Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  120. We were in Canada recently where they do that, and we were shown, at the Environmental Commissioner's office, a graph of where all the various Government Departments were, ranging from the very good ones to the very bottom ones, and we asked him where his Department was, he actually did not know where he was on the graph; and that demonstrated to me, I think, that they did not quite know where they were. So you are saying it should be not an internal observation more but a recognition of how legislation is going to impact; that would be a way to start?
  (Ms MacGillivray) There are some Government Departments, that are obviously big property owners, like the MoD and Crown Estates, that do have a big direct impact; but for others there are many analogies to the financial sector, in that it is their indirect impact that is going to make interesting reading, that will actually be information that voters want to know about.

  121. And best done on the web?
  (Mr Adams) Yes, eventually.
  (Ms MacGillivray) In terms of making it immediate, real time, updatable, linking into reporting that Government Departments have to do anyway, I think so, yes.
  (Mr Rintoul) I think the other thing that breaks out of is with some of the paper-based reporting. Some of the things I am experiencing at the moment are, where Departments are reporting, and there are only a couple, they are getting quite stressed out at the end of the financial year because there is a whole ruck of reports that need to be prepared in the same time frame, I am not sure on the same data. To move to some sort of web-based solution, which allows perhaps if not continuous but regular updating of the information, rather than this big burst of activity to draw in all the information and get a report produced in a certain defined time frame, could actually be very helpful to Departments in managing disclosure of information.
  (Dr Woollard) I think English Nature ought to report on its environmental performance.
  (Mr Adams) Two things. Last week, I was in Hong Kong, talking actually to some of Steve's people out there. The Hong Kong Government is actually seeking an administrative order, requiring all Hong Kong Government Departments to issue annual environmental reports; this is the first year. They are the first in the region, and, as far as I know, apart from Canada, they might be second in the world, I have no idea.

  122. Perhaps, Chairman we should go?
  (Mr Adams) A field trip I feel coming on.

  123. I did not say that.
  (Mr Adams) The second point I wanted to make is, at the end of the 1980s, ACCA used Andrew Likierman, who was then at London Business School and is now Head of the Government Accounting Service, to do a series of research studies on departmental financial reporting and performance measurement, of which there was very little in the UK. By the time he had been through, I think, three of these studies, by the early nineties, I believe the Treasury brought in a core set of financial reporting, annual reporting guidelines and performance measurement standards. And, yes, they were all over the shop; if you drew a graph of where they were good or bad they certainly did not all come in at the same high point on the graph, I do not think you can do that. But it is only ten years ago that this country brought in a meaningful system of financial reporting for individual Departments, non-governmental bodies and performance measurement. I think you can do the same again, in the environmental area, on very much the same premise, with a central set of core issues; but also you have got to take in that indirect issues are very important, the policy side of it, but not to get hung up on that, because if you try to hold it, how do we develop indicators that enable us to tell this year how much we improved on the way towards sustainability, it may get overcomplicated at that point.
  (Mr Rintoul) There is definitely a partition, in some of these areas that we are considering, between the direct operational impacts and the policy, and there will be situations where it is appropriate to brigade them together, and there will be situations where it is appropriate and the only way you can access and understand what is going on is to separate them, principally because of different timescales over which the effects occur, or the impacts occur, and how that data is captured. The other thing I would say is, and I would concur completely with what Roger has just said about potential timescales, the work that I have been doing with DETR, which is now into its third year of reporting and it has published its two reports, at the beginning of that, we developed together a five-year strategy, so actually the reporting will not be really where we want it to be for another three years.

  124. So, just very quickly, a last question, if I may, Chairman, because we are looking at the worldwide implications of this, give me one country where they have legislated well to do this, in terms of legislation for the private sector, and one country where they audit themselves in their own Government Departments well?
  (Ms MacGillivray) Sweden and The Netherlands and Denmark are probably the furthest ahead.
  (Mr Adams) I am sure the Danes have done it well, I think they probably did it blind, not quite knowing what they wanted, but they did not have the hang-ups about it.
  (Ms MacGillivray) Sweden are still talking about it; they have produced their sustainability indicators.


