Management Accounting Guidelines

MAG - III

IMPLEMENTING CORPORATEENVIRONMENTAL STRATEGIES

Issued byThe Institute of Cost & Works Accountants of India

(Statutory Body under an Act of Parliament)12, Sudder Street, Kolkatta-16.

Acknowledgement

This Management Accounting Guideline are basedon the guidelines issued by CMA Canada

Second Edition : Jan. 2011

© The Institute of Cost and Works Accountants of India

Price : Rs. 100/-

Published by :

The President

ICWAI

12, Sudder Street

Kolkata - 700 016

Telephone : 91- 33 - 22521031/34/35

Fax : 91 - 33 - 22527993

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FOREWORD

Environment issues are increasinglybeing recognized as the factors whichimpact the Sustainable Development ina long way for the planet. Sustainabilitylike life is not a destination but a direction.It is a transition from short term thinking tolong term thinking, from an economy

outside the nature to an economy integrated with nature, froma linear flow to resources to system flow of resources, fromfossil fuels to solar derived, from keeping score with a grosscash flow to keeping score with whole system balance sheetand from seeing environmental, economic and socialchallenges as separate and competing to as an interconnectedin the whole strategy.

The very purpose of the Sustainability is taking the pulseof the planet and identifying the great unraveling byunderstanding the ecosystem decline,habitat loss, speciesdistinction, human body burden and chemical stress ors,Finding solutions for great warming as it is not only heat anddecoding the great inequalities the world has.

I am happy to note ICWAI is bringing out the new printingof Management Accounting Guidelines on “ImplementingCorporate Environmental Strategies”. This is not only a timelyintervention in the increasing importance of the issue, but abold step to underline the role of Management Accountants inmanaging issues like waste treatment, resource recovery, sitemaintenance, making the environmental related cost morevisible.

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I, on behalf of the Institute wish to place on record thegratitude to CMA, Canada for allowing the institute to publishthe guidelines. The framework proposed in these guidelinesis relevant to Management Accountants, Regulators, NGOsand other organisations working for the conservation of theEnvironmental aspects.

B M Sharma,President

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PREFACE

This guideline is the first of a two-part series dealing withcorporate environmental issues. There is an increasedrecognition of and concern for the fragility of the environment.The guideline provides practical operating principles andrecommended approaches for implementing a corporateenvironmental strategy. This guideline is both descriptive andprescriptive. Its descriptive parts shape a vision of the future,build commitment for change, and define strategies. Itsprescriptive parts address how to lead, plan, and implementa corporate environmental strategy.

Environmental strategies change management practicesand systems based on the business implications ofenvironmental issues. The focus is on the following : to seekcompetitive advantages by minimizing environmental impactthrough improved design of products, packages, andprocesses; to adopt a proactive, creative approach toecological challenges throughout the company; to reduce costsby taking advantage of eco-friendly technologies and throughenergy and resource conservation;

Management accountants can play an integral role indeveloping environmental strategy, using these strategies toassist in policy and objective development as well as definingenvironmental measurement, analysis, and control.

I would like to place on record efforts put in by Mr. A. N.Raman Central Council Member of the Institute, Mr. VeerRaghavan Iyengar member of the Institute, CII and Ms. NalineeJagtap student of ICWAI in bringing out these guidelines bythe Institute. We are also thankful to CMA Canada for extendingtheir helping hand in producing the publication.

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We are grateful to Mr. Chandra Wadhwa President ofICWAI , Mr. Kunal Banerjee vice-president of ICWAI, themembers of Central council and the members of theProfessional Development Committee in particular who havegiven their valuable Guidance and support in bringing out thispublication.

Brijmohan SharmaChairman

(Professional Development Committee)

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CURTAIN RAISER BYCONFEDERATION OF INDIAN INDUSTRY

(CII)

Proactive environmental strategies have been proposedas profitable and sustainable ways for firms to deal with theenvironment issues. The voluntary approach towardsimplementing corporate environmental strategies (CES) shallpay-off in terms of social reputation, customer preferences andgeneration of organisational capabilities. The guidelines makeexplicit the relationships between business and society andthe urgency of developing eco-sustainability measurementsand strategies. A major challenge facing industries is toimplement corporate strategy successfully, especially ofstrategies which reflect the increasingly diverse demands, suchas those towards the environment, or with corporateresponsibility. The guideline is both descriptive andprescriptive to improve environmental considerations intomanagement decisions.

It has been found that “Decision makers” do not takeinto consideration the true extent of the difficulties associatedwith implementing environmental policies, and in particular donot make the necessary objective appraisal of the resourcesnecessary. Also at times the management does not providethe ongoing support necessary for ethically oriented policiesto overcome competing priorities within an organization,leaving operational managers with little choice but to pursueday-to-day objectives like efficiency and effectiveness, at theexpense of the longer term gains that a fully integratedenvironmental strategy may provide. The guidelines hassuggested several elements critical to designing an effectivestrategy, grouped into three stages; managing regulatory

compliance, achieving competitive advantage and completingenvironmental integration.

The environmental costs are either hidden in overheadaccounts or are not recorded because they are not requiredin conventional accounting systems. The outcome is thatcompanies, even though they may profess otherwise, havevery little knowledge about their full environmental costs, costsaving opportunities, or how best to achieve cleaner productioninitiatives to promote corporate sustainability. Guidelinesprovide assistance regarding the role of the managementaccountant for developing environmental strategy, includingareas that directly relate to environmental objectives, such aswaste treatment, resource recovery, disposal, or sitemaintenance.

For industries having corporate environmental strategy,the guidelines further suggests integrating the principles ofSustainable development, for long-term economic growth.

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CONTENTS

Contents Page

INTRODUCTION 1

OBJECTIVES OF CORPORATE ENVIRONMENTAL 4

STRATEGIES

THE ROLE OF THE MANAGEMENT ACCOUNTANT 6

STAGES OF IMPLEMENTING A CORPORATE ENVIRONMENTAL 8

STRATEGY

IMPLEMENTATION GUIDELINES 11

Stage 1: Managing Regulatory Compliance 11

Stage 2: Achieving Competitive Advantage 36

Stage 3: Completing Environmental Integration 45

ORGANISATIONAL AND MANAGEMENT ACCOUNTING 61

CHALLENGES

CONCLUSION 63

APPENDIX A 64

APPENDIX B 79

APPENDIX C 82

APPENDIX D 84

APPENDIX E 91

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IMPLEMENTING CORPORATEENVIRONMENTAL STRATEGIES

INTRODUCTION

The environmental movement is no longer of specialinterest only to students and avid environmentalists.Governments, corporations, and individuals are recognizingthe benefits of environmental sensitivity and environmentalprogress. Consumers are more responsive to environmentalconcerns in their purchasing, use, and recycling decisions.Corporations are recognizing the benefits to the communityand to long-term corporate profitability of reducing theirenvironmental impact. “Green” consciousness has grown.There is an

increased recognition of and concern for the fragility ofthe environment. Regulations and stricter regulatoryenforcement are modifying organisational strategies. Thereis growing recognition of the concept of sustainabledevelopment, which teaches that the costs of tomorrow’scleanup must be set against the profits of today.

Environmental protection and economic growth arebecoming more closely aligned. Environmental technologycompanies are proliferating and more businesses areredesigning processes to reduce environmental impact,improve production efficiency, and reduce costs. Theenvironmental agenda is quickly becoming an integral part ofcorporate strategy. Without a corporate environmental strategy,organisations will not understand legal, political, and financial

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pressures, including strict liability, labelling standards, andpackaging laws.

Some firms are just beginning to understand theimportance of this interplay between strategy and environmentalresponsibility and of the effects of a changing and complexregional, national, and international environmental agenda. Asregulations change, so will investor preferences. Managersmust continue to learn and integrate new environmentalconcerns into corporate strategy. There are no final answers.There are, however, multiple opportunities.

The guideline provides practical operating principles andrecommended approaches for implementing a corporateenvironmental strategy. These suggested approaches assumethat the enterprise has decided to develop an environmentalstrategy. However, the suggestions can also help organisationsdetermine the need for a corporate environmental strategy.

This guideline describes companies approaches toimproving their environmental performance and to integratingenvironmental considerations into management decisions. Theguideline suggests approaches that might be adapted andimplemented by many types of firms: regional or internationalfirms; companies with large Environmental, Health, and Safety(EH&S) departments or those lacking full-time EH&S staff. Theapproaches apply in both high- and low-environmental impactindustries.

This guideline is both descriptive and prescriptive. Itsdescriptive parts shape a vision of the future, build commitment

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for change, and define strategies. Its prescriptive parts addresshow to lead, plan, and implement a corporate environmentalstrategy.

The concepts and techniques included in this guidelineapply to:

� organisations in the business and service sectors;

� government entities; and

� both large and small organisations. The conceptsin this guideline will help management accountantsand others

� understand key elements of corporate environmentalstrategies;

� appreciate the organisational and managementaccounting challenges in designing andimplementing a corporate environmental strategy;and

� understand how a corporate environmental strategyrelates to the organisation’s overall goals,strategies, and objectives

This guideline is the first of a two-part series dealing withcorporate environmental issues. The second document of theseries is the guideline Tools and Techniques of EnvironmentalAccounting, which focuses on environmental costing, capitalbudgeting, and performance evaluation systems.

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OBJECTIVES OF CORPORATEENVIRONMENTAL STRATEGIES

Environmental strategies change management practicesand systems based on the business implications ofenvironmental issues.

Such a strategy helps change the corporate culture andestablish policies. The strategy should integrate environmentalconcerns into managerial decisions in all parts and levels ofthe organisation.

Other objectives of corporate environmental strategiesare:

� to recognize global environmental trends early andmodify the company’s plans accordingly;

� to increase stakeholder satisfaction and confidence;

� to improve long-term corporate profitability;

� to seek competitive advantages by minimizingenvironmental impact through improved design ofproducts, packages, and processes;

� to adopt a proactive, creative approach to ecologicalchallenges throughout the company;

� to reduce costs by taking advantage of eco-friendlytechnologies and through energy and resourceconservation;

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� to minimize risks arising from management ofproduct liabilities, sudden changes in legal norms,sudden increases in ecology-motivated consumerdemands, or changes in comparative riskassessments; and

� to ensure that the company meets compliance anddue diligence requirements.

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THE ROLE OF THEMANAGEMENT ACCOUNTANT

Well-defined environmental policies and objectivessupport a firm’s environmental strategy by providing guidingprinciples for employee activities. Management accountantscan play an integral role in developing environmental strategy,using these strategies to assist in policy and objectivedevelopment as well as defining environmental measurement,analysis, and control.

The management accountant’s environmental roles varywith the type of job and enterprise. Ideally, managementaccountants should work closely with other multidisciplinarygroups in areas pertinent to their individual enterprise’sbusiness lines. For example, the management accountant may:

� cost areas that directly relate to environmentalobjectives, such as waste treatment, resourcerecovery, disposal, or site maintenance;

� help resolve conflicts between environmentalmanagement and traditional financial managementsystems, such as those that occur in capitalinvestment appraisal and capital budgeting;

� contribute to life-cycle assessment;

� assess potential liabilities of past practices;

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� assess the need for new or modified managementinformation and financial systems;

� consider the financial costs and risks associatedwith an investment that will likely cause or increasepollution; and

� make environment-related costs more visible.

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STAGES OF IMPLEMENTING ACORPORATE ENVIRONMENTAL STRATEGY

There are many approaches to implementing a corporateenvironmental strategy. Corporate experience suggests thatseveral elements are critical to designing an effective strategy.These include:

� ensuring top management commitment and support;

� developing a corporate environmental policystatement;

� creating an environmental management system;

� preparing an environmental action program;

� establishing an environmental audit program;

� developing a strategy for external environmentalreporting;

� designing products/processes that takeenvironmental impact into account;

� integrating environmental impact information intomanagement decisions;

� integrating environmental impacts into performanceevaluation systems;

� generating revenue through recycling and wastemanagement;

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� introducing and marketing “eco-efficient” productsand services; and

� integrating the principles of sustainable development

These elements can be grouped into three stages thatfirms use to design a corporate environmental strategy. Whilecompanies progress from one stage to the next, the boundariesbetween these stages are often unclear. Further, manycompanies find it advantageous or necessary to include certainaspects of each stage in early environmental integration.Customizing both the design and implementation of acorporate environmental strategy is desirable. Companiesoften straddle the boundaries between these stages.

Stage 1: Managing Regulatory Compliance.

Organisations acknowledge the financial implications ofenvironmental matters; they realize the possible risks, suchas litigation and cleanup costs, associated with currentpractices; they develop and publish a corporate environmentalpolicy statement; and they develop partial systems to plan forand deal with environmental problems.

