Commission on Sustainable Development Background Paper No. 7 Sixth Session 20 April - 1 May 1998 CORPORATE MANAGEMENT TOOLS FOR SUSTAINABLE DEVELOPMENT: FROM ACCOUNTING TO ACCOUNTING Non-Governmental Organization Steering Committee Abstract The focus of this paper is on corporate management tools for sustainable development that enable industry to improve its performance in relation to environmental and social criteria. These include environmental accounting, environmental reporting, auditing and eco-controlling. Particular attention is paid to the ISO 14000 series and EMAS, both of which are voluntary standards. While there are various methods that can be utilised to improve industrial performance in relation to societal issues, this paper looks at the drivers of change. These include governments, the financial community, NGOs and industry itself. I. INTRODUCTION 1. Government and industry have traditionally been the focal points of society. Industry generally has a poor record in taking a proactive approach toward the social and environmental facets in society. Historically, the role of attending to the social interests of society have fallen on government which would then regulate various trade and business operations. With the growth in transnational corporations and the incredible expansion and volume in international trade, an entirely new state of affairs exists that represents particular dangers and the need to address changes in the world order in terms of business practices and responsibility. Transnational corporations are extremely powerful entities not simply because of the massive amount of resources they possess, but also due to the degree that they have infiltrated and dominated international trade. Transnational power has been exasperated in recent years with the steady decline in overseas economic assistance which has subsequently resulting in developing countries vying for desperately needed private foreign investment. The difficulty in regulating transnational business and attempting to hold companies responsible for harmful activities has proved very difficult in relation to national and international authoritative bodies. Non-governmental organisations (NGOs) and civil society have increasingly attempted to fill the gap. Clarification of the rules of the game are especially important now as the move from a state based to a market based regime in gathering speed. Business has proven time and again its ability, in relation to markets, to be proactive rather than reactive. Considering the immense power and influence that business generally and transnationals specifically wield at the local and international level, taking a more dynamic role rather than a recalcitrant one holds the possibility of significantly impacting the chances of progress toward a society that is socially responsible and environmentally sound. 2. The concept of sustainable development has been floating around for some time now. The original definition being the idea that this generation should, after ensuring our own needs, make sure that there is something left for those who remain after we, the current occupants of the planet, are gone. The definition is deceptively simple. In the coarse of trying to grapple with the concept itself and how to actually realise it, sustainable development has undergone a series of alternative definitions and interpretations. In fact, it is reasonable to ask what our role as inhabitants of the planet actually is when is comes down to what needs to be done so that the quality of life on earth can be sustained and improved. It may not be in our human nature, but it is surely our duty in relation to the ethics surrounding equity between this generation and the next. However, the matter is not simply about duty, as it inevitably it comes down to survival. 3. There are those that argue that the goals of sustainable development are virtually insurmountable in that anthropocentric concepts are so embedded into the philosophies and religions of the world that to advocate any other view of mans relationship with the biophysical world is simply against our nature as humans. In fact Harremoes argues that environmentalists in advocating ecocentrism are challenging the most prominent European philosophies typified in the words of Rene Descartes (1596-1650), who said "Cogito, ergo sum"; Everything starts with man and his ability to think. All values, all concepts are derived from man. It is this philosophy that laid the foundation for a society built on logic and science from which the industrial revolution was founded in the last century. 4. Equally discouraging about the prospects of sustainable development are those that suggest that the essence of a capitalistic society directly contradicts the goals of sustainability. Welford argues that: The very nature of the contemporary capitalist structure which stresses competition, the maximisation of profits and the reduction of costs acts as a fundamental barrier to the adoption of ethical practices in business. The overemphasis on money, dictated by the economic system, therefore represents a barrier to the adoption of sustainable development. 5. While the above outlooks on the potential for progress toward a sustainable society may or may not be valid, a dim view is portrayed. While not denying that the journey ahead will be tremendous, this paper takes the standpoint that all journeys start somewhere. In essence, since there is little evidence of profound cracks that would indicate the walls of capitalism are soon to fall, there remains the issue of what can we do with what we have. This paper aims to analyse the methods and tools that industry can utilise in order to contribute to a sustainable society. While corporate responsibility is conduct that is desirable, corporate accountability is behaviour that is legally required. This paper intends to discuss specific vehicles by which business can be made more transparent and accountable. The essential focus will be on the drivers of initiatives toward more sustainable business practices. I. TOOLS AND METHODS 6. Corporate entities have traditionally taken an indolent stance in respect to social and environmental issues in society. However, now that environmental issues are prominent and compliance costs command the massive sums that they do today, progressive firms that are futuristic in their perspective and are interested in securing a position for themselves in the future are forced to act. In the current business environment, neglecting environmental and social costs of products and processes is a liability. Corporate stakeholders have expanded (e.g. regulators, pressure groups, insurance entities, suppliers) and subsequently resulted in demands for broadening the depth and scope of environmental and social information and action. Businesses are now forced to respond to an expanding range of interests and devise mechanisms to meet the increasing demands of internal and external stakeholders. 