Professional & Ethical duties

Ethical issues facing the professional accountant

Introduction
I am an accountant, trust me! Have you got the guts to say this in public? I think not! Why? Public
perception and confidence has been ruined by recent massive accounting scandals around the world:
Enron, WorldCom, Ahold, and Parmalat to Shell's overstatement of profits at its Nigerian subsidiary
and its oil reserves. Does this mean that accountants have no professional ethics? The answer is yes
and no as there is a fine line between being honest and being economical with the truth! So all this
comes down to ethics/reputation as we have now moved from a period where it's been 'tell me' to
'prove to me' period.

What are ethics? They are a set of moral principles to guide human behaviour.

Definition of professional ethics: principles and standards that underlie the responsibilities and
conduct of a person in performing their function in a particular field of expertise.

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in
the public interest (social responsibility). Therefore, a professional accountant's responsibility is not
exclusively to satisfy the needs of an individual client or employer!

In acting in the public interest a professional accountant should observe and comply with the ethical
requirements ct these moral principles (codes). They have a duty of care written into what they have
to do, and unfortunately no one can assume today that everybody will act responsibly!

It is no longer acceptable today to say that I am an accountant, trust me!!!!

What we need is a Code. This Code will establish the fundamental principles of professional ethics for
professional accountants and provides a conceptual framework for applying those principles. The
conceptual framework will provides guidance on fundamental ethical principles. Professional
accountants will be required to apply this conceptual framework to identify threats to compliance with
the fundamental principles, to evaluate their significance and to apply safeguards to eliminate them or
reduce them to an acceptable level such that compliance with the fundamental principles is not
compromised. The ACCA has its own Code of Ethics and Conduct which is applicable to all
students, associates and members.

Code of Ethics

Fundamental principles and conceptual framework

A professional accountant is required to comply with the following fundamental principles:

(a) Integrity

(b) Objectivity

(c) Professional competence and Due care

(d) Confidentiality

(e) Professional behaviour

Integrity

The principle of integrity imposes an obligation on all professional accountants to be straightforward

and honest in professional and business relationships. Integrity also implies fair dealing and
truthfulness.

A professional accountant should not be associated with reports, returns, communications or other
information where they believe that the information:

(a) Contains a materially false or misleading statement;

(b) Contains statements or information prepared recklessly; or

(c) Omits or obscures information required to be included where such omission or obscurity would

be misleading.

A professional accountant will not be considered to be in breach if the professional accountant

provides a modified report in respect of that matter.

Therefore, an accountant should be straightforward and honest in all professional and business
relationships.

Objectivity

The principle of objectivity imposes an obligation on all professional accountants not to compromise
their professional or business judgment because of bias, conflict of interest or the undue influence of
others.

A professional accountant may be exposed to situations that may impair objectivity. It is impracticable
to define and prescribe all such situations.

Relationships that bias or unduly influence the professional judgment of the professional accountant
should be avoided.

Therefore, an accountant should not allow bias, conflict of interest or undue influence of others to
override professional or business judgments.

Professional competence and due care

A professional accountant has a continuing duty to maintain professional knowledge and skill at the
level required to ensure that a client or employer receives competent professional service based on
current developments in practice, legislation and techniques. A professional accountant should act
diligently and in accordance with applicable technical and professional standards when providing
professional services.

The principle of professional competence and due care imposes the following obligations on
professional accountants:

(a) To maintain professional knowledge and skill at the level required to ensure that clients or

employers receive competent professional service; &

{b)-To act diligently in accordance with applicable technical and professional standards when

proving professional services.

 Competent professional service requires the exercise of sound judgment in applying professional
knowledge and skill in the performance of such service. Professional competence may be divided into
two separate phases:

(a) Attainment of professional competence; &

(b) Maintenance of professional competence.

The maintenance of professional competence requires a continuing awareness and an understanding

of relevant technical professional and business developments.

Continuing professional development develops and maintains the capabilities that enable a
professional accountant to perform competently within the professional environments.

Diligence encompasses the responsibility to act in accordance with the requirements of an

assignment, carefully, thoroughly and on a timely basis.

A professional accountant should take steps to ensure that those working under the professional
accountant's authority in a professional capacity have appropriate training and supervision.

Where appropriate, a professional accountant should make clients, employers or other users of the
professional services aware of limitations inherent in the services to avoid the misinterpretation of an
expression of opinion as an assertion of fact.

