PRODUCTIVITY, VIABILITY AND IMPROVED ENVIRONMENTAL PERFORMANCE
Increasing Productivity
and Environmental Performance:
an Integrated Approach
Know-how and experience from the UNIDO project "Transfer of
Environmentally Sound Technology (TEST) in the Danube river basin"
UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
e c o n o m y e n v i r o n m e n t e m p l o y m e n t
UNIDO_1_6.qxd 25.11.2003 17:31 Uhr Seite i
PRODUCTIVITY, VIABILITY & IMPROVED ENVIRONMENTAL PERFORMANCE
Increasing Productivity and Environmental
Performance: An Integrated Approach
Know-how and Experience from the UNIDO
Project for the Transfer of Environmentally
Sound Technology (TEST)
In the Danube River Basin
UNIDO_1_6.qxd 25.11.2003 17:31 Uhr Seite ii
The designations employed and the presentation of material in this publication do not
imply the expression of any opinion whatsoever on the part of the Secretariat of the United
Nations Industrial Development Organization concerning the legal status of any country,
territory, city or area, or of its authorities, or concerning the delimitation of its frontiers
or boundaries. The opinions, figures and estimates set forth are the responsibility of the
authors and should not necessarily be considered as reflecting the views or carrying the
endorsement of UNIDO. The designations "developed" and "developing" economies are
intended for statistical convenience and do not necessarily express a judgment about the
stage reached by a particular country or area in the development process. Mention of firm
names or commercial products does not imply endorsement by UNIDO.
AUTHOR'S CONTACT DETAILS:
Roberta De Palma, email: rdepalma@unido.org
Vladimir Dobes, email: vladimir.dobes@iiiee.lu.se
UNIDO_1_6.qxd 25.11.2003 17:31 Uhr Seite iii
FOREWORD
In the Millennium Declaration of 2000, the UN General Assembly asserted
that current unsustainable patterns of production and consumption had to
be changed, and that no effort should be spared to free all of humanity,
particularly future generations, from the threat of living on a planet irre-
deemably spoilt by human activities, and whose resources would no longer
be sufficient for their needs. They codified this in the Seventh Millennium
Development Goal of Ensuring Environmental Sustainability.
In their Plan of Implementation, the delegates to the World Summit on
Sustainable Development of 2002 reaffirmed the necessity for sustainable
patterns of consumption and production, calling inter alia for an enhance-
ment of industrial productivity and competitiveness as well as an intensi-
fication of efforts in cleaner production and the transfer of environmentally
sound technologies.
The UNIDO Corporate Strategy responds to these challenges, affirming that
for development to be sustainable environmental concerns must be sys-
tematically incorporated into the paradigms of economic development. This
way the achievement of high levels of productivity in the use of natural
resources becomes a central concern both in the developing countries as
well as in the advanced industrial nations. As stated in the Strategy, `in the
process of industrialization there has to be a shift from end-of-pipe pollu-
tion control to the use of new and advanced technologies which are more
efficient in the use of energy and materials and produce less pollution and
waste; and finally to the adoption of fundamental changes in both pro-
duction design and technology represented by the concept of `natural cap-
italism' and the `cradle-to-cradle' approach.'
This Series on Productivity, Viability and Improved Environmental
Performance has been conceived as one of UNIDO's tools to promote the
message that increased levels of productivity by enterprises in their use of
natural resources enhances their environmental performance while assur-
ing them a greater viability when affronting the challenges of the future.
This volume, `Increasing Productivity and Environmental Performance: an
Integrated Approach' illustrates the TEST integrated approach to industrial
environmental management developed by UNIDO, presenting the neces-
iii
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sary tools, and shows how its adoption leads to continuous improvement
of the economic and environmental profiles of companies.
CARLOS MAGARIŃOS
Director General
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NOTES ON THE AUTHORS
Ms. Roberta De Palma is the designer of the conceptual framework and the
main author of this publication. Since 2001, Ms. De Palma has been the
Programme Manager of the UNIDO project `Transfer of Environmentally
Sound Technology (TEST)' implemented in five countries of the Danube
River basin, developing an innovative approach to integrate industrial com-
petitiveness with environmental responsibility. She has a background in
industrial engineering with a specialization in Cleaner Technology. She has
worked for UNIDO since 1998, and has been responsible for the imple-
mentation of various technical cooperation programmes in the field of
industrial environmental management and transfer of environmentally
sound technologies. She is the author of various publications including a
collection of case studies on the introduction of Environmental
Management Accounting (EMA) in companies in Central and Eastern
Europe (CEE).
Mr. Vladimir Dobes is the author of the chapter on Cleaner Production and
has been a significant contributor to other parts of the guidance document
both directly and with valuable feedback. He played an important role in
the successful implementation of the TEST project in Bulgaria and Romania.
Mr. Dobes is known for his promotional activities in the field of Cleaner
Production especially in Central and Eastern Europe. Mr. Dobes was the
Director of the Czech Cleaner Production Centre from 1994 to 1999. Since
2000, he is working for the International Institute for Industrial
Environmental Economics in Sweden.
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ACKNOWLEDGEMENTS
The authors would like to thank a large number of people and organiza-
tions that contributed to the success of this publication. First of all, our
thanks to the Global Environment Facility (GEF), which is the main source
of funding, to the governments of Hungary and the Czech Republic, and
to the United Nations Industrial Development Organization (UNIDO),
which all provided valuable co-financing for the TEST project.
We would especially like to thank Mr. Zoltan Csizer, Special Adviser
Programme Development and Technical Cooperation Division - UNIDO,
and Mr. Pablo Huidobro, Chief of the Water Management Unit - UNIDO
for their guidance and support to our work.
Special thanks are due to Mr. Andrea Merla of the GEF Secretariat for his
support during the project formulation phase, and to Mr. Andrew Hudson,
of UNDP-GEF for his guidance during all phases of the project.
Many thanks to the GEF implementing agency, the United Nations
Development Programme (UNDP), and the TEST project national counter-
parts that coordinated the efforts of the local consultants and organized
the assistance provided to the companies that participated to the project:
the Technical University of Sofia, in particular Tzanko Tzanov, associate
professor and Prof. Alexander Kirii, dean of the Energy Study Faculty; the
Croatian Cleaner Production Centre, in particular Marjan Host director and
Morana Belamaric, programme manager; the Hungarian Cleaner
Production Centre, in particular Sandor Kerekes director and Gyula Zilahy
executive director; the Institute for Industrial Ecology (ECOIND) in
Romania, in particular Maura Teodorescu, director of international depart-
ment and Lucian Constantin, programme manager; and the Slovak Cleaner
Production Centre, in particular Viera Fecková, director, and Jana Balesova,
programme manager.
The project could not have succeeded without the conscientious work of
the representatives of the 17 enterprises that participated to the project
and the national consultants. The authors would like to express their appre-
ciation to all of them for their efforts in making this project a success and
for their commitment and dedication to the project activities.
vii
UNIDO_1_6.qxd 25.11.2003 17:31 Uhr Seite viii
Special thanks to Mr. Christian Teodorescu and Mr. Ilian Ivanov for their
inputs to the methodology and for assisting several enterprises in intro-
ducing the TEST approach. Additionally the authors would like to thank
Ms. Maria Csutora for her contribution to the Environmental Management
Accounting (EMA) section of this guide, and for the provision of method-
ological and practical advice on how to implement an EMA system at com-
panies participating in the project.
Special thanks also to Mr. Edward Clarence-Smith, senior industrial devel-
opment officer of UNIDO and technical editor of this document, who pro-
vided useful feedbacks and suggestions on the first version of this
publication.
We extend our gratitude to Mr. Skip Luken, a former colleague at UNIDO
who originally designed the project, and provided the conceptual frame-
work to develop the TEST methodology and creating the opportunity to
introduce it at the pilot enterprises in Central and Eastern Europe.
Finally, we would like to thank the English editor, Ms. Kathy Pritchard. Full
responsibility for the content of this material, including any errors stays
nevertheless with the authors.
TEST Project Team, November 2003
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CONTENTS
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Notes on the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
v
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Explanatory notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv
INTRODUCTION
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART I - FRAMEWORK FOR TEST
A. Rationale for the UNIDO TEST programme: Industry and
sustainable development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
B. The transfer of EST: an overview of different approaches and
tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C. TEST: an integrated approach for the transfer of EST . . . . . . . . . . . 18
PART II - THE TEST PROGRAMME
A. Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
B. Implementing a TEST programme . . . . . . . . . . . . . . . . . . . . . . . . 30
C. The TEST programme in the Danube River basin . . . . . . . . . . . . . . 42
PART III. TEST TOOLS
A. Initial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
B. Cleaner Production Assessment . . . . . . . . . . . . . . . . . . . . . . . . . 82
C. Environmental Management Systems . . . . . . . . . . . . . . . . . . . . . . 97
D. Environmental Management Accounting . . . . . . . . . . . . . . . . . . . 115
E. Environmentally Sound Technology Assessment . . . . . . . . . . . . . . 140
F. Evaluation of Implemented Measures . . . . . . . . . . . . . . . . . . . . . 151
G. Sustainable Enterprise Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . 154
H. TEST project cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
I. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
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PART IV - ANNEXES
ANNEX I - Enterprise Strategy and its Development Process . . . . . . . . . . 187
ANNEX II - Case Study: Implementing CPA at a Bulgarian Enterprise . . . 195
ANNEX III - Case Study: Introducing EST in Accordance with the
IPPC-EU Directive at a Romanian Company . . . . . . . . . . . . . . . . . . . . . . . 203
ANNEX IV - Case Study: Profitability of an EST investment and
contingency enviromental costs at a Slovak Enterprise . . . . . . . . . . . . . . 211
ANNEX V - A Full Case Study: Implementing the TEST Approach in a
Romanian Pulp and Paper Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
ANNEX VI - Integrated Scheme of the TEST Approach and Possible
Links Between the Tools within an Implemented System . . . . . . . . . . . . . 231
Figures
1. The Management Pyramid . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2. TEST Tools Applied to the Management Pyramid . . . . . . . . . . . 25
3. Implementation Scheme of the TEST Programme . . . . . . . . . . . 32
4. Comparison of Benefits Before TEST, After CPA and After ESTA . . 39
5. Map of the Danube River Basin . . . . . . . . . . . . . . . . . . . . . . . 43
6. Distribution of TEST pilot enterprises based on the total number
of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7. TEST Project in the Danube River Basin: Financial
Contributions (USD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8. TEST Project in the Danube River Basin: Total Number of Measures
Identified vs. Those Implemented (by Category) . . . . . . . . . . . . 52
9. Specific Water Consumption at the TEST Enterprises, at Project
Start, at Project End (November 2003), After Implementation
of EST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10. TEST Project in the Danube River Basin: Capacity Building
Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11. The Initial Review Steps and Main Outcomes . . . . . . . . . . . . . . 66
12. Five Forces Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
13. Continual Improvement Cycle . . . . . . . . . . . . . . . . . . . . . . . . 99
14. Introduction of EMS at the TEST Enterprises . . . . . . . . . . . . . .108
15. EMS implentation: Organizational Changes . . . . . . . . . . . . . . .108
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16. TEST Project in the Danube River Basin: Number of Identified vs.
Implemented CP Type A and B Measures (by country) . . . . . . . .109
17. Comparative Short-Term Normative and Actual Product-Based
Environmental Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129
18. KAPPA-Environmental Costs Chart-Beginning vs. End of Project .137
19. Breakdown of Atrazine Product Costs - HERBOS . . . . . . . . . . . .137
20. Nitrokémia 2000 Product Enviromental Costs-Before EMA and
after EMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139
21. The Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . . . . . .163
22. Approaches for integrating sustainability considerations in
the BSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164
23. Process of Formulating a SBSC . . . . . . . . . . . . . . . . . . . . . . . .166
24. Corporate SBSC at ASTRA: Cause and Effect Diagram . . . . . . . . .170
25. TEST Work Plan for a Chemical Company in Hungary . . . . . . . .176
26. TEST Work Plan for a Pulp and Paper Enterprise in Romania . . .176
27. Developement of Enterprise Strategy . . . . . . . . . . . . . . . . . . . .189
28. Strategic Decision-Making and Influential Elements . . . . . . . . . .190
29. Porters Model of Business Strategy . . . . . . . . . . . . . . . . . . . . .192
30. S.C. ASTRA ROMANA S.A. - Input Material Consumption: Start-up
Situation, After ESTA (cumulated Implementation - Results
of Option One and Two) and BAT Benchmarks . . . . . . . . . . . .207
31. ASTRA ROMANA S.A.-Estimated Financial Benefits After
Implemention of EST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .208
32. Existing (black) and Adopted EST Layout (red) for the Hydro
Refinning Reactor Optimization-ASTRA. . . . . . . . . . . . . . . . . . .209
33. Existing and Adopted EST Layout for the Scrubbing column
ASTRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .210
34. SOMES-CP Module Applied to the Pulp Bleaching Plant . . . . . . .218
35. SOMES-Effects of Implemented CP Measures: Reduction of
Chemicals and Water Specific Consumption . . . . . . . . . . . . . . .219
36. SOMES-CP Effects on Bleached Pulp Effluent . . . . . . . . . . . . . .220
37. SOMES-Reduction of Chlorine Based Gas Emissions at the
Bleaching Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .220
38. SOMES-Effects of Implemented CP Measures on Bleached Pulp
Production Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .221
39. SOMES-Reduction of Production: Breakdown Costs by Cost
Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .221
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40. SOMES-ESTA module Applied to the Bleaching Unit . . . . . . . . .224
41. SOMES-Production Cost Structure: Bleached Pulp . . . . . . . . . . .228
42. SOMES-Non-Product Cost Structure: Bleached Pulp . . . . . . . . . .229
Tables
1. Comparison of a Typical Start-up Situation in Devloping/Trans-
itional Countries vs. Desired Situation . . . . . . . . . . . . . . . . . . . 22
2. List of Enterprises Participating in the Danube River Basin
TEST Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3. Financial Figures of the EST Investments Identified at the 17
Enterprises Participating in the TEST Programme in the Danube . 53
4. New Tools Provided to the Five TEST Counterpart Institutions . . 56
5. Summary: Main Steps of CPA and Its Activities, Including
Examples of Tools that can be Used for Each Step . . . . . . . . . . 90
6. Financial Figures of the Implemented Type B CP Measures . . . . .110
7. Environmental Cost Categories . . . . . . . . . . . . . . . . . . . . . . .117
8. Relationship between Non-Product Output Costs Calculation
Methods and Cost Controllability . . . . . . . . . . . . . . . . . . . . . .131
9. Management Performance Indicators and TEST Project Tools . . . .153
10. Enviromental and Social Performance Objectives Related to the
Key Elements of Main Functional Strategies of a Business . . . . . .161
11. SBSC at ASTRA: Key Performance Indicators (KPI) . . . . . . . . . . .171
12. ZAHARNI ZAVODI AD-Heat Recovery Opportunities . . . . . . . . .199
13. KAPPA-NSSC Pulp Washing Project Assumptions and Projected
Annual Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .213
14. KAPPA-NSSC Pulp Washing Project Financial Indicators . . . . . . .213
15. KAPPA-Green Liquior Project Assumptions and Projected Annual
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214
16. KAPPA-Green Liquior Project Financial Indicators . . . . . . . . . . .214
17. SOMES-Reduction of Production Costs by Category at the Bleach
Plant after Implementation of EST/BAT . . . . . . . . . . . . . . . . . .223
18. Absorption Costing at SOMES . . . . . . . . . . . . . . . . . . . . . . . .226
19. Management Accounting System Allocations (Before Introducing
the EMA Tool) at SOMES . . . . . . . . . . . . . . . . . . . . . . . . . . .226
20. Non-Product Output Costs Compared to Enviromental Treatment
Costs (end-of-pipe) For Each Product-SOMES . . . . . . . . . . . . . .230
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Text Boxes
1. Comparison of Benefits Before TEST, After CPA and After ESTA,
in a Hydro Refining Unit at a Petrochemical Enterprise . . . . . . . 39
2. Implementing the TEST Project in State Owned Enterprises:
The Romanian Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3. Implementing the TEST Approach in Small and Medium-Sized
Enterprises (SMEs) The Hungarian Experience . . . . . . . . . . . . . 59
4. Experience From the TEST Project in the Danube: Influence of
the Company Strategy on the Selection of the Project Focus Area
71
5. CP Integration into Business Strategy: A Parallel with the
Total Quality Management . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6. Example of Combined Application of a CPA and Energy Audit
at a Bulgarian Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7. Experience from the Start-up of the TEST Approach and the
EMS and CP Modules in the Danube River basin. . . . . . . . . . . .106
8. Introducing EMA: Experience from the TEST Project in the
Danube River Basin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135
9. The IPPC-EU Directive and the TEST Project in the Danube River
Basin: An Example on How Regulation Can Drive the EST
Transfer Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146
10. Coming into Compliance with the IPPC Directive in a
Romanian Company Through the Implementation of the
ESTA Module . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148
11. Implementing the ESTA Module: Experience From Slovakia
Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149
12. Practical Experience From Implementation of the SES in the
Danube River basin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167
13. TEST Approach: Temporal Sequence and Duration of Activities
of Each Project Tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175
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EXPLANATORY NOTES
ABC
Activity Based Costing
APF
Alcohol Production Factory
AOX
Absorbable Organic Halide
BAT
Best Available Techniques
BDt Bone-dry
tonne
BDtpd
Bone-dry tonnes per day
BGN
Bulgarian Lev (1 Lev = 0.51371 euro) 1
BOD
Biological Oxygen Demand
BSC
Balanced Score Card
BREFs
Best Available Techniques Reference Document
CC
Cost Centres
CEE
Central & Eastern European Countries
ClO2
Chlorine Dioxide
CO2
Carbon Dioxide
COD
Chemical Oxygen Demand
COMFAR
UNIDO Software for financial appraisal
(http://www.unido.org/doc/3470)
CP
Cleaner Production
CPA
Cleaner Production Assessment
DfE
Design for Environment
ECO
Energy Conservation Opportunity
ECOIND
Institute for Industrial Ecology (Romania)
ECF
Elemental Chlorine-Free (as in a process or bleaching unit)
EH&S
Environmental Health and Safety
EM
Environmental Management
EMA
Environmental Management Accounting
EMAN
Environmental Management Accounting Network
EMAS
Eco-Management and Audit Scheme
(http://europa.eu.int/comm/environment/emas/index_en.htm)
EMP
Environmental Management Programme
EMS
Environmental Management System
End-of-Pipe
Pollution treatment or abatement technology, NOTE:
different from a procedural prevention of pollution
EPA
United States Environmental Protection Agency (www.epa.gov)
EST
Environmentally Sound Technologies
ESTA
Environmentally Sound Technology Assessment
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EU
European Union
GDP
Gross Domestic Product
GEF
Global Environmental Facility (www.gefweb.org)
GRI
Global Reporting Initiative (www.globalreporting.org/)
HERBOS
Chemical plant based in Croatia
HRFU
Hydro-refining unit (a unit of the Astra company - Romania,
were the TEST approach was applied)
HUF
Hungarian Forint (1 HUF = 0.004236 US dollar = 0.003881
euro)
IPPC
Integrated Pollution Prevention and Control
IR
Initial Review
IRR
Internal rate of return
ISO 14001
International Organization for Standardization Environmental
Management System Standard (www.iso14000.com)
ISO 14004
International Organization for Standardization Development
and Implementation of Environmental Management Systems
and Principles
ISO 14031
International Organization for Standardization: Environmental
Performance Evaluation
KAPPA STUROVO
Pulp and paper plant in Slovakia
MBR
Membrane Bioreactor
MCM-41
Class of Mesoporous Catalysts for Use in Petroleum Refining
MPI
Management Performance Indicators
National
Counterparts
Institutions coordinating the implementation of a TEST
programme on a country level
NaOCl
Sodium Hypochlorite
NCPC
National Cleaner Production Centre
(www.unido.org/en/doc/4460)
NITROKÉMIA 2000 Chemical plant based in Hungary
(www.nitrokemia.hu/hun/index.php )
NGO
Non-Governmental Organization
NSSC
Neutral Sulphite Semi-Chemical
OPI
Operational Performance Indicators
P2Finance
Accounting software developed by the Tellus Institute
(www.tellus.org)
P
Pollution Prevention (also referred to as PP)
PB
Payback Period
PCE
Perchloroethylene (chlorinated solvent)
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PER
Preliminary Environmental Review
PEST
Political, Economic, Social, Technological analysis
POI
Plan of Implementation of the World Summit on Sustainable
Development (WSSD)
PP
Pollution Prevention (also referred to as P2)
Q
Quarter e.g. Q1 - 1st quarter of the year or fiscal quarter
(as applicable)
RO
Reverse Osmosis
SA 8000
Social Accountability International Standard
(http://www.cepaa.org)
SBSC
Sustainability Balanced Score Card
SBU
Strategic Business Unit
SO2
Sulphur Dioxide
SOMES
Romanian pulp and paper Plant, Member of the HOVIS Group
SES
Sustainable Enterprise Strategy
SME
Small and Medium-sized Enterprises
SPF
Sugar Production factory
SWOT
Strengths, Weaknesses, Opportunities and Threats Analysis
TEST
Transfer of Environmentally Sound Technology
TEST Approach
Integrated approach for introducing EST at enterprise level
TEST Programme
UNIDO programme for transferring EST at a national (country)
level
TPP
Thermal Production Plant
TT
Technology Transfer
UF
Ultra filtration
UNCED
United Nations Conference on Environment and Development
UNDP
United Nations Development Programme www.undp.org
UNDSD
United Nations Division for Sustainable Development
UNEP
United Nations Environment Program www.unep.org
UNIDO
United Nations Industrial Development Organization
www.unido.org
USD
United States Dollars
WSSD
World Summit on Sustainable Development
www.johannesburgsummit.org
WWTP
Waste Water Treatment Plant
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INTRODUCTION
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INTRODUCTION
The purpose of this document is to record the methodology developed and
the experience gained implementing the TEST programme in the Danube
River basin. The document describes TEST, its benefits and what it can help
to accomplish. The document provides a layout of how to implement this
new environmental approach and relays the practical experience gained
through its implementation in a number of locations. It is designed to assist
other developing and transitional countries facing similar barriers in the
Transfer of Environmentally Sound Technology (TEST), as well as support
any follow-up and information dissemination activities in the countries
where the project was undertaken.
The potential users of the guide are companies, local consultants and gov-
ernments, who can use it to further develop the TEST approach and to
launch other TEST projects.
Companies (the main target group) can learn from the practical experiences
of the enterprises in the Danube River basin that participated in the pro-
gramme, when they are exploring the areas of integrated environmental
management and sustainable entrepreneurship. This guide presents exam-
ples of how they can use the challenge of environmental management to
improve their overall performance, including productivity.
Consultants and other practitioners working in the field of industrial envi-
ronmental management will find this guide provides both conceptual and
practical information on how they can encourage and engage companies
in environmental management. The TEST approach requires multi-discipli-
nary teamwork and cannot be accomplished on the strengths of any one
person, as is possible with some traditional approaches that focus on spe-
cific sectors and/or tools. Therefore, opportunities for new partnerships3 will
be created. It is the authors' hope that consultants and other practitioners
will recognize the opportunity this guide provides them to offer more effec-
tive and efficient services to industry and use this guide as a tool to assist
and educate clients on the benefits and concepts of this system.
Governments also can benefit, for example, when comparing command and
control regulations to different voluntary initiatives. By promoting a pre-
ventive integrated approach such as TEST, governments have an opportu-
3
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nity to not only achieve a better protection of the environment as a whole,
but also to encourage the economy on both a micro and macro level, with
positive social consequences. TEST contributes to the development of effec-
tive partnerships in the field of industrial environmental management
between the private and public sectors and provides win-win solutions to
both sectors.
Enterprises implementing the TEST approach to environmental manage-
ment will find it a learning experience that will lead to a continuous
improvement of their economic and environmental profiles. The themes
that run throughout and the tools provided in this guide support each
other and this goal. To accomplish this, the document functions as both a
text and a resource book that includes:
· A description of the TEST approach and its toolkit, and
· A description of the experience gained from the practical imple-
mentation of the TEST approach at several companies in the
Danube River basin
The guide is organized into four parts. The first Part sets the framework for
the whole guide starting with the chapter `Rationale for the UNIDO TEST
programme: Industry and sustainable development'. This chapter provides
a description of the origins of the TEST approach, as it was developed with-
in the framework of UNIDO's environmental programmes and explains why
this approach is needed and relevant to achieve sustainable entrepreneur-
ship. In addition, it contains a section that outlines the TEST approach's
main features and benefits.
The second Part, the TEST Programme, contains an overview of how to
design and implement a TEST programme. It summarizes its rationale and
clearly lays out the implementation strategy. The last chapter summarizes
the key results from the implementation of the TEST programme in the
Danube River basin, including a section describing the barriers to, and the
challenges of, introducing the TEST approach. This chapter aims at pro-
viding practical managerial advice to national authorities or national insti-
3
The Plan of Action adopted at the World Summit on Sustainable Development in
Johannesburg stresses the importance of partnerships in redirecting contemporary devel-
opments towards sustainability.
4
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tutions that want to replicate the achievements of the countries in the
Danube River basin in their own countries.
If the reader is interested in an overview of the key aspects of the TEST
approach, Parts I and II summarizes the main components. Part III, TEST
Tools, provides the reader with more detailed individual chapters, which
expand on each component of the approach. The chapters are divided into:
Initial Reviews (IR), Cleaner Production Assessments (CPA), Environmental
Management Systems (EMS), Environmental Management Accounting
(EMA), Technology Assessment and investment promotion (described in the
chapter on Environmentally Sound Technology). Part III focuses on describ-
ing the logic behind their use within the TEST approach and the synergy
created when different environmental management tools are integrated to
generate maximum results. For detailed descriptions, methodologies and
step-by-step instructions on how to implement each of these tools a liter-
ature and resource list is provided for the reader.