Stage 2: Achieving Competitive Advantage.

Organisations move from a commitment to comply withlegal requirements to a realization that they can gain acompetitive advantage by using resources more efficiently.While minimizing costs is the hallmark of Stage 1organisations, Stage 2 companies focus on cost avoidancein life-cycle cost management and design for environment.

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Stage 3: Completing Environmental Integration.

Organisations have fully integrated environmentalcomponents into corporate life. Environmental issues, largeand small, are part of everyone’s day-to-day decision making.Stage 3 companies create profits from antipollution efforts,“closed-loop” production, operational efficiency, and “eco-efficient” products and services. They recognise that long-termeconomic growth must be environmentally sustainable.

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IMPLEMENTATION GUIDELINES

Stage 1: Managing Regulatory Compliance

Ever-increasing numbers of EH&S regulations areforcing companies to change their practices. In Canada,companies are preparing to meet the current and futurerequirements of the Canadian Environmental Protection Act(CEPA) and provincial legislation like Ontario’s EnvironmentalProtection Act. In the United States, companies must complywith various environmental regulations, including therequirements of the Clean Air Act (CAA), the Clean Water Act(CWA), the Resource Conservation and Recovery Act (RCRA),the Superfund Amendments and Reauthorization Act (SARA),and the Comprehensive Environmental Response,Compensation, and Liability Act (CERCLA).

Just as the United States set an example with itsenvironmental legislation, other countries are pioneeringapproaches in such areas as packaging and environmentalreports.

Voluntary systems such as the European Union’s Eco-Management Audit Scheme1 are quickly raising the thresholdfor what constitutes acceptable environmental management.Asian governments are taking similar strides. Taiwan hasoverhauled its environmental administration and criminalenforcement authorities and is developing a comprehensivesystem of environmental regulation. Mexico is implementinga broad range of environmental regulations. Around the world,the watchword is “enforcement,” or holding companiesaccountable.

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Increasingly, global environmental standards are set by themost stringent country or region, because regulators often lack ascientific basis for defending lower standards and becauseenvironmental laws have become integral to international tradenegotiations. As companies globalise their operations, they mustmaintain uniform standards among operations if they hope tomanage environmental costs and opportunities uniformly.

The risks of failing to comply with these regulations have takenon new meaning. Large civil penalties are common. Penalties forenvironmental infractions have even moved beyond civil litigationto criminal sanctions that affect directors, officers, and employeesthroughout the organisation.

The threat of significant legal and financial liability, growingregulatory pressure, and pressure from communities, activistgroups, and the general public have communicated a key point tosenior management: environmental issues must become integralto overall corporate objectives and performance.

Stage 1: regulatory compliance strategies typically includethe following actions:

� ensuring top management commitment and support;

� developing a corporate environmental policy statement;

� preparing an environmental action program;

� creating an environmental management system; and

� establishing an environmental audit program

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Ensuring Top Management Commitment and Support

A corporate environmental strategy cannot beimplemented successfully unless top management supportsits implementation and demonstrates a consistent commitmentto the concept.

The CEO is in a particularly powerful position to convinceall employees and the company’s other constituencies thatenvironmental excellence is a corporate goal. The companymust keep open lines of communication between EH&Sexecutives and the CEO. The CEO must be involved in settingenvironmental management policies and making keyenvironmental impact decisions. At Sun Company, for example,two senior management positions with direct access to theCEO have environmental responsibilities - SeniorVice-President and Chief Administrative Officer, and Vice-President of EH&S.

In his or her external role, the CEO works with the boardof directors and other constituencies to convey the company’sposition on environmental issues to shareholders and,ultimately, to the public. Shareholders are demanding greateraccountability for environmental programs and performance;the board of directors must be able to respond to theseconcerns. Thus, in their responsibilities as “overseers,” boardmembers must determine the effectiveness of the company’senvironmental programs and safeguards.

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Developing a Corporate Environmental Policy Statement

While the CEO and other senior corporate officers mustset the tone, they should do more. They can adopt a corporateenvironmental policy statement that conveys the commitmentof top management. This statement becomes the foundationfor developing all the organisation’s environmental interactionsand policies. It helps ensure consistency of approach andcommitment at all levels: corporate policy and strategy,corporate performance measures, and business unit strategy.It will also serve as the principal signal to internal and externalstakeholders of the seriousness of the organisation’sintentions.

According to the Canadian Standards Association, 2

environmental policies should be built into all of the following:

� the organisation’s mission;

� the organisation’s vision;

� core values and beliefs;

� stakeholder requirements; and

� guiding principles

The responsibility for setting environmental policy typicallyrests with those with proprietary interests in the organisationor their delegates (e.g., a board of directors). Theorganisation’s senior management is responsible forimplementing the policy and for assisting in developing thepolicy.

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Corporate environmental policy statements are oftenadded to the corporation’s mission statement in the annualreport. Many statements are only a few paragraphs in length(see Appendix A); others are more extensive (see AppendixB).

An organisation can choose between two main routesin developing its corporate environmental policy statement.Some firms develop an organisation-specific policy. Othersadopt a publicly established charter.

Organisation-specific policy statements can raise somedifficult questions. For example, should the policy state thatthe organisation will comply with all laws, or even go beyondthem? Since the public assumes that organisations complywith the law, the publication of such a statement may not beparticularly impressive.

Another difficult question for multinational corporationsis whether or not to adopt worldwide standards. IBM and AlliedSignal, for example, have committed themselves to worldwidecompany standards. Even in countries with low environmentalstandards, their operations will follow the standards of the mostenvironmentally stringent country in which the companyoperates. Other multinationals have not adopted this policybecause they believe it will severely hamper their internationalcompetitiveness.

Instead of developing its own unique environmentalpolicy, an organisation can adopt a publicly established charter.Environmental charters are public documents consisting of

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guiding principles for areas of corporate planning, activity, andcontrol in which environmental aspects should be incorporated.

Among the most prominent publicly establishedenvironmental charters is that of the Coalition forEnvironmentally Responsible Economies (CERES). Firstreleased in 1989 as the Valdez Principles, the

CERES Principles represent an “environmental ethic”devised to encourage the development of positive programsto prevent environmental degradation, assist corporations insetting policy, and enable investors to make informeddecisions about environmental issues.

Preparing an Environmental Action Program

While an environmental policy statement providesdirection, it lacks specific targets against which to measureprogress. In order to translate a policy statement into specifics,an organisation must create an environmental action program.

An environmental policy statement may specify that thefirm will “continually search for and adopt emission reductionmethods.” This provides direction but leaves the firm withoutdetails on how it will implement this policy or how it willmeasure progress. This is the purpose of an environmentalaction program.

An action program is particularly important becausediscrepancies between the company’s environmental policyand performance, and local deviations and avoidances, canbe uncovered by audits and noted in the press. This can

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damage the credibility of the organisation’s overallenvironmental strategy.

A well-developed environmental action program willcontain both strategic and operational planning components.Effective environmental action programs:

� are soundly linked to business strategy;

� prioritize the goals of the corporate environmentalpolicy;

� prioritize the goals of the organisation in terms ofthe policy;

� identify interactions throughout the organisation andharmonize them;

� turn the goals into specific targets;

� give the targets completion dates;

� assign environmental responsibilities;

� provide for feedback and reward;

� provide training and resources to support therequired actions; and

� monitor performance;

The Canadian Standards Association describesenvironmental goals as” the overall aims in terms ofenvironmental performance arising from the environmentalpolicy” and targets as “the detailed performance requirementswhich an organisation sets out to achieve.”

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Examples of goals arising from an environmental policyare: conduct formal training of all plant-level managers in rolesand responsibilities for achieving company objectives; andconduct systematic risk assessments of all the companyfacilities, processes, and products.

Targets should be measurable and expressed inquantitative terms. In addition, targets need to include a targetdate or a time frame over which they will be achieved. Forexample, the environmental target might be to reducehazardous waste by 60% within 12 months, or to lower pollutionreduction costs after two years to no more than x per cent ofsales and/or unit costs.

To prioritise its corporate environmental policy goals andtargets, an organisation should consider:

� what key environmental concerns confront it;

� what environmental opportunities it perceives; and

� how it balances stakeholders’ conflicting demandsand concerns about environmental issues.

Successful organisations understand whichenvironmental concerns most apply to them and focus theirprograms in those areas. They also look for environmentalopportunities that match their strengths and long-term businessstrategy. For example, a public utility company with severalthermal power plants and a large vehicle fleet wouldconcentrate on air emissions. A fast-food chain that lacks plantsand manufacturing operations may focus on solid waste,particularly food product packaging.

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By assessing the environmental risks associated withtheir activities, processes, products, and services,organisations can identify the environmental impact of theiractivities on various stakeholders and their potential legal andbusiness exposure.3

Exhibit 1 shows the types of stakeholders thatorganisations consider most often in assessing theirenvironmental risks. The left side of the exhibit focuses onvisible stakeholders, such as bondholders, shareholders,management, and the board of directors, who have a directfinancial or contractual interest in the organisation. Thesestakeholders also assume a major contractual interest throughbond or stock ownership –a development that affectsorganisations’ environmental strategies, policies, andimplementation processes. In the next column areinterdependent stakeholders such as employees, customers,and suppliers.

Exhibit 1: The Stakeholders of the 1990

Visible Invisible

Economic Interest Survival InterestContractual Interdependent Current Future

Generation Generation

Bondholders Customers Impact Zone Spokespeople for

Shareholders Suppliers Other Users of the Unborn

Management Employees Shared Spokespeople forResources

Board of Government Plant and AnimalLocal Community Lifeand Region

Traditional Stakeholders Source: Adapted from Rubenstein 1994:60.

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On the right side of the chart are the invisiblestakeholders, divided into two categories: current generationsand future generations. Invisible stakeholders include those inthe direct impact zone of industrial activity - the humans andother species that breathe the air and drink the down-streamwater. Current generations also include other users of sharedresources. On the far right of the exhibit are the futuregenerations, including spokespeople for the unborn and forthe preservation of plant and animal diversity.

Balancing the conflicting demands of these differentstakeholders is a key challenge in establishing priorities andmaking resource allocation decisions. For example, capitalinvestments in innovative waste - reducing manufacturingsystems may seem right to the local community that wantsreduced emissions, but may also appear to reduce short-termprofitability, which affects shareholders.

Measurement of environmental impact can be so difficultthat useful information will seem impossible or too expensiveto obtain. In these cases, merely identifying the impacts oftenserves to alert organisations about the impacts of theiractivities on stakeholders. In some cases, useful measureswill be available and impacts can be quantified using physicalmeasures or monetised using financial measures.

Many companies conduct periodic community surveysto help them determine the public’s perceptions of theirenvironmental impact. These surveys assess public opinionon the company’s performance in such areas as air quality,water quality, and land and soil quality.

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Some companies encourage public participation in theirdecision-making process. Leading companies such as Dowinclude Citizen Advisory Panels (CAPs) in their environmentalmanagement system. Others practise community outreach by,for example, providing environmental assistance to smallbusinesses or to surrounding communities.

Appendix C provides a suggested checklist forassessing environmental action programs.

Creating an Environmental Management System

Corporate environmental policy statements and actionprograms are important for organisations. Another key is todevelop a support system through an effective environmentalmanagement system (EMS) that can anticipate changingregulations; social, economic and competitive pressures; andenvironmental risks.

Effective corporate EMSs contain numerous elementsthat span all aspects of an organisation’s operations. Theseelements, which are critical to implementing the environmentalstrategy throughout the organisation, are:

� policies and procedures;

� employee buy-in to the vision;

� alignment and integration;

� accountability and responsibility;

� management information;

� training and management development;

� performance measurement;

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� monitoring of trends;

� formal risk management systems; and

� emergency preparedness.

Policies and procedures that clearly define theorganisation’s goals and expectations are essential. Thesecan be communicated in a variety of formats, including books,brochures, slides, videotapes, electronic files, and corporatemagazines.

These documents should discuss the policy thatestablishes the main framework for the beliefs andexpectations of the company. They may be complemented bywritten procedures at the facilities level or by issue - specificpolicies.

Employee buy-in to the vision

All employees must understand and accept theimportance of achieving the organisation’s environmentalobjectives. Corporate-wide “buy-in” to the vision is critical toits successful deployment. Some large companies havediscovered that it can take four or five years to build theunderstanding and commitment of all employees and that,without buy-in, the desired goals remain illusory.4

Alignment and integration

The effectiveness and success of environmentalinitiatives depend on how well individual elements of theorganisation’s EMS and the organisational structure supporteach other. Management system elements that may requireintegration include: information systems; reward and

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performance appraisal systems; training and development;resources; and the accountability structure.

