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The environmental climate of the UK has
changed significantly since the Industrial Revolution
of the 1800s. As the birthplace of that Revolution,
the UK has a legacy of polluting industrial activities.
William Wordsworth, the first of the English romantic
poets, declared the Industrial Revolution an “outrage
done to nature”. He was appalled that the common
people were no longer “breathing fresh air”
or “treading the green earth”.
Attitudes and approaches to protecting the environment
have improved considerably over the past 200 years,
and pollution from industrial processes has been largely
curbed. The resultant cleaner air, land and water have
contributed to a better quality of life for all. This
is just as good for commerce as it is for society in
general. The UK is increasingly seen as a thriving economy
in which to invest and do business, a safe and healthy
place to live and a prime location to enjoy the rewards
of hard work.
But, not surprisingly, the picture is not quite as
straightforward as that. Would-be investors are advised
to look carefully at the way environmental risk and
opportunity is managed when making investment decisions
in the UK. Every year there are examples of serious
pollution caused by poor management, inadequate systems,
material failures and, in some cases, criminal negligence.
According to the Environment Agency, the environmental
regulator for England and Wales, there were 1,250 serious
incidents in 2003, of which 613 were caused by industry
(1). The water, waste
and farming sectors were the worst offenders. 266 companies
were prosecuted in 2003, with the highest fine imposed
at £250,000 and an average fine of around £8,400.
As well as financial penalties, those who fall foul
of environmental law now run the risk of a jail sentence.
A few operators consider the penalty of prosecution
worth the risk and continue to play a sort of environmental
“Russian roulette” with the law. However,
UK regulators like the Environment Agency continue to
push for tougher penalties to ensure that the punishment
for breaching environmental law truly acts as a deterrent.
This has cross-party support in UK parliament, which
means that there is likely to be some movement on this
front over the coming years.
Set against examples of poor corporate environmental
performance, there is evidence that business as a whole
has become increasingly aware of its environmental responsibilities.
Most large companies, and many smaller businesses, now
have effective environmental management systems (EMS)
in place. This is evidenced by the gradually increasing
average EMS scores for the top UK companies participating
in Business in the Community’s Environment Index.
These have increased by 30% over the past eight years
– the average EMS score in 2003 was 78%. By the
end of 2004, nearly 5,500 UK companies had environment
management systems certified to ISO14001 (the international
standard for such systems)(2).
The Environment Agency’s own Operator Pollution
and Risk Appraisal (OPRA) scoring system – which
measures how seriously a company takes its environmental
responsibilities at site level – has shown gradual
year-on-year improvement, with over half the sites regulated
by the Agency achieving “good” ratings at
the end of 2003.
The UK’s framework of environmental laws is
robust. It has developed over time with many laws having
their roots in the days of the Industrial Revolution.
The central twin stems of this legal tree are the Environmental
Protection Act of 1990 and the Environment Act of 1995.
These key pieces of UK legislation strengthen and consolidate
a variety of previous environmental law and support
branches of comprehensive legislation covering air emissions,
protection of aquifers, rivers and seas, waste handling
and disposal, building development and more.
As members of the European Union (EU), the UK follows
the lead given by the European Parliament in Brussels.
Consequently, UK law is now supplemented by laws designed
to apply European Directives (for example, the Waste
Electronic and Electrical Equipment Directive, End of
Life Vehicles Directive, and so on).
The relationship between regulators and business is,
on the whole, a good one. Thus, rather than being an
“arms-length” law enforcer, the Environment
Agency’s aim is to develop a more even-handed,
risk-based and proportionate approach – a regime
it calls “modern regulation”. It wants to
work with and not against business, and recognises the
need to develop trust and mutual understanding. Low-risk,
well-managed businesses should expect a lighter touch.
There are opportunities to be exploited by UK companies
which approach their environmental responsibilities
seriously. Activities like reducing waste, increasing
recycling and recovery, making more use of recycled
materials and improving energy efficiency all help to
save money and have direct impact on the bottom line.
Very often, the effort required to address these issues
is minimal compared with the sort of direct savings
that can be made.
