PUBLIC ACCOUNTS AND ESTIMATES COMMITTEE · Professor Craig Deegan, Professor of Accounting, Faculty...

PUBLIC ACCOUNTSAND ESTIMATES COMMITTEE

ISSUES PAPER

FOLLOW-UP INQUIRY INTOENVIRONMENTAL ACCOUNTINGAND REPORTING

JUNE 2000

Public Accounts and Estimates Committee

Table of Contents

TABLE OF CONTENTS

PUBLIC ACCOUNTS AND ESTIMATES COMMITTEE MEMBERSHIP......... 1

BACKGROUND........................................................................................... 3

PROPOSED TIMETABLE FOR THE INQUIRY .............................................. 4

HOW TO MAKE SUBMISSIONS ................................................................ 4

TERMS OF REFERENCE .............................................................................. 7

CHAPTER 1 INTRODUCTION................................................................... 9

CHAPTER 2 NATIONAL ENVIRONMENTAL ACCOUNTING................. 11

2.1 Quality of life; satellite accounts............................................... 11

2.2 Committee’s previous recommendations and subsequentdevelopments .............................................................................. 12

2.3 Issues............................................................................................. 14

CHAPTER 3 STATE OF THE ENVIRONMENT (SOE) REPORTING......... 15

3.1 State of the Environment reporting ......................................... 15

3.2 Management of SoE reports ...................................................... 17

3.3 Environmental indicators .......................................................... 21

3.4 Local government ....................................................................... 26

3.5 Committee’s previous recommendations ............................... 27

3.6 Government response ................................................................ 29

3.7 Issues............................................................................................. 29

CHAPTER 4 COMMISSIONER FOR ECOLOGICALLY SUSTAINABLE

DEVELOPMENT ................................................................. 35

4.1 Background.................................................................................. 35

4.2 Australian Capital Territory...................................................... 36

4.3 Canada (Federal Government) ................................................. 38


4.4 Province of Ontario (Canada) ................................................... 41

4.5 New Zealand ............................................................................... 43

4.6 Options for a Victorian Commissioner for EcologicallySustainable Development .......................................................... 45

4.7 Issues............................................................................................. 52

CHAPTER 5 ENVIRONMENTAL ACCOUNTING .................................... 53

5.1 Accounting for environmental impacts................................... 53

5.2 Financial accounting and the accounting profession ............ 54

5.3 Management accounting ........................................................... 56

5.4 Corporations law ........................................................................ 58


5.6 UNCTAD environmental accounting guidelines .................. 61


5.8 Issues............................................................................................. 62

CHAPTER 6 PRIVATE SECTOR ENVIRONMENTAL PERFORMANCE

REPORTING ........................................................................ 65

6.1 Victorian and Australian legal requirements ......................... 65

6.2 Frameworks: ESD, Agenda 21, EMS........................................ 66

6.3 Incentives for reporting ............................................................. 69

6.4 Disincentives for reporting........................................................ 70

6.5 Process for developing reports: Australian guidelines........ 71

6.6 Sectoral reports compared with universal reports ................ 73

6.7 Voluntary versus mandatory reporting .................................. 75



Table of Contents

6.10 Issues............................................................................................. 77

CHAPTER 7 PUBLIC SECTOR ENVIRONMENTAL REPORTING............. 79

7.1 Environmental improvement plans......................................... 79

7.2 Committee's previous recommendations ............................... 80


7.4 Issues............................................................................................. 82

CHAPTER 8 ENVIRONMENTAL AUDITING AND VERIFICATION ........ 85

8.1 Stakeholder trust in environmental reports; role of theaccounting profession ................................................................ 85

8.2 Accrediting auditors and verifiers ........................................... 87

8.3 Levels of verification .................................................................. 89

8.4 Committee's previous recommendations ............................... 90


8.6 Issues............................................................................................. 91

CHAPTER 9 ENVIRONMENTAL LEVIES................................................. 93

9.1 EPA Environmental Levies in Victoria.................................... 93

9.2 New South Wales local government environmental levies . 94

9.3 OECD on environmental taxes and levies .............................. 94

9.4 The use of environmental levies............................................... 95

9.5 Drivers and barriers for environmental levies ....................... 97

9.6 Issues............................................................................................. 99

APPENDIX SUMMARY OF THE CORE INDICATORS FOR REPORTING

ON THE STATE OF THE ENVIRONMENT ......................... 101

GLOSSARY ............................................................................................. 107

ACRONYMS............................................................................................ 109

BIBLIOGRAPHY ...................................................................................... 111

Committee Membership

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PUBLIC ACCOUNTS AND ESTIMATES COMMITTEEMEMBERSHIP

Mr P. Loney, MP (Chairman)

Hon. W. Forwood, MLC (Deputy Chairman)

Hon. L. Asher, MP

Ms A. Barker, MP

Ms S. Davies, MP

Hon. R. Hallam, MLC

Mr T. Holding, MP

Mrs J. Maddigan, MP

Hon. G. Rich-Phillips, MLC

Hon. T. Theophanous, MLC

This Inquiry will be undertaken by a Sub-Committeecomprising the following Members:

Hon. G. Rich-Phillips, MLC (Chairman)

Hon. W. Forwood, MLC

Mr P. Loney, MP

Hon. R. Hallam, MLC

Hon. T. Theophanous, MLC

Staff:

Executive Officer: Ms M. Cornwell

Research Analyst: Mr J. Knowles

Specialist Adviser:

Professor Craig Deegan, Professor of Accounting,Faculty of Commerce, University of Southern Queensland


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Background

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BACKGROUND

In March 1998, the Public Accounts and Estimates Committeeundertook an inquiry into environmental accounting andreporting. Issues Paper No. 3 and the Interim Report, which wastabled in June 1999, contained 36 recommendations.

The Government's response to the report indicated, in broadterms, support for a number of the Committee’s recommendationsincluding:

� the re-introduction of State of the Environment reporting;

� the implementation of public sector environmental reporting;and

� the encouragement of reporting by the private sector.

In addition, the government advised they will legislate to establisha Commissioner for Ecologically Sustainable Development.

This follow-up inquiry will review: the legislative framework toestablish a Commissioner for Ecologically SustainableDevelopment; progress made by government agencies inimplementing many of the Committee’s earlier recommendations;and examine the associated matter of environmental levies.

The purpose of this Issues Paper is to provide a brief overview ofmatters the Committee will be addressing during this Inquiry.

This Issues Paper builds on the Interim Report of the Inquiry intoEnvironmental Accounting and Reporting. A copy of this report canbe obtained from the internet site:http://www.parliament.vic.gov.au/paec/rep3.pdf or bycontacting the Committee's secretariat.

http://www.parliament.vic.gov.au/paec/rep3.pdf


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PROPOSED TIMETABLE FOR THE INQUIRY

June 2000 Release the Issues Paperfor public comment

31 July 2000 Final date for submissions

August/September 2000 Public hearings by theSub-Committee

November 2000 Sub-Committee to considera draft report

November 2000 Full Committee to considerthe draft report

November 2000 Final report tabled inParliament

HOW TO MAKE SUBMISSIONS

The Sub-Committee would like to hear from anyone with a viewon the issues outlined in this paper.

Throughout the paper, questions have been posed to assist you inmaking submissions. The questions are numbered with a letter –for instance Questions A1 to A5 are in Chapter 2, B1 to B19 inChapter 3 and so on. Do not feel you have to answer all thequestions – a response to just two issues will be welcomed asmuch as a comprehensive submission.

Submissions can be sent by mail, email or facsimile. The Sub-Committee is interested in facts, opinions, arguments orrecommendations that relate to the terms of reference and issuesraised in this paper. All submissions will be acknowledged.

Background

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Please include in your submission:

� Your name or the name of your organisation;

� Your postal address;

� Telephone number;

� Facsimile number (if applicable);

� Email address (if applicable).

It would be appreciated if organisations also indicated the nameand position of a contact person.

The closing date for submissions is 31 July 2000.

Submissions should be sent to:

Executive OfficerPublic Accounts and Estimates CommitteeLevel 8, 35 Spring StreetMelbourne 3000, Victoria, Australia

Telephone: (03) 9651 3551

Facsimile: (03) 9651 3552

Email: [email protected]

Internet: http://www.parliament.vic.gov.au/paec

mailto:[email protected]

http://www.vicnet.au/~paec


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Terms of Reference

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TERMS OF REFERENCE

1. Review the proposed role and objectives of theCommissioner for Ecologically Sustainable Developmentand seek advice on:(a) comparable positions in other jurisdictions; and(b) resourcing and reporting arrangements.

2. Develop a framework for legislation for:(a) State of Environment reporting; and(b) the Commissioner for Ecologically Sustainable Development.

3. Follow up outstanding issues raised in the Interim Reporton Environmental Accounting and Reporting, and report ondevelopments in relation to the following matters:(a) methodologies and standards for environmental

accounting and environmental reporting;(b) environmental indicators for environmental

accounting and reporting;(c) verification processes for environmental accounting

and reporting;(d) consistency of reporting environmental impacts in

financial statements at the international, national,Victorian, regional and local government levels;

(e) consistency in reporting by private enterprise togovernment agencies; and

(f) the rate of adoption, by private enterprise, ofenvironmental reporting and environmentalmanagement systems in Victoria.

4. Investigate the role of environmental levies and chargesin public environmental management.


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Chapter 1 Introduction

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CHAPTER 1 INTRODUCTION

Many countries have agreed to initiate policies to enhance thequality of information used in environmental decision making.These initiatives have included:

� 178 countries, including Australia, have agreed to developaccounts that integrate environmental and economicaccounting; 1

� a number of European and Asian countries have developedfinancial systems that integrate ecologically sustainabledevelopment into government decision making; 2

� Canada and New Zealand have appointed Commissioners forthe Environment; 3

� Australia has developed a National Strategy for EcologicallySustainable Development, which seeks to integrate economic,environmental, social and equity considerations intogovernmental decision making; 4

� the Australian Bureau of Statistics has commenced issuingstatistical reports on environmental indicators;

� the accounting professions have issued discussion papersadvocating the development of environmental accounting,which in part would involve the estimation and publicreporting of environmentally-related liabilities and financiallymaterial environmental events; 5

� a National Pollutant Inventory has been set up; 6 and

1 Public Accounts and Estimates Committee, Interim Report of the Inquiry into Environmental

Accounting and Reporting, Parliament of Victoria, Melbourne, 1999, p.30.2 Ibid, p. 29.3 See websites: http://www.oag-bvg.gc.ca/domino/cesd_cedd.nsf/html/menu_e.html and

http://www.pce.govt.nz4 Commonwealth of Australia, The National Strategy for Ecologically Sustainable Development,

Australian Government Publishing Service, Canberra, 1992.5 The Environmental Accounting Taskforce, The Institute of Chartered Accountants in Australia, The

Impact of Environmental Matters on the Accounting Profession: Discussion Paper, ICAA, Sydney,1998, p.11, states ‘the Environmental Accounting Task Force is of the opinion that environmentalimpacts, whether quantifiable in monetary terms or not, warrant some form of disclosure to theextent that the environmental implications are deemed significant. Through greater disclosure,organisations will be able to offer greater accountability.’

6 Public Accounts and Estimates Committee (PAEC), 1999, op cit, p. 47


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� the Commonwealth, and most States and Territories, now issueState of the Environment Reports. 7

In the private sector, the International Standards Organisation ispreparing standards for the accounting profession to coverenvironmental management systems.8 Dow Jones and Westpachave established environmental portfolios. 9

It is against this background that this Follow-Up Inquiry is takingplace.

7 Ibid, chapter 4.8 ‘GRI and ISO’, Environmental Accounting and Auditing Reporter, vol. 5, no. 3, March 2000, pp.4-5.9 Shaun Mays, Managing Director, Westpac Financial Services, speech to EPA/UNEP Financial

Services Conference, Melbourne, 21 – 22 February 2000.

Chapter 2 National Environmental Accounting

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CHAPTER 2 NATIONAL ENVIRONMENTAL

ACCOUNTING

2.1 Quality of life; satellite accounts

The quality of life of Victorians is reflected through economic,social and environmental indicators, for example, Gross DomesticProduct (GDP), and the level of community satisfaction withenvironnmental matters. The accounting systems for economicdevelopment, such as GDP, need to be extended to environmentalissues. A set of physical environmental accounts, satelliteaccounts, convey more information for decision makers about thestate of the environment than dollar figures. 10

The United Nations, the European Union and several individualEuropean countries have developed systems to show what is beingdone to manage its natural resources (such as forests) and accountfor environmental expenditure (see the Interim Report of the Inquiryinto Environmental Accounting and Reporting for details).

In Australia, the Australian Bureau of Statistics is taking a leadrole in developing a system which integrates environmentalinformation into national accounts. They have prepared nationalphysical accounts for energy, water, forests, fish and minerals, andstatistics on Environmental Protection Expenditure. 11

10 Public Accounts and Estimates Committee (PAEC), 1999, op cit chapter 3.11 Ibid, pp. 30-31.


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2.2 Committee’s previous recommendations andsubsequent developments

In 1999, the Public Accounts and Estimates Committeerecommended that:

3.1 The Victorian Government support thedevelopment of a national system of satelliteaccounts by the Australian Bureau of Statistics.

3.2 The Victorian Government consult with theAustralian Bureau of Statistics and other relevantstakeholders on the feasibility of developingsatellite accounts for Victoria.

3.3 The Government ensure that data collected forVictorian satellite accounts is comparable withdata collected by the Australian Bureau ofStatistics relating to other states.12

The Government has made no specific response to theserecommendations.

In May 1999, the Productivity Commission released its report:Implementation of Ecologically Sustainable Development byCommonwealth Departments and Agencies. It reported that in 1995,the Australian Bureau of Statistics (ABS) had commenced a fouryear program, to account for:

� depletion of natural assets;� expenditure for environmental protection and repair; and� degradation of the environment.

In particular, the ABS was to:

� prepare estimates of environmental protectionexpenditure;

12 Ibid, pp. 32, 34.

Chapter 2 National Environmental Accounting

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� develop resource materials, waste and emissionsaccounts;

� determine the monetary estimates of naturalassets which provide economic benefits;

� link physical account flow data to environmentalpressure indicators; and

� assess valuation methodologies forenvironmental degradation. 13

The Productivity Commission welcomed these developments aspossible inputs into the Australian State of the EnvironmentReporting process and recommended that the ABS be the majorcoordinator of information on the environment, natural resourcemanagement and sustainable development, using informationfrom CSIRO and Environment Australia.

In 1995, the Environment and Energy Statistics section of the ABScommenced a four-year environmental satellite accounts program.Using a rigorous methodology, it has developed a Water Account,which was released in May 2000. An Energy Account will bereleased by the end of the year. The Water Account will have statestatistics, but the energy account may not. Accounts on Waste andForests are being developed. A minerals account has already beenpublished. 14

A separate set of statistics has been produced by the ABS onenergy used by Utilities.

The methodology for the Environment Protection Expenditureseries has been modified and the 1998-99 analysis will be availablein early 2001.

The other major environmental statistics the Australian Bureau ofStatistics is working on are for the Human Settlements section ofthe Commonwealth State of Environment report and the Headline 13 Productivity Commission, Implementation of Ecologically Sustainable Development by

Commonwealth Departments and Agencies, Report No. 5, AusInfo, Canberra, May 1999, p.116.14 Mary Paton, Environment and Energy Statistics, Australian Bureau of Statistics, advice provided on

5 April 2000.


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Sustainability Indicators international program (with EnvironmentAustralia and other agencies). 15

The current inquiry will follow up these recommendations, andreport on progress made by the Commonwealth Department ofthe Environment and the Australian Bureau of Statistics.