7. Integrated environmental management systems (EMS) in firms can provide for an institutionalised handling of environmental matters rather than knee-jerk responses to environmental crisis. A fully operationalised EMS consists of an integrated structure of production that involves every level of business activity. Like TQM, TQEM (total quality environmental management) incorporates a more statistical and philosophical perspective as well as a focus on alliances and a long-term outlook. Effective environmental management involves goal setting, information management, decision-making, support, piloting and control, communication, and internal and external auditing. TQEM, life cycle assessment (LCA), environmental accounting, environmental reporting, and environmental auditing are all tools to facilitate the above environmental management functions. 8. Various stakeholder groups (for example; World Wide Fund for Nature (WWF), Coalition for Environmentally Responsible Economics (CERES), United Nations (UN), Organisation for Economic Co-operation and Development (OECD), The Department of Ecology in Washington (DOE), etc.) have focused on environmental accounting in recent years as a means of eliminating flaws in traditional accounting methods. This focus evolved from the handicaps of these practices in relation to social and environmental issues. Serious discrepancies are derived from, among other things; the exclusion of environmental damage incurred through company products and processes (externalities); no accounting of indirect and direct environmentally incurred financial costs; the understanding that although traditional accounting measures income it ignores how it is distributed; depreciation; no concept of "enough" exists as well as the recognition of the quality of being "priceless". Considering that the accounting system serves as the most fundamental information tool from which decision-making is based within a firm, the "non-accounting" of environmental and social damage goes to the heart of poor management. The focus of this non-accounting has traditionally fallen on externalities because unpriced "goods" such as clean air, water and land have traditionally stood completely outside a firm's accounting systems and therefore the costs incurred in pollution remediation and associated health factors have traditionally fallen on society as a whole. The fundamental objective then is to force industry to internalise these costs to society therefore prompting responsibility and mitigation. 9. Environmental accounting attempts to facilitate sustainable decision-making within a firm by improving the information system so that better choices are made in regard to social and environmental factors by, for example; including contingent liabilities; environmental induced financial costs; and quantifying where possible with tools such as eco-efficiency. Schaltegger notes that "The quantitative measurements and the calculation of comparable numbers is, in the opinion of many business leaders as well as a large part of the scientific community, the only practical way to measure sustainable development". Eco-efficiency can be an important tool for industry to measure progress toward sustainable development and help facilitate goal setting and measurable achievements toward those goals. 10. Eco-efficiency is important for the maximisation of benefits with the least amount of cost (including environmental and social costs). The concept of eco-efficiency (derived from economic and ecological efficiency) is defined as the desired output per caused total environmental impact added. Water resource development is a good illustration of the relationship between sustainable development and eco-efficiency and the fundamental discrepancies between the two. 11. When a water development project is to be undertaken it is only ethical that efficiency and conservation are first wrung out of the existing system before embarking on a project to increase capacity. Then the project should be judged so that environmental impact is proportional to the area inundated. That is to say that the dam must have the highest possible output (power, water supply etc.) per environmental impact added (area of inundation) so that eco-efficiency can be maximised. The ratio should be based on extensive cost-benefit analysis with, for example, highly rich habitat demanding a higher ratio than an already degraded area. However, sustainable development does not allow an increase in impacts, whereas eco-efficiency relates to the relationship and the equal weighting of economic and environmental factors. Therefore, environmental impacts are acceptable as long as they are accompanied by a enough economic benefit to justify them. While eco-efficiency can contribute to sustainable development, it requires quantifying components which, as previously discussed, is very problematic considering that some things are priceless. However, it should be noted that the quantification of environmental costs is an advancing field in which much progress has occurred in recent years. The point, however, it that no degree of economic benefit could, for example, justify species extinction. 12. Environmentally differentiated accounting which considers monetary units in addition to ecological accounting which communicates information in physical terms (i.e. joules, kilograms, etc.) constitutes environmental accounting and together can contribute to the transparency and aid the various stakeholders to use the information as a basis for good judgement. However, environmental accounting can only contribute to better choices and higher efficiency to the degree that it is integrated into the overall environmental management system. 