Environment in business

Impact Assessment and Project Appraisal, volume 20, number 4, December 2002, pages 279–285, Beech Tree Publishing, 10 Watford Close, Guildford, Surrey GU1 2EP, UK

Environment in business Role of impact assessment for strategic environmental management at the firm level Sharon A Jones and Thomas W Mason

ISO 14000 and country-specific initiatives have resulted in firms around the world pursuing strategic environmental management (SEM). SEM at the firm level provides a powerful set of tools for anticipating potential issues that can result in environmental impacts, incorporating other business issues relevant to the firm, and addressing them as part of the strategic plan for the firm’s sustainability. By definition, anticipating potential issues that can result in environmental impacts is the process known as environmental impact assessment (EIA). In fact, without calling it by name, many of the tools currently available for SEM are based on EIA methodology. This paper clarifies this issue and demonstrates the role that EIA practitioners can play in advancing SEM for the ongoing operations of the firm, rather than just at the planning stages of a new project. Keywords: environmental impact assessment; ISO 14001; strategic management

Sharon A Jones is an Associate Professor of Civil and Environmental Engineering at Lafayette College, Easton, PA 18042, USA; Tel: +1 610 330 5410; E-mail: [email protected]. Thomas W Mason is a Professor of Economics at Rose-Hulman Institute of Technology, Terre Haute, IN 47805, USA; Tel: +1 810 877 8155; E-mail: [email protected]. This paper is based in part on training courses developed and conducted by the authors during summer 2001 in conjunction with the International Association of Impact Assessment (IAIA) Cartagena meeting.

Impact Assessment and Project Appraisal December 2002

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S ONE OF THE COUNTRIES with the earliest forms of environmental regulation, the USA has seen a change over the last 25 years regarding environmental management by the private sector. Instead of reacting to regulatory mandates, many managers now see environmental issues as part of the overall business enterprise (Crognale, 1999; Wheeler, 1999). This evolution of environmental management is not limited to the USA and developed countries. It has become an important consideration around the world, in part because of the globalization of companies and the subsequent requirements under international environmental policy. As a result, managing (instead of reacting to) environmental issues strategically during the ongoing operation of a firm requires managers and their staff to be aware of the tools that can be used. In turn, environmental impact assessment (EIA) practitioners need to realize the important role they can play in strategic environmental management (SEM) at the firm level, since many of the environmental management tools are based in part or in total on an EIA methodology. Formal EIA was first used in the USA under the 1969 National Environmental Policy Act (NEPA). NEPA mandated that a federal project must be evaluated for its environmental impacts before it can be implemented (that is, in the planning stages). Following NEPA, many states within the USA implemented their own ‘NEPA’ processes, as did many developed countries. In the 1990s, development aid and lending agencies incorporated similar EIA requirements for sponsored projects. Thus many developing countries already have EIA requirements for local projects that are being considered for implementation.

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Strategic environmental management at firm level

EIA is defined here as: “the systematic identification and evaluation of the potential effects of proposed projects, plans, programs, or legislative actions relevant to the physical, chemical, biological, cultural, and socioeconomic components of the total environment.” (Canter, 1995) EIA has traditionally been used during the planning stage of a new project to inform the stakeholders of the potential impacts of the project and its alternatives. Least impact may have to do with the site location, the chosen technology, and so on. The traditional process used to conduct an EIA includes: • Understand the proposed project. • Identify the baseline environmental conditions. • Identify potential environmental concerns associated with the overall project including development, implementation, operation, and closure. Potential environmental concerns are not limited to one medium, but include consideration of air, water (surface and ground), land, animal and plant species, built environment, archaeology and other cultural resources, and socioeconomic impacts. • Determine if (for those potential environmental concerns) the project will result in environmental impacts. This involves using the best available science and modeling tools to quantify, if possible, the negative (or positive) change to the environment as a result of the project. The change to the environment (or environmental impact) is determined for both the short-term and for the long-term. • Identify mitigation measures and determine how those affect the environmental impacts. • Include additional considerations, such as cumulative impact assessment as a result of the project, and impacts to irretrievable resources. • Involve stakeholders throughout the process. This paper shows that the traditional EIA process is the basis of most, if not all, SEM tools used during routine firm operations. In addition, it demonstrates the important role EIA professionals can play in the ongoing operation of a project, and not just at the planning stages. First, the context within which environmental management is currently occurring is described. This is followed by a description of a SEM framework for firms. The places where traditional EIA methodology is relevant are shown, and the role for ISO 14001 within a SEM framework is discussed.

