Environmental awareness is no longer just a `good thing' for business. It must be translated into positive action, and that requires Government to take the lead by establishing a framework of regulations, taxes and incentives. By Will Hutton
Real men don't eat quiche; and real businessmen leave the environment to greens, do-gooders and pinkos. In the tough world of attending to the bottom line it is only people like Prince Charles, who spends his time talking to plants, who can afford to care about global warming and biodiversity. Business and the environment don't mix.
That view, only slightly overstated, is gravely mistaken. Certainly Shell, bruised after a million-pound fine for a pipe that leaked oil into the Mersey, doesn't take that line; nor does the chemical group, Allied Colloids, which received a hefty fine when its chemical storage warehouse caught fire. Businesses today face a skein of ever tougher national and international regulation, public concern and rising environmental costs that makes indifference increasingly costly. Interdependence between the environment and the bottom line is growing.
Allied Colloids' fire in July 1992 caused £6 million of damage. Firefighting water from the 36 fire engines in attendance streamed, contaminated with chemicals, into the nearby River Calder. Thirty-four people received medical attention; and the ecology of the river was grievously harmed. Fifteen years ago there may have been a sense of regret, but little more. After all, nobody sets out to have expensive accidents. After a clutch of insurance claims, the company would have improved its internal systems to avoid a similar disaster but would have remained the principal judge of the appropriate response. No longer. The price-tag for damage aside, Allied Colloids had to pay fines and legal costs of more than £100,000 after prosecution by the National Rivers Authority and the Health and Safety Executive. The authorities found evidence of serious malpractice in its storage procedures; moreover, the company's dam had dried up, making firefighting difficult. It was in serious `breach of duty'. Nowadays Friends of the Earth and similar groups are prepared to use the burgeoning environmental legislation to enforce the new regulations.
Hickson & Welch's chairman, Sir Gordon Jones, can testify to that. The company's Castleford chemical plant was found to be discharging pollution, prompting Friends of the Earth to threaten him personally with prosecution which, if successful, will lead to criminal conviction and up to two years' imprisonment. The new environmental regime is forcing diversion of management time and effort previously unheard of.
There are some who would argue that the chemicals and oil industries are special cases (the risk of noxious emissions and pollution is ever-present) and so to generalise from these particulars is inadmissable. But this again is to miss the point. The `hysterical' predictions of shroud-waving, green campaigners of the 1980s that industrial progress would soon be blocked by a crisis of sustainability were easy to dismiss by those fond of more level-headed assessment. But the gist of the message can no longer be ignored. The environmental crisis is upon us here and now - and it is already impingeing on business decision-making across a swathe of industries.
No car manufacturer, for example, can be unaware that western industrialised societies are reaching saturation point with the motor car; no food retailer can ignore that it is getting harder and harder to build out-of-town superstores; no airline can be deaf to the growing opposition to airports and jet noise; and no bank can lend confidently to customers who now face new, unlimited environmental liabilities. The business choice is not whether to respond to these problems but how to do so. Yet, as the leading UK environmental activist, Jonathon Porritt, argues, business still suffers from the idea that the environment is a ` good thing'. `It hangs in the air like a dispossessed fairy,' he says. `We need to drag it down to the ground and really deal with what it means.' Too many businesses care too little; others may be well-intentioned but with little sense of urgency. What is required, says Porritt, is a toughening up of their approach so that environmental audits, targets and cost/benefit analyses are incorporated into internal systems of measurement and performance evaluation.
Porritt has been a prime mover in establishing the Business and the Environment Programme. Sponsored by the Prince of Wales and organised by Cambridge University's Programme for Industry, this initiative aims to establish a network of environmental `champions' in British industry as a means of dragging the good environmental fairy to the ground and translating business concern into positive action. Thirty-five senior executives representing a cross-section of British in dustry - from BP to Holiday 28e Inns - gathered last September at Madingley Hall, just outside Cambridge, in the first of the programme's seminars to thrash out the nature of the challenge and what they as executives and individuals could and should do. It was a fascinating exercise in discovery during which the 35 travelled from intelligent scepticism to pragmatic belief.
By the end of the four-and-a-half days all had more or less signed up to the goal of sustainable development - meeting the needs of the present without compromising the ability of future generations to meet theirs. Business could, should and would do more where it could find opportunities but - echoing the Prince's own complaint - it could only go so far. To go beyond that would require government to put in place a radical framework of regulation, taxes and incentives. Failing that - how much can business do on its own? What incentive, pondered the executives, exists for business to do it on its own? All week they wrestled with the argument made by Stephan Schmidheiny of the Business Council for Sustainable Development that sustainable business development is good business. The environment is part of the overall context in which business succeeds or fails - and to be environmentally aware is a classic case of the win/win business strategy.