One of the strengths and unique features of the TEST approach is how it
emphasizes linking the tools that work on the operational and manage-
ment system levels, with those of the business strategy level. This process
starts with the Initial Review and follows through all stages of the imple-
mentation. The chapters on Sustainable Enterprise Strategy (SES) and the
TEST project cycle at the end of Part III describe how this is accomplished.
The practical experiences gained from the project in the Danube River basin
are dispersed throughout the document and summaries of results gained
through implementing the particular TEST tools are presented in text boxes
at the end of each tool-specific chapter.
Finally, Part IV is a collection of annexes, including case studies from the
introduction of the TEST approach in specific enterprises of the Danube
River basin where the particular experiences summarized in the text boxes
are further expanded to provide the reader with a detailed insight on what
enterprises can achieve through the TEST approach.
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PART I
FRAMEWORK FOR TEST
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FRAMEWORK FOR TEST
A.
Rationale for the UNIDO TEST programme:
Industry and sustainable development
Industry is a vital component in any model of sustainable development,
generating the wealth and employment that developed and developing
countries are looking for. This is especially true in developing countries and
countries with economies in transition, as was recently recognized at the
World Summit on Sustainable Development (WSSD), where the delegates
stated that it was necessary to `strengthen the contribution of industrial
development to poverty eradication and sustainable natural resource man-
agement' in their Plan of Implementation (POI). In the delegate's conclu-
sions, this would include actions to provide assistance and mobilize
resources to enhance industrial development in developing countries.
This belief in the importance of the transfer of EST for the sustainable
industrial development of developing and transitional countries had also
been given great prominence in 1992 at the United Nations Conference on
Environment and Development (UNCED), held in Rio de Janeiro. There,
the delegates devoted considerable space (Chapter 34) to EST in Agenda 21,
the formal output of the Conference and provided the first official defini-
tion to EST4. Chapter 34 of Agenda 21 states, `ESTs encompass technolo-
gies that have the potential to significantly improve environmental
performance relative to other technologies'. Broadly speaking, these tech-
nologies protect the environment, are less polluting, use resources in a sus-
tainable manner, recycle more of their wastes and products and handle all
residual wastes in a more environmentally sound manner than the tech-
nologies they are designed to replace. It is important to note that Agenda
21 stresses that ESTs are not just individual technologies, but they are total
systems and therefore are not restricted to just the technology or equip-
ment. ESTs include the application skills, the procedures, the goods and
services and the organizational and managerial procedures needed. With
this definition, EST covers cleaner production5 (CP) options, cleaner tech-
nologies (CT) and end-of-pipe technologies.
4
Agenda 21, chapter 34 -Transfer Of Environmentally Sound Technology, Cooperation
And Capacity-building - http://habitat.igc.org/agenda21/a21-34.htm
5
Cleaner production is used in this context to cover a family of similar terms, such as
eco-efficient toxin-use reduction, waste minimization, pollution prevention, source
reduction etc.
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Increasing Productivity and Environmental Performance: An Integrated Approach
With this influential history of international support, it is not surprising
the POI of the WSSD has a strong emphasis on the promotion of the trans-
fer of ESTs. In particular, the POI reconfirms the conclusions in Agenda
21's Chapter 34 and calls on the world community to `promote, facilitate
and finance, as appropriate, access to and the development, transfer and
diffusion of environmentally sound technologies and corresponding know-
how, in particular to developing countries and countries with economies
in transition on favourable terms'. It goes on to urge the world commu-
nity to `improve the transfer of technologies to developing countries, in
particular at the bilateral and regional levels, including through urgent
actions at all levels to:
· Improve interaction and collaboration, stakeholder relationships
and networks between and among universities, research institu-
tions, government agencies and the private sector
· Develop and strengthen the networking of related institutional sup-
port structures, such as technology and productivity centres,
research, training and development institutions, and national and
regional cleaner production centres
· Create partnerships conductive to investment and technology trans-
fer, development and diffusion, to assist developing countries, as
well as countries with economies in transition, in sharing best prac-
tices and promoting programmes of assistance and encourage col-
laboration between corporations and research institutes to enhance
industrial efficiency, agricultural productivity, environmental man-
agement and competitiveness
· Provide assistance to developing countries, as well as countries with
economies in transition, in accessing environmentally sound tech-
nologies (that are publicly owned or in the public domain), sci-
ence and technology information (available in the public domain)
and in accessing the know-how and expertise required to enable
them to make independent use of this knowledge in pursuing their
development goals
· Support existing mechanisms and where appropriate, establish new
mechanisms for the development, transfer and diffusion of envi-
ronmentally sound technologies to developing countries and
economies in transition.
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Part I Framework for TEST
Within the broader need to render world consumption and production pat-
terns sustainable, the POI also emphasizes the need for improved industri-
al productivity and efficiency in a manner that will attain a sustainable use
of resources, a reduction in the degradation of natural resources and a reduc-
tion in pollution and waste generation. To this end, the POI calls for an
increase in cleaner production and eco-efficient activities. Specifically, the
POI endorses:
· Supporting cleaner production programmes and centres to assist
enterprises, especially small and medium-sized enterprises (SME's)
in developing countries, to improve their productivity
· Providing incentives for cleaner production investment in all coun-
tries, for example state-financed loans, venture capital and techni-
cal assistance and training programmes for small and medium-sized
enterprises
· Collecting and disseminating information on cost-effective options
in cleaner production, eco-efficiency and environmental manage-
ment and promoting the exchange of best practices and know-how
on environmentally sound technologies between public and private
institutions
The Corporate Strategy of UNIDO, which bases itself on the fundamental
principle that a continuous increase in productivity is the key to sustain-
able economic growth in the developing and transitional countries, dove-
tails with the WSSD POI position emphasizing both productivity and the
transfer of environmentally sound technology. UNIDO sees its primary goal
as being to promote productivity in these countries, but in a manner con-
sistent with these goals. The Corporate Strategy sees productivity as hav-
ing two dimensions related to the protection of the natural environment:
1. A real-time dimension, where the focus is on the efficient use of
natural resources in production (rate of natural resource inputs per
unit of output), at the time of use. This is the area where CP and
CT contribute directly by increasing the efficiency of processes,
products and services.
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Increasing Productivity and Environmental Performance: An Integrated Approach
2. A temporal dimension, where the focus shifts to the impact that
today's use of natural resources has on future productivity (through
the impact that current technologies have on the quality/quantity
of natural resources). EST contributes by promoting the conserva-
tion of natural resources (through CP/CT) and by reducing the dete-
rioration caused by pollution (through End-of-Pipe Technologies).
The Corporate Strategy sees UNIDO's focus on productivity in it's work
being translated in two broad areas of intervention: technology diffusion,
whose definition fits very closely with that of EST, and market access.
Technology diffusion is not an end in itself; it contributes to market access.
Market access will be the motor for the growth of economies in develop-
ing and transitional countries, but in a way that ensures the economic
growth is both socially and environmentally sustainable.
Despite the strong belief at the international level there is a natural bond
between the principles of productivity enhancement, efficiency improve-
ment and the transfer of environmentally sound technologies on one hand,
and the principles of sustainable industrial development on the other
(where one supports the other), many entrepreneurs in the developing and
transitional countries have a quite different perception. Many feel that the
values related to economic and industrial performance and those that pro-
mote environmental and social performance must always be in conflict.
Therefore entrepreneurs trying to run a successful business often see them-
selves faced with a terrible either-or situation: either they are environmen-
tally friendly and/or socially responsible (running an `ethical business') at
the expense of lower profits and lessened competitiveness, or they have
competitive prices and higher profits, but at the expense of increased pol-
lution and poor social conditions. This perception of a trade-off is prima-
rily based on the belief by almost all enterprises (and governments) that
the only solution to environmental problems is through largely non-pro-
ductive investments in waste and pollution treatment and disposal tech-
nology, the so-called End-of-Pipe technologies.
Companies in the developing and transitional countries often struggle daily
for survival and feel that they simply cannot make these `ethical business'
investments due to this misconception on their profitability. Nor is it
acceptable to many of their governments, which are afraid of undermin-
ing their own social policies, in the belief that strict enforcement of envi-
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Part I Framework for TEST
ronmental standards will jeopardize people's livelihoods; lost productivity
and profitability will force enterprises to lay off workers or close down com-
pletely.
It is still not generally understood, in the developing and transitional coun-
tries that the delegates to the WSSD were correct in their conclusion that
environmental strategies can actually result in considerable competitive
advantages and can reveal significant potential to maximize profits.
Economic activities and environmental concerns are not diametrically
opposed, but can actually complement one another and provide positive
incentives for industry to play its full role in the drive towards the sus-
tainable long-term socio-economic development of a country.
The overall aim of UNIDO's TEST programme is to demonstrate this possi-
bility and potential to enterprises in a practical and easily understood man-
ner. In developing countries and countries with economies in transition,
the TEST programme also supports national institutions by providing them
with tools and expertise with that can assist enterprises be both viable and
environmentally responsible at the same time.
B.
The transfer of EST: an overview of different approaches
and tools
The transfer of any technology involves two components: technological and
managerial. Failure to address both of these components together will result
in sub-optimal solutions and results. Historically this has been the fate of
many of the transfers of EST, which traditionally focus on only the tech-
nological aspects. This can be attributed to the fact that they have prima-
rily involved end-of-pipe technology, which it is widely believed can simply
be `bolted on' to existing production processes. Even transferred cleaner
technologies, which are integrated into production processes, often suffer
from this inattention to the managerial aspects of its transfer.
The transfer of EST is usually done on an ad-hoc basis, rather than as part
of an integrated approach to environmental management and the choices
of what ESTs to transfer are usually made without a complete understand-
ing of the root causes of the pollution, or wastes being generated.
Proceeding in this manner inevitably leads to sub-optimal results and both
higher investment and operational costs and lower environmental per-
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Increasing Productivity and Environmental Performance: An Integrated Approach
formance, simply because the tools or systems are not in place to ensure
good management practices.
To overcome this deficiency, using a managerial tool such as Cleaner
Production Assessment (CPA) for the optimization of an industrial process
can be very effective. CPA focuses on systematically identifying potential
applications of preventive techniques for pollution sources (where pollu-
tion is seen as a symptom of process inefficiency). The measures that result
in preventing pollution at the source will both reduce operational costs (by
increasing process efficiency) and reduce pollution (this is often referred to
as a double benefit and/or a win-win strategy). CPA is a powerful tool that
can identify both minor improvements (housekeeping practices or small
process modifications) and significant improvements, which require a sub-
stantial investment in cleaner technologies. In the latter case, this can
include tools for technology transfer, although in the majority of cases
where CPAs have been undertaken, it has been in a context where the
enterprises have chosen not to change their basic production process sys-
tem, choosing rather to focus on the minor improvements.
One of the main challenges to the proper use of CPA is that it is often
viewed as, or treated as, a one-time deal. It is a common misconception
that once a CPA has been completed, the problems have been found and
the corrective actions have been identified. When applied in this manner,
CPAs cannot take into account the continually changing factors influenc-
ing the enterprise and therefore cannot be applied as changes occur, or be
reviewed for its currency as technology changes. As a result, improvement
will not be continuous but will halt after the `low hanging fruits' have been
gathered. In addition, this static view of CPAs means that the CPA process
is never integrated into the enterprise's operational methods or culture.
Therefore, even the `low hanging fruits' have problems in being effective-
ly implemented because they require changes to those same methods and
culture. For instance:
· Particular steps are labour intensive and changes in these require
the active involvement and creativity of personnel from a series of
different departments
· CPAs often recommend changes to modify existing operating pro-
cedures. Unless these changes are codified and monitored in some
way, there is the inevitable problem of both sustaining the imple-
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Part I Framework for TEST
mented measures and preventing operations from reverting to their
previous state
CPA is an ambitious process involving different parts and individuals of an
enterprise in a creative process focused on innovation. Implemented as a
stand-alone system, CPA can face many additional barriers, in particular,
the resistance to change and preference to adopt proven solutions that take
less work, cause less stress and have less inherent risk; all factors which are
especially important when investment capital is limited. In cases where
CPAs identify CT options, a lack of finances can result in sub-optimal meas-
ures being enacted, or measures not fully implemented and sustained.
Compounding this problem is the traditional period for completing a CPA,
which is often too short to allow a detailed technology assessment to be
undertaken.
Another important tool in the field of industrial environmental manage-
ment is the Environmental Management System (EMS). Since its introduc-
tion in the early nineties, views of its potential effectiveness have been
mixed: many hoped that EMS could make a significant contribution to
improving industry's environmental performance, while others were doubt-
ful it would make a difference. Based on more than a decade of experi-
ence it appears two basic uses of EMS have evolved:
1. There are industries that use EMS as a catalyst for cultural change
within the enterprise, with the objective of achieving real and sig-
nificant ongoing improvements in environmental performance.
These EMS's usually go far beyond the relevant international stan-
dards' basic requirements and are put-in- place by enterprises that
build their policies and procedures on a preventive approach and
use proactive strategies and tools to implement their goals.
2. Then there are industries that use EMS as a marketing device or a
smokescreen, to pacify their customers and other stakeholders (who
might have concerns regarding their environmental performance)
or - at best - use it primarily as a tool to ensure compliance with
environmental standards, which is not much better, as a reason, to
implement.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Unfortunately, this latter group currently seems to represent the majority
of enterprises that have implemented an EMS and is most common where
the EMS is not integrated with the other systems of the enterprise. By not
building on a proactive vision or strategies, these companies underutilize
the potential of the system and leave the real potential for an EMS, to
increase overall competitiveness, unexplored.
The transfer of EST is often particularly less than optimal because of the
very nature of the traditional approach to environmental management in
many enterprises. For these enterprises, environmental management means
focusing primarily on pollution control i.e. the process of identifying, pro-
cessing and disposing of pollutants through a very technology-driven
process. When industrial pollution control was in its infancy, these
approaches were relatively inexpensive. However, as environmental legis-
lation has increased in scope and severity, they are rapidly becoming much
more costly. In addition, because of the `bolt-on' mentality that comes with
the traditional transfer of end-of-pipe technology, little or no attention is
given to the costs of pollution emanating from the production process itself.
A recent tool, adopted by very proactive enterprises in the field of envi-
ronmental management, is Environmental Management Accounting (EMA),
which focuses on the optimization of production and products by tracking
all environmental costs back to their sources. In the early stages of its
development, EMA focused on finding the `hidden' costs related to the
treatment of generated pollutants. However, it now focuses even more on
the other costs of pollution that are `hidden' in production costs, such as
those associated with the costs of raw materials, energy that goes wasted
and the value that is added from the process but which does not enter into
the final product. Experience with EMAS has shown that, on average, these
hidden production-related costs can be ten to twelve times higher than
waste and emissions treatment costs6, such as the operational and invest-
ment costs associated with pollution treatment equipment and the trans-
port of waste and its disposal at a dumping site.
Environmental management strategies have traditionally overlooked these
system costs when assessing pollution costs. EMA is filling this gap today
6
Evaluation of cleaner production projects implemented in 46 enterprises in the Czech
Republic - Czech Cleaner Production Centre: Annual Report 1996, Czech Cleaner
Production Centre, Prague, 1997.
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Part I Framework for TEST
by providing a diagnostic tool to maximize the profitability of the entire
process responsible for creating a particular product. The same process of
analysis can be applied to identify costs buried in the life cycle of a prod-
uct.7
As in the case of CPAs or EMSs, stand-alone EMA initiatives are less than
optimal when they are not fully incorporated into the management system
and culture of a facility: the data it generates are not automatically con-
sidered in all aspects of an enterprise's decision-making. An EMA can gen-
erate data that can be used for more than just assigning total costs to
particular products; the data can also be used for the optimization of the
production process, products and/or product-service systems. Without this
integration, EMAs can be difficult to maintain, as their full potential and
value to the company is not realized.
If the approaches and tools discussed above are integrated with the tech-
nological aspect of the transfer of EST, they can assure a transfer that is
much more optimal and thus a more continuous improvement of the envi-
ronmental performance of a company. However, to reach their true poten-
tial, these approaches and tools and the technological decisions taken, must
be closely linked to the business strategy and the values of stakeholders,
otherwise there is a risk that they will take the company in a direction that
is in conflict with its strategic objectives. This will only result in a waste
of resources that could have been better spent achieving the desired goals.
Unfortunately, many activities in the narrow field of industrial environ-
mental management do not integrate with the crucial, strategic dimension.
Focusing exclusively on technical issues and on the operational level, they
often lack a connection to the strategic needs of the enterprise: lacking
answers to basic questions such as `what is the strategic necessity that
requires the changes be initiated and that they should be continued and
maintained'? Given this lack of a fundamental strategic reasoning behind
the changes, it is not surprising that many solutions are sub-optimal, not
implemented, or simply fade away.
7
For example, the costs associated with the disposal of packaging discarded by distribu-
tors or customers, or, the additional costs bore by customers when they use products
that produce pollution or waste energy. There are also the costs that customers pay
(directly or indirectly) when they dispose of the products: the disposal cost itself and
the shadow cost related to the value of the materials in the product that could be re-
used but are not.
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Increasing Productivity and Environmental Performance: An Integrated Approach
The challenge that faces us is that while strategic industrial management
has recognized the importance of businesses' non-production functions in
the environmental and social fields, integration of these concerns into
strategic planning is still quite rare.
C.
TEST: an integrated approach for the transfer of EST
The experience that has been gained with the approaches and tools men-
tioned in the previous sections shows that each could provide important
information for use in developing more sustainable business operations.
Used separately, however, they have difficulty initiating and maintaining
the desired changes. Fundamental managerial and cultural changes are
needed to redirect existing developments towards sustainability and each
tool, alone, cannot bring these changes about.
The challenge therefore is to combine the strengths of each of these indi-
vidual approaches and tools, to accommodate the two needs entrepreneurs
see as conflicting: the objective of improved environmental and social per-
formance versus improved economic performance. Only through integra-
tion can the obstacles in the managerial culture of an enterprise be
overcome. UNIDO developed the integrated TEST approach to address this
challenge.
The design of UNIDO's integrated TEST approach grew from the positive
experiences the Organization has gained from the implementation of these
approaches and tools individually, especially in the fields of cleaner pro-
duction (through its National Cleaner Production Centre (NCPC) pro-
gramme), environmental management and in the fields of business
development and entrepreneurship. The integrated TEST approach was
introduced for the first time, within the framework of the UNIDO TEST
programme, which focused on a series of medium and large industrial pol-
luters in the Danube River basin. The experience from this first TEST pro-
gramme implementation has positively contributed to the refinement of
the integrated TEST approach and its methodology.
The integrated TEST approach is based on three basic principles:
1. First, it gives priority to the preventive approach of cleaner pro-
duction (systematic preventive actions based on pollution preven-
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Part I Framework for TEST
tion techniques within the production process) and considers the
transfer of additional technologies for pollution control (end-of-
pipe) only after the cleaner production solutions have been
explored. This leads to a transfer of technologies aimed at opti-
mizing environmental and financial elements: a win-win solution
for both areas.
2. Second, the integrated TEST approach addresses the managerial
aspects of environmental management as well as its technological
aspects, by introducing tools such as EMS and EMA.
3. Third, it puts environmental management within the broader strat-
egy of environmental and social business responsibilities, by lead-
ing companies towards the adoption of sustainable enterprise
strategies (SES).
1. Integrated TEST approach and the management Pyramid
The relationship of the various components of the integrated TEST approach
to each other and to the business operation can be depicted in the form
of a management pyramid8, as seen in figure 1 The pyramid shows the hier-
archical structure of the TEST approach, where each level of the pyramid
receives its inputs and directives from the level below. The values of the
stakeholders of a business and the relationships between them form the
base of the pyramid. Stakeholders can include owners, customers, cowork-
ers, suppliers, authorities and communities. This web of relationships serves
as the source on which to build the next level.
The business derives it vision, mission and core principles from the under-
lying stakeholder values and expectations enacted formally (for example,
as written policies or business plans) and/or informally (non-documented
`common knowledge'). This level represents the principles and intentions
that guide the business.
The next two levels of the pyramid are formed first by the strategies for
achieving the vision and goals of the business and then by the manage-
8
Usually the management pyramid is in the opposite order, with values and vision at the
top and operation systems at the bottom. Here, the order is reversed, with the values
and expectations being placed as the underlying core layer on which all the others are
built, following the logic of the Corporate Sustainability Report of ITT (Flygt:
www.flygt.com/sr01) as this better reflects reality.
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Increasing Productivity and Environmental Performance: An Integrated Approach
ment systems that direct how a company operates to achieve these strate-
gies. Management systems include the organizational structure and the
means to make decisions.
The production level (the top two levels of the pyramid) describes the com-
pany's operations: its means and its performance. The outputs it generates
are the products and services the business offers.
A pyramid structure effectively demonstrates how each element of a busi-
ness is built on the more fundamental levels below, with the products and
services deriving ultimately from the stakeholder relations and the strate-
gies. However, the pyramidal structure does not show how the product
and services themselves can influence the very base of the pyramid, mod-
ifying the relations with the stakeholders. In this sense, the connections
between the different levels of the pyramid can also be represented in the
form of a closed loop, where the output from the products and services
level affects the perception stakeholders have of their relationship with the
business and ultimately of the business itself.
Figure 1. The Management Pyramid
Products
and
Values of
Stakeholders
Services
Stakeholders
Operation
Products and
Vision & Mission of
Services
the Business
Management System
Operation
Strategy
Strategy
Management
Vision and Mission of the Business
System
Values of Stakeholders
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Part I Framework for TEST
It becomes obvious from this that the causal loop built through the man-
agement pyramid can easily create a vicious circle, which is difficult to
break. Problems with economic performance (e.g., sales) and/or environ-
mental performance (e.g., problems with the enforcement authorities) in
an underlying framework of uncertain socio-economic conditions reinforce
or induce a short-term reactive vision and business strategy. The short-
term reactive vision prevents important strategic decisions from being made
and risks are taken. This pressure also blocks changes needed in the man-
agement system and prolongs the use of inefficient operating systems. Crisis
management is the impetus for change here, not well thought-out analy-
sis that considers long-range implications. Low-quality products and/or
uncontrolled pollution degenerates the relationship between the business
and its stakeholders, which in turn results in continuously short-term cri-
sis-based actions in an effort to quickly appease the stakeholders. The cycle
continues in a downward spiral of dissatisfaction, reduced productivity and
increased pollution.
The integrated TEST approach breaks this vicious circle by allowing enter-
prises to merge the two seemingly conflicting goals - that of reducing envi-
ronmental risks and increasing company competitiveness simultaneously.
Table 1 summarizes how the main characteristics of a business (identified
in the Management Pyramid in figure 1) are typically managed, from an
environmental point of view, in developing countries and countries in tran-
sition (`start-up situation') and compares it to what can be achieved by
implementing UNIDO's integrated TEST approach (`desired target'). Note
that the desired target described here is broader in scope than what would
be set for a first-time implementation of a TEST programme.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Table 1. Comparison of a Typical Start-up Situation in Devloping/Trans-
itional Countries vs. Desired Situation
Typical Start-up
Management Level
Desired Target
Conditions
Perceived conflict between
Stakeholder values
Values of Stakeholders
the values related to
translated into business
economic performance
values: a communication
(promoted by the
platform for the exchange
management and owners)
of information is in place.
and the values related to
environmental performance
promoted by authorities
and the public.
A lack of vision and
Employees share a strategic
Vision, Mission and Core
reactionary environmental
vision, related mission and
Values of a Business
management. The Mission
core business values. There
is vague and defensive.
is a proactive and
Core business values are
innovative company
driven by the effort to
culture, which is needed to
survive. Corporate culture
implement preventative
rarely reflects the values of
environmental strategies.
stakeholders.
Business is managed, based
Business integrates long-
Strategy
on short-term reactive
term proactive
strategies. Pollution control,
environmental management
not pollution prevention, is
strategies into its operation.
the prevailing approach to
Environmental costs are
environmental
taken into account and
management. This is due to long-term environmental
the perception that
benefits and criteria are
economic and
integrated into business
environmental performance
decision-making functions.
conflict.
The company does not
Efficient and effective
Management Systems
have an efficient and
management systems are in
effective management
place, built on strong
system or a commitment
driving principles from the
for business operation.
previous levels of the
Assigned responsibilities,
management pyramid.
communication
Environmental management
mechanisms and other
is integrated into the
components of a
system and considered a
management system
natural part of the overall
necessary for their
management system.
achievement are not in
place. Management of
environmental aspects is
usually a last priority.
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Part I Framework for TEST
Typical Start-up
Management Level
Desired Target
Conditions
The technologies are
A combination of
Processes/Operations
outdated, poorly
organisational and well-
maintained and inefficiently planned technological
operated. Production
measures leads to the
efficiencies are typically
introduction of good
low. This goes hand-in-
production practices and
hand with low control over
the process of continuous
the material and financial
improvement. This can also
flows of the production
be described as the
process and leads to
introduction of best
excessive pollution.
available techniques9.
Companies lack the
Market strategy and product
Products and Services
expertise to improve their
development (including
products and marketing
product design10) leads to
strategies in the new
increased competitiveness.
market. They can only
compensate for this and
compete by lowering prices
(often achieved by reducing
wages and taking
operational short cuts), but
this will only work
temporarily. Sub-standard
product designs, quality,
delivery and other
characteristics, in
conjunction with high
pollution levels, create a
fatal barrier and the
company will eventually
fail.
2.
TEST tools
The integrated TEST approach uses a number of tools, including, but not
limited to the following:
· Initial review (IR)
· Environmental Management System (EMS)
· Cleaner Production Assessment (CPA)
9
The term best available techniques is used in its broad sense here and it is not limited
to BATs only, as defined in the Integrated Pollution Prevention and Control Directive
of the EC.
10
New product design does not have to be limited only to the product itself; it can include
the entire product service system.
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Increasing Productivity and Environmental Performance: An Integrated Approach
· Environmental Management Accounting (EMA)
· Environmentally Sound Technology Assessment (ESTA)
· Sustainable Enterprise Strategy (SES)
These tools are applied at different levels of the management pyramid, as
represented in figure 2. Initial review is the basic (first) tool used and is
applied at all the levels of the management pyramid, (see Part III - A for
details on IR).