Environmental management for the firm The last 25 years in the USA, and more recently at the international level, has seen environmental management for the firm become more than just compliance with existing regulations. In the past,

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approaches to environmental regulatory compliance could be described with several analogies such as fortress syndrome, little fish in a big pond, integrity versus expedience, lost in the paperwork blizzard, ostrich syndrome, and legal trees in a management forest (Daugherty, 1996). Today, environmental management differs from these approaches, since it involves anticipating how to minimize environmental impacts within the organization’s overall management framework. Managers are operating within a context where they are no longer making decisions that merely comply with a regulation, but are deciding between alternatives while considering a suite of criteria such as longterm versus short-term, local versus regional versus global, human health versus ecosystem, economics, regulations around the globe, and equity issues. In 1998, Environics International Ltd completed surveys of public opinion regarding the environment for several countries. These surveys showed that globally there are high levels of concern about the environment, despite the different perspectives between developed and developing countries. Developing countries are more concerned about immediate and local issues, for instance, local water supplies, and factory pollution. Developed countries tend to be more concerned about long-term and global environmental issues, such as rainforest depletion, and climate change (World Bank, 2000). Environmental management is becoming more relevant for developing countries since international development aid agencies incorporated environmental requirements into their funding decisions. The World Bank has taken a leadership role in the drive for sustainable and equitable private-sector investment in the developing world. The United Nations Environment Program (UNEP) also recognizes that the private sector has a significant impact on environmental trends through investment and technology decisions (World Bank, 2000). Described below are two examples of projects in developing countries that illustrate the change in environmental management by firms. The Furima Iron Foundry is a small foundry in Medellin, Columbia that faced increased pressure from environmental regulations passed in 1995. As a result, the company participated in a sustainable development program designed for the foundry sector. This included an analysis of the metallurgy sector regarding environmental impacts, and so on.

The World Bank has led in the drive for sustainable and equitable private-sector investment in the developing world



The foundry implemented the recommendations and performed an evaluation to determine how much the environmental impact was reduced. The results showed that the foundry was successful at reducing air emissions and coke consumption, and increasing productivity at the same time (International Network for Environmental Management, 2001). In 1998, the Favorita Banana Company, located in Ecuador requested funding of US$15 million from the International Finance Corporation to modernize its seaport facility. For the investment, the company was required to evaluate the environmental, social, and technical impacts of the project and develop mitigation measures. As a result, the company became the first banana grower to receive certification under the Rainforest Alliance using an independent audit of 200 sustainability criteria. This certification became an added marketing benefit for the company (World Bank, 2000). Within this context of changing attitudes towards environmental management there is also international environmental law. Law in this area tends to be a combination of domestic laws, bilateral treaties, multilateral conventions, customary practices, judicial decisions, trade agreements, resolutions of international organizations, and so on. Table 1 lists a sample of relevant international agreements. However, international environmental law typically contains general principles rather than specific mandates. The international standard, ISO 14000, is the clearest source of international guidance on environmental management for those companies that choose to follow this voluntary standard. Later in this paper, ISO 14000 is shown to complement the SEM framework that is described in the next section.

SEM framework To understand how EIA methodology fits into SEM, it is important to understand what such management involves. The essential point is that managers take

the long-term view in terms of environmental issues, and do not limit environmental decisions to those that are regulatory driven in the short term. Such planning for the future requires a vision, a mission, goals, and objectives. The basis for SEM comes from the principles of the strategic-planning business model that considers four perspectives. First, the ultimate long-term business objective is survival in the marketplace. Second, managers must understand how the decision impacts the overall business including customers, competitors, communities, employees, ecology, and so on. Third, firms must identify and develop their core competencies with sustainable competitive advantages (SCAs) that make the firm’s product better than that of the competitor’s both now, and in the long term. Fourth, the selection of technology and other business decisions must contribute to the firm’s market position (Wever, 1996). When environmental management is added to this strategic business model, environmental issues have to be managed from each of these four perspectives. In other words, survival in the marketplace depends on environmental regulatory compliance, and overall competitiveness with environmental costs included. The decision must consider the short-term and longterm impacts on the overall environment, and the health of employees and the community. SCAs may result from the way in which a firm manages its environmental issues in comparison with their respective competitors. The selection of technology and other business decisions related to the environment contribute to the firm’s market position. In addition, a SEM framework for a firm recognizes that ‘green’ approaches can lead to SCAs, because efficient resources save money, healthy environments contribute to more productive workers, global customers respond to news about environmental impacts, and sound approaches imply cost-effective regulatory compliance. (For further discussion of the financial benefits to green approaches, see Mason et al (1999).)

