Sustainable Environmental Management: A Systematic Approach To Process Improvements Promises Reduced Risk, Cost Savings

Tuesday, April 1, 2008 - 00:00

Continued pressure on organizations to prioritize sustainable environmental performance just as they would financial performance is driving world-class organizations to build integrated management systems (IMS) to support consistent, predictable behavior, processes, and compliance across divisions and around the world.

Integrated environmental management and quality management systems not only reduce corporate exposure to regulatory and reputational risk, but over time can result in significant cost-savings. If a corporate general counsel wants management to address and solve environmental and regulatory risks, and can argue at the same time that such systematic change would make operations more efficient and improve the bottom line, the argument for better risk management becomes infinitely more palatable.

By integrating environmental, health and safety (EHS) and quality functions into one management system, a corporation achieves significant efficiencies and cost-savings over managing these functions in separate departments. For companies that face the increased vigilance of federal and state regulatory agencies - as well as heightened attention to environmental issues from their end-users - this is a compelling argument for change.

Integrated Management Systems: A Risk-Based Approach

At some companies, the integrated management system is called a business operating system (BOS). At others, it's simply "the way we do business." Stated simply, an IMS approaches all environment health and safety issues and quality management as one system, across a facility, a region, or even an entire organization.

Whatever it's known as internally, an IMS seeks to overcome departmental and operational silos, linking EHS and quality management protocols and processes enterprise-wide. It provides a foundation for sustainability by developing EHS and quality objectives tied to the objectives of the business, and it drives progress in achieving those objectives. Improvement goals can be monitored for cost savings; non-conformance can be monitored; and corrective actions and risk reductions can be tracked, measured, and reported. Moreover, an IMS can contribute to sustainability by driving design for environmental (DfE) processes and fulfilling end-of-life requirements.1

An IMS contributes to the sustainability of a business by providing a repeatable, standardized, and consistent system for delivering the organization's product or service in an environmentally sustainable manner. The IMS implementation involves designing a management system that suits the business model, testing it in pilot operations, refining it, and integrating it into the fabric of an organization's operations. The IMS should be practical and not academic, involving minimum documentation and built to drive cost savings, process improvements, and risk reduction. Clear, simple targets with measurable outcomes are keys to success.

The Plan In Action: What Success Looks Like

The experience of companies with such an integrated system is instructive. In one case, an industrial manufacturer with twenty plants saved a total of more than $3 million on adoption of an integrated management system (IMS) - and more than $10 million total in their first full year of operation and for each year thereafter. Savings averaged $170,000 per plant in the first year and $521,000 per plant in the second - numbers verified by the company's controllers.

For this company, introducing an IMS aligned with ISO 14001 was a logical step in the continuous improvement of their already strong EHS and quality programs. The IMS was integrated into the existing quality management systems at each facility, audited by the internal quality auditing teams, and subject to annual third-party audits for registration to ISO 14001. Groups of plants obtained single ISO 14001 registration certificates as a cost-saving alternative to individual certificates for each plant.

Some plants started with pilot IMS implementations to work the kinks out of the program within real-world operating constraints. Lessons learned were integrated into the corporate IMS program then made available to all the plants via their intranet.

Subsequent implementations followed a similar pattern - formally launched with a briefing of top management at each plant and giving the plant manager the tools to ensure that the implementation was a success. Managers' commitment to applying the necessary resources was ensured by having key IMS indicators as part of their annual performance incentive package. The implementation advisors helped make the system practical and not academic, minimized documentation, and focused on process improvements and costs savings.

Top Management Involvement

The single strongest contributor to the program's success was the involvement of top management. Plants with a committed, informed management team implemented the IMS fastest, with the most cost savings, time savings, process improvements, and risk reduction. The plant manager was the primary driver; other top managers were key in pushing the initiative through to the plant floor. Selecting a strong day-to-day IMS champion, who reported directly to the top manager, was vital, giving the implementation team a strong advocate for integrating EHS and quality functions into daily operations.

IMS implementations can also drive positive change in the organizational culture. The most notable change to the EHS and quality managers' jobs is that their work now is reviewed monthly, and that their operational value was recognized. EHS staff learned to work more closely with the quality management staff. Silos were minimized.