SES is applied primarily to the bottom three levels of the management
pyramid (values of stakeholders, business visions and strategy), although
all the tools provide some input into these three levels.
EMS is applied primarily at the management system level and provides a
link between the strategic and operational levels11. EMS provides the means
for identifying and managing the significant environmental aspects and
impacts of the business. The EMS decision-making process is enhanced by
using EMA, which provides a more accurate financial picture of a compa-
ny's source of losses and a better understanding of the economic impacts
it incurs from these environmental aspects and their management (or lack
thereof).
IR, EMS, SES and EMA are not designed to provide specific direct improve-
ments in production. Rather, their purpose is to determine actual produc-
tivity and environmental performance and communicate this through the
management system. The strength of the integrated TEST approach lies in
the introduction of two additional tools, CPA and ESTA (which are sup-
ported by IR, EMS, SES and EMA), whose aim are to optimize the opera-
tional system and link the improvements there with the management
system and the business strategy.
11
The EMS should be linked to the overall existing management system of the
company
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Part II The TEST Programme
Figure 2. TEST Tools Applied to the Management Pyramid
Products
and
Services
CPA
Operation
ESTA
Initial
EMS
Management System
Review
EMA
Strategy
Vision and Mission of the Business
SES
Values of Stakeholders
The products and services at the top level of the management pyramid are
partially addressed by the CPA and ESTA assessments. However, depending
on the situation at the company, additional tools e.g., design for the envi-
ronment (DfE) could be introduced to promote the creation of environ-
mentally friendly products.
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PART II
THE TEST PROGRAMME
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Part II The TEST Programme
THE TEST PROGRAMME
A.
Principles
A UNIDO TEST programme, with its integrated approach, is designed to
assist enterprises in the developing and transitional countries to effective-
ly adopt EST. The TEST programme acts at three levels:
1. It addresses the need to enhance the existing expertise within a
country with respect to industrial environmental management
skills, thereby enabling local institutions to offer enterprises an
integrated package of technical, managerial and strategic services
best tailored to their needs.
2. It demonstrates the effectiveness of the integrated TEST approach
at pilot industrial sites.
3. It supports the dissemination of the TEST approach and results at
a national and regional level.
The sustainability of a TEST programme is assured by two mechanisms:
1. Developing demand at the business level: the successful results
achieved through the use of the integrated TEST approach by the
pilot industrial sites are used as examples to other enterprises, thus
generating demand for similar services in this area.
2. Building national expertise in the application of the integrated
TEST approach: to successfully replicate the positive results. TEST
programmes include a `train the trainers' mechanism. The experts
created from this training can then provide the requisite services
to other enterprises in the participating countries on how to imple-
ment the integrated TEST approach.
The TEST programme is based on the following principles:
· It requires a voluntary commitment from the pilot enterprises to
proactive environmental management
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Increasing Productivity and Environmental Performance: An Integrated Approach
· It is problem-driven, focusing on the needs of enterprises and/or
countries
· It is flexible and open to innovative solutions - the specific tools
used in the TEST projects (enterprise-level) are selected and intro-
duced based on the results of the initial review of the needs of the
enterprise
· It uses the Integrated Pollution Prevention and Control (IPPC) and
Best Available Techniques (BAT) approaches
· It optimizes production processes by focusing first on material effi-
ciency strategies, followed by incorporating what are now less oner-
ous, end-of-pipe solutions (if required)
· It ensures that environmental costs are properly allocated to their
source, identified measures are implemented, and TEST project
results are monitored
· It analyses problems in all their economic, social and environ-
mental complexity
B.
Implementing a TEST programme
A TEST programme is tailored to the unique conditions of the industrial
sector as well as the institutional framework of the country where it is
implemented. Implementation at the project (enterprise) level is in the fol-
lowing sequence: first, the existing situation is improved by better man-
agement of the existing processes, then the introduction of new technology
or of end-of-pipe solutions is considered. Finally, the lessons learned from
each TEST project's implementation is reflected in the respective compa-
ny's business strategy.
It may be argued that optimizing existing processes is an unnecessary step
that wastes valuable time and financial resources if new, environmentally
sound technology is to be installed. However, it must be remembered that
there is usually a significant time lapse between when technological assess-
ments and financial appraisals are conducted and when the new technol-
ogy is actually put in place and operational. This time lapse can vary
significantly from case to case and in some situations, it is worth invest-
ing modest resources in the existing processes to improve their environ-
mental performance, until the final changes are installed and operational.
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Part II The TEST Programme
By following this rationale, the money saved from the implementation of
low, or no-investment CP options can be used to help fund the more expen-
sive EST investments. Likewise, implementing the lower investment CP
options may also reduce pollutant loads to a level where smaller-scale end-
of-pipe equipment can be installed, or ideally, perhaps even avoided alto-
gether. Companies should also remember that the transfer of skills (on how
to use the TEST tools) is part of the overall EST process and these skills
are not bound strictly to the specific technology being installed. It is crit-
ical that employees master the skills to use these system tools if the tech-
nology is to operate to its desired capacity.
The implementation strategy of a TEST programme is broken down into
three main stages.
1. Stage I: initiate the TEST programme and customize its imple-
mentation strategy to meet country/industry needs.
2. Stage II: introduce the integrated TEST approach in individual
projects at the pilot enterprises.
3. Stage III: share and disseminate the TEST programme results.
Figure 3 shows the overall approach as well as the individual tools used at
each stage of implementation and shows the links between the different
tools. A detailed description of each project tool is provided in Part III,
TEST Tools.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 3. Implementation Scheme of the TEST Programme
Set-up of National Counterparts and Project Advisory Board
Stage I:
"Start-up of the
TEST Programme"
Selection of Demonstration Enterprises
Initial Review
P
h
CPA
EMS
a
Good Management
s
Practices and Process
e
Optimization
EMA
1
Good Management Practices Introduced
&
Environmental and Economic Benefits
P
ESTA
Stage II:
h
Techno-Economic
a
Assessment
Cleaner
"Introduction of the
s
Technology and
Pollution Control
EMS
TEST approach"
e
Technology
Implementation
Investment
Promotion
2
High Cost Environmentally Sound
Technologies Identified for Implementation
P
Project Evaluation and Strategic Reviews
h
a
Project Evaluation
s
e
Sustainable Enterprise
Strategy
3
Environmental and Social Considerations
Integrated Into the Business Strategy
Stage III:
Dissemination of Results and Experience
"Dissemination"
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Part II The TEST Programme
1.
Stage I: start-up of a TEST programme
As a first step, national institutions and associations are selected and intro-
duced to the integrated TEST approach (they are further trained, as neces-
sary, at each stage of the project).
Particular attention is paid to the selection of the national TEST counter-
part, which plays one of the most important roles of the implementation,
that of being responsible for coordinating the local activities and the work
of the local experts. Local counterparts chosen must already have basic
skills in cleaner production and industrial environmental management as
well as good access to both national authorities and the industrial sector,
to ensure the objectives of marketing the project's concept, obtaining and
keeping top management's commitment and disseminating the project's
results can be accomplished.
A National Project Advisory Board is also set up at the start-up of a TEST
programme, at a national level , which includes: national and local author-
ities (e.g. representatives from the Ministries of Industry, Environment,
Economics, etc.), academia, industrial associations, Chambers of Commerce
and NGOs. The National Project Advisory Board is a platform, which
includes all the major stakeholders of the programme in the country, estab-
lished to assure that the implementations will focus on national/local pri-
orities and that the results are properly disseminated throughout the
country.
A two level diagnostic phase (macro and micro) is performed, identifying
and assessing the needs and desired changes at both a national and indus-
trial level. The first phase is at the macro level and is usually assessed when
the project is being formulated. It is done in close cooperation with the
local governments and is further discussed within the Project Advisory
Board when the programme is launched.
The second level of diagnosis, is at a micro level where the integrated TEST
approach is promoted within the chosen industrial sectors or sub-sectors,
with the aim of identifying a group of pilot enterprises12 where it may be
introduced. Enterprises are assessed as candidates for the project and a
12
Depending on the size, it is recommended to select not more then 4 to 5 medium to
large enterprises, for the first TEST programme in a selected country.
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Increasing Productivity and Environmental Performance: An Integrated Approach
short-list of the potential enterprises is prepared. The short-listed enter-
prises are then analyzed within the first part of the initial review through
a market and financial viability study, aimed at determining which of the
enterprises will be finally chosen as pilot locations for the project. After it
has been agreed upon that a particular enterprise is an appropriate candi-
date in which to introduce the TEST approach, the second part of the ini-
tial review, involving an initial environmental review of the business
operations can be initiated. This is the starting point for the introduction
of the TEST approach (Stage II - Phase I), leading to the formalization of
the overall project plan for that enterprise (See figure 6 for more details
on the initial review structure).
An agreement/contract should be signed between a selected enterprise and
the assisting/consulting body. The contract can be broken down into two
discrete stages:
1. Stage One - Perform the environmental component of the initial
review and provide the enterprise with a `diagnostic report' and
proposal for the implementation of the TEST approach, and
2. Stage Two - Assist in implementing the integrated TEST approach
itself
The comfort level the enterprise has with the national counterpart (that
will assist with the initial review) will affect the actual goals chosen for
the individual steps in the review. Comfort can often be a function of
familiarity and the trust familiarity brings. Where the necessary level of
trust with the counterpart is yet to be developed, sensitive questions relat-
ed to the enterprise's business strategy and performance could be post-
poned to the later stages of the review, if necessary. However, it must be
stressed that if sufficient information to allow for an effective initial diag-
nosis cannot be gathered, for whatever reason, a TEST project should be
not started in that company.
At the completion of the initial review, the areas requiring improvement
are identified and the pilot enterprise's initial project targets are set. It is
during the initial review stage when the most appropriate set of tools to
use during the TEST project, at that company, are also selected. With these
tasks completed, the implementation plan for the overall TEST programme
is then prepared.
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Part II The TEST Programme
2.
Stage II: Introduction of the TEST approach at the enterprise
level
Stage II of the programme occurs when the initial reviews are completed
and the pilot enterprises chosen. The integrated TEST approach is intro-
duced at the participating pilot enterprises in three phases.
2.1. Phase I - Good management practices and process optimization
The first phase aims at improving the operation of the existing processes
and technology by introducing and integrating three different `soft' and
complementary environmental management tools into the company's daily
operations: Cleaner Production Assessment (CPA), Environmental
Management Systems (EMS) and Environmental Management accounting
(EMA). The TEST approach includes a methodology that introduces the
tools simultaneously and in an integrated fashion to take advantage of the
synergies this creates. Although they can still be quite effective when
implemented independently, this streamlining of data flows simplifies the
work required and increases the overall effectiveness of the tools by gen-
erating more results that are positive. However, depending on the specific
situation of the company, a step-by-step implementation may be the best
option.
The CPA module looks at production processes as a system where pollu-
tion flows represent resources that are ineffectively, incompletely or inef-
ficiently used after they were purchased. This strategic view of material
flows changes the old perception of financial flows, the values associated
with the final product and the unwanted outputs (in the form of losses
and pollution). This is consistent with one of the main premises of the
integrated TEST approach, that pollution cannot be separated from the
resources it came from.
The detailed analysis within CPA (or energy audits - a sub-set of a CPA;
which is chosen depends on the focus of each TEST project) identifies the
material and energy flows that can be used for tracing environmental costs
back to the main process areas (cost centres), where they originated. This
is an important input for the EMA system's allocation process. At the same
time, EMA plays a key role in `revealing' (to top management) the real
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Increasing Productivity and Environmental Performance: An Integrated Approach
costs of production, including conventional environmental costs like non-
product output costs (wasted raw material and related processing costs).
Once a company has an EMA in place, it can then set up priorities that
will allow detailed CPAs to be done more effectively. Thus, CPA, with
support from EMA, is the tool used to identify the very causes of pollu-
tion. These sources must be identified before the potential opportunities
for material and energy efficiencies within the targeted process can be
effectively explored.
CPA and EMA together are tools for implementing and measuring con-
tinuous improvement. However, these tools focus on the operational level
only and they need strong links to evaluation and planning activities.
This is provided through the EMS module, which forms the backbone of
the integrated TEST approach. CPA and EMA must use some sections of
the EMS to sustain their advantages.
The EMS module integrates the company's environmental management
efforts into the company's overall management system. EMS plays cru-
cial role in introducing, sustaining and continuously improving man-
agement practices. It also provides the communication network to direct
the information to the necessary people and decision-making processes.
However, EMS also needs CPA and EMA. It requires the information avail-
able through CPA and EMA to develop objectives and targets and to iden-
tify, improve and implement programmes to manage the company's
significant environmental aspects. EMS provides the procedures and
resources to ensure that the outputs of these programmes are imple-
mented, sustained and further developed.
By providing detailed economic data, EMA strongly supports the imple-
mentation of CP and EMS at the stage when priorities are set, and pro-
vides the necessary feedbacks on the economic viability of the
implemented changes. This is the key point to demonstrate the real
impact that CP programmes have on medium to long-term decisions,
which is needed to promote their continuous application.
Based on the above-mentioned considerations, it is clear that CPA, EMA
and EMS are mutually beneficial and combining their introduction will
result in a substantive long-term improvement of the company's envi-
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Part II The TEST Programme
ronmental performance and its competitiveness.
The methodology for each of these tools and the procedures for their inte-
gration are described in Part III - TEST Tools.
At the end of this phase, good management practices will have been iden-
tified and implemented and processes optimized. These results of this
phase produce the first tangible environmental and economic benefits that
the company achieves from the project.13 This is very important, since it
allows the pilot enterprises to see results, quite quickly and can give them
the added impetus and enthusiasm to go on to the next phase.
2.2. Phase II -Technology change (EST): cleaner technologies and end-
of-pipe solutions
The overall objective of the second phase is to identify the higher capital
investment requirements for environmentally sound technologies (EST). At
the end of the CPA module, the company will have collected a large
amount of information about its production processes and on opportuni-
ties for improvements, some of which will require little-to-no finances to
implement and others that will require some capital investment. Traditional
CP projects assume that companies will perform a technology assessment
using their own resources. This has normally resulted in very general pre-
feasibility studies of investments needs. In addition, these projects usually
do not provide any assistance with respect to evaluating or choosing end-
of-pipe solutions; these are often still needed (although to a lesser degree)
in order to meet specific environmental standards, regardless of the
improvements achieved implementing the CP recommendations.
These are the core reasons why the second phase starts with an
Environmentally Sound Technology Assessment. The ESTA module contin-
ues where the CPA ends, to broaden the scope to include both large clean-
er technology investments (technology change) and end-of-pipe solutions.
ESTA modules can build on information supplied from the CPA and EMA
modules. Practical experience shows that separating CP assessments and
EST assessments into two steps has very positive results. This approach
demonstrates the importance of providing sufficient resources for the finan-
13
CP/EST measures identified in this phase that require a higher capital investment are
forwarded to Phase II for further investigation (EST Module).
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Increasing Productivity and Environmental Performance: An Integrated Approach
cial appraisal of large investments to address both issues in an integrated
way.
The ESTA module primarily consists of technical and economic evaluations
of potential EST investment projects, which take into account long-term
environmental savings and benefits. To do this, computational tools14 are
used and the following activities are undertaken:
· Preparation of a pre-feasibility study
· Preliminary identification of possible suppliers
· Preliminary identification of inexpensive sources of capital for the
technology investment
Contingency environmental costs that arise from expected changes in reg-
ulatory regimes or from potential risks to the environment are also con-
sidered. At the end of this phase, the EST options are incorporated into
the investment decision-making process and managers are provided with
pre-feasibility studies showing the higher profitability of the combined
CP/EST investments. Incentive schemes for EST investments (e.g. environ-
mental funds, green loans, etc.) are also identified and limited technical
assistance is provided to the enterprises within the framework of the proj-
ect on how to access these schemes.
Text Box 1 describes the benefits achieved at a hydro refining unit at a
petrochemical facility, before and after implementing CP and ESTA.
14
Similar to the UNIDO-COMFAR software for financial appraisals
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Part II The TEST Programme
Text Box 1. Comparison of Benefits Before TEST, After CPA and After
ESTA, in a Hydro Refining Unit at a Petrochemical Enterprise
The graph in figure 4 shows changes in the consumption of specific inputs: methane
(kg. of equivalent conventional fuel), steam (kg.), fresh water (m3), recirculated water
(m3), compressed air (m3), power (kWh) and costs of internal pumping (in USD) per
tonne of hydro-refined lubricating oil.
Figure 4. Comparison of Benefits Before TEST, After CPA and After ESTA
100
90
80
70
60
Before
TEST
% 50
After the
CPA
40
After the
30
ESTA
20
10
0
Fuel Steam
Fresh
W
Water Recirc
Water Compressed
Power
Pumping
Air
These specific consumptions are compared at three stages:
·
Before TEST:
Average 2001 values before the start of the TEST project
·
After CPA:
Average results after good management practices and process
optimizations were implemented during Q1-Q3, 2002
·
After ESTA:
Estimated results after the measures requiring high investment
became operational (these results include already implemented
measures from the previous CP stage).
The decreased need for the specified inputs to the hydro refining unit leads to a
significant decrease in related pollution flows and in significant increase of the
productivity.
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Increasing Productivity and Environmental Performance: An Integrated Approach
2.3. Phase III: Evaluation and Sustainable enterprise strategy
The third phase aims at ensuring the continued use of the TEST approach
at the pilot facilities. For the approach to be continued, the experience
must be reflected in a facility's strategic level (e.g. business plan develop-
ment), which should in turn also lead to new insights and desired changes
in the enterprise's values and strategies. The sustainable enterprise strate-
gy (SES) is the module, in the integrated TEST, aimed at accomplishing this
integration of environmental and social dimensions into the enterprise's
culture. In principle, the objective of the SES module is two-fold:
1. To integrate the TEST approach into the enterprise's strategies (busi-
ness and functional) and formalize its principles within these
strategies.
2. To provide a platform from which to evaluate and communicate
the enterprise's performance, as it relates to processes and prod-
ucts, to the stakeholders (shareholders, employees, local authori-
ties, civil society, customers, etc.) and establish a baseline from
which to initiate and build ongoing dialogue. This will provide
valuable feedback on company values and strategy.
This phase of the project builds on:
· Project indicators, which should be selected to best reflect the goals
of the enterprise and of its environmental management
· An effective management system, which will ensure continued
measurement and evaluation of enterprise performance against the
selected project indicators, and
· Relaying the experience that was gained on how to bridge the gaps
between the old and new values, goals and strategies; how the
experience was integrated into their business; and how any relat-
ed challenges were overcome
During this phase, the performance indicators set up at project's start and
during the project's implementation should be measured, evaluated and
the results analyzed, interpreted and reflected upon.
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Part II The TEST Programme
Project evaluation and reflection can be done both internally and exter-
nally. Reporting plays a role in both. In order to gain from TEST's real-life
learning experience, the reporting cannot be just a one-way or one-time
transfer of information. It has to be followed by dialogue and further reflec-
tion. This stage presents an opportunity to improve the company's rela-
tionship with the stakeholders and to learn more of their expectations. It
is also an opportunity to educate the stakeholders about the experience
and lessons learned, which may in turn alter their opinions and expecta-
tions. All this is crucial to further improve company performance.
3.
Stage III - Dissemination of TEST programme results
The assistance, given to the pilot enterprises is to be used to demonstrate
the advantages of adopting the integrated TEST approach. Provision is made
in the TEST programme to provide case studies to national institutions
(counterparts), which in turn are to share the information in these case
studies with companies in the country or region. Relaying the successful
results made possible at the pilot locations will demonstrate its value to
other companies. It is expected that this will generate a demand for TEST-
related services from the national institutions.
There are a number of ways to disseminate the results and achievements
at the pilot TEST enterprises:
· Preparation of information material on the integrated TEST
approach along with case studies
· Hosting national seminars in the country
· Offering one-day assessments at companies with environmental
issues, to show them the potential benefits of applying the inte-
grated TEST approach at their enterprises
· Hosting regional seminars to support twinning arrangements for
introducing the integrated TEST approach in other countries of the
region
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Increasing Productivity and Environmental Performance: An Integrated Approach
C.
The TEST programme in the Danube River basin
1.
Background
Enterprises in the countries of the middle and lower Danube River basin
are facing numerous challenges as they go through a radical reshaping in
their move towards market economies. At the same time, they are in the
process of responding to the environmental objectives of the Danube River
Protection Convention (DRPC) and the environmental requirements that
come with accession to the European Union; the most significant of these
is the EU's Integrated Pollution Prevention and Control (IPPC) Directive.
The DRPC and the EU's IPPC Directive both require enterprises to apply
best available techniques (BAT) and best environmental practices (BEP).
In 1997, the United Nations Development Programme (UNDP), with the
financial support of the Global Environment Facility (GEF), launched the
`Pollution Reduction Programme for the Danube River basin', through
which it identified 130 major manufacturing enterprises known as `hot
spots' that were significant sources of pollution to the waters of the Danube
River basin. A significant number of these enterprises were contributing to
transboundary nutrient and/or persistent organic pollution.
In April 2001, in response to the needs of the countries of the Danube
River basin, UNIDO launched a TEST programme in five countries (Bulgaria,
Croatia, Hungary, Romania and Slovakia) (see figure 5).
The project's primary financial supporter was GEF, with some participation
from UNIDO and other donors (the Hungarian and Czech Governments).
The project's national partners (counterparts) were the National Cleaner
Production Centres (NCPCs) of Croatia, Hungary, and Slovakia (members
of the UNIDO/UNEP network of NCPCs), the Institute for Industrial
Ecology (ECOIND) in Romania, and the Technical University of Sofia in
Bulgaria.
The TEST programme in the Danube targeted 17 hot spots of industrial
pollution, from various industrial sectors (chemical, food, machinery, tex-
tile, pulp and paper) in the Danube River basin (the river itself and its trib-
utaries). The list of enterprises is reported in table 2. Through the
programme, these industrial polluters have been introduced to the inte-
42
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Part II The TEST Programme
grated TEST approach. The results of the programme in these locations will
be used to show other enterprises that it is possible to reduce environ-
mental impacts to acceptable levels while remaining, or even becoming
more, competitive.
Figure 5. Map of the Danube River Basin
Table 2. List of Enterprises Participating in the Danube River Basin
TEST Programme
Country
Selected Enterprise
Industrial Sector Focus of Project
1
Croatia
Agroproteinka Meat
Rendering
2
Gavrilovic d.o.o.
Integrated meat processing
3
Herbos Pesticides-
Atrazine
plant
4
IPK Tvornica Secera Osijek
Sugar
5
Romania
ASTRA Romana
Petrochemical - refinery
6
Rulmentul
Machinery bearing production
7
Chimcomplex
Intermediate Chemicals -Isopropyl-amine
8
SOME Pulp
and
paper
9
Slovakia
AssiDoman Sturov
Pulp and paper
10
Zos Trnava
Machinery - repair railway wagons
11
Hungary
Gunter Tata Kft.
Machinery - repair railway wagons
12
Indukcios es Vedogazos
Steel heat treatment
13
VIDEOTON Audio Company
Electronic products, plastic and wood
processing
14
Nitrokemia 2000
Intermediates Chemicals
15
Bulgaria
Yuta JSC
Textile
16
Slavianka JSC
Fish processing
17
Zaharni Zavodi AD
Sugar - Alchool production
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Increasing Productivity and Environmental Performance: An Integrated Approach
2.
Private sector participation and start-up of the TEST
programme in the Danube River basin
One of the major challenges implementing the TEST programme in the
Danube River basin was the identification and selection of demonstration
enterprises.
The main criteria for selecting demonstration sites included, but were not
limited to, the enterprises being:
· Located within priority pollution hot spots and contributing to the
pollution in those areas
· Interested in participating in the project and
· Financially viable
Finding industrial hot spots was not difficult, given the previous UNDP
project, but being in a hot spot was not a sufficient reason to be consid-
ered for the project. The challenge was to identify good pilot sites that
would participate effectively in the project and that were financially viable.
To assure the ultimate success of the project (i.e., implementation of iden-
tified measures and sustainability of the results obtained), final selection
was also based on enterprise viability, defined as the potential for an enter-
prise to remain in business for more than five years, given its market posi-
tion and costs of production. Only financially viable companies will
undertake the necessary investment and upgrades in EST and will really be
interested in having a long-term sustainable strategy. This criterion elimi-
nated several candidates at the start of the programme.
At the start of the enterprises selection process, it appeared that some of
the major industrial hot spots of the Danube River basin, especially in
Romania, were still state owned. In addressing the request from the
Romanian National Advisory Board, these enterprises, although undergo-
ing a privatization process, were included in the list of potential enter-
prises. Additional information on the barriers and challenges faced during
the implementation of the TEST approach in state owned enterprises is
included in Text Box 2.
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Part II The TEST Programme
As indicated in Section A of Part II of this document, one of the major
principles of a TEST programme is that involvement as a pilot enterprise
is voluntary. Therefore, as enterprises in the Danube River basin had to be
convinced that they would gain from their participation in the project,
marketing the programme was a crucial activity for its successful start-up.
Considerable effort was required, since it was particularly important to find
enterprises with a strong commitment to avoid the possibility that they
would withdraw during project.
The marketing activities took four months to complete. Different market-
ing tools were used: web advertisements, newsletters, informative seminars
and other existing channels proposed by the National Project Advisory
Boards in each country. Potential enterprises were visited and a short-list
of 4 to 10 enterprises was finalized for each country. The first four short-
listed enterprises undertook the first part of the initial review (market and
financial viability study). Only after this was completed, could the neces-
sary financial and market viability of an enterprise to qualify be verified
and the final selection of enterprises to participate in the full implemen-
tation of the integrated TEST approach be made. Agreement letters were
signed with all the enterprises that underwent the review.
The identification of the correct drivers was very important, not only dur-
ing the first stage when the project was being marketed and pilot sites were
being selected, but also during the overall implementation of the pro-
gramme, to maintain the commitment of the managers.