2.3 Issues

15 Ibid.

A1 What information should be included in a set of Australianenvironmental accounts?

A2 What is your opinion of the satellite accounts produced by theAustralian Bureau of Statistics?

A3 Should Victoria urge the Australian Bureau of Statistics toinclude data at a State and Territory level in the satelliteaccounts?

A4 Are there any other matters that should be canvassed in a set ofVictorian environmental satellite accounts, which may beadditional to matters in the national environmental satelliteaccounts?

A5 What should be the relationship between the Australian Bureauof Statistics (ABS) satellite accounts and the Victorian State ofthe Environment report, and ABS satellite accounts and theVictorian public sector reporting on environmental impacts?

Chapter 3 State of the Environment Reporting

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CHAPTER 3 STATE OF THE ENVIRONMENT

(SoE) REPORTING

This section reviews developments since the Committee's InterimReport was tabled in June 1999.

Box 1: State of the Environment issues covered in Chapter 4 of thePublic Accounts and Estimates Committee Interim Report.

- Justification of State of Environment reporting- OECD model- Overseas experience with SoE reporting- Commonwealth and State experience with SoE reporting- National Land and Water Resource Audit- National Pollutant Inventory- Data integrity- Timing of SoE reports- Resources- Reports by local government- Environmental indicators

3.1 State of the Environment reporting

The Commonwealth State of the Environment Report informs thepublic of environmental impacts on:

� Human Settlements� Biodiversity� The Atmosphere� Land Resources� Inland Waters� Estuaries and the Sea� Natural and Cultural Heritage. 16

16 State of the Environment Advisory Council, Australia State of the Environment 1996, CSIRO Publishing, Collingwood, 1996.


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State of the Environment (SoE) reporting provides the community,public sector managers, and politicians with accurate, timely andaccessible information about the condition of and prospects for theAustralian environment. It provides the government and thepublic with a measure of the effectiveness of environmentalpolicies and highlights where changes may be needed in policydirection. It is also one mechanism for ensuring government,industry and the public are made more accountable for theirstewardship of the environment. 17

All States and Territories, except the Northern Territory, publishState of the Environment Reports. Victoria’s last report was on asegment of the environment, water catchments, in 1997. 18 Atpresent, Victoria has no legislative requirement to produce State ofthe Environment reports.

The Model

The Organisation for Economic Cooperation and Development(OECD) developed a model for SoE reporting. It is the Pressure-State-Response model. The Australian and New ZealandEnvironment and Conservation Council refers to this model as theCondition-Pressure-Response model. The quality of theenvironment is assessed, together with the functioning ofimportant environmental processes, to determine the condition ofthe environment. Human activities (societal responses) exertpressures on the environment, which change the state or conditionof the environment.

For the 2001 Australia SoE Report, a fourth element will be addedto the model: Implications. This will spell out the implications ofthe report for the government and other decision makers. 19 Thedevelopment and implementation of policies influence humanactivities, and so change the pressures.

17 PAEC 1999, op cit, p.39.18 Victorian Catchment and Land Protection Council, Victoria: Know Your Catchment, Department of Natural Resources and Environment, Melbourne, 1997.19 Professor Bruce Thom, Chair, National SoE Committee, speech to State of the Environment Conference 2000: Working Towards Sustainable Communities, 3-5 May 2000, Coffs Harbour, NSW.


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The Australian SoE Report includes cultural aspects, which werenot included in the original OECD model. 20

The OECD model has also been adopted by other States and theCommittee recommended that this model be adopted for Victoria.

3.2 Management of SoE reports

This section outlines the different methods used by theCommonwealth, New South Wales, Western Australia andTasmania to develop their SoE reports.

(i) Commonwealth of Australia

The Minister must cause a report on the environment in theAustralian jurisdiction to be prepared in accordance withthe regulations (if any) every 5 years. 21

The report must be tabled in the Parliament.

The Commonwealth Government manages the development of itsSoE report through an Australian State of the EnvironmentCommittee, appointed by the Minister for Environment andHeritage. The role of the independent committee is to:

� determine the structure of the Report;� communicate the messages in the Report to

decision-makers and the public;� promote community awareness of the Report;

and� evaluate the reporting process. 22

This Committee is advised by seven expert reference groups, andassisted by consultancies commissioned by EnvironmentAustralia. 20 State of the Environment Advisory Council 1996, op cit, pp.1-6, 1-7; Australian and New Zealand

Environment and Conservation Council (ANZECC) State of the Environment Reporting TaskForce, Core Environmental Indicators for Reporting on the State of the Environment: DiscussionPaper for Public Comment, ANZECC, Canberra, July 1998, p. 4.

21 Environment Protection and Biodiversity Conservation Act 1999 (Cwlth), section 516B.22 ‘Appointment of the Australian State of the Environment Committee’, State of the Environment

Australia Statements, No. 9, September 1999, p.1.


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(ii) New South Wales

The Protection of the Environment Administration Act1991 requires the EPA to prepare a report for parliamentinto the state of the NSW environment every two years. 23

The Environment Protection Authority chairs a working group foreach chapter of the report. Each working group hasrepresentatives from government agencies, environmental groups,industry and technical experts. The EPA also chairs a ReferenceCommittee, providing expert advice and guidance, and reviewsthe draft report.

The Reference Committee had seven members: three from EPA,two from universities, one from the private sector and one fromthe CSIRO. 24

Issues covered in the 1997 report included:

� Introduction, including an explanation ofEcologically Sustainable Development

� Atmosphere� Land� Water� Biodiversity� Towards Sustainability.

(iii) Western Australia

The Minister for the Environment established a nine-person Stateof the Environment Reference Group, representing six governmentdepartments, the chairperson of the Soil and Land ConservationCouncil and two Chairpersons of regional catchment co-ordinatinggroups. The Department of Environmental Protection co-ordinated the reporting process. 25

23 EPA NSW, New South Wales State of the Environment 1997, Environment Protection Authority NSW, Chatswood, October 1997, p.5.24 Ibid, pp.4,6.25 Knight, J. (ed), Environment Western Australia 1998: State of the Environment Report, Department of Environmental Protection, Perth, 1998, p. iv.


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The State was divided into eight marine and fifteen terrestrialregions. Focus groups were established for most regions. Someregions, eg. the Gibson Desert, had a network of correspondents.Members of the public, industry and government formed themembership of the groups and networks. Each group or networkidentified the key issues for their region and reported on them.This was the basis for the publication: State of the EnvironmentReference Group Draft Working Papers. 26

The Minister released a draft State of the Environment Report inJuly 1997, for a three month period for public comment. The Stateof Environment Reference Group considered the public input andprepared the final report. 27

Issues covered in the final report were:

� Fundamental pressures� Biodiversity� Atmosphere� Land� Inland Waters� Marine� Progress towards ecologically sustainable

development.

The final report was released in July 1998, with 100recommendations for new initiatives. The government respondedwith 180 clear, targeted and funded actions in their December 1999report Environmental Action, Government’s Response to the State of theEnvironment Report.28

26 Ibid, pp.1,3.27 Ibid, p.1.28 Government of Western Australia, Environmental Action: Government’s Response to the State of

the Environment Report, Department of Environmental Protection, Perth, December 1999, p. iii


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(iv) Tasmania

The State Policies and Projects Act 1993 provides for the ResourcePlanning and Development Commission to produce a State of theEnvironment Report every 5 years. It must report on:

� the condition of the environment;� trends and changes in the environment;� the achievement of resource management

objectives; and� make recommendations for management of the

environment. 29

In 1996, as a first step, Tasmania produced a Conditions and Trendsvolume, for public comment. Part of the process involvedconducting hearings throughout Tasmania, as well as invitingwritten submissions.30 Generally, participants were pleased withthis process.

However:

There is a need to better define the stages of expert involvementand to invite contributions according to the level ofparticipation desired by each contributor. The stages at whichexpert collaboration is needed are:• defining the scope of the report…;• identifying available information sources;• contributing information;• providing information to support a particular indicator;• interpreting or synthesising information;• co-authoring;• peer review; and• contributing and reviewing suggested recommendations.31

29 Resource Planning and Development Commission website: http:///www.rpdc.tas.gov.au/soe_reporting/soe_docs/soe_more_details.htm.30 ‘Tasmania: State of the Environment 1997 – Volume 2’, State of the Environment Australia Statements, no. 7, April 1998, p.8.31 Resource Planning and Development Commission, Directions for State of the Environment Reporting in Tasmania: Discussion Paper, RPDC, Hobart, 1998, pp.7-8.


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3.3 Environmental indicators

The selection of environmental indicators to reflect ecologicallysustainable development terms (ie. environmental, economic andsocial aspects of the environment), is a key issue in State of theEnvironment reporting.

Environmental indicators can be used to:

� indicate trends in important aspects of theenvironment, for example climate change;

� present information about the environment in aconcise way, to maximise efficiency ofenvironmental decision making. 32

However, as the Tasmanian Resource Planning and DevelopmentCommission identified, environmental indicators have to bescientifically based and measurable. This is one of theirlimitations.

… it is not yet possible (and may never be) to derive acomplete picture of the environment using the coreenvironmental indicators alone. 33

In 1994, the OECD developed indicators for each of the pressure,state and response categories for their State of the EnvironmentReporting; and for selected issues, such as Climate Change andOzone Layer Depletion. 34

(i) Commonwealth

In 1998, the Australian and New Zealand Environment andConservation Council (ANZECC) produced a discussion paper oncore environmental indicators. They proposed 72 physical,chemical, biological or socio-economic indicators, for the 32 Australian and New Zealand Environment and Conservation Council (ANZECC) State of the Environment Reporting Task Force, Core Environmental Indicators for Reporting on the State of the Environment: Discussion Paper for Public Comment, ANZECC, Canberra, July 1998, p.2.33 Ibid, p. 2.34 State of the Environment Advisory Council, Australia State of the Environment 1996, CSIRO publishing, Collingwood, 1996, p.1-9.


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atmosphere, biodiversity, land, inland waters, estuaries and thesea and human settlements.

In March 2000, the final 75 indicators were released. The coreindicators will change as:

� users evaluate their application and suitability;� our understanding of the environment improves;� methods of data collection improve; and� data analysis improves.35

Each indicator was placed under one of the following headings:condition, pressure or response. See the Appendix to this IssuesPaper for a copy of this matrix.

Land ecology is an example of a complex process that has socialand economic significance for Victorians.

The recommended ANZECC core indicators for the land are:

� area of each land-use, described under astandard classification (both a Pressure and aResponse indicator);

� the area of the soil that is bare or lacks adequatevegetation cover to prevent accelerated wind orwater erosion, classified by land use type, soiltype, climate, and slope of land (a Pressureindicator);

� changes in the frequency of dust storms relativeto high wind events (a Condition indicator);

� area underlain by shallow watertables, and areaswhere watertables are rising (a Conditionindicator);

35 Australian and New Zealand Environment and Conservation Council State of the Environment

Reporting Task Force, Core Environmental Indicators for Reporting on the State of theEnvironment, ANZECC, Environment Australia, Canberra, March 2000, p.1.


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� the area of land that is reported as having salinesoils within the top metre, in regions of Australiawith greater than 250 mm annual rainfall;

This indicator covers areas affected by drylandand irrigation salinity (a Condition indicator).

� the area of land with soils that are reported ashaving acidity within the top metre, in regions ofAustralia with greater than 250 mm annualrainfall (a Condition indicator); and

� the number of samples of rural produce and foodwhich exceed the Maximum Residue Levels(MRL) for contaminants are a surrogate forland/water contamination (a Conditionindicator). 36

If data is collected on each of these indicators, there should besufficient information to build up a picture of the landenvironment and the problems arising from use of the land.

Core indicators were selected by using the requirements in box 2.

Box 2: Criteria for Selecting Core Indicators 37:

- Reflect an element in the environment that is valued, or an importantenvironmental issue;

- Have relevance to policy and management needs;

- Be useful for tracking environmental trends at a range of spatial scales(ie. covering different sized areas) from the local to the continental;

- Be scientifically credible;

- Be cost effective;

- Serve as a robust indicator of environmental change;

- Be readily interpretable;

- Be monitored regularly, either by existing programs or by newprograms that might be established in the future at reasonable cost;and

- Reflect national programs and policies.

36 Ibid, pp.41-46.37 Ibid, p.6.


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Various commentators produced a paper, in 1998, proposing a setof indicators for Natural and Cultural Heritage. These covered thethemes:

� general heritage indicators (8 indicators)

� natural heritage indicators (3 indicators)

� indigenous archaeological places (8 indicators)

� indigenous contemporary places (6 indicators)

� indigenous languages (9 indicators)

� historic places; and (2 indicators)

� heritage objects (7 indicators) 38

Recently, a working party reviewed the set of indicators proposed,and recommended a smaller set to ANZECC. 39

This acknowledges a link between environmental and socialmatters. Environment Australia is currently working on HeadlineSustainability Indicators, which will be suitable for reporting onecologically sustainable development. It is expected that these willbe released in June 2000. 40

(ii) Western Australia

In Western Australia, Focus Groups identified issues aroundwhich indicators were developed. The Reference Group thendeveloped the following priorities for inclusion in the State of theEnvironment report:

� maintenance of ecological integrity;

� the precautionary principle; and

� inter-generational equity. 41

38 Pearson, M. and others, Environmental Indicators for National State of the Environment Reporting-

Natural and Cultural Heritage, Department of the Environment, Canberra, 1998.39 Ian Robertson, State of the Environment section, Environment Australia, telephone conversation,

30th March 2000.40 Environment Australia announcement at the State of the Environment Conference 2000: Working

Towards Sustainable Communities, 3-5 May 2000, Coffs Harbour, NSW.41 Knight, J. (ed) 1998, op.cit., p.7.


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(iii) Victoria

The Public Accounts and Estimates Committee recommended thatenvironmental indicators based on the Victorian CatchmentIndicators report and the ANZECC core indicators be adopted.

In December 1998, the Department of Natural Resources andEnvironment released Proposed Catchment Indicators for Victoria:Draft for Comment. This preliminary list of indicators has sincebeen analysed, and a more rigorous set of indicators is due forrelease in July 2000. 42 The 1998 indicators were developed on amodel of water catchment condition and program evaluation.Program evaluation includes the tracking of activity, theevaluation of impacts and the evaluation of outcomes. 43

Where appropriate the indicators that are being proposedwill also align with indicators being proposed Nationallythrough State of Environment Reporting process; theIndicators of Sustainable Agriculture; and the performanceindicators being developed for the NHT [National HeritageTrust] and MDBC [Murray-Darling Basin Commission]programs. 44

The list of grouped indicators of catchment condition included:

� Biodiversity indicators

� Stream condition index

� Remnant vegetation condition indicators

� Wetland condition indicators

� Lake condition indicators

� Estuarine condition indicators

� Soil condition indicators

� Ground condition indicators

� Economic/financial condition indicators

� Social condition indicators. 42 Advice provided by Peter Forbes, Department of Natural Resources and Environment, April 2000.43 Proposed Catchment Indicators for Victoria: Draft for Comment, Department of Natural Resources and Environment, Melbourne, December 1998, p.4.44 Ibid, pp.4-5.


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In response to the Interim Report of the Inquiry into EnvironmentalAccounting and Reporting, the Victorian National Parks AssociationInc. opposed the use of the Victorian Catchment Indicators, as theywere not based on the Pressure-State-Response model, and haveinsufficient biodiversity indicators. The Association pointed to alack of coordination between proposed SoE indicators, VictorianCatchment Indicators and Parks Victoria’s EnvironmentalManagement System environmental management performanceindicators and environmental indicators.

