Environmental Reporting in Australia and New Zealand: Corporate Reactions to Best Practice

by

SCHOOL OF COMMERCE
RESEARCH PAPER SERIES: 00-21
ISSN: 1441-3906

Abstract

Studies have suggested that both Australia and New Zealand are lagging behind best practice environmental reporting identified in Europe. This study attempts to assess corporate reactions to some of these best practice examples. The study provides Australian and New Zealand organisations with a stylised environmental report that takes extracts from the environmental reports of such UK and European leaders as Anglian Water and Novo Nordisk. These extracts were put together as an example of the type of environmental report that could be expected of those companies seriously undertaking environmental reporting. Company environmental officers/managers were asked to read the report then answer a short questionnaire to gauge their reactions. Results found that while Australian reporting practice was quite good in some sectors, New Zealand companies still have some way to go.

Introduction

British and European companies have recently produced a number of ‘best practice’ examples of environmental reporting as indicated by the environmental reporting awards in the UK, sponsored by the Association of Chartered Certified Accountants (ACCA), and in Europe (Kreander, 2000).

Studies have suggested that both Australia and New Zealand are lagging behind in this style of reporting and this study attempts to assess corporate reactions to some of the best practice examples identified. The study provides Australian and New Zealand organisations with a stylised environmental report that takes extracts from the environmental reports of such UK and European leaders as Anglian Water and Novo Nordisk. These extracts were put together as an example of the type of environmental report that could be expected of those companies seriously undertaking environmental reporting. Company environmental officers/managers were asked to read the report then answer a short survey to gauge their reactions.

Background

KPMGs (1999) international survey of corporate environmental reporting indicates that on average 24% of the top 100 companies in 11 countries already issue stand alone environmental reports. Environmental reporting is dominated by companies in the chemical, forestry, paper, oil and gas, mining and transport industries, however, they are increasing in retail and financial sectors.

A report entitled A Framework for Public Environmental Reporting: An Australian Approach was produced by a consultancy for the Australian Federal Government in March 2000. This report provides a framework for companies planning to produce an environmental report that includes steps in preparing an environmental report, possible elements the report might include and trends for future reporting. In particular, it suggests the inclusion of the organisational context for the report, management performance, policies and systems, stakeholder engagement, environmental performance, product or service performance and external verification.

In New Zealand, while there has been an annual environmental award scheme in place, participants are few. Gilkison and Ensor (1999) consider that environmental reporting in New Zealand is heading backwards, however, some exceptional examples in this country suggest that there is a level of commitment to environmental reporting in some sectors.

The model of environmental reporting adopted for the development of the stylised environmental report used in this study came from the framework that has emerged from long-standing European practice (See Figure 1).

• Organisational profile
• Board level commitment
• Policy statement
• Targets and achievements
• Performance and compliance (prosecutions, complaints, physical data, financial data)
• Management systems
• Site level data
• Independent verification

Method

A copy of the stylised environmental report discussed above, along with a survey was mailed to Australia’s largest 200 companies taken from the BRW Top 500, and New Zealand’s largest 200 companies as per Management Magazine’s Top 200 companies, at December 1998. Details of the survey questions can be found in the results section below.

From the Australian sample, a total of 34 responses were received (17%). However, 7 declined to participate citing either company policy not to, or that the survey was considered irrelevant to the nature of their operations. The Australian analysis is thus based on 27 responses (14%). A major problem with Australian survey research that is emerging, is the reluctance of companies to participate due to the vast number of surveys they receive on a variety of issues each week. In fact, many companies have indicated they have a ‘no survey policy’ in place due to the time demands placed on them.

A total of 69 responses were received from New Zealand companies (35%). However, of these, 10 organisations declined to participate. A further two organisations submitted written explanations of their approaches to environmental reporting, explaining why they were not going to pursue a public reporting approach. The New Zealand analysis is therefore based on 57 responses (29%).