Confidentiality

A professional accountant should respect the confidentiality of information acquired as a result of

professional and business relationships and should not disclose any such information to third parties
without proper and specific authority unless there is a legal or professional right or duty to disclose.
Confidential information acquired as a result of professional and business relationships should not be
used for the personal advantage of the professional accountant or third parties.

The principle of confidentiality imposes an obligation on professional accountants to refrain from:

(a) Disclosing outside the firm or employing organization confidential information acquired as a

result of professional and business relationships without proper and specific authority or

unless there is a legal or professional right or duty to disclose; and

(b) Using confidential information acquired as a result of professional and business relationships to

their personal advantage or the advantage of third parties.

A professional accountant should maintain confidentiality even in a social environment.

The professional accountant should be alert to the possibility of inadvertent disclosure, particularly in
circumstances involving long association with a business associate or a close or immediate family
member.

A professional accountant should also maintain confidentiality of information disclosed by a

prospective client or employer.

A professional accountant should also consider the need to maintain confidentiality of information
within the firm or employing organization.

A professional accountant should take all reasonable steps to ensure that staff under the professional
accountant's control and persons from whom advice and assistance is obtained respect the
professional accountant's duty of confidentiality.

The need to comply with principle of confidentiality continues even after the end of relationships
between a professional accountant and a client or employer. When a professional accountant
changes employment or acquires a new client, the professional accountant is entitled to use prior
experience. The professional accountant should not, however, use or disclose any confidential
information either acquired or received as a result of a professional or business relationship.

The following are circumstances where professional accountants are or may be required to disclose
confidential information or when such disclosure may be appropriate:

(a) Disclosure is permitted by law and is authorized by the client or the employer;

(b) Disclosure is required by law, for example:

(i) Production of documents or other provision of evidence in the course of legal proceedings; or

(ii) Disclosure to the appropriate public authorities of infringements of the law that come to light; and

(c) There is a professional duty or right to disclose, when not prohibited by law:

(i) To comply with the quality review of a member body or professional body;

(ii) To respond to an inquiry or investigation by a member body or regulatory body;

(iii) To protect the professional interests of a professional accountant in legal proceedings; or

(iv) To comply with technical standards and ethics requirements.

The principle of professional behaviour imposes an obligation on professional accountants to comply with
relevant laws and regulations and avoid any action that may bring discredit to the profession. This includes
actions which a reasonable and informed third party, having knowledge of all relevant information, would
conclude negatively affects the good reputation of the profession.

In marketing and prom themselves and their work, professional accountants should not bring the
profession into disrepute. Professional accountants should be honest and truthful and should not:

(a) Make exaggerated claims for the services they are able to offer, the qualifications they possess, or

experience they have gained; or

(b) Make disparaging references or unsubstantiated comparisons to the work of others.

Therefore, an accountant should comply with relevant laws and regulations and should avoid any action
that discredits the profession.
Conceptual Framework for Ethical decision making

The circumstances in which professional accountants operate may give rise to specific threats to
compliance with the fundamental principles. It is impossible to define every situation that creates
such threats and specify the appropriate mitigating action. In addition, the nature of engagements
and work assignments may differ and consequently different threats may exist, requiring the
application of different safeguards.

• Identify threats
• Evaluation of threats
• Course of action
• Testing decision
• Communication

Identify Threats

Identify, evaluate and address threats to compliance with the fundamental principles, rather than
merely complies with a set of specific rules which may be arbitrary, is, therefore, in the public
interest. This Code provides a framework to assist a professional accountant to identify, evaluate
and respond to threats to compliance with the fundamental principles. If identified threats are
other than clearly insignificant, a professional accountant should, where appropriate, apply
safeguards to eliminate the threats or reduce them to an acceptable level, such that compliance
with the fundamental principles is not compromised.

A professional accountant has an obligation to evaluate any threats to compliance with the
fundamental principles when the professional accountant knows, or could reasonably be expected
to know, of circumstances or relationships that may compromise compliance with the fundamental
principles.

A professional accountant should take qualitative as well as quantitative factors into account
when considering the significance of a threat. If a professional accountant cannot implement
appropriate safeguards, the professional accountant should decline or discontinue the specific
professional service involved, or where necessary resign from the client or the employing
organization.

