Called To Account

Alaska's oil fields at Prudhoe Bay lie beneath an area of awesome beauty, still pristine and fragile. But around 750 miles to the south lies Prince William Sound, the site of one of the world's worst oil-spill disasters a decade ago when the tanker Exxon Valdez ran aground and dumped 11 million gallons of syrupy crude, creating a 500-mi.-long oil slick. Since BP Amoco is the largest oil producer in the region, it's not surprising that environmental activists closely monitor its oil-exploration operations there. Last year Paul Wenman spent several weeks trudging around the Alaskan tundra to see just how well the firm had implemented its stated environmental and social aims. But Wenman doesn't work for Greenpeace. He was there at the oil company's expense, as the head of accounting firm Ernst & Young's environmental-services group, conducting an audit no mere accountant could accomplish.

BP Amoco is one of a growing number of U.S. and European companies that have begun issuing annual reports that describe not only their financial performance but also details about their environmental and social or ethical behavior. This so-called triple-bottom-line exercise in corporate citizenship is based on the belief that companies owe stakeholders--customers, employees, activist groups, the public--an annual warts-and-all airing of their environmental and societal records, just like the flow of financial data they must provide to shareholders. But since environmental or ethical misdeeds can lead to profit-hammering headlines, the extra information can be of use to investors.

Many companies issue environmental- and social-responsibility reports, but those risk appearing to be little more than thinly veiled public relations ploys. For this type of corporate transparency to be of real value, it's essential that the information be thoroughly vetted and verified by independent agents. Increasingly, companies are turning to the Big Five accounting firms that certify their financial books. The auditing of environmental and social reports--and related consulting services--is opening up a whole new area of business for accounting firms, but it does not come headache free. "It's not straightforward financial numbers crunching," explains Glen Peters, a partner at PricewaterhouseCoopers in London.

Among other things, it means accounting firms need to hire people who may not know a debenture from a dividend, but who do understand carbon-dioxide emissions or child-labor scams. Thus, when the London office of KPMG recently formed its new Sustainability Advisory Services (SAS), it hired the core personnel en masse from the Body Shop, the British cosmetics firm that helped pioneer the practice of corporate social and environmental accountability.

This new breed of auditor must be ready to tackle a wide range of topics. Are oil companies on schedule for cutting emissions of greenhouse gases, for example, or eliminating the disposal of natural gas by flaring? Do companies operating in countries where the ancient practice of baksheesh remains an accepted business method adhere to a zero-tolerance of bribery? Do manufacturers or retailers that receive supplies and goods from developing countries guard against child and slave labor? Are companies achieving goals aimed at employing more women and minorities?