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Shades of Green

Friday, June 1, 2007 - 11:36

With the tentacles of environmental impact now stretching to all industries, it’s time to consider your options for contributing to a greener future. By Professor Lee D. Parker

Global warming, the greenhouse effect, drought, pollution and land degradation are all hot topics of contemporary public discussion and policy debate. We are well accustomed to calls for business to become engaged in environmental protection and conservation.

To many managers such issues may appear minor or irrelevant to their areas of business. However, the tentacles of environmental impact are now considered to stretch far beyond the traditionally recognised industries such as mining, petrochemicals and manufacturing. They now include even the service industries such as banking, hotels, commercial offices and more. So is it time to get on board? How can you decide, and what are your options?

The no-action option

Why should you consider a review of your environmental strategy and systems? Even if owners and management have no particular core philosophy of environmental responsibility, consider the potential risks of not having a well-defined plan. A strategy of deferral or a zero response to community and government concerns about the impact business has on the environment may carry the risk of higher and unforeseen costs. The possibilities are:

  • higher insurance premiums
  • penalties for contravening environmental regulations
  • expenditure on clean-up and remediation
  • claims, payouts for major environmental damage
  • loss of market share due to the organisation’s environmental impact reputation.

These are just a sample of the possible ramifications of the no-action option. They range from long and short-term impacts, from significant operating cost increases, and ultimately to threatening the organisation as a going concern.

Alternative postures

What alternative environmental management options are available? They can be variously classified, but the following is a simple three-way set of options. Deciding the appropriate level is a fundamental requirement before embarking on decisions about any particular environmental strategy. It can save time and money compared to the piecemeal, incremental ad hoc approach.

Environmental compliance

The baseline approach is one of minimum legal compliance. The organisation develops strategies and accompanying control systems that facilitate compliance with legislated environmental management and impact requirements. Obey the law, avoid penalties and bad press, comply with general societal expectations without disturbing your core values and functions.

Environmental innovator

The next step up from basic compliance is to develop technologies, inputs, processes and outputs that go beyond the legal minimum. This really involves the organisation in changing its underlying culture to formally and philosophically embrace environmental policies within its belief systems and practices. It also invariably brings with it the set-up of integrated environmental management systems supported by environmental management information and control systems. This is a serious move, and it shows that you mean business, seeing both environmental and strategic advantages to the organisation, and are prepared to make major changes to ways of doing business.

Environmental leadership

This level of strategic commitment sees you pursuing recognised leadership in your industry for proactive and leading-edge environmental management. At this level you pursue environmental sustainability and corporate commercial success simultaneously. Environmental values, objectives, strategies and business plans are seamlessly integrated among their operational and financial counterparts. You are prepared to make major investments to achieve this environmental leadership.

The action menu

Having decided the type of strategy and the level of environmental engagement suitable for your organisation, the next step is to identify the types of environmental management activities most relevant to your business and its stakeholders. Contrary to today’s penchant for equating stakeholders with shareholders, when considering environmental strategies, the list of potentially relevant stakeholders is rather broader. It includes shareholders, employees, customers, suppliers, governments, lobby groups, creditors, banks, insurance companies, ethical investment trusts, professional and business associations, and NGOs (non-government social/charity organisations).
Operationally, here are some of the areas for possible action. They are variously applicable across industries including industrial, mining, petrochemical, commercial, hospitality, finance and more.

  1. Environmental technology
    Technology options include equipment, input materials, operating methods, “clean” processes, product designs, and general emission and pollution control.
  2. Energy conservation systems
    Technologies and processes that improve efficiency of energy usage and cut total energy consumption both by organisational operations, and ultimately by its products and/or services used by customers.
  3. Packaging
    Available strategies include the elimination of packaging altogether, less sophisticated packaging, bulk packaging, refillable containers, recyclable containers, and the use of lighter and less toxic materials, and packing with lower wastage and/or greater durability.
  4. Recycling
    Recycling strategies may be applied to materials used within organisational processes and to products of those processes. Waste products of one process may become new inputs of other processes. Used and discarded endpoint products may also be recycled into inputs for other products.
  5. Materials handling
    Input materials may be subject to purchasing policies accounting for pollution control, impact upon scarce resources and endangered species. Materials for maintenance procedures may be subject to environmental and employee health impact analysis. Storage, use and disposal of toxic substances may also be environmentally managed.

A risk-based selection
Effective environmental management and control must be based upon a regular assessment of environmental risk. This assessment can form the basis of selecting environmental management strategies from the above action menu. The risk assessment will be founded on two dimensions:

  1. likelihood of occurrence
  2. magnitude of likely consequences (to both environment and organisation).

To conduct this assessment, you need to review and evaluate the organisation’s context: its mission and objectives, its key stakeholder views, current legal requirements, major environmental issues and impacts. In addition, management needs to identify past, present and future organisational activities of the greatest potential environmental impact: upstream, internal and downstream.Finally, you need to consider changes in social expectations regarding environmental responsibility as well as potential future environmental liability for past actions.
Evaluating environmental impacts and their risks should cover a range of considerations including:

  • activities and processes impacting the environment
  • the nature of the impact (e.g. air, soil, water, noise, trees, non-renewable resources)
  • sources and impacts from activities, incidents and accidents
  • relevant regulations, standards, licences and codes
  • key stakeholder requirements
  • current environmental management systems in place (e.g. engineering controls, routine procedures, operational and emission monitoring programs, staff training programs, emergency response plans).

Having identified areas of the greatest environmental risk, reactive options range from elimination or prevention, to risk reduction, and to the transfer of risk to other organisations (e.g. via insurance or outsourcing activities). These can be applied via the menu of actions listed above.

To effectively operationalise this, the normal business or action planning routines are appropriate. Map out how the risk will be controlled, what resources will be needed, the officers responsible, implementation timing and key environmental performance indicators.

The new bottom line

In contrast to the mythical profit bottom line, environmental control requires environmental key performance indicators (KPIs) for assessing both suitability of environmental strategies and effectiveness of their outcomes, both for the organisation and the environment. Actual environmental impacts should be assessed in comparison with, and as a trend over time:

  • regulatory standards
  • industry benchmarks
  • corporate strategic objectives and targets.

While challenging to the traditionally short-term focused organisation, it is important to recognise that environmental impacts often have a longer term cycle and may require tracking across periods of five, 10 or even 20 years. Environmental KPIs must normally be expressed through environmental and ecological data, operational statistics, financial costs and revenues, and in qualitative terms. Their development requires trial and time. They need to be applicable to corporate environmental objectives, reflect the environmental cause-effect relationships, be understandable to managers and staff, and avoid undue ambiguity.

This really represents the so-called triple bottom line whereby rather than managers being focused only on their contribution to the company’s financial “bottom line”, they are refocused on three bottom lines: economic, social and environmental performance outcomes, being required to pay equal attention to all three areas.

Moving forward

Clearly the adoption of environmental management and control policies and the implementation of related strategies and programs represents a major undertaking that will ultimately require specialist advice, capital investment and staff training. However, in the first instance, the decision to proceed must be based on the consideration of social expectations, organisational philosophy, strategic environmental posture, environmental risks and action areas. It amounts to a combination of introspection about ecology, community and values, and a pragmatic evaluation of practical risks and possibilities. The choice is yours.