MEDIA RELEASE

1 August 2002

Room for improvement: environmental non-disclosure poses risk for Australian investors

Two of Australia's largest superannuation funds, the Public Sector and Commonwealth Super Schemes (PSS/CSS) today called for improved environmental disclosure by Australian companies.

"The rising community and business concern for adequate environmental management has not been matched by adequate disclosure practices," Mr Steve Gibbs, PSS/CSS CEO, said.

"Only around 25 S&P/ASX200 companies currently provide an environmental report, whereas a recent review we conducted identifies at least 60 companies as being in need of disclosing this type of information. And a further 30 companies whose environmental disclosure fails to meet acceptable practices."

These findings follow the conclusion of a PSS/CSS review, of Australian company disclosure practices across the S&P/ASX200 index.

"The long-term nature of environmental liabilities leaves superannuation funds like us exposed to this type of market failure. The share-price punters may have moved on but long-term superannuation investors are the most likely to be holding company shares when environmental liabilities come home to roost. We therefore require improved disclosure regarding these types of risks," Mr Gibbs continued.

PSS and CSS have determined a range of possible environmental disclosure responses that company boards might consider adopting. From an investment perspective, the key requirement is for environmental risk information that enables an informed assessment of potential financial impact.

"Experience has suggested environmental risks are prone to be buried in overheads and co-mingled cost centres. As investor shareowners we too frequently find it difficult to understand the extent of environmental risk exposure. It begs the question as to how adequately this aspect of business risk is being managed," said Mr Gibbs.

Research undertaken for the PSS/CSS has identified the materials, energy, utilities, transportation, and media sectors as being most at risk. Internationally, companies such as British Airways, Shell, Granada Television, Sainsbury Supermarkets and General Motors have all embraced improved environmental disclosure.

This call for improved environmental disclosure coincides with the release of the UK Government's White Paper reviewing Company Law. The White Paper recommends: 'environmental disclosure ... and that directors need to take account of a wide range of factors such as the company's impact on the environment which the Government believes every director needs to consider as first among equals.'

PSS/CSS have about $3 billion invested in Australian company shares. A copy of the PSS/CSS position paper on environmental disclosure is available below. PSS/CSS have also instructed their governance advisers to commence dialogue with a number of company and industry bodies in relation to these matters.

 

POSITION PAPER: Environmental Disclosure - effective risk management and exposure mitigation

The financial risks flowing from management of environmental impacts have increased in line with the increasing number and severity of regulatory measures, and with changing market expectations. These risks are material to the financial position of many listed companies, or will become so in the near term.

Disclosure of environmental risk is therefore important to enable assessment of financial risk. In a demonstrably nervous, post Enron/HIH/Worldcom investment market climate, leading management thinking recognises transparency and disclosure as business assets. Analysis by Monash University of current disclosure practices of S&P/ASX 200 companies has found that disclosure across all sectors is inadequate. As a basic requirement, companies should disclose:

* activities/operations posing significant environmental risk;

* data on key impacts/emissions including greenhouse gas emissions;

* financial reporting of materially significant environmental liability, debt exposure, and cost management information in relation to key impacts; and

* information on management initiatives to mitigate key environmental risk.

Sectors with the highest environmental risks include the materials and energy sectors, utilities, transportation, and media. In these higher risk sectors, a significant portion of total environmental costs tends to be hidden in overheads and co-mingled cost centres, resulting in systemic underestimation of the material impact of environmental risk on business risk and financial position. For higher risk business sectors, environmental disclosures (including costs) should be made through:

1) stand-alone and verified corporate environmental reports;

2) inclusion of financially significant environmental risk information in the annual report, and

3) comprehensive environment-related information on company web sites. The specific information contained in environmental reports should be linked to thorough assessment of impact and risk. Companies should seek specific guidance on reporting frameworks through reference to the Global Reporting Initiative (GRI)1.

1The Global Reporting Initiative (GRI) is an international initiative whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines for voluntary use by organisations reporting on the economic, environmental, and social dimensions of their activities, products and services. Refer http://www.globalreporting.org/AboutGRI/FAQ.htm. Companies seeking further references may consider the Greenhouse Gas Protocol, recognised standards, including ISO14031 - Environmental Performance Evaluation and the Association of British Insurers' disclosure guidelines and background paper at http://www.abi.org.uk.

Background to Position Paper: Environmental Disclosure