For instance, the possibility of achieving potential savings through the
introduction of CP measures was difficult to explain to managers (although
they were convinced by the end of Phase I of the second stage). This resist-
ance was mainly due to the fact the costs in this part of the world, for
utilities and many raw materials, are low as are wastewater and solid waste
disposal fees and penalties.
Low stakeholders interest in a companies' environmental performance, low
awareness of stakeholder interests at the companies and limited external
motivating factors to improve the environmental performance of the com-
panies, represented serious impediments to persuading companies to par-
ticipate in the programme.
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Increasing Productivity and Environmental Performance: An Integrated Approach
In spite of the difficult economic situation in these countries and despite
the lack of enforcement of environmental legislation, the required num-
ber of pilot enterprises was identified (see table 2). The average size of the
selected enterprises varied from one country to another. Figure 6 shows
the distribution of the TEST companies, according to the number of
employees.
Figure 6. Distribution of TEST pilot enterprises based on the total number
of employees
2
Below 100 employees
5
4
Between 100 and 500
employees
Betwwen 500 and 1000
employees
Above 1000 employees (max.
4340 )
6
What this stage of the project showed was that in this region of the world,
economic drivers15 are much stronger than environmental ones and it is
these economic drivers that are pushing companies to improve the effi-
ciency of their operations and to acquire EMS certification.
The pilot enterprises that were finally selected were required to make a
small (token) financial contribution (to strengthen their commitment to
the programme), even though their participation was mostly subsidized by
funds from the programme itself. All companies provided their financial
contributions to the overall programme implementation, either as cash or
as in-kind contributions (in terms of participation costs of employees to
training, seminars organized during the programme or lodging for nation-
al experts), or both.
15 The pre-accession process to the European Union undertaken by many countries in the
Central and Eastern Europe has created a very favourable condition for the develop-
ment of economic drivers in the direction of a more sustainable industrial development.
46
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Part II The TEST Programme
However, apart from the direct financial contributions to programme activ-
ities, the total contribution provided by the companies includes the cost
of the employees used to implement each step of the TEST approach at
enterprise level, which was quite considerable considering the complexity
of integrated TEST approach. In fact, this represents the most significant
share of cofinancing provided by the participating companies towards the
success of the project. Figure 7 provides a breakdown of the total TEST
project financial contributions, including the total cofinancing provided by
the 17 Danubian companies, divided into three categories: cash, in-kind
and labour cost (estimated by the total number of man days of labour force
involved in TEST-related activities, including training, multiplied by the
average daily salary). However, contributions from the individual compa-
nies varied significantly, depending on the number of tools applied at that
company and its size.
Figure 7. TEST Project in the Danube River Basin: Financial Contributions
(USD)
Czech Government
47,000
Hungarian Government
40,000
UNIDO
150,000
1,000,000
GEF
307,658
Enterprise Co-financing
0
200,000
400,000
600,000
800,000
1,000,000
Cash contribution [USD]
In-kind contribution [USD ] (Training, local travels and lodging of national experts)
Estimated cost for employees participation in TEST project activities [USD]
3.
Barriers and challenges
As a group, the companies which took part in the Danube River basin TEST
programme can be characterized as using outdated equipment and plants
(at least partly), which are in the process of being replaced by new machin-
ery and infrastructure - albeit slowly in most cases. Changes in the mar-
ket situation are forcing the companies to continuously change their
business strategy to keep up, creating uncertainty and a need for well
thought-out planning that will last, regardless of the economic situation.
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Increasing Productivity and Environmental Performance: An Integrated Approach
The privatization programmes and the shift in the economic and social
environment have meant that many companies are feeling the impact, at
least to some extent, from the misuse of resources and from polluting the
environment.
This means that while awareness of environmental problems could be
found in all the enterprises, it was usually to varying degrees, depending
on the level in the company. Environmental managers - where such experts
are employed - were usually the most aware of the environmental prob-
lems of the operations, while the top management was the least aware and
the least eager to carry out actual measures. Management at the operations
level took different viewpoints at different companies, ranging from see-
ing the environment as an important factor of operations to treating envi-
ronmental problems as a very low priority.
The transition of these companies to private entities that operate in open
markets has pushed them to gradually start modernizing their operations,
but prior to the TEST programme, environmental considerations were only
taken into account as a by-product of these measures. Despite having per-
formed a thorough market and financial viability study prior to making
the final selection of the participating companies, some of them have been
struggling with market problems, due to the market instability of the region
during the two and half years of the duration of the programme. This has
presented a barrier to the implementation of the TEST programme that,
combined with the antiquated organizational thinking of the management
as a whole, stifled progress towards more environmentally sound opera-
tions. Progress in some companies was very slow.
The replacement of top management and the continuous search for new
products and markets had a direct impact on the implementation of envi-
ronmental management tools at the companies. Companies were much less
willing to undertake any environmental measures with long-term conse-
quences - which in an unstable environment might represent a high risk
for future company operation.
Most of the companies took the first steps on the road to environmental-
ly sound operations before the TEST programme ended but it took a con-
siderable time for the local experts to have a real impact on the operations
of the companies (e.g., one company started to show real interest in CP
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Part II The TEST Programme
measures only at the end of the project). This may not necessarily be a
problem. Changing the way employees and management relate to envi-
ronmental problems usually takes a considerable amount of time, which
means that results may come long after the TEST programme has formal-
ly been finalized.
In retrospect, it may have been too ambitious to expect that companies
struggling for survival in the market would implement and use the envi-
ronmental management tools provided by the TEST programme. The com-
panies' position in the market had a very important influence on the
implementation of environmental measures and the willingness to under-
take actions for the environment in general. Despite this, through contin-
uous discussions and training it was still possible to influence the
companies to move in the direction of more environmentally sound oper-
ations. These interactions with different employees may not have had an
immediate result; still, they are important in the end and the heightened
awareness may affect their future actions and attitudes.
The modular approach for the implementation of the TEST programme
proved to be a good strategy, since each company was faced with differ-
ent problems. Each company was interested to varying degrees in the dif-
ferent modules of the TEST approach, depending on their needs. For this
reason, some modules were implemented at all companies while others
were implemented in only a few. The introduction of the integrated TEST
approach, instead of the traditional sequential implementation of individ-
ual tools or systems, represented a serious challenge, both for the partici-
pating enterprises as well as for the national counterparts assisting in the
implementation. It required careful planning and organization of project
activities and considerable coordination efforts by the national focal points:
different activities were running in parallel and different teams of experts
had to be guided simultaneously.
Moreover, the underlying principle of integration in the approach requires
a significant involvement of an enterprise's human resources, from differ-
ent departments. Two major barriers had to be overcome here. One was a
lack of communication and cooperation between different departments,
while the other was conflict with mid-level managers for the use of human
resources (for them, production was often the first priority, particularly in
the smaller enterprises, not TEST-related activities).
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Increasing Productivity and Environmental Performance: An Integrated Approach
All of the above mentioned barriers and challenges were encountered at
the 17 enterprises during the TEST programme implementation . However,
a particular situation was experienced while introducing the TEST approach
in two SMEs in Hungary. For additional information on this topic please
refer to Text Box 3.
It should be noted that none of the selected enterprises withdrew from the
project and even though there were different levels of success in each of
the enterprises, all of them achieved measurable results by implementing
the integrated TEST approach. The primary reason for this is because the
project was able to confirm one of the basic theses of the TEST approach,
namely that improving environmental performance does not have to be
at the expense of competitiveness. The most financially feasible measures,
both organizational and technical, were identified and partially imple-
mented to bring the enterprises into compliance with the environmental
norms of the Danube River Protection Convention and the EU's IPPC
Directive, while also accommodating their need to remain competitive.
4.
Key results of the programme in the Danube River basin
The implementation of the TEST project in the Danube River basin was
started in May 2001 and completed in December 2003. As a result, the
TEST approach was successfully introduced in 17 pilot enterprises. Tangible
results were achieved, both in terms of increased productivity and in terms
of improved environmental performance. The threats identified in the
business environment, often perceived by the companies as survival threats
connected with environmental compliance issues and production costs
were reduced and new opportunities were identified.
Increased productivity was achieved through the implementation of iden-
tified CP/EST measures, leading to a reduction of specific production inputs
costs (increase of profit margins), increased production capacity, better con-
trol of production costs related to process inefficiencies and better labour
conditions. In many of the participating companies, the identified meas-
ures also resulted in improved quality of the final product.
Other less tangible benefits, like improved relationships with stakeholders
leading to the projection of a better image towards local authorities and
50
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Part II The TEST Programme
customers were also achieved. This was especially true in those companies
that introduced a full EMS and obtained the ISO 14001 certification (for
additional information on the results of the EMS component of the TEST
project please refer to Text Box 7).
Both the tangible and less tangible benefits contributed to strengthen the
position of the enterprises and their competitive advantages, thus reduc-
ing the existing barriers to access to both local and foreign markets (espe-
cially the EU market).
The results achieved by each of the 17 enterprises varied because of a num-
ber of different factors. The net result was that some enterprises were more
successful in implementing soft management tools (CPA, EMS, EMA), while
others achieved significant results in the implementation of new EST.
Figure 8 summarizes the total number of CP/EST measures that were iden-
tified vs. the number that were implemented. Types A and B are no cost/low
cost CP measures implemented by the end of the project. The total invest-
ment entered into by the 17 enterprises to implement the 109 type B meas-
ures was 1,686,704 USD, while the total estimated financial savings were
1,277,570 USD per year (for additional information on the results of CP
module please see Text Box 6).
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 8. TEST Project in the Danube River Basin: Total Number of
Measures identified vs. Those Implemented (by category) in the 17 enter-
prises
300
260
224
250
200
128
141
150
109
Identified measures
Implemented measures
100
38
50
0
Type A
Type B
Type C
(EST)
Type C (EST) measures are those requiring a significant financial invest-
ment. The 38 `implemented measures' represent those that were evaluat-
ed technically and financially within the scope of the TEST project and
approved (by the top management) for implementation. Table 3 provides
a summary of the investments required, the related financial benefits, the
value of the related financial indicators (IRR, NPV), and the expected imple-
mentation date16 of the type C measures at each company.
As shown in table 3, the investments total, required17 for the Type C meas-
ures evaluated during the TEST project for the 17 enterprises is 47,325,171
USD. These investments include both CTs (requiring large investments) and
some end-of-pipe investments. Although the latter are characterized by neg-
ative NPVs, they are needed to comply with existing environmental legis-
lation, including the EU's IPPC Directive. The indicated savings are an
initial estimate, representing the minimum financial savings that can be
expected after implementation of the ESTs.
16
These expected implementation dates have been set in accordance with the IPPC
Directive implementation schedule and deadline fixed in the national regulatory frame-
work.
17
These cost estimates are based on preliminary calculations and will need to be con-
firmed in the final feasibility study.
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Part II The TEST Programme
Table 3. Financial Figures of the EST Investments Identified at the 17
Enterprises Participating in the TEST Programme in the Danube
Total
Total Yearly
Financial Indicators
Expected Date of
Country
Enterprise
Investments
Savings [USD]
(IRR, NPV, PBP )
Implementation
[USD]
Croatia
Agroproteinka
7,500,000
1,500,000
IRR: 33%
April 2007
Gavrilovic d.o.o.
3,500,000
440,000
IRR: 26%
September 2006
Herbos
800,000
0 (end-of-pipe)
-
Mid-2006
IPK Tvornica
Secera Osijek
800,000
400,000
IRR: 110%
September 2004
Romania Astra Romana
1% reduction of
NPV: 319 - 943. Eur
3,162,000
2004/2007
product cost
IRR: 10.45-11.2%
Rulmentul
NPV: 2.4 Mill Eur
400,000
2,500,000
2003
IRR: 1002%
Chimcomplex
NPV: positive after 4 yrs.
270,000
220,000
To be determined
IRR: positive after 6 yrs.
Somes
NPV: Mill. Eur: 3.3-4.4
11,500,000
1,370,000
2004 - 2006
IRR: 14-18%
Slovakia
AssiDoman Sturov
NPV: 0.228 - 4.725 Mil .
4,050,000
2,293,000
Eur
2005
IRR: 38.42% - 60.85%
Zos Trnava
75,000 only for
penalties, 4 times NPV: 40 - 626 kUSD
7,167,500
2009
increased
IRR: 4% - 17%
production
Hungary
Gunter Tata Kft.
898,828
0 (end-of-pipe)
-
2007
Indukcios es
18,560
0 (end-of-pipe)
PBP:
Vedogazos
6.8 yrs.
2004
VIDEOTON Audio
Company
35,783
0 (end-of-pipe)
-
2007
Nitrokemia 2000
PBP: 1.54 yrs.
265,500
171,817
2006
NPV: 206,749 USD
Bulgaria
Yuta JSC
min. PBP: 4 yrs.
2,500,000
Not available
To be determined
max. PBP: 5.3 yrs.
Slavianka JSC
Confidential
min. PBP: 3.5 yrs.
4,700,000
350,000
To be determined
Zaharni Zavodi AD
Max. PBP: > 5 yrs.
47,568,171
5,361,817
TOTAL
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Increasing Productivity and Environmental Performance: An Integrated Approach
The environmental benefits were significant in terms of reduced con-
sumption of natural resources (including fresh water consumption and
energy), reduced wastewater discharges and pollution loads18 into the
Danube River and its tributaries, as well as reduction of waste genera-
tion and air emissions19.
Figure 9. Specific Water Consumption at the TEST Enterprises, at Project
Start, at Project End (November 2003), After Implementation of EST
Total reduction of wastewater discharge in the Danube river basin achieved by 2003: 4,590,104 m3/year
Expected additional reduction of wastewater discharge after implementation of EST: 7,862,563 m3/year
100
90
80
70
60
50
[%] 40
30
20
100
.
ka
.o
os
es
D
rb
sijek
ana
plex
m
om
urov
rnava
2000
c d.o
He
om
S
ia
vi
ra O
s T
imc
m
groprotein
ilo
Zo
Vedogazos
A
vr
ece
oke
S
Astra Ro
Ch
Ga
iDoman St
itr
os es
Gunter-Tata Kft.
N
rnica
Ass
Zaharni Zavodi A
Tvo
Indukci
IPK
Specific water consumption at project start
Specific water consumption achieved by 2003 after implementation of CP type A and B measures
Expected water specific consumption after implementation of type C (EST) measures
Figure 9 provides a summary of the reductions in specific water con-
sumption at each TEST enterprise after implementation of the identified
CP/EST measures. As of the end of 2003, the range of reduction varied
between 2 and 89 percent of the initial value, leading to an impressive
total reduction in wastewater discharges, into the Danube River basin, of
4,590,104 m3/year. It is expected additional reductions in wastewater dis-
charges, after full implementation of the large EST investments, would be
7,862,563 m3/year.
18
Pollution loads in the wastewaters were reduced in most of the companies, including
COD, BOD, oily products, TSS, heavy metals, toxic chemicals (e.g. PCE), herbicides
(Atrazine) and nutrients.
19
Significant reductions were achieved in terms of VOC and H2S emissions as well as CO2.
54
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Part II The TEST Programme
For more detailed information on the results of the TEST project (at each
enterprise) can be found in the TEST national publications, available from
UNIDO upon request.
Besides the tangible economic and environmental benefits achieved at the
17 pilot enterprises, other important results need to be mentioned, espe-
cially in relation to capacity building and awareness raising, both at the
national counterpart level and at the level of the participating enterprises.
Figure 10 shows the total number of trainees and the total number of train-
ing man-days that were undertaken within the framework of the TEST pro-
gramme in the Danube River basin, by both the participating enterprises
and the national counterparts.
Figure 10. TEST Project in the Danube River Basin: Capacity Building
Indicators
1673
Man-days
369
Participating enterprises
National counterparts
622
Number of
Trainees
90
0
500
1000
1500
2000
In terms of the capacity built in the national counterpart institutions, it
should be mentioned that one of the major benefits of the TEST programme
for them, was the training and the hands-on experience they gained in
new environmental management tools. The TEST programme presented a
great opportunity to reinforce the skills of the national counterparts and
the possibility of expanding the range of technical services they could offer
to local enterprises. Table 4 summarizes the new tools that were provided
to each of the five TEST counterpart institutions. Since the Slovak,
Hungarian and Croatian counterparts (UNIDO-UNEP CP centres) were the
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Increasing Productivity and Environmental Performance: An Integrated Approach
already familiar with some of the tools used in the TEST approach, the
capacity building component in Romania and Bulgaria was more relevant
than in the other countries.
Table 4. New Tools Provided to the Five TEST Counterpart Institutions
Country
New Tools Provided to National
Counterparts (by TEST Project)
Romania
EMA, CPA, ESTA, SES
Slovakia
EMA, SES
Croatia
EMA, EMS, ESTA, SES
Bulgaria
EMA, CPA, ESTA, EMS, SES
Hungary
ESTA, SES
In terms of capacity building, an important aspect of the implementation
of the TEST programme was the use of international sector-specific expert-
ise from the CEE Region, where needed, in the various stages of the indi-
vidual projects. Using a `south-south' cooperation model, several twinning
agreements for the transfer of know-how from the central Danubian coun-
tries to the southern, less developed Danubian countries were success-
fully created amongst the five TEST counterparts.
The capacity built at the enterprise level and the increased awareness
among the employees and mangers led to the following improvements:
· Empowerment and reorganization of the environmental function
within the company
· Improved internal communication between top managers/middle
management and employees
· Improved external communication with local authorities and the
ability to communicate the environmental performance of the
company to all its stakeholders
· Environmental considerations taken into account during invest-
ment decision making processes (increased bargaining power of the
environmental function)
· Adoption and continued use of CPA, EMS, EMA as evidenced by
56
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Part II The TEST Programme
fact that several companies replicated the use of these tools in other pro-
duction units, at their own expense (using the skills developed during the
TEST project).
· Integration of environmental considerations at the level of indi-
vidual companies' business strategies
Text Box 2. Implementing the TEST Project in State Owned Enterprises:
The Romanian Experience
At the start of the TEST project in Romania, several of the enterprises in the
chosen industrial hot spots were still state-owned. Initially there was a ques-
tion of whether or not to include these types of enterprises in the project.
Despite the initial concerns and taking into consideration the request of the
Romanian national authorities, two state-owned enterprises were selected.
Implementing the TEST approach in state-owned enterprises proved compli-
cated, but still possible. There was a general lack of motivation in the mid-
dle management, a situation which revealed itself to be a critical barrier to
overcome given the:
· Uncertainty about the company's future, the restructuring needs, and
actions to be decided by the new owner
· Lack of financial resources
· Relatively low influence of company management on the investment
decision-making process
The ownership status and the economic importance of the two enterprises
were comparable. However, their performance in the TEST programme and
their impact on the programme differed significantly.
One of the two companies was in relatively good financial condition and was
a good prospect for privatization: several potential owners had already shown
interest in acquiring the company. This company's top management main-
tained a real commitment throughout, and some concrete progress and ben-
efits were achieved. They reached the EMS-related objective within the
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Increasing Productivity and Environmental Performance: An Integrated Approach
programme's timeframe and became ISO14001 certified in March 2003.
Implementation of cleaner production options led to a reduced consumption
of specific raw materials (ammonia and methane) in the thermal treatment
section and to off-site reuse of different types of sludge generated in the metal
processing. An EST investment for changing the bearing-washing technology
from a chlorinated solvent-base (PCE) to a new aqueous based technology of
biodegradable detergents was implemented at a pilot plant before the TEST
project end and has been included in the privatization information package
for the remaining production locations.
In the other enterprise, the privatization process was still at an early stage.
The future of the company was very uncertain and downsizing of personnel
had started. Top management commitment was only formal but the facili-
ty's professional team continued the work initiated within the project. While
only a few of the proposed CP measures were implemented, they showed
measurable reductions, mainly in energy consumption but also in the con-
sumption of raw materials and water. Recognizing the value of the CP
approach, middle management extended CPA to other processes, with inter-
esting results (although with limited top management recognition or support).
The estimated EST investment was calculated at less than $300,000, but the
pay back period was quite long (more than 6 years) due to the very low rate
of operating capacity, compared to the nominal capacity. Even though it was
decided not to undertake the proposed EST investment, the most important
aspects of the analysis were included in the company's privatization pack-
age.
Because of this endeavour in state-owned facilities enterprises, it was con-
cluded that the existence of an ongoing privatization process could create
favourable conditions for starting a TEST project. Under those circumstances,
a TEST project provides the company with the mechanisms to help it pre-
pare for the privatization in a more efficient way, allowing it to also take
into consideration the environmental and social aspects of its operations. At
the same time, the TEST approach can provide the government with the nec-
essary tools it needs to quantify the liabilities and expenditures related to
environmental issues that potential purchasers will have to bear, thus increas-
ing the government's leverage in the negotiation process for privatization.
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Text Box 3. Implementing the TEST Approach in Small and Medium-
Sized Enterprises (SMEs) The Hungarian Experience
The implementation of the TEST project in Hungary involved one large chem-
ical plant and 3 small to medium-sized enterprises (SMEs), ranging from
about 40 to 500 employees. This characteristic, of having SMEs involved,
was unique compared to the other countries participating in the TEST pro-
gramme and offered an interesting opportunity for applying the TEST
approach to such companies.
Environmental strategy and actual environmental performance are greatly
influenced by the size of an enterprise. Therefore, most of the tools used in
the implementation of the TEST approach, initially developed for medium to
large corporations, had to be adjusted in order to properly match the needs
of SMEs. For instance, the detailed CPA was replaced, in some cases, by a
quick-scan approach (especially for unified processes) and the EMS was imple-
mented using simplified schemes. The scope of EMA was limited to the cal-
culation of total environmental costs, without allocation to cost centres or
products
Generally, SMEs are less formally structured than their larger competitors are.
This can mean a lack of written strategy and procedures and/or an informal
approach to planning activities and decision-making.
The priority of other functions in the organization of SMEs, such as produc-
tion or sales (sometimes even quality) often hinders environmental measures
more than in larger enterprises. In such cases - as happened in the three
Hungarian SMEs participating in the TEST programme - the environmental
function was usually pushed into the background when other problems sur-
faced. Moreover, the resources available to the environmental representa-
tive/expert for the implementation of environmental programmes are more
limited in SMEs. The method adopted to overcome these barriers in these
SMEs was to introduce the CP/EMS (the two most resources intensive project
activities) as one integrated activity and by limiting the involvement of com-
pany teams to only one project activity at a time. Continuous communica-
tion with managers and additional technical assistance was required and
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Increasing Productivity and Environmental Performance: An Integrated Approach
provided throughout the implementation of each tool to successfully complete
the TEST projects in these companies.
An additional barrier to success was the fact that enforcement of environ-
mental legislation is even weaker against SMEs than against large polluters
that might be exposed to a higher social pressure. This results in SME man-
agers paying less attention to environmental protection. The lack of meas-
urements quantifying existing emissions, discharges and wastes presented a
major barrier when setting the baseline for environmental performance of the
company and a significant barrier when trying to quantify the environmen-
tal and economical benefits of the TEST projects.
Access to financial resources also represented a major obstacle for SMEs, espe-
cially for the implementation of major technological changes. This remains
a major obstacle that is likely to be overcome only in countries where nation-
al incentives programmes, for promoting the increased adoption of ESTs in
SMEs, are in place and easily accessible.
In conclusion, the implementation of a TEST programme in SMEs would need
to address all the above-mentioned barriers and the TEST approach should
be amended as required. The development of the TEST package for SMEs is
still a challenge and the Hungarian approach was the first step in this direc-
tion.
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TEST TOOLS
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Part III TEST Tools
TEST TOOLS
This Part of the guidance document provides a summary of the individual
TEST tools presented in Part I. It's purpose is to describe each tool in more
detail and provide basic information on how to use them and on how to
link them within the framework of an integrated approach. If the reader
requires more information on how to apply each of the tools, a list of
resources is provided at the end of each section to assist them.
The last section of this chapter provides a description of the TEST project
cycle, including the links between the different tools: comments and con-
siderations are provided in the summary table in Annex VI.
A.
Initial Review
1.
Overview
1.1. Purpose and scope
The purpose of the initial review is to assess the existing situation at the
company, from both an economic and an environmental point of view20
and to determine the right combination of tools to address them. The
assessment uses a three-fold approach:
1. Acquire preliminary information on the company's market and
financial viability and the basic elements of its business strategy
in order to assess if it is a viable partner for a TEST project and,
if so, to identify its major weaknesses and major competitive advan-
tages.
2. Assess the company's starting point, focusing on the challenges
posed by environmental legislation and on the potential to imple-
ment solutions with both environmental and economic benefits.
3. Set priorities for intervention and prepare the overall workplan of
the TEST project.
20
The social performance will be addressed during the SES project module with particu-
lar focus on the impact of major EST investment.
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Increasing Productivity and Environmental Performance: An Integrated Approach
1.2 Main Steps of the Initial Review
With this purpose and scope in mind, the main questions to be consid-
ered during the initial review are:
1. Is the enterprise sufficiently viable, financially, to undertake the
TEST project?
2. How does the enterprise's strategy for products and marketing
relate to the existing business environment? Is it a viable strategy?
3. Which processes are of strategic importance to the company's
future? What is the level of the technology in place in these
processes?
4. How is the enterprise's environmental performance? What is its
level of legal compliance with the regulations and what are the
main environmental impacts?
5. Are energy and material flows (processes) efficient? What is the
potential for improvements?
6. How effective are the existing management practices, primarily
with respect to environmental issues?
7. How are environmental costs allocated in the current costing /
accounting system? What kind of management accounting system
is in place?
These questions can be organized into two main steps (see figure 11):
1. The first step addresses the issues related to questions 1-3 regard-
ing the market and financial viability of the company. The answer
to these questions will determine if the company has the poten-
tial to remain in business for at least another 3-5 years: a mini-
mum criteria for a company to be a suitable candidate for the TEST
project. This step of the initial review is critical in identifying the
most fundamental problems in the functional areas of the com-
pany as well as the critical success factors for enhancing its per-
formance. This step is also important in revealing areas needing
management restructuring.
