From 2013, environmental reporting will become part of the Paper P1 syllabus and, therefore, an examinable topic due to its relevance to many discussions around accountability, transparency and sustainability - key themes of the paper. This article outlines what environmental reporting is, where it can occur and its advantages and purposes
For the 2013 exams onwards, a small but quite significant change applies to the Paper P1 syllabus in Section E of the Study Guide. It is in E7(a) and the change is the addition of the words: ‘and environmental reporting’. So E7(a) now reads:

Describe and assess the social and environmental effects that economic activity can have (in terms of social and environmental ‘footprints’ and environmental reporting).

Although aspects of E7 have been examined before in Paper P1 exams, it was appropriate to include the issue of environmental reporting as an explicit topic in Paper P1 because of its relevance to much of the discussions of accountability, transparency and sustainability that are important themes in Paper P1.

WHAT IS ENVIRONMENTAL REPORTING?
There is a debate in business and society about the limits of business accountability. Put simply, this concerns two profound questions: ‘for what should accounting actually account?’ and ‘to whom is a business accountable?’ This debate is reflected in models such as the stakeholder/stockholder continuum and in Gray, Owen and Adams’s seven positions on corporate responsibility. A common traditional belief is that businesses need only report upon those things that can be measured and that are required under laws, accounting standards or listing rules.

A range of other pressures has increased on businesses in recent years, however. Among these is the belief that business are ‘citizens’ of society in that they benefit from society and so owe duties back to society in the same way that individual human citizens do. Many people no longer believe that businesses are able to take from society without also accounting back to society (and not just to shareholders), on how it has behaved with regard to its environmental impacts. This article is about how companies account for their environmental impacts using environmental reporting.

WHAT DOES IT CONTAIN?
In recent years, then, a belief has arisen in businesses and in society that reporting has a wider role than that expressed in the traditional ‘stockholder/shareholder’ perspective. Importantly, one need not hold to the ‘deep green’ end of the argument to hold these views: there are strategic reasons why a wider view of accountability may
be held and, accordingly, why initiatives such as environmental reporting may be supported.

I covered the subject of environmental ‘footprint’ in an earlier technical article (March 2009) but to recap, it concerns both the environmental consequences of an organisation’s inputs and outputs. Inputs include the measurement of key environmental resources such as energy, water, inventories (especially if any of these are scarce or threatened), land use, etc. Outputs include the efficiency of internal processes (possibly including a ‘mass balance’ or ‘yield’ calculation) and the impact of outputs. These might include the proportion of product recyclability, tonnes of carbon or other gases produced by company activities, any waste or pollution.

These measures can apply directly (narrowly) or indirectly (more broadly). A direct environmental accounting measures only that within the reporting entity whereas an indirect measure will also report on the forward and backward supply chains which the company has incurred in bringing the products from their origins to the market. For example, a bank can directly report on the environmental impact of its own company: its branches, offices, etc. But to produce a full environmental report, a bank would also need to include the environmental consequences of those activities it facilitates through its business loans. Where a company claims to report on its environmental impacts, it rarely includes these indirect measures because it is hard to measure environmental impacts outside the reporting company and there is some dispute about whether such measures should be included in the bank’s report (the bank may say it is for the other company to report on its own impacts).

Reporting on environmental impacts is, therefore complicated, and is often frustrated by difficulties in measurement. In broad terms, environmental reporting is the production of narrative and numerical information on an organisation’s environmental impact or ‘footprint’ for the accounting period under review. In most cases, narrative information can be used to convey objectives, explanations, aspirations, reasons for failure against previous years’ targets, management discussion, addressing specific stakeholder concerns, etc. Numerical disclosure can be used to report on those measures that can usefully and meaningfully be conveyed in that way, such as emission or pollution amounts (perhaps in tonnes or cubic metres), resources consumed (perhaps kWh, tonnes, litres), land use (in hectares, square metres, etc) and similar.

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