Accountability and responsibility

Accountability, responsibility, and commensurateauthority for the overall effectiveness of the EMS must beassigned within the organisation. In small organisations, onesenior person usually assigns accountability as appropriatethroughout the organisation, monitors the effectiveness of theEMS, and reports environmental performance to seniormanagement.

Large organisations usually establish an oversightcommittee - often called an Environmental Steering Committee- to co-ordinate the organisation’s environmental efforts. Thiscommittee usually consists of key senior managers from alldepartments to ensure that environmental concerns throughoutthe company are addressed. These committees are ongoing,hold regular meetings, and prepare periodic reports.

Exhibit 2 illustrates the EMS for Monsanto, a largemultinational corporation. Monsanto clearly identifies the rolesof senior executives and other officers and employees indeveloping an environmental strategy (vision and policy) andin executing that strategy (performance measures,procedures, controls, and reporting). The system demonstratesan environmental management approach that attempts to driveenvironmental responsibility and sensitivity throughout theorganisation. Responsibility for environmental managementis not isolated within one functional area, but integrated acrossthe company’s business processes. From the foreman to the

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operator on the floor to the materials manager who handleshazardous waste, employees know that they are directlyaccountable and responsible for maintaining high standardsin environmental management.

Exhibit 2 – Monsanto’s Environmental ManagementSystem

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Management information

A key element of EMS is management information.Managers require information to make informed trade-offsbetween cost and environmental control. An effectiveenvironmental management information system tracks anddisseminates environmental data on a cross functional basis,and provides relevant environmental cost accounting andperformance data.

Training and management development

Implementing new environmental policies requires theefforts of all employees from senior managers to shop floorworkers. Employees must be trained and sensitized to howproactive environmental strategies and policies benefit society,the company, and themselves.

Most people need time, with appropriate support, toaccept their personal responsibilities and to relate them totheir work with others. When employees are given thisopportunity (often as training, skill development, and ongoingeducation), the company gains a number of benefits, includingstronger commitment, more energy, greater willingness torelinquish old ways of doing things, and a new determinationto make the changes work.

Performance measurement

An important element of any management system is toestablish short- and long-term goals with appropriatemeasurable milestones that are supported and periodically

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reviewed by senior management. Environmental performancemeasures give managers insight into manufacturing and otherprocesses and track progress.

Environmental performance measures should focus onquantifiable metrics to gauge specific progress. For example,firms might measure the number and quantity of spills, energyuse reduction, volume of waste generated, or amounts ofdisposed or recycled materials. Some firms also employbenchmarking to evaluate and measure performance.

Relevant performance measures are often Relevantperformance measures are often the necessary link betweendeveloping a company’s environmental strategy andimplementing that strategy successfully.

In order to keep abreast of change, the company mustcontinuously improve all aspects of its EMS.

Monitoring of trends

Besides measuring their environmental performance,organisations need to monitor changes in the business oroperating environment. Management must identify and trackemerging issues that might affect the company, understandemerging laws or regulations, and, in some cases, identifyand use a competitive advantage created by an environmentalissue.

According to the CSA, monitoring should include thefollowing:

� emerging/growing environmental concerns inspecific areas;

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� potential regulatory developments;

� market pressures;

� changes in sensitivity toward the environment;

� information on technology improvements;

� information on competitors; and

� changes in stakeholders’ expectations.

Formal risk management systems

Risk management systems are required to informmanagement about the company’s EH&S risks; their relativeimportance; and how they are being managed. Under thisumbrella, a company identifies hazards and assesses risksregularly - acknowledging that they change.

The risk management system ensures that the companyhas set priorities and allocated resources to address the moreserious risks quickly. It tracks performance in dealing withthese risks and reports that information to top executives.Where appropriate, it secures insurance to share liability.

Emergency preparedness

State-of-the-art EMSs include plans for responding toenvironmental incidents. Handled improperly, these incidentscan threaten a company’s future and shatter its reputation.

Emergency response systems should include operationsand management components. On the operations level,

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emergency response plans ensure that facilities are preparedfor fire, explosions, releases, spills, and other incidents, andthat they comply with regulations for emergency responseplanning, including transportation-related emergencies. On themanagement level, emergency response or crisismanagement entails clear plans for decision-making andcommunications. For a company to show the public that itunderstands what is happening and is taking the right steps tohandle it, that company must understand and take the rightsteps - which requires high-quality information from the scene,the ability to make decisions rapidly, and the willingness tospeak directly and appropriately to public concerns.

For any firm, creating an EMS that will best provideguidance and incentives for improving corporateenvironmental performance will not be easy. Additionalcomplexities arise as firms increase their business andgeographical diversity and must address particular businessneeds, local laws, different cultures, and different requirementsof a variety of stakeholders.5

Establishing an Environmental Audit Program

Environmental audits are conducted in response tobroader pollution control legislation and regulation - much ofwhich carries increasingly burdensome fines, penalties, andorders.

More companies are concluding that comprehensiveenvironmental audit programs are an effective approach toloss control. The costs of designing and implementing such a

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program are relatively small compared to the costs associatedwith non-compliance and remediation of releases to theenvironment. Firms are also beginning to understandadditional benefits of environmental auditing, such asincreased access to capital, reduced interest and insurancerates, and conformance to due diligence requirements.

Environmental auditing has three broad aims:

� compliance with regulatory codes;

� assistance in acquisition and disposal valuations;and

� corporate development toward the organisation’senvironmental goals and objectives

Exhibit 3 shows the broad characteristics of theseobjectives.

There are many types of environmental audits. They varywith the type of business being audited, the reason for theaudit, and the depth and breadth of the audit. The mainenvironmental audit types include:

� compliance audit;

� EMS audit;

� transactional audit (due diligence audit);

� treatment, storage, and disposal facility audit;

� pollution prevention audit;

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� environmental liability accrual audit; and

� product audit.

Exhibit 3: Environmental Audit Program Objectives

General Category Specific Areas

Compliance � Legal conformity

� Anticipated conformity withliability for new regulations

� Review of mitigative andameliorative programs

Acquisition/disposal � Sale of facility

� Acquisition of facility

� Valuation/appraisal of propertyfor

� Insurance

� Loan security

Corporate development � Monitoring corporate environmentalpolicy and procedures

� Establishing baseline fordevelopment of green corporateenvironmental programs

� Assessing control systemadequacy

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� Implementing and reviewingcorporate environmental programmeasures

(mitigation and remediation)

� Assessing risks in unregulatedareas

� Improving product or processquality through response toenvironmental impacts

(especially buildings, landscape,large engineering works)

Source: Ledgerwood 1994:67.

Compliance audit

The most common environmental audit is the complianceaudit. Environmental laws can impose joint and several liability,retroactive liability, and civil and criminal penalties for non-compliance. The compliance audit procedure includes adetailed, site-specific audit of current, past, and futureoperations. In general, locations or facilities are prioritized andscheduled for audit based on their potential risks. Complianceaudits are normally programmatic and address many issues.They review all environmental media that the site maycontaminate, including air, water, land, and waste water.

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EMS audit

Evaluating management systems is a crucial componentof any environmental audit. Evolving regulations and directivesacknowledge this importance.

Focusing on management systems can identify thetypical underlying causes of non-compliance with environmentalregulations. Remedying management deficiencies can resultin long-term, lasting improvements in environmentalcompliance with external requirements and internal policies.An environmental audit verifies the existence and use ofappropriate on-site management systems.

Transactional audits

Assess the environmental risks and liabilities of land orfacilities before a real estate acquisition or businessdivestitures. These audits are important because both sellersand buyers want to know the extent of any liabilities due toenvironmental contamination.

Treatment, storage, and disposal facility audit.Regulations often require that hazardous material be trackedfrom “cradle to grave.” Although companies that producehazardous waste material may contract with other companiesto store, treat, or dispose of that material, companies are stillliable for any environmental damage that might be caused bythe “handling” company. Some companies conduct audits ontheir own facilities and on facilities that handle their hazardouswaste material.

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Pollution prevention audits

Pollution prevention audits are designed to avoid orminimize the creation of pollutants and waste at the sourcerather than at the “end of pipe.” Pollution preventionopportunities can be identified throughout the productionprocess. Companies examine whether pollution can beprevented through capital improvements, processimprovements, or product improvements. Companies conductthese audits because they recognise that eliminating orreducing waste usually provides positive financial returns,especially when compared with cleaning it up or disposing ofit at the end of the production process or after it has beenreleased into the environment.

Environmental liability accrual audit

These internal audits address the issues of “probableand estimable” in determining environmental liabilities to beaccrued for financial reporting. They are an importantaccounting obligation. The internal auditors often seekassistance from independent technical professionals (such asconsulting engineers) for verification and to demonstrate duediligence.

Product audit

Some companies perform audits on specific productsand their distribution to determine whether they should do moreto make them environmentally friendly and to confirm that theyare meeting product and chemical restrictions. These audits

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also assess packaging materials for their recyclability orrecoverability. Product audits have resulted in the developmentof products, including refrigerators and automobiles, withhigher recyclable content. The audit examines theenvironmental impact of the product including packaging anddistribution.

Besides helping organisations identify and correctpotential environmental risks, environmental audits provideseveral other benefits. These include increasing staffawareness of environmental issues and of the organisation’sresponsibility to the environment; raising the firm’s positivecommunity profile through affirmative environmental action;and making suggestions for more efficient and cost-effectiveuse of available energy resources.

Environmental audits should be independent of thebusiness units and should belong to a more comprehensiveprogram of evaluating the environmental performance of thebusiness unit, the facility, the strategic business unit manager,and other management and staff. In order to provide incentivesto improve environmental performance, these audits must alsobe part of an established comprehensive performanceevaluation system such as an entity’s internal audit program.

The organisation’s EMS depends on an audit programthat empowers employees to detect and report environmentalproblems. Even regular and effective internal and externalaudits cannot detect all violations.

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Plant employees are in the best position to detect andreport hazards. Companies now recognize that identifyingenvironmental hazards before they occur typically costs lessthan cleaning up later. An effective environmental audit systemincludes employee and facility self-audits, and extensivecompany internal audits and an external auditor. Thesesystems usually cost less than the costs of clean-up andviolations.

The EH&S auditing framework at Dow Chemicalintegrates a variety of types and frequencies of audits to monitoroverall company compliance with government regulations,industry initiatives, and company standards. These auditsrange from daily self-assessments to a detailed external auditconducted by a consulting firm. The self-audits consist ofequipment inspections, job procedure checklists, and otherroutine daily practices. The external audits are conducted byoutside consultants, government agencies, and other expertsfor the purposes of insurance or International Organisation forStandardization (ISO) 6 certification. Periodically, the companyconducts comprehensive internal environmental audits; lesscomprehensive inspections and equipment checks areconducted as necessary.

No generally accepted standards exist for the conductof internal or external environmental audits. How the audit isconducted often depends on who is doing it. Despitedifferences in audit approach and philosophy among auditpractitioners, several fundamental principles for conductingaudits are emerging7.To be effective, the audit program must

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be supported at all levels of the organisation, implemented byexperienced personnel, and followed up with action.8 Aboveall, the program should be consistent with the organisation’srisk management philosophy.

Off-the-shelf environmental auditing software holds thepromise of expediting the entire environmental audit process.Several well-known comprehensive environmental auditprograms are now available.

Stage 2: Achieving Competitive Advantage

Many organisations fail to see the rationale for spendingany more money on the environment than required. But theynow see peer companies addressing the environment as acompetitive issue. Timing is a critical consideration: shouldthe company take the risks of setting a trend or should it takea more cautious approach while observing what does or doesnot work for other companies? The right decision for eachorganisation will reflect not only corporate culture, but also whatthe organisation must accomplish in environmentalmanagement to satisfy its stakeholders’ needs.

In Stage 2, organisations move from making acommitment to comply with legal requirements to recognizingthat hazardous and non-hazardous waste are items akin topoor inventory control. If organisations control their pollutioncosts better than do their competitors, then reducing the costof waste confers a competitive advantage. The focus in Stage2 is not on complying with government regulations, but onreducing corporate environmental impacts to move the

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organisation toward more efficient resource use and increasedprofitability.

Stage 2 companies also realize that implementingproactive environmental programs can enhance their corporateimage with the public, customers, suppliers, employees, andinvestors. This is particularly important when a positive imagecan increase market share. Such a program may be criticalfor publicly traded companies whose stock value is influencedby their public image and for industries that face publicopposition due to perceived environmental hazards.

