Developing a Environmental Compliance: A New Approach...Developing a Culture of Industrial EnvironmentaLl Compliance: A New Approach Negctiated compliance agreements and offer the

E N V I R O N M E N T 20020rA 63 ~~D E P A R T M E N T

_n~ ^ P A P E R SPAPER NO. 70

TOWARD ENVIRONMENTALLY AND SOCIALLY SUSTAINABLE DEVELOPMENT

POLLUTION MANAGEMENT SERIES

Developing aCulture of IndustrialEnvironmentalCompliance:

A New Approach

Michelle L. Keene

September 1999

iL&\ Environmentally and Socially Sustainable Development The World Bank

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mgTHE WORLD BANK ENVIRONMENT DEPARTMENTand THE URBAN, INDUSTRY, AND ENERGY MANAGEMENT TEAM

Developing aCulture of IndustrialEnvironmentalCompliance:

A New Approach

Michelle L. Keene

September 1999

Papers in this series are not formal publications of the World Bank. They are circulated to encourage thought and discussion. The use andcitation of this paper should take this into account. The views expressed are those of the author and should not be attributed to the WorldBank. Copies are available from the Environment Anchor, The World Bank, Room MC-5-128.

Contents

Abstract v

Acknowledgments vii

Executive Summary ix

1. Environmental Performance 1

Essential Elements for Strengthening Environmental Compliance IEnvironmental Management in OECD Countries 2Problems in Applying Traditional Environmental Regulatory Regimes to Developing Countries 3

2. Innovative Mechanisms for Improving Environmental Compliance 5

Pollution Inventories 5Information Dissemination 7Cleaner Production Techniques 8Enviromnental Management Systems 12Greening of the Supply Chain 13Negotiated Environmental Agreements 15Determining What Will Work Where 18

3. The Relationship Between Traditional and Innovative Approaches 21

New Approaches to Achieving Environmental Compliance 21The Role of Government in Promoting Innovative Pollution Management Instruments 22Regulatory Streamlining and Reducing the Costs of Regulation 23Commitment to Performance Improvements 24

4. Implications for the World Bank 27

References 29

Boxes

I Tapping the Power of Public Opinion through Information Dissemination: Indonesia 92 Implementing Cleaner Production Techniques: Some Examples 103 Elements of an Environmental Management System 124 Greening the Apparel Supply Chain 145 A U.S. Supply-Chain Working Group 156 Industrial Self-Regulation in Bahia 177 PROFEPA's Voluntary Environmental Auditing Program 228 Improving Environmental Performance in Guadalajara, Mexico, through EMSs 25

Tables

1 Tools for developing a culture of industrial environmental compliance 62 Major cleaner production activities under way 113 Circumstances calling for various pollution management instruments 19

Pollution Management Series iii

Abstract

In recent years, developing countries have devoted better environmental performance and helping tomuch attention to developing and strengthening create a culture of compliance. Such approachesenvironmental institutions and regulatory reflect the need for governments to mnaximizeframeworks, largely by establishing command-and- resources by building cooperative relationshipscontrol regulations, and to a lesser degree, market- with industry, developing more flexible regulation,based incentives. Many governments have created and sharing some of the responsibility for pollutionnational environmental agencies and adopted management with the private sector.standards and regulations similar to those ofindustrial countries. Overall, however, formal This paper explores the componenits of these newregulation based on the industrial-country model tools and their applicability and effectiveness inhas not proved effective in reduction of industrial developing and industrial countries. In particular, itpollution in developing countries, nor have market- examines the role of government in applying thebased instruments been as successful as tools, the incentives for industry to participate, howanticipated. the tools can complement rather than compete with

an existing regulatory framework, and the extent toThe effectiveness of formal regulation has been which such tools are changing corporatehampered by a lack of understanding of what environmental performance. It is not a review of amakes industry act to fully implement legal norms mature field but, rather, a snapshot of what isand standards. There is a need for better taking place today. It is thus not an academic studyunderstanding of the motivations of those but a work in progress.responsible for pollution and their responses todifferent regulations, incentives, and other Chapter I reviews the elements that are essentialpressures. Compliance does not automatically for strengthening environmental performance,happen once requirements are enacted and issued. describes the industrial-country model of pollutionRather, it is achieved through regulations and management, and examines why this model isnorms that are grounded in a country's legal and proving inadequate for improving environmentaladministrative history and capabilities and through performance in industrializing countries. Chapter 2targeted efforts that encourage behavioral changes introduces the innovative instruments that canby polluters. assist in achieving environmental objectives and

describes on-the-ground applications. Chapter 3Innovative approaches based on cooperation examines the relationship of the tools to thebetween the public and private sectors can help regulatory context, and Chapter 4 explores theimprove industrial environmental compliance and World Bank's role in promoting innovativeperformance in countries that may lack the approaches to pollution management. There is notinstitutional capabilities and resources necessary yet an extensive body of literature on the emergingfor formal regulation to succeed. In addition to field of innovative approaches to pollutioni, but thedirect regulatory pressures, these approaches key documents drawn on for this paper have beenreflect the international pressures for improved collected in the References.productivity and competitiveness that are fostering

Pollution Management Series v

Acknowledgments

This paper was prepared by the author under the On behalf of the World Bank, I would like to thankguidance of David Hanrahan. It is largely based on the government of Norway for its interest in andinformal discussion papers and meetings with commitment to expanding the World Bank'sindividuals. I am grateful to those who have shared knowledge of innovative approaches to pollutiontheir experiences, especially Kulsum Ahmed, Ruth management, especially those that focus onGreenspan Bell, John Butler, Claudia Fenerol, developing partnerships between the public andRebecca Calahan Klein, Fernando Manibog, private sectors. The views and conclusionsTeresa Serra, David Shaman, Laura Tlaiye, Lee expressed in this paper are those of the author andTravers, and Suzanne Young. I also thank Richard should not be attributed to the government ofAckermann, Jean Aden, Adriana Bianchi, Charles Norway or to the World Bank.di Leva, Magda Lovei, and Benoit Laplante fortheir valuable comments.

Pollution Management Series vii

Executive Summary

Over the past decade, efforts to reduce industrial country's legal traditions, the maturity of itspollution in industrializing countries have focused institutions, the available resources, and theon developing environmental institutions and legal capacity and support of its citizens and the privateframeworks, largely by establishing command-and- sector. Compliance does not automatically happencontrol regulations and market incentives. By once requirements are legislated and issued; rather,itself, however, formal regulation based on the it is achieved through targeted efforts thatmodel used by members of the Organisation for encourage behavioral changes by polluters.Economic Co-operation and Development (OECD)has not proved very effective in reducing pollution Innovative Mechanisms for Improvingin developing countries. Enforcement capabilities Environmental Compliancein those countries are weak, levels of complianceare poor, and few actual improvements inenvironmental quality have been recorded. The The increasing openness of economies and theeffectiveness of fornal regulation in developing expanding role of the private sector in manycountries has been hampered, in part, by developing countries require a more collaborativeinadequate understanding of how to achieve approach by regulators and industry-one thatenvironmental objectives. An environmental includes more flexible regulation, more effectiveregulatory regime is not an end in itself, industry enforcement, and market-driven incentives formust be encouraged to implement environmental improved environmental management.regulations.

In this context, several innovative approaches areThe Difficulty of Applying Traditional emerging as effective ways to improve industrialRegulatory Regimes in Developing Countries environmental compliance and performance in

countries that lack the institutional capabilitiesneeded if formal regulation is to succeed. While

Although many developing countries have adopted there is no substitute for a regulatory regime,environmental regulations from OECD countries in innovative pollution management tools involvingan effort to improve environmental performance, partnerships between government, industry, andexperience demonstrates that this approach is often the public are fostering environmentallycounterproductive. Effective environmental sustainable development practices. These toolsregulations must first reflect the country context include:and be compatible with the administrative * Pollution inventoriescapabilities of regulatory agencies. Regulations * Dissemination of information on firm" imported" from industrial countries are performanceinherently unenforceable in developing countries, * Cleaner production techniqueswhere the institutional capabilities to implement * Environmental management systemsand enforce them are weak. Successful * Greening of the supply chainenvironmental regulations also depend on an * Negotiated agreements between regulators andoverall culture of compliance that is the result of a industry.

Pollution Management Series ix

Developing a Culture of Industrial EnvironmentaLl Compliance: A New Approach

Negctiated compliance agreements and offer the prospect of increased productivity andgovernment-industry partnerships help translate competitiveness to individual companies. Larger orregulatory requirements into clear, easily more sophisticated firms, especially those in exportunderstood, implementable terms, backed by markets, are recognizing the benefits of thesepopular support. The other tools listed target approaches, in terms either of cost savings or ofindustrial environmental improvements by maintaining or increasing market share. There isstrengthening public and private sector capabilities. considerable evidence in many parts of the world

that opportunities exist to enhance productivity andThe use of a given tool may be more strongly improve environmental performanceassociated with regulators or with industry, but simultaneously through low-cost changes inwhether certain tools are used by one or the other production processes.will (lepend on the specific circumstances oi thecounLry or locale where they are being applied. For Maximizing government resourcesexample, the tools could be part of a coherentprogram in which the government mainly sets the The costs and limitations of relying solely onregulatory framework and the private sector takes traditional command-and-control regulation andthe lead in selecting and applying some of the tools end-of-pipe responses are becoming increasinglyto meet environmental objectives established in the apparent to governments, particularly in OECDregulations. Alternatively, the government may countries. Even in rich countries, the size of thetake a more direct role in the use of these tools, regulated community far exceeds governmentfrom working with industry to develop pollution resources for environmental enforcement. Giveninventories and improve information the current trend toward leaner government, this isdissemination, to facilitating the implementation of especially relevant for developing countries. Thecleaner production techniques and enviromnental use of the tools described here can leveragemanagement systems. government resources by promoting regulatory

streamlining. For example, companies may makeUltimately, it matters little whether an instrument commitments to reach compliance and report onis used by industry or by regulators. What matters their progress. Regulators are then able tomost is that the use and application of the tools by concentrate on establishing targets and on auditingeither sector lead to improved environmental just a sample of the companies.performance and compliance.