3.4 Local government

Local government plays a significant role in environmentalmanagement:

� through waste management, recycling, drainageand community education;

� through planning and development processes; and

� involvement in regional bodies. 45

The Committee called for consistency in the use of existing statedata, and local government data with local governments beingasked to report voluntarily.

The Victorian National Parks Association Inc. noted that localgovernments were already required to report to the Department ofInfrastructure on performance based planning schemes, and itwould be useful to standardise the information provided byCatchment Authorities and SoE reporting.

In New South Wales, State of Environment reporting by localcouncils is compulsory. Councils, councillors and employees musthave regard to ecologically sustainable development principles incarrying out all their responsibilities. Councils’ annualmanagement plans must take account of their State of the

45 Department of Local Government (NSW), Environmental Guidelines, State of Environment

Reporting by Local Government, Promoting Ecologically Sustainable Development, Department ofLocal Government, Bankstown, January 2000, p. 4


27

Environment (SoE) reports when preparing environmentalprotection activities. 46

Councils must produce a comprehensive SoE report at the end ofthe financial year after each election of councillors. This mustcover the eight areas:

� land

� air

� water

� biodiversity

� waste

� noise

� Aboriginal heritage

� non-Aboriginal heritage. 47

An annual SoE report must identify any new environmentalimpacts and trends in environmental indicators.

3.5 Committee’s previous recommendations

In 1999, the Public Accounts and Estimates Committeerecommended:

4.1 The government reintroduce State of the Environmentreporting for Victoria on a statewide basis.

4.2 Victoria’s State of the Environment report should bebased on the OECD pressure-state-response model.The Victorian SoE report should be similar to the SoEreports of the Commonwealth and other States andTerritories.

46 Ibid, p.747 Ibid, p.10


28

4.3 The government develop core environmentalindicators for State of the Environment reportingwhich are based on the Victorian Catchment IndicatorsProject and consistent with the Core EnvironmentIndicators developed by ANZECC and the coreindicators included in the Commonwealth State of theEnvironment report.

4.4 A data verification process should be built into theState of the Environment process.

4.5 A State of the Environment report for Victoria beproduced on a regular cycle of five years.

4.6 The State of the Environment report should beprimarily provided through an Internet site and aconcise report printed and tabled in the Parliament.

4.7 To maximise the efficiency of resources the State of theEnvironment report should be based, as far as possible,on existing information and any additional datacollection processes should be integrated, as far aspossible, with existing environmental investigations.

4.8 To ensure efficient and effective environmentalreporting, Catchment Management Authorities’reporting should be consistent with the Victorian Stateof the Environment reporting.

4.9 Whilst State of the Environment reporting should beencouraged at the local council level, it should not bemandatory; resources should be focused on SoEreporting at the State level and on the collection ofnecessary data. 48

48 PAEC 1999, op.cit., pp. 53, 54, 56-59, 62, 63


29

3.6 Government response

The government has indicated that it will reintroduce State of theEnvironment Reporting. The government proposes to legislate toestablish a Commissioner for Ecologically SustainableDevelopment, who will be responsible for tabling the State of theEnvironment Report in Parliament. The Commissioner will alsoaudit compliance with environmental legislation, including theFlora and Fauna Guarantee Act 1988 and native vegetation retentioncontrols, and provide an Ombudsman type role for consideringpublic complaints.

3.7 Issues

B1 Which of the following purposes do you see State ofEnvironment reporting serving?- An environmental alert system – a report that records

changes in the environment?- A scientifically sound record of trends in the

environment?- A document that looks at key issues for the community,

industry and government?- A document that assists community, industry and

government decision makers?- A means of assessing the performance of the community,

industry and government?- All of these? How would you prioritise these functions?


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Management

B2 Should the State of the Environment report be theresponsibility of:

- the Commissioner for Ecologically SustainableDevelopment, as an Officer of the Parliament (similar tothe Auditor-General); or

- an independent panel, selected by the Minister for theEnvironment; or

- a government department or agency; orother – please provide details.

B3 Should there be two stages - a management process thatinvolves a reference group which reviews the development ofState of the Environment reporting, and prepares the finalreport – followed by the Commissioner tabling the report inParliament?What should be the role of the Reference Group?What should be the composition of this group?

B4 Should a complete report be released for public comment, orshould there be a draft report for public comment?

B5 What should be the role for regional or other groups in theprocess of developing State of the Environment reports?

B6 What should be the content of a State of the Environmentreport?Should it always cover the same topics?Should it only address key issues, with details provided onother topics on an Internet site? Who should decide this?


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Indicators

B7 The verification of content (checking the reliability of theinformation provided) is a problem in State of the Environmentreporting, because of the time and costs involved. Informationcan be verified by: a committee of experts, a committee ofrepresentatives of government, industry and the community, apublic consultation process, or consultants. What verificationprocess should be used, and why?

B8 For many parts of the environment there are no indicators, orthere is no means of consistently measuring the indicator in arepresentative fashion.Should resources be allocated to develop such indicators, orcase studies be used to illustrate the problems?

B9 How should new situations be reported? – wait to developindicators, or report these situations in some other way?

B10 In developing environmental indicators for Victoria, should thecriteria for selection of indicators in box 2 (page 23) be used?Should criteria be added or deleted from this list?

B11 Should there be a balance between economic, environmentaland social indicators?, or should SoE reporting only deal withenvironmental matters?


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Action

Local Government

B12 What core indicators should Victoria use? - ANZECC coreindicators, the Victorian Catchment Management Indicators ,both, or another set of indicators?

B13 Should the government be required to respond to State of theEnvironment reports? State of the Environment reports wouldcover activity by communities and industry – should theyrespond? – if so, how?

B14 Many State of the Environment processes in Australia involve areview of the process after the final report is released.Is this necessary and who should be responsible for the review?

B15 Should there be any other action that should flow from State ofthe Environment reporting?

B16 Should local councils be reporting their State of theEnvironment on a compulsory or voluntary basis?Who should provide the funds for this?


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Comments on other recommendations

B17 Is a cycle of five years for State of the Environment reportingreasonable? Could there be a continuous program whichalternates between collecting information about differentcomponents of the environment? For example, water, land,and air.

B18 What degree of detail should be provided in a printed reportand what degree of detail should be provided on an Internetsite?

B19 What degree of consistency should there be betweenCatchment Management Authorities and State of theEnvironment reporting?How different is the purposes and audiences for each type ofreport?


34

Chapter 4 Commissioner for Ecologically Sustainable Development

35

CHAPTER 4 COMMISSIONER FOR

ECOLOGICALLY SUSTAINABLE

DEVELOPMENT

4.1 Background

In 1987, Victoria established the Office of the Commissioner of theEnvironment, within the Ministry for Planning and Environment.The role of the Commissioner was to pursue a five-year programfor State of the Environment Reporting. Two reports wereproduced, on inland waters (1988) and agriculture (1991), howeverthe position was abolished in 1992. 49

Included in the Bracks Government’s election commitments was aproposal to establish a Commissioner for Ecologically SustainableDevelopment.

Labor will legislate to establish a Commissioner forEcologically Sustainable Development who will: Provide anOmbudsman type role for considering public complaints.Table a State of Environment Report in Parliament that willreview the objective scientific information aboutenvironmental quality and progress made on improvementstrategies. Audit compliance with environmentallegislation, including the Flora and Fauna Guarantee Actand native vegetation retention control…

A maximum of $4 million will be allocated over four yearsfrom 1999-2000 to 2002-2003 as additional funds within theDepartment of Natural Resources and Environmentrecurrent budget to fund this initiative. 50

49 Public Accounts and Estimates Committee, Interim Report of the Inquiry into Environmental Accounting and Reporting, Parliament of Victoria, Melbourne, June 1999, p.48.50 ALP Victorian branch website: http://www.vic.alp.org.au/policy/environment/envi_natural.html.


36

It was suggested by the National President of the EnvironmentInstitute of Australia, that the role of EnvironmentalCommissioners should encompass:

… they have the important task of publicly reviewing andreporting on the role and operations of governments as theyaffect the environment. … In this age of devolution,delegation, outsourcing, corporatising and privatising, it isessential for overt balance to be built into the new structuresand procedures which will provide opportunities for theindependent auditing of governmental functions while at thesame time bolster public confidence. …’auditing’ is used inthe sense of independent, objective and apolitical assessmentwhich will not only be seen to have those attributes but willin fact do so. 51

The following sections contain information on the Commissionersfor Ecologically Sustainable Development, or similar, in: theAustralian Capital Territory, Canada (federal government), theProvince of Ontario (Canada) and New Zealand.

4.2 Australian Capital Territory

The Australian Capital Territory (ACT) is the only jurisdiction inAustralia to establish an independent Commissioner.

In 1993, the ACT Legislative Assembly passed the Commissioner forthe Environment Act. The Commissioner is appointed by theMinister for a maximum of 5 years. The Commissioner has thefollowing functions:

Section 12(1) provides:

(a) investigating complaints regarding the managementof the environment by the Territory or a Territoryauthority;

(b) conducting such investigations as may be directed bythe Minister;

51 Molesworth, Simon, The case for a national environmental commissioner, paper tabled at the Public

Accounts and Estimates sub-committee public hearing of 16th February 1999, pp.6, 8-9


37

(c) conducting, of his or her own motion, investigationsinto actions of an agency where those actions wouldhave a substantial impact on the environment of theTerritory. 52

However, a considerable amount of time of the part-timeCommissioner is spent on the ACT State of the EnvironmentReport (required under section 19 of the Act) and a broaderAustralian Capital Region State of the Environment report. Theregional report takes in 17 New South Wales local governments.53

As elsewhere in Australia, the Commissioner’s State of theEnvironment reports are based on an ecologically sustainabledevelopment framework.

In his 1998-99 Annual report, the Commissioner reported on:

� progress in the development of databases andinfrastructure for the State of the Environmentprocess. He recommended that government databe provided for SoE reporting purposespromptly and without charge;

� complaints (summary table) and how they hadbeen dealt with;

� matters having a significant impact on theenvironment, drawn to the Commissioner’sattention from government agency annualreports; and how these have been followed up;and

� the government’s implementation of the 19recommendations included in the 1997 State ofthe Environment report and the special report onthe ACT Government’s Use of Chemicals for PestControl 1998. 54

52 Commissioner for the Environment Act 1993 (ACT), section 12 (1).53 Commissioner for the Environment, Annual Report 1997-98, CEO, Canberra available on the

website: http://www.act.gov.au/www.environmentcommissioner.act.gov.au54 Commissioner for the Environment, Annual Report 1998-99, Australian Capital Territory

Government, Dickson, September 1999


38

The Commissioner reports through the Minister for UrbanServices. This role encompasses whole of government reporting,due to the broad legal definition of the environment used to assessthe State of the Environment. This definition includes:

� soil, atmosphere, water;

� organic and non-organic matter and living organisms;

� human structures;

� ecosystems, including people and communities;

� scientific and ecological places of significance;

� interactions and interdependencies of the above;

� social, aesthetic, cultural and economic conditions thataffect the above. 55

This definition takes in environmental, social and economicaspects.

The ACT Auditor-General also has responsibilities for ecologicallysustainable development, and is required to ensure all governmentagencies report their environmental impacts in their annualreports. 56

4.3 Canada (Federal Government)

In Canada, in December 1995, royal assent was given toamendments to the Auditor General Act 1976-77, which:

� established a Commissioner of the Environment andSustainable Development within the Office of theAuditor General of Canada;

� formally included the environmental element amongthe considerations the Auditor General takes intoaccount when determining what to report to theHouse of Commons;

55 Commissioner for the Environment Act 1993 (ACT) section 19 (2) (a).56 Helen Sims, Office Manager, Office of the ACT Commissioner for the Environment, telephone

conversation on 10th April 2000.


39

• required Ministers to table sustainable developmentstrategies in the House of Commons by 15 December1997 and to update them every three years; and

• authorized the Auditor General to receive petitions onenvironment and sustainable development matters,and require ministers to respond to them within 120days. 57

The Canadian Commissioner of the Environment and SustainableDevelopment has six roles:

Monitoring government agencies

In accordance with section 24(1) of the Auditor General Act 1976-77,Ministers are required to have their departments preparesustainable development strategies. A Guide to Green Governmentprovided the objectives and strategies for departments to follow.In response to the Commissioner’s recommendations, alldepartments had to revise their strategies, and re-present theirreports to Parliament in 1999. A recent report from theCommissioner identified two main problems:

� the failure to set targets that could be judged in time assuccessful or not;

� many strategies restated what already existed, ratherthan “… a commitment to change in order to betterprotect our environment and promote sustainabledevelopment.” 58

Assisting the Auditor General

The Auditor General must now take into account 4 E’s: economy,efficiency, effectiveness of government activity and environmenteffects. In addition to assisting the Auditor General with reports,the Commissioner has reported on government efforts in such

57 Commissioner of the Environment and Sustainable Development (Canada) website:

http://www.oag-bvg.gc.ca/domino/cesd_cedd.nsf/html/bckgrd_e.html58 Emmett, B. Moving up the learning curve, The second generation of sustainable development

strategies, 1999, Commissioner of the Environment and Sustainable Development website:http://www.oag-bvg.gc.ca/domino/cesd_cedd.nsf/html/c9dec_e.html, pp. 3-5


40

areas as: climate change, ozone depletion and environmentalassessments. 59

Special reports

The Commissioner has written special reports for Parliamenton such matters as the degree to which the government ismeeting its international environmental commitments andmanaging sustainable development in both the public andprivate sectors. 60

Public petitions

Under section 22 of the Auditor General Act 1976-77, theCommissioner must forward petitions to the relevant Ministerwithin 15 days. Within 120 days, the Minister must reply tothe petition. The Commissioner must monitor the replies, andreport petitions in the annual report. Details of the Minister’sactivity on each petition is documented. Petitions cover suchmatters as effects of ozone depletion, multilateral agreementon investment and various environmental assessments. 61

Green reports

The Commissioner’s annual report is called a Green Report.

Resources

The Canadian Commissioner of the Environment andSustainable Development has a team of approximately 30people with expertise in environmental studies, businessmanagement, accounting, economics, political science,geology, biology, law, urban planning, public administration

59 Commissioner of the Environment and Sustainable Development (Canada) website:

http://www.oag-bvg.gc.ca/domino/cesd_cedd.nsf/html/99mand_e.html60 Ibid, pp.1-2.61 Commissioner of the Environment and Sustainable Development, 1999 Report of the Commissioner

of the Environment and Sustainable Development, Appendices B and C, c.2000, available on thewebsite: http://www.oag-bvg.gc.ca/domino/reports.nsf/html


41

and engineering. This Office is assisted by the Office of theAuditor General. 62

4.4 Province of Ontario (Canada)

The purpose of the Environmental Bill of Rights 1993 is:

� to protect, conserve and restore the integrity of theenvironment;

� to provide for sustainability of the environment;and

� to protect the right to a healthful environment.63

The legislation achieves this by:

� appointing an Environmental Commissioner toreview compliance with the Act;

� providing for public participation by requiringall government Acts, Regulations, policies andintruments with an environmental impact to beput on a public Environmental Register, forpublic comment before they are approved;

� requiring government Ministries to write andimplement Statements of Environmental Values;

� allowing any two Ontario residents to apply tothe Commissioner to review an existing policy,Act, regulation or instrument or to review a newone, in order to protect the environment;

� allowing any two Ontario residents to apply tothe Commissioner to investigate alleged breachesof an Act, regulation or instrument;

� providing for any resident to sue in court anyonewho has broken, or may be about to break, anAct, regulation or instrument if it will causesignificant harm to a public resource. 64

62 Commissioner of the Environment and Sustainable Development website: http://www.oag-

bvg.gc.ca/domino/cesd_cedd.nsf/html/99team_e.html, The Commissioner’s Team63 Environmental Bill of Rights 1993 (Ontario), section 2.64 Environmental Bill of Rights 1993 (Ontario).