  125. Sweden, The Netherlands and Denmark; and are we talking about the public sector or the private sector?
  (Ms MacGillivray) We have done some work recently with the Danish Government, they are vexed by the question of SMEs, and are now deciding that we do not start with the tool that you want people to report on, you look at the motivation and understand what actually will make them do what you want to achieve, and if it is improving environmental performance then maybe environmental reports are not the right way ahead for SMEs.
  (Mr Adams) One of the problems is sometimes just language is a barrier. I am always surprised by what comes out of Germany; the Germans have got an environmental auditing standard for the accounting profession, and have had one for the last three years, no-one else in the world has got one but the Germans just went away and wrote one. If you wanted to look at their Government Departments, you would probably find there are a couple of orders there somewhere requiring Government Departments to sign up to EMAS, or something. I do not know. Public sector and environment, I think, is a very unresearched animal.
  (Ms MacGillivray) The Finnish are also using EMAS as a means of reporting they are linking them to sustainability strategies.

Mr Chaytor

  126. Can I just come back to this question of standardisation versus diversity, because I was not clear whether there was a consensus emerging or not; and I suppose the issue I want to raise is, is it not a question really of form versus content, because I cannot see how you can argue that there cannot be standardisation of content, because if there is not there is no basis for comparison, and then the exercise becomes almost meaningless? But I can see the point entirely that if the format is standardised then it becomes routine and less intelligible. So is not the issue really a degree of standardisation of content but the encouragement of diversity of form?
  (Dr Woollard) Can I have the first crack at that, because we will come at it from different angles.
  (Mr Rintoul) I think probably we will all agree on this one.
  (Dr Woollard) I am concerned about the sort of innovation and creativity that I have seen in the last five years in environmental reporting, and my major concern is that standardisation will just stultify and make it even more boring than it is and make it just not progress, it will set a sort of low benchmark and then everyone will say, "Well, it's legislated, it has become standardised, there's absolutely no competitive advantage in this subject, we will make ten of these and submit them every year, and that's it," it will just detract. There is probably a way that you can do it, I am sure, in terms of just picking some key parameters and saying every large publicly-quoted company has to report and every large Government organisation has to report on these sets of standards, and anything else is kind of up to you. My concern is though, and, again, financial reporting is not my area, but I do not know how innovative and creative and how sexy they have become since having been regulated.
  (Mr Adams) I think either you or Steve were talking about different ways of putting the message into the market-place. Financial reporting realised that people were not going to read huge reports, and after privatisation we introduced by statutory instrument the notion of the summary of financial statements, which went to the smallest shareholder, GRI, as well as mandating, if you like, a set of indicators for all companies, also suggesting the executive summary, and the executive summary can be a stand-alone, separately circulated issue, provided that somewhere in the background there is this statutory core of information provided. All that one would want to see, from a verification perspective, is no inconsistency, if you like, between the instrument that is used to communicate the information easily and directly and the detailed information in the background. I think financial statement auditors have already, in a sense, proved, with the summary of financial statements and the full financials, that that is possible, and I do not see a problem for it in the environmental reporting area. So I think you can have your flexibility and your sexiness at the same time as you can have a core of information which you can just access from the web directly.
  (Mr Rintoul) Just to complete, if there is any confusion. I think what I was saying was, I would not advocate mandatory reporting which was highly prescriptive as to the where, the when, the how, the format, as well as significant rafts of content. But I do also agree with Tom, that probably the fastest way to get some change is actually to bring out some limited mandatory requirements, and the balancing act to be struck is to get that right so everyone can say, "Yes, we can see this is a sensible thing, we can do this." It may well be, coming back to what Roger said, you have got the analogy there that there is some form of simplified report, whether it in some guises be called an executive summary, or in some guises be called a public summary statement, or whatever, which would be based on the mandatory requirements; but anybody who has got any sense will always produce the full report, based on their full systems and data behind that, so it would allow the creativity and the communications activity to be engaged with, which some of our clients do, and value being able to do.
  (Mr Adams) You have to remember, I think, that no two companies, even if they are in the same sector, are necessarily going to be subject to the same vulnerabilities that the gentleman over there was talking about. Rio Tinto might be subject to one particular set of very high profile attacks on its business by NGOs and lobby groups, I do not know, BHP might not have the same types of issues, it may have managed them differently in the past.


