An increasing num-

ber of companies are

discovering that im-

plementation of

proactive environ-

mental manage-

ment programs can

make significant

contributions to

profitability and competitiveness. The environ-

mental management systems (EMSs) and prac-

tices of organizations have become increasingly

important to senior management, as well as to

shareholders, the public, and the financial invest-

ment community.

Adoption of a conformance-based EMS,

such as ISO 14001, is just a small part of deliv-

ering value. Only those environmental manage-

ment programs that are implemented effec-

tively and communicated to all employees, and

that emphasize improved environmental per-

formance, will result in value for the organiza-

tion.

Strategies for Creating ValueThere are several types of value that can be

realized from an environmental management

system that is effectively implemented. In gen-

eral, environmental activities taken beyond the

most basic requirements of regulatory compli-

ance may both reduce costs and increase rev-

enues.

Value fromEnhancedCompliance

An organization

with a well-de-

signed compliance

program can realize

value in a number

of ways (Global Environmental Management Ini-

tiative [GEMI], 1998):

• Ensuring a “License to Operate”: Compliance

with local, state, and national governmental

requirements is essential to securing the pub-

lic trust that every organization must have to

operate, expand, and innovate.

• Avoiding Penalties: An effective environmental

compliance program can prevent an organiza-

tion’s exposure to the numerous and poten-

tially significant costs associated with non-

compliance. These costs can include fines and

penalties, potential operational shutdowns or

curtailment of production capacity, and in-

creased legal fees.

• Enhancing Flexibility: An effective environ-

mental compliance program can result in in-

creased flexibility from regulators, allowing

for more rapid changes to processes or oper-

ations.

Environmental Quality Management / Winter 2005 / 21

© 2005 Wiley Periodicals, Inc.Published online in Wiley InterScience (www.interscience.wiley.com).DOI: 10.1002/tqem.20077

Bruce A. Martin

Creating Value withProactive EnvironmentalStrategies

Implementing an EMS is only the

first step

Bruce A. Martin22 / Winter 2005 / Environmental Quality Management

Value from Pollution PreventionBy designing and altering industrial processes

to take advantage of pollution prevention oppor-

tunities, companies are increasingly realizing

value through the recovery and reuse of materi-

als, resulting in lowered costs of production and

compliance, as well as decreased waste disposal

and management costs.

The cost savings available to companies

through pollution prevention initiatives are well

documented. For example, manufacturer 3M re-

ported savings of $810 million from pollution

prevention initiatives between 1975 and 1997

(3M, 1998).

An emphasis on

pollution prevention

can result in creation

of value through im-

proved efficiency in re-

source use and mini-

mization of waste. In

addition, by eliminat-

ing the use of haz-

ardous materials in production processes, a com-

pany can limit the costs of engineering and

control equipment, resulting in further cost sav-

ings for the organization.

Operational changes that take advantage of

pollution prevention approaches can also result

in additional value for an organization. Improve-

ments in production processes can increase em-

ployee productivity. For example, an environ-

mental management project designed to improve

indoor air quality at a facility may result in in-

creased morale and productivity for the organiza-

tion.

Value from Risk Reduction and ProactiveManagement

Proactive environmental strategies can create

value by reducing risk. An effective environmen-

tal management system with an emphasis on pre-

ventive measures can help the organization avoid

or minimize spills and releases, while also reduc-

ing costs for response and cleanup.

In addition, organizations with historical re-

mediation liabilities can reduce spending

through improved management of investigation

and remedial projects. The focus should be on

minimizing treatment costs, employing innova-

tive remediation technologies, and reaching re-

mediation goals ahead of schedule.

Value from Enhanced Marketability ofProducts and Services

By using recycled materials, eliminating haz-

ardous constituents in products, and reducing

impacts from waste disposal, organizations can

increase the marketability of their products and

enhance the public’s perception of the company.

The end result is creation of value for the organi-

zation.

