Image Incentives for Environmental Management Essay

Investors are most perceptibly impressed by environmental management. A company that demonstrates sound and sustainable practices with respect to the environment wins the trust of fund managers who adopt risk management strategies for the long-term safety of capital. A business or even an arm of government that has large ‘eyesores’ in terms of waste, extravagant consumption and deleterious side-effects from use of its products and services, will find it impossible to attract fresh investment, or even to retain its equity, unless it is able to demonstrate clear ability to contain all the undesirable effects of its operations. Organizations with transparent environmental management systems will emerge as preferred destinations for public and private investment. Major accidents can threaten the continuance of both industry and government. The impacts of the Bhopal disaster on Union Carbide’s pesticide operations, and that of the atomic power plant accident in Chernobyl, are striking examples of how a sudden disaster can be the reason for an indefinite cessation of all activities for a running organization. Formal environmental management systems help to reduce probabilities of adverse incidents, to cope with the immediate effects of disasters, and for image recovery in the aftermath of such major incidents. The EMS has therefore image implications for organizations, apart from the actual aid that it would render internally. Industries with negative images in the public mind need independent certification of their environmental management systems more than others. The label of ISO can enable such enterprises prolong their market operations. Some communities may ask polluting and hazardous businesses to move away from them. Local governments do routinely place severe restrictions on chemical application-some cities in North America have even banned their use altogether. Such developments point towards the eventual demise of entire sectors of industry. Companies and organizations with long term stakes in such enterprises, can rescue their investments by adopting comprehensive environmental management standards. There are a large number of enterprises and organizations with products, services and activities that have no obvious effects on the environment. Even they may on life cycle analysis, find areas where they can contribute to conservation of key earth resources. Life saving health care services generates large quantities of infectious wastes. Electronic goods including computers contain plastics and heavy metals, the disposal of which threatens our future, in a field with such rapid obsolescence. Many consumer goods compete on the basis of elaborate and attractive packaging, which tends to be paper based, and therefore very demanding of vegetative cover. Bureaucracies, especially the armed forces, may run on enormous quantities of energy without consummate and durable benefits. Companies in ‘non-polluting’ fields of endeavor can achieve new breakthroughs by displaying foresight in environmental conservation terms. Environmental concerns are most attractive for the young. This may be because of the long-term perspectives in which related concerns lie. Companies that design and make products and services for the young, can often find environmental concerns to make special business sense. Many social organizations have large numbers of young people amongst their ranks of activists and followers, because they lay so much importance by the environment and its conservation. Any business or group activity that seeks the support and endorsement of the young must have defendable records of environmental management. Toyota leads automobile manufacturers which use achievements in energy and waste reductions, to reach out to the young and to increase their market shares of this demographic segment. Formal environmental management systems involve elaborate procedures. They use the best team building practices. Environmental management methods use some of the top business management resources. The technology encompasses all aspect of business and operations; it provides platforms for individual and group excellence. Firms and organizations with elaborate environmental management systems in place can attract and retain the best professional talent, because of the challenge and opportunity it presents. Conversely, companies and organizations with poor records of environmental conservation will find it increasingly difficult to build adequate human resources of the right quality. The reasons and benefits of certified environmental management are not confined to the ‘soft’ reasons of image and goodwill: there are concrete business advantages as well. Companies and service organizations that supply goods and services to downstream industries, can access additional markets by adopting environmental management systems. The latter have ‘domino’ effects and all those who adopt formal systems for environment care are generally obliged to make their suppliers conform as well. Vendors who opt to ignore environmental management systems, or who consider the costs to be too high, will find themselves isolated and excluded from increasing sections of their potential markets. Tenders for major construction and service projects may stipulate environmental requirements. Bids can be lost because potential winners for such contracts do not have the experience and resources to comply with tender conditions. Some bidders, who are not the lowest on price, may present environmental advantages and add-on services to support their bids. We may see more examples of this trend, especially when public funds are at stake. It is unlikely that any major tenders can exclude conditions related to environmental concerns. We know that investors value stocks more on the bases of their perceptions and sentiments, rather than by the cold facts and figures of financial statements and checks of dividend. Image plays a major role in building long term value for companies, especially leaders in mature markets. There is a recent trend towards Corporate Social Responsibility (CSR), which instigates firms to stray beyond the strict limits of their original purposes. CSR has little meaning for firms without EMSs. One can never tell when an acute and major adverse event may expose an errant company, but the erosion of credibility of all firms with pernicious abuse of the environment, is also certain. There are strong compulsions for companies to develop and to protect their images in the public eye through the shield of ISO 14001. ISO 14000 and Global Trends The Internet and the World Trade Organization have combined to give all businesses global potential. This is a double-edged sword, as the benefits come with certain tags. One of the important implications of globalization is the need to display effective commitment to environmental conservation. The