Being able to collect this data is a pretty impressive thing, they have got all their sites worldwide, reporting on the same parameters, they have glitches and errors each year and they go back and they work out where the mistakes are, it improves their internal management systems, it actually allows them to set global targets, it has all sorts of internal benefits for the company. In terms of credibility with the outside world, it is not a riveting read for the outside world. I think this is one of the fundamental problems with environmental reporting, it is very difficult to produce a document. I think it is easier on the web, where you can layer information, you can start off with some very easy, basic, education type information about what environmental issues are and how they relate to the company, and then you can do it on a second layer and get to a level of detail, so that only when you have spent 20 minutes on the website do you actually get to the real hard technical data. It is easier on a website than it is in a hard-copy report; but it is not PR they are looking for, it is internal management.
  (Mr Adams) Do not hold out environmental reports as being something we are all going to pick up at W H Smith as an alternative to the Evening Standard, going home tonight. We do not do that with financial reports; company financial reports, particularly of large companies, are unintelligible to all, possibly apart from the auditors who sign off and the finance director and a number of analysts, but the ordinary shareholder will not be able to understand the report of Barclays Bank or anything else. Reporting in that sort of way is simply a duty and obligation. There is an element, I think, that, environmental reporting, this discussion has not quite got onto, whether or not accountability for environmental impact is something that, as a society, we should be demanding of companies, not looking for the drivers, commercial drivers, and all this kind of stuff. If you went back to the 1930s and you looked at financial reporting in the 1930s, it was rubbish, we did not have consolidated accounts, no-one had ever heard of accounting standards, or anything like that, in order to put some order into financial reporting, one went through the process of Companies Acts and public reporting. The question is, if the environmental crisis is important for Governments to react to then they have to know how companies are reacting, are carrying through their policies, and I see environmental reporting as being one important, in a sense, obligation, in that way. Stakeholders, do they send in their tear-off slips and post them back, some of them do, some of them do not; but there is a bigger issue, I think, that we are dealing with here, and I just want, in a sense, to register that. SMEs, I think, are a different kettle of fish, we could probably talk all morning about SMEs, but I think it is not difficult to get SMEs reporting, provided you do not try to channel them down the BP Amoco path, or the Glaxo path. I think that you have got to start with a core of what they have already got, health and safety records, environment, waste records, that they have got and that they already keep as a legal requirement, and you begin to pull some of those threads together; you do not use the same model as for big multinational reporting, there are different approaches there.
  (Ms MacGillivray) We have not really made the connection with financial stakeholders and the City and whether they are looking at environmental reports and looking at companies' liabilities, which I think surveys have shown that they do not, at the moment, probably because environmental reports do not make any link between the financial performance of the company and the environmental leadership, or how they actually manage their responsibilities. They are interested in overall management of the company but not identifying environmental risk as an aspect of that particularly. But I think perhaps, with requirements on pension funds, there could be different drivers that would actually start to make companies think about reporting on these things, because it is going to be in their financial interest to do so.

  113. So if we are trying to persuade my little chicken company in Hereford, which employs 5,000 people, to produce some of these, they are not going to do it because it is a right riveting read, they are not going to do it because it is good PR, it is going to take them time. So should Government be telling them that they have to do that, is that something that happens in other European countries, because Michael Meacher said, sort of warned, that if this does not actually happen voluntarily there will be mandatory reporting? So are you saying that the mandatory reporting should come in, because the wider interest is more than just a commercial one?
  (Mr Adams) Our submission to you suggests two things, I think. One is that Michael Meacher cannot come back to our awards four years running and say, "I am going to name and shame companies; one day we might bring in some legislation, who knows." At the same time, his Department is doing good work in bringing out environmental reporting guidance, but only on very specific issues, and they have got CO2 reporting, they have got waste reporting, water I think is still to come. I think the Department is very well placed to pull those threads together, to move towards a more comprehensive framework for reporting. I think also that the experience in Denmark and The Netherlands needs to be studied, it actually has not been looked at; it is being looked at by the Danish authorities at the moment, they are going round the block again, the people I have spoken to in Deloitte & Touche in Copenhagen say, "We're very unhappy about the papers that they've put out," and so on. But I do not think many people outside The Netherlands and Denmark really know which companies are reporting and what the content of the reporting is, and I think that is something that this Committee could usefully recommend, to say, "Has it made a difference?".
  (Mr Rintoul) If I can come back really to reinforce some of the earlier points. I think, actually, implicit in what you were saying was, "Why do it?". And my experience, over a similar period of time as Tom has been involved in this sort of reporting, is, if an organisation starts down the track of, if the end point is an environmental report, that is why they want to do it, they want to put out an environmental report, rather than what it is part of, is a broader programme of environmental improvement, better governance, and so on and so forth, it will stall, it will die, it will not go anywhere, the report probably will not even see the light of day, because when they get to the stage of getting some information together that they considered publishing they suddenly realise that it could be a significant own goal. So I think the reason for doing it and the reason why some of these companies are doing it, it is one external manifestation of a much larger programme of improvement and activity that is going on within the organisation, and it is a way of maybe showcasing some of it. So, I think, to come back to your point, I would have to agree with the other people here; for PR alone, absolutely no, and my experience is, the companies who try to do it for PR alone probably report one year and never do it again, or it never ever sees the light of day.
  (Dr Woollard) I held two seminars last year, where we had 25 clients, FTSE 100 clients, we had a total of 50, and at both seminars I asked, "Which of the companies here would want to see standards in reporting?" and not a single hand went up. I also asked the question, "Which of these companies want standards in verification?" and not a single hand went up. It was a shock to me, actually, because I did not expect that, I thought that they would want some sort of standardisation; it may have been the crowd I had, but I had a sample size of just under 50, and there was not a single voice that said, "Yes, we want reports to be standardised, we want standards in reporting, we want standards for verification." The overwhelming response to me, this was last year, was that they liked the existing freedom; which I think endorses the fact that you might need to push it.
  (Mr Adams) Just one point about freedom. Freedom is important. I just want to give one example in point. Camelot have just issued their first social report, it is a very interesting report and it is really a fantastic report because it has taken some of the New Economics Foundation's method of social accounting and social auditing completely to heart, it has network drawings of how well this report scores against social accounting criteria, a fantastic external verification statement which stresses the independence of the verifiers from the company; a wonderful report. I do not think there is a single Lottery player in this country who is ever going to read it. It is a total irrelevance of the report; who are the main stakeholders of Camelot, I do not know, I thought it would be us who took off our pound on a Saturday.