More cooperative approaches to regulationIncenttives for Using Innovative Regulatory

International experience demonstrates the need toMarket forces consult with industry as well as the general public

in developing environmental policies andExcept in the most progressive firms, industry regulations, to ensure their feasibility, practicality,perceives environmental management as imposing and implementability. Such collaboration cancosts, and managers are often reluctant to take up facilitate the implementation of existingthe issue. This is especially true of smaller cr less environmental regulations and help overcome theresponsive firms, where there is frequently large gaps that frequently exist between regulatorycomplete ignorance of the environmental effects of requirements and actual performance. One way ofindustrial processes or of regulatory requirements fostering collaboration is through negotiateddesigned to protect the environment and human compliance agreements between the regulator andhealth. Even where there is some understanding of the polluter that define a legally sanctioned paththe issues, the problems are often assigned low from noncompliance to compliance. Polluterspriority or are set aside as too difficult. receive protection from fines and enforcement

actions as long as they follow the establishedIn this context, the most effective incentives for timetable, while regulators gain assurance thatenvironmental improvement are those that can environmental improvements will ultimately be

attained.

x Environmental Department Papers

Executive Summary

Importance of a Regulatory Foundation The tools provide opportunities for the public andprivate sectors to work together to move in the

While most traditional regulatory measures focus direction of sustainable business practices. Areason punishing polluting firns, the approaches where public and industry interests reinforce eachdiscussed here reward model firms by encouraging other might include the growing acceptance oflong-term changes that integrate environmental good environmental management as the price ofgoals and business objectives. Such systematic entry to competitive markets; public and regulatorychanges are typically beyond the scope of the pressures to reduce polluting activities; and "win-traditional regulator. However, the tools are not win" situations where firms find a technical edge insubstitutes for a comprehensive environmental more efficient production or recognize that poorregulatory framework; in fact, their success largely environmental performance may give rise torelies on a strong institutional and regulatory significant direct or overhead costs.foundation. Rather than being alternatives toenvironmental regulation, they provide International experience, although still limited," sanctioned" pathways to achieving environmental suggests that industrializing countries may havegoals specified in law. much to gain from these approaches in developing

a culture that fosters improved environmentalWhere Are Innovative Instruments compliance and better environmental performance.Appropriate? In the absence of mature regulatory systems and

credible enforcement mechanisms, and given theExperience demonstrates that there are particular budgetary constraints of nascent environmentalcircumstances in which neither strict regulation nor agencies, these tools may be an effective means ofmarket-based instruments alone are appropriate or improving industrial environmental performancefeasible. The challenge lies in identifying these and achieving overall environmental objectives.situations and determining which innovativepollution management tool, or which combination Currently, the World Bank and its clients areof tools, regulations, and market-based beginning to pilot innovative approaches toinstruments, will be most effective. We know, for pollution management by coordinating jointexample, that command-and-control regulation is public-private action to achieve environmentalmost appropriate for controlling the potential goals while also improving productivity,adverse impacts of toxic substances and that competitiveness, and the overall performance ofmarket-based instruments work well in sectors industry. An appropriate role for the Bank may besuch as water where there is a willingness to pay to serve as a catalyst and neutral broker, bringingfor services. The key is identifying which stakeholders together and promoting innovativeinstruments work best in which sectors, as well as instruments for pollution management.the particular circumstances where innovativeinstruments may be effective.

In the end, whatever approach is chosen willclearly reflect the specific context, including theexisting regulatory framework, the administrativecapabilities of the government, and themacroeconomic conditions necessary for a market-based system. Only when these factors are takeninto account can one understand how to select andapply the tools and tailor the approach to aparticular set of circumstances.

Pollution Management Series xi

1 Environmental Performance

Essential Elements for Strengthening It is ahmost impossible to identify and respond toEnvironmental Compliance all violations or to enforce compliance among all

the entities subject to regulation. No matter howThe World Bank's extensive experience of large a program's budget, it will be small inworking with governments to develop and relation to the size of the regulated community.strengthen environmental regulatory structures Setting priorities assists in targeting the availablepoints to the conclusion that there is no universal program resources to achieve maximum impact.model for environmental management.Nevertheless, where environmental compliance Realistic and achievable yet challenging goalsand overall industrial environmental performanceare strong, certain components are often found.' In theory, strict environmental requirements mean

better and possibly faster results. However, too-lnformation systems stringent requirements imposed too soon can

undernine the credibility of the regulatoryEnvironmental information is an essential basis for framework. In some cases, the requirements maymaking informed decisions about managing be complied with initially; for example, pollutionpollution. Comprehensive ambient monitoring control equipment may be installed but then poorlyprograms allow governments to better understand maintained. In many cases, there is no culture oftheir environmental problems, identify priorities, compliance, and the strict standards are ignoredestablish goals based on an acceptable level of risk altogether. Thus, overambitious and impracticalfor the community involved, and monitor and requirements can seriously hamper compliance andmeasure changes in environmental quality over enforcement.time. Without environmental information,enforcement is likely to remain ad hoc and Implementable and enforceable requirementsinconsistent. Information also provides a means foreducating the public about enviromnental risks and An important step in fostering compliance is toplacing pressure on governments. ensure that the environmental requirements are

implementable and enforceable-that the lawsEstablished priorities provide the necessary authority for enforcement;

that requirements are clear, practical, andIn many countries, the task of improving compatible with the underlying political climate;environmental performance is unnecessarily and that adequate resources are available forcomplicated by a reluctance to define implementation. For example, requirements thatenvironmental priorities and articulate clear rely on expensive, unreliable, or unavailablestrategies for addressing them. Effective technologies will probably not be effective. Theenvironmental management depends on making same is true of enforcement programs not backedchoices that form the basis for developing targets. by adequate legal authority and of requirements

that are unclear, inconsistent, or contradictory.

Pollution Management Series

Developing a Culture of Industrial Environmental Compliance: A New Approach

National goals and objectives-decentralized Capacity to respond to violationsresponsibility

International experience demonstrates that manyThe case for delegating responsibility to the local actors will not comply with the law unlesslevel rests on the familiarity of communities with noncompliance has clear consequences.local environmental issues and local capacities for Enforcement seeks to correct violations and inducedealing with them. The corollary is that, to the compliance by showing that the government isextent possible, environmental goals and policy willing to act in case of noncompliance. Delayinginstruments should be identified and chosen at enforcement can undermine the credibility of asubnational levels. National agencies should. focus program.on the broad framework of priorities andinstruments while delegating responsibility to local Environmental Management in OECDand regional bodies whenever possible. A lack of Countriespolitical or administrative commitment on the locallevel will sabotage policies imposed from above In the OECD countries, highly polluted urban air,just as surely as will resistance by those who have deteriorating water quality, and the threat to humanto comply with the policies. The challenge for the health posed by highly toxic substances used innational government is to take the lessons learned industrial and agricultural processes led toat the local level and generalize them for increasing concern and a need for governmentapplication on a broader scale. intervention. Over the past two to three decades,

complex environmental management systemsMonitoring compliance using the command-and-control (CAC) approach

and relying primarily on technology-basedMonitoring compliance-collecting and analyzing standards have been developed. These efforts haveinformation on the compliance status of the yielded significant environmental improvements inregulated community-is one of the most industrial countries.impcrtant components of a successfulenvironmental regulatory program. Sources of The basic philosophy of the CAC approach is thatinformation on compliance include inspections the government determines the rules to be followedconducted by program inspectors, self-monitoring by individual polluters. The rules are expressed asby the regulated community, citizen complaints, explicit orders specifying the technologies orand environmental conditions near a facility. processes to be used to attain complianceMonitoring is essential for identifying and (technology-based standards), the permissiblecorrecting violations, collecting evidence to content and concentration of emissions dischargessupport enforcement actions, and evaluating (emissions standards), and when and whereprogram progress. industrial activities can take place (permitting,

licensing, and zoning).Articulating roles and responsibilities

To achieve widespread compliance withEffective environmental regulatory regimes often environmental statutes under the CAC approach,involve many different government agencies, OECD countries have developed strongindustry associations, citizen groups, and environmental enforcement programs. Thesenongovernmental organizations (NGOs). A key programs usually combine two approaches:element in any environmental strategy is to promoting compliance through incentives andminimize the opportunities for conflict by defining education (the "carrot") and identifying violatorsthe roles and responsibilities of the groups and taking action to bring them into complianceinvolved-for example, how responsibilities for (the " stick"). Environmental enforcement bymonitoring and enforcement should be divided govemment usually includes inspections to detectamong the various levels of government. violations; negotiations with individuals, facility

managers, and firms that are out of compliance todevelop mutually agreeable schedules andapproaches for achieving compliance; legal action,where necessary, to compel compliance and

2 Environmental Department Papers

Environmental Performance

impose fines or criminal sanctions for violating the attaining a consensus on specifically what the lawlaw; and efforts such as educational programs and should be.incentives, including market-based instruments2

Regulations from industrial countries areProblems in Applying Traditional inherently unworkable in developing countriesEnvironmental Regulatory Regimes to where institutional capabilities to enforce them areDeveloping Countries weak. Effective environmental regulations must

reflect their own context and be compatible withTwo to three decades after the rise of the administrative, technical, legal, and economicenvironmental regulation in the OECD countries, capabilities of local regulatory agencies. Forenvironmental protection has begun to attract example, " importing" a CAC system on theincreasing political attention and public support in OECD model to a developing country assumes thatmany developing countries. Environmental the government establishes rules to the same extentlegislation has been introduced, and administrative as it does in industrial countries; that the requiredstructures are being restructured to respond to an technologies are available; that people have beenincreasing need for improved environmental trained to operate and maintain the necessarymanagement. Many governments have established equipment; and that monitoring and measuringnational environment agencies and have adopted capabilities exist for determining progress andstandards and regulations based on the OECD identifyiing problems.model.

