Business and the Environment

1. Business and the Environment A stock-take: (i) where business is at (ii) What drives business behaviour?

2. Number of Organisations Fast Follower Committed Complier Reluctant complier Polluter Leader

3. The Stages of Environmental Policy 1. Reactive 2. Receptive/Constructive 3. Proactive

4. Win-win or win-lose? • Annual costs of pollution control in USA • -1972, $27 billion • -1990, $90 billion • -2000, $155 billion • Environmental costs amount to approx 2% of GDP

5. The lose-lose perspective • Framed as cost-benefit, zero sum game: “ambitious environmental goals have real economic costs…talk is cheap, environment is not” • Companies should only spend on environment to meet external demands/regs • Reinforces confrontational rather than co-operative approaches

6. The win-win perspective • Needs for environment protection and economic growth can be mutually satisfied: “the costs of environment regulation can be minimised or eliminated, through innovation which delivers other competitive benefits” • Economic gains obtainable through innovation offsets: “emissions are a sign of inefficiency …reducing pollution is often coincident with improving the productivity with which resources are used” (M Porter) • Eg: Balzers Process Systems and use of freon

7. But is win-win overstated? • Win-win opportunities are context specific and limited in number • Some win-wins are long term only • Sometimes there are no win-wins

8. Environment protection and strategic advantage: Examples • Environment Product differentiation: - Patagonia vs Sunkist Dolphin-safe tuna • Raising the Bar for Competitors: Strategic Use of Government Regulation - Du Pont and Chloroflurocarbons • Environmental Pressure as a Source of Cost Reduction - Lodging Companies

9. Why some companies voluntarily invest in environment protection • provide them with a competitive advantage - pollution prevention, • material and energy efficiency initiatives • the development of clean technology, and • product stewardship • Risk Management (eg Brent Spar) • Reputation gains • Ethical/moral considerations

10. Drivers of Business Environmental Strategy Regulation International Treaties Buyers and Suppliers Insurance Companies Banks Shareholders Consumers Trade Associations

11. Social Drivers: NGOs • The Brent Spar, MacMillan Bloedel • NGOs exert influence by diversity of methods and channels -scientific research, public protests, corporate alliances, press coverage, public opinion -engage with science, policy, law and economics • Cooperative or confrontational • Particular impact of ‘environmental scorecards’ • ‘from Washington to Wall Street’: influencing corporate behaviour • Pervasive effect in changing societal norms and beliefs

12. The community • Community action can be a powerful driver of both government and corporate action • Love Canal and its successors • Importance for siting and operations • The environmental justice movement, NIMBY and LULU

20. Environmental Regulation

21. Regulating Large Point Sources • Context Matters (compare large companies, SMEs, point and non-point pollution) • Motivation Matters: Regulating Leaders and Laggards Options re Large Enterprises • Sophisticated risk management strategies • Deep pockets • Reputation sensitive and highly visible • Capacity for self-management

22. Regulatory Goals • Drag industry laggards up to level of minimum compliance • Reward, encourage, facilitate ‘beyond compliance’ behaviour by industry leaders

23. Licensing: • Outcome based annual load limits (LBL) • Whole of premise allows internal trading • “Polluter-pays” incentives + discounts • Establishes load calculation and reporting which will allow wider use of emission trading schemes

24. Facilitative Regulation • Environmental Improvement Plans • Neighbourhood Environmental Improvement Plans • Sustainability Covenants

25. The Challenge of SMEs • Lack of resources • lack of awareness and expertise • lack of receptivity to environment issues • sheer numbers of such enterprises • limited inspection resources makes conventional enforcement impractical

26. Self-audit and self-management • Agency requests the firm to conduct and return self-assessment check lists • threats to inspect combined with self-audit program as alternative to inspection achieved far higher response rate • key is maintaining a credible threat of enforcement (spot checks, and occasional inspections, blitz and bluff)

27. Thinking Laterally • Buyer Supplier Relationships -Powerful source of leverage over SMEs • The Role of Surrogate Regulators:- Vehicle Repair Workshops

28. Regulating Diffuse Source Pollution • Farm management practices ( eg environmental farm plans, BMPs, EMS, Codes of Practice) • Landscape changes (fencing, buffer strips, re-vegetation, riparian zones a, contour landscaping, soil modification etc) • Land Use Changes (planning law etc)

29. Which compliance mechanism? • Voluntarism • Positive incentives- financial subsidy, NHT cost sharing programs, or auctioned grants • Negative incentives (eg cross-compliance) • Mandatory changes (eg buffer zones)

30. A phased approach? • The need for trade offs: effectiveness, efficiency, equity and political acceptability • Phase 1: positive incentives (process standards, landscape changes) and planning controls • Phase 2: negative incentives and regulation - environmental general duty to the land, • enforced through mandatory self-auditing and random third party audits); • mandatory specification standards (eg buffer zones); • levy or sliding charge re adoption of env farm plan

31. The ‘license model’ • Views businesses as constrained by a multi-faceted ‘license to operate’ • Corporate behaviour explained by interactions between regulatory, social and economic licenses - Efficiency and effectiveness of technology based command and control • The importance of Social License: underpinned by Informational regulation, and empowering NGOs and communities • Management style as the perceptual filter through which management interprets its license conditions

32. EXTERNAL FACTORS INTERNAL FACTORS History Culture Personnel etc. Social License Legal License Economic Licence Environmental Management Style Environmental Performance