A stock-take: where business is at

A stock-take: where business is at

Number of Organisations Fast Follower Team Player Compliance Seeker Polluter Key Player Leader

The Four Stages of Environmental Policy 1. Reactive 2. Receptive 3. Constructive 4. Proactive

Motives of Corporate Environmental Management • Increasing the value of the firm • Reducing business risk • Adhering to personal or organisational codes of ethics

Win-win or win-lose? • Annual costs of pollution control in USA • -1972, $27 billion • -1990, $90 billion • -2000, $155 billion • Environmental costs amount to approx 2% of GDP

The lose-lose perspective • Framed as cost-benefit, zero sum game: “ambitious environmental goals have real economic costs…talk is cheap, environment is not” • Companies should only spend on environment to meet external demands/regs • Reinforces confrontational rather than co-operative approaches

The win-win perspective • Needs for environment protection and economic growth can be mutually satisfied: “the costs of environment regulation can be minimised or eliminated, through innovation which delivers other competitive benefits” • Economic gains obtainable through innovation offsets: “emissions are a sign of inefficiency …reducing pollution is often coincident with improving the productivity with which resources are used” (M Porter) • Eg: Balzers Process Systems and use of freon

If you think about it, pollution is fundamentally a manifestation of economic waste. It involves incompletely using a resource, throwing a resource away, or burning something. The opportunity to lower cost by eliminating pollution, then, seems anything but rareMichael Porter, Harvard Business School

But is win-win overstated? • Win-win opportunities are context specific and limited in number • Some win-wins are long term only • Sometimes there are no win-wins

Drivers of Environmental Strategy O/H

Regulatory Drivers Command and control Economic incentives Voluntary programs Self and co-regulation Informational regulation Regulatory flexibility initiatives

International Drivers • International conventions- Endangered Species, Montreal Protocol, Basel Convention, Kyoto etc • Other types of environmental pressure: ISO • Shell, Mobil and Camesia

Buyers and Suppliers • Environmental effect is sum of environmental effects along the supply chain • Implications: cradle to grave management: Dow, Levi Strauss • Greening the supply chain and competitive advantage: meeting customer requirements, innovation, saving on resource use.

Insurance companies • Environmentally risky operations increase financial risk • Insurers, burnt by environmental calamities, seek to exclude much environmental coverage • Some refuse coverage to firms that fail to meet environmental responsibilities • Their underwriting practices act as consulting recommendations • Companies who do not implement insurer recommendations face higher premiums • Insurance companies can refuse certain risks, thereby discouraging practices that create them

banks • Banks held responsible for their borrower’s actions- especially if it undertakes some managerial control (USA) • Contaminated sites – environmental audits • Some banks now equate poor environmental performance with high financial risk • Some European banks offer financial discounts to environmentally responsible companies

Shareholders and investors • Coalition for environmentally responsible economies (CERES) enlists investors to support member companies • Proxy resolutions at annual shareholder meetings • But correlation of good environmental and good economic performance: Markets react to TRI data • Global ethical investments funds growing • Dow Jones Sustainability Index and the Global Reporting Initiative

Market Drivers: consumers • Since 1980s, steady increase in public awareness and support for environmental protection • Where consumers demand environmental attributes, firms see environment as market opportunity • But consumers send mixed signals:opinion polls and actual buying practices are not tightly linked • ‘green consumers’ are a complex, heterogeneous sub-segment of the general consuming public • Gender, age, education and income, urban vs rural etc, • Type of product: eg health, food, commodities • Consumer ignorance inhibits green markets

Trade associations • Chemical industry and Responsible Care (now imitated in at least 10 other industries) • Sustainable forestry initiative (SFI): reforest harvested land, provide wildlife habitat, improve water quality and ecosystem diversity • Wisconsin Paper Council Pollution Prevention Partnership (technology development and transfer, supplier outreach program) • Great Printers Project (Printing Industries and EDF)

Social Drivers: NGOs • The Brent Spar, MacMillan Bloedel • NGOs exert influence by diversity of methods and channels -scientific research, public protests, corporate alliances, press coverage, public opinion -engage with science, policy, law and economics • Cooperative or confrontational • Particular impact of ‘environmental scorecards’ • ‘from Washington to Wall Street’: influencing corporate behaviour • Pervasive effect in changing societal norms and beliefs

