Environmental Auditing: History and Initiatives - Term Paper Example

 Environmental auditing-History and initiatives Table of Contents Introduction………………………………………………………………………………3 History of Environmental Auditing…………………………………………………….4 Environment Audit Processes…………………………………………………………..6 Internal and external auditing- benefits and change………………………………….7 Green nations and green organizations………………………………………………..9 New Standards, New Developments……………………………………………………9 How organizations adopt new concepts of environmental auditing…………………10 What future holds………………………………………………………………………12 References……………………………………………………………………………….13 Introduction Environmental auditing is a term used to collectively represent the processes through which an organization can go ahead with its activities without disturbing the environment. It was started as an assessment mechanism to find out whether a company is adhering to all the rules prescribed by the government to protect the environment. But later on, the concept of environmental auditing grew to become a management tool for comprehensively monitoring and analyzing the activities of an organization as against the protection of the environment. It is in this broader context that the function of environmental auditing is explained as “devoted to the disclosure of environmental assets and liabilities, compliance with national and international legislation and conventions, and to measures instituted by the audited entity to promote economy, efficiency, and effectiveness” (INTOSAI-WGEA, 2008). Another comprehensive definition for environmental auditing is that given by The Commission for Environmental Cooperation (1993), which is a joint body of United States of America, Mexico and Canada avowed to protect North America’s environment. The definition says that environmental auditing is: a management tool comprising a systematic, documented, periodic and objective evaluation of the performance of the organization, management system and processes designed to protect the environment with the aim of: (1) facilitating management control of practices which may have impact on the environment, and (2) assessing compliance with company policies (CEC, 1993). (Dear customer, here I have given the proper citation. So I don’t understand what is the problem) In earlier days, an external auditor, who usually would be a certified third party, conducted environmental auditing. But recently, companies have internal environmental auditing as well. The job of an external auditor is to check whether an organization is complying with all the legal and ethical norms of environment protection. But an internal auditor, apart from this aspect, also checks whether the organization’s activities meet the environmental standards set up by the organization itself. The advent of environmental auditing made it mandatory for companies to have environment management systems to ensure that environment is protected in every action carried out by the same. History of Environmental Auditing Environmental auditing has a history that dates back to 1970s and the place of origin of this concept is the United States (Holbrook, n.d). The purpose of environmental auditing was to make organizations environmentally accountable and thereby reduce harm done to the environment by the activities of polluting industries. Though initially companies had to be coerced to accept the concept of environmental auditing, later on the growing awareness of the public about the environment put pressure on companies to accept it as a desirable and even mandatory obligation. This was the time when, instead of external auditors, companies began to employ internal auditing systems as a responsibility rather than a compulsion. In 1986, the Environment Protection Agency in US adopted an Environmental Auditing Policy Statement and also in the 1990s, United States decided to give special incentives to environmental industries as a reward for conducting and publishing environmental audits and complying with all the environmental rules and regulations (HCEAC, 2009, pp.28). In UK, the industrial standard, 7750, which deals with quality and safety specifications related to environment, was announced in 1992. UK had also declared “commitments towards sustainable development and the implementation of Local Agenda 21.. (formulated by the 1992 Earth Summit in Rio De Janeiro)..” soon after (HCEAC, 2009, pp.28). Eco-Management & Audit Scheme (EMAS) was yet another step taken by European Union to make it mandatory for companies to provide precise information on emissions and energy use to the public as well as the government. In the last ten years, in both public sector and private sector, many institutions have been formulating environmental policies, approaches, and implementation roadmaps, known as Green Plans (Johnson, 2008, pp.12). The Environmental Protection Agency of United States cooperated with the process of developing ISO 14000, which for the first time set specifications for companies in terms of environment protection, in 1996 (Enterpreneur, Fall 1998). Later on, in 2000, ISO developed 14020, the “standard for eco-labelling products” (INTOSAI-WGEA, 2007, pp.19). Companies have to put in place, environment management systems and regularly assess these systems by way of environmental auditing to get these certifications (Enterpreneur, Fall 1998). This certification provides internationally accepted standards and norms for environmental auditing. Another major milestone in this field was the declaration of Dow-Jones Sustainability Indexes, which was the “first global sustainability benchmark tracking the financial performance of leading sustainability-driven companies” (INTOSAI-WGEA, 2007, pp.19). (dear customer, here also I have given proper citation) Waste and water management has been the major themes for environment auditing all over the world for the first decade of 21st century (Aarhus, 1 April 2004). Another important change that happened through this decade is the environmental laws and regulations in different countries reframed with more stringent rules (Enterpreneur, Fall 1998). In due course, environmental auditing began to be considered as a management discipline and a structural approach in environmental auditing emerged as a tool for precision (Aspects International, n.d.). Scientific methodologies like carbon foot printing, also emerged as powerful tools to assist environmental auditing (Aspects International, n.d.). Environment audit processes Environmental audit, in practice, is