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2. The second step of the initial review is the preliminary environ-
mental review (PER), which addresses all the remaining questions
(4-7). The aim of this second step is to assess the current envi-
ronmental performance of the organization.
A third and final step of the initial review follows, where the overall imple-
mentation plan for the TEST approach and its tools are finalized and sub-
mitted to the top management.
1.3 Planning during the Review
To start the initial review, an internal team should be appointed by the
top manager to undertake the relevant assessments. The team should
include representatives from the marketing and financial departments, as
well the operational/environmental departments.
At the end of the initial review, the overall implementation plan for the
company's TEST project is developed and formalized. At this stage, the top
management must commit itself and sign a contract with the group(s) pro-
viding the technical assistance before the main part of the project starts.
Once commitments are in place, the necessary human resources (the TEST
team21) are brought together from both internal personnel (employees) and
external sources (expertise needed from the assisting institution).
21
Size and composition of the TEST team should match with company's organization.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 11. The Initial Review Steps and Main Outcomes
Project Start
Commitment of Top Management
Assemble Internal Teams for Internal Review (IR)
Step 1
Market and Financial Viability
Financial Viability
Strategy for Products and Markets
I
Strategic Processes
Final Selection
N
Viability of Enterprise
Yes / No
of Enterprise
for TEST
Focus of TEST
I
Major Weaknesses and Competitive
Project
Advantage
Existance of Formalised Strategies
Focus of the
T
and Environmental Policy
SES Module
Step 2
I
Preliminary Environmental Review
A
Data Collection: Environmental Performance,
Existing Management and Environmental Cost
L
Calculation Practices
Data Evaluation: Potential Improvements, Set
Priorities and Identification of Tools
R
Selection of CPA Focus Area
Focus of CPA /
and Preliminary Identification of
EST
ESTA Focus
E
Use of EMS
Yes / No
Focus of EMS
V
Yes / No
Use of EMA
Step 3
Focus of EMA
I
General Planning
E
Implementation Plan of TEST Approach
W
Final Commitment and Sign Contract
Assemble TEST Working Teams
Define and Measure Operational Performance
Indicators at the Start of the Project
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2.
Step I: Market and financial viability
There are obvious connections between the business strategy of a compa-
ny and the selection of the focus areas for introducing the TEST tools, par-
ticularly with respect to the implementation of major technological
changes (EST) requiring large investments (see Text Box 4). Information
gathered at this level will reduce the risk that the programme resources
(financial and human) are spent optimizing production processes that are
likely to be decommissioned in the near future or in a company that is
likely to close down.
A number of issues need to be discussed in this step:
· The position of the enterprise in the current business environment
and its competitive position in the market
· The company's 3-5 year investment plan may also be discussed
· The company's vision and strategy toward sustainability (if one has
been developed) and how it is being achieved and communicated
internally
· The relationship the company has with key stakeholders
· External communication channels
· The existing environmental policy
It is a good practice to start the TEST project analyzing the business envi-
ronment, identifying any external threats and opportunities the company
faces and internal strengths and weaknesses it possesses. With this infor-
mation, the company's general business strategy (in particular the market,
financial and operational strategies) can be analyzed in the context of the
current business environment.
By the end of this market and financial viability step, it is possible to con-
clude whether or not it is viable to initiate the TEST project at that com-
pany. This decision requires a skilled expert and business consultants with
this expertise, who should be contracted to assist in making this critical
decision.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Additionally, the market and financial viability study will confirm which
EST investments will help give the company a competitive advantage,
thereby providing a direction and focus for TEST project, which is crucial
for its long-term success.
NOTE: For a better understanding of the terminology used in this section
the reader can refer to `The general principles of enterprise strategies and
its development' in Annex I.
2.1. The business environment
The business environment should be analyzed on two levels: the general
business environment and the specific business environment.
One of the most popular methods of analyzing the general `grand' busi-
ness environment of a company is the Political, Economic, Social and
Technological (PEST) analysis. It consists of grouping the business envi-
ronment into four main areas:
1.
Political/Legal factors (attitude of the government toward specific
business- incentives/funds, licensing barriers, dynamics of legisla-
tion).
2. Economic factors (GDP, unemployment, exchange rates, cost of
capital, inflation, business cycle, disposable income, etc.).
3. Social/cultural factors (social attitude of consumers, general level
of education, attitude of labour unions).
4. Technological factors (availability of technology, infrastructures for
transportation/ energy/communication).
Once the general environment has been analyzed, the scope of the inves-
tigation narrows to the specific environment directly affecting the compa-
ny (industry branch specific). The five forces model developed by Michael
Porter (see figure 12) is a good guide for this analysis22 as it analyses the
following aspects:
· Internal competition (among the existing competitors) New entry
(e.g. how difficult it is for a new competitor to enter the market?
22 http://www.quickmba.com/strategy/porter.shtml
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- this includes entry barriers (e.g. natural monopolies, access to
resources), regulatory barriers (licensing, tariffs), criminal or legal
barriers etc.) * Bargaining power of the consumers (customers)
· Bargaining power of the suppliers and
· Substitute products (possibility of the existing product to be
replaced on the market by one with similar use/utility)
Weak forces are considered opportunities for the business, while strong
forces are considered threats and reduce the profitability margin of the
business.
Figure 12. Five Forces Model
New Entry
Bargaining
Substitutes
Power of
Suppliers
Enterprise
Profit Margin
Bargaining
Internal
Power of
Rivelry
Customers
2.2. Analyzing the company
The next step is to analyze the company through a marketing and finan-
cial audit23. The financial audit focuses on assessing the accounting system
23 An operational audit can also be included, depending on the scope of the TEST project
and the available financial resources. The audit of the operational function would include
production, processes, location,
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of the company, its profitability, the risks it is exposed to (interest and
exchange rate exposure), its leverage (debt and equity), its liquidity, its
credit policy, its working capital and cash management and access to cap-
ital (credit rating, collateral etc.). The marketing audit assesses the follow-
ing main elements of the business: products, pricing strategy, place
(distribution), promotion (communication), marketing system and pro-
curement.
The necessary information can be gathered through a set of guided inter-
views, using ad hoc questionnaires as supporting material. Top managers
should also provide a short description of the company's ownership and
organizational structure, sales and operating profits, key production
processes and technology.
Within the context of the market and financial viability, it is important to
evaluate the current decision-making practices used for new investments
and the financial evaluation process used to assess profitability. This aspect
of the Review might reveal needs for training in financial appraisal prepa-
ration, relevant for the implementation of the EST project module.
The market and financial viability investigation should not go as deeply
as a traditional market and financial audits. The information collected
needs only to identify the major weaknesses and major competitive advan-
tages of the enterprise, in relation to the threats and opportunities of the
existing business environment. Once the critical success factors of the busi-
ness' key functions have been identified, a set of recommendations for
improvement can be provided.
2.3. Business Strategy Formulation.
Ideally, it is at this initial stage of the project, general (preliminary level)
information on the company's business strategy, development processes
and existing environmental strategies should be gathered. The important
questions to be answered concern how strategies (business and function-
layout, quality, production scheduling, maintenance, and inventory management. The
assessment of the environmental performance could then be integrated within the opera-
tional audit. The first application of the TEST Programme in the Danube River basin did
not include a broad operational audit: only selected components were considered for the
assessment.
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al) are formulated, formalized and implemented, and how performance is
measured within the company. An informal guided interview can help
accomplish this.
However, more specific (and probably more confidential) discussions and
advice on company strategy may only be possible after sufficient trust has
been built up between the enterprise and those who are providing tech-
nical assistance, a trust that will build over time as the project progresses.
Therefore, it is expected that in most cases, the strategy aspects of the
enterprise will be discussed in more detail within the final project mod-
ule, SES.
Nevertheless, the Initial Review process should supply the project team
with sufficient information on management competence, strategic man-
agement attitudes and the existence of a formal or intuitive strategy (or
lack thereof), to later plan the goals and set the outputs for the SES mod-
ule.
Text Box 4. Experience From the TEST Project in the Danube: Influence
of the Company Strategy on the Selection of the Project Focus Area
The Initial Review performed at one TEST enterprise, from the chemical sec-
tor, revealed a location processing an intermediate chemical, which the man-
agement identified as a priority for its TEST project as a pilot facility. It had
a large potential for improvement, significant environmental risks and there
was a strong concern that it was significantly impacting the Danube River
basin. The potential for the product to retain their markets was questioned
during the company's market and financial viability evaluations. It was point-
ed out that the market for the chemical concerned is very limited due to the
fact that it is mostly used in other processes to produce another chemical
that is already being banned in some countries due to its dangerous proper-
ties and is being substituted in other companies by chemicals that create
fewer risks to the environment. The enterprise, however, insisted on focusing
on cleaning-up the related production process and the CP module was focused
there.
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The initial work of the CP module revealed a large potential for improve-
ment in the process line and for the prevention of pollution at source. However,
it was not possible to complete the detailed analysis because the line was
not in operation during this review period: its start-up had had to be repeat-
edly postponed due to a lack of orders for the product concerned. It is dif-
ficult to determine the extent to which this problem was a result of the
dangerous character of the product. Eventually, the focus of the CP module
had to be changed and was implemented for another production unit with
higher market potential. Practical results were gained with the second unit,
however, the false start (produced by a flawed company strategy), regrettably
wasted time and financial resources of the programme.
3. Step II: the Preliminary Environmental Review (PER)
The PER should cover different aspects of the organization and could fol-
low either the structure of the Initial Review recommended by the ISO
14001 standard (when designing an EMS) or the structure of that required
by EMAS24. Whatever the structure, it should be remembered that this is a
preliminary review and it should not go into too much detail. For instance,
if one of the goals identified at the end of the Initial Review is to go for
full EMS implementation and international certification, the analysis under-
taken in the PER can be deepened in the EMS module.
At the end of the PER, the team should have a basic understanding of the
components of the existing management system and should have identi-
fied which parts can be used for the implementation of TEST and which
probably require the most urgent attention for improvement (with respect
to the company's most important environmental problems). It is now the
choice of which TEST tools to use can be made. In particular, the follow-
ing key decisions need to be made:
· Selection of the CPA focus area(s) and CPA planning (goals, targets
and indicators)
24
For detailed structure and content of the Initial Review recommended by ISO14001,
refer to the ISO 14004 (http://www.iso14000.com), while for EMAS refer to:
http://europa.eu.int/comm/environment/emas/index_en.htm
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· The ESTs to focus on (including end-of pipe options), following a
preliminary identification process
· How EMS will be used
· The use and scope of EMA
3.1. Data collections for PER
The PER should start with a brief assessment of the company's local char-
acteristics and history. The assessment should identify the potential risks
to human and environmental receptors and the vulnerability of the site
itself and its surroundings to contamination.
The next step is a review of the local environmental compliance require-
ments applicable to the facility. Once identified, compliance with exist-
ing environmental regulations should be evaluated. Current waste
management practices including inventory, handling, storage, monitoring
and final disposal, should also be analyzed.
The next step is to collect data on the production processes. Production
processes are, together with the management systems, the two areas that
will be the most time consuming for the reviewers. A walk-through of the
enterprise is a necessary part of the review here. A review of the process-
es should reveal which are core to the company and its products, as well
as their:
· Main inputs and outputs, efficiency in the use of the inputs and
an estimation of the financial losses caused by important losses of
materials or energy
· Main problems linked to the unwanted outputs of pollution and
waste
· Other core characteristics, such as problems with maintenance,
quality, health and safety etc.
· Basic characteristics of the technology used and its mode of oper-
ation
All core processes should be listed and their linkages mapped.
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From data collected, a flow chart with the main process steps and a list of
the main inputs and outputs (raw materials, auxiliaries, fuels, energy, water,
waste, emissions and final products), with related costs, should be prepared.
This should include the most recent energy bills, going back three years,
to see any trends in energy consumption in relation to production.
Equipment and facilities should be listed and checked for how current they
are, technologically. This check should include monitoring equipment,
energy and steam supplies, energy distribution systems, utilities and end-
of-pipe equipment.
Questions on products are usually asked only as they relate to the review
of particular processes.
Additional information should be collected on organizational systems,
including existing process, quality and safety management systems and the
basic elements of environmental management systems (environmental pol-
icy, environmental documentation, communication and operational con-
trol). These data are important for the design and implementation of an
EMS (either in full or in part).
Attention should be paid to the existing accounting system and product
pricing methods, especially the current practices for allocating environ-
mental costs, existing data and the information system. The main envi-
ronmental costs associated with the company's environmental impacts
should be discussed to allow a decision to be made as to whether an EMA
can be introduced and if so, what would be its scope.
Once these data are gathered, the processing and interpretation phase
should start. Priorities will be identified and tools chosen. Some of the
data gathered during the PER will be common inputs CPA, EMS, EMA, and
EST25 and will assist in deciding if/how
each tool is used and their relative focus.
25
Some data are common inputs for the initial planning step of each TEST tool. Therefore,
to avoid duplication of efforts during data collection at each project tool, most of the
common input data are being grouped and collected at the stage of the initial review.
Links between the different steps and data requirement for implementation of CPA, EMS
and EMA are provided in the table Annex VI.
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3.2 Data evaluation - selection of the tools
One of the core principles of the implementation of the TEST approach is
that the enterprise-level projects should focus on a company's needs and
be problem driven. The scope of the project must be modified and limit-
ed to the scale required, taking into consideration the available time and
existing resources. Therefore, one of the core challenges in the choice of
tools and degree to which each will be implemented, is to restrict the focus
to only the important issues and not overload the enterprise with either
too many tools or activities. Using the initial review findings, the team
tailors the TEST approach to meet the company's needs, setting a reason-
able focus and reasonable targets for each of the project modules.
3.2.1 Use of CPA
CPA is a tool that can generate savings quickly, helping to increase man-
agement `buy in'. For this reason, CPA will be undertaken in almost all
cases and the question becomes not whether a CPA will be done, but to
what extent.
Data collected during the PER provide a basis from which to identify the
areas of the business that are experiencing the highest losses (high CP
potential) and from there determine the scope of a CPA. Since the CPA
cannot be applied to all material and energy flows in the company at the
same time, it is advisable to implement it in the area where the CP poten-
tial is the highest first. This is called the CPA focus area.
Three main criteria can be used to set the priorities for choosing the CPA
focus area26:
1. The amount and character (degree of danger or risk) of wastes and
pollution: the most important raw materials, auxiliary materials
and energy sources (fuels) should be reviewed to determine what
wastes or emissions are the most critical to the enterprise with
regard to volume, danger, compliance, safety in the work place,
etc.
26
Additional criteria can be derived from the ISO standard (significant environmental
aspects identification - reference ISO14004) (URL http://www.iso14000.com/)
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2. The financial losses incurred by generating pollution and from
energy consumption: the overall costs connected with the genera-
tion of particular wastes and pollutants (including the wasted raw
material and energy), calculated to identify overall losses connect-
ed with the use of individual inputs for the most important raw
materials and energy uses.
3. Technical considerations: evaluate technical feasibility and expect-
ed improvement potentials. Benchmarking of the key process-per-
formance indicators (including energy efficiency indicators) with
industrial specific indicators should be undertaken27.
To select which flows to include in the focus areas, it is best to examine
and analyze the main material inputs and outputs at the company level,
costs related to raw material losses (generation of waste) and to the treat-
ment of the waste and pollution generated28. Focus areas such as energy
supply facilities or energy distribution systems can be selected primarily on
a technical basis, using straightforward indicators for benchmarking such
as the specific consumption of fuels, efficiency of energy generation or effi-
ciency of the distribution system.
The selection of a CPA focus area depends also on the size of the enter-
prise and the type of processes it uses. In a large company with many
processes, the `boundary' of the CPA can be drawn to only encompass spe-
cific units/parts. In smaller companies, the CP focus area is usually the
whole of the production process (or perhaps the whole company). Within
this boundary, the CPA can focus on specific flows of material and/or ener-
gy whatever criteria are used to choose the CPA focus area; the final selec-
tion should also take into consideration top management's decisions and
priorities (input from the market and financial viability assessment).
27
Examples of sources of information for benchmarking indicators are: US EPA, World
Bank Pollution Prevention Handbook, UK -ETBPP, BAT-BREFs, and eco-efficiency sectoral
indicators.
28
CP practitioners use different tools for processing data. One example is the TOP 20
approach. This tool consists in listing the 20 most important raw materials, toxic aux-
iliaries and wastes (STENUM Graz, Okoprofit: Helft 1 - 5, Magistrat Graz und Magistrat
Glagenfurt, Graz - Klagenfurt, 1994).
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Ultimately the focus area of a CPA will described:
· The specific flows (material flows, energy flows, water, etc.) that
will be covered, and
· The applicable boundary line for inclusion in the assessment,
whether it is around the entire facility or only around specified
units/production lines, energy generating facilities or energy dis-
tribution systems.
However, it is advisable to avoid extremes in the selection of the focus
areas:
· Too large and ambitious a range for the CPA means that the efforts
required are disproportionately greater than the resources that can
be made available for its implementation
· Too small a range: there is a danger of losing context and con-
nection with a higher unit. It is better therefore to not focus on
any area smaller than a production line in scope. The selection of
a fragment in an area (e.g. a machine) hampers finding the real
causes of pollution generation, which are closely connected with-
in the higher unit (i.e. the entire line).
Once the focus area has been chosen, the project's orientation is effectively
defined and the implementation parameters delineated. The preliminary,
process optimization targets can then be set.
3.2.2. Use of ESTA
As in the case of the CPA, the issue again is not whether to do an ESTA,
but what will be its scope. At the conclusion of the initial review level,
where there is access to information from the market and financial via-
bility review, it should be possible to estimate the need for technological
changes in the processes and/or the need for end-of pipe technologies. In
fact, if very outdated technology or processes are in place and technology
that is more efficient is well known to the company (from some earlier
investigations by the management in this direction), the ESTA focus area
may have been identified already within the initial review. However, it is
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important that the market and financial viability confirm that this direc-
tion for investment is correct and will strengthen the competitive advan-
tage of the company (see Text Box 4).
3.2.3 Utilization of EMS.
The major issue to be considered at the end of the initial review, with
respect to EMS, is whether a full or a partial EMS should be introduced.
The introduction of a full EMS should be carefully evaluated before initi-
ating any activities. The final decision should be based on the existing
management practices and the motivation of the top managers. Usually,
the implementation of a full EMS, according to existing international stan-
dards like ISO14001 or EMAS, should be pursued only if management has
declared a strong commitment to achieving the goal and has allocated
enough resources (human and financial). If the company does not have a
quality management system in place and if the overall resources are lim-
ited, the introduction of a full EMS is not recommended. Alternatively,
only selected elements of the EMS should be introduced, which will sus-
tain the cleaner production measures identified during the CPA.
The detailed planning of the EMS takes place as part of the EMS module
and can follow existing standards. The traditional steps of the planning
and implementation of an EMS are summarized in Part III - C.
If following the outline proposed by ISO 14001, the initial review process
will provide inputs for the environmental policy and will fix the time when
the policy will be drafted. The final policy can then be prepared within
the EMS module.
Independent of whether a full EMS will be implemented or not, an envi-
ronmental policy should be prepared. The first draft should be prepared
after the initial review and be finalized by the end of the project.
3.2.4. Utilization of EMA
The decision about whether or not to introduce EMA is decided at the end
of the initial review. Managers have to be convinced that introducing EMA
can help them save money by improving their control over environmen-
tal costs. One important argument in favour of EMA and one that should
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be discussed with the enterprise's management is that an EMA system will
reveal what will probably be a significant part of the material and pro-
cessing costs that actually go into waste instead the product. Additionally,
according to several surveys, the total environmental costs tend to be at
least three times the costs initially estimated by the company (See Text
Box 8)29.
Where it is decided that an EMA system will be introduced, its scope should
be defined at this early stage. To do this, the following three questions
should be answered:
· Where should the EMA be introduced (focus area)?
· To what depth should the analysis go?
· Which environmental cost categories should be considered for cal-
culation?
The selection of the focus area (which processes or group of products) is
based on the company's most important environmental impacts. Usually,
the EMA and CPA focus areas are selected together.
The goal of the EMA project will determine how in-depth the analysis must
be. For example, each of the following possible goals will require quite a
different depth of analysis:
· Calculation of the total environmental costs
· Allocation of costs to cost centres
· Allocation of costs to products that lead to the establishment of
an appropriate information system
29
Reference examples can be found in:
·
Martin Bennet and Peter James, 'The Green Bottom Line - Environmental Accounting
for Management: Current Practice and Future Trends', 1998;
·
Stefan Shaltegger and Roger Buritt, 'Contemporary Environmental Accounting, Issues,
Concepts and Practice', 2000,
·
Roberta De Palma and Maria Csutora 'Introducing Environmental Management
Accounting at Enterprise Level - Methodology and case studies from Central and
Eastern Europe', 2003 -
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The criteria used for deciding the EMA goal includes the type of produc-
tion processes and product mix, as well as existing cost accounting proce-
dures. For instance, if the company does not have a cost accounting system
in place, a full allocation of environmental costs, to cost centres or to prod-
ucts might not be a realistic or able to be implemented.
The next step in defining the scope is the preliminary selection of which
environmental costs should be considered. At this stage, the company man-
agers, with the assistance of an EMA expert should select the relevant envi-
ronmental cost items for the EMA project.
The detailed selection of environmental cost items will depend directly on
the availability of data on environmental costs, but should be finalized in
the EMA module, not at this stage.
Additional information on how to scope an EMA is provided in the chap-
ter `TEST tools', Part III - D.
4.
STEP III: general planning for introduction of the TEST
approach
The scheduling timeline for the application of the tools and related activ-
ities should also be defined and the overall work plan of the enterprise-
level TEST project prepared. Additionally, operational performance
indicators will be selected and measured at the start of the project to pro-
vide a baseline from which to assess the TEST project's results throughout
and when completed.
The TEST approach can be started either with the CPA or with the EMS:
it is not recommended to start both activities at once especially, in large
enterprises.
Guidance and recommendations on when to use one approach or the other,
as well as coordination arrangements between these two project modules and
between all project activities are provided in the EMS chapter (Part III - C).
The experience gained implementing the TEST programme in the Danube
River basin made it clear that it is crucial to create good records describ-
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ing the conditions before the project starts and to maintain records on the
effects of changes as they are implemented. Only then will the enterpris-
es continue to implement the TEST approach. Therefore, a set of opera-
tional performance indicators should be selected and measured at the start
of the project, to offer a baseline for assessing the impact of measures iden-
tified during the implementation of the TEST approach.
Depending on the focus area(s) of the project that were selected in the pre-
vious step, a set of eco-efficiency indicators should also be set at this stage.
The use of eco-efficiency indicators, instead of just environmental indica-
tors, reflects the need to link the environmental and economic perform-
ance of the enterprise. Moreover, traditional environmental indicators fail
to provide a real estimate of the impact of the implemented measures when
the production capacity changes from the project's start and it is comple-
tion.
For additional information on how to select appropriate operational per-
formance indicators and eco-efficiency indicators at this early stage, please
refer to Section F, `Evaluation of implemented measures' within PART III.
Once the work plan is finalized, the commitment of the top management
should be requested and a contract signed for the provision of the tech-
nical assistance required. This should occur even where the programme is
partly subsidized by a Government or an international organization. This
arrangement will assure the full commitment and participation of the com-
pany throughout the project. The contract should include specification on
the human resources internal to the company needed for implementing
the TEST approach.
Here again, the results of the initial review can help. The information col-
lected identifying both the core problems and the potential improvements
act as incentives to reinforce management's commitment to implement the
TEST project.
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B.
Cleaner Production Assessment
1.
Definition of cleaner production
Cleaner production (CP) is the continuous application of an integrated pre-
ventive environmental strategy applied to processes, products and services
to increase overall efficiency and reduce the risks to humans and the envi-
ronment30. For processes, CP includes conserving raw materials, water and
energy, eliminating toxic and dangerous raw materials and reducing the
quantity and toxicity of all emissions and wastes.
This definition stresses the need for the ongoing application of CP as an
integrated preventive strategy in order to achieve the goal of continuous
improvement in environmental performance, in an eco-efficient way. It is
a problem solving strategy rather than a solution. CP is built firmly on the
understanding that the environmental problems faced by modern society
must be solved at the root of their origin, by preventive means31.
A company achieves CP through two basic techniques:
· Reduction - decreasing the need for input materials through
increased efficiency
· Substitution - decreasing the need for dangerous substances
through their substitution
2.
Implementation of cleaner production
The CP implementation process involves a continuous identification and
implementation of CP measures, which range from simple good house-
keeping and good operational practices to complex technical solutions,
from well proven available techniques to innovative solutions requiring
research and development, and from no and low-cost measures to large
investments.
The implementation of CP faces a set of attitudinal, institutional and tech-
nological barriers. As it focuses on the root causes of environmental prob-
30
As defined by UNEP. See http://www.unep.org
31
Karlsson M., Hakan R.: Textbook on Cleaner Production, IIIEE, Lund University, Lund,
2002, p.2.
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lems within the enterprise (and/or the supply chain), it requires the
involvement of virtually all the employees of the enterprise, since they can
all influence the enterprise's environmental aspects in some way.
To implement CP on a continuing basis means to integrate and institu-
tionalize it within an enterprise, on two levels:
1. CP as a strategic approach and guiding idea: the CP has to be inte-
grated into the enterprise's strategy.
2. CP as a skill: CP methodologies should be integrated into the enter-
prise's procedures, and the employees of the enterprise have to be
trained how to implement it.
The role of CP as a strategic approach and/or a guiding idea needs to be
stressed. Inserting CP into the enterprise's strategy and thus linking CP to
the enterprise's goals and interests of its stakeholders creates a driving force
for its implementation on the operational level. If CP does not penetrate
the culture of an enterprise, the CP skills acquired in the CPA will disap-
pear. Therefore, integration of a CP approach into the enterprise's strategy
is a precondition for linking CP to the core interests of the enterprise and
values of its stakeholders. In order to integrate and institutionalize CP
on an enterprise level there should be an emphasis on the desired process
of a strategic change from the very beginning32.
