A Study on the Environmental Accounting Practice of Shell


This report had listed other alternative Corporate Sustainability Reporting (CSR) guidelines to prepare an environmental reporting (ER) and assessment on the extent to which The Shell Report 2003 meets the Global Reporting Initiative (GRI) criteria had been done. The result of the research shows that Shell had complied with the GRI criteria.

Introduction of ER

Every corporation has environmental impacts. In order to implement sustainability development, corporations are encouraged to provide ER. ER is a process of communication document regarding the environment effects of organizations economic activities. It serves as a tool to identify and to decrease the environmental crisis, and assists in communication with all users; hence it can increase corporation's reputation. In order to meet the challenges of sustainability in the future, corporations must provide a good ER by following the appropriate guidelines for dealing with environmental transaction.

1.1 Study objectives

i) To define the criteria of a good external ER

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ii) To evaluate the extent of The Shell Group environmental reporting in meeting the criteria enumerated in GRI.

1.2 Methodology used

The information in this report is collected from secondary research. GRI is used as a basis to assess Shell's 2003 sustainability report.

1.3 Limitation of the report

The assessment quality in this study is limited due to time constraint and the absence of general accepted sustainability guideline to assess an environmental report.

2.0 Historical background

The Shell Group was established when Royal Dutch from the Netherlands and a British company worked together and they began worldwide operations in 1907. During the early twentieth century, Shell Group expanded their business globally as the oil industry was blooming due to the mass production of vehicles (Anon3).

Shell is a global company involves in the businesses of energy and petrochemicals. The business exist 'in more than 145 nations and employing approximately 119,000 people'; they have involve in other activities such as 'generating electricity' and 'developing technology for hydrogen vehicles' but they 'do not produce coal or nuclear power' (Anon1,2003,p.6). Looking at its last three years financial performance, Shell Group recorded its highest net income in 2003 is $12,496 million (Anon6,2003).

Shell started to commit to sustainable development in 1997 and they implemented GRI as a guideline in their environmental reporting in 1999. Shell published ER 'to meet the global energy challenge to build and maintain trust and improve their performance'; they also believe that 'reporting should cover sustainability performance that could pose significant financial risks, or are of the most interest to stakeholders' (Anon1,2003,p.9). In Malaysia, Shell has been the winner of the Malaysian Environment Reporting Award (MERA), which was organised by Malaysia's ACCA [1] for past two years (ACCA,2004a).

3.0 Define the criteria for a good external ER

There is a number of ER guideline available for preparing environmental report, for instance ACCA UK Sustainability Awards 2004 Criteria by ACCA; Towards a Generally Accepted Framework for ER by FEE [2] ; Sustainability Reporting Guidelines 2002 by GRI and others.

This study discusses the criteria provided by GRI. We choose GRI because based on our researches more than 100 companies have endorsed the GRI guidelines (Smiddy,2002). Thus, GRI is the best bet not merely for the purposes of reporting but also for 'building structured models for transparency-driven stakeholder engagement' (Tapscott and Ticoll,2003). When the corporations use the guidelines of criteria provided by GRI, a good ER can be expected because GRI aim's to broadcast globally acceptable guidelines of sustainability reporting.

The GRI has outlined 11 criteria to form a good reporting and they are divided into four groups (GRI,2002), which are as follows:

Transparency, Inclusiveness and Auditability

The criteria of transparency, inclusiveness and auditability create the framework of a report.


Transparency is a central criterion to any reporting standards. Transparency implements the accountability of full disclosure of performance and facts accordingly with credibility. For instance, disclosure for the manage risk and positive and negative impact of facts. Additionally, Sawers (2004) argue that 'a clear transparency report is an essential part of the businesses'. To improve transparency, reporting must identify the key environmental impacts. (Smiddy,2002)


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Inclusiveness means getting the involvement of stakeholder and reflects this in reporting. The consideration of stakeholder is important because it means considering reporting value to the firms (Jorgensen,2000) as 'stakeholder consultation will enhance the agreement's credibility of reporting' (EPA,2003). Therefore, it is enhancing the quality and ensuring that report is reflecting the needs of varied users.


Auditability is the disclosure in the management systems and also communication practices that must be able to attest reliability, accuracy completeness and consistency by the internal or external assurance parties. Minimum requirement addressed by the Forum on Environmental Reporting (Anon7,1994) states that reporting should be reliable and comprehensive in order to ensure the qualitative and quantitative aspect are present.