In the OECD model, regulators take aWhile there is much to learn from the experience confrontational approach toward industry, oftenof countries with more mature environment without public backing. This has helped bringprograms, such " imported" systems have not about an adversarial relationship between industryproved effective. This is because the assumptions and regulators that undermines the environmentaland requirements underlying the model reflect the management system.political, legal, and administrative systems of well-developed industrial democracies. The Although CAC-based regimes have producedenvironmental management approaches of OECD significant results in OECD countries, they havecountries may not be suited to the different also often led to inefficient use of resources. Ascircumstances of developing countries. policymakers search for cost-effective ways to

achieve environmental goals, market-basedFor example, in most industrial countries instruments are gaining increasing acceptance andenvironmental legislation is the outcome of a political support. But despite the theoreticalunique local process of informed debate and public advantages of such instruments, this approach hasparticipation in decisionmaking through elected not yet been realized to the extent anticipated inofficials. Thus, by the time a law is agreed on and most OECD countries and is not a practical optionregulations are issued, a consensus on carrying out for most developing countries.and implementing the requirements has emerged.This process of consensus building is essential to In short, the OECD model of compliance andcreating the culture of compliance that underpins enforcement has limited application in mostthe successful implementation of environmental developing countries, in the absence of a broadregulations in most industrial countries. consensus and the capability to implement and

enforce environmental regulations. In addition,Similarly, allocating adequate resources to realistic except in the most progressive firms, improvedand well-articulated priorities is essential for environmental management is perceived asimplementing regulations. While countries may imposing costs, and managers are reluctant tohave impressive intentions, as reflected in their address the issue except when forced to do so. Thislaws, the laws may not really represent a practical is especially true of smaller or less responsiveworking agreement. Given the frequent gap firms, which typically lack knowledge of thebetween goals and resources, governments need to environmental effects of the firm's activities anddevelop objectives that are reasonable and are often unaware of the existence of variouspractical, with respect to costs and impacts, by first environmental regulatory requirements. In this

Pollution Management Series 3


context, the most effective incentives forenvironmental improvement are those that offer theprospect of increasing the productivity andcompetitiveness of individual companies.

Endnotes

1. See "Pollution Management: Key PolicyLessons" in World Bank (1999).

2. Office of Technology Assessment (1995), pp.8-19; Margulis (1996).


2 Innovative Mechanisms for ImprovingEnvironmental Compliance

Intemational experience demonstrates that to be the use of limited government resources byenforceable, a law must represent a general developing and maintaining a culture ofconsensus and be compatible with a country's compliance. International experience, although stilladministrative, technical, and legal capabilities. In limited, suggests that in the absence of maturethe absence of these conditions, the traditional regulatory systems, tested enforcementCAC approach to environmental management will mechanisms, and substantial financial resources,not be successful in most developing countries. developing countries may have much to gain from

these tools.Attention in the World Bank and elsewhere is nowtuming toward reinforcing regulatory approaches Pollution Inventorieswith innovative pollution management instrumentsthat assist in improving industry's environmental Few things are more valuable to environmentalcompliance and overall performance (see Table 1). decisionmakers than an adequate environmentalThese approaches, which focus on developing information base; a technical foundation ispartnerships between government, industry, and essential in determining priorities for achievingthe public, are proving effective in building broad environmental goals and objectives. An industrialstakeholder support and strengthening capabilities pollution inventory is a comprehensive, accurate,for pollution management-essential elements for current, regularly updated accounting of specificfostering improved environmental compliance. The pollutant discharges. Pollution inventories canapplication of these tools and approaches helps accelerate environmental compliance by providingdevelop the components of a strong environmental the information base necessary to understandmanagement framework. The approaches include pollution problems, identify priority actions, makepollution inventories, dissemination of information informed decisions, and identify opportunities foron firm performance, cleaner production waste minimization.techniques, environmental management systemssuch as ISO 14001, greening of the supply chain, On the government level, a database ofand negotiated agreements between the public and comprehensive, accurate, and regularly updatedprivate sectors. aggregated information quantifying industrial

releases and transfer of specific pollutants providesThese tools are not substitutes for a comprehensive a technical foundation for the development ofenvironmental regulatory framework; indeed, their environmental strategies. The OECD hassuccess largely relies on the existence of an developed a common framework for a pollutioninstitutional and regulatory foundation. Rather, inventory known as a Pollutant Release andthey provide pathways to achieving environmental Transfer Register (PRTR).3

goals within a legal framework while maximizing


Develcping a Culture of Industrial Environmental Compliance: A New Approach

Table 1 Tools for developing a culture of industrial environmnental compliance

Requirements/fjavorablecircumstancesfor successful

Tools implementation Outcomes

Pollution inventories Industry and govemment monitoring and Stakeholders are provided with basicdissemination of data on the ambient environmental information, enabling them toenvironment and on pollution loads better understand pollution problems, make

informed decisions, and set priorities.

Dissemination of information on firm Industry monitoring of pollution loads; Collection and dissemination of environmentalperformance communications strategy for information can foster an informed

disseminating information constituency that can effectively demandimprovement from firms with poorperformance; open discussions withcommunities can help reduce mistrust; andimprove monitoring of compliance.

Cleaner production techniques From government: regulation and real Improvements in industrial processes andnatural resource pricing management reduce the volume of pollution

generated, increase production efficiencies,From industry: commitment by and cut overall operating costs.management

Environmental management systems Intematicnal trade and market pressures; Impacts of industrial facilities are managed bycommitment by management a process of continuous environmental

improvements that are regularly monitored,measured, and reported; systems helparticulate roles and responsibilities formanaging a firm's environmental aspects.

Green ing of the supply chain Intematicinal trade and imarket pressures; Large firms work with smaller ones to providelarger finns concemed with reputation advice and mentoring on developingand quality of products environmental management systems and

improving overall environmentalperformance.

Negot:iated agreements and govemment- Flexible govermment structures; political Mechanism created for consensus buildingindus:ry partnerships stability; trust between govemment and among major stakeholders to commit to

industry; persuasion and social pressure achieving clearly defined and implementableenvironmental goals; devolution ofresponsibility for pollution managementencouraged.

On the facility level, pollution inventories can A pollution inventory is a valuable tool for firmsprovide a foundation of information that is because it allows executives who are not specialistsessenl.ial for setting and monitoring environmental in environmental management to understand howgoals and measuring progress toward meeting the company is doing in reaching environmentalthem. As effective indicators of environmental performance goals and reducing environmentalperformance, pollution inventories allow a faLcility impacts. It provides a useful tool for internalto assess process efficiency, raw material use and benchmarking for managers interested in usingloss, and compliance status and to identify comparisons to motivate facility staff to improveopportunities for eliminating releases and wastes, performance. Finally, a pollution inventory canoften with significant savings. A pollution facilitate effective communication with externalinventory also avoids potentially subjective and stakeholders by providing a nontechnicalinconrect assessments of environmental impacts by interpretation of information. Dissemination of theapplying a consistent analysis to the data. information to the public through corporate


Innovative Mechanisms for Improving Enviromnental Compliance

environmental reporting is essential to the much through informal pressures, and progressivedevelopment of an informed constituency that can firms are finding that open discussions with theeffectively demand improvements from firms with community can reduce mistrust and improve theirpoor performance. position in the marketplace. Much of the raw data

may be too technical for the general public, butA look at some examples of applications of firms are quite capable of translating thepollution inventories illustrates how they can information into easily understood terms.improve environmental compliance. In theNetherlands, an emissions inventory is used to Recent research demonstrates that environmentaltrack pollution reduction targets under national information is an essential component of informalenvironmental goals to determine whether regulation-the process by which communities andcovenants between firms and regulators are being markets influence polluters' behavior even whenimplemented. In the United Kingdom and formal regulation is absent.4' Industrial activities inDenmark, data reported in pollution inventories developing countries demonstrate differences incover substances included in the permitting environmental performance despite sharedprocess. Pollution inventory data that provide weaknesses of their regulatory systems. Even inbaseline information about the pollution burden are poor countries with weak regulatory systems, somebeing used by firms in the United States and facilities meet OECD emissions standards. InEurope to set internal environmental goals, often in countries as different as Brazil, China, India, andconnection with industry standards, including Mexico, local communities are usingenvironmental management systems. Similar environmental information to put pressure onapproaches are now being adopted by industry and enforce environmental norms. Whereindustrializing countries. For example, Mexico's formal regulatory systems exist, communities useQuerdtaro State has developed a PRTR and is the political process to demand enforcement;using it to identify priorities and develop a state- where such systems are ineffective or nonexistent,level environmental strategy that complies with informal regulation is implemented thoughexisting federal regulations. The Czech Republic community groups and NGOs. The actors varyhas developed a PRTR, and Egypt, India, Nepal, from country to country (e.g., local religiousand the Philippines are considering initiating pilots. groups, social organizations, community leaders,

citizens' movements, or politicians), but the modelInformation Dissemination of facilities negotiating directly with local

communities to avoid sanctions is consistentIn many countries, formal regulations are difficult (World Bank 1998).to implement, yet there is a public demand for acleaner environment and for more responsible In the United States, public disclosure through thebehavior by industry. The collection and Toxic Releases Inventory (TRI) has had a majordissemination of information on, for example, the impact on emissions reduction by plants that arestate of the environment and pollution loads are heavy toxic polluters. The TRI is a publiclyessential to building an informed constituency that available database that tracks releases of over 600will support the changes necessary to achieve toxic chemicals from industrial facilities to air,environmental improvement. Collaboration in such water, and land. Currently, 22,000 facilities in theefforts by the government, private industry, and the United States are required to submit over 73,000general public can facilitate implementation of annual reports under the program. The TRI isexisting environmental regulations and help based on the concept of " community right-to-overcome the large gaps that frequently exist know." The underlying philosophy is that localbetween regulatory requirements and actual environmental problems are best resolved byperformance. involving those who have immediate and direct

stakes in the problems and solutions. Thus, theDisclosure of information on actual environmental public needs to be informed and to have access toperformance allows the relevant public to monitor information about pollution risks in theprogress (or lack of it) and develop informed community. When TRI data were first madepositions; it also strengthens confidence in available to the public, the resulting strongcompany statements about compliance and community pressure led many U.S. corporations toimprovement. An informed public can achieve announce goals for reducing pollutants by



significant amounts, and many met these geals. dropped significantly, and discharges into theWhile few developing countries have such far- Hashed River no longer go unnoticed. Thereaching right-to-know laws, public pressure in unannounced inspections and the public attentionBrazil, Indonesia, and the Philippines, in response had immediate impressive results: ambient totalto accessible environmnental information, has suspended particulate levels dropped from 569brou;ght about similar changes in industrial parts per million (ppm) to 477 ppm in just fourbehavior. weeks in the spring of 1997. Although Korba's

