Nurturing the growth of ‘green’ accounting

Date: 10/09/1998

By Simon Coss

MICHAEL Foulds believes Europe's companies should be given the chance to demonstrate their 'green' credentials voluntarily.

The president of the Association of Chartered Certified Accountants (ACCA) is convinced that encouraging firms to include information on the environmental impact of their activities in their annual reports is infinitely preferable to imposing rules on them through binding legislation.

“It would be interesting to allow the voluntary aspect to develop and really measure how far it is possible to go. There is a lot of public interest and public pressure on environmental issues,” he explains.

“If you can obtain voluntary cooperation and voluntary compliance with ideas, it is infinitely preferable to legislation which is inevitably rigid. Anything in statute is less flexible and less capable of development than a voluntary initiative,” he adds.

In recent years the importance of what is known as 'environmental reporting' has been stressed again and again by green campaigners, policy-makers, European Commission officials and industry bodies alike.

The basic principle is a very simple one. Just as a company has to publish clear records of its financial activities every year - including showing how and where money was spent, where profits were made or losses incurred - proponents of environmental accounting argue that similar records should keep track of materials as they are used by businesses.

For the past two years ACCA, along with several other accountancy bodies, has organised an annual European Environmental Reporting Award which is designed to encourage companies to produce green accounts.

The European competition is based on a similar scheme ACCA has been running in the UK for several years. There, the organisation estimates that around 80&percent; of the top 350 companies in the FT index now refer to environment issues in their annual reports, while 30&percent; produce stand-alone publications on the issue.

As far as the European scheme is concerned, Foulds concedes that he would like to see more companies taking part but argues that the response so far shows it is possible to encourage firms to be open about their environmental activities without imposing binding rules on them.

“The scheme is making good progress and we are very optimistic about having more European accounting bodies involved in the future. It is certainly a developing area of reporting,” he says.

Foulds would particularly like to see more of the Union's small- and medium-sized enterprises taking up the green reporting challenge.

The ACCA president argues that, contrary to popular belief, it should not prove a particular burden on small companies with limited resources to augment their annual reports with environmental data.

“It is quite possible for a small company to report its environmental policies or the issues which are relevant to it environmentally. They know what they are,” he argues. “Anyway, we are not saying you need to produce a 12-page glossy on these issues.”

At present, the European Environmental Reporting Award scheme is being run by ACCA, Belgium's Institut de Reviseurs, the Nederlands Instituut van Register Accountants and the Danish Institute of State Authorised Public Accountants, and is open to firms from those countries.

Next year accountancy bodies from both France and Germany are set to join the project, which should widen its remit quite considerably. For example, of the 2,000 or so companies currently registered under the Commission-backed eco-management and audit scheme (another voluntary initiative) more than half are based in Germany.

Whether the Commission will share Foulds' view that firms can be persuaded to produce green accounts voluntarily remains to be seen.

Environment Commissioner Ritt Bjerregaard was at the prize-giving for the most recent environmental reporting awards, which took place in Brussels in July. While she was complimentary about the scheme, she also reminded those present that she would be producing a communication on environmental reporting early next year.

This could be followed by a formal legislative proposal on environmental accounting if Bjerregaard concludes that the voluntary approach does not have enough takers.

“She was very supportive and very encouraging of what we are doing,” says Foulds of his meeting with the environment supremo during the ceremony.

However, he is quick to add that it would be rash to try and second-guess exactly what the policy-makers' response to the voluntary versus binding legislation debate will be.

“It would be foolish to predict whether it will ultimately be sufficient to avoid possible legislation,” he says. “The extent of satisfaction in legislators' minds as to whether voluntary has gone far enough is a judgement they will have to make.”