For integration of a CP strategic approach into the enterprise's operations
it is important that:
· A long-term strategy and strategic priorities (and/or the desire to
develop such a strategy) exist
· There is reflection on experience gained from implementation of
CPA from the perspective of this strategy
32
Strategic discussion should be facilitated throughout the project, not only at its end. In
the course of implementing CPA, the results can initiate discussion on questions like:
·
What are the lessons learned from detailed analysis - can systemic implementation
of the CP approach bring better understanding of our processes and their bottle-
necks?
·
Why was such information was not available earlier?
·
What systemic steps have to be taken to have better control over important flows
in the processes?
·
What are the prevailing causes of inefficiencies and pollution generation? What are
the consequences for existing priorities and strategies?
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Text Box 5 discusses the integration of CP into business strategy, and com-
pares this with the Total Quality Management approach.
The SES module of the TEST project has been designed to reflect and incor-
porate the experience gained from the practical implementation of the TEST
tools (including CP) at a strategic level. SES provides the necessary struc-
ture and tools for the formalization of sustainable enterprise strategies: its
full implementation will assure that the CP approach will be integrated
into the business strategy (PART III-G).
Text Box 5. CP Integration into Business Strategy: A Parallel with the
Total Quality Management
The importance for, and the difficulties with, integrating CP as a strategic
approach and/or guiding idea into the overall business strategy can be illus-
trated with the experience from the quality movement. Following the success
demonstrated by the quality movement in Japan, there was a problem in
bringing the same desired `change' to quality management in the US. The
US enterprises trained their staff in the new tools and introduced new organ-
izations to quality management (through Quality Circle programmes) fol-
lowing the Japanese blueprint. However, this did not bring the desired
improvements in quality.
The problem was that the new tools and skills were being used within the
context of the old guiding idea - that quality is inherent to the product and
is of concern only to selected employees. It was only after integrating the new
idea that came from Japan, that quality is inherent to the customer that
the US enterprises were able to make the desired qualitative changes in their
quality management. One example of change was the adoption and cultiva-
tion of the `market-in' approach, or making the quality aspects core business
concerns that all employees are responsible for.
Using this broader understanding of quality, process inefficiencies and the
generation of pollution that could otherwise be a product can be considered
as a sign of non-quality as well as an adverse environmental impact on stake-
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holders. From another perspective, waste and pollution can also be consid-
ered `products' which the enterprise has to ensure reach certain standards of
quality.
CP therefore ties in with Total Quality Management (TQM) and enterprises
using TQM can easily integrate CP into their existing management system.
A similar situation exists with environmental management systems, which
can be used for integrating CP into an enterprise's strategy and operations.
However, whichever useful tools and synergies will be utilized for implemen-
tation of CP, these efforts will bring the desired breakthrough in the improve-
ment of productivity and environmental performance only if CP will penetrate
as a guiding idea in the enterprise culture.
3.
CPA methodology
The CP concept applied to processes33 is called a CP assessment (CPA). It
is based on the principle of an understanding of the cause-effect relation-
ship related to environmental aspects of an enterprise's operations, prod-
ucts and services , as CP aims to identify and address the very causes of
pollution generation through preventive techniques.
Application of the CPA methodology starts in situations where the com-
mitment to implement CP is strongly endorsed by the enterprise's top man-
agement. This commitment is a critical precondition for success and is
usually further strengthened as work on CPA progresses.
Next sections highlight some important aspects to be considered in imple-
mentation of CPA.
3.1. Priority setting
The root causes of environmental problems that are hidden in production
processes can be very complex. For example, there can be hundreds of
33
The TEST approach, as applied in its pilot implementation, focused only on the pro-
duction processes within the whole complex of cause-effect relationships in pollution
problems (which can include, for example, supply chain management, product design
or product-service systems).
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inputs entering a process, any or all or which may be partially converted
into some type of pollution. Because of this complexity, a CPA has to focus
on specific priorities. These priorities are usually selected based on two cri-
teria:
1. Significant environmental aspects.
2. The potential for increased process efficiency and/or economic
savings.
Within TEST, an initial selection is done during the initial review, where
the focus area for the CPA is first selected.
The same criteria should continue to be used during the implementation
of the CPA, to identify the appropriate depth of analysis required (where
to focus in the identification of pollution sources and causes). What is an
appropriate level of analysis differs from case to case and it is important
to focus only on issues that can bring interesting and beneficial findings.
Priority-setting tools should be used to confirm whether the effort expend-
ed on detailed analysis is justified by what is expected to be needed (effort,
costs etc.) for achieving the goals of the CPA.
If an enterprise has mapped its processes very well (with a good overview
on material and energy flows) or if the process is unified (like in some
SMEs where a few indicators can point out core inefficiencies and their
causes), a quick-scan approach, based on benchmarking may be all that is
required. This approach can identify the sources and causes of pollution
and what to implement. It should be stressed that the quick-scan and
benchmarking are superficial approaches, which can provide a good ori-
entation in certain situations, but can also limit case-specific innovation.
This can lead to the development of sub-optimal solutions.
3.2. Cause-effect relationship
The root causes of pollution hidden within particular process steps must
be identified first. Usually flowcharts and material/energy balances are used
here as the main tools to develop a `map' of pollution sources. This is one
of the most labour-intensive activities within a CP assessment, as process-
es, when viewed in this detail, are complex (often more so than original-
ly thought) and there are usually data missing which have to be collected.
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The core question of CP assessment - `why?' - should be asked repeatedly,
so that the root causes of pollution generation can be identified. Only then
will the enterprise know the answer to the initial question of where pol-
lution is generated. Possible factors (sources) can be grouped into the fol-
lowing categories:
· Materials - input materials and energies
· Machines - process hardware
· Methods - procedures for operation of technology
· Man - human factor in management and operation of technology
· Product - design of the product
3.3. Developing CP options
3.3.1 Option generation
CP options are based on preventive techniques. These techniques directly
address the particular factors influencing waste and pollution generation
as follows:
· Materials: through changes in input materials and energy sources
· Machines: through modifications of the existing equipment, or
their with new equipment
· Methods: through changes in operational procedures
· Man: through changes to the implementation of procedures and
other activities, by training, skills upgrading, etc.
· Product: through changes in the design of products
The primary objective of a CPA is to identify the options that prevent pol-
lution and waste at its source. Where pollution and waste continue to be
generated there are two more families of options that can be considered,
which are generally considered part of CP:
· On-site recycling
· Development of sellable by-products.
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These two techniques are not as efficient as reduction at the source, because
additional material and energy resources are needed to make them hap-
pen. Note also that when all the costs are calculated, frequently the sell-
able by-products still represent a loss for an enterprise. These techniques
are nevertheless considered CP techniques as they do increase the overall
efficiency of the process and reduce the consumption of raw materials,
when compared to off-site recycling, land filling or other techniques for
treating pollution and waste.
3.3.2. Screening of CP options
The CP options identified can be divided into the following categories:
· `A' options - good housekeeping options (no investment needed)
· `B' options - measures that require a small investment and that
can therefore be implemented within the enterprise's budget and
are characterized by a short pay-back period (usually considered to
be up to 6 months, however, this has to be determined on a case-
by-case basis)
· `C' options - measures that require significant investment, with
longer pay-back periods and which will require more a complex
feasibility study as well as external sources of capital
· Measures that can improve environmental performance but are
obviously technically and/or financially not feasible
In the TEST approach, the `C' options are further investigated in the ESTA
module. While feasibility studies for these options are not completed in
the CP module, a preliminary evaluation of their technical and environ-
mental suitability is done here in order to justify their suitability for the
EST module.
Type `A' and type `B' CP options should be implemented within the time-
frame of the CPA, so that the enterprise can see rapid and obvious finan-
cial benefits from the work they are doing. This both motivates employees
and strengthens the interest of management in the TEST approach.
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3.4. Step by step implementation of a CPA
A CPA is only one element of a larger programme that identifies and imple-
ments feasible CP options. There are different ways of structuring such
programmes. However, experience shows that the most of these pro-
grammes usually need to include the following basic steps:
· Getting started - planning and organizing the CPA
· Analyze process steps - in order to identify sources and causes of
pollution and waste
· Generate CP options - options based on preventive techniques to
address the identified causes of the pollution or waste, so as to
eliminate or at least reduce their quantity/toxicity
· Select the CP options to implement - screening of the options iden-
tified
· Implement the selected CP options
· Sustain the CP effort by starting the process again in a different
part of the enterprise and/or on a different set of pollution/waste
streams
These steps are further illustrated in table 5, which provides the charac-
teristics of particular steps of CPA and related activities34. Table 5 also it
shows examples of tools, which can be utilized for implementing particu-
lar activities, illustrating briefly the richness and creativity of this process.
(Many tools listed in this toolkit were adopted from the quality manage-
ment).
34
The starting point for this description is the steps and activities used by the Indian
Cleaner Production Centre within the UNIDO/UNEP Program of NCPC's.
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Table 5. Summary: Main Steps of CPA and Its Activities, Including
Examples of Tools that can be Used for Each Step
Step of
CPA
Purpose
Activities
Toolkit to Achieve
Each Step
1
Getting Started
Map all significant
1.1
Designate CP Team
Team building
problems.
1.2 List
process
steps
· Process mapping:
1.3 Select
assessment
focus
o Walk through process
Narrow down the list,
1.4
Prepare plan of CP
o Quick scan
identifying the most
assessment
o Benchmarking
important problems to be
o Input-output analysis
addressed immediately.
o Preliminary audit
o Preliminary energy
NOTE: The CPA focus is
efficiency review·
chosen at the end of the
· Planning:
initial review
o Strategy development
o Project planning
o Target setting
2 Analyse
Identify the pollution
2.1
Prepare a flow chart of the
· Process mapping:
Process Steps
sources (within the CPA
processes
o data collection
focus) and develop an
2.2
Perform material and/or
o measuring and
understanding of the
energy balances
balancing
causes of the pollution.
compare theoretical and
measured data
· Multi-criteria analysis to
Narrow down the list to
2.3
Assign costs to material
set-up priorities
important sources.
and / or energy flows
o Benchmarking
2.4 Determine
data
o Assigning costs to
NOTE: should provide
requirements and collect
material flows
guidance if investments
additional data
o Pattern diagrams
are required for
2.5
Complete material and
o Sankey diagrams
measuring equipment for
energy balances
data collection
compare theoretical and
· Identify pollution sources
measured data
and more detailed
2.6 Review
pollution
sources
process mapping:
and sources of energy
o Worksheets for data
inefficiencies
collection
2.7 Identify
pollution
causes
o Interviews
and causes of energy
o Observations
inefficiencies
o Material balances
o Measurements
o Experiments
· Consider Cause-Effect
relationships
o Review the trends in
performance over time
using statistic methods
o Stratification
o Gap identification (for
example comparison
of theoretical and
measured data or a
Control Chart)
o Fish bone diagram
o Relational diagram
o Scatted diagram
o Repeating WHY
analysis (3 5 times)
o Experiments
3 Generate
CP
Start defining the scope
3.1 Develop
CP
opportunities
· Use expert techniques:
Opportunities
of possible solutions
including energy
o Brainstorming (after
conservation opportunities
completion of detail
(ECOs).
analysis).
o External expertise
(advise from sector
experts, sector specific
CP manuals, BREFs
etc.).
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Step of
CPA
Purpose
Activities
Toolkit to Achieve
Each Step
4 Select
CP
Narrow down
4.1 Assess
technical
feasibility. · Tools for technology
Opportunities
opportunities to those
4.2
Assess environmental
assessment (including
which are feasible
feasibility.
investment appraisal) are
(including amendments to
4.3 Assess
economic
found in the EST module
the existing technology
feasibility.
· Evaluation data gathered
where appropriate)
in the step 2
· Total costs assessment
NOTE: See also Part II,
and pay back period
Section B-6.2
4.4
Select solutions (CP
· Review results from 4.1
investment-needing `C'
measures) for
4.3
measures.
implementation.
· Consider social
consequences / impacts
NOTE: Measures requiring
investments are further
developed and evaluated
within the EST module
5 Implement
CP Prepare an action plan
5.1 Prepare
implementation
· Project planning
Solutions
plan
· Development of
5.2 Execute
CP
indicators utilising data
implementation
gathered within the step
2
5.3
Monitor and evaluate
· Monitoring of
results
performance
· Evaluation of
performance (using
indicators)
· Internal reporting
6 Sustain
CP
Establish mechanisms,
6.1 Top
management
review
· Presentation of results
which will sustain CP at
and reflect on results of CP
and experience gained
strategic and operational
implementation
· Interpretation of gained
levels.
experience
· Strategic discussion
(starting by conceptual
reflection of gained
experience and guiding
ideas)
· Integrating CP approach
into the enterprise
operation (using, for
example, the EMS
structure and its tools for
continuous
improvement).
· External reporting and
dialogue with
stakeholders.
6.2 Sustain
CP
solutions
· Developing system for
monitoring material
and/or energy efficiency
(for example through
EMA module)
6.3
Select new focus area(s)
· Integrating material and
and continue in
energy efficiency into the
implementation of CP
enterprise operation
(using, for example, the
EMS structure and its
tools for continuous
improvement)
· Considering options
which originally were
placed as a lower priority
after the most important
items are corrected
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4.
CPAs and energy audits
CPAs can also include an energy audit, depending on the focus that has
been given to the CP module by the enterprises ( Text Box 6 describes an
example of a combined CPA and energy audit). The main difference
between a traditional CPA (that generally focuses more closely on materi-
al flows) and an energy audit is that in the latter it is usually much more
straightforward to identify sources of energy losses than it is in a CPA to
identify, with precision, the sources and causes of material pollution/waste
streams. Energy-using equipment (for example, electric motors) and/or the
distribution lines are obvious sources of losses, which can be further inves-
tigated. Energy conservation options (ECO's) are also much more stan-
dardized than is the case for CP options that are aimed at the conservation
of material flows. Finally, in an energy audit, it is relatively easy to quan-
tify the economic value of energy losses and the financial benefit associ-
ated with the implementation of ECO's (energy bills).
On the other hand, it should be noted that energy audits require that the
local consultants have quite specific technical skills, reinforced by in-plant
employees with working experience on energy efficiency aspects.
Performing an energy audit also requires that specific energy measurements
be taken at the facility, using the necessary measurement equipment.
5.
Resources on Cleaner Production
5.1. General references
· Important Internet resources for CP are the UNIDO and UNEP
websites (http://www.unido.org/NCPC/ and http://www.unep-
tie.org/pc/cp/)), which, among other things, provide information
on the network of the National Cleaner Production Centres
(NCPCs) and the UNIDO CP database.
· The CP practitioners website www.cleanerproduction.com, pro-
vides a good overview of up-to-date information, documents and
links in the field.
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5.2. CP Assessment methodology
Manuals describing the CPA methodology focus on the operational and
management levels of the management pyramid. Information on more
approaches towards CPAs are provided in:
· An Organizational Guide to Pollution Prevention, EPA/625/R-
01/003, U.S. Environmental Protection Agency (U.S. EPA) 2001,
which is downloadable from
http://www.p2ric.org/CachedPages/printguid.pdf
The traditional approach towards CPAs are described, for example in:
· Audit and Reduction Manual for Industrial Emissions and Wastes,
UNEP IE and UNIDO 1991
· PREPARE Manual for the Prevention of Waste and Emissions, ISBN
9034625656, NOTA 1991
· Facility Pollution Prevention Guide, EPA/600/R/92/088, U.S. EPA
1992
Note that in the US, CP is referred to as `Pollution Prevention' (PP or P2).
5.3. Sector specific CP information
· Pollution Prevention Clearing House:
http://www.epa.gov/oppt/library/ppicindex.htm contains among
other things the Sector Notebook Reports (Sector-specific CP
guides) of the U.S. EPA: http://es.epa.gov/oeca/sector/index.html
Note: This Clearinghouse is part of a larger U.S. EPA website on
CP: http://www.epa.gov/p2/.
· International Cleaner Production Information Clearinghouse
(ICPIC) - contains among others, CP case studies from different
industrial branches from around the world:
http://www.emcentre.com/unepweb/tec_case/index.htm
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· ENVIROWISE is an assistance programme focusing on the pro-
motion of CP. It is supported by the UK government and its
publications include sector specific notes, benchmarking studies,
guides and case studies:
http://www.envirowise.gov.uk/
· Green Profit is a database of CP case studies and techniques:
http://www.greenprofit.net
· A similar database is the Cleaner Production Case Studies
Directory:
· Similar information can be found at ENVIRONET:
http://www.environet.ea.gov.au/topics/solutions.html
· An important resource is the handbook developed by the World
Bank: Pollution Prevention and Abatement Handbook,
ISBN: 0-8213-3638-X, World Bank 1999. This handbook contains
general characteristics of particular industrial branches and is
accessible through:
http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=
details&eid=000094946_99040905052283
· General environmental and health and safety sector specific
guidelines are available at:
http://www.ifc.org/enviro/EnvSoc/pollution/guidelines.htm
· Information on energy conservation options is provided in:
Guide to Industrial Assessments for Pollution Prevention and
Energy Efficiency, EPA-625-R-99-003, U. S. EPA 2001.
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Text Box 6. Example of Combined Application of a CPA and Energy
Audit at a Bulgarian Enterprise
In all TEST enterprises, implementation of the CP module showed the pos-
sibility of improving efficiency, through improved material and energy engi-
neering. One of the best experiences with the CP module was at an enterprise
in Bulgaria where the TEST project focused on reducing the water pollution
and improving the energy efficiency in an alcohol production unit. There was
a strong commitment by the enterprise's management to the TEST project,
due in part to the high penalties paid because of the pollutants present in
the water this suit's discharge water (The penalties paid and the pollution
levels were also limiting the overall production of an otherwise profitable
unit).
The initial review showed high CP potential on the water pollution side, the
original focus of management concern (different end-of-pipe solutions were
being considered by the enterprise before the start-up of its TEST project).
Using the CP module clearly widens the scope of possible solutions by focus-
ing on the technological process itself (asking questions about how the pre-
ceding technology steps and quality of input materials influenced the amount
and quality of the pollution generated). However, the initial review also
showed that there was a need to redefine the problem, because another impor-
tant issue was identified: the quality of the product was poor and inconsis-
tent. The local market traditionally accepted this lower quality due to the
lower price. However, this status quo was questioned from the perspective of
the broader business strategy of the enterprise.
The most labour intensive step of the CP assessment was, as expected, the
detailed analysis of the material and energy flows in the process. There was
a general lack of data and information, for example, the first walk-through
of the process revealed a lack of information on the flow of the raw materi-
al (molasses) and water in the process. There were also obvious energy loss-
es related to the discharge of the cooling water, which had not been quantified
before. The first balances showed large gaps in the overall water balance and
revealed the need for measurements to be taken. Costs were assigned to mate-
rial and energy flows, which provided a good justification for the needed
measurements.
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The enterprise highlighted, as the main value added by the CPA module:
* The detailed analysis of the process, including the energy audit, enabled
the management to accurately map the material and energy flows and iden-
tify sources and causes of losses and expand the scope of possible solutions
* Faced with the resulting multitude of CP options, the methodology enabled
management to more efficiently priorities actions and select priority CP meas-
ures for implementation
The CP options the enterprise chose to implement helped it comply with envi-
ronmental legislation by bringing about significant reductions in water pol-
lution. At the same time, the enterprise obtained significant economic gains
from the improved efficiency of the processes targeted. In addition, with the
improvement of the quality of the final product (which went hand-in-hand
with the reduced pollution levels), there was an increase in the overall com-
petitiveness of the whole business.
Enterprise management and staff also gained detailed insights into the CP
strategic approach, and they will continue to use it in addressing other prob-
lems of the enterprise in their follow-up activities. Based on the experience
gained, they understand that CP is a natural approach for continuously
increasing overall quality and productivity, while reducing environmental
risks.
The full case study illustrating the results of the CPA at the Bulgarian enter-
prise can be found in Annex III.
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C.
Environmental Management Systems
1.
Overview
Environmental management systems (EMS) have predecessors in quality
management systems. Total Quality Management is `a structured system
for satisfying internal and external customers and suppliers by integrating
the business environment, continuous improvement, and breakthroughs
with development, improvement, and maintenance cycles while changing
organizational culture'35.
Systematic activities are driven by a strong sense of responsibility and lead-
ership on the part of top management, leading to the establishment of a
clear medium- to long-term vision of the business and to the development
of appropriate quality strategies and policies. This definition illustrates the
role of management systems within the management pyramid: their role
is to link the goals developed within an enterprise's policy and strategy,
with the enterprise's operational system. The Total Quality Management
Systems have the objective of guaranteeing specified quality parameters
and/or continuous improvement of quality. Similarly, the Environmental
Management Systems have the objective of ensuring that the enterprise
generates/produces pollution/waste outputs of a quality that is satisfactory
to the stakeholders, at the right time and at the right place.
The EMS module is structured on the `Deming scheme' of `Plan, Do,
Check, Act' (PDCA), which was derived from learning cycles (similar to the
implementation of an enterprise strategy). With an EMS, an enterprise uses
the PDCA scheme to manage its environmental aspects36 in such a man-
ner as to obtain continuous improvement in its environmental perform-
ance. The EMS also allows the enterprise to document, evaluate and
communicate its environmental performance.
An EMS is defined as `that part of the overall management system that
includes the organizational structure, planning activities, responsibilities,
practices, procedures, processes and resources for developing, implement-
35 http://www.iqd.com/hoshin_def.htm
36 An environmental aspect is the element of an organization's activities, products or serv-
ices that can interact with the environment - ISO 14001
37 ISO 14001
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ing, achieving, reviewing and maintaining the environmental policy'37.
Thus, an EMS should be an integral part of the existing management sys-
tem, meaning for instance that it should be harmonized with a quality
management system if the enterprise already has one in place. It should
be noted that an important aspect of the TEST approach was to introduce
an EMS only in cases where a quality management system was already in
place, because the introduction of an EMS is very much facilitated in this
case. Much more work is required if such systems do not already exist at
the enterprise.
While recognizing the importance of other EMS standards (like EMAS), the
TEST approach promotes the introduction of an EMS consistent with the
ISO 14000 standards, since these are the most widely used EMS standards
in the developed and developing countries. The main elements of an ISO
14001 EMS are presented in figure 13 (following the Deming scheme).
The effective implementation of an EMS within the TEST approach is rein-
forced by the use of the CP module. There are a number of aspects in each
EMS element that can make the CP module work more effectively and con-
tinue to be used over time, while the CP module in turn can become the
heart of the EMS's continuous improvement strategy. If properly coordi-
nated, the EMS and CPA tools together can produce more benefits for the
overall environmental performance of the company than if each of the
tools is applied independently.
Within the Deming scheme, integration of EMS and CPA can take place
mainly in the planning and implementation (Plan and Do) phases. The
other two phases of the Deming scheme are more important for integra-
tion of the CP approach into the enterprise's operations. Figure 13 shows
in more detail those areas were EMS and CPA can complement each other.
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Figure 13. Continual Improvement Cycle
Environmental Management
Environmental Policy
Environmental Aspects
Legal and Other Requirements
Objectives and Targets
Environmental Management Programme
Start
Plan
Structure and Responsibility
Training, Awareness &
Competence
Continual
Te
Managem xt
ent Review
Text
Act
Improvement
Do
EMS Documentation
Document Control
Operational Control
Emergency Preparedness /
Response
Check
Monitoring and Measurement
Non-Conformance / Corrective Actions
Records
EMS Audit
2. EMS & CPA Integration
2.1. Environmental policy
An environmental policy is defined as `a statement by an enterprise of its
intentions and principles in relation to its overall environmental perform-
ance, which provides a framework for action and for the setting of its envi-
ronmental objectives and targets `.38 The environmental policy provides the
framework for action and for the setting of the enterprise's environmental
objectives and targets.
The TEST approach can be integrated into the enterprise's strategy through
the environmental policy. The company can use CPA as a tool to help achieve
the goals of its environmental policy and for the continuous improvement
of its environmental performance in an eco-efficient way.
Amongst EMS practitioners there are often discussions regarding at which
stage an environmental policy should be developed. The environmental pol-
icy should reflect the enterprise's values, vision and core strategies in the
field of environmental management. Therefore, many practitioners place its
development at the beginning of the process of establishing an EMS (fol-
lowing the ISO 14000 standard), even before the initial review has been com-
pleted. This approach is justified by the need to have some guidance for the
initial review and for the identification of significant environmental aspects.
38
ISO 14001
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This is feasible in enterprises that already know their position, have a vision
and operate under stable and transparent conditions. However, if there is
no need for developing environmental policy at the beginning (to strength-
en and communicate commitment of enterprise management in this area),
it could be more effective to develop the policy after the initial review, i.e.,
once the environmental situation of the enterprise is better known.
Regardless, the policy can always be improved upon through the learning
experience during the running of an EMS.
2.2. Identification of significant environmental aspects
One of the first steps of the EMS planning phase is the identification of
the environmental aspects of the company. Environmental aspects are ele-
ments of an enterprise's activities, products and services that can have an
environmental impact. According to ISO 14001, an environmental impact
is any change to the environment, whether adverse or beneficial, wholly
or partially resulting from an organization's activities, products or servic-
es, which is caused by an aspect.
The purpose of EMS is to manage the enterprise's environmental aspects
to prevent adverse environmental impacts from occurring. This is done
through the identification of mitigation measures within the EMP
(Environmental Management Programme) and/or by setting appropriate
operational control procedures. Environmental aspects are therefore cen-
tral to the practical implementation of EMS.
First, the company should prepare a procedure for the identification and
prioritization of the environmental aspects of its activities, and then it
should implement the procedure. It should be noted that the way of
describing environmental aspects could pre-determine the primary strate-
gic approach that the management will use. For example, if an environ-
mental aspect is described only from the perspective of an emission
standard that is media-specific (e.g., the discharge of cyanide in wastewaters
from an electroplater), this could well encourage the enterprise to focus on
end-of-pipe solutions without exploring the potential for CP. Therefore,
care should be taken to describe the environmental aspects in such a way
that allows the preventive approach its maximum scope.