13. The same is true for environmental reporting. Since various stakeholders demand a wide range of different kinds of information (for example, financial analysts would be interested in a company's contingent liabilities, while regulators are interested in quantities of pollutants) environmental reporting can serve as a communication mechanism between the company and its internal and external stakeholders. Schmidheiny with World Business Council on Sustainable Development (WBCSD) states that the most effective method for achieving the goals for sustainable development within a company is by reporting, which offers benchmarks and feedback. He says "Operational policies need to lay down corporate objectives and standards in ways that can be measured, for as the American business adage has it, 'what gets measured gets done'". 14. Environmental reporting can be oriented toward products, sites or the company performance generally. A fundamental problem with some environmental reports is that the most relevant information does not reach the most concerned stakeholders. For example, stakeholders living near a factory are interested in site based water and land pollution information, while investors would be interested in consolidated environmental information upon which to base investment decisions. For an environmental report to be credible is should, among other things, state quantitative measurements of discharges, include prior violations, state whether there is an EMS system in place and whether is has been audited as well as the audit results. 15. There are two important points to consider in relation to environmental reporting. The first is that simply because it is reported does not mean that something is being done about it. The second relates to the number of countries that are considering implementing mandatory environmental reporting of which the UK, New Zealand, Norway, Denmark, Canada and the Netherlands are a few. One issue surrounding mandatory reporting relates to how it is to be implemented, who must comply, what is to be reported and who is to be reported to, i.e. local residents, regulators, shareholders, etc. The other main issue is that a company cannot report information that is does not produce for internal use, which goes back to environmental accounting and the role that both play in overall environmental management. 16. As previously mentioned, an environmental management system is only as effective as the those implementing it. That is, it must have the support of every level of production and decision-making within a company and integrated throughout production processes. Sound decision-making, support, piloting and control, communication (i.e. reporting), and internal and external auditing have to be institutionalised comprehensively and with dedication for a fully integrated environmental management system to serve its purpose, which is in fact continuous improvement. Eco-controlling is therefore the linchpin in the entire process as it exists to co-ordinate all the environmental management tools. Eco-controlling is related to financial and strategic controlling and is among the most popular corporate environmental management approaches in continental Europe, although little exercised in the UK and US. Eco-controlling provides for a permanent, institutionalised, internal management system that concentrates on the company's own processes. It can be considered a sort of custom made environmental management approach. 17. Environmental accounting together with eco-controlling will provide more information and understanding about the actual impacts of production. If properly implemented it should increase the transparency and accountability of firms as well as serve the goals of efficiency in production, which are fundamental goals of sustainable development. According to Schaltegger and Sturm, examples of companies that have the best in corporate environmental protection are Novotex/Green Cotton in Denmark and Flumroc insulation materials in Switzerland, both of which are medium sized companies. Ciba-Geigy is named as one of the best multi-nationals, although it remains uncertain if this will continue after the merger. American Baxter chemicals is an excellent example of accounting for environmentally induced financial impacts. II. ISO 14000 AND EMAS STANDARDS FOR CORPORATE MANAGEMENT 18. Related to EMS are the standards ISO 14000 and European Management and Eco-audit System (EMAS), both of which are modelled after British standard 7750. While all of these standards of corporate environmental management set requirements for EMS, they do not specify how it should be fulfilled. The drafting committee for the ISO 14000 series was dominated by industry and consultants. The formulation process which included the setting of the trade and environmental agenda proceeded with only 19 participants from developing countries, 5 participants from countries in transition and only a handful of NGOs and other observers. The ISO 14000 series is very similar to EMAS, although EMAS is generally more stringent. Both sets of standards are voluntary, site based regimes that state commitment to the goal of continuous improvement as the prime objective. 19. ISO 14000 requires that each organisation must state continual improvement as a goal, comply with appropriate laws, and commit to prevention of pollution. The environmental policy must be accessible to the public and a documented framework for assessing environmental goals and targets is required. ISO 14000 does not require the publication of environmental impacts and the public is not made aware of audit results (ISO 4.2, 4.3). Especially disturbing is the fact that the type of data and information as well as environmental impacts that must be inventoried is left entirely to the discretion of the firm. An organisation has only to adopt procedures to "identify the environmental aspects of its activities, products and services that it can control and over which it can be expected to have influence, in order to determine those which have or can have significant impacts on the environment" (ISO, 4.4.3). 20. EMAS, in contrast, views the publication of environmental reports, including audit results and an inventory of various pollutants and emissions, as vital to performance improvement. The specific parameters for evaluation include resource use; water disposal; impacts to air, water, land, and natural resources; accidents; and the potential effects of new products and new or changed processes (EMAS, 1993, Annex 5). The public statement must relate resource, water and energy usage, as well as provide a description of the systems in place on the site and the name of the verifier (EMAS, 1993, AA.3 fl,5). 