42

The discussion in this paper only deals with the role of theEnvironmental Commissioner.

The work of the Environmental Commissioner involves:

� reviewing Ministries’ Statements ofEnvironmental Values, which are derived fromthe principles of the Environmental Bill ofRights. The implementation of the values is alsoreviewed;

� reviewing Ministries’ decisions and proposals,eg. the Ontario’s progress on Climate Change;the Ministry of Energy, Science and Technology’sEnergy Competition Act;

� reporting on investigations, eg. forest harvestingpractices;

� reporting cases where, through the EnvironmentBill of Rights, residents have influenceddecisions, eg. Air Emissions in London (Ontario);

� Ministries’ compliance with pastrecommendations made by the Commissioner;and

� the use by Ministries and the public of theEnvironmental Registry. 65

The Commissioner does not produce a State of the Environmentreport.

The Commissioner is appointed for a five year term by an all partyLegislative Assembly committee, which also provides the budget.As an independent Officer of the Assembly, the Commissionerreports through the Presiding Officers of the Parliament.

The Commissioner sees the value of the independent role inreviewing and investigating environmental matters as:

65 Environmental Commissioner of Ontario, Report 1998, Open Doors, Ontario’s Environmental Bill

of Rights, ECO, Toronto, 1999; available on the website:http://www.eco.on.ca/english/publicat/ar98/index.htm.


43

� avoiding social and financial liabilities andresource management mistakes;

� enhancing smart decisions by government, byproviding the best and most completeinformation to government, industry and otherstakeholders;

� by maximising government efficiencies throughidentifying where Ministries are working at crosspurposes and where staff can be shared;

� improving Government accountability, byidentifying where there is a lack of measurabletargets;

� strengthening the international reputation of theProvince by reviewing governmentenvironmental performance; and

� avoiding trade sanctions, negative publicity andconsumer boycotts by identifying weaknesses inenvironmental matters. 66

4.5 New Zealand

The New Zealand Parliamentary Commissioner for theEnvironment is an Officer of the New Zealand Parliament,appointed for a five year period under the Environment Act 1986.

The purpose of the Parliamentary Commissioner for theEnvironment is to provide an independent check on thecapability of the New Zealand system of environmentalmanagement and the performance of public authorities inmaintaining and improving the quality of the environment. 67

66 Ligeti, E., ‘The role of the Environmental Commissioner of Ontario and the Environmental Bill of

Rights in environmental decision-making’, in Guardians for the Environment, ed. Gary Hawke,Institute of Policy Studies, Victoria University of Wellington, New Zealand, 1997, pp. 138-139.

67 Office of the Parliamentary Commissioner for the Environment, Te Kaitiaki Taiao a Te WharePäremata, Annual Report for the Year Ended 30 June 1999, Office of Commissioner, Wellington,October 1999, p. 5.


44

The New Zealand Parliamentary Commissioner for theEnvironment defines the role as “about advancing thedevelopment of truly sustainable management in a balanced andobjective manner.” The functions of the Commissioner include:

� environmental inquiry – examining matterswhere the Commissioner thinks the environmenthas been affected;

� environmental ombudsman – investigating theperformance of public authorities;

� environmental systems guardian – checking thecapability of legislation, policy, and othermanagement instruments to maintain orimprove the quality of the environment;

� environmental auditing – auditing publicauthorities against their statutory powers,functions and duties;

� advisory role – including advice on remedialaction;

� informing role – disseminating information todecision-makers and others.68

The Commissioner has powers to report and makerecommendations to Parliament, but not to ensure acceptance oraction of these. Some of the activities canvassed in the 1999Annual Report included:

� marine environment management overview;

� energy efficiency and renewable energy;

� local governments and their implementation ofthe Resource Management Act (New Zealand’smain environmental legislation);

68 Office of the Parliamentary Commissioner for the Environment, Te Kaitiaki Taiao a Te Whare

Päremata, Future Directions, Strategic Focus for the Parliamentary Commissioner for theEnvironment 1997-2001, Office of the Commissioner, Wellington, August 1997, pp. 3, 6


45

� citizens concerns and investigations undertaken,including management of CO2 emissions inTaranaki and residential zoning in Waipu;

� outcome evaluations, eg. the management ofurban vegetation in North Shore City;

� environmental management initiatives,including the Rabbit Calcivirus Disease. 69

The Commissioner also assists select committees of the Parliamentin undertaking investigations or in evaluating Member’s Bills. 70

The Office of the Commissioner has a total of 14.2 full-timeequivalent staff, and a budget of approximately $NZ1.5 million. 71

4.6 Options for a Victorian Commissioner forEcologically Sustainable Development

Roles

Commissioners can perform the following roles:

� Ombudsman role;

� State of the Environment role;

� review the role and operations of governmentrelating to the environment;

� provide an annual report on ecologicallysustainable development;

� investigate environmental matters;

� conduct investigations requested by a Ministerand/or the Parliament;

� audit environmental legislation;

69 Office of the Parliamentary Commissioner for the Environment, Te Kaitiaki Taiao a Te Whare

Päremata, Annual Report for the Year Ended 30 June 1999, pp. 2-370 Ibid, p.29.71 Ibid, pp.35, 52.


46

� audit the ecologically sustainable developmentelements of annual reports of governmentdepartments;

� provide assistance to parliamentary committeesand to officials (eg. Auditor-General, Regulator-General, Ombudsman);

� advise government bodies and local councils onremedial actions associated with ecologicallysustainable development; and

� information role: informing decision makers andthe public about ecologically sustainabledevelopment.

Ombudsman role

The Commissioner for Ecologically Sustainable Developmentcould receive petitions from individuals and groups. TheCommissioner could have discretion to not accept petitions, whichin his or her opinion were frivolous or vexatious, or theCommissioner could be required to process all petitions. In NewZealand, the Commissioner will not become involved in anymatter that has been attended to by a Court or semi-judicialprocedure.

The Commissioner could investigate all petitions or refer them tothe appropriate Department, or Minister, or the Ombudsman, orother appropriate agency or official for further action. Forwardingpetitions to other authorities would optimise the use of thegovernment’s resources. On the other hand, the independence ofthe Commissioner is emphasised if the Commissioner deals withall petitions.

The Commissioner could report on all petitions and theiroutcomes in the Office’s annual report.

Reporting roles

The options for a Commissioner for Ecologically SustainableDevelopment are:


47

� the Commissioner’s office is responsible fordeveloping and preparing the State of theEnvironment report,

� the Commissioner provides support to anindependent committee who oversights thepreparation of the State of the Environmentreport,

� a government agency or department producesthe report, and the Commissioner is responsiblefor tabling it in Parliament.

A whole of government approach to ecologically sustainabledevelopment (ESD) would involve the Commissioner for ESDreviewing the role and operations of government. Some of theactivities associated with this role would be:

� comparing government goals and objectivesassociated with ESD with government activity;

� determining if legislation was adequate toachieve ESD for the state; and

� determining if the range of programs andservices, both public and private, were able toachieve ESD.

The Canadian Commissioner has investigated the activities andperformance of the Canadian Parliament on international andnational environmental issues. The Environmental Commissionerof Ontario reviews the performance of Ministries onenvironmental matters. The Australian Capital TerritoryCommissioner reports annually on the progress of the ACTLegislative Assembly in implementing the recommendations of hisState of the Environment and special reports.

The Public Accounts and Estimates Committee recommended thata State of the Environment report be produced every five years.An annual report by the Commissioner for EcologicallySustainable Development could report on petitions andinvestigations, and the main achievements and problems of


48

Victorian government departments in achieving ecologicallysustainable development.

Investigative roles

Events occur that are of State-wide significance which requirescientific investigation. For example, there has been a rapidchange in land use in the south-west of Victoria, with the plantingof Tasmanian blue gums, and other plantations. The allocation ofwater for irrigation and for river flows has become a source ofcontention in Victoria. One role the Commissioner could performis to investigate these matters. Alternatively, these matters couldbe dealt with by existing government agencies and departments.

Among the options are:

� the Commissioner could initiate investigations;

� the Commissioner could only respond torequests from the Minister; or

� the Commissioner could conduct investigationsrequested by the Parliament or a ParliamentaryCommittee.

A combination of these options is possible.

An associated issue is the relationship between the Commissionerfor ESD, the Auditor-General’s office, the Ombudsman, theParliament and Ministers of the Crown. These relationshipsshould be clarified in the legislation.

Auditing roles

Under Victoria’s system of government, Ministers are responsiblefor their departments and legislation within their portfolio. TheAuditor-General provides an independent view of theperformance and financial management of Victorian public sectoragencies and bodies to the Parliament. The Auditor-Generalreports directly to the Parliament.


49

The Ombudsman’s principal function is to enquire into orinvestigate any administrative action taken in any GovernmentDepartment or Public Statutory Body or municipal council. 72 TheOmbudsman reports the results of investigations to theappropriate authority for action. If the Ombudsman is notsatisfied with the response, their report or recommendations canbe sent to the Governor in Council. The Ombudsman’s annualreport is tabled in the Parliament.

The Regulator-General’s role is to create an economic regulatoryframework for regulated industries; a framework which promotescompetition, fair and efficient market conduct and prevents themisuse of monopoly power. 73 The main industries which havebeen declared regulated are the electricity and gas industries. TheRegulator-General reports to Parliament through the relevantMinister.

In Canada, the auditing function of the Commissioner for theEnvironment and Sustainable Development is achieved by astatutory appointment as an officer within the Auditor-General’soffice.

A key issue to be addressed in the Victorian legislation is the scopeof the auditing function of the Victorian Commissioner forEcologically Sustainable Development.

In 1999, the Public Accounts and Estimates Committeerecommended that the annual reports of government agenciesinclude disclosures where the activities of an agency cause knownpredicted material impacts on the environment. 74 Thegovernment has accepted this recommendation.

72 Ombudsman Act 1973 (Vic), section 13.73 Office of the Regulator-General Act 1994 (Vic), section 1. The Regulator-General regulates price

competition, licences and generally oversights the privatised electricity, gas, water, rail, ports andgrain handling enterprises in Victoria.

74 Public Accounts and Estimates Committee, Report on the Inquiry into Annual Reporting in theVictorian Public Sector, Parliament of Victoria, Melbourne, May 1999, recommendation 7.4, p.132.


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Providing assistance and information

The Canadian Commissioner assists the Auditor-General inauditing environmental issues. The New Zealand Commissionerassists parliamentary committees to scrutinise the annual reportsof government environmental agencies, the financial estimates ofthose bodies and parliamentary Bills covering environmentalmatters. A key issue to be addressed is the relationship theVictorian Commissioner will have with the Parliament andofficials (Auditor-General, Ombudsman, Regulator General).

The New Zealand Commissioner advises government agenciesand local government on remedies to environmental mattersdrawn to his attention. Should this also be the role of the VictorianCommissioner?

All Commissioners report annually on the information theydisseminate to decision makers and the public. For example, theAustralian Capital Territory Commissioner has a target of onepublic presentation per month on the 1997 State of theEnvironment strategies. 75 The New Zealand Commissionerreported, in 1999:

… my office responded to a total of 241 communicationsfrom individuals and groups requesting the ParliamentaryCommissioner for the Environment’s assistance to resolvean environmental management issue or to provideinformation on aspects of the New Zealand environment. 76

The role of the Victorian Commissioner for EcologicallySustainable Development will be crucial in disseminatinginformation about ecologically sustainable development andenvironmental issues. How this position will work with theDepartment of Natural Resources and Environment, the VictorianEnvironment Protection Authority and Information Victoria willalso be important. 75 Commissioner for the Environment, Annual Report 1998-99, Australian Capital Territory

Government, September 1999, p. 576 Office of the Parliamentary Commissioner for the Environment, Te Kaitiaki Taiao a Te Whare

Päremata, Annual Report for the Year Ended 30 June 1999, p. 21


51

Position, status and resources

The effectiveness of the Victorian Commissioner for EcologicallySustainable Development will depend on the level of the positionand its status, and the resources allocated to the office. Some ofthe options are:

� statutory independent officer of the Parliament,reporting to the Parliament as a whole, not justthe government (similar to the VictorianAuditor-General, the New ZealandParliamentary Commissioner for theEnvironment and the Ontario EnvironmentalCommissioner); or

� an officer attached to, or part of, an existingparliamentary office, eg. part of the Office of theAuditor-General (for example, the federation ofCanada); or

� a government appointee, responsible to aMinister; or

� an officer of a government department oragency.

The ability to effectively fulfil the potential roles of a VictorianCommissioner for Ecologically Sustainable Development willdepend on the resources allocated. To be effective, access isneeded to skilled and knowledgeable staff in the three areas ofecologically sustainable development: economic, environmentaland social.

Considerable costs can be saved by limiting the functions andactivities of the Commissioner for Ecologically SustainableDevelopment to those not already provided by otherparliamentary officials, Ministers, and government departmentsand agencies. However, will strictly avoiding overlap of functionscompromise the independence of the Commissioner and theability of Victoria to achieve its broad goal of ecologicallysustainable development?


52

Establishment costs for new functions must also be considered.State of the Environment (SoE) reporting on the scale conducted inother States will need considerable funds, especially if it involves acommunity consultation process. Even if the first one or two SoEreports involve only existing data from departments and agencies,will the Office of the Commissioner have to pay for this data?Who will pay for the development of a more comprehensive set ofESD indicators?

4.7 Issues

C1 What should be the roles of the Victorian Commissioner forEcologically Sustainable Development?

C2 What other matters should be included in the legislation for theoperations of the Victorian Commissioner for EcologicallySustainable Development?

C3 Should the Victorian Commissioner for EcologicallySustainable Development be a statutory independentOfficer of Parliament (similar to the Auditor-General)?OR Should the position report to the Minister forEnvironment and Conservation?OR Are there other options?

Chapter 5 Environmental Accounting

53

CHAPTER 5 ENVIRONMENTAL ACCOUNTING

This section refers to chapter 5 of the Committee’s report. Some ofthe issues included:

Box 3: Environmental Accounting Issues in the Public Accounts andEstimates Committee Interim Report, Chapter 5

- Identifying environmental costs and benefits- Overseas and Australian experience- Accounting standards- Non-financial disclosures- Emerging issues – social accounting

5.1 Accounting for environmental impacts

Environmental accounting

Environmental accounting can be defined as the process ofbringing information about the environment, and the impact ofhuman activities on it, to account in such a way as to provideinformation that can be incorporated into decision making at anumber of levels. Environmental accounting can be in physical ormonetary terms. 77

The Public Accounts and Estimates Committee Interim Reportreviewed the issues of management accounting and financialaccounting, and the definitions of assets and liabilities.


Accounting and Reporting, Parliament of Victoria, Melbourne, June 1999, p. 9


54

5.2 Financial accounting and the accountingprofession

In 1992, the European Union (EU) released a document entitledTowards Sustainability as part of its Fifth Action Programme. One ofthe suggestions of the Programme was for the accountingprofession to take a role in implementing costing systems thatinternalise many environmental costs which were previouslyignored. Traditional financial accounting typically ignores socialand environmental costs and benefits because of issues associatedwith such things as control. Specifically, the EU called for aredefinition of accounting concepts, rules, conventions andmethodology so as to ensure that the consumption and use ofenvironmental resources are accounted for as part of the full costof production and reflected in market prices. 78 The rationale forthe EU’s proposal was that if prices reflected the full costs ofproduction, including environmental costs, then such costs wouldflow through the various production and consumption cycles and,as a result of the higher costs, there would be an inclinationtowards more sustainable consumption patterns.