a synergy of different kinds of audit processes (Holbrook, n.d). These processes include a) compliance audit, which checks for compliance with environmental laws and company’s environmental policies, b) issues audit, where, an assessment of the institution’s actions in connection with a general environmental issue or a specific issue, c) health and safety audit, which assesses health and safety risks and examines the effectiveness of contingency planning, d) site audit, where a specific site is audited in order to find out the environmental condition there and e) corporate audit, which analyses the “polices, structures, procedures and practices” of a particular company regarding environmental compliance (Holbrook, n.d.). There are three more aspects to environmental auditing as well, namely, a) due diligence audit, which is an environmental assessment conducted before a company is merged with another or is divested, b) activity or operational audit, that demands a horizontal examination of a company’s work across departments and c) product or life cycle audit, calling for a detailed assessment of the “environmental impacts of a product throughout all stages of its design, production, use and disposal, including its reuse and recycling” (Thompson and Therivel, 1991). (dear customer, here also I have given proper citation) Internal and external auditing- benefits and change As far as an organization was concerned, environmental auditing had initially evolved as a response to the fines, sanctions and liabilities that emerge out of disasters or pollution. But it has now been generally agreed by organizations that environmental auditing itself has a “potential market and stakeholder benefits, efficiency gains, financial savings, and …(facilitate)… improved public relations” (Holbrook, n.d). (Dear customer, here again citation is there) As this awareness grew, the certified third party auditors are being gradually replaced by voluntary in-house auditing in private sector. In-house auditing was supposed to be economically realistic, socially responsible and easier in terms of revealing pitfalls in compliance (ASCE, 1996, pp.3-4). The notion of legal compliance was thus replaced in US by evaluation systems and the role of internal auditor has become greater as compared to external auditors (Enterpreneur, Fall 1998). Some new trends in the changing institutional frame work has been the evolving voluntary agreements on CFCs, voluntary agreements on carbon dioxide, eco-labelling, eco-logo, returnable containers, recycling, environmental disclosures, ethical investment, green consumerism, energy taxes, tradable pollution permits, greener employees and supplier audits (Paramasivan, 2002, pp.152) In spite of these changes in approach, external auditing still plays a crucial role in environmental auditing though more in the form of government monitoring and public pressure. The publication of environmental audit reports has increased public awareness on the matter and this has been constantly compelling corporate houses to become “environmentally more responsible” (Enterpreneur, Fall 1998). Thus the public itself has been taking over the role of external auditor, that too a strict one. The growing consumer awareness is pressurizing companies to adopt green technologies, production processes and also to have alliance and tie ups only with other green organizations. Another angle of this issue is that though a lot has been talked about in-house auditing, the ground realities all over the world, and even in developed countries like United States, call for retaining strong external auditing systems for the sake of the well being of the environment as well as the people. For example, in US, as recently as in 2005, pediatricians of Mount Sinai School of Medicine had calculated the medical costs of emissions of mercury from power plants to be around $8.7 billion per year in United States (Johnson, 2008, pp.53). Researchers have found Mercury contamination as a global problem as well (Johnson, 2008, pp.53). Green nations and green organizations In countries like Netherlands, New Zealand and Singapore, the green plans formulated by respective governments have been very successful (Johnson, 2008, pp.12 of the introduction). Many organizations of the world have come to realize the marketing potential of green plans and have invested in them. It has been widely accepted now that there is a major group of customers for any product who go in search of environmentally sound brands. World’s top 10 and top 100 green companies have been listed out by many external-assessing agencies. This has brought in an element of competition among the companies who thrive for the same market. New Standards, New Developments ISO still remains the most authentic standard to assess the environmental soundness of any organization. Starting from ISO 14000, a series of standards have been developed which include specifications for environmental management, systems, technology, impact and audit protocol. The green global program launched in 1992 and updated many times, has as its focus issues, water, waste, and energy management. Climate change issue has also been incorporated into the environmental auditing framework. World Summit on Sustainable Development which was convened in the year 2002, in Johannesburg, Convention on Persistent Organic Pollutants held in Stockholm in 2004 and Kyoto protocol in 2005, delineated the environmental issues more precisely which in turn hepled environmental auditing to become more effective all over the world (INTOSAI-WGEA, 2007, pp.21). Within no time, environmental auditing became an important topic under international accounting. The Business Charter for Sustainable Development drafted under the aegis of International Chamber of Commerce, Responsible Care Initiative put forth by chemical industries, and Charter for Good Corporate Behavior formulated by Keidanren in Japan are a few of the most noticeable initiatives by trade bodies to assist environmental auditing (Paramasivan, 2002, pp.154). Global directives issued by non-governmental organizations have also become benchmarks against which environmental auditing is conducted. Consumer Charter for Global Business developed by Consumers International and the Clean Clothes Campaign that emerged in the textile industry are some examples. How organizations adopt new concepts of environmental auditing Many world-renowned companies have come forward time and again to shoulder the responsibilities put forward by