A professional accountant may inadvertently violate a provision of this Code. Such an inadvertent
violation, depending on the nature and significance of the matter, may not compromise
compliance with the fundamental principles provided, once the violation is discovered, the
violation is corrected promptly and any necessary safeguards are applied.

Threats

Compliance with the fundamental principles may potentially be threatened by a broad range of
circumstances. Many threats fall into the following categories:

(a) Self-interest threats, which may occur as a result of the financial or other interests of a
professional accountant or of an immediate or close family member;

(b) Self-review threats, which may occur when a previous judgment needs to be re-evaluated by
the professional accountant responsible for that judgment;

(c) Advocacy threats which may occur when a professional accountant promotes a position or
opinion to the point that subsequent objectivity may be compromised;

(d) Familiarity threats, which may occur when, because of a close relationship, a professional
accountant becomes too sympathetic to the interests of others; and
(e) Intimidation threats, which may occur when a professional accountant may be deterred from
acting objectively by threats, actual or perceived.

Safeguards

Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad
categories:

(a) Safeguards created by the profession, legislation or regulation; and

(b) Safeguards in the work environment.

Safeguards created by the profession, legislation or regulation include, but are not restricted to:

• Educational, training and experience requirements for entry into the profession.

• Continuing professional development requirements.

• Corporate governance regulations.
• Professional standards.
• Professional or regulatory monitoring and disciplinary procedures.
• External review by a legally empowered third party of the reports, returns, communications or
information produced by a professional accountant.

Certain safeguards may increase the likelihood of identifying or deterring unethical behaviour.
Such safeguards, which may be created by the accounting profession, legislation, regulation or an
employing organization, include, but are not restricted to:

• Effective, well publicised complaints systems operated by the employing organisation, the
profession or a regulator, which enable colleagues, employers and members of the public to
draw attention to unprofessional or unethical behaviour .

• An explicitly stated duty to report breaches of ethical requirements.

The nature of the safeguards to be applied will vary depending on the circumstances. In
exercising professional judgment, a professional accountant should consider what a reasonable
and informed third party, having knowledge of all relevant information, including the significance of
the threat and the safeguards applied, would conclude to be unacceptable.

Evaluation of Threats

In evaluating compliance with the fundamental principles, a professional accountant may be

required to resolve a conflict in the application of fundamental principles.

When initiating either a formal or informal conflict resolution process, a professional accountant
should consider the following, either individually or together with others, as part of the resolution
process:

(a) Relevant facts;

(b) Ethical issues involved;

(c) Fundamental principles related to the matter in question; (d) Established internal procedures;
and

(e) Alternative courses of action.

Course of Action

Having considered these issues, a professional accountant should determine the appropriate
course of action that is consistent with the fundamental principles identified. The professional
accountant should also weigh the consequences of each possible course of action. If the matter
remains unresolved, the professional accountant should consult with other appropriate persons
within the firm or employing organisation for help in obtaining resolution.

Where a matter involves a conflict with, or within, an organisation, a professional accountant

should also consider consulting with those charged with governance of the organisation, such as
the board of directors or the audit committee.

It may be in the best interests of the professional accountant to document the substance of the
issue and details of any discussions held or decisions taken, concerning that issue.

Testing your decisions

If a significant conflict cannot be resolved, a professional accountant may wish to obtain

professional advice from the relevant professional body or legal advisors, and thereby
obtain guidance on ethical issues without breaching confidentiality. For example, a professional
accountant may have encountered a fraud, the reporting of which could breach the professional
accountant's responsibility to respect confidentiality. The professional accountant should
consider obtaining legal advice to determine whether there is a requirement to report.

If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional
accountant should, where possible, refuse to remain associated with the matter creating the
conflict. The professional accountant may determine that, in the circumstances, it is appropriate to
withdraw from the engagement team or specific assignment, or to resign altogether from the
engagement, the firm or the employing organisation.

Communication

In deciding whether to disclose confidential information, professional accountants should consider

the following points:

(a) Whether the interests of all parties, including third parties whose interests may be affected,
could be harmed if the client or employer consents to the disclosure of information by the
professional accountant;

(b) Whether all the relevant information is known and substantiated, to the extent it is practicable;
when the situation involves unsubstantiated facts, incomplete information or unsubstantiated
conclusions, professional judgment should be used in determining the type of disclosure to be
made, if any; and

(c) The type of communication that is expected and to whom it is addressed; in particular,
professional accountants should be satisfied that the parties to whom the communication is
addressed are appropriate recipients.