To date, the accounting profession has not embraced suchrecommendations. It would appear unlikely that changes in thedefinitions of the elements of accounting will be made in theforeseeable future. Nevertheless, a minority of organisations haveexperimented along the lines suggested by the EU and haveadopted a form of full cost accounting. Notional costs (estimatedcosts) are attributed to environmental situations external to theorganisation that have been created by the organisation. Thesenotional costs are then subtracted from conventional measures ofprofits. However, the number of organisations embracing thisform of full cost accounting is extremely minimal and the numberis not expected to increase to any real extent in the foreseeablefuture. 79

78 European Union, Towards Sustainability, Fifth Action Programme, Com(92) 23 final, 1992, Vol. II,

Section 7.4, p. 67.79 An overview of the full cost accounting approaches adopted by such organisations as Ontario

Hydro, BSO/Origin and Landcare Ltd. is given in Deegan, C. Financial Accounting Theory,McGraw-Hill Book Company, Sydney, 2000, pp.327-342. Deegan says Gray and Bebbingtonexplain ‘sustainable cost can be defined as the amount an organisation must spend to put thebiosphere at the end of the accounting period back into the state it was at the beginning of the


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Where the accounting profession has released information to assistwith accounting for environmental implications, the guidance hasfocussed on ensuring that the financial implications associatedwith environmental performance have appropriately beenincorporated in a reporting entity’s financial statements. That is,there has tended to be a fixation with fitting the environment intotraditional measures of financial performance (rather than treatingit as a different component of organisation performance). 80 Forexample, if it is likely that expenditure for environmentalremediation will be required in the future (perhaps by law) then aliability needs to be recognised as soon as it becomes probable thatfuture remediation expenditure will be incurred.

The Auditing Guidance Statement AGS 1036 The Consideration ofEnvironmental Matters in the Audit of a Financial Report, 1998, is anexample of the guidance released by the Australian accountingprofession. AGS 1036 does not create an environmentally specificguide, but highlights the application of existing Audit GuidanceStatements to environmental matters that translate into financialconsiderations.

Critical to the Auditing Guidance Statement is that the auditormust make a judgement that environmental matters may have amaterial effect on the financial report of an entity. If it isconsidered that environmental matters could potentially have amaterial effect on the financial performance of an entity then theauditor needs to ascertain that this effect is reflected in thefinancial statements before providing an opinion on thosestatements. 81

accounting period. Such a figure would be a notional one, and disclosed as a charge to a company’sprofit and loss account.’

80 In the last two-three years there has been increased attention to triple bottom line reporting. Triplebottom line reporting refers to the perspective that an organisation should provide information abouttheir financial performance, social performance, and environmental performance. These threecomponents of performance are all considered important in their own right. Proponents of triplebottom line reporting emphasise that different components of the organisation’s performance shouldnot be condensed into financial indicators alone. The notion of triple bottom line reporting directlyrelates to the concept of sustainable development.

81 Auditing Standards Board of the Australian Accounting Research Foundation, The Consideration ofEnvironmental Matters in the Audit of a Financial Report, Auditing Guidance Statement AGS1036, AARF, Caulfield, April 1998, eg. section .24. It is stressed that this guidance statementrestricts its attention to those environmental issues that potentially have a financial effect upon anorganisation and hence it reflects a concern for ensuring economic performance is reliablyproduced.


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Whilst most commentators would argue that our current systemsof accounting are deficient in respect of providing informationabout positive and negative environmental external effects,existing systems of accounting can provide information aboutactual expenditures in relation to the environment, and the savingsthat such expenditure has generated. For example, BaxterChemicals has been publicly disclosing an EnvironmentalFinancial Statement since the mid-1990’s. 82 This Statement ignoresany external effects caused by the business, but considers thosecosts and savings that directly relate to various environmentalinitiatives. For example, it identifies the costs of putting in placevarious recycling mechanisms and then provides calculations ofthe costs saved (for example, in the form of electricityconsumption, material usage, and waste disposal costs). One aimof the Baxter approach was to demonstrate that, contrary to thepreconception of many, the environment need not be only aburden on business performance but could make a positivecontribution. 83

The approach taken by organisations, such as Baxter, is notcontroversial and does not require a change in the underlyingdefinitions of accounting elements. Whilst it is based on a numberof estimates, it does provide information that would be of interestto parties both internal and external to the organisation. However,it still does ignore the environmental (and social) externalities(impacts external to the organisation) caused by an organisation.

5.3 Management accounting

In considering the generation of accounting information for usewithin an organisation, it is common to find that many companiesdo not track various environmental expenditures. For example,many organisations are unable to specify how much power usage,or wastage, relates to particular products and they do notinvestigate whether recycling of some waste might actually lead toreductions in the costs of some products. Often, a great deal of

82 Deegan, C. Financial Accounting Theory, McGraw-Hill Book Company, Sydney, 2000, p. 328.83 Bennett, M. and James, P. The Green Bottom Line: Environmental Accounting for Management –

Current Practice and Future Trends, Greenleaf Publishing, Sheffield, 1998, p. 295.


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potentially interesting information is simply accumulated in anoverhead account which receives minimal analysis. Usefulinformation is often simply lost within accounts that accumulateall sorts of financial information.

As one academic explains:

…environmental costs remain largely hidden – buriedamidst functional costs and unavailable to decision-makers,auditors and regulators. 84

Once various expenditures are analysed in greater detail, real costsavings can be made. There are many examples where it has beendocumented that detailed analysis of various activities andexpenditures can lead to positive outcomes for the environmentand financial benefits for the organisation. 3M has shown that itsPollution Prevention Pays program, begun in 1975, has lead to asaving of $US750 million, and reduced environmental emissionsby 1.4 pounds weight. 85 As another example, Kvaerner, aNorwegian construction company, accounted for their social andenvironmental impacts. They found by addressing these impactsthey could save $30 million by reducing employee sick leave by1%, and that a 1% reduction in material and energy consumptionwas worth $60 million. 86

Within Australia there are a number of case studies available toillustrate how many embracing environmental concerns cangenerate financial benefits. See the Cleaner Production website,http://www.environment.gov.au/epg/environet/eecp/index.html

Material Flow Cost Accounting Systems requires a manufacturerto break up their manufacturing process into steps. At each step,the dollar costs of materials and energy are calculated. The totalcosts to the manufacturer of the product and waste can becalculated. For example, waste aluminium sold by a manufacturerfor $46,000 may have cost the manufacturer $2.3 million toproduce. By breaking up the production process, the point at

84 Parker, L.D., Environmental Costing: An Exploratory Examination, Australian Society of Certified

Practicing Accountants, Melbourne, 1998, p.15.85 Lyster, M. Sustainability and Shareholder Value, Perspective, 2nd Quarter 1999, p. 41.86 Elkington, John, The future of corporate environmental reporting, paper for the Roundtable, held at

the Australian National University on 19 November 1997, p.7


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which waste is produced, and its exact dollar cost, can bepinpointed and the process changed, to minimise waste andmaximise the efficient use of resources. 87

The above discussion has focussed on applying a financial basis toenvironmental impacts of an organisation; a practice which hastended to be somewhat contentious. It should be appreciated thatthere are a number of ways that organisations provide informationto external parties that is not expressed in monetary terms. Suchapproaches include target based reporting: where certainenvironmental targets are identified (generally after determiningthe significant impacts of the organisation) and performanceagainst those targets are reported. Such an approach is quitecommon in Australia.

Eco-balance (or mass-balance) is where a systems based approachis adopted to describe the functioning of an organisation’soperations. All physical inputs to an organisation are tracedthrough to their eventual end within the organisation, whether inthe form of product, packaging, emissions or waste. The flow istypically presented in diagrammatic form.

Leading environmental reporters throughout the world often useeither of these two non-financial methods of environmentalreporting, often supplemented by financial information.

5.4 Corporations law

Whilst environmental reporting by corporations is regulatedunder the Corporations Law, Australian Stock Exchangerequirements (for listed companies) and Accounting Standards,there is a general absence of requirements to discloseenvironmental information. One exception is Section 299(1)(f) ofthe Corporations Law.

87 Material Flow Cost Accounting seminar, with Carsten Redmann, Institute for Management and the

Environment, Germany, seminar conducted in Melbourne, Victoria, sponsored by the AustralianGreenhouse Office and the Environment Protection Authority, Victoria, held on 10th March 2000.


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In 1998, an amendment to the Corporations Law required thatvarious types of entities, such as listed and unlisted publiccompanies, and large proprietary companies, must report:

if the entity’s operations are subject to any particular andsignificant environmental regulation under a law of theCommonwealth or of a State or Territory – details of theentity’s performance in relation to environmental regulation. 88

Ambiguity arose about what particular and significant actuallymeant. To clarify the situation, the Australian Securities andInvestments Commission released Practice Note 68 in November1998 which provided some general guidelines about s.299(1)(f). Itemphasised that the requirements to disclose were not related tofinancial disclosures, but to performance in relation toenvironmental regulation. Hence, accounting concepts ofmateriality in financial statements were not applicable. Disclosurewas required regardless of the quantum of fines (for breach of aregulation or law). Embracing the notion of significance, anddistancing the disclosure requirements from the notion ofmateriality, is an important step in the disclosure of environmentalperformance information. This is consistent with the Institute ofChartered Accountants in Australia’s 1998 report The Impact ofEnvironmental Matters on The Accountancy Profession. It noted:

materiality, as defined [in accounting], is very economic infocus. Being economic, or financial, in focus means thatconsiderations of materiality are really a function ofmanagement’s perception of the information needs of those witha financial stake (direct or indirect) in the organisation. 89

The ICAA suggested an alternative concept to materiality beembraced – significance. The concept of significance provides ameans to prioritise the large number of environmental impactsgenerated by an organisation.

88 Company Law Review Act 1998 (Cwlth), Schedule 189 Environmental Accounting Task Force, The Institute of Chartered Accountants in Australia, The

Impact of Environmental Matters on the Accountancy Profession: Discussion Paper, Leadership,Finance and Business Issues for Corporate Australia, The Institute of Chartered Accountants inAustralia, Sydney, January 1998, p. 17.


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Environmental impacts that are significant are those thatare of considerable importance to either the environment, theorganisation or its stakeholders. Determining what issignificant is a dynamic and subjective process. 90

Section 299(1)(f) of the Corporations Law was an initiative of theAustralian Democrats. 91 Once in place, the Federal Coalitionindicated that it wanted the section revoked, a move which wasconsistent with calls by various industry bodies. The positiontaken by industry has been that environmental reporting shouldbe voluntary and flexible. Section 299(1)(f) was referred to theParliamentary Joint Committee on Corporations and Securities forreview. The Committee recommended that the section beremoved from the Act. However, to date, no action has beentaken.



5.1 The government encourage the accountingprofession to develop, as a future project,methodologies to incorporate environmental costsinto prices of goods and services.

5.2 The government to provide funding to develop anInternet site containing information onenvironmental management accounting.

90 Ibid, p. 1891 Senator Murray of The Australian Democrats introduced amendment 37 to Schedule 1, which

became section 299(1)(f), towards the final stages of the debate on the Company Law ReviewBill 1998


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5.3 The government encourage the accounting bodiesand the accounting standards setting board andother relevant stakeholders to consider a revisedconcept of materiality and revised definitions ofassets, liabilities, revenues and expensesappropriate for environmental accounting.

5.4 The government encourage the professionalaccounting bodies and the accounting standardssetting board and other stakeholders to develop anew accounting standard that specifically dealswith environmental issues.

5.5 The government consider sponsoring a series ofworkshops on environmental accounting andreporting specifically targeted at the needs ofdifferent industries and stakeholder groups. 92

5.6 UNCTAD environmental accounting guidelines

In the field of environmental accounting, there has been anattempt to gain international agreement on an accountingstandard. That standard is included in the report EnvironmentalFinancial Accounting and Reporting at the Corporate Level, which wastabled at the 15th session of the International Standards ofAccounting and Reporting group in February 1998. The ISAR ispart of the United Nations Conference on Trade and Development.Since then, fifteen countries have adopted international accountingguidelines. 93

The report defined such key terms in environment accounting as:environment, asset, liability, contingent liability, environmentalcosts, environmental assets, ‘to capitalise’ and ‘obligation’. Thepaper provided methods for recognising environmental costs,

92 PAEC 1999, op cit. pp. 75, 85-8693 Mike Kelly, formerly with the Financial Institutions Initiative of the United Nations Environment

Program ; address to the Environment Protection Authority of Victoria / United NationsEnvironment Program Financial Services Conference, Melbourne, Victoria, 21-22 February 2000.


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environmental liabilities and recoveries. On the question ofdisclosure, it suggested:

In deciding whether an item of information … should bedisclosed, consideration should be given as to whether theitem is material. In determining materiality, considerationwould be given not only to the significance of the amount,but also to the significance of the nature of the item. 94

The cost of providing the information and business confidentialityshould be taken into account.


The government has advised that they will initiate discussionswith peak bodies in the accounting profession to ensureenvironmental factors are considered in reporting businessperformance.

5.8 Issues

94 United Nations Conference on Trade and Development, Environmental Financial Accounting and

Reporting at the Corporate Level, TD/B/COM.2/ISAR/2, UNCTAD, Geneva, 3 December 1997,p.11.

D1 How can the government encourage accounting bodies todevelop methods to incorporate environmental costs in theprices of goods and services?

D2 What initiatives could government implement to encourageorganisations to scrutinise their operations to determine hiddenenvironmental costs and to put in place mechanisms todetermine the financial benefits that might arise fromenvironmental protection measures?


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D3 What information on environmental management accountingwould accountants need on an Internet site?

D4 How should the concepts of: materiality, assets, liabilities,revenues and expenses be developed to incorporateenvironmental matters into accounting?

D5 Which government body should sponsor the proposed series ofworkshops on environmental accounting?

D6 What categories of stakeholders should be involved in theseproposed workshops?


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Chapter 6 Private Sector Environmental Performance Reporting

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CHAPTER 6 PRIVATE SECTOR

ENVIRONMENTAL

PERFORMANCE REPORTING

Box 4: Private sector environmental performance reporting in the PublicAccounts and Estimates Committee Interim Report, Chapter 6

- Mandatory environmental performance reporting- Overseas experience- Australian experience- Mandatory reporting in Victoria- Voluntary environmental performance reporting- Industry codes of practice- Environmental reports awards- Environmental management (EMS, ISO 14001)

Environmental reporting definition

Environmental reporting can be defined as the public disclosure ofinformation about the environment, for example, by way of a Stateof the Environment Report. It aims to assist with decision makingat a number of levels. 95 It is also the communication ofenvironmental performance information by an organisation to itsstakeholders, 96 and hence plays an important part in theaccountability of an organisation.

6.1 Victorian and Australian legal requirements

In Victoria, companies are required to report pollutants and wasteto the Environment Protection Authority (Vic), but these reportsare not made public. 97

95 Public Accounts and Estimates Committee, 1999, Report of the Inquiry into Environmental

Accounting and Reporting, Parliament of Victoria, Melbourne, p. 10.96 Natural Heritage Trust, A Framework for Public Environmental Reporting, An Australian

Approach, Environment Australia, Canberra, March 2000, p.2.97 Environment Protection Act 1970 (Vic), sections 19B, 30C and the Environment Protection

(Prescribed Waste) Regulations.


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If a company enters a voluntary agreement with the EnvironmentProtection Authority to develop an environment improvementplan, under section 31C of the Environment Protection Act 1970,they may be exempt from other requirements of the Act, but theymay be required to publicly disclose their environmental impacts.