Stage 2 competitive advantage strategies typicallyinclude the following actions:

� developing a strategy for external environmentalreporting;

� designing products/processes that takeenvironmental impact into account; and

� integrating environmental impact information intomanagement decisions.

Developing a Strategy for External EnvironmentalReporting

Discerning investors, particularly institutional investors,are keenly aware that environmental deeds will peak muchlouder than environmental words. Environmental concerns areno longer a peripheral consideration. They are becoming ameasurable mainstream factor in directing the flow of future

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investment into the marketplace. Corporate responses toinvestors and other stakeholders’ demands for moreinformation on corporate environmental performance varywidely. Stage 2 companies are better able and more willing toexpand their coverage of environmental issues in their annualreports. They see substantial benefits, both to their companiesand to various stakeholders, in producing environmentalprogress reports. These reports satisfy financial disclosurerequirements and meet information demands of financialanalysts, environmental activists, and other stakeholders. Theyalso help secure a company’s competitive position bycommunicating the firm’s real commitment to continuousimprovement.

For example, a global EH&S report issued by DowChemical and Dow Canada tracks the company’s progressin pollution control and prevention, sustainability, environmentalpartnership programs, emissions reduction, energy efficiency,and health and safety issues. It tracks the amounts of emissionsfor a variety of chemicals and the company’s progress towardenvironmental goals. The report also explains that Dowregularly performs EH&S audits that managers use tocontinually measure progress against expectations.

While it appears that separate environmental reports andexternal environmental audits are becoming more prevalent,there is justification for including all disclosures in the corporateannual report, which is more widely read and more central tothe evaluation of corporate performance. Allied Signal, forexample, has chosen to expand the discussion of corporate

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environmental performance in its corporate annual report ratherthan issue a separate environmental report. This is thecompany’s way of signalling the importance of environmentalimpacts to the company’s “overall business strategy andoperations responsibility.”

Preparing environmental reports for external use, whetherit be the EH&S report or the inclusion of environmental liabilitiesand expenditures in the annual report, requires a specializedknowledge of environmental issues, law, and accounting.Generally, no individual or department has this knowledge; theprocess should be a joint effort among individuals anddepartments that share the knowledge. Some companieshave also included feedback from stakeholders in decidingwhat to disclose in the environmental report and the corporateannual report.

At Sun Company, for example, the external environmentalreport is prepared by individuals from corporatecommunications, finance, legal, and EH&S. The process forthe accrual of environmental liabilities for the annual report alsoinvolves cross-functional integration. Staff from EH&S, legal,and management accounting meet monthly to discuss presentand future environmental liabilities and possible disclosuresrequired to fulfill regulatory requirements. Though standardizedexternal environmental reporting has yet to be established,numerous organisations have been working diligently todevelop a format that would be acceptable to the producersof the reports and useful to the various users. Others haveinstead been encouraging companies to increase disclosureswithout suggesting standardized formats.9

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Designing Products/Processes that Take EnvironmentalImpact into Account

Concern about post-consumer waste, recycling, reuse,and proper disposal is rapidly increasing. Consumers andgovernments are demanding lower-impact products.

An example of government demands is the use of take-back legislation. Take-back legislation requires that a companytake back specified components of a product after theconsumer finishes with it. The most notable example is theGerman requirement that companies selling products inGermany collect and recycle their packaging. New laws acrossEurope will soon compel manufacturers of everything fromautos to telephones to take back used products.

Companies wishing to compete globally must startmaking products that will comply with the green dictates of thehuge European market. Stage 2 organisations are respondingto this issue by designing their products and processes to bemore environmentally sensitive. For example, Hewlett-Packardhas redesigned its office-machine packaging worldwide inorder to meet German requirements.

Design for the environment (DfE) is emerging as the termdescribing the philosophy of integrating environmentalconsiderations into the design process. DfE calls upon productdesigners to factor the following considerations into theirplanning (the same considerations also apply to packagingdesign):

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� The production process. Among the issues toaddress are:

- Raw materials usage. Is the company usingrenewable resources whenever possible?How extensive is the demand for non-renewable resources? How can thecompany minimize its use of raw materials(renewable and non-renewable)? Whatalternatives are available?

- Energy consumption. How much energy isconsumed during the production process?How might the company reduce energyconsumption? What are the energysources? Might the company use moreenvironmentally benign energy sources?

- Pollution prevention. Does themanufacturing process reduce the creationof air and water emissions? What is thequantity and composition of thoseemissions? Is the company usingappropriate technologies to minimizeemissions?

- Solid waste. Are raw materials being usedeffectively, i.e., is there minimal scrap? Whatwaste, if any, might the company reuse?How does the company dispose of solidwaste?

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� Designing for pollution prevention. What are theimplications of manufacture and use for the qualityof air, water, and soil?

� Designing for resource conservation. Are recycledmaterials used whenever possible?10

� Designing for disposal. What are the environmentalimpacts of the product once it reaches the end of itsuseful life? Among the issues to address are:

- Landfill issues. Can the amount of waste, byweight and volume, be minimized when theproduct is disposed off?

- Incineration issues. Incineration of productsshould not produce toxic by-products.

� Designing for non-disposal. To what extent is theproduct reusable or recyclable? Ideally, durableproducts should be designed for long life. Can theproduct be upgraded with new, improved parts orsystems that further reduce the product’senvironmental impact and comply with newregulations?

The automotive and photocopier industries are amongthe leaders in DfE. In 1993, Ford issued DfE guidelines to itssuppliers to improve the recyclability of its vehicles and toincrease the recycled material content. Nearly 80% of thecontent of its new cars can now be recycled. The companyalso uses many recycled materials in producing itsautomobiles, including 54 million recycled soft drink bottles toproduce luggage racks, reinforcement panels, and doorpadding.

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Outside of the manufacturing sector, service companieshave found numerous opportunities to reduce theirenvironmental impact. Just as consumer productsmanufacturers and distributors have changed productpackaging, restaurants have reduced their packaging andoften made other significant efforts to reduce environmentalimpacts.

For example, in its McRecycle USA program that beganin 1990, McDonald’s replaced its polystyrene clamshell andcoffee cup containers with paper wraps for sandwiches andclay-coated paperboard for coffee cups.

As part of its program for reducing environmentalimpacts, The Body Shop has implemented an environmentalaccreditation scheme for its suppliers. This scheme gradesexternal suppliers based on predetermined criteria with a 0-5star rating and has focused on raw materials and third partymanufacturers.

By developing corporate environmental strategies andpolicies that are oriented toward environmental planning ratherthan compliance, companies can substantially reduceenvironmental impacts through process and product designs.Product quality, production yields, and profitability can beincreased and waste can be reduced or eliminated. By strivingfor continuous environmental improvement, both environmentalimpacts and corporate costs will usually decrease.Companies are recognizing that, by focusing on process andproduct design rather than on pollution control and cleanup,they can increase future profitability.

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Integrating Environmental Impact Information intoManagement Decisions

Successful management of environmental impacts inStage 2 depends on accumulating, aggregating, andmeasuring information on corporate environmental impacts,and reporting it to managers.

The data must fit into a system that gives managementnecessary costing information for improved analysis and fordecisions about the design and evaluation of product andprocess improvements.

Exhibit 4 lists various organisational decisions thatrequire better environmental impact information, and the typeof information that is usually required. In most cases, theorganisation needs several items of environmental informationin order to make sound environmental decisions.

An environmental impact information system should feedinformation to the organisation’s existing managementaccounting and financial reporting systems. This providesinformation that integrates environmental costs and benefitswith decisions about financial reporting, financial analysis,capital investments, product costing, product pricing, productand process design, and performance evaluation.

Managers throughout the organisation can identify theenvironmental impact of products and processes and betterunderstand how these impacts will likely affect other companyoperations. With a broader understanding of the impact of new

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environmental regulations, some companies re-evaluate theiraccruals in financial statements and their disclosures in MD&Asections of annual reports. In most cases, this information alsoimproves product costing, product design, capital budgeting,and performance evaluation decisions.

Is a link between the environmental impact informationsystem and accounting/finance necessary? No. Is it desirable?In most cases, yes. By integrating the physical data and costdata or environmental impact into the management accountingand reporting systems, decision-makers gain more completeinformation with which to improve decisions. In too manyorganisations, EH&S personnel have expended substantialeffort to gather useful environmental data that have not beenpassed along to operations, legal, accounting, and seniormanagement. Linking these systems costs little and hassignificant organisational and decision-making benefits.

Stage 3: Completing Environmental Integration

When a firm progresses to Stage 3 of the implementationguidelines, its environmental strategy and goals become fullyintegrated throughout the organisation and into allmanagement decisions. The goal is no longer to minimize orcontain costs but to maximize the value of all resources,including waste. Even the term “waste” is redefined. There isno waste, only reusable by-products. The results of thisintegration: not only does the company minimize both companycosts and environmental costs, but it also gains products andby-products that increase corporate revenue and thereforeprofitability.

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Exhibit 4 - Integrating Environmental Information intoManagement Decisions

Environmental InformationRequired

• Physical data related to thereduction of toxicity and waste

• Accumulation of currentenvironmental costs for past sinsby activity, facility, and product

• Accumulation of currentenvironmental costs for currentsins by activity, facility, andproduct

• Present and future capitalexpenditures for pollutionprevention

• Present and future capitalexpenditures for pollution control

• Present and future costs forproduct redesign

• Present and future costs forprocess redesign

• Estimates of futureenvironmental costs

• Estimates of futureenvironmental benefits

Decisions

• Capital investments forenvironmental projects

• Capital investments for non-environmental projects

• Financial reporting• Process design

• Purchasing• Cost control

• Product design• Product packaging

• Product costing• Product pricing

• Resource recovery and wastemanagement

• Evaluation of performance ofcorporation, facilities, andproducts

• Evaluation of performance ofmanagers

• Risk assessments and riskmanagement

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Stage 3 companies see the risk-reduction benefit ofpreventing pollution in the first place, rather than cleaning upafter it. For example, the first priority of 3M Corporation’s“Pollution Prevention Pays” (3P) program is to “preventpollution at the source.” AT&T’s strategy is to design “closed-loop” operations in which materials leave only as finishedproducts or benign waste.

Stage 3 firms seek to perform tasks and services thatare sustainably produced and/or promote sustainability insociety as a whole. Management introduces sustainability asa key criterion for all business activities.

Actions of a Stage 3 environmental strategy often include:

� integrating environmental impact into performanceevaluation systems;

� generating revenue through recycling and “waste”management;

� introducing and marketing “eco-efficient” products/services; and

� integrating the principles of sustainabledevelopment.

Integrating Environmental Impact into PerformanceEvaluation Systems

For an organisation intent on changing its corporateculture and achieving environmental integration, performancemeasurement is critical. The environmental performance of

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individuals, facilities, and divisions must be an integral part ofthe performance evaluation systems.

In Stage 3, organisations revise their performanceevaluation systems to make salary, bonus, and promotionpolicies consistent with their stated corporate environmentalgoals.

Some companies intentionally opt for an implicit systemto give managers the discretion to make trade-offs betweenenvironmental performance and financial performance. If acompany views environmental performance as a core valueand wants to change its corporate culture, an explicitperformance evaluation system will likely produce morepowerful results.

If developed properly, the system can affect the pay ofemployees, their supervisors, and senior managers throughdivisional performance evaluations that contain anenvironmental component in addition to the standard profitcomponent. It can substantially reduce fines related toviolations of environmental laws, increase efficiency throughimproved monitoring of process performance, and reduce theamount of work that the central environmental audit staff mustperform. With this approach, suggested process improvementsare more noticeable, waste is often reduced, and profits oftenincrease.

Some companies explicitly identify the environmentalgoals for each business unit to encourage monitoring forcontinuous improvement. Alcan Aluminium, for example,

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requires that compliance reviews be conducted every threeyears on every operating entity and location. It then requiresthe management of each business unit to provide an annualrepresentation letter based on the compliance review andother business unit information that reports on “its currentenvironmental status, identifies changing requirements, risksand hazards, and outlines environmental plans and financialrequirements for that business unit.” This representation letteris then submitted to the environmental committee of the boardof directors and the CEO. It helps the company to betterunderstand the corporate capital needs for environmentalprotection along with the necessary research and developmentand process improvements. With an approach like this, acompany can encourage managers to focus on environmentalstatus, risks, and plans, and then be held accountable for theresults of that analysis and planning.