Table 1. Sample of international agreements relevant to environmental management at firm level

Date

Policy

Purpose

1971

First Earth Summit, UN Conference on Human Environment in Stockholm

Formal recognition of human responsibility to protect the environment

1989

Montreal Protocol on Ozone Depleting Substances

Requirements for the phase out of ozone depleting chemicals with consideration of differences between developed and developing countries

1989

Basel Convention

Limited export of hazardous waste to any country that does not agree in advance to accept

1992

Rio Earth Summit

Agenda 21 statement that identifies and addresses problems in the 21st century and the actions needed

1993

NAFTA/GATT

Two trade agreements with implications for the provision of environmental infrastructure

1997

Kyoto Treaty

Commits industrialized countries to reduce greenhouse gas emissions below 1990 levels by 2012


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The challenge for the firm is to find tools that can be used within the context of the SEM framework. As discussed below, EIA is well suited to be the basis of these tools as long as the overall firm’s operations are considered rather than just the initial planning of a new project. For the firm, EIA has to be done in an ongoing fashion to identify environmental deficiencies and opportunities for improvement. The ongoing EIA also has to allow for the consideration of minor and major changes to a firm’s operations as a result of other business considerations. This forward-looking approach to consideration of ongoing assessment activities can also help in the design of more effective products and processes, as well as environmental controls. For example, metrics may be designed for processes to enhance long-term knowledge of sources of impacts. The following is a suggested SEM framework for the firm that highlights the role for EIA. Step 1. Determine the firm’s mission, vision, and SCAs regarding environmental impact This recognizes that administrative support is critical, the mission addresses what should be done today, the vision addresses what should be done in the future, and SCAs should be used as the guiding principles for the management plan. This step is very similar to the project scoping process of the traditional EIA except that it is done within the context of making a profit. Step 2. Perform an EIA in the traditional sense except that it is for an operating firm This includes obtaining baseline data about existing conditions, identifying potential environmental concerns for the firm’s operations, identifying qualitative and quantitative measures of environmental impact, and determining which of the potential environmental concerns may result in environmental impacts for the firm (short-term and long-term). The difference between a traditional EIA and an EIA for an operating firm is that environmental impacts must be prioritized according the firm’s criteria that come directly from step 1.

means that the assessment of impacts is done so that the implementation (and subsequent evaluation) of the plan can build on that assessment. Step 5. Review and update the plan as necessary The final step in the SEM framework is to continually improve environmental management at the firm by gathering feedback from stakeholders, benchmarking with other firms, and monitoring environmental impacts in an ongoing fashion. Again, this step is an addition to the traditional EIA done for project planning. However, once a mechanism for such feedback is identified, the results can be used in an iterative fashion as part of step 2. Steps 1, 2, and 3 of the SEM framework are essentially the EIA where the ‘project’ is the operational activities of the firm. Steps 4 and 5 differ from the traditional EIA process because they require the ongoing use of EIA in the monitoring and updating of the strategic plan. This integration of implementation, evaluation, and EIA is a natural evolution of the EIA process so that the overall life cycle of a project is considered in a dynamic fashion.

Firm’s environmental management toolbox The basis of the EIA (and therefore the strategic environmental management framework) is the measurement of the environmental impacts. Over the last 30 years, several tools have been developed to systematically measure the broad range of impacts, and to help with the prioritization of such impacts. Each tool has its purpose and its advantages and disadvantages. These tools are not alternatives to EIA, but should be considered as essential components of EIA methodology. Briefly discussed below are seven tools that are particularly useful for EIA in conjunction with a SEM framework. Figure 1 illustrates where each tool can be used within the framework. Life-cycle analysis

Step 3. Identify, and prioritize mitigation alternatives This step is needed to mitigate the impacts that were prioritized in steps 1 and 2 using technical expertise. Again, it is similar to the traditional EIA, except that there are often more influential factors when the overall business context for an operating firm is considered. Step 4. Develop a multi-year implementation plan This plan is based on the prioritized impacts and mitigation measures and includes action items, a timeline, and responsibilities. This step is different from the traditional EIA in that all the suggested changes to the ‘operation’ of the firm may not take place immediately because of resources, regulations, and so on. However, as shown in Sanchez and Hacking (2002), the integration of EIA with the implementation plan,