Completeness, Relevance and Sustainability context

The criteria of completeness, relevance, and sustainability deal with the decisions about the report's contents.


Completeness with regards to report means disclosing a complete view of the company's operational boundary, scope and time period. ACCA (2001) mentioned that 'the balanced disclosure of positive and negative information makes for a more 'complete' report and therefore enables the users to form a complete view of corporation's operations and environmental impacts'. Besides that, they also argue that 'an excellent ER should enable the users to form a complete view in organization operation and impact' (2004b).


Information relevance enables users to assess in decision-making. To enhance relevance, it is considered as a first rate qualification for ensuring business environment qualification (Sawers,2004).

Sustainability context

Sustainability context discusses the performance of the corporations in the context of the limit and demands placed on economic, environmental or social resources in the reporting. According to the ACCA UK Environmental Reporting Awards Category (Smiddy,2002), reporting must disclose and explain the sustainability development.

Accuracy, Neutrality and Comparability

Report's quality and reliability are assured by these three criteria.


Accuracy information is recorded in proper amount and period while minimized the errors for users to make decisions with high assurance. The information from qualitative aspect should response in detailed with quantitative measurements to achieve satisfactory levels of accuracy and credibility of report.


Neutrality is the one of the important qualitative characteristics in ER of FEE (FEE,2000). Information should be presented free from bias in selections, omissions, over or understatement of account, which could influence the decision by the users. Both favourable and adverse results must be included in the report.

3.3.3 Comparability

Report should be consistent in the scope and boundary, where changes must re-stated and disclosed for comparability with similar corporation from one period to the next. Smiddy (2002) stated that if reporting shows only one year performing date, it will fail to tell the users how well or poor is the organization. Therefore, comparability enables users to assess and benchmark the performance and activities for decision-making.

Clarity and Timeliness

Criteria of clarity and timeliness relate to report users' assessment to report.


Clarity information is encountered by the firm for varied users to exercise and easy understand. Adequate technical and scientific terms are used to demonstrate within the report. Reporting must be easy to read and brings reasonable understanding to users, which is one the categories under ACCA awards (Smiddy, 2002).


Timeliness to ensure maximum uptake and utility of the most valuable information to assist users effectively in their decision-making. It should determine the frequency of the reporting in the ER (FEE,2000).

Evaluation on the extent to which The Shell Report 2003 meets GRI criteria

Shell adopted the GRI Guidelines in their CSR in 2003 to enhance the reporting standardization and comparability, and recognize advanced sustainability indicators (Anon2,2003,p1). Jeroen van der Veer, Chairman of the Committee of Managing Directors had stated that the Shell Report is being provided in accordance to GRI Guidelines in terms of transparency, by exposing their performance, and encountering for their stakeholders' needs (Anon1,2003p.2).

Shell reports had covered most of the company's profiles to facilitate stakeholders' understanding and evaluation on the company's information. The completeness of information had enhanced its comparability status to stakeholders and its reputation had increased in related industry.

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Besides, the good presentation in the sustainability report has resulted in Jurgens (2004) stating that 'Shell has been pioneer in corporate responsibility reporting' and the U.S. Oil Company is catching up to do so. Compared to 1997, it is just a story telling and no graph or data table on the environmental effect was given (Anon4,1998). However, Shell's 2003 Report shows insufficient transparent disclosure, where they did not fully disclose their environmental effect in material and indirect energy used and wasted. The reason they are not disclosed is there is lack of sufficient clear guidance to report on those elements, but it does not mean that they can totally ignore such crucial information, which can affect the environment.

Shell Report 2003 has been verified by external professional body (KPMG and PricewaterhouseCoopers LLP) to ensure its auditability and reliability status. However, the related firms state that only certain data, graphs and statements were audited, and there is no assurance and confirmation on the report validity due to the lack of generally accepted international environmental, social and economic reporting standards. This indicates that even when Shell had disclosed all the information, the accuracy and inclusiveness of report are questionable. Consequently, report users may be misled and make incorrect decision and comparisons.

Furthermore, the image of Shell could be affected because they overstated the oil reserves in the financial statement of 2003 (Williams,2004). The dishonest figure not only affects the genuine of the annual report, it also affects the quantitative aspects stated in the sustainability report. Therefore, the transparency and auditability in the reporting are not reliable at all; it fails to attest accuracy, neutrality and comparability in the reporting.