  127. BHP, an Australian company?
  (Mr Adams) Broken Hill Proprietary, yes. So you might have companies that are very much in the same line of business, with international spreads of operations, but some of them happen to be in Burma and some of them are in North America, and the pressures are different, and therefore the reporting issues are different. So you can only mandate for so much, a core, because, at the end of the day, the informed user, Amnesty International, or Transparency International, or Greenpeace, are going to look at that and say, "They've just done this minimum, and that's not enough, they're not telling us the real issues." So you have got to allow for that flexibility in there, I think.
  (Ms MacGillivray) Also, if we are talking about standardising for the UK, you have to recognise that a lot of these companies are working in a lot of different jurisdictions and you have to provide something that is flexible enough for them to be able to produce a corporate report that makes sense. The sixth EAP, (the sixth Environmental Action Plan)has identified now four rafts of environmental action, and those might be suitable building-blocks against which to report.

Mr Chaytor

  128. If I can just move on and talk to this question of league tables, that you yourself referred to earlier, because is it not inevitable that, in time, there is going to be a kind of league table constructed, and there seem to be league tables in every other area of social life but not necessarily yet in company environmental reporting? And, tying it into the question of how many people actually read or respond to these, I would have thought that, even though fewer than 100 people may respond to the Glaxo Wellcome report, for example, there are probably hundreds and hundreds of NGOs and academics dotted around the country and the world who are carefully scrutinising it, assimilating that information, and will pull it out for their own purposes at the appropriate time. So is there not an argument, therefore, to establish this core minimum of indicators, and is it not inevitable that these will be put into a league table, and people who have got an interest in constructing these sorts of league tables are using it?
  (Mr Rintoul) Absolutely; even in Government Departments we may move onto it more and more, but where there is available data. I know officers, the staff of Government Departments, who have been involved maybe in some energy efficiency programme, or efficiency programme, that when some data comes out from another Department, maybe for the first time, they will pick it up and read it as eagerly as anybody else to see how they compare with the other Department. So I think the staff of any organisation will grab this information and look at it and say, "We're doing better than X but not as well as Y."

  129. Use it as a management tool?
  (Mr Rintoul) Absolutely.
  (Ms MacGillivray) The difficulty is finding the core indicators or the core things that people can report on meaningfully across different sectors, and how many has the Government come up with; and everybody imagines that you can get half a dozen core indicators that are really relevant, there probably are some, but for the water sector it is leakage that people are really impassioned about.
  (Dr Woollard) I do not think we are ever going to get the core indicators right, I have to say, because the companies I work for all have this spectrum, as you were saying, Roger, a spectrum of issues, and actually perhaps that is best left to the pressure groups and the connected on the Internet to find out what those vulnerabilities are, because it will not be CO2 emissions, or air, water, waste, it will not be those kinds of issues, it will be the health of your workforce in Africa, or it will be child labour, it will be something that is not obvious that actually poses a reputation risk, which will actually mean that a private sector company will spend money on remedying, and put things and systems in place to solve it. So, if you go into the notion of having some core indicators, the question I would pose to you is, who are these core indicators for, who is going to make use of them, we have got all the FTSE 350 reporting on the same five indicators, now who is going to on CO2, waste, energy, air, what is going to be done with that information.
  (Mr Adams) I could say one thing though. When you go and talk to some of the analysts, particularly the financial analysts, the European Federation of Financial Analysts do sit and take apart eco-efficiency indicators, they are comparing different steel companies and looking at throughput, they are looking at waste, they are looking at these things in the same way as management might, to try to say, "Well, from an investment perspective, which of those would I prefer to go down." Whether or not a core set of indicators, a small set, could ever satisfy those people, they would prefer them to take on the full World Business Council set of indicators, or something. But I think we should not get confused. A small set of indicators may satisfy some of Government's key policy issues, which may be about CO2 emissions, or quality of bathing waters, I do not know, there might be some key issues there that could be identified, but your league tables are never going to depend on the core set of indicators. The league table ranking is going to come from all these other triple bottom line things that people add in on a voluntary basis; you do not rank financial reports on the basis of what is mandated by the Companies Act 1985, it is on the basis of the additional stuff they put in.
  (Mr Rintoul) I think it is a very interesting point you are starting to expose there, Roger, in the sense that a core data set, as tight as it can be made, does not necessarily have to include the key issues for a particular company.
  (Mr Adams) No.
  (Mr Rintoul) What it is, this is a block that we are mandated to report on, and we must not assume that we can get all the key issues, or even the most significant key issues, for a company in that core data set. You could actually have a very large organisation where, in fact, the UK core data reporting set does not actually map to or give any additional information on the key issues, and their report addresses these other things, which are more relevant to them. So I think we do have to be realistic, but those that wish to report will always report on a much wider set, and that is where the flexibility and the creativity come. I agree with Tom, we have to decide who the set of indicators are for, and it sounds like it might well be for Government, and it is clearly stated in that way, and it is a way to encourage the reporting disclosure.