For those companies that indeed want to improvecorporate environmental performance, the development ofincentives is important. Many companies provide awards toemployees for exemplary environmental performance. In somecases, teams are rewarded rather than individuals; rewardsvary from cash gifts to other methods of acknowledging theachievement, such as banquets, plaques, etc. Chevron, forexample, has a Recognition and Awards program thatprovides rewards for doing things right and acts as an incentivefor employees to go beyond their job responsibility and tobecome eligible for a cash award of $500 to $5,000. Theseprograms can be useful, but only in connection with a morecomprehensive program of performance evaluation that

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includes other programs to improve environmentalperformance.

Probably the most comprehensive system is that ofBrowning-Ferris Industries (BFI). Committed to viewingsociety’s changing requirements for corporate environmentalresponsibility as a new business opportunity rather thanregulations to battle, BFI introduced an environmental multiplierinto its performance evaluation system. This explicit compoundincentive plan is a powerful motivator because it multiplies anenvironmental compliance score by the score on profit andrevenue goals. If a score of less than 70% is received onenvironmental compliance, the multiplier (and the resultingbonus) is zero.

In the long run, environmental performance and financialperformance are interrelated. Organisations cannot continueto strive for environmental excellence while evaluating andrewarding performance strictly on short-term financialindicators.11

Generating Revenue through Waste Management andRecycling

Environmental and financial considerations often mergein the management of energy and waste. For this reason,waste management, including recycling, is one of the majorareas in which Stage 3 firms take environmental initiatives.

Recovery and reuse of materials can be either in-plantor off-plant (recycling). In-plant recovery and reuse is one of

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the simplest methods to curtail pollution generation. Throughrecovery and reuse of polluting materials, Stage 3 companiestransform an expensive waste reduction activity into aprofitable one. In this strategy, pollutants are recovered andreused repeatedly. This helps eliminate waste disposal costs,decrease material costs, and generate revenue from thesaleable waste.

For example, in 1967, Xerox Corporation faced apotential health hazard associated with the disposal of itsphotoreceptor drums, which were made from aluminum withan arsenic alloy coating. Xerox decided to reclaim thesedrums. What began as a way to avoid a potential hazardbecame a profitable business. The drums wereremanufactured at a fraction of the cost of a new one. Theremanufacturing of parts has been expanded, and Xerox iscurrently reclaiming about 1 million pieces of equipment wortha total of $200 million (Bhushan and Mackenzie 1994).

In-plant recovery may not be possible because thecompany lacks equipment, because the firm generates toolittle waste, or because the waste cannot be used in the plant.In this case, Stage 3 firms initiate off-plant reuse and recovery.Recycling and reuse of cans, bottles, and papers are examplesof off-plant recovery and reuse of wastes.

Outside of the manufacturing sector, service companieshave also found numerous opportunities to generate revenuethrough waste management. McDonald’s, for example, hasincorporated waste management goals into its evaluation of

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suppliers and encourages them to develop environmentallypreferable products and packaging. These efforts are part ofMcDonald’s three waste reduction principles: reduce, reuse,recycle. The company is taking a “total life-cycle” approach tosolid waste. Like many other companies, McDonald’s isholding its suppliers accountable by including environmentalaudits of supplier facilities, processes, and products beforebeginning or continuing relationships. The company’scomprehensive “total life-cycle” approach has significantlyreduced the volume of packaging used and the amount ofwaste produced. Furthermore, costs have been reduced sothat both the environment and the company’s profits benefitsubstantially.

Introducing and Marketing “Eco-Efficient” Products andServices

Today’s consumer is much more environmentally awarethan the typical consumer of two decades ago. Generallyspeaking, if consumers have a choice between a polluting andnon-polluting product, they are most likely to choose the latter.Hence, any manufacturer whose product is related to pollutionproblems will likely lose market share. Non-polluting productsare already in great demand in Europe; consumers in NorthAmerica and elsewhere are beginning to follow.

For example, large numbers of North Americanconsumers are already seeking assurance that the productsthey buy are the least ecologically damaging possible “recycledpapers, low-energy-consumption appliances, and so on.

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Stage 3 organisations seek to profit from this “greening”of consumer attitudes and behavior. Rather than concentrateon controlling the cost of pollution, they aim to increase theirmarket share and long-term revenues through introducingproducts and services with an environmental orientation.

The range of “eco-efficient” product and service businessopportunities spans virtually every industry sector. Severalimplementation approaches are possible, including:

� repositioning existing products and services as eco-efficient;

� developing a new eco-efficient product or servicenot previously offered;

� licensing a new eco-efficient product or serviceavailable outside the organisation’s geographicsales area; and importing an

� eco-efficient product.

Some of the elements that make a product eco-efficientare (Simon 1992):

� reduced raw material, high recycled content(aluminium cans);

� non-polluting manufacture/non-toxic materials(CFCs, de-inking solvents, etc.);

� no unnecessary animal testing (cosmetics);

� no impact on protected species (dolphin/tuna);

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� low energy consumption during production/use/disposal;

� minimal or no packaging;

� reuse/refillability where possible (beveragecontainers, detergent bottles);

� long useful life, updating capacity (office machines);

� post-consumer collection/disassemble system(cars); or

� re-manufacture capability (“closed loop” or “partialloop”)

Loblaws, Canada’s largest supermarket chain, hasworked with environmentalists to evaluate corporate practicesalong these lines. The company invited Pollution Probe, aToronto-based environmental group, to conduct anenvironmental analysis, which identified “green” products thatLoblaws could develop and sell. Criteria included reducingraw materials used in manufacturing, eliminating toxiccomponents, and using recycled materials in products andpackaging (Callenbach, et al 1993).

Stage 3 firms position their products/services as eco-efficient in a variety of ways, for example:

� Public relations. Communicating theirenvironmental commitment such as Mutual ofOmaha’s sponsorship of “Wild Kingdom” ; and

� Specific product attributes. Communicating thepositive aspects of their products through

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government-sponsored product“ eco-labels” (seeExhibit 5). Such labels guide consumers toward thepurchase of less environmentally damagingproducts.

Exhibit 5 - Product Eco-Labels12

Source: Callenbach, et al 1993:88.

The Home Depot’s approach is a good example of eco-efficient marketing. The company has published and adopteda set of environmental principles that guide its managerialthinking. It supports and sells products that are manufactured,packaged, and labelled in an environmentally friendly manner.It has an extensive process for determining the accuracy andinformative nature of product labelling for the goods it sells.Besides verifying supplier claims, the company tries toeliminate unnecessary packaging and encourage recycling.

Some issues that an organisation must address in

“Japan’sEco-MarkProgram”

“Canada’sEnvironmental

Choice Program”

“India’sEnvironmental

information system”

Germany’sBlue AngelProgram”

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introducing and marketing “eco-efficient” products andservices concepts are:

� Strategic issues. This involves such questions as:What competitive offerings are currently available?How will different eco-efficient product conceptsposition the company vis-à-vis its competition? Howimportant is it to leverage existing brandrecognition? What marketing strategies areappropriate?

� Market data issues. One of the barriers to entryinto the eco-efficient market is consumers’ lack ofclearly defined environmental preferences;

� Competitive issues. Persuading the market thattheir eco-efficient product is competitive in price andperformance;

� Inclusive science issues. Eco-efficient marketingwould be much simpler if there were scientificconsensus on which substances are harmful, howthey are harmful, and in what amounts they areharmful. For example, is paper or plasticenvironmentally superior?

� Consumer education issues. Because of thecomplexity of environmental issues and thecontroversy over what is truly eco-efficient, manyconsumers are confused or ignorant aboutenvironmental issues;

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� Public skepticism issues. The legacy of “misleading”environmental marketing is substantial enough tocreate strong consumer skepticism about eco-efficient claims;

� Regulatory issues. Eco-efficiency claims have beenthe subject of increasing regulations. This meansthat different jurisdictions often have slightly differentregulations;

� Pipeline issues. It is necessary to determine if thenew eco-efficient product or products will becompatible with current or available productioncapabilities and with principles of sustainabledevelopment; and

� Claim substantiation issues. Consumers andregulators alike are demanding greatersubstantiation of environmental claims.

Stage 3 organisations provide a contextual backgroundthat allows consumers to make sense of environmental claims,much as food vendors provide nutrition information to improveconsumers_ background understanding and make nutrition-based claims more effective.

For example, Procter & Gamble distributes a pamphletby direct mail that outlines its efforts to reduce solid waste. Bymaking the pamphlet informational and educational, Procter& Gamble prepares the market with sufficient information,making its future targeted eco-efficient marketing efforts moreeffective.

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Advancing claims in a market that lacks the context inwhich to understand them carries a substantial risk. A claimthat is technically true might add nothing to the marketing effortif consumers fail to understand it.

Marketing eco-efficiency requires commitment, research,strategic planning, and a coherent philosophy of environmentalresponsibility. While this marketing effort is a mixture of artand science, it should still haphazardly, it can become eco-efficient hype and backfire dramatically.

The following principles are critical to the success of anenvironmentally conscious marketing campaign:

� starting by being eco-efficient. Organisationsdevelop an environmentally committed organisationthat can honestly tell the public that it and its productsare eco-efficient;

� documenting and measuring the processes;

� leveraging environmental commitment bycommunicating to the public;

� understanding the market - where the product issold, who buys it, and the buyer’s “level ofenvironmental understanding”;

� educating the market so that buyers understand andappreciate eco-efficient claims; and

� being honest and factual.

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Integrating the Principles of Sustainable DevelopmentSustainable development requires progress that meets theneeds of the present without compromising the ability of futuregenerations to meet their own needs.

An increasing number of corporations are convinced thatno long-term economic growth is possible unless that growthis environmentally sustainable. These corporations recognizethat they require a balance between economics andenvironmental sensitivity. Further, they recognize that they canachieve competitive advantages through a conscientiousexamination of processes and products. They also understandthat reducing environmental impacts often increases long-termcorporate profitability through higher production yields andimproved product quality.

Sustainable business development requirescorporations to operate in a different framework. For example,the International Chamber of Commerce’s Business Charterfor Sustainable Development launched in 1991 has becomean umbrella code of environmental conduct backed bycompanies worldwide. Translated into 23 languages, it is nowsupported by more than 1,200 major companies and industryassociations.

The Charter sets out clear principles affecting all aspectsof company operations, from investment planning to stafftraining, from customer advice to research, from productdevelopment to marketing, and from technology transfer torelations with suppliers (see Appendix D).

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Sustainable development is the focus of E.B. EddyGroup’s EH&S report. According to the company’s missionstatement:

Sustainable development is not a question of choicebetween growth and the environment. It is the establishmentof a decision-making process which integrates the efficientconversion of resources with concern for long-termenvironmental consequences. This excellence is more thanproduct quality. It also refers to quality of process, and, mostimportantly, quality of people. The combination of qualityprocess, people, and products will make sustainabledevelopment a reality and will be a market for opportunity forthe company.

In North America and around the world, sustainabledevelopment is still a long way off. But leading organisationsare spreading the word that good environmental citizenshipcan improve a company’s bottom line, not weaken it.

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ORGANISATIONAL AND MANAGEMENTACCOUNTING CHALLENGES

Organisations must recognize that environmental issueswill pervade all functions. For example, procurement will needto find raw materials that come from sustainable sources ofsupply and that are produced with lower environmental impact.It must find ways to reduce packaging and use more recycledmaterials.

Research and development will need to identifyprocesses that use resources more efficiently by finding newuses for waste products. Marketing needs to learn about thegrowing consumer preference for environmentally friendlygoods and about how marketing, distribution, and sellingmethods can reduce environmental impact. Production willneed to work with engineers and maintenance people todevise processes that are more efficient and less costly inenergy and resource use. Legal staff need to find good waysto keep abreast of legislation and learn how best todisseminate this information.

Management accounting will need to improve the qualityand quantity of information it provides managers so that theycan make better decisions on product costing, and pricing,product and process design, and capital investments.Financial reporting and auditing will need to improve the qualityand quantity of external disclosures related to environmentalliabilities so that external users of the information can betterevaluate the company’s current and future prospects.

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None of this potential activity will happen without vision,strategic direction, and example from the top of theorganisation. In order to achieve coherence and integration,the environmental action plan must outline priorities, timescales, and allocation of appropriate resources.

The other key challenge facing organisations is to stopseeing environmental issues only in an operational context.Instead, they must raise their programs to a strategic level sothat effective environmental management creates acompetitive advantage.

Senior management and management accountantsneed to work proactively with government regulators indeveloping cost-benefit analyses of proposed regulations, inproviding cost impacts for implementing new regulations, andin helping to evaluate alternative courses of action.