On the plus side a small but growing list of companies is translating that theory into practice by actively and profitably experimenting with environmental priorities. British Airways, for example, has for some years taken the environment seriously - developing environmental performance indicators, measuring them and setting new targets for improvement. Hugh Somerville, head of the environmental unit, reports to chairman Sir Colin Marshall at four or five regular meetings every year; and the company has established its own network of 300 environmental champions, spread throughout the 40,000-strong group. The idea is that the company needs some means of both disseminating advice and collecting information about stress points and possible savings.
As Somerville readily acknowledges, the focus is on saving expenditure - as BA's in-house composite index on environmental protection highlights with indicators ranging from the amount of fuel jettisoned in-flight to reducing taxi times and ground delays. Here the win/win nature of the operation is clearest: less fuel jettisoned is fuel saved - savings that come straight through to the bottom line. To do that you have to work towards an organisational culture that stresses the environment; and that is what BA is attempting. Somerville lapses into business-school jargon, saying that it is all part of a drive to `continuous improvement and total quality' - but despite the cliche there is truth in the statement. An environmentally conscious organisation is also likely to stress quality and improvement - and that is the business prize.
But BA also underlines that investment to exploit actual perceived environmental rewards or action to limit actual waste is much easier to justify than chasing the more will-o'-the-wisp notion of the environmentally sustainable company. Limiting noise charges and cutting back on the amount of fuel jettisoned are sound ways of running an airline in their own right. It is also obvious that the pressure to produce quieter jets is going to grow; BA cannot be indifferent to the noise of its new proposed super jumbos (carrying 600-800 passengers) if it wants to run a whole fleet of them - and nor is it. BA's actions make sense because of the wider public's growing environmental awareness, the actual environmental costs and rewards from investment projects and the knowledge that environmental regulation will grow. And there is a growing body of regulation, national, European and global which, - though each individual element is small - is beginning to reach a critical mass and tie business into a more environmentally sensitive framework. The search for win/win solutions is being reinforced by the knowledge that regulation compels a more urgent response.
In Britain the 1990 Environmental Protection Act represents the toughest attempt so far to establish a British regulatory framework focusing on the air and waste. Businesses have to apply for licences for polluting processes from the appropriate government agency - soon to be the new Environment Agency, bringing together the National Rivers Authority, the waste inspectorate and the pollution inspectorate - and the details are held on public record in every local authority in the country. Concerned individuals can find out whether a local company is complying with the regulations, ask the local authority to prosecute and, failing local initiative, insist on action from the appropriate inspectorate. Sir David Trippier was the environment minister who piloted the Act on to the statute book, and he is clear about the intent: it was to create an empowered green citizenry. Penalties stretch from fines to criminal prosecution.
For industrial waste the aim was equally clear: to establish a best-practice, self-policing system of waste management. Even an ancient waste tip that leaches noxious substances is the responsibility of the current owner and with a greatly enlarged inspectorate here again the regime imposes a new set of risks and penalties. Under Section 34 of the Act, waste producers are now under a `duty of care' to handle and dispose of waste safely - and infringements are liable to unlimited fines. Trippier feels that the attack on waste has been the more successful aspect of the Act - on air pollution it has proved less effective than he hoped. There needs to be a high-profile prosecution of an offending company, he believes, if industry is to take the Act seriously - and he criticises many local authorities for inaction.
Porritt is particularly scornful of the new Environment Agency. Its structure is deeply disappointing, he says. Its statutory duties are weaker than the current regulatory system, and it will only be obliged to `take the environment into account' in its judgments. But he, like Trippier, nonetheless believes that its impact will build up over time. Swingeing fines, a larger and more effective inspectorate and power vested in individuals is a powerful combination for action.
But this is only the beginning. A little noted by-product of the Maastricht Treaty on European Economic and Political Union is that for the first time it obliges the member states to work for a sustainable future - the first political constitution anywhere that makes such an explicit reference to the environment. The European Commission and Parliament are thus legally compelled to advance the environmental cause. Already we are into the second year of the fifth environmental action programme (1993-7) with a series of directives - on packaging waste, targets for waste reduction and landfill - already in the pipeline. The most contentious aspect of the programme is its call for the expansion of liabilities for environmental damage. Dr Ludwig Kramer, the EU official who will draft the new environmental directives, believes the Commission is set to abandon the principle of no-fault and establish that of strict liability. In other words, if, for example, you owned polluted land, you would be expected to clear it up whether or not you had caused the pollution: you could not claim it was `no fault' of yours.
This marks a major lurch towards US practice, where Superfund legislation has held polluters strictly liable for pollution that occurred in the past even if the activities that caused it were accepted practice at the time. Suddenly insurance companies have found themselves liable for large and increasing claims and US lenders are finding themselves liable for land held as collateral. As Derek Wanless, chief executive of the National Westminster bank, told the programme in Cambridge, an EU Civil Liability Directive along Superfund lines could lead to `fundamental changes to the financing process, and the ability of some businesses to raise capital/funding will reduce'.
