Environmental Reporting - Essay Example

ENVIRONMENTAL REPORTING PART A Introduction Considering the prominence that the UK government and the entire world regards the environment, with a clean and sustainable environment currently being shared slogans, corporates have been forced to act with due diligence when reporting for environmental pollution. Companies must report their waste emission and energy utilization by following the stipulated legal framework for environmental reporting as well as incorporate various voluntary aspects of environmental reporting. An organization that measures and reports its environmental performance gains a better comprehension of the risks it is exposed to as a result of climate change and can potentially reduce its costs of energy and other resources as at will gain a positive reputation in the currently competitive corporate sector. The following report explains the UK legal requirements currently upheld and the main voluntary guidance on environmental reporting. UK legal requirements on environmental reporting The Companies act of 2006 requires all quoted UK companies to accurately and truthfully pinpoint and report on GHCs (greenhouse gases) that they produce. Quoted companies hereby refer to all UK incorporated companies as well as those whose shares are traded in the NASDAQ, New York Stock Exchange, European Economic Area, or the London Stock Exchange (Global Reporting Initiative, 2006). As a legal framework, the company’s annual report must include the information on emissions to the extent that individuals and government agencies will be able to comprehensively understand the company’s business. This includes the use of KPIs (key performance indicators) such as utility bills if and when applicable in the report. Failure to include the GHCs emissions can be considered to be a violation of the law unless the accountant clearly indicates in the omissions sections that the GHCs emission information was omitted (Pahuja, 2009). The Institute of Chartered Accountants in cooperation with the Environment Agency in Wales and England has published direction on environmental reporting that has been helpful in reporting on environmental impacts and social impacts. When collecting data for and reporting on environmental impacts, the law requires that the following principles are upheld. Relevance and accuracy Data collected and reported must properly portray the impacts that the organization has had on the environment. Being relevant will make the information helpful to internal and external users who might need to make various decisions based ion the report. Similarly, accuracy should be attained by reducing uncertainties in the reported figures. Reporting of accurate information will enable shareholders and stakeholders to make decision with a high degree of confidence. Quantitative All KPIs included in the report must be quantifiable. This helps the organization in setting a target to minimize a certain impact. Measurable KPIs enhances the effectiveness of management systems and environmental policies since it will be possible to evaluate and validate them (Global Reporting Initiative, 2006). Apparently, the law requires that the quantitative information provided be accompanied by a description, explicating and impacts and purpose. Completeness The accountants must compute and report on every source of environmental impact. This should be done within the reporting boundaries that the organization has already established and defined. In case of any exclusion, the accountants must reveal and substantiate such exclusions (Pahuja, 2009). This ensures that report on environmental performance is complete. Comparability For comparison purposes, all companies should use accepted and recognized KPIs. Inventing of possible standard indicators and using them in environmental reporting is not acceptable as this will make it difficult for inter-company or inter-industry comparisons. Moreover, the organization should use the accepted and recognized KPIs in benchmarking (Collison, 2006; Harmon, 2002). Consistency Environmental impact data should be accounted for using consistent methodologies over time. Any changes in reporting guidelines, methods of quantification of information and other relevant information must be disclosed and the reason for the change explained and justified (Pahuja, 2009; The Greenhouse Gas Emissions (Directors’ Reports) Regulations, 2013). Transparency Credibility of the report relies on transparency; relevant issues are addressed in a coherent and factual way, all methodologies, calculations, and assumptions clearly recorded. The report should disclose how data was collected and handled to attain the final report. Organizations must report on important KPIs which center on emissions to air, water, and land. The predominant emissions to air are greenhouse gases. There are 6 main GHGs outlined by the Kyoto protocol including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulphur Hexafluoride (SF6), hydrofluorocarbons (HFCs), and perfluorocarborns (PFCs). These gases have different capacities and effect on global warming dependent on their