According to EMS, the aspects are evaluated and prioritized according to
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certain criteria in order to identify those aspects that have (or could have)
significant impacts, thus providing the baseline for setting the objectives
and targets of the EMP. These criteria can include: legal compliance, mag-
nitude of the environmental impact, difficulty in changing the impact, cost
of changing the impact and concerns of interested parties (as indicated in
the ISO 14004).
Within the integrated introduction of CPA and EMS, as foreseen in the
TEST approach, an enterprise can use the same tool of input-output analy-
sis to identify the CPA's focus areas and sources of pollution and the EMS's
environmental aspects. However there are some differences concerning the
use of input-output analysis within CPA and EMS:
· Scope - In the initial stage of the CPA, the input-output analysis
aims at identifying priority focus areas, which include significant
environmental aspects. In EMS, on the other hand, it is used to
identify all environmental aspects of the enterprise, with priorities
being set in a second stage. During the second step of the CPA
(the detailed analysis), the input-output analysis is now used in
the focus area to identify the causes of pollution
· Quantification - In an EMS, the enterprise identifies its significant
aspects using relatively qualitative criteria. The criteria can include
quantified data on material and energy flows, but even in this case
an enterprise will not need to use as detailed data as it would in
the CPA. Conversely, when the enterprise is selecting the focus
area(s) of its CPA, later when it undertakes the detailed analysis,
the significant aspects are only quantified in material and mone-
tary terms. The potential to improve both environmental and
financial performance, only through the efficient use of input
materials, is the main criteria for selection of focus area(s) for CPA.
From these considerations, even though the EMS includes a method for
the systematic identification of a company's environmental aspects, it acts
more at a macro level; there is no systematic approach or tool in the EMS
that helps enterprises investigate deeper and identify the root causes of the
pollution or waste associated with each environmental aspect. Yet, it is
only when management knows the root causes that it can properly direct
its efforts exploring potentially available preventive potential. This is where
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the detailed CPA can be useful in providing inputs to, and increasing the
accuracy of, the process by which environmental aspects are prioritized,
leading to a more refined selection of significant aspects than is required
by EMS.
Therefore, CPA, and more specifically its step of detailed analysis, can pro-
vide the necessary systematic approach for identifying the causes of pol-
lution and for exploring a broader range of pollution prevention measures
that can then be implemented within the EMP of the EMS. Note that this
is valid to the extent that environmental aspects are related to materials
or energy flows (i.e., environmental aspects related to noise or vibrations,
for instance, could not be analyzed in more detail through a CPA).
2.3. Setting up objectives and targets
Both EMS and CPA involve setting goals and targets, however there are sig-
nificant differences between these sets of goals and targets, both in when
they are set and what is their focus. In the EMS, goals and targets are set
after the significant environmental aspects have been identified and they
are addressed in specific environmental programmes. In CPA, goals, targets
and indicators are set at an earlier stage, during the selection of the focus
areas and try to:
· Keep the focus of the work on a detailed CPA
· Encourage the commitment of the enterprise to achieve significant
improvements of selected indicators using all feasible preventive
measures
Note that setting targets at the start of a CPA is not easy and cannot be
very accurate. Therefore, very few CPA practitioners do this. However, it is
considered a `good marketing' approach to raise the interest of the com-
pany and persuade it to implement a CPA. Targets of a CPA may change
over time with an increasing understanding of the problems. If the targets
are not achieved, this is simply a challenge for further continuous improve-
ment.
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In terms of focus, generally the goals and targets set in an EMS derive from
some environmental pressure (for example, from gaps in compliance).
Compliance alone is sufficient to be set as the target. Targets that are more
ambitious are usually not tackled with the first round of an EMS imple-
mentation, as an enterprise could question its ability to achieve such tar-
gets or think it does not have the appropriate tools for setting them. It is
also a matter of priorities: depending on the nature of compliance require-
ments, achievement of compliance can represent a vital necessity if the
authorities are to allow the operations to continue, so spreading efforts to
less critical goals may leave a facility open to legal challenges and a large
business risk.
In a CPA, on the other hand, targets have generally an eco-efficient ori-
entation, which could also reflect compliance goals (but do not necessari-
ly have to). Conversely, some compliance related objectives, which can
only be achieved through end-of-pipe solutions, do not necessarily imply
potential savings, thus do not represent a CP target.
Following the TEST principles, one integrated approach should be used to
set the objectives and targets needed to meet the specific needs of the
enterprise for both EMS and CPA. These two types of objectives and tar-
gets can go hand in hand:
1. Compliance objectives and targets that meet the challenge of cop-
ing with environmental legislation (both existing and future).
2. Eco-efficiency objectives and targets that meet the challenge to use
the preventive potential of win-win solutions (going beyond com-
pliance).
The main contribution of CPA to EMS, at this planning level, is ensure
eco-efficient objectives and targets are included in the EMP (along with
those for traditional compliance).
It must be stressed that EMS works at the macro level, while CPA acts at
the micro level of the enterprise. Therefore, the eco-efficiency goals of a
CP assessment are usually the specific targets assigned to reach a more gen-
eral EMP objective.
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2.4. Environmental programmes
CPA is `the' tool for the elaboration and implementation of specific EMS
programmes that focus on eco-efficiency objectives and targets.
CPA identifies sources of pollution and causes for its generation on a deep-
er level than EMS usually can do (as CPA has to work with environmen-
tal aspects on a more detailed level). Here, the main value added by CPA
is the ability it gives the enterprise to analyze particular environmental
aspects from the point of view of understanding the sources of pollution
giving rise to the aspect and linking them to the specific causes (includ-
ing if necessary, performing a very detailed balancing of important flows).
Feasible options identified within the CPA that address significant sources
of pollution (environmental aspects) could help the company reach the
eco-efficiency and/or compliance objectives and targets of the EMS. CPA
measures could represent the core technical inputs for the preparation of
the EMP action plans.
2.5. System for implementation
The `vehicle' of EMS is the system of resources, structures and responsi-
bilities, communication and documentation (i.e. the written procedures
and working instructions) used to achieve the goals in the environmental
policy and the objectives and targets set within the EMP. As part of any
CP project, this `vehicle' must also be created, but on a more basic level
to make it possible, to implement the feasible CP options identified.
Therefore, a CPA can benefit substantially from the EMS module, which
can provide a very effective vehicle for the implementation of the CPA
results. EMS can also ensure a more long-term commitment to CP by an
enterprise, by giving it a vehicle through which to continue the use of
CPAs. The transfer of information does not happen automatically and it
should start by linking CP to the objectives and values far down in the
management pyramid, as already described. The other crucial precondition
for the successful adoption of CP is appropriate training, awareness and
competence in this area developed, across the entire enterprise.
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2.6. Conclusions
EMS is an important tool for the implementation of the whole TEST proj-
ect at a facility level since it provides the framework for the coordination
and implementation of all other modules, particularly CPA. It is highly rec-
ommended that CPA and EMS be introduced as one integrated tool39.
However, CPA and EMS should not start simultaneously, to take better
advantage of the synergies and avoid duplication of efforts and confusion
between the teams As seen with the experience from the TEST programme
in the Danube (see Text Box 7), it should be possible to start either with
CPA or with EMS.
In summary, the coordination of the CPA and EMS tools should focus on:
· Integrating the CP approach into the enterprise's environmental policy
· Using the results of the CPA to provide input for the planning of the
EMS: assist in the identification of significant environmental aspects and
their quantification and the setting of eco-efficient objectives and targets
which go beyond just compliance goals (this is possible only if CPA is
initiated before planning of EMS)
· Using CPA to implement particular environmental programme(s) of EMS
and its action plans
· Using EMS as a `vehicle' to implement CP measures and sustain CPA
within an enterprise
The utilization of CPA for the implementation of particular EMPs is a key
aspect of the integration with EMS and can be done either when the EMS
is initiated before the CPA or when CPA is initiated before EMS. When the
EMS is initiated first, CPA can be used after the planning phase of EMS is
completed: Here, CPA will be a useful tool for the systematic identification
of solutions to reach specific objectives and targets of the EMP.
If the CPA and/or cleaner production strategy becomes part of the enter-
prise culture, mastering of the CP tools will become part of enterprise skills
and CP will be integrated into both the enterprise strategy and operations.
This one of the core means TEST uses: merge the improvement of envi-
ronmental performance with improved competitiveness.
39
This requires mastering of CPA by those providing technical assistance within EMS imple-
mentation and vice-versa. Strong coordination between the teams is crucial.
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Text Box 7. Experience from the Start-up of the TEST Approach and the
EMS and CP Modules in the Danube River basin
Start-up
Eleven of the seventeen enterprises that took part in the TEST programme in
the Danube River basin were motivated by the opportunity to receive techni-
cal assistance and consultancy to design their EMS, rather than to explore
their potential savings from CP. This was the case especially in Hungary,
Slovakia and Romania, where the existing economic drivers in the business
environment are pushing enterprises (exporting to EU markets or willing to
export), towards the introduction of EMS and obtaining ISO14001 certifica-
tion. Furthermore, to have a certified EMS in place was perceived by man-
agers as a good instrument to improve their image with national authorities
and local communities.
An important factor that influenced and contributed to the successful imple-
mentation of EMS in those eleven enterprises was that a quality manage-
ment system existed (or was under development). The top management of
these companies often perceived CP as a highly time and human resources-
consuming activity, which would not necessarily bring immediate benefit to
the company. With these considerations in mind, presenting the EMS and
CPA tools as parts of the integrated TEST approach was a very successful
idea. Companies that were initially interested in just receiving technical sup-
port for the design of an EMS were later convinced to undertake a CPA as
well. Later, most of the managers recognized the usefulness of the CPA itself
for the identification of pollution prevention options.
The remaining TEST companies were interested primarily in CP and were not
focused on EMS. These companies did not have a quality management sys-
tem in place, had relatively complex technological processes (chemical and
pulp and paper sectors) and did not have a detailed knowledge of the oper-
ation and monitoring of their processes. Managers of this type of company
immediately understood the benefit of undertaking a detailed CPA to get a
better understanding (mapping) and control of their processes. The CP poten-
tial made these projects very attractive as it represented the possibility to iden-
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tify large sets of measures for reducing pollution and production costs at the
same time. In this case, the EMS was presented as the necessary tool to main-
tain and improve operational control in the long-term and only the EMS ele-
ments relevant to achieve this were implemented.
Results of the EMS Component
EMS elements were introduced in all participating enterprises, but the full
EMS was introduced in only 11 enterprises, of which 4 obtained ISO 14001
certification by the end of the project40. Of the remaining companies, 4 have
the full documentation in place (pre-audit stage, certification expected by the
first half of 2004) and 3 enterprises have adopted the main system proce-
dures. The impact of the EMS module is represented in Figures 14 and 15.
In 9 of the 11 enterprises that introduced the full EMS, the system was fully
integrated with the existing quality management systems.
Furthermore, as a direct result of the EMS component of the TEST projects,
several organizational changes occurred in the environmental function. All
the enterprises where the full EMS was introduced showed an increased com-
mitment to managing their environmental aspects, although to a different
degree depending on the size of the company and on the previously existing
situation. In some cases, the change was moderate, reflected simply in the
appointment of an environmental manager. In most of the cases, however,
the changes were significant and involved the creation of an environmental
department or the increase of its staff. In some of these cases, the environ-
mental function was recognized as a horizontal function under the direct
supervision of top management (and not under the production departments,
as it had been previously in many cases).
More human resources were appointed to existing environmental functions
and an average of 30 percent of the employees had environmental tasks
included in their job descriptions.
40
In March 2003 Rulmentul (Romania) was certified ISO 14001, in June 2003 Nitrokémia
(Hungary), in April 2003 Guntner (Hungary) and in October 2003 ZOS (Slovakia).
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Figure 14. Introduction of EMS at the TEST Enterprises
EMS fully integrated with Quality Management Systems at 9 enterprises
5 Enterprises
4 Enterprises
EMS Certified ISO 14001
EMS full documentation in place
EMS principles and general
documentation in place
EMS principles in place
3 Enterprises
4 Enterprises
Figure 15. EMS implentation: Organizational Changes
Average 30 % increase of environmental tasks in employee's job descriptions
Significant Change
rises
8
Significant Change
(
Envi
Envi ironmen
ronmen t
ta
ta ll department
l department
created - increase of Staff
t
e
rp
created - increase of Staff
Moderate Change
En
Moderate Change
Environmental responsible
3
Environmental responsible
r
of
/manager appointed
/manager appointed
No change
No change
Full EMS was not implemented
Numbe
6
Full EMS was not implemente
Results of the CPA Component
The implementation of CPA brought significant benefits to the 17 enterpris-
es participating in the TEST project, both in terms of financial savings and
in terms of environmental benefits. A total number of 224 good housekeep-
ing measures (Type A) and a total number of 260 CP measures requiring rel-
atively small investments (Type B - having short payback periods) were
identified. Out of the total CP measures identified, 128 Type A and 109 Type
B measures were approved and implemented by the end of 2003, using the
companies' own financial resources. Figure 16 shows the total number of
identified measures vs. the number of implemented measures, broken down
by country.
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Figure 16. TEST Project in the Danube River Basin: Number of
Identified vs. Implemented CP Type A and B Measures (by country).
100
80
60
40
20
0
Croatia
Romania
Slovakia
Hungary
Bulgaria
Number of Identified Type A measures
Number of Implemented Type A measures
Number of Identified Type B measures
Number of Implemented Type B measures
It can be seen that the total number of identified measured varied signifi-
cantly from one country to another. For instance the Romanian, Bulgarian
and Slovak companies had the highest number of identified Type A and Type
B measures. This quite high CP potential can be explained by the fact that
the pilot TEST companies in these three countries used very outdated tech-
nology (compared with the pilot companies in the remaining two countries),
thus many more measures could be identified to optimize the existing process.
In general, the ratio between the identified and the implemented measures
was quite high, with the exception of a few companies in Slovakia, Bulgaria
and Romania. The reason for this is that large sets of the measures that were
initially identified as Type B measures were replaced by major EST measures
(Type C) requiring significant investment for changes in the technological
process
Table 6 provides a summary of the total investments undertaken by each
company to implement the 109 Type B measures, the related financial ben-
efits (savings) achieved and the range of payback period (PBP).
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Table 6. Financial Figures of the Implemented Type B CP Measures
Financial Figures of the Implemented CP Measures (Type B)
Total
Total Savings
Country
Enterprise
Investments
[USD per
Range of PBP
[USD]
year]
Croatia
Agroproteinka
13,500
23,000
7 months
Gavrilovic d.o.o.
23,000
113,345
2-6 months
Herbos
14375
26,615
6 months
IPK Tvornica
Secera Osijek
12,466
179,710
8 days
Romania
Astra Romana
36,000
60,000
0.3 - 1.1 yrs.
Rulmentul
29,300
11,300
0.6 - 3.2 yrs.
Chimcomplex
40,100
209000
1 - 6 months
Somes
42,800
130,000
0.01 - 3.7 yrs.
Slovakia
AssiDoman Sturov
1,098,000
313,000
1-3.5 yrs.
Zos Trnava
22,500
130,000
0.1-1 yrs.
Hungary
Gunter Tata Kft.
81,751
95,420
3 weeks - 2.17yrs.
Indukcios es
0.62 - 9.3 yrs.
Vedogazos
36,710
32,100
VIDEOTON
Audio
Company
2,577
3,880
0.26-0.63 yrs.
Nitrokemia 2000
-
-
Bulgaria
Yuta JSC
230,000
150,000
1 - 2.3 yrs.
Slavianka JSC
-
-
-
18,000
9,200
0.5 yrs.
Zaharni Zavodi AD
TOTAL
1,686,704
1,277,570
Integration of CPA and EMS
CPA and EMS were not introduced simultaneously in the TEST approach.
Two different approaches were used in the selected enterprises:
· A CPA driven approach
· An EMS driven approach
The selection of one or other approach was done during the initial review
step of the TEST approach, depending on the specific situation at the enter-
prises (e.g. type of production processes and level of interest level on the part
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of management). Efforts to integrate the steps of the CPA and the EMS gen-
erally followed the two approaches described above.
Some of the TEST enterprises in the Danube River basin programme used the
first approach, starting with the CPA in the focus area chosen during the ini-
tial review. In these cases, the planning phase of the EMS started only after
the detailed analysis of material and energy flows was completed. With quan-
tified data in hand on the waste and pollution flows, the significant envi-
ronmental aspects (related to production) for the EMS could be identified. At
the end of the detailed analysis, the EMS's register of environmental aspects
could be finalized and EMP objectives could be set. At this point, the CPA
was continued: CP measures were identified and the CP implementation
action plan was included as part of the overall EMP action plan. Then, the
implementation of the EMS's documentation requirements was started. The
entire identified CP good housekeeping measures, including maintenance and
control of the process were formalized into EMS procedures and working
instructions and included within the system documentation.
The TEST enterprises using the second approach started with the planning
of the EMS before the CPA. The preliminary environmental review was deep-
ened during the initial review; the environmental policy was drafted and envi-
ronmental aspects identified. Once priority environmental aspects were
identified and the EMS objectives and targets prepared, the CPA focus area
was selected, and the CPA started41. CPA was used as a tool for the identi-
fication and implementation of specific EMS programmes to explore meas-
ures to increase the efficiency of the process and produce potential economic
benefits.
In addition to these practical considerations regarding the implementation
and coordination arrangements of CPA and EMS, a conceptual difference
should be highlighted with respect to the selection of the significant envi-
ronmental aspects. As suggested by ISO 14001, the criteria to be used for
screening the environmental aspects should be selected by the company.
However, two different approaches were used at this point. The first approach,
used by some enterprises, focused mainly on the traditional environmental
impact criteria mentioned in ISO 14004 for assessing the magnitude of spe-
cific environmental aspects. The other enterprises included the CP criteria of
41
For these companies selection of CPA focus area was not done in the initial review.
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increased efficiency and reduction of production costs (potential for econom-
ic savings) with the traditional criteria.
Practical experience has shown that in the majority of the cases the use of
CP criterion (potential savings) for the identification of significant environ-
mental aspects leads to setting the same priorities as would be the case using
only the traditional criteria, which focus on legal compliance and the mag-
nitude of impact. However, this was not always the case. For instance, the
use of relatively inexpensive toxic raw materials (e.g. ammonia in the chem-
ical sector), which end up being emitted mostly in the waste streams, com-
bined with the inadequate fines and penalties regime in some of the CEE
countries, could significantly reduce the importance of such environmental
aspects when the CP criterion is brought into play. In these cases, the use of
a potential savings criterion led to a different set of priorities from that arrived
at with the traditional environmental criteria focusing on compliance.
Favourable conditions which led to a successful implementation of
EMS-CP were:
· Competency and high technical skills (e.g. as a result of good
training, apprentice programmes, experience or formal education)
of both the enterprises' employees and of the national consultants.
Partnerships created between the project coordination unit, local
enterprises and sector-specific institutions or individual consultants
revealed themselves to be effective
· Existence of a certified quality system in the majority of the com-
panies participating in the project made it easier to build on
employees' experience of working with a quality system and incor-
porate the environmental components into the existing quality doc-
umentation
· The presence of some employees who had been trained and/or who
had gained some previous experience in environmental manage-
ment
· Existence of earlier attempts to identify and evaluate environmen-
tal aspects and in some cases existence of pre-existing documented
environmental procedures
· A strong commitment of the top management for EMS implemen-
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tation, rather than the traditional sceptical response of some mid-
dle level managers at the initial level of implementation of the
EMS
· On-going privatization process (for state-owned companies) that,
by increasing the external pressures to implement EMS in the com-
panies, became an incentive for active participation in the pro-
gramme, especially where foreign partners were involved in the
privatization
The following Barriers were faced during the implementation of the EMS
and CP:
Practical difficulties in production e.g. lack of the raw materials, downtime
due to a lack of orders, personnel restructuring and management changes,
caused delays in project activities and required additional efforts. This was
a major barrier in some enterprises not only in the implementation of
EMS/CPA but throughout the whole of their TEST project. Additionally, the
following barriers to implementation of CPA-EMS were identified:
· Lack of environmentally-related knowledge on the part of EMS
team members: most of the employees involved in the design and
implementation of the Mess were working in the quality assurance
departments and lacked the necessary background and experience
in environmental protection. However, where the involvement of
personnel experienced in quality management was limited, imple-
mentation of EMS progressed even slower
· Resistance to change or an acceptance of process inefficiencies as
inevitable
· A hidden expectation that the project will provide technologies
and/or cheap investment financing.
Companies participating in the TEST project in the Danube River basin had
very little monitoring and measurement equipment. This was the main rea-
son that the data on raw material losses and mapping of pollution sources
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Increasing Productivity and Environmental Performance: An Integrated Approach
were found to be very poor in many companies. The figures they had were
mainly based on calculations and assumptions and there were limited data
with respect to air, soil and ground water pollution. This was a major bar-
rier in the implementation of detailed CPA analyses of pollution factors, which
is the basis for the identification and quantification of the real effects and
the real benefits of any CP proposed.
The bargaining power of the environmental managers within most compa-
nies is weak and the idea of proposing investments in CP measures to share-
holders generally made them very anxious.
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D.
Environmental Management Accounting
1.
Introduction
Monetary environmental management accounting is a sub-system of envi-
ronmental accounting that deals only with the financial impacts of envi-
ronmental performance. It allows management to better evaluate the
monetary aspects of products and projects when making business decisions.
`EMA' serves business managers in making capital investment decisions,
costing determinations, process/product design decisions, performance eval-
uation and a host of other forward-looking business decisions.' 42 Thus,
EMA has an internal company-level function and focus, as opposed to being
a tool used for reporting environmental costs to external stakeholders. It
is not bound by strict rules as is financial accounting and allows space for
taking into consideration the special conditions and needs of the compa-
ny concerned.
2.
Why should companies use environmental accounting?
Companies and managers usually believe that environmental costs are not
significant to the operation of their businesses. However, often it does not
occur to them that some production costs have an environmental com-
ponent. For instance, the purchase price of raw materials: the unused por-
tion emitted, as a waste is not usually considered an environmentally
related cost. These costs tend to be much higher than initial estimates
(when estimates are even performed) and should be controlled and mini-
mized by the introduction of effective cleaner production initiatives when-
ever possible. By identifying and controlling environmental costs, EMA
systems can help environmental managers justify these cleaner production
projects, and identify new ways of saving money and improving environ-
mental performance at the same time.
The systematic use of EMA principles will assist managers in identifying
environmental costs often hidden in a general accounting system. When
hidden, it is impossible to know what share of the costs is related to any
particular product or process or is actually environmental. Without the abil-
42
UNDSD: Improving Government's Role in the Promotion of Environmental Managerial
Accounting, United Nations, New York, 2000, p.39.
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ity to isolate and separate this portion of the overall cost from that of pro-
duction, product pricing will not reflect the true costs of its production.
Polluting products will appear more profitable than they actually are
because some of their production costs are hidden, and they may be sold
under priced. Cleaner products that bear some of the environmental costs
of more polluting products (through the overhead), may have their prof-
itability underestimated and be over priced. Since product prices influence
demand, the perceived lower price of polluting products maintains their
demand and encourages companies to continue their production, perhaps
even over that of a less polluting product.
Finally, implementing environmental accounting will multiply the bene-
fits gained from other environmental management tools. Besides the clean-
er production assessment, EMA is very useful for example in evaluating the
significance of environmental aspects and impacts and prioritizing poten-
tial action plans during the implementation and operation an environ-
mental management system (EMS). EMA also relies significantly on physical
environmental information. It therefore requires a close cooperation
between the environmental manager and the management accountant and
results in an increased awareness of each other's concerns and needs.
As a tool, EMA can be used for sound product, process or investment proj-
ect decision-making. Thus, an EMA information system will enable busi-
nesses to better evaluate the economic impacts of the environmental
performance of their businesses.
2.1. Product/process related decision-making
Correct costing of products is a precondition for making sound business
decisions. Accurate product pricing is needed for strategic decisions regard-
ing the volume and choices of products to be produced. EMA converts
many environmental overhead costs into direct costs and allocates them
to the products that are responsible for their incurrence. The results of
improved costing by EMA may include:
· Different pricing of products as a result of recalculated costs
· Re-evaluation of the profit margins of products
· Phasing-out certain products when the change is dramatic
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· Redesigning processes or products in order to reduce environ-
mental costs
· Improved housekeeping and monitoring of environmental per-
formance.
Table 7 summarizes the main environmental cost categories43 found in
business.
Table 7. Environmental Cost Categories
Environmental Cost / Expenditure Categories
1
2
3
4
5
Prevention and
Material Purchase
Processing Costs
Waste and Emission
Environmental
Environmental
Value of
of Non-Product
Treatment
Revenues
Management
Non-Product Output
Output
1.1
Depreciation for
2.1
External services
3.1
Raw materials
4.1
Labour costs
5.1
Subsidies,
related
for environmental
Awards
equipment
management
1.2
Maintenance
2.2
Personnel for
3.2
Packaging
4.2
Energy
5.2
Other
and operating
general
costs
earnings
materials and
environmental
services
management
activities
1.3 Related
2.3
Research and
3.3
Auxiliary materials
Personnel
Development
1.4
Fees, Taxes,
2.4
Extra expenditure
3.4
Operating
Charges
for cleaner
materials
technologies
1.5
Fines and
2.5
Other
3.5
Energy
penalties
environmental
management
costs
1.6
Insurance for
3.6
Water
environmental
liabilities
1.7
Provisions for
clean-up costs,
remediation
The purchase value of materials and processing costs of non-product out-
puts play an important role in EMA. They include the cost for buying and
processing that portion of production inputs that goes into the waste or
is discarded as scrap such as raw materials, auxiliary materials or water,
energy and the labour cost of processing. These costs are often on an aver-
age ten to twelve times greater than the waste and emissions treatment
costs44. Savings associated with this category of environmental costs into
project evaluations will make a larger number of cleaner production proj-
ects more profitable.