Consequences of unethical behaviour

• Prison sentence
• Fines or repayments of amounts fraudulently taken
• Prevented from acting as an officer of a public entity in the future
• Being expelled by the professional accountancy body, &
• most importantly, loss of professional reputation.
Social Reporting
• Non-financial reporting
• Corporate Social responsibility
• Sustainability
• Environmental reporting

Non-financial reporting: A brave new world of reporting (linking numbers with narrative)

The operation of capital markets around the world has changed so fundamentally in recent
decades that the current model governing financial reporting has gone past its sale by date!
Also, important developments over recent years, such as the introduction of IFRS for listed
entities and other legislation regarding environmental and sustainability issues has highlighted
the changing needs of users (stakeholders).

What does "Corporate Social Responsibility" actually mean? Is it a stalking horse for an anti-
corporate agenda? Something which, like original sin, you can never escape?

A simple definition is that CSR is about how entities manage the business processes to produce
an overall positive impact on society.

At the end of the 1980s just three public listed entities issued environmental reports with their
corporate reports! However, in the past decade, increasing calls for improved corporate
transparency have emanated from: shareholder advocates in the United States; stock
exchanges in Johannesburg and Paris; governments in Denmark, France, the Netherlands, the
United Kingdom, and the European Union; the media; and just about every observer of
corporate governance worldwide. Without objective disclosure of corporate social and
environmental performance, investors, consumers and prospective employees are left guessing
when it comes to factoring these matters into their decisions. As well, the voluntary and
selective nature of corporate social responsibility (CSR) initiatives leaves onlookers in the dark
about how well entities are actually performing overall on such matters.

There is no single activity that will form the basis for a CSR strategy. Instead, an effective CSR
strategy requires a pairing of meaningful stakeholder engagement and an effective internal
management system. Such a system should include policies, targets, procedures, and
monitoring. But without a feedback loop, that system will ultimately fail.

Sustainability

Definition of sustainability: the process of conducting business in such a way that it enables
an entity to meet its present needs without compromising the ability of future generations to
meet their needs.

The Global Reporting Initiative (GRI)

Sustainability reporting is an integral component of any CSR management system. It is also a

major impetus for stakeholder engagement. However, there is no framework for sustainability
reporting as this reporting has always been voluntary. It is in this context that the GRI has
emerged as the facilitating force in building a new reporting infrastructure, designed to
complement rather than displace financial reporting. GRI is the steward of that infrastructure,
reporting guidelines that address the non-financial aspects of economic, environmental, and
social performance of organisations.

GRI is a long-term, multi-stakeholder organisation and process whose mission is to develop and
 disseminate globally applicable Sustainability Reporting Guidelines ("Guidelines"), most recently
revised and released in mid-2002. The Guidelines are designed to assist reporting organisations
and their stakeholders in articulating and understanding contributions of the reporting
organisations to sustainable development. Business, social and environmental advocates,
labour, the financial community, the UN, and other stakeholders worldwide collaboratively
developed the Guidelines.

"By offering a new framework for corporate reporting, the GRI has a unique contribution to
make in fostering transparency and accountability of corporate activities beyond financial
matters. "

Kofi Annan

Secretary-General, United Nations, April 2002

GRI strives to elevate sustainability reporting to exceptional levels of comparability, credibility,

rigour, timeliness, and verifiability of reported information. The GRI process, rooted in
inclusiveness, transparency, neutrality, and continual enhancement, has enabled GRI to bring
concrete expression to corporate responsibility.

By drawing thousands of partners and hundreds of organisations into its multistakeholder

process, GRI continues to work toward excellence of CSR disclosure, maximising the value of
reporting for both reporting organisations and users alike.

Benefits of Sustainability Reporting

In a systematic approach to CSR, a company does more than become involved in tree planting
and educational programs. Articulating a vision, setting policies and targets, and monitoring
performance are parts of an internally driven system. But CSR is focused on people and issues
outside the company as well. To gain more value, and to fully appreciate its stakeholders'
information needs, a company needs to go beyond internal management and put its CSR
performance record out for public scrutiny and discussion.