The key challenge for management accountants is tochange their focus. They should no longer concentrate ondetermining the minimum amount of environmental liability thatthe firm must accrue. Management accountants must focuson the likely impact of existing production and practices onboth the environment and the organisation. They will also needto consider the likely impact of regulations, technology, andcompetition on the organisation.

To meet these growing corporate needs, they will needto master new analysis methods and measurements relatedto resource usage, pollution, and waste.

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CONCLUSION

Only recently have organisations begun to consider theinterplay of corporate strategy and environmentalresponsibility. Corporate strategy will inevitably be affectedby the complex environmental agenda emerging internationallyand within national and regional markets.

Organisations that set out to develop a sustainablebusiness will gain in stature and enhance their reputation andbusiness results in a daunting and challenging world.

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APPENDIX A: ENVIRONMENTAL POLICY STATEMENTS

Environmental Legislation in India

Industry and business are increasingly concerned aboutachieving and demonstrating sound environment performance,because of compulsions from stringent legislation.

The Ministry of Environment and Forests is the nodalagency at the Central level for planning, promoting andcoordinating the environmental programmes, apart from policyformulation. A number of enforcement agencies assist theMinistry of Environment and Forests, in executing the assignedresponsibilities.

The industrial pollution prevention and control, areprimarily executed by Pollution Control Board at the centrallevel, which is a statutory authority attached to the Ministry ofEnvironment and Forests. At the State level, the StateDepartments of Environment and State Pollution ControlBoards are the designated agencies to perform thesefunctions.

Environmental Management Systems (EMS)

As defined in ISO 14001, an EnvironmentalManagement System (EMS) is a part of the overallmanagement system that includes organisational structure,planning activities, responsibilities, practices, procedures,processes and resources for developing, implementing,achieving, reviewing and maintaining the environmentalsystems.

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Essentially, an EMS is a structured, organisation - wideapproach that enables a company of any size or type to addressthe environmental impacts of its activities, products andservices. An EMS makes possible controlling environmentalimpacts and setting initiatives to improve environmentalperformance.

ISO 14000 is a series of voluntary generic standardsdeveloped / being developed by ISO that provides businessmanagement with the structure for managing environmentalimpacts. The standards include a broad range ofenvironmental management disciplines, including the basicmanagement system, auditing, performance evaluation,labelling and life cycle assessment.

Classified according to their focus, the standards fall intotwo categories.

1. Organisation or process standards - environmentalmanagement system (EMS), environmental auditingEA) and environmental performance evaluation and

2. Product-oriented standards - life cycle assessment,environmental labelling and environmental aspectsin product standards.

Environmental Issues Related to Industry

The environmental issues related to industry are the useof resources and the contamination of air, water & land.

Air Pollution

Air becomes polluted when the relative quantities of thecomponents deviate from the delicate balance and exceed

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the base level. Gaseous air pollutants include carbon dioxide,carbon monoxide, hydrogen sulfide, hydrocarbons, nitrogenoxides, ozone and sulfur oxides.

Particulate air pollutants include smoke, dusts, fumes andmists. Particulate pollutants can be organic (substancecontaining carbon) or inorganic (not containing carbon). Thesize of the particulate varies from <0.01 to >100 micrometersin diameter.

Water Pollution

Water is a universal solvent and is used as a vital mediumfor transporting waste. The wide spread use of water as amode of transporting waste has lead to water pollution problem.

Land Pollution

Land is a final resting place for the majority of our garbageand waste. Land is susceptible to pollution especially thesurface soil layer. Contamination of soil (spills, waste sitesetc.) leads to the destruction of the accelerated erosion,polluted land and possible leaching of toxic substances to riversor lakes.

Source : http://greenbusinesscentre.com/msg.asp

Reliance Industries

Report on Corporate Social Responsibility

Health, Safety and Environment

Health, Safety and Environment (HSE) is a high priorityissue at Reliance. The aim is to provide comprehensive health

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services covering preventive, promotive, curative andcommunity health care services.

Further, the management’s vision to put safety ofpersonnel above all, is evident from the policy statement,“Safety of persons overrides all production targets”. This visiondrives the company to continuously look for ways to break newbarriers in safety management for the benefit of all.

To establish a direction towards attaining world-classenvironmental management, the Company has identified keyperformance indicators such as material consumption, energyefficiency, GHG emission, air quality, ozone depletingsubstances, water consumption, waste water discharge,hazardous and non-hazardous waste generation and disposal.

Health

Reliance’s state-of-the-art Occupational Health Centres(OHC) at its manufacturing divisions offer health care servicesto its employees. These centres are equipped with diagnosticand therapeutic equipment and are manned by qualifiedoccupational health specialists. The programmes conductedby medical centres, include preventive health care through pre-employment and also periodic medical examinations of allemployees. The results are computerized and analysed so asto provide targeted interventions at the individual and grouplevels. The medical departments also carry out informativelecture sessions, exhibitions and diagnostic camps. Curativetreatments are a part and parcel of the services provided. The

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employees are also supported for hospitalization by regularliaisoning and provision of financial support, where required.

CASHe Reliance’s preventive health care, providedthrough workplace improvements is carried out under theCASHe Programme. Started in 2003, it has grown toencompass the entire enterprise. The programme has beeninstrumental in creating a culture of implementing health, safetyand environment projects on a priority basis. This programmehas also helped the Company to improve its performance onthe occupational health and safety front, besides beingrecognized in international forums, like the InternationalCommission on Occupational Health Congress, held in Italy.Occupational Health Centres (OHC) The Company’soccupational health centers are also in the forefront inorganizing preventive educational programmes fornoncommunicable diseases, such as: heart problems,hypertension, diabetes and other lifestyle diseases, along withinformative sessions for communicable diseases, such as:malaria, tuberculosis and HIV / AIDS. The Companyendeavours to move towards the concept of wellness as itrecognizes that a healthy worker is a productive worker.

Safety

Having reached high levels of safety management withinthe country, the management has, in the last few years, beensteadily taking strategic steps to take the Company to worldclass levels. This year, under the guidance of the HSECommittee of Directors, Reliance entered into a strategic

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partnership with DuPont Safety Resources. The engagementis focused on behavioral as well as process safety aspectsand aims at bringing in excellence in safety management. Inaddition to personnel safety, process safety is also a toppriority for the Company. World class documented standards,emphasis on line management responsibility, an improved andstandardized process for safety observations are helping themanufacturing sites achieve higher employee participation inthe safety management process. In line with the Company’svision to always tie-up with the best in the world, Reliance hastied-up with the Centre for Chemical Process Safety, of theAmerican Institute of Chemicals Engineers (AIChE) of USA.The focus on construction safety has further increased withstandardized safety management practices being establishedat all construction areas from Jamnagar to Kakinada.Construction of office buildings is also being monitoredstrongly from a safety point of view. This emphasis has led tothe Company achieving a low lost time incident rate even atconstruction projects. With business needs increasing, theCompany is also focusing on transportation and distributionsafety. This focus shall not only help establish internationalsystems for the existing businesses, but also prepare for theupcoming businesses such as Retail. The Centre for HSEExcellence is accordingly getting further strengthened with thenecessary skill sets and competencies. The Centre is helpingReliance to implement and practice world class standards aswell as standardize the processes and establish the “RelianceWay” of Safety Management.

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Environment

In its pursuit of excellence in sustainable development,Reliance further integrated its safety and environmentperformance in the overall business plan and strategy. Amanagement system approach, consisting of gap analysis,planning, implementation, and review has percolated to allbusiness plans through ISO 14001:2004 at all manufacturinglocations. Through its annual environment plan and businesstargets, the Company identifies projects and takes action toachieve these targets with the ultimate goal of becoming waterpositive, carbon neutral, with maximum possible recycling andreuse of hazardous and other wastes. A managementframework with defined structures, roles and responsibilities,group guidelines, audits and training has been instituted toimplement the journey towards world-class excellence inenvironment. The Company initiated reporting environmentalefforts to the world through Global Reporting Initiative followingG-3: 2006 guidelines. Reliance’s second Sustainability Reportfor FY 2005-06, “My Reliance. My Life” received the highestpossible accreditation: GRI Checked A+. The Company hasalso undertaken an exercise to establish world class corporateenvironmental standards with the help of DuPont experts.Reliance is statutory compliant in the area of environment. Asa policy, environment impact assessment and qualitative riskanalysis are performed for all new and major expansionprojects and incorporate all necessary measures to mitigateenvironmental impacts due to project implementation. All thehardware - such as effluent treatment plants, air emissionabatement units and waste disposal facilities, were maintained

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and improved further. The above RELIANCE INDUSTRIESLIMITED 37 efforts have resulted in a significant improvementin water consumption, water recycle and reuse, CO2 and otherair emissions, ozone depleting substances consumption andhazardous waste generation. This year, Reliance’s explorationand production (E&P) division, involved in exploratory drillingin various off-shore blocks off the coast of State of AndhraPradesh, has moved into development phase for the KG-D6project. Regulatory environment monitoring programs havebeen instituted from the beginning of construction phase toensure a fool-proof compliance tracking and reportingmechanism.

Climate change and Energy conservation: During2007- 08,

Reliance registered two Clean Development Mechanism(CDM) projects, one each from Patalganga and Allahabad,with UNFCCC for CO2 reduction. More than 100,000 CertifiedEmission Reduction (CER) from two of the registered projectshave been verified and issued by United Nations FrameworkConvention on Climate Change (UNFCCC). The Company isexploring all possibilities to take the benefit of CDM creditsthrough various projects. Reliance also became member ofCarbon Capture and Sequestration Association, London, foractive participation in worldwide activities related to CarbonCapture and Storage (CCS). To decrease the Company’scarbon footprint, activities have been initiated in the area ofbio-diesel through non-edible route of Jatropha seeds.Extensive distribution of Jatropha saplings and cultivation in

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the wasteland has been targeted and a pilot plant of 20 TonPer day (TPD) bio-diesels is ready for commissioning.Reliance is also exploring the possibility of bio-ethanol usingsecond generation raw material. Fresh water consumption andeffluent discharge: Reliance as a responsible corporate hasaccorded top priority to water conservation and reuse topreserve fresh water, one of the precious natural resources.Jamnagar Manufacturing Division is not dependent on freshwater resource and continues to generate fresh water fromsea. A study was undertaken by internationally renownedconsultant M/S ENSR, USA to improve the effluent treatmentplant’s (ETP) operation at Jamnagar Manufacturing Division.Their recommendations are being implemented. New facilitieshave been created for township and labour camps at theJamnagar Manufacturing Division and also at the NagpurManufacturing Division for the treatment of domestic sewageand its reuse and recycle. Compared to the previous year,there has been a reduction in consumption of water atmanufacturing locations Jamnagar, Kurkumbh, Hoshiarpur,Silvassa, Dhenkanal and Nagpur manufacturing divisions haveachieved 100 % recycling of the treated water and thus attainedthe status of “Zero discharge” sites. Vadodara and HaziraManufacturing Divisions have initiated the “Zero DischargeProject”. Waste reduction and utilization: Reliance’sManufacturing Divisions at Vadodara and Hazira haveachieved significant reduction in hazardous waste generationthrough process improvement, recycling and reuse efforts,employing Six Sigma methodology. Efforts on plastic wasterecycling, through Indian Center for Plastics in the Environment

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(ICPE), and PET bottle waste recycling, have been very welldocumented, and continue to reduce load on municipal waste.These efforts also generate employment for the weakersections of society. A project on conversion of biological sludgeto manure by vermi-compost has been initiated at Vadodara,Hazira and Naroda Manufacturing Divisions. Canteen wasteat Manufacturing Divisions located at Jamnagar, Hazira andNagothane is converted to bio-gas and used as fuel. AtNagothane Manufacturing Division, conversion of horticulturebio-mass to coal briquettes and its use as fuel has beenimplemented. The Company has taken a proactive measurefor the safe disposal of electronic waste, fluorescent tube lights,empty paint containers, spray cans, etc. SilvassaManufacturing Division has established EWaste disposalthrough E-Parisara, MoEF approved recycling agency, whilethe Manufacturing Divisions at Jamnagar and Hazira haveinstituted tube light and empty paint container crusher withrecovery and safe disposal of toxics. These practices arebeing implemented at others sites as well. Training and Audits:During the year, Reliance has accorded highest priority to thetraining, awareness and learning mechanism at all levels.During the year, various internal and advanced trainingprograms and inter-site meets were conducted involvingexperts. Learning on specific environmental issues throughparticipation in national and international conferences,workshop and courses, has been encouraged at Reliance.Effective networking and collaboration with national andinternational agencies such as universities, research institutes,regulatory bodies, industrial and professional association has

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helped to assimilate and implement the world class bestpractices in HSE management. Environment audit is one ofthe important tools on which special emphasis is given andthe Company currently has more than 75 “Trained LeadAuditors” for ISO 14001:2004. Various audits conductedduring the year include third party statutory audits in the stateof Gujarat and ISO audits; group environment audit;independent assurance of Reliance’s Sustainability Reportsby Ernst & Young; Audit by Japanese Union of Scientists &Engineers at Hazira and Nexant team at Jamnagar. Actionplans are made to liquidate all audit observations. CommunityEnvironment Initiatives: Various environment programs, suchas tree plantation, water conservation & harvesting and energysaving initiatives were conducted by all sites within the complexand in the nearby community. All sites, as part of the ‘WorldEnvironment Day’ celebrations created awareness on GlobalWarming and melting of ice. This year, manufacturingDivisions at Vadodara and Dahej gave special emphasis toschools and initiated Green School project using theframework developed by Centre for Science and Environment(CSE), New Delhi. To enhance bio-diversity in the vicinity ofthe on-shore facility at Kakinada, Reliance undertook anextensive mangrove plantation exercise and also forestationfor restoration of degraded mangrove areas in Coringamangrove forest in association with MS SwaminathanFoundation. Reliance has also sponsored study of coastalwetlands of Godavari Delta to Environment Centre- a reputedNGO of Andhra Pradesh.

