Academic, policy, and management interest is growing in how and why companies communicate their environmental practices to stakeholders. Researchers around the United States, like Dr. Douglas J. Lober, Director of Duke University s Center for Business and the Environment, are focusing more attention on corporate environmental reports and disclosure practices. Lober, along with David Bynum, Elizabeth Campbell, and Mary Jaques, has recently published The 100 Plus Corporate Environmental Reports Study: A Survey of an Evolving Management Tool in Business Strategy and the Environment (1997, Volume 6).

Corporate environmental reporting is the process by which a corporation communicates information regarding the range of its environmental activities to a variety of stakeholders, including employees, local communities, shareholders, customers, government, and environmental groups.

In the United States, a corporate environmental report is a voluntary, free-standing report that covers a corporation s environmental activities and frequently health and safety activities. Free- standing means a report separate from the annual report.

There is no one standard. Reports frequently include information on the amount of pollutants released into and onto air, water, and land, and the amount of water and energy used. They also include statements from top management supporting the environmental program, and increasingly, a third party confirmation of the accuracy of the information reported. They sometimes include information on the organizational structure of the environmental division, awards won by the company, and management approaches and strategies such as Design for Environment or Total Quality Environmental Management.

Obtaining the information turns out to be a real challenge for corporations. The very process of reporting forces them to think about their whole information management system and gives them a better understanding of their environmental activities. Frequently, corporations find they have no way to collect the information needed. By initiating reporting, they start to put into place processes and systems that can help them gather information. They usually collect it at the site level and then aggregate it up to the division and finally the corporate level.

I think the impetus has been to respond to stakeholders. Internally, employees are the group most targeted by corporate environmental reports. The employees want to see that the company they work for is doing the right thing environmentally. Top management wants to see what is going on within the corporation in terms of the environment, including what benefits it is bringing the corporation. A range of groups outside the corporation for example, environmental groups are also increasingly asking for environmental reports, and companies find that the reports are a good way to respond to environmental criticism. Regulators are a frequent audience. Sometimes, companies even target their competitors; they are interested in showing environmental leadership. I think the reason these reports initially came about was that many companies had a lot of pollution issues and wanted to show what they were doing about them. The reports have since evolved into a much more mainstream activity.

Corporations have in the past primarily used one channel of distribution mailing the report to a variety of potentially interested stakeholders. More recently, they have turned to the Internet, which is a cost-effective distribution method that reaches new audiences.

There is no requirement in the United States that environmental information be published in a report. The SEC is primarily interested in information that might affect its financial performance and has tended to focus entirely on liability. Until the relationship of business and the environment is changed from one of liability to one of opportunity, not much additional reporting will be required by the SEC.

There is usually not enough information in an environmental report to give banks or anyone else enough information to make an adequate environmental assessment. One bank is now using environmental criteria beyond potential liabilities, and their environmental report publicly states that they do this. In general, however, not much evidence exists that banks are concerned with environmental performance other than quantifying environmental liabilities during the due diligence process.

The mainstream investment community has not responded much to environmental reporting. In fact, you can find much more relevant investment information in the SEC documents that are required the 10K, for example than you can find in the environmental report. Only one company puts the same information in the environmental report that they submit in their SEC documents. Environmental reports, however, have probably influenced large pension funds, such as TIAA-CREF and CALPERS, whose trustees increasingly demand better environmental performance. You are also seeing green funds investing in companies that have good environmental records. But this is a small part of the investment universe.

Not many of the other functions of the corporation, such as marketing or operations, produce separate reports. Over time, I think environmental activities will merge with other corporate activities. It is possible that environmental reports may eventually disappear and environmental performance will be given more space in annual reports with additional environmental information provided to people who express interest. It is also possible that environmental reports will remain important because the area has so developed in importance.

One condition is a demand by stakeholders for good environmental performance. Another is having top management support for environmental reporting. Also, the more proactive companies are generally the ones that are reporting; companies that are able to look beyond compliance are more likely to describe their environmental activities. In addition, companies that are resource-intensive are more likely to report. Reporting levels are much greater in the utilities, pulp and paper, and chemical industries than in the service or manufacturing (such as furniture) industries, which are not highly visible.

By resource intensive, I primarily mean industries that either use resources or release significant amounts of pollutants into the environment. The TRI (Toxic Release Inventory) seems to have had a significant influence on company reporting. You can find companies that are not listed under the TRI the mining industry for example that have been extremely slow to get involved in environmental reporting. Now that they will in the future be included in the TRI, reports from them are starting to come out.

You see benefits both competitively and in terms of stakeholder relationships. If the company is seen by regulators as being proactive and willing to go farther in environmental performance, they are more likely to receive faster permitting and more flexible treatment by regulators. For example, a quarry company believes its permitting process has moved more quickly due to its proactive environmental stand. Companies might be less targeted by environmental groups if they showed proactive environmental performance that is described in their environmental reports. Customers play a role, especially in the case of large companies. For example, General Motors now requires some of its suppliers to meet the ISO 14000 standards.

Internally, environmental reporting forces companies to think about their environmental performance in a unified fashion and how it fits within the corporate strategy. A few companies have started to try to quantify the exact benefits of their improved environmental performance, which you can find in the reports. One large company estimates benefits at about $25 million per year; another indicates savings of more than $750 million since 1973. Environmental reporting does not directly lead to those benefits, but it forces companies to think about just how much they save through their environmental program.

Its reliability is not clear. You can t tell how corporations collected the information, so information from two different companies is not comparable. I think the greatest shortcoming of reporting is that it is still difficult to read a report and have any idea what sort of environmental footprint the company is having on the natural environment. You can read about releases that the company is making, but that doesn t really tell you how those releases are affecting the natural environment. We also cannot discern what the relation is between business and the environment and how environmental programs add to the competitive advantage of the corporation.

The reports are going to become even more stakeholder oriented. Corporations are going to do more research to determine just what it is that stakeholders want. I think another trend will be to more standardization. At some point, we ll achieve the level that has been achieved in annual reports. With just a written portion and financial statements, annual reports provide an overall assessment of the position of a corporation. I think environmental reports will one day achieve this, but it is still a long way away.

Annual report standards are voluntary; no set guidelines exists that they have to follow. Their financial data, however, which is really the majority of the report, is based on generally accepted accounting principles. That is why I think environmental accounting is going to be the critical part in development of the whole field. Unless people have a common language, there will never be a way to compare how companies are doing. One difference between annual and environmental reports is that annual reports have only one audience the shareholders. Different types of shareholders exist: one is the general public and another institutional investors. Companies are able to meet their needs in one annual report. Environmental reports have a much greater challenge to address the information needs of many different stakeholders, that is, employees, management, local communities, regulators, customers, and competitors. I actually think they will not be able to meet all needs in one report. It is possible that environmental reports will eventually evolve to providing the information that people request, rather than one comprehensive report.

Larry Plummer, Senior Policy Associate, US-AEP