21. Under ISO 14001 continuous improvement is defined in terms of the process of enhancing the environmental management system for the improvement of performance. However, actual improvement in performance is not monitored. Rather than require a compliance or performance audit, ISO only requires a management systems audit that states that procedures to measure performance are in place. In fact, even non-compliance will not disqualify an organisation from ISO certification as long as there are management procedures in place to mitigate the problem. The auditing procedure under EMAS comprises both a management and performance evaluation (EMAS, 1993, art. 4). 22. An organisation must commit to pollution prevention under ISO 14000. The weakness lies in the wording which ultimately changed the definition from prevention to pollution control which could include recycling, treatment, and so on (ISO14001, 3.14). However, end-of-the pipe and recycling are not in fact prevention so that any meaningful change from polluting production processes and practices is thoroughly undermined. 23. Similar attempts to mandate the use of the best available technology were also watered down to the point of being virtually meaningless. According to the standard, "The EMS should encourage organisations to consider implementation of best available technology where appropriate and where economically viable" (ISO 14001, Introduction). EMAS, however, goes further in obligating a "reasonably continuous improvement of environmental performance, with a view to reducing environmental impacts to levels not exceeding those corresponding to economically viable application of the best available technology" (EMAS, 1993, art.3). 24. Both ISO 14000 and EMAS are site based, which may not adequately reflect the true environmental performance of a firm as a whole. For example, an ISO certified site in the United Kingdom does not account for that firm's ethical and environmental practices in Indonesia. Aside from the lack of full transparency in transnational corporations, these standards, like all standards, require only a given level of effort and do not encourage firms to improve beyond the standards. A further factor is that organisations set the objectives individually. This signifies that one company could set very lenient goals while another firm could aim for very ambitious improvement. The standard does not distinguish between these two organisations so there exists a virtual incentive to pick only 'the lowest hanging fruit'. 25. Roht-Arriaza enumerates three prime motivations for industry to embrace ISO 14001: the promise of cost savings, efficiencies, and image; the availability of regulatory relief; and marketplace pressure. However, she highlights several problematic factors inherent in the standard and its relation to trade and the developing world. A significant feature is that although market pressures may work in favour of ISO 14001 as demands emanate down the supply chain effecting producers of various sizes and industry, the actual business advantage remains uncertain. The reason being that unlike ISO 9000, which is process oriented and symbolises a degree of quality, the environmental management standards do not promise any degree of product quality. While EMAS as well as ISO 9000 both have provisions for investigating the EMS systems of suppliers, those embodied in ISO14001 are weak. Product stewardship is therefore sidelined. 26. An additional aspect of the discussion is whether industry and producers in developing countries are being put at a disadvantage by the demands for certification by western countries. Roht-Arriaza highlights the fact that as with ISO 9000, non-European firms face higher costs and time factors involved with certification and as governments and customers begin to demand certification of suppliers, those producing in developing countries could be placed at a disadvantage. This is especially worrisome for small and medium sized enterprises (SME) many of which are located in developing countries and that will suffer more from the high cost, both in terms of human resources and monetarily, than many large organisations in developed countries. 27. It is also pointed out that those that implement ISO 14001 in good faith to augment internal processes are the most likely to obtain the efficiency and performance improvements that are the stated intention of the standard regime. However, the supply chain motivated implementation of ISO or any other EMS involves dangers, because those acting in response to market pressures may tend to view the process as just another hassle on the way to getting goods to the market and therefore lack the commitment necessary for any sort of improvement in practices. This phenomena is only exasperated in countries where the EMS may serve as one of the few environmental criteria a firm faces when other drivers, such as regulators and conscientious consumers, are absent. The current evidence indicates that those acting in good faith are in the minority. On a similar note, the preliminary results of a company study conducted by Schaltegger indicates that those that are EMAS and/or ISO certified have on average no better environmental performances that those that are uncertified. III. FINAL REMARKS ON ISO AND EMAS 28. While ISO and EMAS set requirement for EMS, they do not specify how they should be fulfilled leaving valuable tools such as environmental accounting and eco-controlling entirely up to the discretion of the organisation. The weakness of the standards mentioned above, such as the management rather than performance focus of ISO and the lack of teeth in mandates for the use of the best available technology and pollution prevention indicates that while a significant advantage exists in attempting to harness the self-interest of industry towards environmental management, the corporate standards are not a replacement for traditional regulatory regimes. A significant danger is inherent in the support that many governments and international organisations, such as Asia Pacific Economic Co-operation (APEC), are showing for ISO and EMAS standards. The danger is that the resources that are expended in trying to saddle firms with certification so that they can compete in the global market are resources that are being diverted from domestic environmental agendas that may be more beneficial in term of sustainable development as a whole. Roht-Arriaza states: ". . . . support for implementation of ISO 14001 related programs might siphon off resources that could be better used building effective domestic regulatory structures. Voluntary approaches such as ISO 14001 work best in the context of a clear, consistent, and well developed regulatory structure that tells companies what laws and regulations they must comply with and that provides cost incentives for choosing clean production and clean technology". 