Source : Reliance Annual Report 2007-2008

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TATA MOTORS

Green Matters:

Tata Motors, a Company that cares about the future...

True to the tradition of the Tata Group, Tata Motors iscommitted in letter and spirit to Corporate SocialResponsibility. It is a signatory to the United Nations GlobalCompact, and is engaged in community and social initiativeson labour and environment standards in compliance with theprinciples of the Global Compact. In accordance with this, itplays an active role in community development, serving ruralcommunities around its manufacturing locations.

Tata Motors believes in technology for tomorrow. Ourproducts stand testimony to this.Our annual expenditure onR&D is approximately 2% of our turnover. We have also setup two in-house Engineering Research Centres that houseIndia’s only Certified Crash Test Facility. We ensure that ourproducts are environmentally sound in a variety of ways. Theseinclude reducing hazardous materials in vehicle components,developing extended life lubricants, fluids and using ozone-friendly refrigerants. Tata Motors has been making consciouseffort in the implementation of several environmentally sensitivetechnologies in manufacturing processes. The Company usessome of the world’s most advanced equipment for emissioncheck and control.

Tata Motors concern is manifested by a dual approach –

1. Reduction of environmental pollution and regularpollution control drives

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2. Restoration of ecological balance.

Our endeavors towards environment protection are soiland water conservation programmes and extensive treeplantation drives. Tata Motors is committed to restoring andpreserving environmental balance, by reducing waste andpollutants, conserving resources and recycling materials.

Reducing Pollution:

Tata Motors has been at the forefront of the Indianautomobile industry’s anti-pollution efforts by introducingcleaner engines. It is the first Indian Company to introducevehicles with Euro norms well ahead of the mandated dates. Tata Motors’ joint venture with Cummins Engine Company,USA, in 1992, was a pioneering effort to introduce emissioncontrol technology for India. Over the years, Tata Motors hasalso made investments in setting up of an advanced emission-testing laboratory.

With the intention of protecting the environment, TataMotors has upgraded the performance of its entire range offour and six cylinder engines to meet international emissionstandards. This has been accomplished with the help of world-renowned engine consultants like Ricardo and AVL. Theseengines are used in Tata Motors vehicles in the Indian market,as well as in over 70 export markets.

Tata Motors is constantly working towards developingalternative fuel engine technologies. It has manufactured CNGversion of buses and followed it up with a CNG version of itspassenger car, the Indica.

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Restoring Ecological Balance:

Tata Motors has set up effluent treatment facilities in itsplants, to avoid release of polluted water into the ecosystem.In Pune, the treated water is conserved in lakes attractingvarious species of birds from around the world thus turningthe space into a green belt.

Tree plantation programmes involving villagers and TataMotors employees, have turned acres of barren village green.Tata Motors has planted as many as 80,000 trees in the worksand the township and more than 2.4 million trees have beenplanted in Jamshedpur region. Over half a million trees havebeen planted in the Poona region. Tata Motors has directedall its suppliers to package their products in alternate materialinstead of wood.

End of Life Vehicle Treatment and Recycling: India is arecycling society with many people making value out therecovery of waste materials discarded from products at theend of their useful life.

However, Europe, and some other export markets, haverecognised that they have become a ‘throwaway’ society inrecent decades, and are now introducing waste preventionregimes in different industry sectors to collect and recyclevaluable resource rather than it ending up in landfill.

In the Automotive sector, the European End of LifeVehicle (ELV) Directive, points responsibility for this issue tovehicle manufacturers, and the scrap car recovery industry.Similar regulations are being introduced in Japan and Korea.

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Naturally, Tata Motors has already met the ‘producerresponsibility’ aspects of the ELV Directive, such ascompliance to Heavy metals and other hazardous substancerestrictions. Also, material code marking of plastic parts hasbeen introduced to aid achievement of demanding Europeanrecycling targets.

Central to this European regulation is for manufacturersto provide free take-back networks for environmentally soundtreatment of ELVs. Last owner contacts for access to TataMotors subscribed take-back schemes can be found in:www.tatamotors.com/takeback.php

Only specially authorized vehicle dismantler and shredderoperators are allowed to treat ELVs in Europe, and they haveaccess to Tata Motors ELV treatment information byregistering on:

Source : www.tatamotors.com/dismantlers.php

ITC Limited

SOCIO-ECONOMIC ENVIRONMENT

India sustained its pre-eminent position as one of thefastest growing economies in the world in 2007/08. Despitethe relative deceleration in several sectors, real GDP notchedan impressive growth of 9%, as per revised estimates of theCentral Statistical Organisation. India joined the ranks of thetrillion dollar economies in the world, giving us yet anothermoment of national pride.

Source: ITC Ltd Annual report

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APPENDIX B: INTERNATIONALENVIRONMENTALPOLICY STATEMENTS

DOW CHEMICAL CANADA INC.

(In Environmental Progress Report 1993)

Environmental, Health and Safety Policy

At Dow, protecting people and the environment will be apart of everything we do and every decision we make. Eachemployee has a responsibility in ensuring that our productsand operations meet applicable government or Dow standards,whichever is more stringent.

Our goal is to eliminate all injuries, prevent adverseenvironmental and health impacts, reduce wastes andemissions, and promote resource conservation at every stageof the life cycle of our products. We will report our progressand be responsive to the public.

LAIDLAW INC.

(After Report to Shareholders)

Environmental Initiatives

We first published our environmental policy in our 1991Annual Report. In summary, the policy commits the Companyto behave in an environmentally responsible manner in theinterests of our employees, customers, and the communitiesin which we are located. It requires us to work closely withregulators and associations to develop and comply with sound

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environmental policies and to maintain a standard thatsurpasses our legal responsibilities. It requires recycling,reuse, and recovery of resources wherever practical and thatwe carry out environmental audits of our facilities and respondpromptly to any deficiencies we may find. Our Board ofDirectors and executive will ensure these principles arerespected.

Source:The Canadian Institute of CharteredAccountants 1994.

EASTMAN KODAK’s GUIDING PRINCIPLES

Health, Safety, and Environment Guiding Principles

Guiding Principles

1. To extend knowledge by conducting or supportingresearch on the health, safety, and environmentaleffects of our products, processes, and wastematerials.

2. To operate our plants and facilities in a manner thatprotects the environment and the health and safetyof our employees and the public, and is efficient inthe use of natural resources and energy.

3. To make health, safety, and environmentalconsiderations a priority in our planning for allexisting and new products and processes.

4. To develop, produce, and market products andmaterials that can be manufactured, transported,

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used, and disposed of safely and in a way that posesno undue environmental impact.

5. To counsel customers on the safe use,transportation, storage, and disposal of our productsand, for those services we provide, to provide themsafely.

6. To participate with governments and others increating responsible laws, regulations, andstandards to safeguard the community, workplace,and environment and in applying environmentallysound management practices and technologies.

7. To measure our environmental performance on aregular basis and provide - to officials, employees,customers, shareowners, and the public appropriateand timely information on health, safety, orenvironmental hazards, initiatives, andrecommended protective and preventive measures.

8. To recognize and respond to community concernsabout our operations and to work with others toresolve problems created by handling and disposalof hazardous substances.

9. To encourage employees to apply off the job thesame principles for health, safety, and theenvironment that are applied at work.

Source:Epstein 1995.

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APPENDIX C: A CHECKLIST FOR ENVIRONMENTALACTION PROGRAMS

Internal Targets

Does the program:

� effectively use the firm’s financial, human, andphysical resources?

� link to the organisation’s broad strategic plan?

� reflect personal values of the organisation’s seniormanagers and employees?

� relate directly to market expectations and theorganisation’s internal capabilities?

� provide sufficient flexibility?

� take advantage of the organisation’s planning,managerial, and developmental capabilities?

� emphasize the company’s internal strengths andimprove its weaknesses?

� reflect the company’s financial resources?

� provide appropriate and achievable targets, amilestone program of attainable successes, as wellas some more stretching targets?

External Targets

Does the program:

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� further the company’s compliance withenvironmental standards?

� advance the company’s reputation with its customerbase for good environmental practice andenvironmentally friendly products?

� assist the organisation in confirming or takingmarket niches?

� improve competitive conditions for current orplanned product lines?

� help the organisation to use or take advantage ofexisting market and product strengths?

� assist the enterprise in entering new product areasthat improve its ability to establish goodenvironmental performance?

Source:Ledgerwood,Street,and Therivel 1994:46.

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APPENDIX D: THE INTERNATIONAL CHAMBER OFCOMMERCE’S BUSINESS CHARTER FORSUSTAINABLE DEVELOPMENT

In April 1991, 700 industrialists met at the Second WorldIndustry Conference on Environmental Management. Theyadopted a set of 16 principles (see below) as guidelines forcreating sustainable corporations. Since then, topmanagements of several hundred companies, governmentorganisations, and industry associations have endorsed theseprinciples.

1. Corporate priority: To recognize environmentalmanagement as among the highest corporatepriorities and as a key determinant to sustainabledevelopment; to establish policies, programs, andpractices for conducting operations in anenvironmentally sustainable manner.

2. Integrated management: To integrate thesepolicies, programs, and practices fully into eachbusiness as an essential element of managementin all its functions.

3. Process of improvement: To continue to improvecorporate policies, programs, and environmentalperformance, taking into account technologicaldevelopments, scientific understanding, consumerneeds, and community expectations, with legalregulations as a starting point; and to apply the sameenvironmental criteria internationally.

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4. Employee education: To educate, train, andmotivate employees to conduct their activities in anenvironmentally responsible manner.

5. Prior assessment: To assess environmental impactsbefore starting a new activity or project and beforedecommissioning a facility or leaving a site.

6. Products and services: To develop and provideproducts or services that have no undueenvironmental impacts and are safe in their intendeduse, that are efficient in their consumption of energyand natural resources, and that can be recycled,reused, or disposed of safely.

7. Customer advice: To advise and, where relevant,educate customers, distributors, and the public inthe safe use, transportation, storage, and disposalof products provided; and to apply similarconsiderations to the provision of services.

8. Facilities and operations: To develop, design, andoperate facilities and conduct activities taking intoconsideration the efficient use of energy andmaterials, the sustainable use of renewableresources, the minimization of adverseenvironmental impact and waste generation, and thesafe and responsible disposal of residual waste.

9. Research: To conduct or support research on theenvironmental impacts of raw materials, products,processes, emissions, and wastes associated with

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the enterprise and on the means of minimizing suchadverse impacts.

10. Precautionary approach: To modify the manufacture,marketing, or use of products or services or theconduct of activities, consistent with scientific andtechnical understanding, to prevent seriousirreversible environmental degradation.

11. Contractors and suppliers: To promote the adoptionof these principles by contractors acting on behalfof the enterprise, encouraging and whereappropriate requiring improvements in theirpractices to make them consistent with those of theenterprise; and to encourage wider adoption of theseprinciples by suppliers.

12. Emergency preparedness: To develop andmaintain, where significant hazards exist,emergency preparedness plans in conjunction withthe emergency services, relevant authorities, and thelocal community, recognizing potential boundaryimpacts.

13. Transfer of technology: To contribute to the transferof environmentally sound technology andmanagement methods throughout the industrial andpublic sectors.

14. Contributing to the common effort: To contribute tothe development of public policy and to business,government, and inter-governmental programs and

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educational initiatives that will enhanceenvironmental awareness and protection.

