The truth, the whole truth…

Too many environmental reports are economical with the actualité, argues Paul Monaghan, explaining why the Co-operative Bank backs tougher verification.

“Honesty is praised and left to shiver” - Juvenal (Roman satirist, AD c. 60 - c. 130)

Trust in business is at a low across the Western hemisphere. Reporting on social and environmental issues, together with independent verification, offers companies a way to build trust with its partners, and, at the same time, enhance business development: at least, it does when undertaken with rigour and integrity, which is not always the case.

Not long ago, it was assumed that environmental management systems were a good proxy for environmental performance (and that reporting was merely the icing on the cake). Many companies still argue that ‘regulatory relief’ should be given to firms with certified environmental management systems. However, the conclusions of an EU-sponsored project on measuring environmental performance in industry (www.environmental-performance.org ) seriously undermine such claims. It found that, in general, those companies with an environmental management system did not perform significantly better than those without. Indeed, in some cases they appeared to perform worse! The authors of the report suggest that policy makers’ attention should be focused instead on encouraging and rewarding reporting, as a key means of building trust.

Unfortunately, much current reporting has little chance of achieving that. With some exceptions, it has not delivered an improvement in the public’s perception of business. This is principally because, as the EC states, “environmental information disclosed by companies is often inadequate and unreliable”.

The financial services sector is increasingly seen as an important driver for social and environmental reporting, particularly in the US and UK. Yet many firms that produce reports bemoan the fact that the investment community does not take them seriously. A recent Business in the Environment survey in the UK found that whilst 90% of analysts and 82% of investors say they use environmental and social information from companies, only about one-third find the information of good quality, and independent sources are considered more useful.

A particularly problematic area is that of ‘balance’: many reports devote pages of commentary to the highlights of company performance, whilst making little or no comment on less favourable areas (and these omissions often pass without comment in verification statements). For example, The Ecologist recently argued that BP and Shell reports focused excessively on commitments to reduce greenhouse emissions from purely internal business operations, rather than get to grips with the environmental consequences of their plans to increase by at least 5% a year their extraction rates of oil and gas - which will have far greater impact.

Probably the single biggest factor undermining social and environmental reporting is the absence of robust independent verification. To date, the NGO movement and media have taken a relaxed view on this - mainly to encourage first time reporters. However, as reporting has grown, so has the willingness of influencers to comment on shortfalls in this area.

The New Academy of Business has published a highly critical review of the social audits carried out on banana plantations in Costa Rica (www.new-academy.ac.uk/bananas/tpwa.pdf ), stating that “commercial auditing companies may be incapable of effectively addressing labour rights issues around the world”. Friends of the Earth has alleged that Indonesian multinational Asia Pulp & Paper (APP) is “one of the world’s… most destructive paper companies”, despite the fact that APP’s forestry and mill operations hold 16 ISO14001 certificates which are reaudited every six months by consultancies (see ‘Paper tiger, hidden dragons’ at www.foe.org.uk ).

Against this background, AccountAbility has shown welcome courage in tackling the development of a standard for the production of verification statements, and the Co-operative Bank (together with CIS and the Co-operative Group) has been happy to part-sponsor the work. It is crucial that verification statements do not restrict themselves merely to addressing the accuracy of the data contained in reports, but extend their attention to all associated commentary. Verifiers should also comment on what is omitted from the report, as much as what is included.

The option of not disclosing environmental information has been removed in Norway, Denmark, the Netherlands, Australia and Sweden. The UK government’s response, contained in Modernising Company Law (July 2002), proposes that company directors should be allowed to decide on what ethical / environmental issues are material and should be disclosed. Unfortunately, the public has little confidence that all appropriate issues will in fact be brought to light, and for this reason the Co-operative Bank is supporting calls for mandatory ethical and environmental reporting for large business in the UK. Honesty should not be praised, and then left to shiver.

Paul Monaghan is partnership development manager at the Co-operative Bank plc.

23 September 2002

Paul Monaghan