Memorandum from The Association of Chartered
Certified Accountants (ACCA)
The Association of Chartered Certified Accountants
(ACCA) is pleased to have this opportunity to make a submission
to the Environmental Audit Committee of the House of Commons.
We look forward to the opportunity to discuss some of the points
raised below with the Committee. The introductory section of this
submission provides some background to ACCA itself and to its
involvement in the environmental debate.
With roots going back to the late 19th century,
ACCA enters the new millennium as probably the largest international
accountancy body in the world, with over 200,000 members and students
working and studying in over 150 countries world-wide.
ACCA's core values relate to equality of opportunitywe
are an "open access" organisation (ie we do not demand
a degree as a condition of entry) and we offer students the option
to study for the ACCA qualification on the basis of international
accounting standards. As far as we are aware we are the only professional
accountancy body in the world to do this.
Our internal governance structures reflect the
international nature of our membership, with an elected International
Assembly meeting annually to discuss and influence our corporate
ACCA AND ENVIRONMENTAL
ACCA's involvement with environmental issues
began in 1989 shortly after the publication of "Blueprint
for a Green Planet" by Professor David Pearce. Our first
publication was "The Greening of Accountancy: the profession
after Pearce" by Professor Rob Gray. Subsequent to that publication
we have continued to support academic research in the areas of
environmental accounting, environmental reporting, full cost accounting,
ecological footprinting, accounting for bio-diversity etc.
A full list of our publications in the environmental
and social area is attached at Annex 1 to this submission.
In 1991 we established the UK Environmental
Reporting Awards scheme which is now entering its 10th year. Since
the inception of the scheme both DTI and DETR have been willing
and valuable members of the panel of judgesand for the
last three years we have been fortunate to have the current Environment
Minister, Mr Meacher, as our principal guest and speaker. The
award scheme is widely cited as having been influential in the
development of best practice in environmental reportingnot
just in the UKbut internationally: for this reaction, much
credit must go to the panel of judges who as individuals are seen
as being both neutral and committed to the topic.
The award scheme has proved so popular that
ACCA now leads a group of 11 EU member states in presenting an
annual European Environmental Reporting Award. Details on both
these schemes are provided at Annexes 2 and 3 respectively.
We have now established our own Social and Environmental
Issue Committee chaired by John Elkington of SustainAbility, with
members drawn from a variety of organisations including the CBI,
PIRC, ISEA, Traidcraft Exchange, Friends Provident and BT.
At the policy level ACCA is currently represented
on the following bodies:
The Environmental working party of
the European Federation of Accountants (FEE)
The Steering Committee of the Global
Reporting Initiative (GRI)
The Steering Committee of the DTI/BSI
led "Project Sigma"
The sustainability working group
of ACBE (in an advisory capacity)
The environmental committee of UEAPME,
the leading pan-European small business organisation.
We have carried out two major consultancy projects
in recent years dealing with environmental accounting and reporting
for UNCTAD (in Geneva) and have recently completed a programme
of environmental accounting workshops (in Brazil, the Czech Republic,
Egypt, India, Malaysia and Thailand) funded by UNCTAD and the
World Bank with the co-operation of UNEP. In 1999, at the request
of DG XI and DG XV, we completed a study on environmental financial
disclosures at the corporate level. Further information on these
activities can be found in Annex 4.
ACCA's involvement with environmental auditing
is directly related to the activities described above:
As promoters of the annual environmental
reporting award scheme we have been concerned to encourage greater
adoption of independent external verification of public environmental
reports. We estimate that roughly two thirds of the 70+ entries
for the scheme now come with some form of independent assurance
At the same time, we have been anxious
to work with the verifiers to develop acceptable standards for
external verification. We are currently participating in the environmental
audit sub-group of the FEE Environmental working party (a discussion
memorandum on adding assurance to environmental reports has just
We are also working with a sub-group
of the International Auditing Practices Committee (IAPC) which
expects to issue formal guidance on the verification of environmental
reports some time in 2001.
Our work with the Global Reporting
Initiative on developing guidelines for sustainability reporting
has resulted in our becoming a member of the GRI Verification
Working Group. On 10 May last, we hosted the first formal meeting
of the working group which brought together representatives from
all the main organisations with an interest in external verificationIAPC,
FEE, BSI, UNEP, and various environmental consultancies and accounting
firms. We expect that this working group will issue a set of general
principles for the external verification of sustainability/triple
bottom line reports towards the end of this year.
