Why are companies integrating environmental and social management systems?
Did you know that the world’s first Minister of Environment was appointed in 1970 in the UK?
The Ministry of the Environment was created in response to the growing environmental concerns of the 1960s. These concerns are illustrated in the “The Silent Spring” by Rachel Carson, a book on the effects of the use of pesticides published in 1962; Torrey Canyon oil spill in 1967, to name a few.
Since then, humanity made a series of rapid technological advances, that significantly changed the way we think, act, consume and live. These advances have a profound effect on the economic, political, cultural, environmental and social landscape.
And, even though they brought significant benefits and opportunities, far greater awareness of the environmental and climate challenges we all face was created as well.
The need for a new orientation in this world, new rules and standards was deemed to appear sooner or later.
Now an increasing number of institutions and organizations are voluntarily adopting international environmental and social standards to identify and mitigate E&S risks, also creating opportunities and harmonizing the requirements for environmental and social sustainability.
It happened in 2006 that the International Finance Corporation’s (IFC) released its Performance Standards on Environmental and Social Sustainability. They provide guidance to the organizations on how to design and operate projects in a way that avoids, mitigates, manages and/or offsets their environmental and social impacts.
But it’s not only the companies, institutions, and organizations that are concerned with their E&S risks and standards by which to approach them.
Financial institutions in emerging markets are also turning to various international standards, considered as best practice. In recent years, voluntary industry frameworks such as the Equator Principles have helped build an international consensus around the need for and benefits of environmental and social standards.
In the current climate, literally-speaking and economically-wise, companies are under pressure to perform well, take into account and minimize the risks they are eventually challenged with.
“Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!” ― Lewis Carroll, Alice Through the Looking Glass
There is a number of reasons for which the organizations started to assess its environmental and social risks. For the ease of understanding, let’s break them down to external and internal ones.
EXTERNAL REASONS:
- Companies face a range of environmental and social challenges in their operations (e.g., increased energy and raw material costs)
- The society is becoming increasingly demanding and sophisticated
- Consumer awareness and concern about environmental and social issues grows rapidly
- Climate change becomes a big game-changer
- Changes in local and international legislation — the rigidity of the market rules, the growth of the capacity and the influence of regulatory bodies on environmental protection and labor
- Environmental and social risks inevitably lead to financial risks
- Orientation to the foreign markets — the need to meet the requirements of the international law, country-specific industry standards and consumer requirements
- Loans from respectable financial institutions, like IFC, EBRD, KFW DEG, OPIC, NEFCO, etc; banks that adopted ‘green’ framework, like Deutsche Bank, BNP Paribas, Erste Bank and many others; and especially ‘green’ banks, the concept of which we briefly discussed before here — that need to make sure they are investing in and financing the organizations that are able to meet certain criteria.
INTERNAL REASONS:
- Reducing material costs
- Minimizing waste
- Enhancing competitiveness and profitability (via corporate sustainability)
GLOBAL REASONS FOR THE NEED OF THE ASSESSMENT
- Reassessment of what constitutes the creation of value
- More recognition of the interdependence of economic, environmental and social systems
You see, all these reasons and causes clearly show the importance of the ESMS in today’s global transition economy.
A sound environmental and social management system (ESMS) should not be scary, complicated and expensive, instead, to be effective, such a system needs to be scaled to the nature and size of the company, documented and then put into practice.
ESMS, if built inclusively, serves companies to integrate its objectives into core business operations, through a set of clearly defined, repeatable processes.
Procedures, outlined and described in checklists, are POWER.
The whole checklist idea is best described in the Atul Gawande’s ‘Checklist Manifesto’
A key feature is the idea of continual improvement — an ongoing process of reviewing, correcting and improving the system.
Apart from thoroughly following the checklists, another commonly used method is the good old Plan-Do-Check-Act cycle (PDCA)
Questions the organization should ask when considering to integrate ESMS:
1. Plan: What is important for you as an organization and what are you going to do about it?
2. Do: What actions will you take?
3. Check: Do you see the change you expected after implementing the actions?
4. Act: What will you change if results are not what you expected?
How does the Environmental and Social Management System work?
Each of these 9 elements is important, as its interconnection makes the healthy and working, trouble-free mechanism. Later I’ll expand on every element, but let’s first look at what advantages and benefits such a system can bring to your company.
ADVANTAGES of the ESMS implementation
The need for an ESMS can come from both within the organization and from external sources (e.g., financial donors).
If ‘born’ from within, it usually means the top-management recognizes the importance of social and environmental responsibility and wants to make something happen, has enough leadership and commitment to start integrating the new initiative into operational and capital investment decision making.
In fact, leadership and organizational culture are the most crucial determinants in successfully managing the various trade-offs that middle managers face when they try to manage social, environmental, and financial performance simultaneously, according to Marc J. Epstein in ‘Implementing Sustainability: The Role of Leadership & Organizational Culture’.
In this case, E&S management system allows for consistent anticipation and resolution of issues that business face, to prevent potential risks from becoming actual issues.
Prevention is easier and less expensive than cure.
But how?
Via thorough compliance with national and international standards, following the set of the company’s own policies, regular E&S due diligence, accountability, and reporting.
So, what are the advantages of ESMS integration?
- Reduce costs: A more efficient use of energy and material resources helps to reduce production and waste disposal costs.
- Enhance reputation: improvement of relationship with external stakeholders, better brand recognition & standing out in the marketplace. And even in general, climate/ environment- concerned guys look better in the crowd :)
- Increase market opportunities & expand horizons for business development: organization’s internal well-established order certainly makes it easier to comply with world-recognized standards (like ISO series), the benchmark standards for E&S risk management, and international legislation.
When the need for a sound ESMS comes from external sources, this usually means investor or financial donor wants your organization to comply with certain rules and requirements. Such a set-up rarely has a place for leadership and ‘wisdom within’ of the organization itself, but instead, has a very strong financial trigger.
No woman no cry. No ESMS no money.
RECIPE FOR SUCCESS
For any new initiative in the organization, ESMS is not being an exclusion, 3 stages are crucial for success:
- Awareness: everyone in the organization should be aware of the changes organization undergoes, and if not help it, at least definitely not be an obstacle to its realization. Corporate lectures and additional communication of the core messages by the executives will surely help. Communication is the key to success — it puts all the questions in the limelight, if done properly — leaves no room for unwanted rumors and wrong guesses, and involves people, so they feel responsible and accountable in the changing environment.
2. Commitment: this one is a bit hard as requires a lot of will power from the top executives. They need to send a clear & loud message both internally and externally that environmental and social risk management becomes a long-term commitment and will contribute to the organization’s success.
3. Implementation: of course, just being aware and committed is not enough, a documented action plan and, most importantly, doing steps will gradually shift the organization in the right direction.
Who is going to do it? A trained and committed personnel, integrated on the organization’s life and operations.
Hope, now you see that ESMS is good to have if you want your organization to make a difference in this world, to have positive -environmental and not only -impact, and contribute to a change that goes beyond the limits of the organization itself.
Moreover, implementation and going the path will unfold the potential of the organization and show its hidden treasures along the way.
Written by Anna Chashchyna
Edited by Maria Isabel Acosta Lopez
