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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.
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