For companies whose financial years began on or after 1 April 2005 the mandatory Operating and Financial Review is being replaced by the simplified Business Review in line with the requirements of the European Union Accounts Modernisation Directive.

Gordon Brown scrapped the OFR at the end of November following intense lobbying from the business community. And despite a legal challenge by Friends of the Earth, which accused the government of acting unlawfully when doing so and led to the consultation being reopened, few believe the Business Review will be affected.

The Business Review will retain the narrative reporting required by the OFR and companies should employ financial and non-financial key performance indicators (KPIs) relevant to the particular business. This includes details on employee issues and environmental issues. Director General of the CBI Sir Digby Jones believes that “whether you are a plc or a large private company you will need to report to investors on how environmental issues will affect your profitability”. Indeed, every company could benefit from producing a detailed Business Review.

The Kyoto protocol, which came into force on 16 February 2005, imposes a legally binding greenhouse gas reduction target on the UK of 12.5% by 2008-12. The Environment Agency estimates that the British manufacturing industry could save 7%, equivalent to £2bn to 3bn, a year by adopting best practice waste minimisation.

To help companies achieve such goals, the Department for the Environment Food and Rural Affairs (DEFRA) has published guidelines on 22 KPIs which companies should use to help produce their Business Review. KPIs should be measurable and, therefore, quantitative in nature, but, in addition, a general narrative should accompany them explaining their purpose and impact.

The four general topics for KPIs are: emissions to air; emissions to water; emissions to land; and resources.

To compile the report on KPIs companies are advised to:

• Classify the sector of the company;

• Assess direct KPIs;

• Assess indirect KPIs; and

• Measure and report on KPIs.

The government expects businesses to report on the significant environmental impacts whether they are caused by direct or indirect means. In simple terms this means the emissions caused, or the resources used by a company, would be classed as “direct impact”, with everything else falling into “indirect impact”.

However, as purchased electricity and water can be considered indirect impacts, the government feels that responsibility for these should be shared. For example, an electricity generating company can reduce its carbon use (direct impact), while a company which purchases that electricity can improve its energy efficiency (also direct impact). In this example, both companies could improve their performance by directly reducing emissions.

The 22 KPIs are:

Emissions to air

• Greenhouse gases: Certain gases which increase the Earth’s surface temperature, such as methane and nitrous oxide;

• Acid rain, eutrophication and smog precursors: Emissions into the air, which are dispersed over great distances via rain, snow or smog;

• Dust and particles: Matter that can be inhaled, such as particles emitted from vehicles;

• Ozone depleting substances: Substances that are harmful to the Earth’s atmosphere, such as hydrochloroflurocarbon used in air conditioning systems, but are often only emitted into the environment by accident;

• Volatile organic compounds: A group of chemicals that evaporate when exposed to air. They are commonly used as cleaning agents and degreasers, but are also a by-product of fossil fuel combustion;

• Metal emissions to air: These can be emitted through burning coal or oil.

Emissions to water

• Nutrients and organic pollutants: Waste such as human sewage, oil and contaminants discharged into bodies of water;

• Metal emissions to water: Discharges of metal waste which can poison the aquatic environment.

Emissions to land

• Pesticides and fertilisers: Distributed predominantly on farmland to increase production and limit damaging affects to crops;l Metal emissions to land: Can be found in sewage sludge, which is used as a fertiliser, but is extremely toxic to certain types of agriculture;

• Acids and organic pollutants: Any process which uses oil-based fuels can leave a discharge as well as spillages;

• Waste (landfill, incinerated and recycled): Waste incineration is a significant source of renewable energy. However, it produces vast amounts of carbon dioxide;

• Radioactive waste: A by-product of nuclear fuel and production of electricity.

Resource use

Most of these resources are considered non-renewable and their continued extraction will lead to their depletion. The extraction itself can also have detrimental effects on the environment.

• Water use and abstraction: Due to climate change, depleting water resources are a concern ­ companies should use water more efficiently and reduce waste, such as sewage and chemical companies;

• Natural gas: Ethane which can be refined and turned into liquid gas;

• Oil: fossil fuel;

• Metals: The most commonly used are gold, silver and aluminium;

• Coal: Fossil fuel, used as an energy source;

• Minerals: Diamonds, salt and graphite;

• Aggregates: Crushed stone, sand and gravel;

• Forestry: The harvesting of wood products, although considered a renewable resource, over-exploitation can lead to depletion;

• Agriculture: Including meat and fish.

The guidelines have been designed as far as possible to be compatible with other reporting guidelines and frameworks. Each industry sector will need to report on a maximum of 10 KPIs with most (80%) reporting on five or fewer. “Companies that understand their links with the communities they operate in and their impact on the environment are most likely to prosper in the long-term,” says Sir Digby.