November 2005
Differences Between OFR and EMS
In August 2005 we wrote an article introducing the Operating and Financial Review (OFR) as a way of using corporate systems to accelerate compliance and increase your competitive advantage. This month we would like to explain the major differences between the OFR and the standard ISO 14000 Environmental Management System (EMS).
A number of companies have expressed the view that their current EMS will meet the needs of the OFR and will rely on this to prepare their reports. The legislation and the drive behind the OFR was not intended as an piece of environmental legislation but it could be seen as providing an additional impetus to the effective management of the environment. Compulsory OFR reporting was introduced to increase corporate transparency and accountability, in order to assist investors in assessing a company's strategies, the potential risks to them and thus their potential to succeed. These strategies must include the social and environmental factors that affect the long term viability of the business. A standard EMS may contribute to the OFR but will not satisfy all the requirements.
What should the OFR include and how do you decide.
The regulations make it clear that certain matters MUST always be addressed in the OFR:
- The business objectives & strategies
- The resources available to the company
- The risks and uncertainties facing the company
- A description of it’s capital structure
- Treasury policies and objectives
- Liquidity
The regulations also mention other areas including information regarding:
- Company’s employees
- Environmental matters
- Social and community issue
- Business relationships
- Receipts from and returns to members where this is necessary to meet the objective of the OFR.
An issue likely to need review is the Health & Safety policy and compliance with relevant regulations.
The current years OFR should follow up statements made in earlier OFR’s by reporting progress or disclosing divergences.
Businesses with significant groups of stakeholders are also likely to benefit from the results of consultation with these groups to ascertain what in their view the key issues are.
The OFR Process
- The process should be planned like any other major board-led project. A clear timetable is needed along with a structured review system.
- Discuss with firm’s auditors on how the OFR will be validated.
- The process should provide for appropriate consultation within the business, with members and other key groups whose decisions can affect performance.
- The process should be comprehensive
- It should be consistent i.e. the same every year
- It should be subject to review, both internally and by external auditors.
Most companies required to produce an OFR will have information from their corporate systems relating to many of the broad topics mentioned in the regulations, and will already recognise the need to bring this together to give the board an affective overview of the health, performance and prospects of the business.
While only FTSE listed companies and those quoted on other global markets and trading in the UK need produce an OFR there is a general consensus that other companies will need to do something very similar. As the global supply chains become ever more competitive, an informative OFR or equivalent report is an opportunity for high performance organisations to differentiate themselves from their competitors. If a potential customer had to make a choice between two companies offering competitive products and one could provide additional information and reassurance through their OFR they are more likely to win support from customers who need to protect their own brand from environmental and financial scandal.
If you require assistance to help get your management systems in shape for an OFR or would like more information on integrating environmental, health & safety and quality systems to provide the information you require, contact Steve Stones on 024 7632 3260.
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