Besides, Business in the Environment (1990,cited in Maltby,1997,p.83) mentioned that companies need the support from the stakeholders because demand from stakeholders 'provides a clear business case for actions'. Whereas, Shell reporting does not tell who the stakeholders are. The inclusiveness has failed to support in the reporting. Therefore, it can be assumed that the reporting does not satisfy stakeholders' needs. (Smiddy,2002)

Shell's vision and strategy have fulfilled the criteria of sustainability context and to show their commitment they disclosed economic, environmental, and social in the report. The contribution to sustainable development activities has been reported. Nevertheless, the report shows more emphasis in financial performance compared to environmental impacts and social impacts (Anon1,2003,p.8).

Additionally, the company published environmental performance, health and safety since 1997. Nevertheless, activity level and energy efficiency started to be reported in 1998 and they have continuously disclosed them until today, which have fulfilled the criteria of timeliness. In fact, they start to disclose them in a quantitative data table, which is easier to understand than showed in chart format as in 2001 report.

On the other hand, the web-link provided in the Internet enhanced the clarity, where the users can read in specific issues (Smiddy,2002). However, in determining the clarity of quantitative data, the report does not show a clear quantitative data tables comparing 2002 with 2003 (Anon5,2002).

The report has stated their commitment to develop the environmental performance and reduce the adverse impacts. But, detailed information is not disclosed in the report to show their initiatives. Friends of Earth reported that Shell had violated the social and environment in some areas of their operations such as air, water and soils. This environmental pollution had affected the people's health and livelihoods (Jackson,2004).

Moreover, with regards to neutrality Shell had reported its good and bad things, react to stakeholders through 'Tell Shell', reader analysis and media survey (Anon1,2003). Shell also acts impartial by producing values for shareholders through lower production cost (eco-efficiency) and fulfils customers' needs by creating close relationships.

Additionally, the company aims 'to meet the global energy challenge to build and maintain trust and improve their performance' (Anon1,2003,p.7&9). To verify relevance, Shell has established the commentary channels such as 'Tell Shell' to meet society's needs. This society's feedback and recommendation helped Shell improves its report.

Furthermore, Shell has provided few years' information on its environmental key performance indicators to enable comparability over time. They aimed to launch EnergiseTM programme at more than 40 major Chemicals and Oil products facilities. But there is no information showing that Shell has benchmarked with peer industries to convince report users it had done well within the industry.

4.1 Summary finding

In order to maintain sustainable development; The Shell Group realized that it is important to prepare a sustainability report. Therefore, they have disclosed economic, environmental, and social issues in their report. Based on our research, Shell Report 2003 has covered all the criteria enumerated in GRI Sustainability Reporting Guidelines 2002. However, the transparency of the 2003 report is disputed because the overstated figures reported in the annual report. It affects the genuine of the figures presented in the report.


The Shell Group volunteers to disclose ER and they have chosen GRI as their ER guidelines. The environmental accounting of the company had complied with the criteria in GRI. However, the overstated oil reserves in the annual report have affected the reliability of both the annual and sustainability report. Conversely, there is an improvement in their environmental reporting between 1997 and 2003, which is only story telling and quantitative data or graph is not given. Additionally, the environmental and social impacts are less emphasised in the report.


References to journal articles

Maltby J., 1997, Setting Its Own Standards and Meeting Those Standards: Voluntarism Versus Regulation In Environmental reporting, Business Strategy And The Environment, Vol. 6, pp. 83-91.

References to electronic documents

ACCA, 2001. An Introduction to Environmental Reporting [online]. Available from:

http://www.accaglobal.com/pdfs/environment/ACCA-RJ1-002.pdf [Accessed on 20 August 2004]

ACCA, 2004a. The ACCA Malaysia Environmental and Social Reporting Awards [online]. Available from:-

http://www.accaglobal.com/sustainability/awards/mera/?session=fffffffeffffffffc28288ca414aa80f9b0ea1d7bbfd3791a7400c48814f0122 [Accessed on 24 August 2004]

ACCA, 2004b. ACCA UK Sustainability Awards 2004 Criteria [online]. Available from:

http://www.accaglobal.com/pdfs/environment/susra/uk04_cri.pdf [Accessed on 25 August 2004]