the developments in environment front. Henkel, the German company that manufactures detergents is one such company. As early as in 1983, the company switched over to producing phosphate free detergent. Thus the company could reduce the use of fossil fuels by 30 percent. Henkel declared "Principles of Environmental and Consumer Protection" in 1982. Between 1998 and 2007, the company had achieved a reduction in its energy use almost by half. Along with this, carbon dioxide emissions were reduced by 33%. Now the company is manufacturing many bio-based detergents. These detergents can be used for low-temperature washing by the consumers thereby reducing energy consumption at the consumer end also. In a huge resource saving exercise, the company also started to find out new formulations for its products in which renewable raw materials are used. Company’s target for the next two years is to lessen energy use by 15 percent for every metric ton product that is manufactured. Henkel has established measuring mechanisms for carbon dioxide emissions at its 193 sites which are distributed across the globe, in 57 countries. Company’s international audit programme comprises the assessment of the data from all these sites. Henkel also gives directives to the buyers of its products on what are the safe and responsible ways to use them. Henkel was the first company in the world which was recognized and accepted as having total compliance with the audit requirements of this particular area. The company also became party to the “Charter for Sustainable Cleaning” prescribed by the the International Association for Soaps, Detergents and Maintenance Products (A.I.S.E.). This document had an objective to encourage and implement sustainable practices in the detergent industry and consumption. DuPont is another example of companies, which have realigned themselves in favor of environmental protection. The company is 205 years old. Earlier in 1980s, the company was notorious for emitting air borne carcinogens and green house gases into the atmosphere and was the largest polluters in the world. Realizing the impact of this fact, DuPont adopted a slogan regarding pollution, namely, “the goal is zero”. PFOA, a chemical used to make Teflon by DuPont became a matter of conflict between the company and the environmentalists but in 2004, the company agreed to a more than $100 million compensation to the affected people. But recently, the company reduced its emissions noticeably by a 72%. The emission of nitrous oxide, which is a green house gas was eliminated totally. Company’s SuperSolids technology was a landmark technology which reduces dangerous certain emissions by almost 80%. Also this technology, when used in automobile sector, was found to save $20 million per plant. Through a multi-faceted energy saving campaign, DuPont saved $2 billion in the last decade. Paul Gilding, who was earlier the head of Greenpeace was appointed as an adviser to the board of DuPont in 1995. Since 1990s, sustainable growth has been adopted as the new vision for the company. The company along with some other organizations had also demanded to the US government for a new strict law on climate change. DuPont had requested this as a member of the organization, US Climate Action Partnership. Out of the $29 billion revenue of the company, $5 billion now comes from sustainable products. Bio-PDO, a corn-based product used to produce fiber for clothing and carpets and Tyvek - a chemical useful in enhancing energy efficiency are eco-friendly products of DuPont, to name a few. Tyvek is recyclable, can be incinerated without causing pollution and can be easily land-filled. Dupont has also declared that it would invest $8 billion dollars through 2015 to attain energy efficiency and make their environmental footprint lighter. The company has received ISO 14001 certification also. What future holds World is watching the dawn of an era where green and eco-friendly products and services are going to attain a competitive edge. Commitment towards a better environment will thus become synonymous with greater profit for the industry as a whole. The time has come when no industry or establishment can ignore the role of environment in long term planning for profit. Especially, the threat of climate change looming large over the globe, the industries have to go in for greener technologies and production processes. The scientific world has been providing necessary support for the industry to go green and governments have been providing incentives as well. But the greatest incentive will come in the form of consumer approval, which will realize as market approval and profit for the companies in the long run. 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Holbrook, Julian, n.d, Information and Advisory Note Number 45, Environmental Audit Branch, Edinburgh: Research and Advisory Services Directorate, Available at http://www.snh.org.uk/publications/on-line/advisorynotes/45/45.htm [Accessed on 25 August 2010] House of Commons: Environmental Audit Committee, 2009, Pre-budget Report 2008: Green Fiscal Policy in a Recession; Third Report of Session 2008-09; Report, Together with Formal Minutes, Oral and Written Evidence, Third report of session 2008-2009, London: The Stationery Office. INTOSAI Working Group on Environmental Auditing, 2008, Tallinn: International Organization of Supreme Audit Institutions, Available at http://www.environmental-auditing.org/Home/LearningCentre/AboutEnvironmentalAuditing/tabid/122/Default.aspx [Accessed on 24 August 2010]. INTOSAI Working Group on Environmental Auditing, Nov 2007, Evolution and trends in environmental auditing, Tallinn: International Organization of Supreme Audit Institutions, Available at http://www.environmental-auditing.org/LinkClick.aspx?fileticket=91RsG1vxtGs%3D&tabid=73&mid=602 [Accessed on 24 August 2010]. Johnson, Huey D. 2008, Green plans: blueprint for a sustainable earth, Nebraska: University of Nebraska Press. Nath et al. 1998, Environmental Management in Practice: Instruments for Environmental Management, Vol.1, Environmental Management in Practice, Bhaskar Nath, London: Routledge. Paramasivan, Thirumoorthy, 2002, Taking Professional Care of the Nature: The Environmental Audit, Emerging Areas of Professional Development, Available at http://www.icai.org/resource_file/11593p148-155.pdf [Accessed on 24 August 2010]. Thompson, Stewart and Therivel, Riki, 1991, Environmantal auditing, Issue 130, Working Paper, Oxford: Oxford Polytechnic school of Planning. Read More