enviromnental problems are far from solved, theIn Rio de Janeiro and Sao Paulo, pollution control seeds of change have been sown (India Todayagencies are experimenting with programs for 1997).public disclosure of poor environmentalperformance. In Rio de Janeiro, the state pollution The power of public pressure has also beencontrol agency, FEEMA, recently upgraded its demonstrated in South Delhi, where schoolchildreninformation collection system to include the have become effective pollution vigilantes. At thecapability to map detailed information about busiest intersection in South Delhi, high schoolambient quality, emissions sources, and affected students, under a school project, flag downpopulations. FEEMA is also able to provide the vehicles to check for a Pollution Under Controlpublic with information that plots trends in ambient (PUC) certificate indicating that the vehicle hasquality and emissions against objectives and to passed an emissions test. Drivers who produce theprepare and publish detailed profiles or certificate receive handwritten thank-you notes.performance ratings for major pollution sources in Drivers who cannot do so are directed to get thethe state. Such performance ratings are proving test done instantly and are issued a stiff warningeffective as a new tool for pollution management that next time there will be a significant fine to(World Bank 1998). pay. On one day in 1997, the students had checked

over 3,000 vehicles by noon (The Urban AgeIn Indonesia, community pressure provoked, by 1997).publicly accessible environmental information hasled to significant improvements in industrial Cleaner Production Techniquesbehavior. Through Indonesia's PROPER program,firms are graded on the basis of environmental Except in the most progressive firms, industriesperformance; ratings are made public, and facilities worldwide perceive environmental management asare held accountable (see Box 1). PROPER's imposing costs, and managers are often reluctantratings are designed to reward good performiance even to address the issue. This is especially true inand to call public attention to polluters that are not smaller or less responsive firms, where there isin compliance with regulations. Armed with this frequently complete ignorance of theinformation, local communities can negotiate environmental effects of industrial processes or ofbetter environmental terms with neighboring regulatory requirements designed to protect thefacilities, firms with good performance can environment and human health. Even where thereadvertise their status and earn market rewaris, is some understanding of these issues, the problemsinvestors can easily assess environmental are often assigned a low priority or are set aside asliabilities, and regulators can focus their limited too difficult. In this context, the mnost effectiveresources on the worst performers. The program's incentives for environmental improvement aresuccess has inspired a similar program (Ecowatch) those that can offer individual companies thein the Philippines and has attracted serious interest prospect of increased productivity andin Colombia and Mexico. competitiveness.

In Korba, one of India's most polluted towns, Cleaner production (CP) techniques offernewspapers publish daily levels of ambient opportunities for reducing pollution in theparticulate matter and effluent discharges industrial process, increasing productiongenerated by two thermal power plants and an efficiencies, and cutting operating costs. Whenaluminum plant. A committee of citizens supported by committed management, CPconst-ituted by the local administration can inspect techniques can achieve considerable improvementsthese plants at any time. As a result of such in environmental performance at low cost and canawareness raising, ambient particulate levels have produce maximum benefits from investments in


Innovative Mechanisms for Improving Environmental Compliance

hardware. Firms can also benefit from The term " cleaner production," defined as theimprovements in product quality and from the continuous application of an integrated preventivecompetitive advantages gained from innovation. environmental strategy to processes and products

to reduce risks to humans and the environment,Larger or more sophisticated firms, especially was coined by the Industry and Environment officethose in export markets, are recognizing the of the United Nations Environment Programmebenefits of these approaches, as measured by cost (UTNEP). CP may include conserving energy andsavings or increased market share. raw materials used in industrial processes,

eliminating the use of toxic substances, andreducing the amounts of wastes and pollutantsgenerated.

Box 1

Tapping the Power of Public Opinion through Information Dissemination: Indonesia

To counter increasing pollution from a rapidly growing manufacturing sector, Indonesia's EnvironmentalImpact Management Agency (BAPEDAL) promulgated a comprehensive set of environmental regulations.However, the agency soon discovered that its weak monitoring and enforcement capacity was limiting itsability to achieve the environmental objectives it had set out. This realization led to the creation of theProgram for Pollution Control, Evaluation, and Rating (PROPER). Under the program, BAPEDALreceives water pollution data from factories, analyzes and rates the factories' environmental performance,and disseminates the ratings to the public. By providing information about pollution in a form thatnonspecialists can understand, the initiative seeks to tap the increasing influence of the public and themedia to promote cleaner industries.

Of course, such systems are only as good as the information on which they are based, and BAPEDAL hadrelatively little experience with collecting, verifying, and analyzing large amounts of data. With supportfrom the World Bank, it developed a data management system that incorporated information on thefacilities' economic activities, emissions control equipment, and internal pollution monitoring. Using acomputerized model, the BAPEDAL team distilled information on each facility into a single performancerating.

The movement of frms from noncompliance to compliance as a result of public disclosure of the ratings isimpressive. At the beginning stage of disclosure, 65 percent of the facilities were rated black or red (thetwo most polluting categories under the color rating system). Slightly more than a year later, noncompliantfacilities accounted for just 47 percent of the total. The number of firms in compliance increased by 50percent during this period, and the number of plants volunteering to participate in the program doubled,from 11 to 23. These facilities expected that their rating by BAPEDAL and disclosure of theirenvironmental performance would enhance their market position. PROPER has also had an importantimpact on BAPEDAL itself in that the need for accurate ratings has compelled the agency to increase itsplant inspections and to improve the quality and reliability of its data collection and verification. The datacollected also provide BAPEDAL with solid evidence on facilities' compliance status, supporting strongeraction in cases where conventional enforcement action is appropriate.

Source: World Bank (1997).



Experience in many parts of the world has shown substantially. There is also inadequatethat considerable environmental improvement can understanding of how improved ways ofbe achieved at little or no net cost through CP accounting for materials and for directmethods. There is significant evidence that environmental costs (such as waste disposal) canopportunities for such changes exist in virtLally all often provide convincing evidence and justificationfirms. Good housekeeping methods can reduce for changes. Finally, many firms in developingindustrial pollution loads by up to 50 percent, at countries simply do not have the staff trained inlittle cost. Roughly speaking, a 20 to 30 percent industrial cost engineering to successfully applyreduction in pollution can often be achieved. with these concepts.no capital investment, and a further reduction of 20percent or more can be obtained with CP Cleaner production can be successfullyinvestments that have a payback time of only implemented only if there is clear political will onmonlhs (see Box 2). the part of governments, as well as commitment on

the part of the private sector. Several governmentsDespite these successes, there is frequently little have expressed commitment through nationalunderstanding of an underlying logic that links legislation or executive orders, including theenvironmental protection, resource productivity, Declaration on Cleaner Production in Poland; theinnovation, and competitiveness. Few companies White Paper on China's Population, Environment,recognize the real costs associated with poor and Development, which includes cleanermanagement practices and inefficient production production as a priority program; and Chile's'processes that waste materials and cause pollution. Cleaner Production Strategy.Nor do many companies, around the world, realizethat environmentally beneficial innovations canimprove process consistency and lower costs

Box 2

Implementing Cleaner Production Techniques: Some Examples

* A textile plant in India replaced highly polluting sodium sulfide in the dyeing process with hydrol, a wastestream from the maize starch industry. Since this process change required no capital expenditure, the plantwas spared about US$20,000 in capital expenses that would have been needed to control pollution andsaved US$3,000 in annual operating expenses.

* ]ln China, the environmental assessrnent of a bottling plant for a large distillery identified goodhousekeeping options that cost less than US$2,000 and yielded savings of over US$70,000. Encouraged bythis initial success, the firm carried oult detailed studies of the alcohol plant that identified a number ofequipment optimizations, producing almost US$700,000 in savings. Three other technology replacementoptions that were identified cost up to US$500,000 and had payback periods of one and a half to four and ahalf years.

* ][n Tunisia, a study of a battery manufacturer identified 19 changes, of which the first 7 alone would savealmost US$750,000 in the first year, with no capital investments required.

* ][n Chile, an environmental assessment of a large textile mill identified potential reductions in water andenergy use. Three specific investments were recommended, at a total cost of US$11 million, with paybackperiods of 14 to 24 months.

* In a pulp and paper plant in India that produces 36 tons of a paper a day, a combination of process changes,equipment modifications, and new technology resulted in improved operating conditions and product. Thecapital investment was US$35,000, with a payback period of less than three months.



Beyond these commitments, the pricing of natural Environmental Technical Assistance Unit forresources is one of the most powerful tools that Small and Medium-Size Enterprises, which is partgovernments can use to influence the behavior of of the city's local environmental agency, providesconsumers and producers. Where market prices firms with industry-specific guidance documentsprevail, benefits to firms include increased on environmental improvements through cleanerproduction efficiencies and reduced operating production, as well as assistance on identifyingcosts. In addition, governments need to encourage lines of credit for environmental investments. Ininvestment in new technology, improve access to China, the World Bank is collaborating with thefinancing, and support an orientation toward export UNEP to establish a CP Center where local expertsmarkets to provide effective incentives for firms to evaluate CP options for several companies. Similaradopt CP techniques. work, supported by donors and international

organizations, is under way in other countries (seeEfforts to promote cleaner production in Table 2 for selected examples). Unfortunately, indeveloping countries have focused on providing many cases only a small part of theaccess to the technical expertise needed to identify recommendations has been put in practice. Suchcleaner production opportunities, mainly through limited success highlights the importance ofthe establishment of CP centers and the motivating, involving, and obtaining commitmentsdevelopment of mechanisms to finance CP from senior management.techniques. In Bogota, for example, the

Table 2 Major cleaner production activities under way

Sponsoring or fundingorganization Program activity Economy or city

UTNEP and United Cleaner Production Program: setting up national CP China, Czech Republic,Nations Industrial Centers as a focal point for CP efforts. India, Indonesia, Mexico,Development Slovak Republic, Tanzania,Organization (UNIDO) Zimbabwe

U.S. Agency for Environmental Pollution Prevention Program (EP3): Bolivia, Chile, Egypt,International setting up local operations to provide technical TunisiaDevelopment (USAID) assistance and carry out environmental audits.

Bilateral donors Financing for a range of efforts, including waste Central and Eastern Europeminimization audits and technical assistance. InPoland the program has produced 400 trained andcertified CP experts.