The Performance Track ExampleThe National Environmental Performance

Track program was established by the U.S. Envi-

ronmental Protection Agency (EPA) in 2000. Per-

formance Track offers an outstanding example of

the kinds of successes and benefits that can be

achieved through use of proactive environmental

management systems.

Performance Track is a voluntary partnership

program that recognizes and supports top envi-

ronmental achievers that go beyond the require-

ments of regulatory compliance to attain levels of

performance that benefit the environment, peo-

ple, and communities (EPA, 2005a).

Among the criteria for membership in Perfor-

mance Track are a commitment to challenging

environmental goals and a dedication to contin-

uous improvement. Members report annually on

progress toward their goals.

Since the program’s inception in June 2000,

Performance Track members have collectively re-

An emphasis on pollutionprevention can result in creation ofvalue through improved efficiencyin resource use and minimization ofwaste.

Environmental Quality Management / Winter 2005 / 23Creating Value with Proactive Environmental Strategies

ments (such as decreasing the expected lifetime

energy or water use of products). Each facility

chooses its commitments based on its individual

environmental impacts.

Benefits of Performance Track MembershipThe implementation of proactive environ-

mental strategies (which is the cornerstone of

membership in the Performance Track program)

confers a host of benefits on companies that par-

ticipate.

Performance Track member facilities have re-

ported a number of benefits from participation in

the program, including:

• increased recogni-

tion for their envi-

ronmental efforts;

• networking oppor-

tunities that allow

them to share in-

novative strategies

and best manage-

ment practices;

• lowered priority for regulatory inspections by

EPA; and

• an enhanced reputation in the financial in-

vestment community, which increasingly

takes social and environmental performance

into consideration.

The attention that Performance Track mem-

bers receive from the investment community is

perhaps the best demonstration of how environ-

mental performance can positively impact a com-

pany’s value and financial strength.

Investment companies such as Calvert Group,

Limited, and KLD Research and Analytics, Inc.,

are financial and investment advisory firms that

rate companies and make investment recommen-

dations based on a number of social and environ-

mental performance metrics. Calvert has been

duced their water use by more than 1.3 billion

gallons, cut their generation of solid waste by

nearly 600,000 tons, and decreased their energy

use by more than 8.4 trillion BTUs—enough to

power more than 80,600 homes for a year (EPA,

2005a).

Performance Track Requirements Approximately 350 members have joined Per-

formance Track. The program is open to facilities

of all types, sizes, and complexity, whether public

or private, manufacturing or service-oriented.

Performance Track is designed to recognize fa-

cilities that consistently meet their legal require-

ments and implement EMSs. To be eligible for

membership in the program, a facility must have

(EPA, 2005b):

• a comprehensive, independently assessed en-

vironmental management system;

• a record of sustained compliance with envi-

ronmental laws and regulations;

• past environmental achievement and a com-

mitment to continuous environmental im-

provement; and

• community outreach activities.

In order to meet the third criterion, larger fa-

cilities must commit to four quantitative goals for

improving their environmental performance.

Small facilities must commit to two goals. Appli-

cants can choose their commitments from a

number of potential indicators, such as materials

use, air emissions, or land conservation.

Commitments can include upstream im-

provements (such as increasing the recycled con-

tent of purchased materials or improving the en-

vironmental performance of suppliers);

improvements to inputs (such as decreasing the

use of energy and water); reductions in nonprod-

uct outputs (such as air emissions, waste, and dis-

charges to water); and downstream improve-

The implementation of proactiveenvironmental strategies confers ahost of benefits on companies that

participate.

Bruce A. Martin24 / Winter 2005 / Environmental Quality Management

using Performance Track data for the past couple

of years as an indicator of a company’s environ-

mental performance and quality of management.

The environment is one of seven factors that

Calvert uses to determine whether a company is

eligible for inclusion in a Calvert mutual fund.