Anon 1, 2003. The Shell Report 2003: Meeting the energy challenge - our progress in contributing to sustainable development [online]. Available from: http://www.shell.com/home/Framework?siteId=shellreport2003-en [Accessed on 12 August 2004]

Anon 2, 2003. Reporting against the Global Reporting Initiative [online]. Available from:

http://www.shell.com/home/Framework?siteId=royal-en&FC2=/royal-en/html/iwgen/leftnavs/zzz_lhn7_0_0.html&FC3=/royal-en/html/iwgen/environment_and_society/dir_environment_and_society.html [Accessed on 19 August 2004]

Anon 3. History of Shell [online]. Available from: http://www.shell.com/home/Framework?siteId=royal-en [Accessed on 18 August 2004]

Anon 4, 1998. The Shell Report 1998: Profits and Principles - does there have to be a choice? [online]. Available from:

http://www.shell.com/home/Framework?siteId=shellreport2003-en&FC2=/shellreport2003-en/html/iwgen/leftnavs/zzz_lhn12_0_0.html&FC3=/shellreport2003-en/html/iwgen/downloads/downloads.html [Accessed on 2 October 2004]

Anon 5, 2002. The Shell Report 2002: Meeting the energy challenge [online]. Available from:

http://www.shell.com/home/Framework?siteId=shellreport2003-en&FC2=/shellreport2003-en/html/iwgen/leftnavs/zzz_lhn12_0_0.html&FC3=/shellreport2003-en/html/iwgen/downloads/downloads.html [Accessed on 2 October 2004]

Anon 6. 2003. Annual Report and Accounts 2003: Royal Dutch Petroleum Company -

N.V. Koninklijke Nederlandsche Petroleum Maatschappij [online]. Available from:

http://www.shell.com/home/Framework?siteId=investor-en&FC3=/investor-en/html/iwgen/publications/annual_reports/2004/dir_2004_annualreport.html&FC2=/investor-en/html/iwgen/leftnavs/zzz_lhn11_0_0.html [Accessed on 24 August 2004]

Anon 7, 1994, Forum on Environmental Reporting: Company Environmental Reports: Guidelines for Preparation [online]. Available from:

http://www.enviroreporting.com/others/feem.htm [Accessed on 3 September 2004]

EPA (Environment performance agreement), 2003. Policy Framework for Environmental Performance Agreements [online]. Available from:

http://www.ec.gc.ca/epa-epe/pol/en/framewk5.cfm [Accessed on 24 August 2004]

FEE, 2000. Towards a Generally Accepted Framework for Environment Reporting [online]. Available from:

http://www.fee.be/publications/fullpublications/2000b.pdf [Accessed on 24 August 2004]

GRI, 2002. Sustainability Reporting Guidelines [online]. Available from:

http://www.globalreporting.org/guidelines/2002/gri_2002_guidelines.pdf Accessed on 12 August 2004]

Jackson, R., 2004. Not Just Nigeria [online]. Available from:

http://www.euapps3.shell.com/TellShell/ts_thread.jsp?forum=32&thread=66&start=30&msRange=10 [Accessed on 28 August 2004]

Jorgensen, H.B., 2000. Sustainability Reporting [online]. Available from:

http://www.pwc.com/extweb/newcolth.nsf/docid/6F6B45C33E4E208F85256949006A0346 [Accessed on 24 August 2004]

Jurgens, R., 2004. Chevron touts social responsibility [online] Available from:

http://www.contracostatimes.com/mld/cctimes/9787995.htm [Accessed on 3 October 2004]

Sawers, A., 2004. The Financial Director interview - The Guv'nors [online]. Available from:

http://www.financialdirector.co.uk/Features/1138011 [Accessed on 3 October 2004]

Smiddy, N., 2002. ACCA UK Sustainability Reporting Awards 2001: Report of the judges: HTML Version [online]. Available from:

http://www.acca.co.uk/sustainability/awards/susra/report2001 [Accessed on 3 October 2004]

Tapscott D., Ticoll, D., 2003. What Others Say: Civil Society [online]. Available from:

http://www.globalreporting.org/about/otherres.asp?StakCategory_pk=4 [Accessed on 20 August 2004]

Williams, P., 2004. The bigger they are .... [online]. Available from:

http://www.accountancyage.com/Features/1138272 [Accessed on 3 October 2004]