Metropolitan Pollution management assessments in six industrial Beijing, Manila, MumbaiEnvironmental sectors (India)Improvement Program(MEIP)/World Bank

United States-Asia The NGO-Business Environmental Partnership Bangladesh, Hong KongEnvironmental Program provides incentive grants to Asian NGOs to (China), India, Indonesia,Partnership/The Asia work with industry in developing programs that Rep. of Korea, Malaysia,Foundation incorporate clean technology and environmental Nepal, the Philippines,

management. Singapore, Sri Lanka,Taiwan (China), Thailand

World Bank CP elements are increasingly being incorporated in Argentina, Bolivia, India,World Bank-financed projects Mexico, Tunisia


Developing a Culture of Industrial Enviromnental. Compliance: A New Approach

Environmental Management Systems In a world of increasingly free trade, muchattention has been focused on internationally

Environmental management systems (EMSs)I are coordinated specifications for EMSs under the ISOlogical components of CP techniques in that they 14001 standard. ISO 14001, a voluntaryrepresent a systematic approach to controlling the international environmental systems standard forenvironmental effects of an organization's industry, was adopted in June 1996 by theactivities. The main purpose of an EMS is to International Organization for Standardization, onensure that the environmental impact of a finn is which national standard-setting bodies aremanaged by a process of continuous environ mental represented. It is a process standard; that is, itimprovements (perhaps including CP techniq[ues) provides a framework for assisting firms inthat are monitored, measured, and reported. measuring their conformance with their ownTypically, one of the first steps of an EMS environmental policy, but it does not set specificinvolves identifying the "environmental aspects" pollution control targets (e.g., emissions limits areof a firm, many of which can be identified through specifically excluded). A key component of thea firm-level pollution inventory. ISO 14001 standard is its identification of elements

of an EMS that can be independently audited andAn EMIS translates broad corporate environmental certified (see Box 3).policies into specific actions that are integrated intoa firm's business strategy. A sound EMS reflects As a process standard, ISO 14001 sets the directionchallenging, yet achievable and measurable, for an organization's main environmentalobjectives and can provide a foundation for objectives and targets with respect to its activities,improving environmental performance and for products, and services. Although ISO 14001 is notmoving toward internationally accredited systems. a performance standard, under the objectives andManagement commitment to improving targets that are established, pollution preventionperformance, as well as strong existing managerial and waste minimnization objectives can beand measurement capacities, are prerequisites for a quantitatively measured. For example, toxicsuccessful EMS. emissions can be tracked or the volume of

wastewater generated per unit of production can bemeasured. Such examples allow the EMS tobecome more tangible and relevant to managers.

Box 3

Elements of an Environmental Management Systems

. An environmental policy, defined by senior rmanagement and communicated throughout theorganization, specifying the firm's commitment to compliance with environmental legislation, topollution prevention, and to continual imnprovement

* Planning, including objectives and targets, incorporated into a management program that isconsistent with the environmental policy and that specifies responsibilities, resources, and a timeframe

* Mechanisms for implementation of the environmental management program

* Procedures for checking and corrective action

* Periodic management review of the EMS to ensure its continued effectiveness.



In general, an EMS, whether ISO 14001 or Protection Agency (USEPA) have expressedanother, can be used as a mechanism for improving tentative interest in providing incentives for thisenvironmental performance and supporting the approach-for example, through reducedtrade prospects of good performers. As inspections for fimns that demonstrate conformityenvironmental requirements in industrial countries with an EMS standard. If EMSs are to serve as abecome increasingly stringent, firms in developing tool in developing countries, govermnents willcountries are under pressure to prove their need to develop similar policies.commitment to environmental management.International experience demonstrates that Greening of the Supply Chaincompanies can improve competitiveness byacquiring "green management credentials" The power of the supply chain can be an effectivethrough international certification programs; firms mechanism for promoting improved environmentalthat qualify for these certifications stand to benefit performance. Supply-chain environmentalin a marketplace that increasingly values management can be defined as efforts by globalenvironmental credentials. firms to encourage the use of environmental

criteria for the products and processes of theirExperience with ISO 9000 (the older ISO suppliers. Large firms that serve intemationalinternational quality systems standard, which markets will most often be driven to improveessentially is viewed as a requirement for accessing environmental performance and seek ISO 14001international markets) had led to much discussion certification. Small frms that function as localabout whether ISO 14001 will also become a suppliers do not have the same external pressures.market condition. A number of practical issues Recently, however, multinationals are asking forconcerning ISO 14001 need to be sorted out. better performance from their suppliers and areSignificant costs may be associated with obtaining acting as mentors to help improve environmentalcertification, and there are questions regarding the performance. There are several motives for a largeinternational acceptance of certification. Few firm to do so: to improve the quality of productsdeveloping countries have established national and maintain the purchasing firm's reputation incertification and accreditation bodies, and the lack the international marketplace; to seek lower pricesof such infrastructure can result in from suppliers as a result of efficiency gains anddisproportionately high costs. Those countries that cost savings; and to mitigate risk in the face ofhave the necessary infrastructure face difficulties in increasing environmental regulations and liabilitygaining international credibility, as many report a issues.lack of qualified consultants, auditors, and trainers.In addition, many companies do not have specially Among corporate environmental initiatives,trained staff or cannot spare sufficient personnel to encouraging (and sometimes requiring)implement an EMS. environmental improvements within the supply

chain offers perhaps the greatest opportunity forIt is important to note that the ISO 14001 standard improving industrial environmental performancedoes not require compliance; it requires a and compliance on a global basis. A single firm'scommitment to compliance with environmental policy commitment to use only suppliers thatlegislation. But EMSs (generically defined) do provide environmental assurances can raise theappear to help small and medium-size enterprises performance of thousands of supplier companies.move toward improved performance andcompliance, since these systems typically include a * The Guadalajara project described abovemechanism for identifying regulatory requirements sought to develop EMSs in small and medium-and a plan for achieving them. An example of such size enterprises through mentoringimprovement is seen in a World Bank-supported relationships with larger companies. Morepilot project in Guadalajara, Mexico (Ahmed et al. than half of the participating firms indicated1998). (By contrast, certification and other trade- that they would not have joined the pilot haddriven factors appear to be more important for they not been invited by their mentors (Ahmedlarger firms.) EMSs are expected to provide a et al. 1998).credible complement to traditional CACregulation, not an alternative. In the United States, * B&Q, the largest hardware and garden centerstate governments and the U.S. Environmental retailer in the United Kingdom, developed a



system of grading its suppliers on Large customers are increasingly coming togetherenvironmental performance. The firm set on a sectoral basis to establish common standardsrealistic targets that were not so tough as to for suppliers. In 1995, leading apparel;alienate suppliers but that nevertheless resulted manufacturers and retailers established an industryin improvements by a large number of working group on the environmental impacts ofcompanies. Most suppliers perceived the apparel manufacturing (see Box 4).program as an opportunity to improve iheirown businesses, and the production In the countries where the end product is sold,efficiencies realized enabled B&Q to negotiate environmental regulations (particularly productbetter prices from its suppliers, yieldingy cost take-back regulations in several Europeansavings (Knight 1995). countries) are driving a concern for supplier-chain

environmental management, especially in theIn some sectors, buyers are often willing to work automobile, electronics, and computer sectors. Forwith key suppliers to achieve satisfactory levels of example, in selecting its suppliers, the Swedishenvironmental performance. This is increasingly automobile manufacturer Volvo uses, among othersound business practice, particularly because of the criteria, information from pollution inventories andwidespread use of "just-in-time" manufacturing, corporate enviromnental reporting. Japan's Toyotawhich requires the purchasing organization to work Motors is developing a global policy for itscollaboratively with its suppliers as a suppliers by forming the Toyota Suppliersmultidisciplinary acquisition team. Under such an Environmental Communications Committee.arrangement, the purchaser's environmentalLperformance stipulations are not necessarilyintended or perceived as threats. Rather, they areoften, motivated by a desire to secure andstrengthen buyer-supplier relationships byfacilitating investments in environmentaltechnology and improvements in management.

Box 4

Greening the Apparel Supply Chain

The apparel industry working group seeks to identify environmental issues in the supply chain and findcommon-sense, cost-effective approaches that manufacturers, retailers, and suppliers can take to address'hose challenges. Its initial area of emphasis is supplier wastewater effluent from mills and laundries, whichwere chosen because they offer a number of opportunities for environmental improvements and have adirect relationship with apparel manufacturers and retailers.

To assist this effort, the apparel working group has established water quality guidelines for wastewatereffluent that provide clear expectations for the environmental performance of textile mills and laundries.The apparel manufacturers and retailers that support the guidelines will apply them to their own and theirsuppliers' operations around the world, with a special emphasis on Southeast Asia. Supporters of theguidelines will consider the environmental performance of textile mills and laundries as part of theirpurchasing decisions. The working group hopes that in meeting the water quality guidelines, suppliers willminimize the use of resources in production, use pollution prevention approaches rather than end-of-pipeimethods, where possible, and strive for continuous environmental improvement.



Companies that do business in North America, Negotiated Environmental Agreementssuch as Kodak, require that packaging inks notcontain intentionally added toxic chemicals such as Compliance with environmental policies oftencadmium or lead. Kodak purchases significant depends on the extent to which lower levels ofquantities of packaging materials and has to be government and industry view the goals andconcerned about compliance with state regulations objectives of environmental policy as feasible andprohibiting these elements in products and fair. Thus, building a consensus among a range ofpackaging. To ensure that the company meets these stakeholders is a prerequisite for achievingrequirements, Kodak is developing a series of environmental compliance (Lovei and Weissenvironmental questions that it plans to ask key 1997). International experience demonstrates thesuppliers. However, it has not yet set standards for need for regulators to consult with industry in thesuppliers. development of environment policies to ensure that

the policies are practical and implementable.Society's expectations of business performance are Mechanisms for consultation between regulatorsrising. Consumers, investors, and stakeholder and industry in establishing environmental goalsgroups are increasingly expecting businesses to can assist in identifying more cost-effectivedemonstrate respect and stewardship for the approaches for achieving environmental objectives.environment and the communities in which they Under a broad regulatory framework that setsoperate. At the same time, some firms have national objectives, negotiated agreements offer arealized that improving their environmental way for government and industry to take concreteperformance can reduce overall costs, improve steps toward pollution management while theproduct quality, enhance corporate reputation, and details of regulations are still evolving.increase customer satisfaction. These factors areleading many companies to seek additionalenvironmental gains through improvedperformance in the supply chain (see Box 5).