radiative properties. Direct and indirect emissions of GHGs produced, as well as Smog precursors such as sulphur dioxide (SO2), ammonia (NH3), nitrous oxide (NOx), and carbon monoxide (CO), must be reported in metric tonnes per year. If the metric tonnes reported were merely estimated, the estimating method should be disclosed. The same treatment should be applied when accounting for volatile organic compounds. While companies are not mandated to provide individual figures for each GHG, they must provide the figure of all GHGs emitted if any (World Resources Institute, 2004). Emissions to water and land should also be reported in kilograms emitted per annum or absolute cubic meters per annum as applicable. Any methods used in estimation of the amount should be disclosed. Any recycled amount should as well be accounted for. All UK listed companies must adhere to the comprehensive guidelines. Main voluntary guidance on environmental reporting Companies have to report the amount of GHCs produced. The main GHCs are CH4, CO2, HFCs, PFCs, and SF6 and are produced from different manufacturing processes. These gases can either be reported in metric tonnes produced or in CO2e which means quantifying the GHCs in terms of CO2 (Global Reporting Initiative, 2006). Apart from the main gases elucidated above, there are other GHGs that enter the atmosphere as a result of human activities. A company can voluntarily convert its waste generated, car mileage, and fuel consumption into corresponding carbon emissions and account for it. However, they must be listed separate from the GHGs mentioned above. Noteworthy, the UK government provides conversion factors that are specific to UK companies and any company wishing to report on these voluntary gases should use the provided conversion factors (Pahuja, 2009). Similarly, companies may wish to report on their in-service travels. They are permitted to do so, but must convert the emissions using the UK conversion factors. PART B An analysis of Royal Mail plc’s Corporate Responsibility Report 2013 – 14 indicates that since 2012, the company has been performing exemplary on environmental performance. The report indicates that the company had targeted to divert 70% of wastes from landfill by 2014 and the target was attained. Similarly, it has planned to attain a reduction of 20% in carbon emissions by the end of 2020 and all strategies have been put in place to ensure that the goal is attained. Royal Mail plc’s carbon emissions in 2012-2013 were 730.3k tonnes a figure that is 16% below its emissions in its baseline year. In financial year 2013 - 2014, the amount reduced significantly to 705.2k tonnes which is 19% below its emissions in its baseline year (Royal Mail, 2015). Similarly, the company was successfully in managing and reducing its use of water. In the fiscal year 2012 - 2013, the water consumed was 1.508k m3 a figure that is 12.6% below its consumption in the previous year (Royal Mail, 2015). The provision of the reporting years is a clear indication that the report fulfills comparability, an important KPI principle. The company’s environmental focus areas are clearly outlined as water, climate and energy, waste, customer and suppliers, and biodiversity. The company continued experiencing improvements in water management and consumption, the amount reducing by 6% in 2014. What’s more, the company went ahead and reported its GLS carbon emissions in CO2E as 32.6 thousand tonnes in 2013 - 2014, a figure that is quite significant considering the importance that the company attaches to the environment which guarantees its continuity. This figure is apparently low as compared to that reported by other UK companies. Primarily, Royal Mail plc is performing well considering its environmental impacts as portrayed in the corporate responsibility report 2013-2014, a factor that contributed to its market growth and eventual listing. It is operating in an environmentally responsible manner basing on the reduction in key contaminants. However, considering its listing and continually growing customer and employee’s base, the company will have to improve on its environmental reporting as a way of abiding by UK legal requirements and improve its competitiveness. The reported information can largely be contested on the basis of transparency (Tarantino, 2008). The quantitative data presented in the reported is not supported with any information on how the data was collected or estimated. Data source and methods of calculation needs to be included. The report should be improved by including a section with descriptions of methodologies used in collecting and analyzing the environmental impact information. Moreover, the company should have disclosed the uncertainties that are expected to arise from climate change (Rogers, 2005). Apparently, climate change will have a direct effect on the company’s operating performance and financial conditions. For instance, customer demand may shift due to an unabated worsening of climate and delivery of mails may become harder as global warming continues. The company should have disclosed this as well as future costs resulting from