The community • Community action can be a powerful driver of both government and corporate action • Love Canal and its successors • Importance for siting and operations • The environmental justice movement, NIMBY and LULU

Internal Drivers • Board Members • CEO • Executives • Managers, supervisors, other professionals • Staff roles and other members of the workforce

Conclusion: New Rules of the Game? • “the social responsibility of business is to increase its profits” (Milton Friedman) • ‘social responsibility’ of business is cover for suggesting that ‘managers should deliberately take actions which adversely affect investors in order to bestow profits on other individuals’ • But managers acting in the best interest of investors must now consider environmental protection in their decision-making • Environment protection has moved from ‘social responsibility’ to the realm of strategic business management

Trends in Environmental Regulation Neil Gunningham

The shifting regulatory landscape • The contracting state • Increasing power and sophistication of NGOs • Increasing interest of commercial third parties in environmental issues • The changing roles of business

Regulating Large Point Sources • Context Matters (compare large companies, SMEs, point and non-point pollution) • Motivation Matters: Regulating Leaders and Laggards Options re Large Enterprises • Sophisticated risk management strategies • Deep pockets • Reputation sensitive and highly visible • Capacity for self-management

Regulatory Goals • Drag industry laggards up to level of minimum compliance • Reward, encourage, facilitate ‘beyond compliance’ behaviour by industry leaders

Licensing: The traditional licensing approach • Technology focus, concentrated on large secondary industry and tougher standards for new developments • Traditional regulatory approach is ... • Inequitable • Inefficient and costly • Poor control of cumulative impacts

NSW Licensing Reforms • Outcome based annual load limits (LBL) • Whole of premise allows internal trading • “Polluter-pays” incentives + discounts • Establishes load calculation and reporting which will allow wider use of emission trading schemes

Operator & Pollution Risk Appraisal • Complexity of site • type & number of activities, scale, multi-media etc • Location • human receptors, habitats, water courses etc • Emissions • index used for air,land, water - annual load limits • Operator Performance • Management systems and compliance history

Using OPRA outputs • Basis of charges for permits • Internal benchmarking by companies • Public benchmarking - including financial • Inspection frequencies & duration • Targeting • Incentives for better performance

Facilitative Regulation • Environmental Improvement Plans • Neighbourhood Environmental Improvement Plans • Sustainability Covenants

The Challenge of SMEs • Lack of resources • lack of awareness and expertise • lack of receptivity to environment issues • sheer numbers of such enterprises • limited inspection resources makes conventional enforcement impractical

Self-audit and self-management • Agency requests the firm to conduct and return self-assessment check lists • threats to inspect combined with self-audit program as alternative to inspection achieved far higher response rate • key is maintaining a credible threat of enforcement (spot checks, and occasional inspections, blitz and bluff)

Thinking Laterally • Buyer Supplier Relationships -Powerful source of leverage over SMEs • The Role of Surrogate Regulators:- Vehicle Repair Workshops

Regulating Diffuse Source Pollution • Farm management practices ( eg environmental farm plans, BMPs, EMS, Codes of Practice) • Landscape changes (fencing, buffer strips, re-vegetation, riparian zones a, contour landscaping, soil modification etc) • Land Use Changes (planning law etc)

Which compliance mechanism? • Voluntarism • Positive incentives- financial subsidy, NHT cost sharing programs, or auctioned grants • Negative incentives (eg cross-compliance) • Mandatory changes (eg buffer zones)

A phased approach? • The need for trade offs: effectiveness, efficiency, equity and political acceptability • Phase 1: positive incentives (process standards, landscape changes) and planning controls • Phase 2: negative incentives and regulation - environmental general duty to the land, • enforced through mandatory self-auditing and random third party audits); • mandatory specification standards (eg buffer zones); • levy or sliding charge re adoption of env farm plan

Enforcement • The enforcement pyramid • Some formal enforcement action • Enforceable undertakings • The power of publicity • Corporate Rehabilitation orders • Need for special magistrates court

A stock-take: where business is at