Box 5

A U.S. Supply-Chain Working Group

Businesses for Social Responsibility is a nonprofit, nonpartisan organization based in San Francisco thatpromotes responsible business practices. It has organized a Supply Chain Working Group made up ofcompanies interested in exchanging ideas on how to improve the environmental performance of their suppliers.More than a dozen companies are participating to date, including General Motors, Cosmair, Monsanto, andSouthern California Edison. The companies are working together to answer questions such as these:

. How can my company integrate environmental considerations into global purchasing?

. What cost-effective measures can we use to assess suppliers' environmental performance?

• How can we measure the environmental and economic benefits of improved supplier performance?

* How do we communicate progress to internal and external stakeholders?

The purpose of the group is to help participating companies achieve better economic and environmentalperformance in the supply chain. The group is working to identify and create new and better tools forimplementing supply chain management programs and is utilizing metrics for measuring environmentalperformance.



Local agreements that reflect broad stakeholder * In the Netherlands, negotiated agreements aresupport can be useful in eliciting specific used to implement national environmentalcommitments and actions to achieve pollution policy goals. Major economic sectors,goals. Stakeholders initiate a process of discussion represented by trade unions, design strategiesand consensus building to develop an action plan for meeting environmental goals set jointly byof targeted commitments and actions that define industry and govermnent. Commitments arepracltical and achievable objectives and timetables. implemented through legal covenants, andOnce the constituency-building process has been conventional laws and regulations are used to

back up covenants if industry fails to meet itsinitiated and specific environmental issues ]have commitments.been identified and analyzed, stakeholders can useinnovative pollution management instruments, * In Colombia, under a water pollution controlsuch as CP techniques and EMSs, as a means for program in the Antioquia region, regulatorsachieving agreed environmental goals. A key to and industry are using negotiated agreementssuccess with negotiated agreements is to express to develop a pollution reduction strategy forthe regulatory requirements in clear and easily cleaning up the Rio Negro basin. The riverunderstood terms that include interim compliance basin has been divided into segments, andtargets and to link firm-level efforts to meet those local stakeholders (industry, the municipalrequirements with specific actions. By giving government, and NGOs) are convening withindustry and communities a voice in determining an independent outside negotiator to determinespecific pollution reduction targets, the use of these specific effluent reduction targets for eachagreements recognizes that local stakeholders are segment. So far, stakeholders have agreed to aoften better able to set efficient and realistic 50 percent reduction of biological oxygenfacility-specific requirements on the basis oi' local demand (BOD) and total suspended solidsconditions. Such agreements also offer firms (TSS) over a five-year period. Once theseflexibility in how they comply with targets. targets are reached, goals for further

reductions will be set. Firms that fail to meetSome NGOs have criticized this approach for the targets pay a significant charge.giving too much power to industry and enablingindustry to avoid rigorous environmental * Experiences in Indonesia and Bangladeshenforcement. However, the very process of highlight the role of community pressure inengaging all players-government, industry, and building a constituency for pollutioncommunities-in a dialogue fosters a constiluency management through negotiated agreements.for pollution management that can negotiate Indonesia has used pollution controlspeci:Fic commitments to achieve tangible results. agreements to clean up severely polluted

waterways by getting a large number of firmsInternational experience provides valuable insights to commit to cutting pollution loads byabout the effectiveness of negotiated agreernents in specific amounts within an agreed time frame.improving environmental compliance. In the first two years of the Indonesian Clean

River Program (PROKASIH), more thanIn Japan, pollution control agreements 1,000 industrial facilities signed agreements,between industry and local government were and most followed through on theirthe forerunners of national environmental commitments. Although participation in thepolicy. Prefecture govemments favored program is not strictly voluntary, theagreements as flexible tools for addressing agreements signed by plants are not legallypollution problems. Now that environmental binding. Nevertheless, under the PROKASIHregulations have been established, pollu tion program, total BOD discharges and pollutioncontrol agreements continue to be used as a intensities from participating plants havenieans by which local governments can declined significantly (Afsah, Laplante, andazhieve higher goals. Makarim 1996).



Box 6

Industrial Self-Regulation in Bahia

Salvador, Brazil's third largest city, and 14 neighboring municipalities are situated along the 800-kilometer Baia deTodos os Santos (All Saints' Bay). Accelerated growth in recent decades has exceeded the government's institutionaland financial capacity to invest adequately in urban sanitation and solid waste disposal systems. The stategovernment of Bahia has been experimenting with an innovative approach to reduce pollution levels. Stakeholders,including local universities, are engaged as partners with industrial leaders and state environmental officials toestablish and meet mutually acceptable standards for air and water emissions. Responsibility for this initiative fallsunder the State Council on the Environment (Conselho Estadual de Meio Ambiente, CEPRAM), on which threegroups-government, nongovernmental, and other members from civil society-have equal representation. Votingpower in the policymaking and decisionmaking body is limited to one-third per group, and all decisions regardinglicensing must be reached unanimously.

Both the state government and CEPRAM have issued resolutions that transfer significant responsibility forenvironmental quality to individual industries. For example, in 1995 a CEPRAM resolution, Auto Avaliacao para oLicenciamento Ambiental (ALA), initiated a pilot that replaces the permit system with a process under whichfacilities may prepare their own regulatory permit, including self-imposed pollution reduction targets and proposalsfor improved environmental performance. Another 1995 state resolution establishes rules for the creation by eachcompany of an Environmental Quality Guarantee Commission (Comissao Tecnica de Garantia Ambiental, CTGA) toevaluate, monitor, and promote self-reporting and self-enforcement of its operations. Establishment of a CTGA is aprerequisite for receiving and renewing licenses for industrial operations. In addition to the CTGA and the ALA, athird component of the system includes education programs that seek to train workers in changes in industrialprocesses and in self-regulation practices. This activity involves members of the State Environmental ProtectionAgency, local universities, and industries that are interested in developing in-house capacity.

Since 1995, state environment authorities have signed terms of commitment with the principal industries responsiblefor water pollution. These agreements cover 90 percent of industrial effluents in the bay. By the end of 1995,analyses demonstrated that industrial waste had been reduced by 40 percent and that significant improvements incoastal waters had been attained, largely due to the installation of an urban sewerage system. According toprojections, acceptable levels of ambient water quality in the bay were expected to be achieved by the end of 1998.

The Bahia model of pollution management shifts the burden and responsibility for reduction of pollution from anovertaxed (and perhaps less effective) public enforcement sector to an intrasectoral forum that includes privatecompanies which also reap the benefits of access to clean water. Federal and state legislation may provide theframework, but the confluence of public interest and local leadership makes the difference on the ground. Theavailability and regular updating of reliable data, the existence of monitoring systems, and the establishment of self-imposed targets by individual firms all help create a culture in which environmental stewardship and compliance arethe expectation rather than the exception.

Source: Fortin and Engelberg (1977).

* In Bangladesh, riverside villages negotiated outset. Environmental mediation, whereby anagreements with upstream polluters that independent mediator is appointed by theincluded requirements for monetary government, is used to resolve environmentalcompensation and first-stage effluent disputes between industry and government.treatment of industrial discharges (Huq and However, in a case concerning the Siak River,Wheeler 1993). success was limited because the mediation process

failed to involve the local agency responsible forAnother type of negotiated agreement used in pollution management. This omission led to aIndonesia, third-party mediation, underscores the lower commitment on the agency's part to monitorimportance of identifying stakeholders and and enforce the agreement (Moore and Santosadeveloping clear roles and responsibilities from the 1995).


Dev eloping a Culture of Industrial Enviromnental Compliance: A New Approach

An important consideration in using government- technical analysis on which to baseindustry partnerships to achieve pollution targets is decisionmaking. At present, there is littlethe capabilities of industry. In Brazil, the state monitoring of the major ecosystems in the state.governments of Bahia, Espirito Santo, Minas The main force for emissions control is the set ofGerais, and Rio de Janeiro maintain their agreements reached in COPAM. While many oftraditional role of establishing environmental these agreements are yielding positive results, theystandards but rely on industry's self-enforcement would likely benefit from complementary andthrough environmental auditing programs to sporadic inspections of major polluters. In theachieve pollution targets (see Box 6). Industry's absence of sound technical analysis, a participatoryability to understand its environmental impacts, approach is less likely to produce a coherentoptions for limiting pollution, and methods of strategy for improving environmental qualitymeasuring, monitoring, and improving (World Bank 1998).environmental performance is essential to the newapproach. As a first step, these state governments Experience with negotiated agreements in thehave adopted environmental audit requirements Czech Republic and Poland highlights the need forand are promoting training in these areas tc, a firm legal basis and for inclusion of enforcementstrengthen industry's capabilities. provisions in the agreements. In the Czech

Republic, initial national attempts at negotiationIn Minas Gerais, Brazil's second-largest industrial failed to provide for enforcement. Later, thecenter, environmental management is largely omission was rectified, and the city of Ostravacentered on the decisions and actions of the successfully negotiated an agreement with cokeCouncil of Environmental Policy (COPAM) and its producers establishing specific environmentalexecutive secretariat, FEAM. COPAM's best- compliance conditions consistent with anknown feature is its extremely democratic and acceptable level of risk to the community. Poland,participatory nature. With 24 representatives from by contrast, developed from the start on thegovernment, NGOs, and private business, COPAM national level a comprehensive legal basis thatis responsible for establishing norms, granting integrates the use of negotiated compliancelicenses for polluting activities, establishing agreements into the overall environmental legalsanctions, and serving as a tribunal on framework (Bell and Bromm 1997).environmental matters. The use of a transparentenvironmental management system that embraces a Determining What Will Work Whereconsensus-building approach has yieldedsignificant results, especially with respect to The tools described above are to a large extentactions by industry, particularly mining companies. interrelated. For example, we have seen how firmsThe participatory system has enabled various can use pollution inventories to pressure theirstakeholders to form constructive partnershitps. suppliers to make changes. Pollution inventoriesCOPAM has signed several agreements with are also useful tools for setting firms' internalunions and federations of the more polluting environmental policies, identifying opportunitiessectors to develop consensus-based solutions that for cleaner production, and developinginclude specific actions and schedules for environmental management systems. At the sameachieving environmental goals. Less promising time, the public availability of environmentalresults have been achieved with state compEnies information, based on pollution inventories, is anand the public sector, including the agricultural important mechanism for building a constituencysector. Experience with small enterprises has been for pollution management and developingmixed, although negotiated agreements with the negotiated agreements.federation of industries represent a promisingapproach (World Bank 1998). The existence of relationships among these tools