Verification and credibility
ACCA believes strongly that independent external
verification helps establish the credibility of environmental
reports that might otherwise be seen to be simply the self-interested
report of the management team. However, we do not believe that
there is a single model for environmental verification: external
"audits" can and should be supplemented by the results
of internal audits and reviews by stakeholder panels.
While the quality of some external reports has
rightly been criticised, we believe that we are now observing
a fundamental shift in the rigour applied to external verifications.
The recent Shell 2000 Report ("How do we stand? People, planet
& profits") is notable for its multiple verifications
from KPMG and PwC, supplemented by stakeholder input. It is a
clear indication of the way in which the verification market is
shifting. It is also a very good triple bottom line report.
Another excellent example of high quality verification
can be found in the environmental reports of the Danish company
Novo Nordisk which was the winner of the European environmental
reporting awards for the first three years of the scheme's existence.
Both Shell and Novo Nordisk have gone to great lengths to ensure
that their published reports are credible.
Verification and independence
Independence is a major issue, not just for
environmental verifiers but for financial statement auditors also.
In the financial domain, pressure from the US Securities and Exchange
Commission (SEC) looks set to result in the break up of the Big
Five auditing firmsforcing a clear separation between their
audit and consulting arms. This insistence upon absolute independence
echoes the tough independence regulations that underpin the EC
ACCA believes that the arguments tabled to permit
provision of multiple services such as financial audit and consultancy
have always been open to criticism. In the environmental and sustainability
reporting domain, however, we believe that some caution is neededthe
notion of stakeholder engagement involves both the verifier and
the verified. The recent verification report on the first Social
Report of Camelot Plc by the New Economics Foundation (NEF) demonstrates
that verifiers can justifiably become involved in the social accounting
process without compromising their integrity or independence.
Potential regulation of external verification
of public sector entities perhaps needs to bear in mind the shift
towards greater stakeholder involvement at all levels of the process.
A strict definition of auditor independence is perhaps not the
only hallowed concept that will need to be modified as the scope
of public sector accountability and transparency widens.
Verification and consistency/standards
Environmental verification is a relatively new
activity and there is still considerable debate over who should
adjudicate over the question of reporting and auditing standards.
It is also problematic that environmental reporting is rapidly
widening into social and sustainability reporting. Whilst the
environmental reporting framework is relatively well established,
the same cannot be said for social and sustainability reporting,
although the issue in July 2001 of the revised "Sustainability
Reporting Guidelines" by the Global Reporting Initiative
(see above) may help to crystallise some of the most vexatious
As far as consistency in environmental auditing
standards is concerned we expect that the International Auditing
Practices Committee (IAPC) will issue a formal practice statement
in 2001. This statement will however be mandatory only for accounting
firms engaged to conduct environmental verifications. In the absence
of any definitive statement from the GRI, it is difficult to see
which body will set the verification standards for environmental
consulting firms carrying out comparable verification activity.
Verification of policy implementation
With regard to the greening of policy and the
verification of policy "embeddedness" it seems to us
that the Committee could usefully explore either
(a) the ISO 14000 route, whereby environmental
management systems are put in place and then certified by an external
(b) the AccountAbility 1000 route, whereby
a set of procedural measures are put in place that reflect the
needs of the stakeholders. There is no external certification
process for AA 1000.
It does appear that some sort of uniform framework
needs to be put in place across the public sector if any meaningful
conclusions as to progress are to be drawn.
Verification and the role of NAO/Audit Commission
As yet we are unaware of any major public sector
verification initiatives. Our recommendation is that NAO and the
Audit Commission combine forces to review this area. They should
also develop contacts with the GRI Verification Working party
to add a much needed public sector strand to its deliberations.
Our experience over the last 10 years has shown
us that the public sectorwhilst showing an increasing level
of interest in environmental accounting, reporting and auditing
issueshas not progressed as rapidly as the private sector.
That is not to say that there has been no progress:
we are pleased to see the DETR and
the Environment Agency issue public environmental reports and
we note that a number of local authorities have achieved EMAS
accreditation (and possibly ISO 14000 as well). The Corporation
of London has issued an environmental report also.
the Environment Agency itself has
proved a strong advocate of improved environmental accounting
we have also been pleased with the
recent upsurge of interest in environmental reporting demonstrated
by DETR over the last three years. We warmly welcome their programme
of developing guidance on CO2 and waste reporting (but see our
the Higher Education sector has been
active via Agenda 21 in developing environmental management systems
for the sector and a number of universities have issued environmental
we have seen examples of environmental
reporting from the health sector from mainland Europe but not
from the UK. This strikes us as an example of a sector where narrowly
environmental reporting may be inappropriatea wider scope
of report covering social and economic issues might well be more
appropriate for trust.
we also note a number of reports
from the public sector auditing bodies that have focused on environmental
In the late 1980s, a series of ACCA research
reports authored by Professor Andrew Likierman (then at London
Business Schoolnow Head of the Government Accounting Service)
argued strongly for improved departmental financial and performance
reporting. We would argue that that particular battle has largely
been won and all government departments and NDPBs now issue informative
financial reports containing a considerable amount of financial
and operating performance data.