  130. Can I just move on a little bit, and ask about the general quality of what you observed over the last year. An underlying theme of what you have all said is that there has been a steady improvement in range and diversity and quality as well as quantity of reports, but what are the main weaknesses that you observe in reports that could easily be rectified, or with some effort be rectified?
  (Mr Rintoul) I think one of the significant weaknesses I encounter is how immature some of the systems are, and therefore how short some of the time series of data are on which people are trying to report and trying to make statements and trying to draw conclusions; and it is just a maturity thing, the systems and the experience and the confidence need to mature. So I would say, as a general point, most of the weaknesses I see are through this maturity issue, both organisationally and institutionally and from a systems point of view. However, there are some specific weaknesses, and I think this is a headache whichever sector you are working in and in whichever organisation the client is, trying to find meaningful metrics which allow you to present data in an accessible way and yet are actually relevant to the business at hand and mean something to business. I have seen people go through academic hoops to try to work out metrics and you end up with some sort of measure which actually has no relevance to the business whatsoever, and it becomes then almost purely an academic exercise, to say, "Here's the number X from this year and here is the number Y from this year, and there's a Z percentage change, but we don't know what it means."
  (Mr Adams) I will mention two things. I think one, for me, again, coming from an accounting background, is probably just to do with some disclosure of the actual accounting policies, measurement, rules used in the reporting, does one rebase for significant changes in composition of the group this historical data, recalculate it, and so on, so that you get appropriate trend information. That is one area which I think still has room for improvement. I think the other one, and my colleagues will probably have a much better view on this than I do, is the notion that you can present metrics which show improvement on an emissions per unit, or energy, or whatever, sort of basis; at the end of the day, the total environmental footprint of the organisation is larger at the end of the year than it was at the beginning. And if we are serious about sustainable development then very few environmental reports, to me, show how well the organisation is doing in reducing its overall environmental footprint. I get a lot on eco-efficiency measures that tell me it is doing fantastic things, but at the end of the year it is still using more energy, it is still using more paper, it is still using more natural resources, and turnover has gone up, so that, for me, is a problem that reporting has not solved.
  (Dr Woollard) If we are just talking about best reporters, the top tier, who have their data management systems all sorted out, then I would agree with Roger, it is something about interpretation of the results, which links into that, which is, basically, you have all these parameters and in any one year some of them go up, some of them go down. Some of them go down because you were lucky, because something happened, you saw the foresight, some of them go up because you were unlucky, some of them you did very well because something fell in your lap and it just worked out well for you. I find in companies' reports they are not as honest as I would like them to be, to actually give their commentary on the results and say, "For this particular parameter, CO2 went down, and that is because we worked really hard at it and we put a lot of programmes in place, and it came down purely as a result of our strategy and our programmes; in waste it went up, and it should have gone down because we put the same amount of effort into that." That sort of honest commentary that says, "This is what we predicted would happen, this is what we wanted to happen and it did not happen," or "it did happen," and also to be honest about those things that went well because they had a bit of luck.