latter is a prime concern of recent origin that permeates key markets everywhere (Hanson, A. J. not dated). The United Nations Commission on Environment and Development, also known as the Brundtland Commission, published in 1987, gives concrete credence for the inevitability of environmental concerns for all international transactions. The cause of sustainable development is well served by the ISO 14000 series. Business houses and social organizations are bound by some international treaties related to environmental protection. The Montreal Protocol of 1987 on ozone depletion, the Basel Convention of 1989 on the transport of hazardous wastes, the 1992 Framework Convention on Climate Change and the 1992 Convention on Biological Diversity, are the key ones. These international agreements act as competitive advantages for companies that can meet the technological challenges implied; companies that ignore international trends in environmental concerns, on the other hand, are doomed to exclusion from emerging frontiers of global business. The Agreement on Technical business to Trade (TBT) and the Code of Good Practice are strong albeit indirect influences by the World Trade Organization to impose environmental management on a trans-national basis. Imports in to a member country may be restricted by technical regulations and product standards. The latter can have strong environment norms, as for example in terms of air emissions. Product labeling requirements may also act as barriers for companies to export their goods, if they do not have a comprehensive environmental management system such as ISO 14001 in place. Since ecological labeling is based on life cycle analysis, international trade can dig deep in to production and purchase systems as a barrier to entry for companies that do not follow or use ISO 14001. The Strategic Advisory Group on the Environment (SAGE) has led the ISO to establish the following standards, each of which has severe impact on companies involved in international trade: Environmental Management Systems (EMS) Environmental Auditing (EA) Environmental Performance Evaluation (EPE) Life Cycle Analysis (LCA) Environmental Labeling (EL) Terms and Definitions (T&D) Environmental Aspects of Product Standards (EAPS). TC 207 has the international authority to set standards for environmental management systems. It has established a network of organized committees in many countries of the first world that give strong body and substance to the strict observance of environmental management standards by all companies engaged in global trade. TC 207 gives an undeniable message to global corporations to use systems such as ISO 14001. Environmental concerns have reached consumer groups, and they add great force to regulatory pressures on global companies to use the ISO 14000 series to respond to changing trends in customer demands. Companies that lack the abilities and the inclination to conserve the environment, face gradual extinction as they stand to lose custom. The net effect of these treaties and regulations is that business will get confined in stages to small pockets of the third world where international obligations do not apply, and where consumer awareness is low. Even these pockets will shrink to infinitesimal proportions with the passage of time. The future lies in business that meets global standards, and environmental management systems are an integral part of such standards. ISO 14001 is a structured way for all companies to strengthen their bases for the world-wide markets of the future. ISO 14001 and Profits Many business leaders will not invest the time and money required to obtain ISO 14001 registration, and to maintain it, for image reasons alone. However, they can be persuaded by arguments related to direct effects on the bottom line. ISO 14001 helps profitability in a number of ways (Case Studies 2002). Companies which have implemented ISO 14001 have the following experiences: 1. ISO 14001 makes the implementation of other standards in the ISO 14000 series easier. A company which invests in ISO 14001 can earn multiple returns by qualifying quickly and at low cost, for other certifications in the series. The profit implications of this competence will become an increasing lever of competitive advantage as countries and trading blocks insist on the consumer benefits that the ISO 14000 series offers. 2. Material and energy costs can be significant in total product costs. Much of the ISO 14001 process deals with reducing the amount of materials and energies needed to make each unit of a brand. This leads to direct cost savings. ISO 14001 also reduces the total cost of production by reducing waste management expenses. 3. ISO 14001 reduces the chances that a company may have to pay out large and unexpected amounts to help communities recover from pollution arising out of production and use of products. ISO 14001 protects operating profits from erosion due to recovery from pollution. 4. Recycling of waste is an important ISO 14001 priority. Parts recovered from a recycling process can act as raw materials for a new or a different production process, sometimes by a new entity at some other location. Regardless of the structure of a recycling process, there are always significant revenue potentials in the system. 5. ISO 14001 contributes positively to employee health and safety. It reduces employee-related costs in this manner, and improves productivity. ISO 14001 companies can expect better contributions from their human resources. 6. Insurance companies can be persuaded to reduce their charges as ISO 14001 improves risk management. The chances of adverse events reduce with ISO 14001 processes, and thereby reduce insurance costs. 7. ISO 14001 has international relevance. Companies that operate globally can avoid duplicating the costs of meeting local standards by seeking the universal nature of ISO 14001 certification. 8. Company valuation appreciates after an ISO 14001 certification, especially for relatively risky areas of business. Investors feel more assured about investing in stocks of companies that are able to manage their inherent risks in the transparent and professional ways of ISO 14001. 9. Companies can market their ISO 14001 certifications to gain market share. Customers may switch over to support companies who are able to inform them about the environmental benefits of the registration. ISO 14001 is a flexible system that adapts to the priorities of organizations that strive for its certification. It yields margin improvement through productivity achievements. It also protects future profits by contributing to the risk management capabilities of registered organizations. It can reduce insurance costs by managing product liabilities and reducing the probabilities of accidents, claims and other adverse incidents. Companies that use ISO 14001 experience profit growth and more assured future prospects as well.