The interrelationship between the economy and the environment is central in understanding the underlying reasons why environmental management by organisations is essential.
It is widely recognised that the environment is the source of supply for raw materials that are subsequently processed into the finished product at the end of the supply chain. Over-extraction of raw materials and the subsequent disposal of finished goods into the environment contribute to significant environmental degradation. Environmental degradation may therefore impose economic costs which may eventually result in output losses.
Sacrificing the environment for economic development may hence have an adverse impact on the quality of life for both present and future generations. In view of this, there is an intensifying need for sustainable business practices in order to significantly reduce the adverse environmental impacts of economic growth.
Environmental management is not simply identifying an organisation’s environmental impacts in an environmental review, but a process of implementing the appropriate policies and tools with the aim of minimising and mitigating these impacts through continuous improvement.
Following an initial environmental review, an organisation may opt to adopt an environmental policy to establish the organisation’s overall aims and goals. With a policy in place, an organisation could adopt a more robust plan of action – an environmental management system (EMS). This is a more structured framework for organisations to manage significant environmental impacts with a view of enhancing operating efficiencies.
Why does environmental management make good business sense? There are a number of benefits for businesses. Environmental management can lead to financial savings in three ways.
First, it can lead to significant cost savings in the form of process efficiencies, emanating from reduced resource costs and waste minimisation. Therefore, through effective environmental management, an organisation is able to reduce the potential inputs and hence reduce its operational costs.
Several companies which adopted a form of environmental management have been able to save costs through a reduction in their energy and water usage. A 2012 study by Defra in the UK highlights that SMEs which implemented an EMS delivered an annual average saving of £4,875 per £1m turnover over two years.
Sound environmental management helps reduce the organisation’s environmental risks
Secondly, it is also known to have a positive effect on employee productivity. This is substantiated in a study by Delmas and Pekovic (2013) which show that French organisations that implemented an EMS experienced productivity increases in the region of 16 per cent. This productivity increase was driven by enhanced levels of employee engagement and commitment as a result of the increased training and connections across the organisation.
Thirdly, environmental management can also attract green consumers and therefore increase revenues. I believe that the idea of green consumerism is slowly also working its way into the Maltese market through increased education and public campaigns. Nowadays consumers may not solely be attracted by good quality products but may also be inclined to pay a premium for sustainable products.
More importantly, sound environmental performance is beneficial to an organisation’s public image which ultimately enhances its market position and community relations. This in turn could lead to further opportunities in the market place through increases in sales and market share.
Proactive environmental management allows an organisation to mitigate the risk of unattended and future stricter legal obligations. This is particularly critical in light of recent developments at an EU level.
Specifically, Directive 2014/95/EU on the disclosure of non-financial and diversity information by large undertakings needs to be transposed into local legislation by December 2016.
Among its multiple objectives, the directive aims to enhance ‘the transparency of certain companies and increase the relevance, consistency and comparability of non-financial information’, including reporting on environmental matters. For this reason, proactive environmental management ensures legislative compliance in terms of this new amendment.
Furthermore, sound environmental management helps reduce the organisation’s environmental risks. Such risks could relate to the occurrence of events that could have an adverse environmental impact such as chemical spills and leakages in the case of manufacturing companies.
Banks and insurance companies tend to base their financial assessments on the level of risk that an organisation is exposed to.
Likewise, investors may prefer to invest in sustainable organisations that practise sound environmental management and are compliant with the applicable legislation.
However, even organisations which are not immediately impacted by the recent legislative developments should not remain complacent but avail themselves of the opportunities presented through sustainable management practices. This ensures that organisations can increase their competitive advantage together with the added benefit of cost savings over the long run.
Miriam Camilleri is an adviser at KPMG specialising in climate change and sustainability services.