  131. That brings me to another question, if I could ask just one more, and this is to do with the balance between the reporting of policy and reporting of operations; is your observation that the majority of reports still are about description of operations rather than an analysis of the policy?
  (Dr Woollard) Yes; if you mean impact of the operations, yes, it is about pollution issued from their operational activities, it is not a discussion of their strategy, and if they implement it over five years what the—

  132. They define environmental reporting as pollution, essentially, polluting emissions?
  (Mr Rintoul) The direct effects.
  (Dr Woollard) It is performance related to their direct impacts, it is not about saying how these parameters will go up, or down, over the next five years if they implement the policy as they would like to.

  133. If I can give a concrete example. A company in my constituency is British Polythene, it is closing its local site and going to relocate in China; it is unlikely that there will be an assessment in its annual report of the environmental impact of relocating in China and re-importing polythene back to these islands?
  (Mr Adams) That is true of the environmental reporting, as it stands at the moment. I think that the Global Reporting Initiative guidelines on social discussions, and so on, would be intended to pick up that type of point. There is a paper called "Adding Values" that has just been issued by BT, written by Chris Tuppen from BT and Simon Zadek, Chair of the Institute of Social and Ethical Accountability, which is dealing with economic indicators in sustainability reporting. The consequential knock-on effects of a business decision are intended to be, in full sustainability reporting, should be, brought to the surface. Similarly, a company like, I think it was, Neste in Finland, or Novo Nordisk, in Denmark, on outsourcing, has begun to say, "Yes, we are doing outsourcing, and these are the standards that we are applying for outsourcing; by outsourcing, we are not just trying to escape, let someone else put in lower standards elsewhere, but actually we're going to apply the same standards, we require that the contract will stipulate the standards to be employed." But a lot of that does not flow through environmental reporting at the moment.

Joan Walley

  134. Your reply just then to Mr Chaytor and earlier discussion from the questions from Mr Keetch have prompted a completely new track in my mind, really, and I would be very interested in your comments. One of the things that we are trying to do is look at possibilities for standardisation and how we can incorporate this environmental reporting and systems and standardisation across the board and across countries internationally. And I think we are wanting, at the same time, to tie up opportunities for employment competitiveness, if you like, through the environmental agenda, at one and the same time. And, having just read the recommendations of the Nuffield language report, it strikes me that this is a whole agenda and a whole area where the very process of environmental reporting has an implication as far as language is concerned, because environmental reporting requires a very specific vocabulary, and it is a very kind of specific process. And, given the trend that there is towards more and more outsourcing and the global economy that we are in, and this need to have some standardisation internationally, and, given, if you like, although English is an international language, concerns about lack of, or reduction of, foreign languages being taught in this country, I just wonder what role language itself and vocabulary itself and language experts, foreign language experts, have in helping to address, with all the multilateral environmental agreements that there are and the greater need that there is for environmental reporting and standardisation and assessment, how that is something which needs to be addressed through specific language training as well? It is a bit of a tangle, but it just strikes me that that is something which in the long term we will need to have to be looking at, in some way.
  (Mr Rintoul) Two comments there, which are really from the hip. If you are looking purely at language superficially then the way that we have dealt with that in the past is, and I will have to be completely honest and be Anglo-centric, or British-centric, the core of the report has been in English and we have had executive summaries in a range of languages which have been appropriate to the principal audiences for it. But I think what I see is more underlying this is languages by manifestation of different cultures, and it is not just the language issue, it is actually the underlying, the fundamental cultural differences which are important to recognise, acknowledge, address, value and celebrate, in some situations. And I am not saying it will not happen, but if you were to pose a question to me, as was posed earlier, when you gave me two good examples and gave me two bad examples, I do not think there are any examples at the moment, and therefore it is actually quite Anglo-centric, Euro-centric, rather than in the certainly international and global operators recognising and acknowledging all the cultural diversity that might be represented in organisations. These are early moves, but, I would have to say, generally, that is the sort of response I would make to it.
  (Mr Adams) I think one of the problems we encountered at a Steering Committee meeting of the Global Reporting Initiative was when we looked for, we were saying, information should be available to stakeholders, and we had major problems with particularly the Colombian Business Council for Sustainable Development, because the notion of availability or accessibility implied, when going (a) through Spanish and (b) through the cultural loop, that we were mandating companies to make this information at certain times, or whatever. And that was not the issue, we were talking in a much more general conceptual way about the accessibility or transparency of information. There are a number of companies that do produce, BP, again, produces a range of reports worldwide, in different languages, there are a number of multinationals who report at the consolidated level, in different languages, GRI itself is in three or four languages at the moment, including Japanese and Spanish, Dutch, German, I think. I think the language issues are beginning to be recognised by standard-setters, you need only look to the International Accounting Standards Committee and the fact that it has taken them 15 to 20 years to get to a stage of approved translation of international accounting standards into, if you like, the UN family of languages, that it has taken them a long while to get there.
  (Dr Woollard) Interestingly, Philip Morris, the American tobacco company, published their last year's environmental report in 15 different languages.
  (Ms MacGillivray) The web can make it much easier to do that though. I think it is much easier to produce a web page in another language.