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Life-cycle analysis (LCA) is an innovative method to identify and compare alternatives to reduce the environmental impacts across the life cycle of a consumer product. The approach is very similar to life-cycle costing where the capital and operating costs of different alternatives are evaluated using economic techniques to convert costs to compatible units. Alternatives are then compared to determine the most cost-effective over the planning period. For environmental issues, LCA is used to design green products for the marketplace (products with minimal environmental impacts), and to evaluate existing industrial processes to identify the most cost-effective methods to mitigate environmental impacts. The LCA method involves establishing the system


Strategic environmental management at firm level Benchmarking

Step 1 Determine firm's mission, vision, and strategic competitive advantages

Life cycle assessment Environmental systems modeling Risk analysis Risk management

Step 2 Perform an environmental impact assessment

Step 3 Identify and prioritize mitigation alternatives

Cost–benefit analysis Step 4 Develop a multi-year implementation plan

Environmental auditing

Step 5 Review and update the plan as necessary

Figure 1. Compatibility of strategic environmental management and EIA tools

boundaries, identifying the environmental impacts at each step of the life cycle, characterizing and prioritizing those impacts, and redesigning the product/process to reduce the environmental impacts in a cost-effective manner that is compatible with facility goals. By definition, the LCA method is based on EIA where the EIA is focused on the impacts that occur during the life cycle of a consumer product.

environmental risk via dermal, ingestion, and/or inhalation pathways, quantifying the actual dose the affected entity may receive, calculating the risk with appropriate formulae, and determining what the calculated ‘risk’ means both quantitatively and qualitatively. By definition, RA is a component of an EIA and should be used in conjunction with ESM to enhance the quantitative basis for making conclusions and recommendations.

Environmental systems modeling Risk management Environmental systems modeling (ESM) is the category that includes all medium-specific models to determine the fate and transport of pollutants within the environment. The outcome is an evaluation of the quantity of a pollutant over the pathway it may travel over its lifetime. ESM is needed for the quantification of impacts, since the impact (in terms of human health or ecosystem health) depends on how much of the pollutant is present. Examples of ESM include evaluating the downwind atmospheric concentration of chemicals released from a factory stack, and the downstream surface water concentration of a chemical released from a factory’s wastewater system. By definition, ESM is one component of an EIA regardless of what the EIA is used for. ESM is a necessary component of EIA to enhance the quantitative basis for making conclusions and recommendations. Risk analysis Risk analysis (RA) is a probabilistic method to quantify uncertain impacts in terms of human health, or ecological health. In other words, there is a degree of uncertainty about whether the environmental impact will occur. RA for environmental impacts is similar to how firms use financial risk assessment to treat uncertainty for investment decisions. The RA method involves using existing information to determine if there is a risk potential, determining if the affected entity can be exposed to the


Once the risk is quantified, there are several categories of risk management (RM) alternatives, including modifying the environment, modifying the exposure, modifying the effects, or compensating for the effects. The actual option chosen depends on a variety of criteria including costs, benefits, values, legislation, and standards. The choice often depends on the perception of the risk by the stakeholders that can be quite different from the calculated risk. Therefore, risk assessment also involves understanding, and accounting for, risk perception that may be influenced by a variety of factors including the immediacy of discussing the issues, the fact that human beliefs change slowly, the memory of similar

There are seven tools that are particularly useful for EIA in conjunction with the SEM framework: life-cycle analysis; environmental systems modeling; risk analysis; risk management; cost–benefit analysis; benchmarking; and environmental auditing