Where companies have new projects which the Ministerdetermines are subject to the Environment Effects Act 1978,proponents of the project may be required by the Minister topublicly disclose the likely environmental impacts of the project.

Environmental disclosures under the CommonwealthCorporations Law must be made public (see section 5.4 of thisreport).

Each State, Territory and the Commonwealth have passed aNational Environmental Protection Council Act 1995. This establisheda National Protection Council, which has legal powers to passNational Environment Protection Measures. The first of theseprotection measures is the National Pollution Inventory. Allprivate companies must report their emissions to air, land andwater of 36 chemicals. Threshold releases are specified for eachchemical. These records are publicly available. 98

6.2 Frameworks: ESD, Agenda 21, EMS

Many companies have adopted a much broader framework thanthat of legal compliance.

ESD – ecologically sustainable development

Reporting under the Ecologically Sustainable Development (ESD)framework involves reporting a company’s economic, social andenvironmental circumstances, impacts and interactions.Governments do not have the resources to directly control theenvironment, favouring partnerships with industry. As pointedout by one commentator:

98 See the national pollutant inventory website: http://www.environment.gov.au/cgi-bin/epg/npi/database/npi3/npiquery.pl for the data base.


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… corporations are the only organisations with theresources, technology, the global reach, and, ultimately, themotivation to achieve sustainability. 99

Another commentator has said that globalisation is not just aboutfree trade, it is also about a global set of values and beliefs,including the adoption of environmental values and businessethics. Adopting ecologically sustainable development is not just aquestion of corporate citizenship, it is also a business strategy thatcan differentiate a company’s products, environmentally friendlyproducts, from others. An ESD strategy is a means of competingwith others for investor funds and reducing the costs of energyand materials. Adopting ecologically sustainable developmentprocesses attract high quality staff to the organisation, and theirinterest is maintained through externally verified sustainabilitycompany reports. 100

Agenda 21

Some companies adopted ecologically sustainable developmentphilosophies and practices following the 1992 Earth Summit in Riode Janeiro. The summit adopted “Agenda 21”, an agenda for the21st Century. The agenda spelled out actions needed for the worldto achieve ecologically sustainable development. Some of theactivities for private companies were:

� product stewardship;

� open dialogues with staff and the community;

� environmental audits; and

� the adoption of environmental codes, such as theBusiness Charter on Sustainable Development of theInternational Chamber of Commerce.

99 Quoted by John Elkington in The Future of Corporate Environmental Reporting, paper for

Roundtable, held at Australian National University, 19 November 1997, p. 6.100 Lyster, M. Sustainability and Shareholder Value, ASX Perspective, 2nd Quarter 1999.


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Annual reporting on the company’s environmental record,including the use of energy and resources, was part of thiscommitment. 101

EMS – environmental management systems

Environmental Management Systems (EMS) are defined in theAustralian Standard AS/NZS ISO 14001 on environmentalmanagement as:

Part of the overall management system that includesorganisational structure, planning activities,responsibilities, practices, procedures, processes andresources for developing, implementing, achieving,reviewing and maintaining the environmental policy. 102

Environmental management systems can provide companies withthe information needed for an environmental report.

The typical components of an environment management systemmight include:

� policy or mission statement, committing the companyto environmental aims;

� a review of existing activities and how they impact onthe environment;

� a strategic plan, to achieve the company’senvironmental aims; and

� a strategy that outlines the responsibilities, proceduresand tools required to meet those aims.103

Two standards used to develop environmental managementsystems are the European Union’s Eco-Management and AuditScheme (EMAS) and the International Standards Organisationenvironment management standards (ISO 14000 series). The ISO

101 Keating, M. The Earth Summit’s Agenda for Change, Centre for Our Common Future, Geneva,

1994, p. 49.102 Quoted in Public Accounts and Estimates Committee, Interim Report of the Inquiry into

Environmental Accounting and Reporting, Parliament of Victoria, June 1999, p. 109.103 Ibid, pp.111-112.


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14000 series, adopted by the Australian and New ZealandStandards Associations, are more likely to be used in Australiathan the EMAS system.

Most companies adopting any of the above frameworks to managetheir businesses may want to report to the public, their investors,shareholders and employees their environmental achievementsand matters that need to be addressed.

6.3 Incentives for reporting

The external incentives for environmental reporting are similar tothose for environmental accounting, namely:

� media attention to companies when they damagethe environment;

� community concern for environmentallyresponsible corporate behaviour;

� consumer preference for environmentallyfriendly products and services; 104

� attractiveness to potential lenders to thecompany, especially financial institutions;

� the intent of insurance companies to minimisecorporate risk, including environmental risks;and

� development of environmental indexes by stock-brokers. 105

104 Parker, L.D., Environmental Costing: An Exploratory Examination, Australian Society of Certified

Practicing Accountants, Melbourne, 1998, p.8-9.105 Jane Cutler, Chief Operating Officer, Jacques Martin Industry Funds Administration, speech at the

Environment Protection Authority of Victoria and United Nations Environment Programme,Financial Services Conference, Melbourne, 21-22 February 2000.


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As Hugh Morgan, Chief Executive Officer of WMC said:

The competition for access to exploration and miningopportunities is intense. So is competition for the bestpeople, capital and community support. Poorenvironmental performance damages a company’s ability toattract these. Quite simply, good environmentalmanagement is good business. 106

Insurance companies have changed their focus from occupationalhealth and safety risk to environmental risk. 107

Lloyds Bank now offers reduced interest rates to companies whoare investing in environmental improvements. 108

Some investment advisors are providing their clients withcompanies ranked on their environmental disclosures, either givenvia direct questionnaires or by analysis of their public companyreports. Indices include the BiE [Business in the Environment] TheIndex of Corporate Environmental Engagement, survey of FTSE 100companies, the Dow Jones Sustainability Group Index, and theAustralian Westpac Eco Index. Such indices are deliveringdividends of about 5% above ordinary share indices in the UnitedStates, and about 2% in Australia; the “environmentaldividend”.109 Those involved in good environmental practices areregarded as good general managers.

6.4 Disincentives for reporting

The following barriers to companies reporting on theirenvironmental impacts have been identified:

106 Morgan, H. M. The Journey Continues, WMC Environment Progress Report 1996, WMC,

Melbourne, p.1.107 Raymond Jones, General Manager, QBE insurance, speech at the Environment Protection

Authority of Victoria and United Nations Environment Programme, Financial ServicesConference, Melbourne, 21- 22 February 2000.

108 Richard Cooper, Head of Group Environmental Risk, Lloyds TSB Group PLC, speech at theEnvironment Protection Authority of Victoria and United Nations Environment Programme,Financial Services Conference, Melbourne, 21- 22 February 2000.

109 Shaun Mays, Westpac Financial Services, speech at the Environment Protection Authority ofVictoria and United Nations Environment Programme, Financial Services Conference, Melbourne,21- 22 February 2000.


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� low environmental awareness of companies; or

� a belief that environmental responsibility doesnot make a difference;

� fear of being ranked against other companies;

� the cost of environmental reporting;

� uncertainty of the view that governments wouldtake about disclosing environmental difficulties;

� apathy from the financial sector. 110

6.5 Process for developing reports: Australianguidelines

Environment Australia released A Framework for PublicEnvironmental Reporting; An Australian Approach in March 2000.The consultancy leaders who developed the Framework were theSnowy Mountains Engineering Corporation and the AustralianIndustry Group. Consulting associates included the GRI group. 111

Over 300 people attended the one day workshops, which wereheld in five Australian capital cities. Many were concerned thatthe guidelines:

� be voluntary not compulsory;

� be flexible not prescriptive;

� allow for further development of guidelines - donot stop the process now; and

� that verification should be voluntary notcompulsory.

110 Ros Kelly, Group Executive, Dames and Moore, ‘The value of corporate environmental reports to

companies’, powerpoint overheads presented at the Corporate Environmental ReportingConference, Sydney, 29-30 September 1999.

111 Environment Australia, A Framework for Public Environmental Reporting: An AustralianApproach, Environment Australia, March 2000.


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GRI (an international standard for environmental reporting), wasconsidered to be too prescriptive and at too high a level forAustralian industry as a whole.112

The Framework has a section on “How to prepare a PublicEnvironment Report” and a section on possible elements.

The process for preparing the report is laid out in 8 steps:

� investigate the rationale for a PER [PublicEnvironment Report];

� identify key stakeholders;

� identify key environmental aspects and impacts;

� develop environmental performance indicators;

� set reporting objectives and targets;

� measure and evaluate;

� strengthen effectiveness of communication; and

� publish, distribute, use and review.

The 23 possible elements for a public environmental report arecollected under 9 headings:

� introduction

� organisational context

� management peformance, policies and systems

� stakeholder engagement

� environmental performance

� product or service performance

� possible format of a PER [public environmental report]

112 Jeyaretnam, T., ‘Australian environmental reporting and our global position’, paper presented at

the Corporate Environmental Reporting Conference, Sydney, 29-30 September 1999.


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� third-party verification / external review

� future reporting trends.113

It has been suggested that there are 10 “transitions” a companymust make if it wishes to move from management systems thatproduce environmental reports, to those which producesustainability reports; see table 1.

Table 1 The Ten Transitions 114

Established focus Emerging focus1. One-way, passive

communication� Multi-way, active dialogue

2. Verification as option � Verification as standard3. Single company progress

reporting� Benchmarkability

4. Management systems � Life-cycles, business design,strategy

5. Inputs and outputs � Impacts and outcomes6. Ad-hoc operating standards � Global operating standards7. Public relations � Corporate governance8. Voluntary reporting � Mandatory reporting9. Company determines

reporting boundaries� Boundaries set through

stakeholder dialogue10. Environmental reporting

and performance� Triple bottom line –

economic, environmental andsocial – reporting andperformance

6.6 Sectoral reports compared with universalreports

The UNEP’s Company Environmental Reporting and the GRISustainability Reporting Guidelines are attempts to developuniversal reporting systems.

113 Environment Australia, 2000, op cit, p.1.114 Elkington, J. The future of corporate environmental reporting, paper for the Roundtable, Australian

National University, 19 November 1997, p. 4.


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In Australia, one example of a sector developing its own code ofpractice is the minerals sector. The Australian Minerals Industryhas developed a Code for Environmental Management. The elementsof the Code’s Statement of Principles are:

� sustainable development

� environmentally responsible culture

� community partnership

� risk management

� integrated environmental management

� performance targets

� continual improvement

� rehabilitation and decommissioning

� reporting.115

Signatories to the code are required to:

� implement regular reporting of environmentalperformance to all stakeholders, including the Board ofDirectors, shareholders, employees, authorities and thecommunity;

� provide an annual environmental report;

� reports should describe the company’s processes for:

- communicating environmental policy;

- communicating environmental performance;

- communicating consultation and responding toconcerns; and

- Code implementation.

A minimum set of contents for reports is also recommended. 116

115 Australian Minerals Industry Code for Environmental Management. An overview of the development of the code and its application is given in the industry’s publication Groundwork, vol. 2, no.3, March 1999.116 Australian Minerals Industry Code for Environmental Management, reporting.


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6.7 Voluntary versus mandatory reporting

Voluntary codes, sectoral codes and reporting requirements arelikely to maximise participation by companies in environmentalreporting. Sectoral codes and guidelines are likely to provide thepublic with relevant information, and ensure that companies arenot burdened with the costs of reporting matters not relevant tothem.

On the other hand, standardised environmental reporting systemsenable investors and the public to compare the environmentalperformance of companies across sectors.

Mandatory reporting ensures that both good environmentalperformers and poor environmental performers in the privatesector do report. There is no market disadvantage to thoseconscientious companies who voluntarily report. Mandatoryreporting (eg. as required under the Corporations Law) may leadto companies supplying the statutory minimum information, andnot exploring and experimenting with disclosures, as is currentlyoccurring with voluntary reporting.


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6.1 The Environment Protection Authority ensureconsistency in reporting requirements underEPA licences, EPA accredited licences and thePrescribed Waste Regulations.

6.2 The Environment Protection Authority liaisewith the National Environment ProtectionCouncil to ensure consistency between EPAreporting requirements and National PollutantInventory requirements.

6.3 The Environment Protection Authority liaisewith the Australian Securities and InvestmentsCommission and other relevant stakeholders toensure consistency between EPA reportingrequirements and requirements under theCorporations Law.

6.4 The government support the development byEnvironment Australia of National Guidelinesfor Public Environmental Reporting.

6.5 The government encourage voluntaryenvironmental reporting by publicly listedcompanies and the public sector (not alreadysubject to mandatory reporting requirements)with the intention of mandating, within 10 years,disclosure of environmental information throughthe Environment Protection Act and requiremore detailed reporting under the CorporationsLaw.

6.6 The government give consideration to financiallysupporting and promoting environmentalreporting awards.


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6.7 The Victorian Government support the FederalGovernment incentives to industry groups toassist their members to implement the NationalPublic Environmental Reporting Guidelines.

6.8 Within the next 10 years all Victorian businesses,over a certain size (to be determined inconsultation with the business community) berequired to adopt an environment managementsystem (based on ISO 14001, or EMAS, or anindustry best practice model) to a certifiablestandard. 117


The government strongly encourages private sector organisationsto undertake environmental performance reporting and to developand use environment management systems.

6.10 Issues

117 PAEC 1999, op cit, pp. 93, 94, 104, 106, 108 and 118.

E1 Should companies be required to make public environmentalreports on their activities?

E2 What should be the content of environmental reports?

E3 Should companies be reporting more than their financial andenvironmental situation? Why? What additional informationshould they report on?


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E4 If you are a manager in a company, what are the incentives anddisincentives you have for reporting the environmentalimplications of the activities of your company? Would youdescribe your company as large, medium or small?

E5 Should the Victorian government promote any particular typeof reporting in the private sector? For example, environmentalor ecologically sustainable development or social responsibilityreporting?

E6 Should environmental reporting by private sector companiesbe mandatory or voluntary? Why?

E7 Should guidelines be prescriptive or flexible?

E8 Should guidelines be developed for each sector or industry, orshould there be universal environmental guidelines for allprivate sector companies?

E9 Should external verification of environmental reports by theprivate sector be compulsory or voluntary?

Chapter 7 Public Sector Environmental Reporting

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CHAPTER 7 PUBLIC SECTOR

ENVIRONMENTAL REPORTING

Box 5: Public Sector Environmental Reporting Issues in Public Accounts andEstimates Committee Interim Report, Chapter 7

- Environmental reporting, financial statements and annualreports

- Overseas, Australian and Victorian experiences- Environmental content in annual reports

7.1 Environmental improvement plans

The Public Accounts and Estimates Committee recommended thatall Victorian Departments and Agencies implement environmentimprovement plans.

Section 31C of the Environment Protection Act 1970 allows occupiersof premises to enter into agreements with the EnvironmentProtection Authority to develop environment protection plans andpublish the results of environmental audits and monitoringprograms.

The Act states (section 31C(6)):

An environment improvement plant should include –

(a) a requirement that any relevant State environmentprotection policy, industrial waste managementpolicy, regulations and licences conditions must becomplied with; and

(b) emissions and waste production standards for theindustry; and

(c) requirements for the monitoring of compliance withthe environment improvement plan; and


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(d) provision for the participation of the community inthe evaluation of the performance in meetingobjectives under the environment improvement plan;and

(e) provision for the up-grading of plant and equipmentto meet objectives under the environmentimprovement plan; and

(f) provision for the assessment of new or emergingtechnology in the industry or in pollution control; and

(g) provision for contingency or emergency plans.

