Approaches To Proactive Environmental Management Multinational Corporations example essay topic

Economic incentives are instruments that use financial means to motivate polluters to reduce the health and environmental risks posed by their facilities, processes, or products. These incentives provide monetary and near-monetary awards for polluting less and impose costs of various types for polluting more, thus supplying motivation for polluters to change their behavior. The report distinguishes seven basic types of incentives: Pollution charges, fees, and taxes; deposit-refund systems; trading programs; subsidies for pollution control, liability approaches; information disclosure; voluntary programs. Economic incentives offer several advantages that make them attractive environmental management tools. First, economic incentives, in some circumstances, can be structured to achieve larger reductions in pollution than would result from traditional regulations. Second, economic incentives often can control pollution at lower costs than can traditional regulations.

Third, the use of economic incentives, in contrast to that of traditional regulations, can more easily control pollution generated by a multitude of small and dispersed sources. Fourth, economic incentives can stimulate technological improvements and innovations in pollution control in situations where traditional regulatory mechanisms may not. Progressive companies are shifting rapidly from an approach of compliance to one of proactive environmental management. The revolution in thinking has gone through three stages: 1) the widespread business practice in the 1960's and 1970's of coping with environmental crises as they occurred and of attempting to control the resulting damage; 2) the reactive mode in the 1980's of struggling to comply with rapidly changing government environmental regulations and minimizing the costs of compliance; 3) the proactive environmental management strategy in the 1990's, through which corporations began to anticipate the environmental impacts of their operations, take measures to reduce waste and pollution in advance of regulation, and find positive ways of taking advantage of business opportunities through total quality environmental management. (4) For many firms, environmental values are now becoming an integral part of their corporate cultures and management processes. In a growing number of companies, environmental impacts are being audited and accounted for as a 'second bottom line.

' (5) Although environmental impacts are not always measured in conventional financial terms, they have a special value that companies find increasingly difficult to ignore. (6) Quality-driven businesses are learning that pollution prevention is often far less costly than regulatory compliance. And cutting-edge firms are going beyond preventing pollution in their own operations and exploring new opportunities for developing green products, processes, and technologies. Expanding markets for pollution-prevention technologies, processes, and services offer companies that develop them new sources of revenues, and technology diffusion will assist governments around the world to control more effectively the emission of air and water pollutants that degrade environmental resources. Forces Driving Proactive Environmental Management Progressive corporations are now looking at environmental performance from a far different perspective than they did a decade ago.

(7) Beyond complying with increasingly more stringent regulations, they must protect or enhance their ethical images, avoid serious legal liabilities, satisfy the safety concerns of employees, respond to government regulators and stockholders, and develop new business opportunities in order to remain competitive in world markets. Market and business factors play the most important roles, but a wide array of forces are driving corporations to adopt proactive environmental management strategies. Regulatory Demands Not complying with government regulations is no longer an option for corporations that seek to be competitive in international markets. Environmental liability has grown immensely in the past 30 years as the public has put increasing pressure on governments to enact environmental regulations and legal restrictions that mitigate the adverse effects of pollution.

In the United States and many other industrialized countries, however, environmental legislation was adopted piecemeal, creating a complex regulatory process. (8) In 1970 there were about 2,000 federal, state, and local environmental rules and regulations in the United States; today there are more than 100,000. The code of Federal Regulations for protection of the environment currently exceeds the size of the U.S. Tax Code. Environmental regulations are listed in over 789 parts of the Code of Federal Regulations. A command-and-control system for environmental management became the foundation for scores of environmental, health, and safety programs and thousands of federal, state and local standards, regulations, and guidelines within which businesses must operate. The regulations of such agencies as the Federal Trade Commission and the Securities Exchange Commission can also be used to protect the environment, as can local ordinances, police powers, and common law.

Businesses in Los Angeles, for example, must answer to 72 separate authorities, having jurisdiction over environmental protection. Companies that apply total quality management (TQM) principles effectively have fewer problems with environmental compliance. Constant monitoring and improvement reduce incentives to use patchwork or tack-on pollution- control technology. Error- and waste-reduction objectives lead companies to explore pollution prevention options and to use clean technologies. Cost Factors Noncompliance brings companies legal and ethical crises that are becoming more expensive to overcome. In the United States, the Federal government has steadily increased its enforcement of environmental regulations, making business executives and owners liable for environmental pollution.

The U.S. Environmental Protection Agency takes hundreds of enforcement actions against businesses every year, leading to prison sentences and heavy fines. But many firms are finding that merely complying with regulations can also be an expensive strategy. The total costs of complying with environmental laws over the past 25 years have easily exceeded $1 trillion. About $120 billion is spent annually for pollution abatement and control. Current estimates of compliance costs under the new Clean Air Act Amendments alone are on the order of $50 billion a year. Many companies will spend hundreds of millions of dollars on environmental projects over the next few years simply to stay abreast of environmental regulations.