29. Essentially, EMS can pave the way for better environmental performance, but since its effectiveness depends entirely upon the commitment of individual firms, there is no guarantee. Therefore EMS standards such as ISO and EMAS are best utilised in conjunction with a wider range of environmental and social policies. However, within the framework of more expansive industry standards, international commitments and agreements with government authorities, EMS can provide a way to verify a firm's commitments to, for example, the Business Charter for Sustainable Development, pollution prevention, the precautionary principle and a number of other initiatives many of which are outlined in Agenda 21. IV. SOCIALLY RESPONSIBLE AND ENVIRONMENTALLY SOUND 30. Now is has been established that management tools exist that can serve the goals of sustainable development and responsible business practices. The question then is, are these tools enough? 31. The answer is no. While EMS can serve the interests of sustainable development in terms of higher efficiency in production processes, the issues surrounding equity and ecology are generally disregarded. Welford in referring to corporate environmental issues in the context of business ethics notes the often confused interpretation of sustainable development and notes that "commonly they are associated with environmentalism and the key concepts of equity and futurity are sidelined". Therefore, firms must be made to conform to socially equitable and environmental sound practices, many of which are outlined in Agenda 21, the Rio Declaration and international Conventions concerning equity and ecology. Equity in this context corresponds not just to equity between generations as defined by the Bruntland Commission, but also equity in relation to women's rights and ethnic minorities. 32. To name just a few of the components that comprise socially and environmentally responsible behaviour that firms should abide by include the invoking of the precautionary principle which is one of the most fundamental elements of the Convention on Biological Diversity which states: ". . . Where there is a threat of significant reduction or loss of biological diversity, lack of full scientific certainty should not be used as a reason for postponing measures to avoid or minimise such a threat" (Preamble, Convention on Biological Diversity, UNCED, 1992). 33. Further, components mandating the prevention of pollution rather that remediation or after-the-fact treatment should be adopted. The principles of clean production as outlined in the United Nations Environmental Department (UNEP) initiative should be adhered to and complied with. Treatment does not fundamentally improve production processes that would enhance efficiency, but rather demonstrates a modified attitude that it is acceptable that nature serve as a sink for industrial processes. 34. In the same vein, eco-labelling schemes while serving as a market based tool that can aid in the reuse of materials, it does not get at the heart of the idea that overall consumption must be reduced and that industrial activities need to concentrate on going into the actual processes of how thing are produced to minimise industrial by-products. This concept essentially relates to the three Rs: reduce, reuse, recycle. 35. The respect for the rights of future generations is an essential element outlined in chapter 8 of agenda 21 which reads: ". . . Its goals (sustainable development strategy) should be to ensure socially responsible economic development while protecting the resource base and the environment for the benefit of future generation. It should be developed on the widest possible participation" (Article 7, chapter 8, Integrating of Environment and Development, Agenda 21). 36. While all sectors of industry are subject to this principle, it applies particularly to the natural resource and mining industries. 37. The component corresponding to developing and integrating enforceable and effective laws and regulations is essential. The core issue is that developing countries may not and very often do not have extensive environmental and social legal frameworks by which companies must abide. Exploitation of, for example, the lack of labour, human rights, and pollution standards is wide spread among industry. Examples include virtual slave labour in the sweat shops of the garment industry, the transport of hazardous and toxic wastes, as well as human rights abuses by a particular firm and any of its suppliers. 38. The complexity of this state of affairs comprises a virtual double edged sword since companies have a history of migrating operations to countries with more lenient regulatory standards and legal frameworks. For many less developed countries (LDCs) looser standards provides them with a competitive advantage in an ever more cut-throat market vying for foreign investment. Fewer restrictions does not necessarily represent an unwillingness on behalf of LDC governments, but rather an opportunity to attract desperately needs investment even at the risk of social and environmental degradation. The situation, however, works two ways because lax standards may attract investment, they can also correspond to particular products or countries being banned due to poor practices as signified by the child labour issue. In the eyes of the developing world this state of affairs is just another form of imperialism and protectionism. Unfortunately, this situation has only been exasperated by the reduction of overseas assistance and foreign aid in recent years with the consequence being on increased dependence of private investment very often corresponding to the downward spiralling of social and environmental conditions. 