EXPANDING Environmental Risk Management

Article excerpt

DuPont has reduced toxic releases 74 percent since 1987, halved its landfill waste, and cut its $1 billion per year waste treatment bill by $200 million. 3M's Pollution Prevention Pays program, one of the first corporate-wide efforts to avoid waste from the start--rather than clean it up later--has eliminated more than 1.5 billion pounds of air, land and water pollution, for a total cost savings of $790 million. Are the DuPont and 3M programs risk management initiatives or more general environmental management strategies? Actually, both.

Environmental risks were virtually ignored by business, government and society until the 1970s. At that time a regulatory approach to managing environmental risks was set in motion with the passage of various legislation, including the Clean Water and Air Acts, RCRA and CERCLA (Superfund). While necessary to protect the environment, regulations were often resisted by business and considered unnecessary and excessive.

More recently, an entirely different approach to dealing with environmental conditions has been evolving, namely the development of environmental management as an integral part of overall business strategy. Sustainable development and environment-friendly systems and products are emphasized, in proactive, rather than reactive, ways--with a positive, rather than negative, orientation. Environmental management systems are seen as adding value, creating a competitive advantage, improving community image, reducing costs and enhancing the bottom line.

And they often have a significant risk management element. While the DuPont and 3M programs are clearly environment-friendly, they also result in reduced risks and potential liabilities for these organizations.

Risk managers can and should be a part of developing and operating environmental management systems. While risk managers are currently involved in environmental issues, substantial opportunities exist to expand this participation. Finally, as will be argued below, risk management training and techniques are well suited to contribute to developing effective environmental management systems.

Environmental Programs

Environmental management programs and organizations have been developing at a rapid pace, especially recently. Most are private sector-based and voluntary. Many incorporate the concept of sustainable development. And some of these programs are seen as complementing, and in some cases replacing, environmental regulations.

ISO 14000, issued by the Geneva-based International Organization for Standardization, is a series of management system standards, covering such areas as process documentation, training, life-cycle assessment procedures and management reporting, and accountability for environmental performance. Section 14001 creates the specific standards for environmental management systems. ISO 14000/14001 certification is particularly important in Europe and Japan, where it is often a requirement for business transactions.

Coalition for Environmentally Responsible Companies is a nonprofit organization, established in the United States in 1989, that sets forth ten environmental principles for member organizations. Some of these have direct application to risk management, including: reduction and disposal of wastes, risk reduction, and safe products and services. Members include General Motors, Sun Company, Bethlehem Steel, Polaroid, BankAmerica, Coca-Cola and The Body Shop.

The Responsible Care Program, established in 1988 by the Chemical Manufacturers Association, is one of the best examples of an industry-specific program, setting benchmarks for environmental performance. Willis Corroon set up a program in conjunction with the Responsible Care Program, whereby participating firms can receive up to a 30 percent reduction in EIL premiums through a premium modification factor process. The American Petroleum Institute set up a similar program in 1990 called Strategies for Today's Environmental Partnership. …