Clearly, sound and well-enforced regulations have brought tremendous progress in reducing air and water pollution and toxic hazards in the United States and other countries. But the piecemeal, complex, and ever-changing regulatory system has made enforcement of controls increasingly more expensive and marginally less effective for both business and governments. Furthermore, reliance on constantly changing regulatory controls may simply produce a temporary false sense of security. Since controls require add-on technologies that companies must replace or modify every time regulations change or new ones are added, businesses are constantly struggling to comply. the growing complexity of regulation and the all-too-common technical inefficiencies and administrative weaknesses of command and control are spawning corporate interest in prevention of environmental damage rather than mere compliance with regulations. Stakeholder Forces Proactive strategies that build on basic management principles of reducing waste and cutting costs also respond to customer and shareholder demands. Firms seeking to satisfy diverse stakeholders have discovered that proactive environmental management requires more than simple adjustments to government policies.

The strategies may require firms to make more effective use of corporate intelligence to define new missions, realign company value systems, find new ways of managing change, accelerate training and education, and modify behavior throughout the organization. For many firms, the challenge is to balance concerns with cash flow, profitability, and environmental protection in order to respond to the demands of increasingly diverse groups of stakeholders. Many companies that adopted quality management programs to improve their competitive positions - 3 M, Kodak, Sony, Alcoa, Volvo, Procter & Gamble - are also recognized by their stakeholders for exemplary environmental performance. This should not be surprising. Companies that practice some form of total quality management constantly monitor and improve their operating processes. They are customer-focused, use performance measurement, employee training, and error- and waste- reduction, and involve their suppliers in environmental improvements.

Competitive Requirements The expansion of the global market and the proliferation of international trade agreements are also driving the movement toward voluntary international standards for environmental quality management. (9) International competition motivated more than 127,000 companies in 99 countries to become certified by 1996 under the ISO 9000 series guidelines for quality management. (10) TQM has had a profound effect on how businesses view their management systems and has indirectly stimulated improvements in environmental performance. (11) The growing recognition by many business leaders of the importance of environmental protection to their international competitive advantage has led to new rounds of proactive voluntary standards emphasizing the integration of environmental management and corporate strategy. The American Society for Testing and Materials (ASTM) is making headway in standardizing environmental auditing, assessment and criteria for investment and insurance. British standard BS 7750 was an industrial response to the adoption of the 1990 Environmental Policy Act in Great Britain that has been widely adopted internationally.

The European Community has issue a Standard Eco-Management and Audit Scheme (EMAS), which member nations are expected to implement. And the IS-14000 series is likely to become the dominant international standard for environmental management systems. (12) Although these standards differ somewhat in their requirements and criteria, they all seek explicitly to encourage corporations to integrate environmental- and corporate-management systems. Approaches to Proactive Environmental Management Multinational corporations (MNCs) have gone through a dramatic transformation in their approaches to environmental protection, from 1) avoiding compliance with regulatory controls during the 1960's and 1970's to 2) reacting to regulatory requirements and attempting to minimize the costs of compliance during the 1980's to 3) taking control of their environmental problems and even turning them into competitive opportunities during the 1990's. (13) [ILLUSTRATION FOR FIGURE 2 OMITTED]. A few large corporations like 3 M and SC Johnson began to adopt a proactive approach to environmental management in the mid-1970's, but they were clearly the exceptions.

During the 1960's and 1970's, most companies tried to avoid or evade government regulations. A few enlightened corporations, such as 3 M, designed programs to help the company solve its own environmental problems, prevent pollution at the source, develop products that have a minimum effect on the environment, conserve natural resources, meet and sustain government regulations, and assist selectively government agencies' environmental activities. Since 1975, the 3 M Pollution Prevention Pays Program has supported more than 4,400 employee- generated projects worldwide, curtailed 1.4 billion pounds of pollutants, and saved $750 million. (14) During the 1980's, the growing demands of the public and governments for pollution control and environmental cleanup required corporations in North America and western Europe to comply with regulations, although many viewed compliance as a cost to be minimized.

During the mid- to late-1980's executives in many larger corporations began to realize that waste reduction saved money. The forces described earlier began to push many firms into strategies that went beyond compliance. In the late 1980's proactive environmental management and the total- quality-management movement began to converge. TQM initiatives gave firms unexpected insights into how to make environmental management cost-effective and market-driven. By the beginning of the 1990's, waste minimization programs had been adopted by a diverse group of U.S. - based MNCs, among them Allied Signal, General Dynamics, Dow Chemical, Chevron, Boeing, AT&T, Amoco, General Electric, IBM, Polaroid, and Xerox. (15) Many successful businesses were voluntarily performing internal environmental compliance audits to identify and correct their environmental liabilities, demonstrate good-faith effort, and reduce government pressures.

More importantly, the voluntary audits forced businesses to evaluate operating systems, identify the actual cost of controls, and develop environmental performance strategies to eliminate liabilities altogether. web.