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XBRL Goes Green

How stakeholders view your company's impact on the natural environment is an important element of today's management strategy. See how XBRL is extending a hand.

May 1, 2008
by Liv Watson

The growing public distress about the corporate world's impact on our environment is driving executives and investors alike to see their activities through an increasingly greener lens. From Dell to Caterpillar to Goldman Sachs, companies of all types and sizes are voluntarily communicating information to stakeholders about their business's impact on the environment. A company's stakeholders are often unaware of the full range of a firm's activities. Frequently this is a result of a dearth of information needed to analyze relevant comparable environmental data. Below we'll look at ways in which XBRL can be applied to other areas of transparency in business reporting including environmental discourse.

Reader Note: Don’t miss AICPA’s upcoming Free Webcast XBRL for SEC Reporting, May 19, 2-4 pm

The Natural Capitalist

Today's environmentally-focused investors take center stage with many stakeholders reviewing their existing portfolios to see how "Green" their investments are. They are also analyzing the extent to which companies are reporting on their "Eco-Friendly" progress.

An important element of today's management strategy is gauging how stakeholders view the company's impact on the natural environment. Stakeholders' perceptions can be critical to a company's performance and sometimes even to its survival. Eco-Investment clubs are popping up all over the world to foster local, personal environment and bring "eco-preneurs" and investors together to build, understand, promote communicate and encourage eco-investing. The Golden Standard for such investors' clubs is to invest in "Green" and invest regularly, regardless of the market outlook, in order to fuel the environmentally friendly, sustainable marketplace.

Welcome to Eco-Analytics

An industry-wide standard built around the XBRL framework for sustainability reporting is being developed by an international not-for-profit organization called The Global Reporting Initiative (GRI). This framework basically sets out the principles and indicators that organizations can use to measure and report their economic, environmental and social performance for better enhanced comparable eco-analytics.

Sustainability reports based on the GRI framework can be used to benchmark organizational performance with respect to laws, norms, codes, performance standards and voluntary initiatives. The reports also demonstrate organizational commitment to sustainable development and can compare organizational performance over time.

A typical report may be published voluntarily as a stand-alone document on a company's Web site or incorporate it into their annual report. The release of such a report is viewed as increasing transparency and therefore accountability. In 2005 alone, investors in the United States allocated nearly $1.7 trillion to socially screened eco-friendly portfolios including mutual funds.

Perceived uncertainty about a company's sustainability can have an enormous economic impact. For example Kinder, Lydenberg, Domini Research & Analytics (KLD), a rating agency for sustainability, dropped Coca-Cola Company from its Broad Market Social Index in July 2006 because of concerns about Coke's labor and environmental practices in emerging countries. TIAA-CREF, the largest U.S. retirement fund, sold more than 50 million shares of Coca-Cola based on this lower rating.

Conclusion

Today's companies are working increasingly to be environmentally accountable. That in turn should increase their marketability. The GRI and XBRL frameworks together will help both the company and the investor to realize the benefits of environmentally friendly performance.

Clearly, the CPA profession needs to get on board. CPAs are encouraged to download the GRI framework and its XBRL taxonomy. Take a leading role in guiding your clients to not only understanding the sustainability risk of not being eco-friendly, but also adopt these frameworks so that interested investors will know in real-time that your client is having a positive impact on the environment. Is your firm prepared to meet the needs of this emerging eco-analytics environment?

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Liv A. Watson is Vice President of Global Strategy, EDGAR Online, Inc. (NASDAQ: EDGR) — a provider of global business and financial information and founding member of XBRL.