15. Openness to concerns: To foster openness anddialogue with employees and the public, anticipatingand responding to their concerns about the potentialhazards and impacts of operations, products,wastes, or services, including those of trans-boundary or global significance.

16. Compliance and reporting: To measureenvironmental performance; to conduct regularenvironmental audits and assessments ofcompliance with company requirements, legalrequirements, and these principles; and periodicallyto provide appropriate information to the board ofdirectors, shareholders, employees, the authorities,and the public.

Source:Shrivastava 1996.

Confederation of Indian Industry’s mission on“Sustainable Growth”

1. The Need

In its pursuit of achieving a developed country status bythe year 2020, India needs to maintain the present high GDPgrowth rates.

This necessitates increased usage of natural resources,such as, energy & water. The increased resource usagecompounds the problem of emissions.

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There is a need for the country to achieve the highergrowth rate with optimal use of resources and better emissionstandards.

Against this background, there is a need for India to focuson sustainable growth. Towards realizing this objective, CII hasoutlined a new “Mission for Sustainable Growth”.

2. Core Purpose

The core purpose of the mission is “To promote andchampion sustainable growth in Indian Industry”, withoutcompromising on high and accelerated growth.

3. Suggested Terms of Reference

The suggested terms of reference for the mission forsustainable growth are as follows:

a) To promote the concept of sustainable growth inIndian industry

b) To catalyse & facilitate development of policy onsustainable growth

c) Initiate sectoral activities through partnerships toachieve sustainable growth

d) To facilitate & promote services, techniques andtechnologies to achieve sustainable growthobjectives

e) To enrol 100 leader companies committed tosustainable growth objectives

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f) Facilitate & demonstrate benefits of sustainablegrowth

4. Scope of the Mission

At a macro-level, the scope of the mission will target 3-tiers - national level, sectoral level and firm level.

Tier - 1 Activities

The tier-1 activities of the mission would focus ontriggering policy initiatives at the national level. The idea is tocatalyze and facilitate development of a policy on sustainablegrowth.

The policy will provide a clear definition for sustainablegrowth. It will also highlight the strategies & approach forconservation of natural resources, such as, energy, water etc.,with goals & targets.

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Tier - 2 Activities

The tier-2 activities would focus on industrial sectoralinitiatives. The scope includes identifying top 10 industrialsectors, having maximum impact on sustainable growth.

To give a further fillip to the activities, CII will sign MoU’son partnership with respective industrial sectoral associations.CII along with the industrial sectoral associations will jointlyinitiate the following activities:

“ Setting up norms, targets and goals for each sector

“ Initiating voluntary target setting for each sector

¢ Eg: Emissions/ sec to come down by X% in 5 years

“ Identifying what can trigger quick change

¢ Technologies, Process etc.

Tier - 3 Activities

The tier - 3 activities are focused on firm or unit level.The scope would include identifying specific activities whichwill improve bottom-line of the individual units.

The entire process is aimed at facilitating achievementof the respective industrial sectoral goals and national goals.

The existing resources available within CII, viz., GBC,CESD, CFC and TQM would be leveraged for initiating theseactivities.

Source : http://greenbusinesscentre.com/msg.asp

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APPENDIX E: CLEAN DEVELOPMENT MECHANISM

The Clean Development Mechanism (CDM) is anarrangement under the Kyoto Protocol(2005) allowingindustrialised countries (Annex 1 ) to invest in projects indeveloping countries that reduce emissions and get creditscalled Carbon Credit. This is similar to costs paid for a deemedlocal compliance for benefiting the objective globallyelsewhere . A picture of the emissions reduction achievedthrough this mechanism is given in the diagram below:

The CDM allows net global greenhouse gas emissionsto be reduced at a much lower global cost by financingemissions reduction projects in developing countries wherecosts are lower than in industrialized countries The CDM issupervised by the CDM Executive Board (CDM EB) and isunder the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on ClimateChange (UNFCCC).

History and Purpose

The CDM was an important feature of the negotiationsleading up to the Kyoto Protocol. Some governments desired

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flexibility in the way that emission reductions could be achievedand proposed international emissions trading as a way ofachieving cost-effective emission reductions..

The Adaptation Fund was established to finance concreteadaptation projects and programmes in developing countriesthat are Parties to the Kyoto Protocol. The Fund is to befinanced with a share of proceeds from clean developmentmechanism (CDM) project activities and receive funds fromother sources.

CDM project process

Outline of the project process

An industrialised country that wishes to get credits froma CDM project must obtain the consent of the developingcountry hosting the project that it will contribute to sustainabledevelopment. Then, using methodologies approved by theCDM Executive Board (EB), the applicant (the industrialisedcountry) must make the case that the carbon project would nothave happened in any case otherwise (establishingadditionality), and must establish a baseline estimating thefuture emissions in absence of the registered project. The caseis then validated by a third party agency, called a DesignatedOperational Entity (DOE), to ensure the project results in real,measurable, and long-term emission reductions. If a projectis registered and implemented, the EB issues credits, calledCertified Emission Reductions (CERs, commonly knownas carbon credits, where each unit is equivalent to thereduction of one metric tonne of CO2e, e.g. CO2 or its

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equivalent), to project participants based on the monitoreddifference between the baseline and the actual emissions,verified by the DOE.

Establishing additionality

To avoid giving credits to projects that would havehappened even otherwise (“freeriders”), rules have beenspecified to ensure additionality of the project, that is, to ensurethe project reduces emissions more than would have occurredin the absence of the project. There are currently two rivalinterpretations of the additionality criterion:

1. What is often called ‘environmental additionality ’isthat a project is additional if the emissions from theproject are lower than the baseline. It generally looksat what would have happened without the project.

2. In the other interpretation, sometimes termed ‘projectadditionality’, the project might not have happenedwithout the CDM., Official guidelines have beendesigned to facilitate uniform assessment set by theCDM Executive Board for assessing additionality.

Establishing a baseline

The amount of emission reduction, depends on theemissions that would have occurred without the project minusthe emissions of the project. The construction of such ahypothetical scenario is known as the baseline of the project.The baseline may be estimated through reference toemissions from similar activities and technologies in the same

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country or other countries, or to actual emissions prior to projectimplementation. Independent third party verification is meantto ameliorate this potential problem.

Financial issues

With costs of emission reduction typically much lower indeveloping countries than in industrialised countries,industrialised countries can comply with their emissionreduction targets at much lower cost by receiving credits foremissions reduced in developing countries). While there wouldalways be some cheap domestic emission reductionsavailable in Europe, the cost of switching from coal to gascould be in the order of •40-50 per tonne CO2 equivalent.CERs from CDM projects were in 2006 traded on a forwardbasis for between •5 and • 20 per tonne CO2 equivalent..

Concerns

Exclusion of forest conservation/avoided deforestationfrom the CDM

The first commitment period of the Kyoto Protocolexcluded forest conservation/avoided deforestation from theCDM There have been growing calls for the inclusion of forestsin CDM schemes for the second commitment period.

The risk of false credits

It was recognized from the beginning that if projects thatwould have happened even otherwise are registered as CDMprojects, then the net effect is an increase of global emissions

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as those “spurious” credits will be used to allow higherdomestic emissions without reducing emissions in thedeveloping country hosting the CDM project. Spurious creditsmay also occur because of overstated baselines. Such arejection is termed a “false positive”.

On the other hand, if a project is rejected because thecriteria are set too high, there will be missed opportunities foremission reductions. Such a rejection is termed a “falsenegative”. For example, if it costs $75 to remove just one tonnefrom a domestic power station in a developed country, whilethe same money would reduce 37.5 tonnes of emissionsthrough a genuinely additional CDM project in China, it isimportant that the validation process does not become sobureaucratic or onerous as to dissuade the more effectiveoption.

Negotiators have not yet been able to agree on whether,or how, carbon capture and storage projects should be allowedunder the CDM

Excessive payments for emission reductions.

A study published in Nature found that a major class ofCDM project paid as much as 50 times more for the emissionreductions than the costs alone would warrant, with theexcessive profits ending up with the factories and the carbontraders.

CASE HISTORY OF HFC –

The particular kind of CDM projects in question regard

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refrigerant-producing factories in non-Annex-1 countries(particularly China) that generate the powerful greenhouse gasHFC 23 as a by-product. By destroying the HFCs, the factoriescan earn CER credits. Destroying the HFCs requires a simpleand relatively cheap piece of equipment called a scrubber; itwould cost only •100 million to pay producers to capture anddestroy HFC 23 compared with •4.6 billion in CDM credits.While this is still cheaper than the typical cost of reducingemissions in industrialised countries, it is seen as a majorloophole in the carbon trading system. New HFC 23 facilitieswill no longer be eligible for CDM credits.

CDM projects to date

As of 2 November 2007, 828 projects have beenregistered by the CDM Executive Board These projects reducegreenhouse gas emissions by an estimated 171 million tonCO2 equivalent per year. There are about 2,600 projects inthe pipeline (most of which not yet registered) would until theend of 2012 produce over 2.5 billion tons CO2 equivalentreductions.

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For comparison: The current emissions of the EU-15 areabout 4.2 billion ton CO2 equivalent per year[19]. Of theregistered projects in the current pipeline, the majority of CERshave been from HFC destruction projects (see figure), aloophole in the CDM as discussed above.

References : WWW. WIKIPEDIA .org as under

Voigt, Christina, “Is the Clean Development MechanismSustainable? Some Critical Aspects” . SustainableDevelopment Law & Policy, Vol. 7, No. 2, pp. 15-21, Winter2008 http://unfccc.int/cooperation_and_support/financial_mechanism/items/3659.php

1. http://www.adaptation-fund.org/

2. Additionality VROM (Netherlands Ministry ofHousing, Spatial Planning and the Environment)

3. Tool for the demonstration and assessment ofadditionality (Version 03), UNFCCC CDM EB, EB29, Additionality toool CDM Executive Board

4. Climate Change 2001 - Synthesis report. FigureSPM-8 IPCC, 2001

5. A New Initiative to Use Carbon Trading for TropicalForest Conservation William F. Laurance(2007),Biotropica 39 (1), 20–24

6. Stern, N. 2006. Stern Review of the Economics ofClimate Change

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7. Forests First in the Fight Against Climate ChangeGlobal Canopy Programme, 2007

8. Offsets presentation EcoSecurities

9. Examples of criticism Sinkwatch

10. CDM Gold Standard WWF

11. CDM Project 0177 Lawley Fuel Switch ProjectUNFCCC

12. Carbon trade watch

13. Measuring the Clean Development Mechanism’sPerformance and Potential Michael Wara, Programon Energy and Sustainable Development, StanfordUniversity. Working Paper #56, July 2006

14. Billions lost in Kyoto carbon trade loophole FionaHarvey, Financial times, February 7 2007

15. Kyoto Protocol ‘loophole’ has cost $6 billion NewScientist, 9 February 2007

16. “Is the global carbon market working?” by MichaelWara, Nature (vol 445, p 595) 8 February 2007.

17. CDM Project Statistics UNFCCC

18. EEA emissions information European Environmentagency

19. http://www.downtoearth.org.in/cover.asp

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Annex I countries

Annex I countries (industrialized countries):Australia, Austria, Belarus, Belgium, Bulgaria, Canada,Croatia, Czech Republic, Denmark, Estonia, Finland, France,Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia,Liechtenstein, Lithuania, Luxembourg, Monaco, Netherlands,New Zealand, Norway, Poland, Portugal, Romania, RussianFederation, Slovakia, Slovenia, Spain, Sweden, Switzerland,Turkey, Ukraine, United Kingdom, United States of America

Annex II countries

Annex II countries (developed countries which payfor costs of developing countries) : Australia, Austria,Belgium, Canada, Denmark, Finland, France, Germany,Greece, Iceland, Ireland, Italy, Japan, Luxembourg,Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,Switzerland, United Kingdom, United States of America.

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Central Council

B. M. Sharma

President

M. Gopalakrishnan

Vice President

Central Council Members

Shri. Sanjiban Bandyopadhyaya Shri. H. K. Goel

Shri. Kunal Banerjee Shri. Somnath Mukherjee

Shri. Chandra Wadhwa Shri. A. G. Dalwadi

Shri. Balwinder Singh Shri. G. N. Venkataraman

Shri. S. R. Bhargave Shri. S. C. Mohanty

Shri. V. C. Kothari Shri. A. S. Durga Prasad

Shri. A. N. Raman

Government Nominees

Shri. A.K. Srivastava Shri. D.S. Chakrabarti

Shri. Munesh Kumar Ms. Nandana Munshi

Shri. P.K. Jena