In its Bulletin on Environment Improvement Plans the EPA says:

An Environment Improvement Plan (EIP) is a publiccommitment by a company to enhance its environmentalperformance. The plan outlines areas of the company’soperations to be improved and is usually negotiated inconjunction with the local community, local government,EPA and other relevant government authorities. Wherepossible, an EIP contains clear timelines for completion ofimprovements and details about on-going monitoring of theplan. … Monitoring, asessments and audits areundertaken to plan and support these improvements. 118



7.1 The government encourage the accountingprofession and the accounting standards settingboard and other stakeholders to develop a newaccounting standard for public sector reportingon environmental issues.

118 Environment Protection Authority, Environment Improvement Plans, Information EPA Bulletin,

Publication 394, single sheet, October 1993.


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7.2 The government establish a core set ofenvironmental performance measures applicableto all departments and agencies eg. energy andvehicle usage, including those under theNational Greenhouse Strategy (Measure 3.1).

7.3 Each government department and agency shouldidentify environmental performance measures specificto their department or agency.

7.4 The government require all Victorian departments andagencies to implement an environment improvementplan which includes the core environmentalperformance measures and any specific measuresidentified and include targets for each environmentalperformance measure.

7.5 The government develop an integrated environmentaland financial reporting framework for the publicsector, which will:

� use physical indicators to convey useful informationto decision makers; and

� present a balanced perspective of the VictorianGovernment’s environmental performance.

7.6 The government publicly report annually onenvironmental performance across the whole ofgovernment. 119


The Commissioner for Ecologically Sustainable Development willaudit compliance with environmental legislation.

The government is working towards the implementation of annualenvironmental performance reporting for public sector agencies inline with the principles of ecologically sustainable development.

119 PAEC 1999, op cit, pp. 125, 132-133.


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7.4 Issues

F1 Should government departments and agencies lead by examplein producing environmental performance reports?

F2 What purposes do public sector environmental performancereports serve?

F3 Should government departments and agencies report theirenvironmental performance in annual reports, or produceseparate environmental reports?

F4 What key environmental matters should the public sector bereporting?

F5 Should all government departments and agencies, by law,report their environmental performance?

F6 How should environmental performance indicators bedeveloped? Should there be stakeholder consultation? Whatdocuments and other sources should be used in developingthese indicators?


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F7 What degree of environmental performance detail should thepublic sector be reporting? How should this information bepresented? (eg. printed report, Internet etc). Should allagencies be required to report to the same extent?

F8 What comparative period should be used for reporting –compared to last year, last 5 years?

F9 What, if any, minimum set of indicators should all agencies anddepartments be reporting against?


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Chapter 8 Environmental Auditing and Verification

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CHAPTER 8 ENVIRONMENTAL AUDITING

AND VERIFICATION

Box 6: Environmental auditing and verification issues in the PublicAccounts and Estimates Committee Interim Report, Chapter 8

- Justification and framework for auditing of environmentalstatements

- Justification and framework for verification of environmentalreports

- Level of assurance- Regulation of auditing and verification- Auditing public sector reports, including reporting non

compliances to Parliament

There are a variety of activities associated with environmentalauditing, including auditing of site contamination and auditing forresource consumption.

For the purposes of this Paper, environmental auditing refers toauditing of environmental information in financial statements andauditing of environment performance reports. 120

8.1 Stakeholder trust in environmental reports;role of the accounting profession

Many witnesses to the Committee's earlier inquiry indicated that itwas essential that the environmental reports be independentlyverified in order to ensure that the reports were credible.

Calls for independent verification were reflected in a report issuedby the World Wide Fund for Nature (WWF) in 1999. WWFproduced an Environmental Reporting Scorecard, which was used toassess the environmental reports released by signatories to theAustralian Minerals Industry Code for Environmental


Accounting and Reporting, Parliament of Victoria, June 1999, p.135.


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Management. WWF was critical of the Code, as it did not requireany verification of the contents of the reports.

The significant shortcoming in all the reports was externalverification. Only four (out of 11) had any externalverification, with WMC and North being the onlycompanies referring to an external panel or advisorycommittee for the reports. WWF believes externalverification adds to the credibility and integrity of the reportby providing stakeholders with an independent assessmentof the report content. WWF believes that the companiesshould place as much importance on external verification ofstatements on environmental performance as they do forstatements on financial performance. 121

In the case of environmental accounts, there is no Australianspecific environmental accounting standard, just AGS 1036 TheConsideration of Environmental Matters in the Audit of a FinancialReport. A key element in this statement is the judgement of theauditor “as to whether environmental matters give rise to a risk ofmaterial misstatement in the financial report.” 122

Commenting on mandatory environmental reporting under theCommonwealth Corporations Law, a commentator has said:

Even though the information is reported in a section of thecompany Annual Report that does not have to beindependently audited, there are two issues at stake. One isthe external credibility issue … The other is an enhancedinternal concern about the accuracy of the information. 123

There is a need for experienced and technically qualifiedenvironmental auditors.

121 World Wide Fund for Nature, Mining Environmental Report Scorecard, WWF, Melbourne, May

1999, p. 6.122 Auditing Standards Board, The Consideration of Environmental Matters in the Audit of a

Financial Report, AGS 1036, Australian Society of Certified Practising Accountants and TheInstitute of Chartered Accountants in Australia, April 1998, section .08.

123 Kate Vinot, Dames and Moore, ‘Keeping ‘em honest – The role of verification’, paper presented atthe Corporate Environmental Reporting Conference, Sydney, 29-30 September 1999.


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Commenting on the current position with public sector reports, anacademic stated:

An auditor could either accept the approach adopted by anagency (and just test the calculations) or else an auditorcould adopt individual (and contestable) assumptions, andevaluate the representations of others in terms of his or herown views.

The same comments might well be made about claims thatan auditor could assess whether published performanceinformation is ‘relevant and appropriate’ – as is presentlyrequired by legislation in Western Australia.

The quality of ‘relevance’ is ultimately a subjective question:it depends on the views of users of the report … ultimatelythe views of persons external to an organisation are the finalarbiters of what data are or are not ‘relevant’ to the decisionsthey face. Possibly an auditor could form a judgement aboutthe relevance of published information by:

(a) considering the judgements likely to be made by users;

(b) assessing what information is relevant to thosejudgements; and

(c) comparing the product of that assessment against theinformation which has been published. In these terms,the auditor would simply be pitting his (sic)judgement against the judgement of the preparer. 124

8.2 Accrediting auditors and verifiers

The Victorian Environment Protection Authority accreditsauditors of contaminated land and industrial facilities.Unfortunately, some of these auditors are advertising themselvesas EPA approved environmental auditors, without furtherspecifying what they are actually licensed to audit. Accreditation

124 Walker, R.G., ‘Reporting on service efforts and accomplishments in the NSW Public Sector’,

essay, 1999, part 6, on the New South Wales Council on the Cost of Government website: http://www.occg.nsw.gov.au


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of auditors may have to be strengthened to ensure accurateadvertising of expertise.

KPMG sees a trend in environmental reporting toward a greaterreliability of data, and independent verification of reports.Externally verified data will serve as benchmarks for othercompanies. 125

External verification by independent specialists can be very costly.On the other hand, stakeholders such as local communities,employees and experts in the field can become involved in theprocess of the development and checking of the company’senvironmental report – acting as verifiers of the process as muchas the product. WMC has adopted this procedure for itsenvironmental reports, in addition to using external specialistverifiers. 126

As indicated in our interim report, there are no internationallyaccepted standards for environmental audits or verificationprocesses. Nor are there agreed sets of qualifications. The twomain categories of organisations carrying out external verificationof environmental performance reporting are:

� accounting organisations (eg. Deloitte & Touche,KPMG, PricewaterhouseCoopers); and

� environmental management consultants (eg. ERM,Dames and Moore, SustainAbility, Arthur D. Little). 127

The Quality Society of Australasia certifies environmentalauditors, but does not have a process for certifying verifiers. 128

125 Punte, S. KPMG, powerpoint overheads presented at the Corporate Environmental Reporting

Conference, Sydney, 29-30 September 1999.126 WMC Limited, Environment Progress Report 1999, WMC, Southbank, Victoria, 2000, pp.5, 6, 7

and 19.127 PAEC, Interim Report of the Inquiry into Environmental Accounting and Reporting, Parliament of

Victoria, Melbourne, p. 149.128 Ibid, p.150. Note that auditors ensure that the statements within the report are fair and accurate.

Verifiers, through site visits and other inspections and discussions, determine if the document is a fair representation of the company’s overall environmental performance.


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8.3 Levels of verification

A commentator has found various levels of verification incompany environmental reports:

� checking of company Minutes of meetings only;

� checking the report for anomalies, interpretation ofdata and reporting of methodologies;

� verification against environmental licences andindustry codes; and

� comparison of statements in the report against visits toselected sites, where discussions with local employeesoccurred and data collection methods were checked.129

She suggests three levels at which company environmental reportscan be verified:

1. The numbers – data collected is compared to keyperformance indicators on the same scale. Thisassumes that key indicators do reflect significantenvironmental performance, that the data can beaccurately collected and the data is representative ofevents. The numbers cannot verify compliance, norcan they determine if key environmental issues havenot been reported.

2. Quantitative data on key environmental performanceindicators. For example, the number of Boardmeetings where environmental issues have beenaddressed; the number of complaints and the delaybefore they are closed out; community relationsindicators. The use of such indicators usuallyrequired external specialists to verify their accuracy.Some industry bodies, such as the Minerals Counciland the Electricity Supply Association of Australia aredeveloping protocols and best practice models for theindicators in their environmental codes.

129 Kate Vinot, Dames and Moore, ‘Keeping ‘em honest – The role of verification’, paper presented at

the Corporate Environmental Reporting Conference, Sydney, 29-30 September 1999, pp. 3-4.


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3. Verifying performance. Is the document an accuraterepresentation of the company’s environmentalperformance? Is there any information not in thedocument that should be in it? To answer thesequestions requires expertise in company managementand environmental management. 130



8.1 The government establish a taskforce, withrepresentatives from the professional accountingbodies and the accounting and auditing standardsetting boards and relevant stakeholders, todevelop basic standards for verification ofenvironmental performance reports for publiclylisted companies.

8.2 To ensure a degree of consistency in futureenvironmental reporting, auditors be required toaudit and accredit industry best practicereporting models.

8.3 The government should encourage thecertification of verifiers of environmentalperformance reports through the Quality Societyof Australasia.

8.4 The government pursue the development ofstandards for auditors of environmentalinformation in public sector annual reports andpublic sector environmental performancereports. 131

130 Ibid, pp.5-7.131 PAEC 1999, op cit, pp. 148, 151-152.


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There has been no specific response to these recommendations.

8.6 Issues

G1 Who should be involved (who are the stakeholders) in thedevelopment of qualifications, standards, training andaccreditation of environmental auditors and verifiers?

G2 What body should be given the responsibility of examining andaccrediting environmental auditors and verifiers?

G3 Should there be limits on the skills environmental auditors andverifiers can advertise?

G4 What mechanisms should environmental auditors and verifiersof public sector environmental reports use to report breaches ofenvironmental laws to Parliament?

G5 What level of verification do you expect in environmentalreports – the numbers, quantitative data on performanceindicators, or verifying performance? (see text for details ofeach of these levels).

G6 Should the accounting profession or other professions beinvolved in the development of environmental auditingguidance?


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Chapter 9 Environmental Levies

93

CHAPTER 9 ENVIRONMENTAL LEVIES

9.1 EPA Environmental Levies in Victoria

The Environment Protection Act 1970 includes an EnvironmentProtection Levy under section 24A and a Landfill Levy undersection 50S.

The Environment Protection (Scheduled Premises andExemptions) Regulations 1996, define premises under 6 schedules.The schedules relate to: chemicals stored, treated, produced ordisposed of as waste, including sewage. The regulations alsocover: coal processing works, cement works, concrete and bitumenbatching works, metal works, drum coating works, vehicleassembly, printing works, power stations and potable watertreatment plants. Exemptions to the regulations are based onsmall amounts of chemicals used or wastes produced, minoractivities and selected approved works.

The Environment Protection Levy varies from 3% of the licencefees depending on the classification level of the premises.Premises can be exempted, on the basis of their record ofcompliance.

A Landfill Levy of $3 per tonne is placed on waste deposited onland of schedule 2 premises in selected municipal districts; and $2per tonne in other municipalities.

A Landfill Levy of $10 per tonne is placed on prescribed industrialwaste deposited to land on premises.

These figures can be increased by up to 10% per annum by theGovernor in Council.

A rebate is available on Landfill Levies for waste removed frompremises for recycling, reprocessing, recovery or purification.


94

These levies, other than the $10 per tonne levy, are paid into aResource Recovery Fund, under section 52A of the Act. Themoney is to be used:

� to cover the EPA’s expenditure on administering thelevies, and to further “its waste avoidance, wastemanagement and waste reduction objectives”;

� to pay regional waste management groups; and

� to pay EcoRecycle Victoria.

The $10 per tonne levy will be used to drive cleaner productionand other waste reduction programs focused on major sources ofhazardous industrial waste. 132

9.2 New South Wales local governmentenvironmental levies

Under section 495 of the New South Wales Local Government Act1993, local councils may raise levies, subject to ministerialapproval.

9.3 OECD on environmental taxes and levies

In their 1998 evaluation of Australia’s environmental performance,the OECD (Organisation for Economic Co-operation andDevelopment) commented:

… economic instruments such as pollution charges, usercharges, differential taxes, levies and fees, deposit refunds,tradeable permits, eco-taxes and tax incentives are notextensively used in Australia for environmental purposes… 133

132 Environment Protection Authority, Annual Report 1999, publication 663, EPA, Melbourne, 1999, p.31.133 Organisation for Economic Co-operation and Development, Environmental Performance Reviews, Australia, OECD, Paris,1998, p.140


95

They recommended that Australia :

� increase charges to cover the full costs of sewageand domestic waste collection and disposal;

� increase the internalisation of environmentalcosts into resource use;

� increase expenditure to develop economicanalytical tools to model macro, regional andsectoral economic activities and their effects onenvironmental parameters;

� use cost-effectiveness analysis to influence thedevelopment of environmental policies andinstruments;

� use market based incentives (eg. productcharges, deposit refunds and emission trading)to increase the cost-effectiveness of resource use;and

� use “appropriately designed energy taxation …to encourage energy conservation and use ofrenewables”.134

These activities should not be seen in isolation, but relate to theAustralian use of partnerships between government, thecommunity and industry. 135

9.4 The use of environmental levies

An academic believes that taxing pollutants may not necessarilyhelp the environment. She gives the example of taxing sulphurdioxide emissions at a rate below the high cost of investment incontrolling the emissions. This creates local sulphur dioxidepollution problems. 136

134 Ibid, pp.140, 147-150.135 Ibid, p.18.136 Lockhart, 1997, Environmental Tax Policy in the United States: Alternatives to the Pollution Pays

Principle, Dundee Discussion Papers, Centre for Social and Environmental Accounting Research, University of Dundee, Dundee, June 1997, p. 13.


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The OECD’s study of the use of environmental taxes by Poland,Estonia, Russia and Hungary found that as the taxes wererelatively low, and often the pollution was not monitored, they didnot provide an incentive for reducing pollution, but did serve astate revenue raising purpose. 137

An academic argues that tax subsidies, combined with regulationsand education programs, at the State (not national) level have beenfound to be effective economic instruments to control landdegredation and pollution in the USA. 138 In Virginia, tax creditswere offered for the purchase of advanced equipment, whichapplied pesticide and fertiliser more precisely than existingmachinery. The aim of the program was to protect land thatleached out materials into local water courses. The subsidy waspromoted via an education program. In addition, the subsidyprovided an educative function – if operating costs decline due tothe use of the more precise machinery, the farmer has an incentiveto look at other environmentally sound practices. The subsidyenables farmers to comply with water quality regulations.