underscores their common purpose-to develop aMinas Gerais has a strong tradition of stakeholder culture of compliance that includes a constituencyparticipation. Decisions are made in a public forum and the necessary capabilities for effectiverather than privately between industry and the pollution management. Negotiated complianceFEAM, providing a barrier against corruption. agreements and government-industry partnershipsHowever, the system does have some assist in translating regulatory requirements intoshortcomings, notably the lack of monitoring and clear, easily understood, implementable terms



based on popular support. The other tools- work well in sectors such as water, where there is apollution inventories, dissemination of information willingness to pay for services. The key is toon firm performance, cleaner production identify which instruments work best in whichtechniques, environmental management systems, sectors, as well as the particular circumstancesand greening of the supply chain-target industrial where innovative instruments may be appropriate.environmental improvements by strengtheningpublic and private sector capabilities. Improved environmental performance depends on

a host of complex factors, including institutionalExperience demonstrates that there are constraints, political realities, and industrycircumstances in which neither strict regulation nor capabilities. In order to determine which tool ismarket-based instruments alone are appropriate or most appropriate under given circumstances,feasible. The challenge lies in identifying these sufficient institutional analysis must be carried out,situations and determining which innovative including analysis of political and economicpollution management tool, or which combination factors, the legal bases, and capabilities of keyof tools, regulations, and market-based stakeholders. While it is not possible to suggestinstruments, will be most effective. We know, for which tool might be most appropriate under whichexample, that CAC regulation is most appropriate circumstances without knowing these other factors,for controlling the potential adverse impacts of Table 3 suggests the general circumstances undertoxic substances and that market-based instruments which each tool may be most effective in

improving environmental performance.

Table 3 Circumstances calling for various pollution management instruments

Broad national Need forLack of targets in place; implementable

Inadequate Market/trade consensus needfor Needfor andinformation pressures on pollution devolution of public enforceable

Tools base exist targets responsibility participation requirements

Pollutioninventories x

Disseminationof informationon firmperformance X X X X. X X

Cleanerproductiontechniques X X

Environmentalmanagement xsystems

Greening of thesupply chain x

Negotiatedagreements



The ase of some of these tools may be more Endnotesstrongly associated with regulators or withindustry. It is not clear whether particular tools will 3. OECD (1996). Further information onalways be applied primarily by the public o0- the PRTRs may be addressed atprivate sector; that will depend greatly on the http://irptc. unep.ch/prtr/Default.html.specific circumstances of the country or localewhere they are being applied. For example, in one 4. Paragal and Wheeler (1997). For othersitua1tion these tools could be part of a coherent evidence from Asia, see Hettige et al. (1996)program in which the government largely sets the and Huq and Wheeler (1993). For evidenceregulatory framework and the private sector takes from Brazil and Mexico, see Wheeler andthe lead in selecting and applying some of the tools Witzel (1996) and Hettige and Witzel (1996).as mechanisms for meeting environmentalobjectives established in the regulations.

Alternatively, the government may assume a moredirect role, from working with industry to developpollution inventories and improve informationdissemnination, to facilitating the implementation ofCP techniques and EMSs. Ultimately, it matterslittle which instruments are used by firms orregulators. What matters most is that the use andapplication of these tools, by either sector, lead toimproved environmental performance andcompliance.

In the end, the approach chosen will reflect thespecilfic context, including the existing regulatoryframework, the administrative capabilities ofgovernment, and the macroeconomic conditionsnecessary for a market-based system. Only vvhenthese factors are considered will it become c [earhow to select and apply the tools and tailor theapproach to a particular set of circumstances.


3 TThe Relationship Between Traditionaland Innovative Approaches

We are only beginning to understand the benefits in increased efficiency and overallapplication of innovative pollution management improved productivity (CONOMA 1997).instruments in the context of a regulatoryframework and how they can assist in improving In Mexico, a voluntary audit program (Programaoverall environmental performance and Nacional de Auditorias Ambiental Voluntarias) runcompliance. The purpose of this chapter is to by the Procuraduria Federal de Protecci6n aldemonstrate how these instruments complement Ambiente (PROFEPA) is explicitly designed torather than compete with a regulatory regime and help companies meet their obligations to complyto examine how several countries are trying to with environmental law. The audit programunderstand this relationship on the basis of their encourages self-policing by reducing penalties forown experiences. violations that are discovered, disclosed, or

corrected through voluntary audits or complianceNew Approaches to Achieving Environmental management programs. When a frm applies forCompliance the program, PROFEPA initially excuses it from

nornal inspection activities. After an audit isIndustry and regulators in several countries are conducted, PROFEPA and the facility negotiateviewing these new approaches to pollution and sign an agreement that includes specific targetsmanagement not as substitutes for environmental and timetables for corrective action. Fulfillment ofregulation but as tools for achieving environmental the agreement, or action plan, is closely monitoredcompliance and improving overall improved and supervised by PROFEPA authorities (see Boxperformance. Mexico's Queretaro State is using its 7).Pollution Release and Transfer Register to identifypriorities and develop a state-level environment The success of Santiago's Decontamination Plan isstrategy that complies with existing federal attributed to the consensus-building approach,regulations. In Chile, CP techniques were under which industry and various otherimplemented in selected sectors, including bread stakeholders had a voice in determining pollutionbakeries. The bakeries found that switching from targets and were offered flexibility in how towood-burning to gas ovens was economically comply with them. In Minas Gerais, Brazil,feasible, and it made a significant contribution to environmental management is largely centered onreducing ambient levels of particulate matter in the decisions and actions of the extremelymetropolitan Santiago and improving Santiago's democratic and participatory COPAM. The use ofcompliance with its air quality standard. This initial a transparent environmental management systemsuccess contributed to the development of Chile's that works through consensus building has resultedNational Cleaner Production Policy, which seeks to in significant progress with respect to improveddevelop cooperation between the public and environmental compliance by industry.private sectors to reduce pollution while reaping


De'veloping a Culture of Industrial Environmental Compliance: A New Approach

At the beginning of the pilot project in In the case of Mexico's voluntary audit program,Guadalajara, many of the participating small and the government, through PROFEPA, plays a keymedium-size firms were not aware of all of the role. It encourages firms to enter the program,regulatory requirements that applied to them. The establishes the terms of reference of the audit, andprocess of implementing an EMS significantly supervises the on-site audit. Once the audit isheightened their awareness of these requirements. complete, it reviews the report and meets withMany representatives of the firms have commented industry to negotiate corrective actions. Finally,that the very process of implementing an E]MS PROFEPA supervises compliance with the agreedsignificantly improved their capabilities for actions (Mexico 1994).cornplying with the laws, as it helped establish aframework within which they could identify and The USEPA, under its Project XL and Commonaddress areas where they were out of compliance Sense Initiative, is examining more cost-effective(Ahmed et al. 1998). ways of achieving or exceeding regulatory goals.

Under these government-led programs, high-The Role of Government in Promoting performing finns design their own complianceInnovative Pollution Management Instruments methods by negotiating with local communities

and the federal government. To be eligible forIs there a role for government in carrying out the participation in the XL program, a facility must beprograms described here? The answer is in full compliance with all existing regulatoryunquestionably that there is. Protecting the requirements, have an exemplary enforcementenvironment is a fundamental task of any record, and commit to exceeding its existinggovernment's mission, and without it sustainable regulatory requirements. The purpose of thedevelopment is impossible. Experience initiative is to fmd better ways of achieving strongdemonstrates that successful approaches to) environmental performance, and the emphasis is onenvironmental management require govermment final results.5

involvement.

Box 7

PROFEPA's Voluntary Environmental Auditing Program

PROFEPA's innovative Environmental Auditing Program has grown to maturity since its initiation in 1992,wit]l 27 facilities entering the program in 1996. By April 1997, 617 facilities had completed environmentalaudits (95 more were in the process), and 404 had signed action plans for implementing recommendedimprovements to attain, continually ensure, and exceed compliance. The action plans represent more than $800million in investments for environmental improvement.

On April 1, 1997, Mexican President Emesto Zedillo publicly issued "clean industry" certificates to the first 80facilities to fully implement action plans under the voluntary audit program. These plans provided for morethan $44 million in private investment in cleaner production.


The Relationship Between Traditional and Innovative Approaches

The government has an important role in ways of achieving compliance. An importantdeveloping a long-term demand for innovative insight from the Bank's experience in Guadalajarainstruments such as CP and EMSs: it must is the importance of changing governments'establish a policy framework consisting of a attitudes and culture toward a much morereliable regulatory system (permitting and cooperative model of working with industry. Whileenforcement) and an appropriate macroeconomic the Guadalajara project certainly achievedcontext. Implementing an EMS yields direct environmental improvement on the local level, duebenefits to a firm, in the form of the savings to the unique circumstances of Mexico'sachieved though cleaner production and waste environmental institutions the project had limitedminimization approaches. However, even in success in addressing the necessary interface withindustrial countries, increases in discharge fees and the regulatory system to encourage wider-scalewaste disposal charges are needed to provide implementation of EMSs. At this time, internalongoing incentives for cost-effective pollution differences within the Mexican Environmentreduction. This reality demonstrates the importance Ministry (SEMARNAP) make it unlikely that theof an appropriate framework of regulations and Environment Ministry will endorse a nationalincentives to drive performance improvements. program based on the pilot in Guadalajara (Ahmed

etal. 1998).One might question why, if firms can offset thecost of compliance by implementing CP techniques A government's decision on how actively toand improving resource productivity, government promote innovative pollution managementinvolvement and regulation are necessary. instruments should be largely subject to theCertainly, some firms pursue such innovations potential benefits from bearing the costs of suchwithout, or in advance of, regulation. However, it activity. These benefits may include cost savings ascannot be assumed that industry has already a result of reduced inspection frequencies,identified all the profitable opportunities for enhanced economic performance as firms addressinnovation. In practice, managers often lack environmental concerns more cost-effectively, andadequate information about such opportunities and improved environmental performance andhave limited time and attention for pursuing them, compliance.and the barriers to change are enormous. Thus,regulation and an appropriate policy context are Regulatory Streamlining and Reducing theneeded to create pressures that motivate companies Costs of Regulationto innovate (Porter and Van Der Linde 1995).