39. International trade as governed by organisations such the World Trade Organisation (WTO), poses a threat in relation to initiatives to strengthen environmental and social practices by firms, governments and other organisations. In reference to intentional trade restraints embodied in environmental agreements such as the Convention on the International Trade of Endangered Species of Wild Flora and Fauna (limits trade in endangered species), The Montreal Protocol (limits trade in clorofluorocarbons), and the Basal Convention (limits trade in hazardous waste), Schmidheiny of the WBCSD argues that such limits should be integrated into intentional trade rules2. However, he states that "their effectiveness should not depend on the threat of trade restrictions against countries that do not comply with international environmental standards". He states that the danger to the international trading system does not lie with these international accords, but rather with individual country measures that disrupt or hinder trade based on environmental and/or social stipulations. The illustration is the unilateral ban by the US on Mexican tuna caught with deadly nets that kill dolphins. General Agreement on Trade and Tariffs (GATT) subsequently ruled in 1991 that the US action was contrary to its principle of reducing trade barriers. 40. This state of affairs is complex and multi faceted as their are various sides to the argument. Developing countries argue that raising labour and environmental standards would destroy the comparative advantages that provides them a leg up in the market place and an opportunity to develop. The issue of sovereignty is also raised. The flip side of the coin relates to countries that are willing and able to take the steps toward higher standards and socially responsible behaviour that are discouraged from doing so by standards adjusted downwards to accommodate the range of countries taking part in accords. The question then is raised as to what firms and organisations can do individually to improve current practices. The remainder of this paper will focus on these drivers. V. THE DRIVERS OF CHANGE 41. The approach toward improving industrial performance in relation to socially responsible and environmentally sound practices will progress nowhere unless a collaborative, synergetic, inclusive perspective involving industry itself, governments and other groups such as the financial community, NGOs and other stakeholders is embraced. Together these groups can serve as the drivers of initiatives. A. Industry Trends and Competition 42. Industry trends and competition can serve as drivers of positive environmental initiatives. Examples include the internal targets set by BP to reduce CO2 emissions by 20 %, after which Elf followed suit with similar internal targets. A further instance of industry trends includes business that refuse to buy products and other inputs that are made with child labour. While the politics of child labour make prohibition difficult, many companies have taken up a ban on their own in response to competition within various industries and demand from customers. Firms marketing products from the perspective of ethical and environmental conscientiousness, which is exemplified by the Body Shop, is also an interesting strategy to gain the upper hand in the market, set trends, and appeal to thoughtful customers with a social outlook. Essentially, industry has been a driver when the opportunity or the capacity to exploit a competitive advantage shows itself. This is illustrated by Union Carbides enthusiastic support of the ban on clorofluorocarbons because the company had already developed a substitute which placed it ahead of the competition when the ban was instigated. B. The Financial Community 43. The financial community and insurance companies that are discriminating against companies with poor environmental records hold the possibility of being a powerful driver of change. It is clearly in the interest of the financial community to avoid dealing with firms engaged in dubious activities that constitute serious liabilities in terms of potential environmental accidents. In light of the increased degree of regulation, a company is simply unattractive as an investment opportunity if it is not taking the lead in reducing damaging processes and practices. Furthermore, insurance companies have been particularly hit by precarious management decisions involving environmental issues generally and accidents particularly as exemplified by Exxon Valdes. In fact the sheer amount of money that insurance companies have expended in relation to damaged property and other disasters involving "freak weather and accidents" in the past ten years has increased so dramatically that many have changed their tune in regard to embracing the global warming phenomena. This is exemplified by the insurance industry support for the climate convention protocol. 44. Other interesting and commendable actions have been taken by, for example, the Overseas Private Investment Corporation (OPIC) who withdrew $100 million dollars of political risk insurance from the mining company Freeport McMoran whose human rights and environmental record is nothing short of abominable. The action was a response to the lobbying efforts of the International River Network and reports by the Australian non-governmental Council on Foreign aid, which highlighted river pollution from mine trailing and rain forest degradation as well as the 'disappearing' of villagers by Freeport's security force near the Grasberg mine. OPIC stated that its reason for suspending insurance was because Grasberg has 'caused substantial adverse environmental impacts'. This was the first time that the company had discriminated against a firm on environmental grounds. 