GRI guidelines

A sustainability report should include the following five sections:

• Vision and strategy: statement by CE a elaborating on the key elements of the report

• Profile: overview of the reporting entity's structure and operations and the scope of the
report to enable reader to understand and compare the information
• Governance structure and management systems: overview of entity's governance
structure, policies and management systems, including stakeholder involvement
• GRI content index: a table as required by Part C of the guidelines and where it is located
within the entity's report
• Performance indicators (KPI): a measure of the reporting organisation's impact or effect
integrated between three performance indicators:

ο Economic
ο Environmental
ο Social,

A management commentary must be included to explain the trends and any unusual events.
A recent KPMG survey (International Survey of Corporate Sustainability Reporting 2002)
indicated that businesses typically adopt sustainability reporting to:

• Reduce operating costs and improve efficiencies;

• Develop innovative products and services for access to new markets;
• Improve reputation and brand value;
• Recruit and retain excellent people;
• Gain better access to investor capital;
• Enhance the public value of the company;
• Reduce liabilities through integrated risk management.

As more entities release sustainability reports based on the Guidelines, users who know that
financial results tell only a portion of the story will have access to better information to make
better investment, purchasing, advocacy, and employment decisions, and "good" entities will
reap a host of internal and external benefits.

Over the next few years, sustainability reporting will become a fundamental method for
measuring, disclosing, and strengthening the contributions of business to sustainable
development. Correspondingly, sustainability reporting will become an essential component of
any integrated approach to corporate responsibility. In 2006, the UK government passed a bill
requiring mandatory reporting on an entity's social and environmental performance.

Environmental Reporting

Definition: disclosure of information in the corporate report of the effect that the operations of
the entity have on the natural environment.

Current Practice:

Currently, there is no disclosure requirement relating to environmental matters under IFRSs.

Consequently, any disclosures tend to be voluntary unless it is captured under standard
accounting principles (e.g. recognising liabilities -IAS37).

Publication format:

There are two main formats that entities use to publish their environment reports:

(a) included within their published annual report (part of CSR); or

(b) as a separate environmental report

IASB encourages the presentation of environmental reports if they will assist users in making
economic decisions; they are not mandatory!

Contents of environmental reports

This has evolved and improved over the last decade as entities see the unexpected benefits:
improving their reputation with huge cost savings e.g. BT purchased 12m litres of fuel a year
(2006) less than it would have done, resulting in 54,000 tonnes less carbon dioxide being
generated in the UK .
A typical environmental report produced by a "dirty" entity will cover the following issues:

• use of energy
• pollution
• waste management
• benefits of entity's products on the environment

The contents of a “good” ER should cover the following areas:

Non-financial information:

• policy towards environment

• risks to environment from its operations
• system for managing environmental risks
• effect of any government legislation on its operation and entity's response
• ability to respond to any major environmental disasters and an estimate of economic
consequences
• details of any significant infringement of environmental legislation or regulations, including
any material environmental legal issues
• details of key indicators (KPls) of environmental performance.

Financial information:

• accounting policies relating to environmental costs, provisions and contingencies

• amount charged to profit or loss (legal or otherwise)
• environmental expenditure capitalised during the financial year
• details of any provisions or contingent liabilities relating to environmental matters
• details of fines, penalties and compensation paid during financial year due to non-
compliance

Financial reporting for environmental costs

Definitions

Environmental costs: these include environmental measures and environmental losses.

Environmental measures: costs of preventing, reducing or repairing damage to the

environment and cost of conserving resources (capital expenditure,
closures/decommissioning/clean-up costs, development expenditure and costs of
recycling/conserving energy.

Environmental losses: Costs with no benefits to the entity.

IAS37 "Provisions, contingent liabilities and contingent assets" provides guidance for dealing
with environmental liabilities
Environmental Reporting: Glossing over the issue
Climate change may be a hot topic on a personal level, but business environmental awareness
is lagging far behind.

Rachel Fielding, Accountancy Age, 05 Jul2007

On a personal level, the nation's obsession with climate change has reached an all-time high.
Just last month the government launched an online calculator that allows you to work out your
own carbon footprint and compare yourself to the national average of more than four tonnes.
Never mind the tie-dye and home-grown veg, proving your green credentials has brought out a
whole new competitive streak in today's eco-warriors.

For business, though, reporting on environmental impact has been patchy, a situation not
helped by confusing legislation, a lack of standards and widespread ignorance, despite the
emergence of a-whole consulting industry dedicated to helping the corporate world gain a
competitive edge and deliver value by responding to the green agenda.