The response to the survey is almost certainly biased in favour of companies either already issuing or planning to issue environmental reporting information in separate or annual reports. It is most unlikely that this is indicative of the 400 companies surveyed.

Results

General Observations on Reporting:

Of the 27 Australian respondents, 15 (55%) either currently issue a separate environmental report, or plan to issue one in the next three years. For New Zealand this number was 24 of 57 (42%).

Environmental reporting in NZ and Australia appears to be developing often as part of a combined report along with Health and Safety matters. Separate environmental, social, and financial reports appear to be the emerging trend in the UK and Europe, although few organisations have yet to issue separate social reports. "Sustainability" reporting and "triple-bottom line" reporting are also emerging as ‘buzz’ words, however, report issuers should be aware that combination EHS reports are not necessarily superior to separate environmental reports. This will depend upon the level of detail they include, their completeness (as opposed to selectivity), and the extent to which they can fully integrate environmental, social and financial performance. It will also depend upon the extent to which they are credible. Observations to date show that all EHS reports produced often appear with completely separate sections for environment and health & safety.

For New Zealand Companies, with one exception, the level of detail and completeness found in the NZ HSE or EHS reports, especially regarding environmental performance targets and achievements, prosecutions and complaints, and the scale of resources used from or substances applied to the environment, does not match the best UK and European practice. Leading practice now is to include (engage) stakeholders in setting and determining the targets.

Global parent reports of New Zealand-based subsidiaries provide insufficient (or no) reference to the NZ subsidiaries’ performance. In most cases they do not contain site-level, and hence subsidiary reporting. One organisation, however, did send a rudimentary supplementary EHS report that was provided to the local community of its NZ-based subsidiary.

For Australian companies in the mining sector, the level of detail and completeness is quite well advanced, with most reports including targets and resources and a number including verification statements. In other industry sectors however, environmental reports are almost non existent.

Very few New Zealand reports are independently verified, and, as shown below, many planning to issue reports do not plan to have them independently verified. Australian mining companies show a greater propensity to have their reports verified – 8 companies claimed to be currently doing this (five provided their report that included a verification statement). Interestingly however, the World Wide Fund for Nature (WWF) recently scored Australian mining companies’ environmental performance and the area that all companies scored lowest on was external verification (WWF, 1999; Deegan, 2000). This indicates that there may be some confusion as to what is meant by external verification.

Respondents found the report to be logical, coherent and useful, and most felt that this type of reporting would become more prevalent in the near future (see Table 1).

Table 1

Overall Impressions of the Stylised Report

There were, however, a few respondents who felt that this type of reporting was not appropriate because it has little relevance or is too time consuming. One New Zealand respondent commented that they "…do not see this style of reporting as being appropriate for our business…Our environmental impacts and accountabilities are such that such a report could be seen more as a PR exercise". Similarly, an Australian respondent noted "The cost, effort, time and greater exposure to criticism is not worth the diversion of environmental specialist’s time from their core activity – environmental management (rather than measuring, explaining, writing and defending".

Moreover, one felt that their existing reporting is sufficient, commenting that they follow:

"…a more appropriate structure which is ongoing performance reporting against the environmental standards laid down in our resource consents back to our consent authority. They similarly have the right to audit all of our records. The community and more specifically those members of the public directly affected similarly have that mechanism through our consent authority or alternatively directly to us where a log of all such contacts is kept. This data is also audited by the consent authority together with any corrective actions which may be needed".

Stakeholders

The results below show that report issuers believe local communities, local authorities and other regulators are perceived to find EHS reports of most use. Yet, when local authorities and other NGOs were questioned, independent verification was considered as equally important as the specification of targets and achievements. Furthermore, these groups also largely believe that ESH reports are being issued to create an image to gain public credibility, and to pre-empt tougher environmental regulations as well as, if not instead of, gaining efficiency and competitive advantage. Very few saw such reports as evidence of genuine commitment to care for the environment. Given these findings, some companies may want to seriously reconsider their position on independent verification. Table 2 summarises the mean scores given on a Likert scale for usefulness to various stakeholder groups (5=very useful, 1=not useful) Means and Standard Deviations are also shown.