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events, population versus individual risks, the way the information is presented, voluntary versus involuntary risk, and natural versus artificial risk. The success of the RM plan depends on the firm’s expertise in risk communication recognizing public perception. Therefore, RM is useful for deciding on mitigation measures that are an essential part of all EIAs. Cost–benefit analysis Cost–benefit analysis (CBA) is a method to consider quantitatively alternatives in terms of their positive and negative impacts (known as benefits and costs). For a SEM framework, costs include more than what is currently assessed on the marketplace (externalities are included). This means that future liability is a cost to consider, as is the possible public-relations benefit that may result from a proposed action. The method involves determining the types of benefits and costs (direct versus indirect, tangible versus intangible, and pecuniary), quantifying the costs and benefits of each alternative, and applying a decision criterion to choose the optimal alternative. A traditional EIA does not make a conclusion about which alternative is the preferred one, though the EIA becomes a summary of costs and benefits of the various alternatives considered. EIAs can be used as the basis for a CBA. Related to CBA is cost accounting, a method of evaluating and accounting for the costs and benefits for each firm activity, and not just for the overall firm. Traditionally, managers assess costs for environmental compliance as a firm-wide overhead instead of by individual firm activity. Though efficient from an accounting standpoint, there is no ownership of environmental costs for the individual activities, and therefore little incentive for change. Externalities can easily be ignored and future liability can be overlooked. For the strategic environmental management framework, the recommended practice is to look at costs and benefits for each firm activity. Activity-based costing (ABC), which is increasingly used by firms to understand and minimize costs, supports this focus on specific activities. There are drivers of potential environmental costs, just as there are for other costs that were formerly treated as overheads. Moreover, just as in other applications of ABC, a clear understanding of the process is necessary to understand its potential impacts. This understanding will have collateral benefits in continually improving that process with respect to quality and overall costs. Benchmarking and environmental auditing Neither of these tools is based on an EIA methodology, but they can be very useful for preparing an EIA. Benchmarking is the review by a firm of practices of other companies to identify how to improve

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its own activities. The focus of the review for environmental issues is on the firm’s environmental impact and mitigation methods. Though not an EIA, this tool compares ‘EIAs’ and the results of ‘EIAs’ from other companies. Environmental auditing (EA) is a systematic, documented, and periodic review of a firm’s operations and practices related to meeting environmental requirements to minimize environmental impacts. EA includes a pre-audit to inform facility personnel, obtain general information, and develop an audit plan. An EA then includes the actual audit with an opening conference, on-site activities, daily briefings, root-cause determination, development of an action plan, and a closing conference. A post-audit includes reporting, follow up and periodic reviews. The EA is similar to the procedure used to determine baseline environmental conditions for a traditional EIA, and benchmarking is similar to strategies used in the scoping stages of an EIA. For a SEM framework, determining baseline conditions and scoping are ongoing activities at periodic intervals throughout a firm’s operations.

How ISO 14000 fits To be successful, SEM needs to operate within a compatible regulatory framework. The 1996 ISO 14000 set of voluntary standards is currently the most widely recognized international voluntary standard for environmental management. The March 2002 issue of Impact Assessment and Project Appraisal includes an evaluation of the specific role of EIA in terms of ISO 14001, one of the ISO 14000 standards (Sanchez and Hacking, 2002). ISO 14000 is modeled after the more widely known ISO 9000 set of standards for consumer product quality. However, since ISO 14000 focuses on environmental issues, it is wider in scope because environmental issues affect more than just consumers. ISO 14000 includes voluntary standards for (Crognale, 1999): • • • • • •

environmental management system (EMS); environmental auditing (EA); environmental performance evaluation (EPE); life-cycle assessment (LCA); environmental labeling (EL); environmental aspects in product standards (EAPS).

ISO 14001 is the specific standard that describes how companies can become certified as having an adequate EMS in place. In practice, the objective of the standard is for companies to routinely inventory, prioritize, and assess all environmental issues (called aspects in the standard) of the operations, products, and services they provide (that is, perform an EIA). ISO 14001 does not prescribe the company’s goals, but allows companies to set their own goals,



and consequently select the environmental issues to focus on. ISO 14001 is clearly compatible with a SEM framework in terms of its emphasis on continual improvement. EA and LCA are other 14000 standards that were described in this paper as complementary to the framework.

evaluating the impacts of a project in the planning stage. It requires ongoing impact assessment throughout the life of a business. If they choose to, EIA practitioners can adapt their trade to the private business environment.

Conclusion

References

EMS is timely within the context of global environmental policy. Sanchez and Hacking (2002) conclude that EIA and EMS (under ISO 14001) are two tools that are used to minimize negative environmental impacts. They go on to state that there are EIA specialists and EMS specialists, however the two disciplines have not worked together effectively to improve environmental management at the firm level. This paper agrees with this conclusion and suggests that the EIA methodology is not limited to ISO 14001, but is the basis for SEM at the firm level regardless of what regulations/policies/standards are recognized. As such, SEM can benefit from the professional expertise of EIA practitioners who have been developing their methods for at least 30 years. Achieving sustainability involves more than just

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