The tougher legislative trend is gathering momentum worldwide. The 1992 Rio Summit was rightly regarded as a grandiose talking shop, but the two legally binding conventions that resulted - on climate change and bio-diversity - were not complete hot air. Keeping emissions of the greenhouse gases that provoke global warming to 1990 levels by the year 2000 will demand significant changes; and as a signatory to the biodiversity convention, Britain is now legally committed to preserving its biological resources and to policing the environmentally damaging activities of its business sector. Add the Montreal accords (1987 and 1990), aimed at limiting the emissions of CFCs which are changing world climatic conditions, and you have the first outlines of a global framework of regulation. The accords may be weak but the trend is clear. Regulation can only get tougher - and as business will be compelled to make the commitment anyway, it is better to avoid prosecution and the coming legislation by acting pre-emptively.
The hard facts, however, are that any form of environmental investment costs money - and British companies operate in a financial system biased against long-term investment. Investment projects have to get past both company boards and a stock market which is hungry for ever-rising dividends and high, immediate earnings growth. If there are tangible and realisable savings then the exercise is easier, but to go beyond that and invest for a sustainable future is an act of business heroism. If there are impending ecological taxes that will raise the price of resources to their full cost, taking into account their environmental impact, then the investment can be justified. Equally, if all stakeholders in the company - most importantly the shareholders - support the case, then the task is easier. But in the current context, all that businesses can do is to raise the salience of the issue and go for win/win investment when they identify it.
It is thus increasingly obvious, not only to green activists but businesses at the environmental sharp end, that the only way to make substantive progress is for the government to give a lead. The intervention may be market-based - like the US system of setting a quota for carbon emissions but allowing power stations to buy and sell the permits - but intervention must take place. Only then will there be discernible costs to justify environmental investment. But in this area the Government is weak even within its own minimalist terms. It was British opposition that wrecked the plans for a Europe-wide carbon tax to check the growth of carbon emissions, and there is scarcely a Europe-wide initiative that Britain has not resisted. At home it will not even follow the US by experimenting with market-based systems for encouraging pollution control. It is even weak in insisting on compliance with its own Environmental Protection Act - it is Friends of the Earth that uses the legislation, not the Government.
Yet given the gathering momentum of European and global regulation, the Government's capacity to procrastinate and protect British business from the full blast of environmental questions is limited. Nor, given the scale of problems ranging from traffic congestion to global warming, is it wise. The more reliable indicator of business concern is that some of the best British companies are launching initiatives of their own. There is a trend towards environmental audits and reports. Thorn-EMI, for example, now publishes an environmental report setting out its commitments and targets and the degree to which they have been met - as we have seen does British Airways. Both are impressive documents and are streets ahead of what most companies are doing or dare to do. But that only underlines the scale of the transformation needed to rebase the economy so that it is sustainable.
To bring more firms into the environmentally conscious fold will require, argues Porritt, nothing less than a transformation of the entire economic and social system: a move from the notion of the company as driven solely by concern for its shareholders to a much wider definition of the stakeholder company with obligations to the environment ranking alongside those to its shareholders, customers, suppliers and employees. Government, too, will have to be much more open and ready for dialogue; its assessment of scientific risk cannot take place behind closed doors and be imposed by ministerial fiat.
The prize, though, is great. Sustainability benefits us all. If taxes could be raised less from levies on income and labour and more on finite resources and environmental polluters there would be a new source of tax revenue - and this is actively being assessed by Labour, the Liberal Democrats and the European Commission. Environment Commissioner Ioannis Paleokrassas makes a strong case for t he introduction of a carbon dioxide/energy tax which he describes as the first stage of the EU's overall strategy to internalise environmental costs and effect the tax shift from labour to natural resources. `If the revenue is used selectively to reduce social insurance contributions for unskilled workers, there would be an increase in Community employment of 2.7 million jobs (2-3%) and a cor responding increase in growth,' he argues. The Labour Party, in its recent paper, In Trust for Tomorrow, stresses its commitment to a robust environmental policy promising to `place protection of the environment at the centre of all our political and governmental activity'. A strong environmental policy, properly framed and implemented, could lead to higher levels of employment, increased choice for the individual, and a better quality of life for all. A national programme of energy efficiency work alone would create up to 50,000 new jobs. Such increased environmental investment would in turn enlarge the capital stock and add further impetus to reducing unemployment.
Plainly there are risks of making mistakes - of prioritising the wrong area for action or of regarding something as a hazard which subsequently proves harmless. But the larger risk remains. As Schmidheiny says, the world is buckling under the strain of the claims made upon it, and it is better to be generally right rather than precisely wrong. At Madingley 35 executives surprised themselves with the passion of their conversion - and they are not alone. The environment matters as never before; and it will intrude more and more into business decision-making - because it has to.
Will Hutton is economics editor of the Guardian.