There are several organisations set up to help UK
industry in these areas, including the Waste and Resources
Action Programme (WRAP) and Action Energy, a programme
run by the government’s Carbon Trust. Envirowise,
another government-funded programme, offers UK businesses
free, independent, confidential advice on practical
ways to increase profits, minimise waste and reduce
environmental impact. Envirowise’s recent work
with the retail sector (“Retail Therapy 2003”),
for example, has helped companies to work within their
supply chains to achieve savings of £2.3m.
There are, in fact, numerous sources of help and support
for UK businesses to address environmental issues. For
example, the Environment Agency runs an excellent freeto-
use web-based service called Netregs (3)
which provides information on relevant environmental
laws for a range of sectors and offers guidance on good
practice in meeting these. It is designed principally
for small and medium-sized enterprises (SMEs), although
it is of use for anyone wishing to get a better understanding
of UK environmental legislation. Other organisations
such as Groundwork can provide practical support, information
and training to companies.
Most trade associations have an environmental arm
that can provide sector-specific guidance. The Regional
Development Agencies (RDAs) set up across English regions
are non-departmental public bodies whose main role is
as strategic drivers of regional economic development.
Promoting business efficiency and contributing to sustainability
are included in the statutory purposes of the RDAs.
Central UK government also provides assistance to business
– including on environmental issues – via
the Business Link service.
For some enterprises, the environment is more central
to their business. The current UK environmental industry
is strong, well-established and diverse. It employs
approximately 400,000 people in around 17,000 companies,
with an estimated annual turnover of £25bn (4).
Such businesses provide an essential service for which
there is likely to be a continuing and developing market
for some time to come.
A good example is the Fonebak service provided by
Shields Environmental, winner of Business in the Community’s
Environmental Impact Award in 2003. In the first year
of operation, this service resulted in more than one
million phones being re-used to provide affordable communication
in developing countries. In addition, over 100 tonnes
of material was securely recycled, equating to savings
of over 250 tonnes of potentially hazardous landfill.
From 2006, the top 1,000 UK companies will be required
by the provisions of the Operating and Financial Review
(OFR) to report on environmental and social issues,
which are material to their business, and describe how
they are managing these. Although this is currently
not a legal obligation, some companies have a history
of publicly disclosing this information, recognising
the benefits to reputation and credibility.
Indeed, companies which are members of Business in
the Community make a specific commitment to integrating
environmental and social issues across the whole of
their business, measuring their impact and reporting
on this. The extent to which businesses are alive to
these issues and work with supporting organisations
can be a measure of their general attitude toward environmental
risk and opportunity. Arguably, a company’s environmental
strategy should play an important role in investment
decisions – not only can it save money and reduce
the risk of prosecution, but it also puts companies
in a better position to plan for legally enforced changes
and identify environmentally-related business opportunities.
For example, the ability to trade carbon “permits”
will provide an opportunity for companies to be financially
rewarded for efficient processes to reduce greenhouse
gas emissions. Initiatives such as the new European
Emissions Trading Scheme enable businesses whose emissions
are lower than their allocated quota to sell credits
to companies unable to meet their own.
There are clearly many things to weigh up when considering
investing in a UK enterprise. The balance of environmentallyrelated
risks and opportunities, and the associated strengths
and weaknesses of the proposition, must be assessed
as part of the decision process.
No overview like this can hope to provide a conclusive
guide – indeed, it would be dangerous to try to
do so. However, the overarching framework of sensible
legislation, appropriate enforcement regime, practical
and focused support and a prevailing historic respect
for the natural environment in the UK does make the
stock portfolio of UK plc worth further investigation.
For more information, contact:
Jim Haywood
Director, Business in the Environment
Business in the Community
137 Shepherdess Walk
London N1 7RQ
Tel: +44 (0) 870 600 2482
E-mail: jim.haywood@bitc.org.uk
Website: www.bitc.org.uk
Footnotes:
1 - Spotlight on Business – Environmental Performance
in 2003
(www.environment-agency.gov.uk)
2 - www.europa.eu.int
3 - www.environment-agency.gov.uk/netregs
4 - www.dti.gov.uk/sectors_environment.html
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