Mr Jones

  135. To what extent do you see standardisation of reporting and reporting on a number of key measures as a threat to your interests, as consultants and advisers to companies?
  (Dr Woollard) As a consultant, I think it would be delightful, we would get a lot more work if you standardised reporting; it would only be to our benefit, actually, as those who live off these industries.

  136. So you have been advising against your interests over the last hour or so then?
  (Dr Woollard) Yes, I have, I guess.

  137. That is a rare thing.
  (Mr Rintoul) I would have to broadly agree with that, because, the client organisations that we have, that we do significant reporting projects for, and carry on reporting, because they are by and large committed on a certain path, and if there is some form or some level of mandatory disclosure and reporting, we will pick up more clients because of that, I suspect.
  (Dr Woollard) On this web survey, only 25 of the FTSE 100 produced any environmental performance data on their websites; so there are 75 FTSE 100 companies who, presumably, would be searching around for help and support in collecting performance data and putting it on their website. So it would benefit the consultancy and support services industry.

  138. In earlier questions, we have tried to explore what international comparisons there are, and, how is it working in Denmark, and so on, you have answered, "We don't know," really. Can we look at how does it work on the individual company? We have got these examples of companies of best practice over most of the last decade, are there authoritative reports that say, "Well, this is BP, this is what environmental reporting has done to BP, has done to its environmental footprint, which would not have happened without that sort of reporting; this is its effect"?
  (Mr Adams) I am not sure of anything historically; we are currently doing something on Anglian Water, with a consulting firm as the co-researchers, looking at environmental footprinting at the corporate level. For many of the companies, I think their reports themselves certainly indicate clear, sometimes massive, reductions in certain parameters; but whether those have been gathered together, as you suggested, in an authoritative report, I am not sure.
  (Dr Woollard) It is a really good question. Almost all the clients I work for could list straightaway the benefits of reporting internally, better co-ordination of data, using the same units, even better reporting of non-misses; but also performance, it has driven performance, in some cases, because sites of a multi-site operation will say, "Well, all the other sites in this company can report, we can't, we need to develop a management system." So there is a whole load of benefits. But we have never attempted to go back to those companies and say, "Let's just pick them all up, take 20 companies and pick up all of those benefits, both in terms of internal communication, in terms of improved management and better overall performance." But it is something that you could do quite easily, actually.
  (Ms MacGillivray) There is a WRI report on the financial benefits of improved environmental performance in companies, but not necessarily associated with reporting; the World Resources Institute, in Washington.
  (Mr Rintoul) That is the point I would make. I think the improvement comes from the better management, the better knowledge, not from reporting, but reporting drives the need of organisations to get better management and to get better performance.

  139. But is there not some documentation or somebody that might have looked at, "Well, here's a company in this sector which has introduced environmental reporting, here's another company which didn't introduce it, within the same sector, broadly comparable companies, one is operating environmental reporting and the other one is not; we'll have a look at their progress over five years"? What is the difference?
  (Mr Adams) What sort of progress?

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