Under pressure

Twelve months ago, ERM's Alistair Fulton wrote for Environment Business on the environmental challenges facing the new EU Members States. This month we asked him how things have progressed

All ten states that joined the European Union iMay 2004 face a range of environmental issues and challenges, from the legacy of industrial activities behind the Iron Curtain to threatened wetlands in Slovenia.
Deals have been struck on how to bring levels of
environmental protection up to the standards of existing EU states. Vast tranches of investment was allocated, although there have been complaints that implementation has been patchy and that accessing funds is difficult.

Implementing legislation

The cost of implementing EU environmental legislation in the ten new Member States, plus Romania and Bulgaria, has been estimated at e80-110 billion over a 15-year period. Under the current budget period, from 2000 to 2006, more than e8 billion has been allocated through pre-accession funds, and now the Structural and Cohesion Funds.
This means there will be a great deal of business created, whether it’s in environmental consultancy or through physical infrastructure creation. However, UK and other European businesses either acquiring companies in Eastern Europe or opening manufacturing or other facilities are facing problems.
Accustomed to Environment Agency-style regulation and pressures to put environmental management systems in place and continuously improve performance, businesses are finding low or no standards and governments which are only now beginning to pressure business to up its game.
Environmental legislation has been hurriedly put into place, and is part way through the bedding down process. But skills and knowledge are understandably low, be it within both central and local government or local management and other employees. Infrastructure, be it for solid waste disposal and recycling or discharge of wastewater, is creaky – Latvia needs to invest more than €500 million on wastewater treatment by 2015 – and businesses will find themselves running foul of their own environmental policies due to circumstances outside of a company’s control, which can open a business up to unwelcome NGO attention.
“One of the worst things that might happen is that a big investor finds they end up contravening their own in-house principles, which is clearly a big reputational issue,” says ERM s Alistair Fulton.

Stakeholder communication

However, he says dialogue with environmental ministries and governments overall is not as fraught as some might think, despite problems at local level. “Even for some of the less developed economies like the Slovak Republic, the environment ministries have been a big part of getting companies to invest, so communication is quite good.”
Fulton says stakeholder engagement has also been effectively implemented by British companies in Eastern Europe. “One area where a lot of companies are very active is in community engagement on environmental performance and social issues,” he says. “Although businesses are sometimes surprised to find when they invest in a plant, they pretty much get the village or town that goes along with it.”
There are cultural differences – the legacy of the Soviet era – which can create difficulties. “ERM is working for a company in the Czech Republic that is making a lot of effort to communicate closely with the local community to reassure people they will operate to the highest standard,” Fulton says. “This is very important because state-owned industry in the communist era were quite secretive, and there was no requirement for them to engage with the community – it’s much more open now. And while the communities are very much in favour, some of the regulators and enforcement bodies need to adjust to a new way of relating to the public.”
This lack of transparency can also extend to records of activities that have taken place on industrial sites, making identification of pollution issues difficult. “It’s certainly the case that for some sites there are very poor records of what the site has been used for and what the potential environmental liabilities are. In some cases, particularly where sites were state-owned, records have disappeared altogether.”
This can create difficulties, although UK companies have been careful to investigate environmental liabilities and pollution abatement and the state of waste treatment equipment prior to making investment decisions. “Most companies do at least a bit of homework and know that technology is going to need to be upgraded or replaced. However, what they tend not to be so aware of is the problems with municipal infrastructure, particularly when it comes to waste management.”

Decontamination issues

Many people have an impression of Eastern Europe as being scarred by decades of heavy industrial activities with scant regard for environmental impacts. However, Fulton says this is a little misleading. “There are some pretty tricky decontamination issues at some sites. And there are some dramatically polluted sites in Eastern Europe, including a number in the new Member States. But when it comes to acquisitions, Western companies have made the state of each site a bargaining chip over price.
Fulton says there have been positive developments in the way companies are doing business. “One thing we’ve seen is that the big players are happily talking to each other about their experiences. Although it’s generally a case of sharing experiences across sectors rather than with competitors, it’s a positive development. And companies are talking about the positive stuff, not just the horror stories.”
Overall, a real commitment to environmental management and corporate social responsibility has been the norm as industry has begun to exploit the opportunities created by the expanded European Union. Fulton says: “The leading players we work with are saying ‘we’re not going to be half-hearted about this. Where we’ve got CSR or environmental management programmes, we’re not going to leave these countries out ‘ our operations in Eastern Europe are going to be fully signed up even though that means investment and training’.”

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