The costs of dealing with regulations can beIn addition, current research on the concept of significant for many firms, even if the regulationsinformal regulation, whereby polluters are induced are not sufficiently enforced. Accordingly, there isto make improvements as a result of public increasing interest in the use of certified EMSspressure, indicates that the effectiveness of citizen such as ISO 14001 to simplify or replace statutoryand community pressures is largely determined by reporting and inspection requirements. The use ofgovernment environmental policies and programs. ISO 14001 certification for this purpose is a topicFor example, in a study that focused on Brazil, it of considerable discussion in several countries,was clear that the Rio de Janeiro state especially those where regulatory requirements areenvironmental management system was not extensive enough to be a real burden on industry.designed for widespread citizen participation in While it is clear that an EMS is not a substitute foridentifying industrial pollution problems. By a regulatory framework, there may be cases wherecontrast, the state of Minas Gerais has more than the monitoring and reporting systems of a well-20 years of experience in incorporating a broad managed firm might substitute for some statutoryspectrum of stakeholders into the environmental inspections, audits, and reports. The pilot project inregulation and management process (World Bank Guadalajara has made some initial progress in1998). examining the implementation of EMSs and how

they might dovetail with a streamlining of theThe long-term success of these tools strongly relies licensing system in Mexico. Among the majoron the government's ability to assume a leadership questions about regulatory streamlining is therole in working closely with industry to promote extent to which the government can trust theinnovative approaches as efficient and practical capabilities and commitments of an enterprise to



self-monitor its environmental performance and voluntary efforts such as the adoption of EMSswhether use of some formal EMS and certification pursuant to ISO 14001 may also foster improvedsystem, such as ISO 14001, would convince compliance and environmental performance.regulators that scarce government resources are Noting, however, that ISO 14001 is not abetter used in pursuing less cooperative enterprises. performance standard, the resolution states that

adoption of an ISO-based EMS does not constituteAs noted above, under the government-industry or guarantee compliance with legal requirements.partnerships in Brazil's Rio de Janeiro, EspiritoSanto, and Minas Gerais states, the state In the end, innovative pollution managementgovernment retains its traditional role of instruments such as EMSs encourage progressestablishing environmental performance standards toward a streamlined approach whereby companiesbut relies on self-enforcement by industry through make commitments to reach compliance and reportenvironmental auditing programs to achieve on their progress. This, in turn, allows the regulatorpollution targets. For this to work, industry must to concentrate its scarce resources on establishinghave the tools and training to understand pollution targets and auditing a sample ofenvironmental impacts, options for limiting companies.pollution, and methods for measuring andmonitoring environmental performance. As a first Commitment to Performance Improvementsstep, these state governments have adoptedenvironmental audit requirements for industry and A commonly voiced concern about EMSs is thatare promoting training in both the public and even if they lead to better systems ofprivate sectors to help launch the self-enforcement environmental management, they may not actuallymodel. improve environmental performance. A good EMS

allows a firm to understand and track itsAlthough this approach may be very attractive, environmental performnance; it does not necessarilyothe:r countries are encountering difficulties in measure actual performance. An EMS is areachling agreement on such matters. Some of the systematic approach to controlling thedifficulties are legal: regulations may not be environmental effects of an organization'sflexible, or there may be a need to ensure thLat activities. Unlike a regulatory framework, it doesvoluntary reports are not used to prosecute rirms. not set performance standards-specific pollutionThe USEPA, under its new audit policy, is control targets-but simply establishes the requiredaddressing these concerns by reducing and elements of an effective system. Thus, ISO 14001sometimes eliminating penalties for companiies that measures a firm's conformance with its owndiscover, disclose, and correct violations through environmental policy, not the environmentalvoluntary audits, while at the same time including impact of its activities.safeguards to protect the public and theenvironment from the most serious violations.6 The results of the World Bank's project in

Guadalajara suggest that adopting an EMS has aAt a June 1996 meeting of the Council on more profound effect (see Box 8). Commitment toEnvironmental Cooperation, the environment continuous environmental improvement, whichministers of Canada, Mexico, and the United States necessitates systematic evaluation of preexistingadopted a resolution expressing the consensus of environmental management, regulatorythe three countries that governments must retain compliance, and environmental aspects, has beenthe primary role in establishing environmental instrumental in raising the environmentalstandards and verifying and enforcing compliance, awareness of all staff at all levels throughout theand that strong and effective governmental participating firms. In addition, the establishmentenforcement programs are essential for protecting of measurable environmental goals and thepublic health and the environment. The resolution assignment of responsibilities for environmentalstates that voluntary compliance programs issues have led to organizational changes that willdeveloped by govermnents can supplement strong help ensure a sustained commitment toand effective enforcement and that private environmental improvement (Ahmed et al. 1998).


The Relationship Between Traditional and Innovative Approaches

Box 8

Improving Environmental Performance in Guadalajara, Mexico, through EMSs

The Guadalajara pilot project, supported by the World Bank, began when 11 major companies with productionfacilities in Guadalajara signed an agreement with the Secretaria de Medio Ambiente, Recursos Naturales yPesca (SEMARNAP) to work with small and medium-size enterprises (SMEs) to improve the firms' EMSs. Themethodologies used in the pilot included comparisons of the SMEs' self-reported environmental data beforeand after implementing an EMS. The results indicate that EMSs appear to be assisting SMEs to move towardcompliance and overall improved performance. Only three months after EMSs had been in operation in thefacilities, many of the firms reported measurable improvements in their environmental performance. Many suchimprovements involved reductions in use of primary materials and so led to direct cost savings. For example:

A printing company reduced emissions of volatile organic chemicals by using a mechanical process rather thanmelted polyvinyl chloride (PVC) for package sealing.

A manufacturer of food products invested less than US$10 in a water spray to cut wastage of orangeconcentrate residues, significantly reducing the organic load of the wastewater and saving an estimatedUS$5,000 per year in input costs.

A construction company identified an opportunity to lessen environmental impact, and possibly reduce costs,by limiting site clearance to the minimum area required.

Endnotes

5. Further information on the USEPA programsmay be obtained athttp:/www.epa.gov/commonsense andhttp://yosem ite. epa.gov/xl/xl_home. nsf/all/homepage

6. The final audit/self-policing policy waspublished in the U.S. Federal Register onDecember 2, 1996 (60 FR 66706).


4 Implications for the World Bank

Currently, the World Bank and its clients are As noted in Chapter 2, under a water pollutionbeginning to pilot the innovative approaches to control program in Colombia, the Bank ispollution management described above by facilitating the use of negotiated agreementscoordinating public and private cooperation to between polluters and regulators as a means ofachieve environmental goals while also improving developing a pollution reduction strategy to cleanproductivity, competitiveness, and the overall up a river basin. Similarly, the Bank is consideringperformance of industry. International experience supporting the use of negotiated complianceshows that adversarial relations frequently exist agreements by state and local governments inbetween regulators and industry and that private Brazil as part of a project currently underindustry is typically mistrustful of government. In preparation.this context, an appropriate role for the Bank is toserve as a catalyst and neutral broker, bringing The use of innovative pollution managementstakeholders together and promoting innovative instruments requires from participants-the publicinstruments for pollution management. and private sectors-different skills than those

needed for traditional approaches to pollutionIn Argentina, the Bank is supporting efforts to management. Identifying, promoting, andnegotiate agreements between industrial facilities implementing environmentally beneficialand regulators. Innovative approaches to pollution processes, such as CP techniques, demandsmanagement, including cleaner production and different skills in the private sector than areenvironmental management systems, are being required for designing and operating a wastewaterintroduced to achieve agreed environment treatment plant. Similarly, for governmentobjectives. Under the project, the Bank is serving participants, assessing a facility's environmentalas a convoker, bringing government and industry management system and verifying that it istogether to develop a workable system under which meeting its environmental objectives is muchregulatory requirements are clarified and SMEs different from verifying that the facility has itsreceive assistance in identifying the critical paperwork in order and that the treatment plant isimprovements needed to meet the requirements. installed and operating. An appropriate role for theSuch assistance might include developing Bank may be to provide knowledge and training toemissions inventories, implementing CP develop the skills mix needed to facilitate the usetechniques, and developing environmental of innovative pollution management instruments.management systems. All this will be set out inspecific action plans (mutually acceptable The Bank is currently taking some steps towardcompliance agreements based on targets reached assuming such a role. The recently completedby consensus), with regular reporting of progress Bank-supported pilot program in Guadalajara wason key parameters. New regulations issued under designed to develop ISO 14001 approaches andan environmental framework law provide a strong transfer them from large companies (mentors) tolegal basis; they include a regulation in the their suppliers, largely with the assistance ofprovince of Buenos Aires that requires reporting of expertise drawn from local universities andemissions and discharges from industrial firms. institutions. During the first phase, mentor



comnpanies initiated activities to implement or To sum up, increased interest in and Bank supportimprove their own EMSs, with the support of the of innovative pollution management instrumentsuniversity experts and Bank-financed consultants. should lead to a better understanding of theDuring the second phase, the mentor companies benefits of environmental management, improvedselected SMEs willing to participate in the training compliance, and enhanced overall performance.program. Between Bank-supported training These tools, however, are not substitutes forsessions, the mentor companies and local experts environmental regulation and will not achieveassisted the SMEs with implementing EMSs on the significant improvements where regulation andbasis of the training received. The pilot ha,s enforcement are absent.dernonstrated that these approaches can beimplemented in SMEs, if motivation is sufficientand support is provided for an implementationperiod after each training input.

The success of this model of building EMScapacity through the creation of sustainabllesupport networks (often including universities) hasled Bangladesh, Colombia, and El Salvador tocornsider simnilar pilots. Other World Bankinstruments that could be used to support the use ofinnovative pollution management tools indeveloping countries include learning andinnovation loans (LILs) and regular Bank projectloans. For example, pollution inventories canprovide the baseline environmental data essentialfor evaluating the environmental liabilities ofprivatizing state owned enterprises. Similarly,applying CP techniques and implementingenvironmental management systems can revealopportunities for cost savings in industrialrestructuring. The Bank can also play an importantrole as a catalyst and facilitator to help buildparlnerships between the public and private sectors(for example, through its Business Partners forDevelopment Initiative) or by supporting theexch,ange and dissemination of experiences withthese tools through programs implemented by theWo;rld Bank Institute.


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