Calvert considers a company’s decision to partic-

ipate in Performance Track as a good indicator of

the quality of its overall corporate environmental

management program, and gives credit to those

companies that have enrolled two or more facili-

ties in Performance Track.

Membership in Performance Track shows

that a company is proactive and confident about

its environmental management program. Notes

Chuck Kent, EPA Di-

rector for the Office of

Community and Busi-

ness Innovation, “In-

vestment advisors

have discovered that

environmental per-

formance can be an

excellent indicator of

stock market potential, and Performance Track

members represent many of the top environmen-

tal performers in the United States today” (EPA,

2004a).

Corporate Leaders ProgramBased on the success of Performance Track at

individual facilities, EPA has extended the con-

cept to corporatewide environmental leadership

with the Performance Track Corporate Leaders

program, introduced in 2004.

According to the Performance Track Corporate

Leader Guide (EPA, 2004b), designation as a Cor-

porate Leader:

• recognizes companies that own a significant

number of facilities that are members of Per-

formance Track, and that have strong corpo-

rate programs to manage environmental is-

sues; and

• encourages companies to make further com-

mitments to improve the environmental per-

formance of their operations.

Up to three companies per year are designated

as Performance Track Corporate Leaders. The des-

ignation is effective for a period of five years.

In February 2005, EPA selected Baxter Health-

care Corporation, Johnson & Johnson, and Rock-

well Collins as the first three Performance Track

Corporate Leaders (EPA, 2005c). These three com-

panies have a combined total of 58 facilities that

are Performance Track members, and all share a

history of commitment to proactive environmen-

tal management and improved environmental

performance.

ConclusionEnvironmental management programs that

are implemented effectively, that are communi-

cated to all employees, and that emphasize im-

proved environmental performance can result in

value for organizations.

There are several ways in which an organiza-

tion’s environmental activities can result in in-

creased profitability and competitiveness. The

most common approach is through improved en-

vironmental compliance programs that result in

cost savings. Value can also be realized through

operational improvements and enhanced risk

management programs.

Proactive environmental strategies have the

potential to benefit companies financially, which

in turn can result in increased attention from the

financial investment community. As evidenced

by the success of EPA’s National Environmental

Performance Track program, superior environ-

mental performance and its relationship to finan-

cial performance is increasingly being recognized

by the investment community.

Membership in Performance Trackshows that a company is proactiveand confident about itsenvironmental managementprogram.

Environmental Quality Management / Winter 2005 / 25Creating Value with Proactive Environmental Strategies

References3M. (1998). 3M pollution prevention pays: Moving towardenvironmental sustainability. St. Paul, MN: Author.

EPA. (2004a, March 26). Green investing: A growing trend.Press release.

EPA. (2004b). Performance Track corporate leader guide. Avail-able online at http://www.epa.gov/performancetrack/corpo-rateleaders/PTCorp_leader_guide.pdf

EPA. (2005a, April). National Environmental PerformanceTrack, third progress report. EPA 240-K-05-002.

EPA. (2005b). National Environmental Performance Track: Cri-teria for membership. Available online at http://www.epa.gov/performancetrack/program/index.htm

EPA. (2005c, February 24). EPA’s Performance Track applaudscorporations for beyond-compliance environmental commit-ments. Press release.

GEMI. (1998). Environment: Value to business, pp. 13–14.Available online at http://www.gemi.org/docs/PubTools.htm

As attention to environmental management

strategies increases, it becomes important for

companies and industries to strengthen the link

between environmental performance and finan-

cial performance through the development of in-

dustry-specific environmental performance

benchmarks in key areas such as resource use and

emissions.

Investors seeking to better understand the re-

lationship between environmental and financial

performance need environmental performance

benchmarks that clearly reflect trends within a

given industry and lend themselves to financial

analysis.

Bruce A. Martin is a senior project director with Environmental Strategies Consulting LLC in Reston, Virginia. He managesa number of projects for clients related to environmental compliance and management systems, environmental health andsafety auditing, and environmental due diligence.