45. Sadly, however, The Multilateral Investment Guarantee Agency (MIGA), which is affiliated with the World Bank, resisted OPIC pressure to follow suit. While there remains considerable potential to drive meaningful change with expanded efforts such as those by OPIC, there is quite a ways to go. Governments and International Organisations such as the World Bank should demand that insurance companies have policies that discriminate against those with poor social and environmental records and practices. Through a mandate from the UNEP, an environmental charter for insurance companies has been established and 50 companies, including General Fire and Accident, Gerling Global Group, National Provident Institution, Swiss Re, Sumitomo Fire and Marine and Storebrand, have signed the Statement of Environmental Commitment by the Insurance Industry. The fundament idea behind the charter rests on the concept that preventive losses, risk reduction, and better environmental go hand in hand. A further example of drivers lies in "green" funds such as Storebrand's Environmental Value Fund (EVF) which has an environmental screening process and criteria based on the premise of eco-efficiency as sponsored by WBCSD. The company criteria include, among other things, toxic release, energy intensity, water use, and environmental liabilities. C. Government 46. The role of government is another essential driver in setting the framework for which action can take place. Steps can be taken in setting the regulatory framework for industry to perform better in relation to the environment. Of primary focus is the enhancement of a more integrated approach that entails a larger degree of consistency in policy making. An example involving Norway is the government's extensive handing out of subsides to the fur industry, of which it could not survive without, while simultaneously funding animal rights groups (with far less money however). The formulation of a particular policy must occur so that it can be implemented consistently. Not defining a policy allows politics to play to various constituencies, which serves the goals of politics rather than the matter of principle. 47. The range of methods that governments can utilise to propel social and environmental agendas is vast. It could correspond to a judgement in a Canadian court mandating the implementation of EMS as punishment for pollution violations, to setting frameworks for responsible labour practices by transnationals operating in developing countries, to banning tuna caught with illegal nets. Interesting are the co-operations between NGOs and governments to take action on particular issues. An example could be the programme implemented by the International Labour Organisation (ILO), UNICEF and the US government to share the cost with the Bangladesh Textile Association (BGMEA) to send a number of child workers to school paying them a stipend. The initiatives to include a social clause in the international labour laws by the US department of labour has been rather far reaching. France is one of the only other country advocating labour stipulations and other social clauses in intentional trade legislation. Developing countries oppose the law on the grounds that it would diminish comparative advantages. 48. Other initiatives by the US department of labour include setting guidelines and recommendations for multinational companies in the garment industry by which multinationals from other countries will be judged when hoping to market goods in the US. The recommendations include setting standardised rules, establishing codes of conduct, supply chain monitoring, and increased co-operation with NGOs and local authorities. While these are just a few examples of how governments can shape the environment in which industries operate, there exists literally endless possibilities for collaboration between NGOs, industry, and national as well as international governing bodies. D. NGOs and Civil Society 49. The role of civil society and NGOs is an important source of pressure for industry to behave responsibly, both environmentally and socially. The approach toward corporate management is three pronged in respect to the fact that government, industry and civil society all play fundamental roles in the advancement of sustainable development. NGOs specifically have become powerful players as witnessed by, for example, Greenpeace's campaign against Brent Spar and Shell's subsequent shelving of the offshore dumping project. The Brent Spar incident not only represents an example of NGO power, but also a benchmark in that in the apartheid era of 1970 and 1980's Shell withstood heavy pressure to withdraw from South Africa where there is no record of it bowing down in the face of NGO pressure as it eventually did in the Brent Spar case. 50. The growing influence of non-governmental pressure groups is generally becoming an accepted fact among business executives. In a survey of 51 major European Companies conducted by the Industrial Research Bureau (IRB), 90 per cent of the respondents felt that the impact by pressure groups on their operations would stay the same or increase over the next five years. Problematic, though, is that only 20 per cent had procedures in place to establish a formal dialogue with NGOs, and only 12 percent had procedures to evaluate them. The oil and gas industries were the least equipped to deal with NGOs. In light of the limitations of states and mulitlaterals, such as the UN, to monitor the activities of transnational corporations, NGOs feel that they are filling the gap serving as a counter weight to the power and influence of large corporations. This trend seems destined to continue. The activities of NGOs in relation to industry can be compared to those in relation to government in that lobbying, campaigning and pressure are methods utilised. NGOs fundamentally serve to generate consumer pressure and solidarity through information collection and distribution and setting agendas for action. The Control Risks Group highlights three main reasons why the effectiveness of NGO campaigns has increased: technological advances in transmitting footage via satellite; improved communications facilitating information flow between developing and developed nations which is exemplified by, for example, the London-based Catholic Institute for International relations which works with other church groups in Asia and Latin America; and the Internet serves as a method to organise campaigns within and outside of a country as exemplified by the campaign against Pepsi Cola's activities in Burma. 