The OECD opposes subsidies, as they provide ‘concealedprotection for industry, increase public expenditures, andpotentially increase pollution levels because less firms will exist asa result of government support’. 139

Tax subsidies are not much use to poor farmers who pay no tax.

An Australian academic emphasises that economic instrumentsare only one means of achieving environmental policy objectives.He urges policy makers to start with the social goals and a cleardefinition of the environmental issues they wish to address.Policy goals should be in a form that allows measurement. Themost suitable policy instruments then need to be selected, of whicheconomic instruments are one option. The policy should bemonitored and reviewed. 140

137 Centre for Co-operation with the European Economies in Transition, OECD, Taxation and

Environment in European Economies in Transition, OCDE/GD(94)42, Organisation for Economic Co-operation and Development, Paris, 1994.

138 Lockhart, 1997, passim.139 Ibid, p. 14.140 Steve Dovers, contribution to Discussion session of at the Taxation and Environment Seminar,

Environmental Economics Seminar Series, Department of the Environment Sport and Territories,


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Another Australian academic argues the economists’ case, thateconomic instruments are measurable and have clearly statedassumptions. He argues that moral persuasion instruments,including subsidies, and regulations, have rarely been assessed interms of their cost-effectiveness. With taxation [and levies], thereis the possibility of a double dividend: the revenue raised by anenvironmental tax can be used to replace an existing tax thatdistorts a market. 141 The Australian Conservation Foundation hasproposed that environmental taxes replace taxes on jobs [eg.payroll tax]. 142

However, it can be argued that if you have a tax [or levy] thatdistorts a market, it should be removed. 143

Issues associated with greenhouse gas emissions trading (carbontrading) are the subject of a separate Public Accounts andEstimates Committee inquiry.

9.5 Drivers and barriers for environmental levies

A New South Wales EPA officer has outlined the drivers andbarriers to implementing taxes and levies:

Drivers

� they provide the best environmental outcome atleast cost;

� they can shift taxation away from the bad taxeson labor, income and savings, to the goodtaxation on environmental degredation;

1996, available on the website: http://www.environment.gov.au/epcg/eeu/taxation/contents.htm.Also see his paper: ‘Information, sustainability, and policy’, Australian Journal of EnvironmentalManagement, vol. 2, no.3, September1995, pp.142-156.

141 Mick Common, Background Paper, the Taxation and Environment Seminar, EnvironmentalEconomics Seminar Series, Department of the Environment Sport and Territories, Canberra, 1996,available on the website: http://www.environment.gov.au/epcg/eeu/taxation/contents.htm.

142 Trish Caswell, the Taxation and Environment Seminar, Environmental Economics Seminar Series, Department of the Environment Sport and Territories, Canberra, 1996, available on the website: http://www.environment.gov.au/epcg/eeu/taxation/contents.htm.

143 Rob McDougall, contribution to Discussion session of at the Taxation and Environment Seminar,Environmental Economics Seminar Series, Department of the Environment Sport and Territories,1996, available on the website: http://www.environment.gov.au/epcg/eeu/taxation/contents.htm.


98

� they stimulate pollution prevention and controltechnology, which regulation alone does not;

� they stimulate consideration of the company’soverall emissions, and focus attention on thesources of all emissions;

� nonpoint sources of pollutants (eg. run-off fromfarms) can be brought under regulatory scrutinyvia levies.

Barriers

� the introduction of economic instrumentsrequires changing legal, administrative andinstitutional frameworks, which will require thebuilding of a constituency for change;

� industry and other lobby groups will opposenew costs and changes to the rules of the game.They will be concerned about the competitiveadvantage of others not subject to theenvironmental levies. Those who are experts indealing with the current regime may find theirexpertise obsolete;

� environmental, legal, communication, technicaland operational staff are all needed to form amultidisciplinary team to develop effectiveeconomic instruments; and

� politically, new taxes, even revenue neutral ones,are not welcome. 144

Before any new levies are introduced, they must be preceded byan education program. An education program must clearly setout the policy objectives to be achieved by the levy anddemonstrate how the levy can be changed in the light of newinformation. The public want to see the revenue from levies 144 Gul Izmir, NSW Environment Protection Authority, ‘Taxes and levies as instruments for

environmental policy’, paper presented at the Taxation and Environment Seminar, EnvironmentalEconomics Seminar Series, Department of the Environment Sport and Territories, Canberra, 1996,available on the website: http://www.environment.gov.au/epcg/eeu/taxation/contents.htm.


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earmarked to specific environmental protection accounts; they arecynical about environmental revenues going to consolidatedrevenue. 145

The Public Accounts and Estimates Committee will investigate therole of environmental levies and charges in public environmentalmanagement.

9.6 Issues

145 See Taxation and Environment Seminar, Environmental Economics Seminar Series, Department of

the Environment Sport and Territories, Canberra,1996, available on the website:http://www.environment.gov.au/epcg/eeu/taxation/contents.htm.

H1 What role should economic instruments play in environmentalpolicy?

H2 What do you think about the list of OECD specific suggestions(on pages 94 and 95) to increase the use of economicinstruments in Australia’s environmental programs?

H3 Are tax and direct subsidies for environmentally desirablebehaviour more effective than levies on environmentallyundesirable behaviour?

H4 Should all environmental revenues (including permit charges,levies and fines) be directed to environmental protectionaccounts?

H5 What types of economic instruments will provide the greatestenvironmental benefits and will there be significant social costsor benefits associated with such instruments?


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Appendices

101

APPENDIX SUMMARY OF THE CORE

INDICATORS FOR REPORTING ON

THE STATE OF THE ENVIRONMENT

Source: ANZECC State of the Environment Taskforce 2000, Core EnvironmentalIndicators for Reporting on the State of the Environment, EnvironmentAustralia, Canberra.

Key: C = condition, P = pressure, R = response

Theme/Issue ANZECCCode

Core Indicator C,P,R Page

ATMOSPHEREClimate Variability A 1 Southern Oscillation Index C 13

A 2 Daily and extreme rainfall C 14A 3 Average maximum and

minimum temperaturesC 15

EnhancedGreenhouse Effect

A 4 Greenhouse gas atmosphericconcentrations

C 16

A 5 Annual greenhouse gasemissions

P 17

Stratospheric Ozone A 6 Concentration of ozonedepleting substances in theatmosphere

P 18

A 7 Stratospheric ozoneconcentration

C 19

A 8 Recovery and destruction ofozone depleting substances

R 20

A 9 Ultra-violet radiation levelsat the surface

C 21

Outdoor Air Quality A 10 Exceedences of NEPM AirQuality Standards for carbonmonoxide concentrations

C 22

A 11 Exceedences of NEPM AirQuality Standards for ozoneconcentrations(photochemical smog)

C 22


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A 12 Exceedences of NEPM AirQuality Standards for leadconcentrations

C 23

A 13 Exceedences of NEPM AirQuality Standards fornitrogen dioxideconcentrations

C 23

A 14 Exceedences of NEPM AirQuality Standards forsulphur dioxideconcentrations

C 24

A 15 Exceedences of NEPM AirQuality Standards forparticles concentrations

C 25

A 16 Emission of air pollutants P 25BIODIVERSITYThreateningprocesses

BD 1 Native vegetation clearing P 27

BD 2 Aquatic habitat destruction P 28BD 3 Fire regimes P 29BD 4 Introduced species P 30BD 5 Species outbreaks C 31

Loss of biodiversity BD 6 Extinct, endangered andvulnerable species andecological communities

C 32

BD 7 Extent and condition ofnative vegetation

C 33

BD 8 Extent and condition ofaquatic habitats

C 34

BD 9 Populations of selectedspecies

C 35

BiodiversityConservationManagement

BD 10 Terrestrial protected areas R 36

BD 11 Marine and estuarineprotected areas

R 37

Appendices

103



BD 12 Recovery plans R 38BD 13 Area revegetated R 39

LANDLand Use andManagement

L 1 Changes in land use P,R 41

Erosion L 2 Potential for erosion P 42L 3 Wind erosion from high

wind eventsC 43

Salinity L 4 Area of rising watertables C 43L 5 Area affected by salinity C 44

Acidity L 6 Area affected by acidity C 45Contamination L 7 Exceedences of the

Maximum Residue Levels infood and produce

C 46

INLAND WATERSGroundwater IW 1 Groundwater extraction

versus availabilityC 47

IW 2 Exceedences of groundwaterquality guidelines

C 48

Surface water IW 3 Extent of deep-rootedvegetation cover bycatchment

P 49

IW 4 Surface water extractionversus availability

P 50

IW 5 Environmental FlowsObjectives

R 50

IW 6 Discharges from pointsources

P 51

IW 7 Surface water salinity C 51IW 8 Exceedences of surface water

quality guidelinesC 52

IW 9 Freshwater algal blooms C 53IW 10 Waste water treatment

(inland waters)R 54

IW 11 Waste water re-use (inlandwaters)

R 55


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Aquatic Habitats IW 12 Vegetated streamlength P 56IW 13 River health (AUSRIVAS) C 57IW 14 Extent and condition of

wetlandsC 58

IW 15 Estimated freshwater fishstocks

C 59

ESTUARIES &THE SEAMarine Habitat andBiological Resources

E+S 1 Changes in coastal use P 60

E+S 2 Disturbance of marinehabitat

P 61

E+S 3 Total seafood catch P 61E+S 4 Estimated wild fish stocks C 62

Estuarine andMarine WaterQuality

E+S 5 Coastal discharges P 62

E+S 6 Maritime pollution incidents P 63E+S 7 Exceedences of marine and

estuarine water qualityguidelines

C 64

E+S 8 Bio-accumulated pollutants C 65E+S 9 Algal blooms in estuarine

and marine environmentsP,C 66

E+S 10 Waste water treatment(coastal waters)

R 67

E+S 11 Disturbance of potential acidsulphate soils

P 67

Global Processes E+S 12 Sea level C 68E+S 13 Sea surface temperature C 69

HUMANSETTLEMENTSEnergy HS 1 Energy use P 71

HS 2 Energy sources P,R 72Water HS 3 Exceedences of drinking

water qualityC 73

Appendices

105



Demographics HS 4 Urban green space C 74HS 5 Residential density C 75HS 6 Population distribution and

no. of people/dwellingP 76

HS 7 Visitor numbers P 77Transport HS 8 Public transport use C 77

HS 9 Fuel consumption pertransport output

P 78

Waste HS 10 Solid waste generation anddisposal

P 79

Communityattitudes and actions

HS 11 Community attitudes andactions

R 80


106

Appendices

107

GLOSSARY

Ecologicallysustainabledevelopment

Ecologically sustainable development isdevelopment that improves the total qualityof life, both now and in the future, in a waythat maintains the ecological processes onwhich life depends. 146

Environmentalauditing

For the purposes of this Paper,environmental auditing is auditing ofenvironmental information in financialstatements and auditing of environmentalperformance reports. 147

EnvironmentalManagement Systems

Part of the overall management system thatincludes organisational structure, planningactivities, responsibilities, practices,procedures, processes and resources fordeveloping, implementing, achieving,reviewing and maintaining theenvironmental policy. 148

Environmentalaccounting

Environmental accounting can be defined asthe process of bringing information aboutthe environment, and the impact of humanactivities on it, to account in such a way asto provide information that can beincorporated into decision making at anumber of levels. Environmentalaccounting can be in physical or monetaryterms. 149

146 Council of Australian Governments, National Strategy for Ecologically Sustainable Development,

Australian Government, Canberra, 1992.147 Public Accounts and Estimates Committee, Interim Report of the Inquiry into Environmental

Accounting and Reporting, Parliament of Victoria, Melbourne, June 1999, p. 135. As noted in theInterim Report (p. 135) there are a variety of activities associated with environmental auditing,including auditing of site contamination and auditing for resource consumption.

148 Standards Australia, Environmental Management Systems – Specifications with Guidance for Use,AS/NZS ISO 14001; Standards Australia, Homebush, 1996.

149 Public Accounts and Estimates Committee, Interim Report of the Inquiry into EnvironmentalAccounting and Reporting, Parliament of Victoria, Melbourne, June 1999, p. 9.


108

Environmentalreporting

The public disclosure of information aboutthe environment, for example, by way of aState of the Environment Report. It aims toassist with decision making at a number oflevels. 150 It is also the communication ofenvironmental performance information byan organisation to its stakeholders, 151 andhence plays an important part in theaccountability of an organisation.

Sustainabledevelopment

Sustainable development is developmentthat meets the needs of the present withoutcompromising the ability of futuregenerations to meet their own needs; inparticular the needs of the poor.152

150 Ibid, p. 10.151 Natural Heritage Trust, A Framework for Public Environmental Reporting, An Australian

Approach, Environment Australia, Canberra, March 2000, p.2.152 World Commission on Environment and Development, Our Common Future, the Bruntland

Commission, Oxford University Press, 1987.

Appendices

109

ACRONYMS

ABS Australian Bureau of StatisticsACT Australian Capital TerritoryAGS Auditing Guidance StatementANZECC Australian and New Zealand Environment and

Conservation CouncilAUS Auditing StandardsCSIRO Commonwealth Scientific and Industrial Research

OrganisationEIP Environment Improvement PlanEMAS Eco-Management and Audit Scheme (European Union)EMS Environmental Management SystemEPA Environment Protection AuthorityESD Ecologically Sustainable DevelopmentEU European UnionFTSE A United Kingdom company that compiles indices of

companiesGDP Gross Domestic ProductGRI Global Reporting InitiativeISAR International Standards of Accounting and ReportingISO International Standards OrganisationMDBC Murray-Darling Basin CommissionNHT National Heritage TrustNSW New South WalesOECD Organisation for Economic Co-operation and

DevelopmentPAEC Public Accounts and Estimates CommitteePER Public Environmental ReportRCD Rabbit Calcivirus DiseaseSoE State of the EnvironmentUNCTAD United Nations Conference on Trade and DevelopmentUNEP United Nations Environment Program


110

Appendices

111

BIBLIOGRAPHY

‘Appointment of the Australian State of the EnvironmentCommittee’, 1999, State of the Environment Statements, No. 9, p.1.

Auditing Standards Board of the Australian Accounting ResearchFoundation 1998, The Consideration of Environmental Matters in theAudit of a Financial Report, Auditing Guidance Statement AGS 1036,AARF, Caulfield.

Australian and New Zealand Environment and ConservationCouncil (ANZECC) State of the Environment Reporting Task Force1998, Core Environmental Indicators for Reporting on State of theEnvironment: Discussion Paper for Public Comment, ANZECC,Canberra.

Australian Bureau of Statistics 1999, Environmental ProtectionExpenditure Australia 1995-96 and 1996-97, AusInfo, Canberra.

Australian Minerals Industry 1996, Code for EnvironmentalManagement, AMI, Melbourne.

Bennett, M. and James, P. 1998, The Green Bottom Line:Environmental Accounting for Management – Current Practice andFuture Trends, Greenleaf Publishing, Sheffield.

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Centre for Co-operation with the European Economies inTransition, OECD 1994, Taxation and Environment in EuropeanEconomies in Transition, OCDE/GD(94)42, OECD, Paris.


112

Commissioner for the Environment 1998, Annual Report 1997-98,Canberra, available on the website:http://www.act.gov.au/www.environmentcommissioner.act.gov.au.

Commissioner for the Environment 1999, Annual Report 1998-99,Australian Capital Territory Government, Dickson.

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114

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Appendices

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