  114. It can be you. So, getting back then to what Government's role is, if what Tom is saying, that out there the people are saying, "Hey, we don't want all these guidelines as to how to do this environmental reporting," but yet, clearly, we need to move it forward because if Government does not move it forward nobody is going to do it other than the big boys, and given you mention Holland and Denmark, what should Government then be saying? Should Government be laying down criteria, guidelines; clearly, the industry does not want that?
  (Dr Woollard) I have two things; one is, it ought to lead by example, which I do not think it is doing at the moment, in terms certainly of websites.

  115. Hold on to what the public sector is doing, or stick with the private sector?
  (Dr Woollard) Lead by example, and, probably, if it really wants to be serious about getting just the FTSE 350 to report, it will have to legislate, and legislation does work in the end. It might make them more boring, but at least they will report.

  116. But will that work?
  (Dr Woollard) Work, in what sense?

  117. Has the evidence of Holland, Denmark, other countries, actually shown that if Government legislates it does work, or is it just Government interference?
  (Mr Adams) At the heart of a lot of things is the notion of continuous improvement, and reporting just for reporting's sake may not be particularly helpful. I think one of the things about voluntary reporting is that companies do set voluntary targets for the future; that is what we all want to see, we want to see improvement. I am not sure how you can legislate for continuous improvement; you can legislate for disclosure. I am actually in favour of mandatory reporting requirements, because I agree exactly with Tom, that, to go beyond the 350, well, to get the 350 in there, they need corporate governance requirements out of Cadbury, and the rest of it; the moment you move below the 350, the actual corporate governance disclosures and allegiance is very poor, when you get down to the bottom end of the listed company spectrum. So I think mandatory may be an appropriate way to go to move the agenda quickly, but I am not sure that you can pick up improvement, continuous improvement, within legislation.
  (Mr Rintoul) And I am absolutely positive that, if any mandatory requirement was very prescriptive on the form, the format and the very detailed way to report, that would just completely put it into the quagmire.
  (Ms MacGillivray) I guess, the core of what you actually want people to report on can be reduced to quite a fine number of things, there is CO2, waste, energy, material efficiency. I think if Government actually gave some lead in a few key areas key sustainability targets that we are working towards and indications of how to report against those that would be enough of a guide, really.

  118. So a core of criteria, a core of targets that Government should prescribe, but then leave it fairly flexible on the rest.
  (Ms MacGillivray) A Framework.

  119. Then on to the point that you raised briefly, Tom, in terms of Government, it is lagging behind, clearly, lagging behind in Departments and Agencies to what the private sector is doing. Which particular Departments and Agencies do you think should be doing more; are there any that you would advise us to try to say, "Well, it should be the MoD, it should be this one", what?
  (Dr Woollard) We used a scoring system for the FTSE 100—I have not actually got it, I will find it—and then we applied the same methodology to about 20 Government websites, and I think it was the DETR and Environment Agency were the two that had reasonably good websites on environmental information, performance data and policy, but the vast majority did not even have any environmental section at all, so they were your classic non-reporters. It seems to me, it is not which Government Departments ought to report, it is probably they all should report, on a certain minimum set of parameters. Getting back to the sort of communication aspect of reporting, I do not actually think it is going to be a hugely popular website if you simply talk about—or it might be, actually—the paper you use and the energy you use in the different Government Departments. I think it would be much more interesting for Government Departments to write about the impact of legislation and policy changes, what that actually has done, and what your impression is or understanding of what the short, medium and long-term impacts are of policies and legislation and advice and guidance that the different Departments give, and to use the Internet to enter into a dialogue. This is our understanding of the way we are moving, this is our understanding of what the environmental benefits will be, and then to ask for dialogue. I think it is a very, very useful tool to do that. But I do think that all Government Departments ought to be publishing information on a small number of key parameters.

1   Corporate Reputation and the Internet-An ERM Survey. February 2000 Back

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