When in November 2005 Gordon Brown announced that the government would not go ahead
with plans to require the 1,300 largest companies in the UK to produce an Operating and
Financial Review, green campaigners warned of a sidelining of environmental issues and a step
back for environmental reporting, even though the requirement to produce a Business Review,
introduced in April 2005, remained.

The OFR had been the result of several years of consultation with business, investors, NGOs
and regulators around how to encourage meaningful exchange with financial markets on non-
financial issues. Brown's u-turn hinged on the idea that the requirements amounted to
regulatory 'gold plating', but more than a year and a half on, meaningful business reporting on
green issues is still pretty much a pipe dream.

'If you compare the OFR with the Business Review at a high level, the requirements for listed
companies are not very different,' explains Frances Tangye, an adviser in the risk and
sustainability team at KPMG. ‘The OFR was very prescriptive, but the Business Review allows
companies to say what's right for them rather than simply box ticking. The good thing is you only
put in the risks relevant to your company, rather than covering everything to avoid being
criticised.'

One issue facing companies is knowing which key performance indicators to focus their efforts
on, although advice from various sources is freely available (both DEFRA and the Global
Reporting Initiative suggests KPls for environmental reporting). In reality, it's the cultural issues
that have proved the most challenging to business.

Cultural Issues

'Companies' risk management processes tend to be quite internally focused information about
their environmental impact is not something many want to share externally,' says KPMG's
Tangye. 'It's a big culture change requiring cross-functional communication around risk, policy
and performance measures. A lot of performance measures are still finger in the air and need
more rigueur behind them.'

The good news is that most companies now recognise that there are sound business reasons
for tackling green reporting head on - 92% of respondents to a survey by corporate reporting
agency Black Sun, published last week, said they felt increased transparency in the narratives
of their company reports had improved investors and
analysts' understanding of the company's strategy and performance, while enhancing their
reputation in the investment community.

But not everyone remains convinced that their efforts are anything more than greenwash. Neil
Mclndoe, head of business development at environmental consultancy Trucost, believes too much
environmental reporting today consists of 'huge tomes with nice pictures', but little in the way of
hard facts and figures. 'If it's clarity, openness and comparability of data you are looking for, you
have got a hard search on your hands: he says.

Similarly, Hannah Griffiths, corporates campaigner at Friends of the Earth, says: 'For a credible
multinational company, it would be very difficult for them not to produce a social and environmental
report. There's a general expectation from shareholders, NGOs and society as a Whole. But
overall, it's still very much a PR exercise. What motivates companies is not wanting to improve
their social and environmental performance, it's a desire to show people they're doing something.'

Griffiths also criticises a lack of standards for rendering reports almost useless. There's no
shortage of guidance on what to report, but how to report it is a totally different matter. 'How do you
make a comparison between Shell and BP, for example, when they report in such different ways.
There are guidelines on which KPls companies should report on, but how do you know it's a full
and comprehensive picture when companies can provide the information they choose.'

Friends of the Earth believes a tougher stance from government is the only way to spur companies
into producing meaningful and comparable data. 'These reports need to be subject to the same
standards and rigueur as financial reports, and the government needs to set year-on-year targets
to force companies to reduce emissions rather than relying on the market to do what's right.'

For those companies stalling due to the perceived cost and effort of the process, Trucost's
research found that putting together an environmental report isn't as onerous as many companies
might think. It found that 80% of UK companies would have to report on five or less KPls. 'If they
take something like C02 emissions and waste water, put a figure for this year and a target for next
year, that would be far more useful for shareholders and the financial community,' Mclndoe says.

Consumer concern over global warming has increased dramatically over the last six months,
according to a study conducted by Oxford University's Environmental Change Institute, but two out
of five consumers consider it the government's-responsibility.

No escape

Emma Griffiths, an associate at global environmental consultancy WSP Environmental, isn't so

sure that sticks are the answer. 'If you introduce a lot of regulation, it stifles the innovation of
companies. Setting out minimum standards allows for more interesting narrative reporting. I don't
think companies can get away with greenwash anymore because stakeholders and customers are
too interested in these issues.'

An enhanced version of the Business Review for listed companies comes into force in October this
year, as part of the 2006 Companies Act. For the first time, directors' duties have been codified
and include the requirement to report on the impact of the company's operations on the
environment. The Act will also make it much easier for shareholders to sue directors for breach of
duty.