To a certain extent the absence of environmental
transparency in the public sector may be a cultural issuereporting
and audit cultures take time to embedespecially outside
of the conventional finance function and when the organisational
target may not perceive itself as a high impact entity in the
The picture is very incomplete however, and
it would be helpful to have a clearer picture of what is actually
happening in the public sector: a survey of EMAS, ISO 14000 and
public reporting take-up seems overdue. Such research might establish
precisely why the public sector has lagged behind the private
sector in terms of public reporting and transparency. From this
distance, however, we feel safe in saying that the crusade for
improved environmental accountability in the public sector is
really only just beginning.
In terms of promoting sustainable development
we believe that through its programme of developing sustainability
indicators for the UK, through the work of the Advisory Committee
on Business and the Environment (ACBE) and the UK Round Table
on Sustainable Development, and through progressive developments
in the use of economic instruments, the UK Government has done
more to raise public and (especially importantly) business awareness
of the issues surrounding the sustainability debate than many
(perhaps most) other countries.
We are not in a position to address all of the
questions posed by the Committeeespecially those relating
to the ability of Government itself to respond to the sustainability
debate. Instead, in making the recommendations below, we have
focused on what lessons might be learned from a decade of environmental
accounting, reporting and auditing in the private sector.
The various experiences and involvements described
above lead us to suggest to the Committee that
1. The Government shouldthrough the
vehicle of the Company Law Reviewmandate a minimum set
of environmental disclosures for the annual report and accounts
(see annex 5 for a list of suggested disclosure items).
The pace of take-up of environmental reporting
outside the FTSE 350 has been slow and DETR cannot use the carrot
and stick/naming and shaming ploy indefinitely.
In parallel with the above suggestion we are
aware that civil servants within DTI appear to have reservations
regarding the environmental disclosure requirements set out in
a draft Recommendation prepared by DG XV and currently under review
by the Contact Committee on the accounting directives. We do not
share these reservationsespecially as a Recommendation
is a voluntary instrument. We urge the Committee to take steps
to ensure that the UK Government supports the disclosures recommended
in the Commission's paper.
2. As a matter of some urgency, DETR should
engage in a review of the mandatory environmental reporting systems
now in place in Denmark and the Netherlands with a view to introducing
a mandatory reporting requirement in the United Kingdom.
The Danish experiment in mandatory environmental
reporting is now three years old and the UK could usefully study
the lessons learned. The Dutch reporting regime has only been
recently introduced but could also be studied. We understand that
public environmental reporting requirements also exist in Norway
and Sweden although at a less detailed level.
The current UK approach of issuing separate
guidance statements could be improved upon by devising an integrated
framework approachperhaps based around the environmental
section of the GRI guidelines. And again, the pace of take-up
of external environmental reporting in the UK has been too slowit
is now time to give serious consideration to a mandatory requirement.
3. The Government itself should put pressure
on its own departments to engage in more public environmental
reporting and to provide regular disclosures of performance objectives
(to be followed by an assessment of progress in achieving those
targets by an independent verifier).
As noted above there is a very low incidence
of environmental reporting in the public sector. DETR, the Environment
Agency and a number of EMAS registered local authorities probably
represent the sum total for the public sectoreven after
10 years of private sector experimentation and growth.
4. The NAO and the Audit Commission should
jointly develop a discussion paper on the use and application
of both internal and external environmental audit techniques across
all aspects of the public sector.
Both organisations would be welcome to join
the GRI Verification Working Group mentioned abovewhere
a public sector perspective is missing and would be most welcome.
5. DETR should encourage research into the
application of environmental accounting techniques within the
public sectorincluding greater support for investigations
into full-cost accounting and sustainable profit assessment. ACCA
would be willing to discuss the possibilities of matched funding
in this context provided that a suitable researcher could be identified.
The work currently being undertaken "in-house"
by the Environment Agency could usefully form the basis for a
discussion paper showing its application to a wide range of departments,
NDPB's and other public sector organisations. ACCA would be happy
to discuss with DETR/DTI/the Committee, the possibility of developing
a matched fund research programme to explore some of these important