Saying yes to EMS

Businesses want to know if an environmental management system leads to good environmental performance, or if it is merely an exercise in greenwash. Scott McAusland reports

It is not through altruism alone that companies are adopting environmental management systems.

Companies are beginning to see financial returns in the form of cost savings, risk
aversion and reduced business interruption. Many ethical or socially responsible investors are more likely to consider investing in firms with EMS than in those without.
An environmental management system (EMS) generally follows the adoption of a corporate environmental policy. The environmental policy formally outlines a company's commitments to environmental management and commonly includes commitments to reduce waste, pollution, energy and resource use, sets objectives and targets and reviews the company's environmental performance.

Once the policy and EMS are in place, a company will consider the publication of
an environmental report to document progress against its policy and performance targets set out in the EMS.

Companies may adopt a certified EMS, such as ISO 14001 or Eco-Management and Audit Scheme (EMAS), or they may develop their own in-house systems. Of the certified schemes, ISO 14001 is the most commonly adopted due to international recognition and the success of its related quality standard, ISO 9000.

ISO 14001 can be applied to an entire organisation or parts of it, or to its activities,
products or services. The aim is to promote continual improvement.

The EMAS was developed in 1995 for sites based in the European Union. Sites, rather than whole companies, become registered to EMAS following verification by EU-accredited organisations.

The Environment Agency strongly encourages the implementation and use of EMS;
it believes EMS should lead to improved environmental performance and better, and more consistent, legal compliance. However, there are concerns about the ability of EMS to secure real improvements in corporate environmental performance.

In assessing the quality of companies' EMS, EIRIS evaluated internal corporate environmental management systems and those certified to the ISO 14001 or EMAS.
The EIRIS study focuses on high environmental impact companies - more than 800 companies in Western Europe, North America and the Asia-Pacific region.
Internal management systems were assessed on a range of indicators identified as the main EMS elements:
  • Environmental policy

  • Identification of significant impacts

  • Setting of objectives and targets in all key areas

  • Documented structure and procedures

  • Audit programme

  • Internal reporting

  • Management review
A company's assessment is dependent on the proportion of the company's operations that are covered. Evidence of these systems (for example documentation and audit results) is required by EIRIS from the company.

EIRIS found that the majority (72.6%) of high-impact companies have implemented an environmental management system of at least a moderate standard. High-impact companies are generally subject to greater regulation than low- or medium-impact companies and greater scrutiny from stakeholders.

In many cases, these companies have had an EMS in place for decades. However, in light of this, it is perhaps surprising and worrying for investors and stakeholders that almost a quarter (22.7%) of high-impact companies have an "inadequate" EMS, as judged by EIRIS.

There are significant international variations in the implementation of both certified and uncertified environmental management systems. The lowest levels are found in Hong Kong, Ireland and Singapore (more than 50% have an inadequate EMS) and the highest in Germany, Finland, France, Greece, Italy, Denmark and Portugal (less than 5% with an inadequate EMS).

Almost 60% of companies (59.8%) have adopted a certified EMS. Again, wide variations can be seen in national adoption rates. Less than 40% of companies in Hong Kong, Australia, Canada and the US have sites certified to ISO 14001. This
contrasts with Japan and Finland where more than 90% of companies have some ISO 14001 or EMAS-certified sites.

Theoretically, a well developed EMS will provide quantitative data on environmental performance to be included in publicly available environmental reports. Indeed, the majority of large-cap companies now report quantitative information on their environmental performance. However, the task of assessing a company's performance is complex, not least because there is no agreed set of environmental performance indicators.

EIRIS measured companies' environmental performance according to five key operational direct impacts, which were weighted for each sector dependent on the negative environmental impact relative to economic contribution. These are:
  • Climate change - emissions of greenhouse gases, carbon dioxide, energy consumption

  • Emissions to air - sulphur dioxide, oxides of nitrogen and volatile organic compounds, or other emissions to air relevant to a company

  • Discharges to water - chemical oxygen demand, heavy metals

  • Waste - amount of waste generated, hazardous waste generated, recycling rate

  • Water consumption - amount of water used
Almost half (48%) of high-impact companies demonstrated some improvement in performance over three years. There is a range of results between countries with over 75% of firms in Switzerland, Italy and Portugal showing some improvement, but less than 25% in Hong Kong, Singapore and Ireland. Once again, it seems these three countries are playing host to the worst corporate environmental offenders.

A correlation between the standard of a company's EMS and its environmental performance is evident - the more advanced the EMS, the better the performance achieved (measured over three years). There is no instance of a company achieving "major improvement" in performance without having implemented an EMS.
However, EIRIS found that a good EMS is not a cast-iron guarantee of improvements in actual environmental performance. An EMS requires companies to identify their environmental impacts and to set targets to try to reduce those impacts, but this does not necessarily mean a company will achieve those targets or require that the targets be challenging.

Continual improvement is a requirement of both ISO 14001 and EMAS standards, although the improvements that take place may be open to interpretation. This may include improvement in performance such as a reduction in air emissions or an improvement in the EMS, such as improved monitoring and auditing.

Investigating this link is also the aim of REMAS, a three-year, EU-funded project designed to examine environmental management systems currently in place in business and industry throughout the European Union. The project aims to demonstrate that companies and organisations that implement an EMS show better environmental performance overall.

A report based on analysis of an initial sample of data from the UK showed strong evidence that an accredited EMS leads to an overall improvement in operator performance - as measured by management indicators such as commitment to training, and operational and risk management - with EMAS having a greater beneficial impact than ISO 14001.

However, the evidence that an EMS leads to improved process efficiency - as measured by environmental impact indicators such as compliance, process efficiency and releases - is not very strong.

The initial findings of REMAS would appear to confirm the findings of the EIRIS report.
The correlation between a well developed EMS and improved environmental performance suggests that adoption of an EMS could reduce the overall environmental impact of companies in those cases where no EMS is yet in place. However, efforts are required to encourage greater disclosure and reporting of companies' environmental management systems and quantitative performance data to promote greater transparency regarding their environmental impact and to monitor the effectiveness of reporting as a spur towards improved environmental performance.

An adequate EMS is a necessary step that companies must take in improving their environmental impact, but it does not necessarily guarantee significant environmental improvement. For that, investors and other stakeholders need to look beyond words and policies to a company's actions.

A total of 823 of the 1,966 companies on the FTSE All-World Developed index were judged to be of high environmental impact. The constituents of the index are drawn from the leading companies in the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, UK, and the US.
· Scott McAusland is from Ethical Investment Research Services Ltd
· This article is based on a report by Stephanie Maier and Kelly Vanstone. For a copy visit www.eiris.org or call 020 7840 5703

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