Table 2

Usefulness of Report to Stakeholders

The issue of importance/usefulness to stakeholders was further investigated by asking respondents to rate how important each section of the report should be to their stakeholders. Results showed that respondents felt that environmental policies, corporate profile and site level data would be of most interest to stakeholders. New Zealand respondents felt that targets and achievements would also be considered important. Tables 3 and 4 show the mean scores for Australia and New Zealand respectively, and both tables include separate columns for those companies who do or plan to report, and those who do not. Not surprisingly, companies not planning to report rank all sections as being of less importance than those who do report. However, policy statements and targets still rank highest among the non-reporting companies.

Table 3

Importance of Report Sections to Stakeholders – Australian Respondents

(5=very important, 1=not important).

Table 4

Importance of Report Sections to Stakeholders – New Zealand Respondents

(5=very important, 1=not important).

Reporting Plans

The 15 Australian respondents and 24 New Zealand respondents who either currently report or plan to report in the near future, were asked to indicate which types of environmental information categories they do or do not report or plan to report. Most Australian companies do or are planning to report all types of information indicated. In contrast, very few New Zealand companies plan to use independent verification, report financial data or report site level data. Details can be found in Tables 5 and 6. Note: columns 1 and 2 in total in tables 4 and 5 sometimes exceed the 15(24) companies who indicated they planned on a separate report because the information is released within the annual shareholders report.

Table 5

Reporting of Environmental Information - Australia

Table 6

Reporting of Environmental Information – New Zealand

Finally, organisations that do not report (or plan to report) were asked to indicate the factors that have significantly influenced the decision not to report each of the information categories contained in the stylised report. Overwhelmingly, for both Australia and New Zealand, little demand from stakeholders was given as the primary reason. This is interesting, as local communities and NGOs were perceived as most likely to find environmental reports useful, with employees, shareholders and customers all seen as important stakeholders. This suggests that while report preparers think that such reports might be ‘useful’ to stakeholders, they do not perceive these stakeholders to be placing demands on them for such information. Tables 7 and 8 summarise the number of companies citing each reason.

Table 7

Reasons for Not Reporting - Australia

Table 8

Reasons for Not Reporting – New Zealand

Another reason for not producing a separate environmental report cited in the open ended ‘comments’ section of the questionnaire was that the information was already provided in the annual report. One Australian respondent stated that "…there are challenges from within the company and from shareholders that the SH&E report should be included within the annual report", another stated that "…all reporting is to be incorporated in the standard annual report…. It would be good to keep all community relations, environment and safety, within the standard management, accounting and reporting structure…".

Similarly, New Zealand respondents expressed the view that environmental information is available from other sources:

"We produce an environmental section within our Annual report. There is nil demand for a separate report. We also publish an environmental manual on our web-site which includes a description of management systems & procedures. Copies of independent verification, such as ISO 14000 audits are available on request or from our web-site".

"We already publish an environmental report in our annual report. We have surveyed readers over the past three years and find there is only small demand for any further detail. In our last readers survey an equal number wanted more environmental information as wanted less. We have environmental information on our web-site and we get few (if any) follow-up requests for further information…".

One final reason given for not reporting at the local level, was that the overseas parent company provides this information. This was found predominantly for New Zealand respondents. The following typify comments made.