But if the ultimate goal is to make UK business 'greener', even environmental optimists struggle to
give anything but a cautious outlook. 'Legislation is a big stick, but ultimately it's customers,
shareholders and employees that will drive the green agenda forward,' says Tangye.
'today's reporting requirements aren't making businesses behave in a more environmentally
conscious way: says Griffiths at Friends of the Earth. 'Until they move beyond a report of the
impact to a report on how they’ve addressed their impact, nothing will change.
Hannah Griffiths
Green Reporting: No where to hide
Government must push for standards on Green reporting
Accountancy Age,05 July 2007

Society should be able to hold companies accountable for their social and environmental impacts.
For this to happen, it is essential that shareholders, employees, communities and pressure groups
can access information about company activities.

The government has signaled, through the Business Review and the Companies Act, that publicly
listed companies should produce social and environmental reports - a good and very welcome step
won after a hard campaign by the CORE (corporate responsibility) coalition. This legislation will
force companies that are not already producing reports to begin from this autumn.

But we need to ask how meaningful these reports will be? In the absence of clear statutory
standards for reporting, and without auditing requirements, there is a danger that reports will just
be used to check the legal requirement box or as a PR tool.

In January, an Accounting Standards Board report showed that the contents of the narrative style
reports that companies are issuing lack clarity. Many failed to reveal any risks associated with
supplier relationships. They also lacked an understanding of the key performance indicators to be
included.

For example, most of the main oil companies produce social and environmental reports that
include emissions information on their positive initiatives and discussion of some of the thorny
environmental campaigns the company is facing.

But without a statutory standard it is very difficult to make a meaningful comparison between
companies. And without performance indicators it is difficult to assess the progress a company is
making.

Financial reporting has been standardised so that shareholders and others can review a
company's financial management in a meaningful way. The same cannot be said of social and
environmental reporting.

With a few exceptions, the motivation to produce these reports generally stems from a desire by
the company to present an environmentally sound image. They are not produced because they are
vitally important to the company.

Companies can make a profit from operating in a sustainable way. They can also make a profit
from operating in a very destructive way. Yet their reports can easily be spun so that this is
downplayed or not properly reflected. It's up to government and shareholders to demand
meaningful standardised reports from companies. Without them, transparency in corporate
behaviour is a long way from being a reality.

FTSE index launches climate change criteria

Businesses that fail to develop strategies to limit their greenhouse gas emissions could find it
harder to attract investment capital after the FTSE Group last week launched new criteria for its
CSR index that will exclude firms that fail to do enough to tackle climate change.

The new criteria were added to the increasingly influential FTSE4Good Index, which just
celebrated its fifth anniversary and provides real-time indices designed to reflect the performance
of socially responsible equities and offer investors an independent way of identifying companies
with good CSR records.
The criteria - which oblige firms to disclose their GHG emissions, and develop and successfully
execute policies for reducing emissions - will be rolled out over the next two years with the first
deadline for compliance coming in January 2008.

The new standards will initially effect just over 250 of the companies on the index which have been
identified as having the highest impact on climate change, such as-energy, oil and gas, mining and
aerospace firms. The FTSE Group said that of these companies less than 50 would currently meet
the criteria and as such it will work with them to ensure they are aware of the changes required.

The organisation also said that these criteria were just a "first step" and indicated that it planned to
introduce far more stringent criteria - such as insisting companies publish a GHG reduction target
and develop strategies to limit suppliers' emissions - and extend them to cover other medium
impact industries such as consumer electronics and house builders.

Mark Makepeace, chief executive of FTSE Group said the move highlighted the company's
commitment to keeping the criteria governing the FTSE4Good Index Series in line with CSR best
practice. "Climate change is an important issue for companies and investors alike, and investors
understand these criteria will make an important contribution to helping companies manage their
risks," he said.

Mark Kenber, policy director at The Climate Group, which helped with the development of the
criteria argued that not only would they help drive climate change concerns further up the business
agenda but they could also help deliver business benefits to those firms that comply with the
standards. 'We believe incorporating sustainable behaviour into business practice will deliver long
term benefits to stakeholders," he said. "Clearly a lot of companies will have to work hard to meet
these new criteria but we are convinced that their efforts will bring positive impacts, both economic
and environmental."

Inclusion on the index is increasingly highly regarded by investors, according to a spokesperson

for the FTSE Group. "One company recently said that it was contacted by 38 different fund
managers when they entered the index," she said.

