.
.
Investors Want to see the Corporate Colour they Invest In
Australia's Business Review Weekly magazine, November 18, 1996 saw Crispin Wood report that "Public companies jeopardies shareholder funds if they do not meet community expectations of environmental management. Investors have become acutely aware of the risks. BHP has agreed to spend $500 million improving environmental controls and compensating villagers at its Ok Tedi copper mine in Papua New Guinea. In Australia, the state regulators have become more aggressive and more willing to impose fines." The article goes on to reveal that a study by the Institute of Chartered Accountants, Corporate Reporting - the Green Gap, only 24% of the companies surveyed disclosed environmental information in their annual reports (about half of these in the environment-sensitive mining industry). Yet 67% of the users of annual reports,including shareholders and institutions, seek out this information. Critically, only 31.3% of stockbrokers and analysts believe they can make use of the information. Crispin Wood quotes, the chief executive of Ecobusiness Consultants, Lou de Leeuw, as saying:"There are two major gaps. One is to do with the preparers of reports. They don't think it is important, but their shareholders do. The other group is investment advisors, who don't seem to realise it is important to the people they advise." De Leeuw says this gap gives stockbrokers an opportunity to differentiate their research from that done by rivals. "I have had talks with stockbrokers who say that shareholders are only interested in financial performance, return and security, but this report contradicts that. Analysts say that if they did have the information they couldn't interpret it. That is true as well because they haven't trained themselves. They have trained themselves as being financial analysts in a very limited area." In the article Crispin Wood recounts what Lou de Leeuw says about the attitude of brokers reminding him of the conservatism displayed in the accounting profession. "I was in an accounting practice and we were trying to move away from tax compliance work. We were trying to do value-adding work, and I was presenting this to my colleagues, who argued that clients did not want it, and had never asked us for it. I can guarantee that most of the clients I had in my accounting practice were because I could do value-added, not because I was a good tax agent. No client ever left me because I was doing more for them." Overseas, there is probably a greater awareness in the investment community of environmental issues, and certainly a greater demand for ethical investment vehicles. De Leeuw's company works for two fund managers, one based in Switzerland and the other in the United States, reviewing the environmental credentials of Australian companies that are being considered as investment prospects. The executive director of the Institute of Chartered Accountants in Australia, Stephen Harrison, is quitted by Wood saying: "It is clear that pressures are growing on organisations to behave as responsible corporate citizens, and it is equally clear that some businesses are responding to the environmental challenge." At one level, greater disclosure of environmental risks, practices and policies increases the risks faced by directors, who are already burdened by liabilities associated with increased community expectations of the performance of fiduciary duties. If a board says one thing in an annual report but is later found not to have complied with its policy - and losses are suffered as a result - a shareholder may have grounds for legal action against the directors. Indeed, a minority of the users of annual reports surveyed by the institute saw greater environmental disclosure only as a threat. A large number saw it as both a threat and an opportunity. However, most respondents believe that it is an opportunity only Wood goes on to report. Wood in his article again quotes De Leeuw saying that greater openness will save companies money in the long run. He points to a recent case in Adelaide in which the plastic and rubber automotive parts manufacturer Bridgestone Australia faces estimated fines of up to $1 million over toxic leaks at its Edwardstown plant. Although the bulk of the potential liability relates to fines for environmental damage, up to $120,000 stems from the company's failure to inform the South Australian Environment Protection Authority about the problem. Bridgestone did not warn surrounding residents that toxic waste had leaked into the groundwater system until two years after the spill, although the company has argued it was not until then that the chemicals had spread beyond the boundaries of the plant. De Leeuw says: "The experience overseas is, the more companies report, the more people feel comfortable and make their own assessments about whether the company is a good environmental risk. If you don't tell them anything, then great suspicions lurk." Wood continues by pointing out that the the institute's report, prepared by its environmental taskforce with Michaela Rankin of the University of Southern Queensland commerce faculty, has recommendations to develop voluntary guidelines on corporate disclosure. Taskforce recommendations include releasing a discussion paper that analyses issues such as existing disclosures and possible reporting guidelines, along with a joint program with other professional bodies to lift awareness among accountants. Wood reports that the Taskforce plans to act quickly, selecting mid-1997 as the target date for publishing voluntary guidelines. It believes that these should cover the definition, measuring and auditing of key environmental performance indicators, including liabilities and assets, for inclusion in the annual report. The taskforce says the needs of institute members are better served by such guidelines than by government regulation. The article concludes with Wood quoting De Leeuw, saying the demand from market participants, led by broking analysts, will ultimately bring new guidelines. "Brokers claim they will lose clients if they start being known as green stockbrokers. But I think this survey shows that the overwhelming majority of investors want this information, and brokers will only gain clients."