"Our global parent issues environmental statements; as a subsidiary we have little to add in a public forum"

"Corporate is ex-Australia. [Annual shareholders’] Report is across several divisions and has an environmental section included. This is generated in Australia"

While the Australian respondents were on the whole more positive towards environmental reporting than the New Zealand, some comments showed some reticence towards wholesale adoption of the type of reporting discussed in this study. Remarks included:

"The emphasis [of our report] will be on site reports rather than corporate systems. The ‘real’ env impacts occur at the sites, and this is the information our shareholders want…"

"We see it [environmental reporting] as a …refection of responsible corporate citizenship now…. We are concerned it will snowball into a monster…. & any environmental function will become subordinate to a public relations function"

Discussion and Conclusions

The style of reporting exemplified by the stylised annual report developed for this study appears to have support from corporations in Australia and New Zealand, respondents indicating that the information contained therein was coherent and useful. Those organisations that already produce, or plan to produce, environmental reports, generally responded in a positive vein towards the stylised report.

The results of this study also show some similarity in attitudes towards environmental reporting between Australian and New Zealand organisations. There are however, some marked contrasts. The first being that New Zealand appears behind Australia in its corporate commitment to environmental reporting. Those New Zealand companies that do report are not dissimilar to Australian reporting companies, except in their attitudes to one area – independent verification. Australian companies appear to accept that such verification is important to stakeholders and to add credibility to their reports. This is exemplified by the inclusion of a verification statement in the recent Australian guidelines for environment reporting discussed earlier.

New Zealand companies on the other hand, are resisting the move towards verification shown by some of the comments made on the survey:

"Considered unnecessary. Not in the company’s interest to mislead stakeholders with incorrect data"

"The idea of providing an independent verification has some merit, in as much as the financial data in an annual report is audited…however, the concept of being ‘kept honest’ by an independent verifier could paint a negative image, i.e., an acknowledgement that ‘our word is not good enough’"

"There is little point [with independent verification] when most consultants have a vested interest in O.K.ing your system – we need a Govt. body to perform the task"

A preliminary survey of NGOs and other oversight organisations in Australia and New Zealand shows that there is also a major gap between the perceptions of companies and those of community groups with regard to verification – community groups considering it the most important aspect of and environmental report.

In conclusion, the study showed a positive trend towards environmental reporting in both countries, albeit more pronounced in Australia. Whether separate stand alone reports come to replace the current trend of reporting only in the annual report, as appears to be the case in the UK and Europe, remains to be seen. Other forms of communication, such as the world wide web, also complicate the issue of where to report. The following quote from a New Zealand respondent, shows that while the environment is on the agenda of corporations, there is still a divergence of views on the most appropriate reporting medium:

"We believe it is important to ensure that stakeholders recognise that environment and business are strongly interconnected. A stand-alone report would reinforce views that the environment is an "add on" and not an integral part of doing business. However, the model provided [in the survey] is certainly one that could be included as part of an organisation’s annual report"

References

ACCA 1999 ACCA Environmental Reporting Awards: The Report of the Judges and Review of Other Reporting Initiatives, The Chartered Association of Certified Accountants, London (http://www.acca.org.uk/resources [accessed: 10 Oct 2000]).

Deegan C. 2000 "Stakeholder Influence on Corporate Reporting: An Exploration of the Interaction between the World Wide Fund for Nature and the Australian Minerals Industry" presented at the University of Adelaide School of Commerce Seminar Series, August.

Environment Australia 2000 A Framework for Public Environmental Reporting – An Australian Approach, Environment Australia Online, [Accessed 11 Oct 2000]; (http://www.environment.gov.au/epg/environet/eecp/pubs/per_framework.pdf).

Gilkison B. & Ensor J. 1999 "Desperately Seeking Volunteers", Chartered Accountants Journal of New Zealand, October, pp. 32-36.

Kreander N. 2000 "Best in Europe: European Environmental Reporting Awards", Social and Environmental Accounting, 20(1), pp. 23-24.

World Wide Fund for Nature, 1999 "Mining Environmental Reports: Ore or Overburden?" WWF Australia, May.

This paper is located at http://commerce.flinders.edu.au/researchpapers/00-21.htm

[Commerce Research Paper Series] [Commerce] [Flinders Uni]

Last Modified: December 19, 2000
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