In related news, the US-based Ceres group of environmentally sustainable investors this week
attempted to drive global warming further up the investment agenda with the publication of a flew
Climate Watch list designed to name and shame those firms that fail to respond to shareholder
inquiries about their climate change policies.

The first ten companies on the list are: banking giant Wells Fargo; energy firms TXU, Dominion
Resources, and Allegheny Energy; coal companies Massey Energy and Consol Energy; oil and
gas giants ExxonMobil and Conoco Phillips; insurance firm ACE; and retail firm Bed Bath &
Beyond.

New York City Comptroller William Thompson Jr., whose office filed resolutions with electric power
and coal companies for them to release their climate change policies, said that climate change
now posed a significant business risk and that investors needed to know what firms were doing to
tackle the problem in order to make informed investment decisions.

"Companies in every industry, especially energy sectors, must act now to assess and mitigate
climate change risks,” he said. “To enable investors to make informed investment decisions,
companies must provide full and transparent disclosure of the actions they are taking to address
the risks and opportunities of climate change."

The latest developments further underline the growing importance of environmental issues to
institutional investors and come just days after an ethical investment fund from the Co-op was
judged to be the best performing unit trust in the UK last year
Accounting for sustainability: future proof

The accounting for sustainability project means the profession can make a real difference

Sir Michael Peat, Accountancy Age, 05 Jul 2007

One ton of carbon dioxide is presently trading on European markets at about £10. A hectare of
rainforest stores about 500 tons and therefore has a potential value of £5,000;

but, as the New York Times recently pointed out, millions of hectares of rainforest are being cut
down to create agricultural land worth £100 a hectare.

Why are we allowing people to be deprived of their natural habitats, biodiversity to be diminished
and climatic catastrophe to be hastened, and all at a loss of £4,900 a hectare? There are no easy
answers, but I am sure that part of the blame, and more importantly of the solution, is down to us
accountants.

The Prince of Wales said in a speech at the Institute of Chartered Accountants, to celebrate its
125th anniversary in 2005, that our knowledge of the complexities of life and the consequences of
our actions is now far greater, but that the accountancy profession has yet to provide a mechanism
to allow us to assess and quantify these newly apparent complexities and consequences.

As His Royal Highness put it: 'Your profession is one of the key pillars of our economic stability and
prosperity, but to ensure that our descendants can experience something of that stability and
prosperity there is a very real urgency to adapt our accounting procedures to the critical challenge
of minimising the wasteful damage done to the fragile world around us through man's increasingly
short-term perspective.'

He concluded by saying that unless a practical and robust system can be developed to enable
broader and longer-term factors to be taken into account more effectively in accounting and
decision making, the world will continue to live off capital rather than income, and what we enjoy
today will be at the expense of our children and grandchildren.

Accountants, for good reasons, have generally been more comfortable dealing with the readily
quantifiable, and we have tended to handle the future with reluctance and wearing rubber gloves;
but we have now reached the point when further costs and benefits need to be accounted for. Life
has become more complicated and as a result there are more effects and consequences that need
to be accounted for.

Surely, for example, the value of dwindling natural resources, and the cost of increasing
atmospheric pollution, should be included in the price of what we buy and consume? At the
moment these costs often do not appear in anyone's books. Apparently therefore the cost of
draining a wetland, destroying a rainforest or pumping tons of carbon into the atmosphere is zero.
Almost all of these costs, for which future generations will pay dearly, are given no value in
accounts.

These are the issues that The Prince's Accounting for Sustainability Project- has been established
to address. The project has daunting objectives, but it has attracted considerable support and has
already had sufficient impact for the Institute of Chartered Accountants in England and Wales to
make His Royal Highness their first honorary member.

The project has two main elements: 'embedding sustainability' and 'reporting sustainability'. The
business world knows

that sooner rather than later it has to get a grip on the inescapable implications of sustainability.
But at the moment companies and organisations often lack the internalprocesses which would
make sustainability a natural part of strategy and day-to-day management.
They also often lack the reporting model which would ensure that sustainability takes its place
alongside other important information that investors, employees and consumers want and need to
see.

Governments and large companies have announced ambitious programmes to address climate
change and sustainability, and have established commissions and committees to consider and
report on these issues but to help realise these objectives more needs to be done to provide day-
to-day decision makers, whether managers or consumers, with the tools and information to take
suistainability into account more consistently. People and managers are concerned about climate
change and sustainability but they lack the tools and information to get on and tackle the
challenge.