Central Approach, Key Time Savings

Organizations in a group IMS implementation dramatically reduce implementation time compared to pilot facilities, primarily due to being able to share lessons learned, apply best IMS practices and management practices suited to their culture, and develop templates to be shared across the entire organization.

In the case of our manufacturing example, plants could take advantage of templates, not reinventing an IMS, but modeling instructions and procedures on those of the pilot plants preceding them. Cross-functional team members were encouraged to speak with their counterparts at the earlier organizations, and not to be too proud to ask them for help when they encountered obstacles. Advisors coached each new organization based on the lessons learned from previous ones. A real boost to EHS and quality performance was seen after the first round of internal IMS audits, performed by quality auditors who were trained to identify EHS issues. Internal IMS audits first focused on EHS only, but quickly were integrated into the normal quality audit scope and schedule.

Benefits: Knowing Risk, Ensuring Conformance

The real benefit to the C-suite was both a heightened awareness of environmental issues on the part of staff, and a greater awareness of how to identify and manage risk - in large part by reducing the number of non-conformances to the IMS. Organizations received summaries of pre-assessments and registration assessments from previous organizations, and used them to proactively avoid audit issues.2Nonconformance steadily decreased as each successive plant took advantage of the lessons learned from the earlier organizations, shared templates, forms, and draft procedures, communicated best practices through an intranet, and drove improvements through committed on-site consulting staff.

Conclusion

As every corporate general counsel well appreciates, ever more stringent environmental compliance measures are on the horizon. Not only regulators but customers and the general public are calling for increased sustainability, reduced greenhouse gas emissions, and better controls of operations and risks. The Federal Trade Commission opened hearings in January 2008 to examine the emerging market for carbon offsets (i.e., greenhouse gas emission reduction products) and renewable energy certificates, and related advertising claims, many of which have been shown as spurious.3"Competent and reliable evidence" must support such advertising claims, and the IMS provides a predictable path to collecting such evidence.4

Corporate social responsibility (CSR) and sustainability issues require implementation of an IMS to fully deliver on their promise. A robust IMS provides the framework to support the consistent and predictable generation, collection and dissemination of evidence to support not only best practices in environmental management; it will also protect the company from regulatory risk and possible legal exposures, such as challenges to green marketing claims. If the GC's objective is to realize these benefits while still realizing a return on investment, an integrated management system is imperative.

The views expressed herein are those of the author and do not necessarily reflect those of Ernst &Young LLP .

1 Design for Environment refers to a variety of design approaches to reduce the overall environmental impact of a product or service across its life cycle, from raw material procurement, supply chain impacts, fabrication, distribution, use, and ultimate disposal/recycling. So-called "end-of-life requirements" refer to the "Waste Electrical and Electronic Equipment" (WEEE) Directive 2002/96/EC by the European Union in February 2003 to hold manufacturers responsible for e-waste disposal at the end of the product's useful life. Similar regulations exist in Asia. Though no U.S. laws yet require this, competitive advantage can be achieved with more environmentally responsible options for product disposal/recycling at the end of its life.

2 Registration assessment is the formal third-party assessment by an accredited registrar for the management system standard in question.

3 Michael Wara , "How sustainable is my company? Commercial speech, carbon neutrality, and offset quantification," ABA 38:6 (Jul/Aug 2007).

4Kevin D. Grimes , "Environmental Marketing Claims," 1996.

Jim Haried is a Manager in Ernst & Young's environment and sustainability group within the Fraud Investigation & Dispute Services practice. He has more than 27 years of experience assisting organizations with environmental, health and safety (EHS) issues. He has provided third party reviews of corporate sustainability reports and assisted in the implementation or updating of EHS and security management systems. Mr. Haried has experience helping organizations proactively manage and address regulatory compliance through a management systems approach. Prior to joining Ernst & Young, he was the general manager of a heavy equipment manufacturing operation. He has also delivered EHS and quality management systems auditor training to more than 500 students. Mr. Haried has a B.S. in Nuclear Engineering and an M.B.A. in Finance.He can be reached at jim.haried@ey.com or 312-879-4209.

Please email the author at jim.haried@ey.com with questions about this article.