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August 2004

Companies Fail To Prepare For Changes In Reporting Requirements

Less than a quarter of FTSE All Share companies make any quantitative environmental disclosures in their Annual Reports and Accounts, despite new DTI regulation calling for this from January 2005.

The Environment Agency recently revealed the results of the first study of environmental disclosure within the Annual Reports and Accounts of FTSE All Share companies. The basic findings of the report indicate that the vast majority (89%) of companies discuss some aspect of their interactions with the environment. However, closer examination of these disclosures revealed that the majority lack depth, rigour and quantification and few could be described as comprehensive, or adequate for shareholders to properly assess environmental risks or opportunities.

Only 10% of the FTSE All Share (55 companies) use Annual Reports and Accounts to report on waste, water and energy/climate change, and even less provide quantitative information. This is particularly surprising given the Defra environmental reporting guidelines that recommend that all companies report on these issues as a minimum.

Quantitative environmental disclosures (excluding provisions and contingent liabilities) are made by 24% of companies in the FTSE All Share. Where made, they are seldom related to possible financial consequences (11% of FTSE 350) or linked to future changes in shareholder value (5% of FTSE 350).

Good practice is highlighted in the study, as demonstrated by Scottish Power - for its extensive disclosures covering 18 environmental topics; Slough Estates – for providing the most number of quantified disclosures; and BP – for making the highest number of disclosures in the audited sections of their report.

Barbara Young, Chief Executive of the Environment Agency, said: "Though we commend companies for reporting to an extent on their environmental performance, data supplied to the Environment Agency, Defra and the EU is not being sufficiently utilised for the benefit of informing shareholders about the environmental risks and opportunities that companies face. The Operating and Financial Review (OFR) is an opportunity for companies to demonstrate to stakeholders their commitment to becoming more economically and environmentally sustainable."

Simon Thomas, Chairman of Trucost Plc, who prepared the study commented, "There is overall very little consistency in the type or quality of information disclosed, and guidelines with relevant key performance indicators are needed if the OFR objective of producing consistent, comparable and relevant environmental disclosure is to be achieved. Given that data for the new OFRs will have to be collected from 1st January 2005, these guidelines and performance indicators need to be established as quickly as possible so that companies can begin collecting the data they will need."

Howard Pearce, Head of Environmental Finance, Environment Agency, commented: "The Environment Agency believes that companies' interactions with the environment are of significant financial importance and environmental disclosures need to be clear, consistent, comparable and compulsory (as for financial information). Without this, customers, shareholders and potential investors cannot truly assess their environmental and financial results. We commissioned this study to establish current environmental disclosure levels and we intend to repeat the study in 2006."