Geoff Lane and Amy Clarke describe how UK financial services organisations (FSOs) are responding to the call for good environmental management.
Traditionally, the financial services sector has not been considered as having a major environmental impact. But its response to local and global environmental issues is fast becoming a priority for stakeholder focus.
Financial services are now regularly included alongside other industry sectors in national and international benchmarking indices designed to assess the status of environmental engagement. Recent developments, including the Turnbull report and the introduction of the socially responsible investment code for pension fund trustees, have added to the growing pressure.
Demonstrating a commitment to proactive environmental management is increasingly becoming a necessity. It is no longer a question of whether environmental management will become essential - it has. The question now is how effectively and expeditiously FSOs can integrate environmental management and reporting systems into existing risk management frameworks.
A number have already recognised the implications the need to avoid negative risk and achieve a reduction in environmental impact.Those that have started environmental management programmes including environmental reporting should gain some significant benefits. These include
Substantial achievements in environmental management and risk management can deliver business opportunities. FSOs can benefit from proactive environmental management by seizing market opportunities that increase income, such as new products and new product delivery and service channels.
Direct and indirect impacts
Stakeholders are directing pressure on two business areas: environmental performance in terms of direct (operational) impact and indirect (core business) impact resulting from the management and delivery of products and services.
Environment impacts of FSOs
Significant "direct" environmental impacts are primarily associated with internal operational activities. These include heating and lighting, transport, waste in all its forms, purchasing goods and services and using resources such as energy, paper and water. Good management here will help improve performance and operational efficiency.
The indirect environmental impacts resulting from commercial activities are those associated with company policies and practices. Lending, investment, insurance and other business activities may create financial, legal, operational or reputational risk. These indirect impacts are more difficult to manage. Frequently, FSOs can only exert influence rather than control. However, such impacts are important due to the scale of their potential impact on business performance, and to the business opportunities created from positive attention to the emerging concerns of institutional investors and customers.
System Design
An environmental management and reporting system should include:
There have been a number of global developments in environmental management and reporting, for example, ISO 14001, the Eco-Management and Audit Scheme (EMAS), and the Global Reporting Initiative (GRI). There are also a number of best practice forums, the most notable for the financial services sector being the United Nations Environment Programme Finance Initiative
New guidelines
Until recently, there has been little focus on providing practical guidance on environmental management and reporting tailored to the financial services sector. However, a consortium of financial institutions formed the FORGE group in 1999. In November 2000, FORGE issued its Guidelines on Environmental Management and Reporting for the Financial Services Sector. The Department of Trade and Industry sponsored the guidelines, supported by the Department of the Environment, Transport and Regions.
Building on the experience of environmental management practitioners from the FORGE group, the guidelines explain to board and senior management the role of environmental management and reporting in corporate governance. They include technical information on both direct and indirect environmental impacts and provide advice on the components and stages of implementing an environmental management and reporting system. As well as facilitating environmental management and reporting, they should achieve a wider understanding of the sector's approach among other interested parties and stakeholder groups.
The guidelines have been developed to encourage a higher level of engagement across the sector and promote consistency in approach. Implementing the tools they contain will provide an organisation with a foundation on which it can build to meet future environmental management needs. The guidelines have also been designed specifically to recognise the difficulties and issues involved within the sector. These include
Essentially, the guidelines are a toolkit to help users meet specific needs. They are aimed at people with board level responsibility, or who are directly answerable to the board, for developing and overseeing environmental policy and targets and group level stakeholder interaction.
Going forward
Leaders in the financial services sector are now beginning to address emerging issues, for example social and ethical governance and the broader debate on sustainable development. Future revisions of the guidelines are expected to address advanced environmental management and reporting issues and the governance issues created by the global move towards achieving sustainability.
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Geoff Lane is PricewaterhouseCoopers partner for global environmental services and Amy Clarke is a consultant, PricewaterhouseCoopers global environmental services, Tel: 020 7213 4378, e-mail: geoff.lane@uk.pwcglobal.com
FORGE
FORGE group members include Abbey National, Barclays, CGNU, Lloyds TSB, Prudential plc, Royal Bank of Scotland and Royal & SunAlliance. The British Bankers Association (BBA) and Association of British Insurers (ABI) have also been involved in the development of the guidelines which incorporate comments from external shareholders. Environmental consultants from PricewaterhouseCoopers advise the group. Further information and a downloadable copy of the FORGE guidelines are available at the BBA and ABI websites at www.bba.org.uk and www.abi.org.uk.
Government response
Patricia Hewitt, DTI minister with responsibility for sustainable development, believes the financial services sector has a significant role to play in managing environmental risks, financing the protection and improvement of the environment, and working towards the goal of sustainable development. "Because the UK is a global world leader in the provision of financial services, we are in a good position to influence environmental management best practice around the world. These guidelines - the first practical guidance for financial services organisations on environmental management - will be an important step forward.