51. While the debate among NGOs as to 'confrontation vs. co-operation' continues, there have been victories on both sides. Co-operation on sustainable fishing between World Wide Fund for Nature (WWF) and Unilever to set up a Marine Stewardship Council is an example of NGO and company collaboration to find sustainable options. The circumstance involved the fact the Unilever had used a fish oil in its margarine and cosmetics that originated from small fish, which pose the threat of destroying the food chain upon which larger fish depend. Unilever announced that it would cease to use the fish oil and instead switch to soya or palm oil which would ultimately constitute a reduced profit estimated at between GBP 6-10 million. The company had estimated that in the long run this move would be beneficial as other products that Unilever produces depend on the larger cod and haddock fish. By deciding no to use the fish oil Unilever was essentially ensuring a future for its other products. Subsequent to Unilever's decision, Sainsbury supermarket announced that it would discontinue purchasing products made with fish oil. 52. A more confrontational approach includes Christian Aid's sports shoes campaign against manufacturers such as Adidas, Nike and Reebok which focused on the dismal workplace conditions and wages in the athletic shoe factories in Asia. The companies responded initially that they were following local laws and referred to their codes of conduct. Since then Nike and Reebok have both said that they would evaluate the working conditions of those working for them and agreed among themselves to collaborate on initiatives to avoid the creation of a competitive disadvantage. Other even more confrontational cases exist as exemplified by Brent Spar and the Nigeria campaigns as well as the instances of anti-nuclear activists sabotaging rail lines and clashing with 15,000 police officers in protest over hazardous waste transport. 53. An outstanding example of co-operation between consumers, NGOs and industry involved the Forest Stewardship Council (FSC). The FSC formulation was a response to a series of eco-labelling schemes that came into existence the 1980's and early 1990's. The eco-labelling schemes resulted in confusion among consumers and producers as some schemes were genuinely good and other not so. The FSC was founded to eliminate the confusion by evaluating and accrediting certifiers according to international guidelines and standards for forest products. The FSC provides a guarantee to the consumer that forest products are produced and managed along social and environmental principles and practices. This also provides a market based incentive for the forest industry to comply with responsible practices. The FSC is a very good example of collaboration between organisations for a sustainable outcome as the forest industry, indigenous peoples, community organisations, certifiers, and environmentalists are behind the partnership. Many governments also support FSC. The principles upon which FSC is based is environmentally appropriate, social beneficial, and economically viable management. 54. While the degree of collaboration and co-operation between industry and non-governmental groups may vary, there is one thing for certain, given the importance of reputation and the vast opportunity to utilise new and faster means of communication technology to get a point across, any industry would rather have a Unilever experience than a Brent Spar or a Nigeria one. Not only does it harm firms, but it drains the resources of the NGO. So while pressure is necessary and will definitely continue, there is a lot to be gained through increasing communication between industry, NGOs and governmental authorities. V. CONCLUSION 55. This paper has attempted to outline a number of tools that industry can incorporate into its overall environmental management system so that practices that are socially sound and environmentally responsible can be formulated and implemented resulting in continuous improvement in performance. While ISO 14000 and EMAS set standards for environmental management systems, they do not stipulate how the EMS should be implemented, which means that valuable tools to increase transparency and accountability such as environmental accounting and eco-controlling are left entirely up to the discretion of the particular firm. While EMS can be a vital component in the context of a wider social and environmental policy framework, it is not a substitute for broader regulatory structures. While these tools for corporate management address various handicaps in current environmental policies, the social issues surrounding equity and futurity tend to be overlooked. Therefore, firms should adopt and conform to stipulations such a pollution prevention, adopting the Precautionary Principe, and accepting the concept of sustainable development as outlined in agenda 21, the Rio declaration and international Conventions. The drivers of initiatives range from the financial community, to governments, to non-governmental groups, consumers, and industry itself. While pressure will continue, and should continue, the most significant and painless for all will originate from co-operation and collaboration as well as the synergy that is created by all the sectors of society continually pushing for improvement. 56. It is time for industry to adopt a proactive approach to more responsible business practices rather than pursuing its traditional indolent posture and recalcitrance. Industry had proven time and again that it has the resources to draw on, the resilience and the ingenuity to adapt and survive. If the stamina that industry has demonstrated in relation to increasingly competitive and cut-throat markets were oriented toward finding solutions to ever more worrisome social and environmental conditions in the world, the possibilities and hopes for progress toward a sustainable society would be greatly enhanced. This is especially so considering that transnationals represent the lions share of international trade signifying that improvements in processes and practices could represent considerable meaningful improvement. 57. The American automobile show recently took place in Detroit. In response to the Tokyo car show in late 1997, where advanced fuel cell technology was presented, the big American automobile producers, which having been some of the most recalcitrant entities in the face of growing environmental policies and actions, also presented fuel cell technology. A commentator at the show commented that while for years the 'Big Three` had been extremely resistant to change they had now realised that "if you can't beat them, join them". In an instance such as this the industry conforms or dies. The sooner more companies realise this and adopt that attitude the better the prospects for substantial moves toward sustainable development.
This document has been posted online by the United Nations Department of Economic and Social Affairs (DESA). Reproduction and dissemination of the document - in electronic and/or printed format - is encouraged, provided acknowledgement is made of the role of the United Nations in making it available.
Date last posted: 8 December 1999 15:15:30