its mission to continuously reduce carbon emission (Global Reporting Initiative, 2006; Tarantino, 2008). This information would have been helpful in analyzing the company’s exposure to regulatory risks. It is also known that UK companies are now forced to experience the repercussions of their environmental pollution. The company should, therefore, have disclosed any penalties in form of fines that it has been forced to pay as a result of ensnarling the environment. While the company clearly indicates emissions in CO2e in scope 1, 2, and 3, there seems to be some missing information on scopes. According to Global Reporting Initiative (2006), he report shall be used by shareholders and stakeholders who may not have an idea of what scope 1, scope 2, and scope 3 includes in this case. The report should explicate that scope 1 are direct emissions resulting from the happenings owned or controlled by Royal Mail plc including their delivery vehicles or equipment often used in the process of operation (World Resources Institute, 2004). Similarly, under scope 2, the report should have indicated that they are indirect emissions resulting from sources beyond its control including emission resulting from uses mishandling of mails after their useful time (Pahuja, 2009). However, it did explain that scope 3 considers emissions of airmail, business travel, and distribution losses resulting electricity use. Similarly, the company should have reported the emissions of other GHGs since it is likely that other gases such as HFCs, PFCs, and SF6 are produced. An inclusion of the proportion of these gases should have been made separate from the carbon emissions (Rogers, 2005). Moreover, breaking the emissions further into electricity, steam, heat, combustion of fuel and operation facilities, and inclusion of the company’s preferred intensity ratios would have made the information more meaningful (Global Reporting Initiative, 2006). Apparently, the voluntary environmental reporting guidelines requires that a company converts and reveals the conversion factors use in converting its waste generated, car mileage, and fuel consumption into its carbon equivalence. While the company reported on voluntary gases produced into the atmosphere, it did not include in the report the conversion factors used. These factors are clearly stipulated by the UK government and the company should, therefore, have pinpointed the specific factors used in doing the conversion. The conversion factors are categorized as indicated in appendix 1. According to the Department for Environment Food and Rural Affairs (2013), inclusion of the factors makes the environmental accounting report more informative and of utter significance to all stakeholders. Generalization of emissions should adamantly be avoided and the emissions divided into emissions to air, water and land. In so doing, the business will be able to highlight important aspects such as volatile organic compounds and GHCs (Pahuja, 2009). Emission mitigation projects currently in place should also have been comprehensively described. Wastes should be included and the amount of recycled materials reported in appropriate units as it is an important measurement adopted in guiding corporate responsibility after the enactment of Sarbanes Act which came into force after several corporate failures in 2002 including WorldCom and Enron and Palamat (Rogers, 2005). Hence, from the entire elucidation, it is ostensible that despite its satisfactory performance on environmental reporting, Royal Mail plc should incorporate the highlighted aspects to improve its reporting and consequently shareholders confidence. Reference list Chave, P. A, 2001. The EU water framework directive: An introduction. Collison, D. J.,2006. THE RESPONSE OF STATUTORY FINANCIAL AUDITORS IN THE UK TO ENVIRONMENTAL ISSUES: A DESCRIPTIVE AND EXPLORATORY CASE STUDY. The British Accounting Review. doi:10.1006/bare.1996.0022 Global Reporting Initiative, 2006. Sustainability Reporting Guidelines: https://www.globalreporting.org/resourcelibrary/G3-Sustainability-Reporting-Guidelines.pdf Harmon, D. E, 2002. The Environmental Protection Agency. Philadelphia: Chelsea House Publishers. Pahuja, S., 2009. Environmental Accounting & Reporting. New Century Publications, ISBN-10: 8177082205 Rogers, C. G, 2005. Financial reporting of environmental liabilities and risks after Sarbanes-Oxley. Hoboken, NJ: John Wiley & Sons. Royal Mail plc’s Corporate Responsibility Report 2013 – 14.Retrieved from http://www.royalmailgroup.com/sites/default/files/Royal%20Mail%20Group%20Corporate%20Responsibility%20Report%202014.pdf Tarantino, A. (2008). Governance, risk, and compliance handbook: Technology, finance, environmental, and international guidance and best practices. Hoboken, NJ: John Wiley & Sons. The Greenhouse Gas Emissions (Directors’ Reports) Regulations 2013: www.defra.gov.uk/consult/files/consult-ghg-regulations-20131.pdf World Resources Institute, 2004. Greenhouse Gas Protocol - A Corporate Accounting and Reporting Standard - Accessed 13.4.2015: http://www.ghgprotocol.org/files/ghgp/public/ghg-protocol-revised.pdf Appendix 1 Read More