Greener business is better business
The Environment Agency's sixth report on the environmental performance of businesses, Spotlight on business: environmental performance in 2003 is the most rounded to date. This article shows how the agency is examining many more measures of performance, and how large businesses and sectors are taking the environment more seriously than ever before.
We all agree that the environment is important; it is important that we have a good quality of life now and provide an even better life for our children. We all know that an ethical company is one that invests in improving the environment, rather than risking the costs of a prosecution for poor performance. The environment can and will damage your pocket and your reputation if you neglect it.
THE GOOD, THE BAD AND THE UGLY
Big improvements were recorded by some sectors. Pollution incidents caused by industry are down 12% from 694 to 613. The farming industry and waste industry are major contributors to this improvement, and the chemicals and food and drink industries have helped. We measure the performance of operators and 59% scored good A and B grades in 2003, compared to 49% in 2002. The minerals, metals and fuel and power industries did particularly well. We can translate this into pounds – sites that perform better will be charged less for regulation.
Waste and what we do with it is a major issue for the environment. Waste production increased by 7% in 2003, partly because of changing definitions. But more and more is recovered: in 1998, only 29% was put to further use. In 2003, 51% was recovered. The paper and pulp and food and drink industries did particularly well.
But some businesses are failing to address the environment seriously, and small businesses especially need the help we are offering. Some sites performed badly in 2003 and were poorly managed. These sites need to improve but all of us have to recognise our role. At the EA, we are modernising our regulatory approach and working with industry to do this. Businesses need to think about how much fuel, primary raw materials and water they are using, who deals with their waste, and whether they themselves would like to live next to their own plant.
Whilst more operators performed well in 2003, more also were found to be poorly managed; we rated 28 sites the worst possible E grade this year. Many were in sectors we looked at for the first time: eight in textiles and six in paper and pulp. But many poor performers were in sectors that really should know better.
The chemicals, fuel and power, metals and waste industries all scored some E grades. Disappointingly, the water industry caused 23% more serious pollution incidents in 2003 than in 2002. The construction industry is responsible for 3% of all pollution incidents and producing 80 million tonnes of waste per year, a figure which is increasing with redevelopment and regeneration, particularly in the South East, but which could easily be reversed with waste minimisation and readily available clean-up techniques.
TAKING CONTROL OF POLLUTION
Small and medium sized enterprises (SMEs) need to become more environmentally aware – still less than a quarter of SMEs think that their business can cause damage, but they cause up to 80% of all pollution incidents and produce 60% of all commercial and industrial waste. We will be using our risk-based approach to focus more of our regulatory effort on these poor performers.
An increase in greenhouse gases and nitrogen oxides (a cause of air pollution) is of major concern this year. Greenhouse gases, particularly carbon dioxide, from the industrial sources we regulate rose by 5% and nitrogen oxides by 9%. We recognise that much of this is because of everyone’s increased demands for cheap power, which has been met by coal-fired power stations.
To reduce overall carbon dioxide releases, we must all look at our energy efficiency and think about the source of our power. As major fuel users, the fuel and power and chemicals industries have a significant part to play, which will be facilitated by the Emissions Trading Scheme that comes into force next year.
Decoupling – achieving increased output without harming the environment – needs to be at the heart of business, and for many it is. We are pleased to see an overall improvement in environmental performance. Congratulations to those businesses that have contributed to this. We have named a few and appreciate the efforts of the unsung majority.
ARE FINES EFFECTIVE?
Then there are some businesses that behave so badly we need to take them to court. Some offences are so horrendous they attract huge fines. An explosion that exposed a town to a gas used as a First World War weapon and a lorry full of human body parts that dripped blood were among the worst examples of pollution in Britain last year. Two waste management companies – the Cleansing Services Group Ltd (£250,000) and Eurocare Environmental Services Ltd (£100,000) – attracted the biggest fines last year.
Levels of waste offences are still a cause of concern. Some businesses, for example, are deliberately harming the environment to avoid paying waste disposal fees. In 2003, there were over 350 serious environmental incidents caused by individuals or businesses illegally dumping waste, and nearly 200 prosecutions taken for illegal waste activities. Illegal waste management by individuals, criminal gangs and businesses poses a threat to both the environment and human health and will not be tolerated by the EA.
At an average of £8,412, fines against businesses are not large enough to prevent offences and do not begin to reflect the damage done to the environment or match the costs avoided; 11 companies received large fines in both 2002 and 2003. But we are campaigning to change this and we have some powerful allies. No trade association endorses such poor performance, and the Environmental Audit Commission supports our call for stronger penalties. This might mean higher fines or holding corporate individuals personally responsible.
Indeed, the courts do appear to be taking a harder line against those who deliberately ignore risks to the environment and human health, in a fledgling trend of personal liability. White-collar workers – including company directors and sole traders – are finding themselves at increased risk of incurring high personal fines, community punishment orders and even custodial sentences when breaking environmental law.
In 2003, we prosecuted 11 company directors for an average of £5,000 – up by £2,000 on 2002 – and we are pressing for yet higher personal fines or other penalties such as custodial sentences or community punishment orders. Company directors and sole traders who try to increase profits at the expense of the environment should take note that a personal fine or a criminal record could be on the cards.
Fines, however, may not be the whole answer to punishing those companies who break environmental law. The EA is taking a careful look at some interesting schemes in use elsewhere in the world, such as black-listing of companies with poor environmental records when procuring services; imposing suspended penalties which double or treble if the fault is not corrected and the making of restoration orders to put right environmental damage at the expense of the offender. Already, as an agency, we will have taken a decision to use the proxy voting powers of our pension fund investments where we need to.
ARE FINES EFFECTIVE?
Big business can still do more to reduce their impact on the environment; worryingly the annual reports and accounts produced so far from FTSE all-share companies are failing to meet new company reporting requirements. The results of the first study of environmental disclosure within the annual reports and accounts of FTSE all-share companies was published by the EA in mid-July.
The basic findings of the report indicate that the vast majority (89%) of companies discuss some aspect of their interactions with the environment. However, closer examination of these disclosures revealed that the majority lack depth, rigour and quantification, and few could be described as comprehensive or adequate for shareholders to properly assess environmental risks or opportunities.
Only 10% of the FTSE all-share (55 companies) use annual reports and accounts to report on waste, water and energy/climate change, and even less provide quantitative information. This is particularly surprising given the Defra environmental reporting guidelines that recommend that all companies report on these issues as a minimum.
We believe that companies’ interactions with the environment are of significant financial importance and environmental disclosures need to be clear, consistent, comparable and compulsory (as for financial information). Without this, customers, shareholders and potential investors cannot truly assess their environmental and financial results. We commissioned this study to establish current environmental disclosure levels and we intend to repeat the study in 2006.
The Environment Agency has a remit to regulate industry, and we are seeking ways to make this more effective in delivering environmental improvements. By modernising our approach to regulation, developing the right support tools and providing clear and accessible information we aim to help businesses not only comply with environmental legislation but recognise the benefits of greener business. We believe that working with industry towards environmental improvement is the way forward.
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