43
UNDSD: 'Environmental Management Accounting, Procedures and Principles, United
Nations New York 2001, p.19
44
Evaluation of cleaner production projects implemented in 46 enterprises in the Czech
Republic - Czech Cleaner Production Centre: Annual Report 1996, Czech Cleaner
Production Centre, Prague, 1997.
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2.2. Investment project and decision-making
Investment project decision-making requires the calculation of different
profitability indicators like net present value (NPV), payback periods (PBP)
and internal rates of return (IRR) or benefit-cost ratios. Recognizing and
quantifying environmental costs and benefits is both invaluable and nec-
essary for calculating the profitability of environment-related projects.
Without these calculations, management may arrive at a false and costly
conclusion.
Companies should take into account hidden, contingent and image costs
for project appraisals. The costs recorded in bookkeeping by conventional
accounting systems are insufficient to provide an accurate projection of the
profitability and risks of an investment. Many cost items that may arise
from long-term operations or projects must be included in the project
appraisal45. These environmental costs have been grouped into five cate-
gories46 as follows:
1. Raw materials, utilities, labour and capital costs are conventional
costs always considered in project appraisals and cost accounting,
however the environmental portion of these costs, e.g. non-prod-
uct raw material costs, are not isolated and recognized as envi-
ronmental.
2. Administrative costs buried in the overhead costs and hidden.
Examples include monitoring, reporting or training costs.
3. Contingency costs that may or may not be incurred in the future,
such as potential clean-up costs from an accident, compensations
or fines: the inherent difficulty in predicting their likelihood, mag-
nitude or timing often results in their omission from the costing
process. However, these costs very often represent a major business
risk for the company.
4. Image benefits and costs, often called intangible or `good-will' ben-
efits and costs, arise from the improved or impaired perception of
45
In annex IV of this manual, the results from a Slovak enterprise -KAPPA STUROVO par-
ticipating in the TEST project in the Danube River basin are summarized. The case study
illustrates how profitability of a large EST investment is influenced by contingency envi-
ronmental costs.
46
An introduction to Environmental Accounting As A Business Management Tool: Key
Concepts And Terms, pg. 8-11, EPA, June 1995
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stakeholders (environmentalists, regulators, customers, etc.).
Changes in these intangible benefits are often not felt until they
are impaired. For example, a bad relationship with regulators may
result in prolonged licensing process or stricter monitoring.
5. External costs represent a cost to external stakeholders (communi-
ties, customers, etc.) rather than to the company itself. Most
accountants agree that these costs should not be taken directly into
account when making project decisions. The company should be
aware, however, that high levels of external costs may eventually
become internalized through stricter environmental regulation,
taxes or fees. A good example of this type of cost would be costs
of environmental degradation (through `acid rain'), due to sulphur
dioxide (SO2) pollution, which later generates standards strictly reg-
ulating SO2 emissions, which would be internalized, as the costs
of purchasing and operating a scrubbing and neutralizing system.
A profitability analysis should be done using appropriate time-lines and
indicators that do not discriminate against long-term savings and benefits.
Net present value and benefit cost ratios are suggested as better investment
criteria than simple paybacks or internal rates of return to reflect real costs
and benefits. An accurate analysis of the investment's sensitivity to envi-
ronmental costs should also be carried out, which takes into consideration
the impact of input price changes and future changes in the regulatory
regime (fees, fines and penalties). Different scenarios can be examined, also
evaluating contingency and external environmental costs reflecting the
joint impact of changing several variables at the same time.
Thus, EMA is an important tool for integration of environmental consid-
erations into financial appraisals and decision-making for new investments:
environmentally friendly investments will show increased profitability in
the long term if all these factors are included in the model.
3.
Integration of EMA with other environmental management
tools
Environmental accounting will produce the most benefits when it is inte-
grated with other environmental management tools. In particular, EMA will
increase the advantages that a company can gain through the implemen-
tation of EMS. Linking EMA with cleaner production and environmental
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reporting show the financial gain which can be achieved by applying these
tools, since contingent liabilities represent major environmental, business
and financial risks for companies. EMA is a good supplement for risk man-
agement programmes as well.
The TEST project has the major advantage of applying different tools with-
in an integrated framework. Below is a brief discussion on how the differ-
ent tools support each other and can be integrated with EMA.
3.1. EMS
The ISO14001 standard requires the evaluation of environmental aspects
during the planning phase of the environmental management system. In
ISO 14001 environmental aspects are `elements of an organization's activ-
ities, products and services that can interact with the environment.'47 The
company shall:
· Identify the aspects which have an impact on the environment and
· Assign a level of significance to each environmental aspect
`When establishing and reviewing its objectives, an organization shall con-
sider the legal and other requirements, its significant environmental
aspects, its technological options and its financial, operational and busi-
ness requirements, and the views of interested parties'48.
Experience shows that financial implications play a very important role in
companies decisions about significant environmental aspects they choose
to tackle first. Measures that will bring higher savings will most likely be
implemented first. By clarifying the environmental cost structure of a
process or of a product, EMA will allow managers to have an accurate
understanding of where to focus to make processes more cost efficient.
When EMA is in place, environmental costs are calculated and traced back
to the source of their generation within the production process. In this
way, environmental costs can be associated to specific environmental
aspects, and can provide additional quantitative criteria for the setting of
47
ISO 14004: 1996 Environmental management systems - general guidelines on principles,
systems and supporting techniques, normative references page 2
48
ISO 14001: 1996 Environmental management systems specification with guidance for
use, Section 4.3.3
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priorities, targets and objectives within an EMS. Thus, having an EMA sys-
tem in place will help managers to effectively implement the EMS.
However, within the TEST approach, the EMA is completed when the EMS
is in the `check' stage. Thus, the results of the EMA could only be used in
the management review stage of the EMS to revise its priorities (the sig-
nificant environmental aspects).
3.2. Cleaner production
When cleaner production is combined with an EMA system, significant
synergies can be reached. The optimum time to build up the EMA is just
after completing a cleaner-production detailed analysis, where the
input/output analysis and the material flows analysis can provide basic
information on the amount of production inputs physically lost. These
data are essential for assessing the non-product output costs.
A cleaner-production assessment (CPA) can be a major source of data dur-
ing the design of an EMA information system: especially in companies that
do not have a well-established management accounting system and envi-
ronmental controlling system to provide information on material flows and
the costs associated with them. This is especially true for small and medi-
um sized companies. If neither a CPA nor EMA exists, it is recommended
a company perform the CPA before the EMA, especially if the company
does not have accurate data on the process.
Regardless of whether any of these systems have been implemented or
assessments performed, the adoption of an EMA would immediately result
in the adoption of tools like CPA to identify measures to reduce environ-
mental costs on a continual basis.
4.
Environmental performance evaluation and sustainability
reporting
The calculation of the financial impacts of environmental performance has
recently been introduced within the environmental performance evalua-
tion and reporting.
According to ISO 1403149 financial costs and benefits are a sub-group of
49
International Organization for Standardization: Environmental Performance Evaluation
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Increasing Productivity and Environmental Performance: An Integrated Approach
management performance indicators. Examples for financial indicators in
the standard include: costs that are associated with environmental aspects
of a product or process, return on environmental investment, savings
achieved through reductions in resource usage, prevention of pollution or
waste recycling, etc. While most companies have an estimate of their envi-
ronmental costs, it is usually underestimated. Moreover, savings and prof-
itability of waste reduction programmes cannot be reliably estimated
without a proper EMA in place.
An EMA system can separate end-of-pipe costs from prevention costs. It
also helps in calculating the savings gained through the reduced use of
raw materials and energy. Without these data from environmental pro-
grammes, companies will continue to think of environmental management
as a strictly non-profit-generating part of business that always costs money.
Cleaner production can save money and thereby increase profits. With an
EMA, these savings can be captured and reported.
EMA generated data improves the bargaining power of environmental man-
agers with a company's top managers and shareholders, to create or obtain
funding for environmental programmes, CP projects and EST investments.
It will also provide precise numbers on environmental costs, when required
by external stakeholders. While shareholders are concerned about their lia-
bilities, external stakeholders (authorities, civil societies, NGOs, etc.) are
interested in seeing the company's efforts toward environmental manage-
ment supported by substantial environmental expenditures. Data generat-
ed by an EMA will help demonstrate these efforts.
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5.
The methodology
Much work has been done over the past three years in the field of EMA.
The methodology used within the EMA TEST project uses the experience
from this work50. This includes the use of environmental cost allocation.
The project appraisal portion relied on the total cost accounting concept
published by EPA and used in the UNIDO COMFAR51 and the P2Finance
(developed by the Tellus Institute52) software tools. Cost categories were
defined following the existing workbook published by United Nations
Division for Sustainable Development (UNDSD)53.
Within the TEST project framework, a significant contribution to the prac-
tical use of EMA was made in the following areas:
· Linking CPA and EMA: introducing different controlling methods
for non-product output costs. EMA was divided into three main
categories to reflect the different levels of controllability of costs
for both short and long term conditions. This will lead to a bet-
ter understanding of the amount a company can save, by just
improving the operation of its existing technology, or by making
major technology change over to environmentally sound tech-
nologies.
· Developing outlines for scoping EMA: defining the steps of
implementation and developing an information system for EMA
· Identifying both the barriers to EMA, and ways to overcome
them, when it is introduced under different circumstances
In the following section, the steps of the EMA implementation process are
described.
50
Stefan Shaltegger and Roger Buritt: Contemporary Environmental Accounting, Issues,
Concepts and Practice, 2000
51
COMFAR is computer software that permits the user to simulate the short- and long-
term financial and economic impacts of investment projects. The software permits the
analysis of industrial as well as non-industrial projects, new investments, reconstruc-
tions, expansions, joint ventures or privatization projects. Demonstration versions of the
COMFAR tool can be downloaded from the following web page:
http://www.unido.org/en/doc/3470
52
www.tellus.org
53
UNDSD: Environmental Management Accounting: Procedures and Principles, United
Nations New York, 2001
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6.
Scoping EMA
Once management is committed to introducing an EMA, the first step is
to define the scope of the EMA, which means to identify the area of the
company where the project should focus its implementation and the depth
of the analysis. Usually the processes and/or the products, which are caus-
ing the most significant environmental aspects and impacts, are selected
as the initial focus of an EMA project.
Setting the goal of the project will lead to defining the depth of the analy-
sis within the selected focus area. An EMA project will start with calculat-
ing environmental costs, and depending on the goal which has been
initially set, will move to the next step of allocating those costs to cost
centres54 and to products.
For some industrial processes, where the same technological process pro-
duces several products, the environmental costs of one specific product are
linked to the costs of other products. Therefore, in several cases one prod-
uct may not be able to be evaluated without also evaluating others. In this
way the selection of the focus area and the depth of the analysis are inter-
related and decisions should take into account the type of industrial pro-
duction processes that are in place as well as the kind of products that are
manufactured.
Generally, not all possible environmental cost items will be measured. The
main criteria for selection of which to measure is the magnitude of the envi-
ronmental cost item compared to the total production costs. The trade-off
between the efforts for data collection and the benefit of having informa-
tion that is more accurate will influence the selection of the environmental
costs items chosen. The selection of the project's priority environmental cost
items is made during the initial step of scoping an EMA project.
It is the joint responsibility of the environmental manager and the account-
ing department to decide which costs are relevant and considered for the
EMA project. An EMA expert can assist in this decision-making process.
Although an initial estimation of environmental costs is needed to prop-
erly scope an EMA, the actual environmental costs will only be known at
54
Costs Centres are the smallest units of activities of responsibilities for which accounts
are accumulated. A cost centre can be a process, a department, a programme, etc.
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the end of the EMA project, when the values have been correctly calcu-
lated. The situation is complicated by the fact most companies underesti-
mate their environmental costs.
This problem can be overcome by setting a very conservative limit on the
magnitude of environmental costs that will be dealt with and by applying
a systematic approach to the analysis. For example, the company might
initially decide to deal with environmental costs initially estimated to be
less than 1 percent of product costs. If the EMA calculation of environ-
mental costs reveals that this preliminary estimation is correct, the com-
pany can continue to assign these costs into overhead. On the contrary, it
might turn out that some costs, originally estimated to be under this limit,
are actually higher than initially estimated. For example, it may be deter-
mined that 1 percent of production costs was too low as criteria and the
level could be increased to 3 percent or more before it needs to be
addressed. The limits must be set in a conservative manner to reduce the
risk of bad estimations, but can be revised as appropriate.
By the end of the scoping exercise, there will usually have been a defini-
tion of a preliminary set of environmental costs that are considered rele-
vant or of concern. They will be controlled on a periodic basis, but may
change at the end of the project when the final parameters are chosen,
based on their real value and impact on production costs. The EMA is an
iterative process and can be applied incrementally to processes and prod-
ucts. Therefore, additional environmental costs items, not selected in the
initial scope of the EMA, can still be considered within the frame of the
project. Moreover, the priority of some cost items, judged not significant
at the beginning, might become important due to changes in regulations,
input prices, etc.
Defining the scope of the EMA is part of the Initial review of the TEST
approach. An ad hoc questionnaire has been designed to support local
teams in this process. This is possible because most of the information
required for identification of the system boundaries and for the prelimi-
nary selection of environmental cost items is gathered through the pre-
liminary environmental review.
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7.
Calculation of environmental costs
The next step is to choose a schedule (quarterly for example) where the
analysis will be conducted and collect all the necessary information for the
calculation of the selected environmental cost items. The process of col-
lecting data is time and effort consuming: different sources should be ana-
lyzed to extract the relevant information.
If a cost accounting system is in place, a cost centre structure is already
defined which may be very useful to collect the relevant information. These
accounting systems frequently have some `environmental waste and emis-
sion treatment costs' categories already allocated to cost centres. However,
it is very rare that these environmental costs refer to independent account
numbers within the company's bookkeeping system: generally, they are
pulled in on the same account as non-environmental related information.
Besides the fact that this makes the environmental-related portion of the
specific cost items invisible to management, the existing allocation of envi-
ronmental costs is done utilizing the same allocation keys used for non-
environmental costs (like labour or machine hours) and will not generally
be correct for these types of costs. For example, income statements usual-
ly combine the depreciation of environmental related equipment and non-
environmental equipment on the same account. Thus, work needs to be
done to extract the relevant information from existing accounts. Once the
environmental costs are extracted however, they should be properly real-
located to cost centres using environmental keys.
Even though some categories of environmental costs might have their inde-
pendent account number and be allocated, to cost centres, they may not
be allocated to the cost centre where they actually originate or the allo-
cation key used may not be appropriate. As an example, waste and emis-
sion treatments costs might already be allocated to the environmental
department or to a specific end-of-pipe equipment only on the basis of
total volume, without considering the toxicity or the pollution concentra-
tion-loads contribution of the individual costs centres. This aspect has to
be checked before using the values from the existing system.
Generally expenditures related to other environmental costs categories, like
prevention and environmental management costs, are not allocated to cost
centres even if a cost accounting system is in place. These costs are usu-
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ally hidden in various overheads and are included in the same account
number as other expenditures. In such cases, different accounts and bills
must be checked first to identify the environmentally related information
to be extracted. Depending on the nature and magnitude of the environ-
mental costs, a decision can then be made on whether to allocate those
costs to another cost centre, or leave them in the overheads and eventu-
ally create an environmental overheads general account.
While waste and emissions treatment, prevention, and environmental man-
agement costs can usually be found in existing accounts (more or less eas-
ily), less conventional environmental costs have to be calculated. For
instance, the purchase values of product and non-product outputs are not
distinguished from one another and are recorded together as direct pro-
duction costs. There are different ways to calculate non-product output
costs (see Part II - B), however it is necessary to first have a detailed mass
balance of each production step to identify where material and energy loss-
es originate within the process. A CPA assessment is good tool to do this.
To assure consistency of the analysis, crosschecking of data should be done
using different sources of information such as balance sheets, profit and
loss accounts, inventories and material balances.
8. Calculation of non-product output costs
One of the goals of EMA is to highlight the contribution of environmen-
tal costs to unit product costs. This is particularly true for non-product out-
put costs, which usually represent the most significant share of total
environmental costs, but often, are forgotten or ignored. The establishment
of an EMA system will result in more control over environmental costs.
This information can assist in directing decisions towards the adoption of
cleaner production measures or new technologies to reduce these costs.
As can be found in literature55 the usual practice for calculating non-prod-
uct output costs is to take into consideration the entire value of inputs
that do not go into to the final product. However, this approach ignores
the fact that not all wastes and emissions can be eliminated even when
state of the art technology (BAT) is in use, and thus, companies usually
55
This definition is used by UNDSD and by Shaltegger
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feel that this approach is too penalizing. To better help managers plan
cleaner production measures and/or investments in new cleaner technolo-
gies, it can be useful to create three different benchmarks against which
companies can compare their non-product output costs. The three bench-
marks reflect how companies can manage and eventually reduce those costs
both in the short-term as well as in the long-term.
The first, and normally least stringent benchmark is what we can call tech-
nological norms. These represent the most efficient level of input con-
sumption and emissions achievable by the technology that the company
has in place. Technological norms allow for the fact that some wastes,
emissions and scrap outputs cannot be avoided, even when the existing
technology is operated in the most efficient way. These values can be found
in engineering design specifications and operating parameters, manufac-
turer's technical manuals and process flow sheets (which have been mod-
ified to quantifiably reflect volumes where wastes are concerned). These
data could be consolidated into technological flow charts. In this case,
the difference between the actual costs of the inputs and the costs of the
inputs if the technological norms were adhered to, demonstrates how much
companies can save in the short-term by operating their existing technol-
ogy in the most efficient way.
The next, and usually more stringent benchmark is the Best Available
Techniques (BAT) level. These will be technologies considered the most effi-
cient and/or protective of the environment, currently available on the inter-
national market for particular sectors and/or products. By using this
benchmark to calculate non-product output costs, a company is signalling
that it recognizes that it could switch to the best available techniques (BAT),
or at least implement technological changes to come closer to BAT levels
(by purchasing equipment with efficiencies closer to BAT) or significantly
modify its current technology. The difference between the actual costs of
the inputs (or between the input costs for the technological norms) and
the costs of the inputs for BAT norms shows how much companies could
save by switching to BAT (or close to BAT). The use of this benchmark,
like the technological norms, recognizes that some waste and pollution will
always be generated (although lowering quantities). This cost difference is
the one that companies should definitely use when important decisions
are made regarding the choice of new technologies and is best addressed
in an analysis over a medium-longer time line.
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The final benchmark is the theoretical norms. Theoretical norms assume
100 percent efficiency and do not allow for any wastes or emissions. As
such, they can never be achieved, only approximated. As mentioned above,
this is implicitly or explicitly the benchmark used in most literature on
the calculation of non-product output costs. In the chemical industry, this
amount is determined by the reaction equation. In other industries, a thor-
ough input-analysis could be required to show the portion of the inputs
that would directly become part of the product. Technological flow charts
can also be used for this purpose in non-chemical based operations.
In the end, as technology develops, BAT can change and move closer to
the theoretical norm efficiency levels, so the gap between the last two
benchmarks will continue to narrow.
The relationship between the above-mentioned norms to calculate non-
product output costs are shown in figure 17, where the technological norm
is higher than BAT and BAT is higher than the theoretical norm.
Figure 17. Comparative Short-Term Normative and Actual Product-Based
Environmental Costs
s)
st
o
Actual Value
Technological Norm
nit c
u
t
s (
s
o
BAT Norm
nput C
i
on I
Theoretical Norm
Product
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For operational purposes, companies are most likely to be interested in the
difference between the actual non-product output costs and the costs for
the technological norms. This information shows how much they deviate
from the cost they could achieve by using their existing technology in
accordance with its technological descriptions. In these cases, the non-prod-
uct output costs can be used to highlight those areas where a company
can usually reduce its wastes and emissions by better housekeeping e.g.
better monitoring of raw material consumption, avoiding/reducing scraps
and wastes and reducing energy and water consumption. Companies need
this information on a monthly basis to be able to react quickly.
The difference between the actual non-product output costs and the non-
product output costs for BAT could also be interesting for a company,
although on a less frequent basis as the difference cannot be reduced in
the short term. The difference shows the point up to which it is econom-
ically feasible to perform technological improvements. This information is
very important when a company considers changing technology, so it must
be calculated every time such a decision is to be made, probably every 3-
7 years depending on the technological life cycle of the equipment. In
cases where a company is reporting total environmental costs, the latter is
only correct when the non-product output costs related to BAT are con-
sidered. A good practice would be to calculate these costs annually, when
the information can be used for internal reporting purposes to facilitate
stakeholders' decision-making for new investments.
Non-product output costs tend to be very high when they are calculated
in relation to theoretical norms, because first, 100percent efficiency is not
achievable, and second, many inputs are never meant to go into the prod-
uct (they are auxiliary inputs or `helpers' in the process) and so inevitably
become 100 percent waste. For example, catalysts are needed in chemical
reactions, but 100 percent of them become non-product output costs
because they do not go into the product and eventually become spent and
need to be replaced. Another example would be the energy that is required
to maintain temperatures in the company buildings at a certain level: that
energy never goes into the product and eventually is all wasted (with
respect to the product). This comparison can be discouraging for compa-
nies, because these costs are considered inevitable and non-controllable.
On the other hand, a calculation of very high values of non-product out-
put costs in relation to theoretical norms can represent a strong motiva-
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tion for better use of resources and innovative thinking. They can spur
the adoption of BAT and in the case of auxiliary inputs the levels of use
can often be reduced and sometimes completely eliminated.
Table 8 shows the calculation methods of material purchase value of non-
product costs and their relationship with cost controllability. It is impor-
tant that the company have access to all of these costs when EMA is
introduced for the first time. The final calculation method for non-prod-
uct output costs will depend on the specifics of the company.
Table 8. Relationship between Non-Product Output Costs Calculation
Methods and Cost Controllability
Material Purchase Value
of
Calculation Method
Ability to Control Costs
Non-Product Outputs
Material consumption
Actual Value
Controllable
Exceeding the
Technological Norms
in the shorter term
Technological Norms
Material consumption
Actual Value
Controllable
Exceeding the
BAT Norms
in the medium to long run
BAT Norms
Material consumption
Actual Value
Controllable
Exceeding the
Theoretical Norms
in the longer run
Theoretical Norms
9. Allocation of environmental costs
To summaries, the calculation of environmental costs, as presented in the
previous section, can be divided into the following steps:
· Analyze the existing costs data information system
· Organize costs data according to the technology flow
· Understand the major allocation keys in use
· Identify environmental cost items within overheads
· Extract environmental expenditures information from accounts
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· Complete detailed mass-balances of the process
· Calculate environmental costs related to direct production costs
(non-product output costs)
Once all the relevant information on environmental costs has been col-
lected, the allocation process should start. Initially, environmental costs
will appear in the production cost structure of each cost centre, and then
be placed in the product cost structure56. At this point, it will be possible
to decide which environmental costs are more important (compared to
total production costs) for the future operation of the company. Once cho-
sen, they should be monitored on a continual basis within the EMA sys-
tem.
Whenever possible, environment costs should be allocated directly to the
activity that generates the costs, again first to the respective cost centres
and then to the products. As a result, for example, the costs of treating
the toxic waste arising from a product should directly and exclusively end
up allocated to that product57. Proper allocation keys must be developed
for this purpose.
The choice of an accurate allocation key is crucial for obtaining correct
information for cost accounting. It is important that the chosen allocation
key be closely linked with actual, environment-related activities. In prac-
tice, the following four allocation keys are often considered for environ-
mental issues58:
· Volume of emissions or waste treated
· Toxicity of emissions or waste treated
· Environmental impact (volume is different to impact per unit of
volume) of the emissions or waste
· Relative costs of treating different kinds of waste or emissions
56
During the allocation of costs to products, overheads are also allocated
57
Stefan Shaltegger and Roger Buritt, Contemporary Environmental Accounting, Issues,
concepts and practice, Greenleaf Publishing 2000, p. 131.
58
Stefan Shaltegger and Roger Buritt, Contemporary Environmental Accounting, Issues,
concepts and practice, Greenleaf Publishing 2000, p. 136
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The choice of the allocation key must be adapted to the specific situation,
and the costs, caused by the different kinds of wastes and emissions treat-
ed, assessed directly. Sometimes a volume-related allocation key best reflects
the costs, while in other cases a key based on environmental impact is
appropriate. The appropriate allocation key varies depending on the kind
of waste treated or emissions prevented.
The information needed for calculating and allocating environmental costs
can be acquired relatively easily if a cost managerial accounting system is
in place. There are different methodologies for managerial cost account-
ing59, such as `activity based costing (ABC)60', `full cost accounting', `process
costing' and `material flow costing'.
10. Building the information system for EMA
The information flow of environmental costs should be organized and
structured to allow for regular monitoring. An effective information sys-
tem should reinforce existing communication links between the account-
ing, environmental and production departments of a company to enable
the systematic evaluation of environmental costs.
The EMA information system should build on existing information systems
and should be harmonized with the overall cost management accounting
in terms of responsibility (e.g. environmental manager), controlling fre-
quency of environmental cost evaluation (e.g. quarterly or monthly), for-
mat and calculation method. The existence of an EMS can help to organize
the necessary structure of the EMA information system into a set of pro-
cedures and work instructions.
The existing cost centre structure is usually maintained, as it could be com-
plicated for the company to change it, however, implementing an EMA
project could highlight the necessity to reorganize the existing cost centre
structure. For example, end-of-pipe operations (wastewater treatment plants
(WWTP), incinerators, etc.), laboratories or environmental departments
59
UNDSD: Improving Government's Role in the Promotion of Environmental Managerial
Accounting, New York 2000, p.14, United Nations
60
ABC represents a method of managerial cost accounting that allocates costs to the cost
centres and cost carriers based on the activities that caused the costs. The strength of
ABC is that it enhances the understanding of the business processes associated with
each product. It reveals where value is added and where value is destroyed.
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Increasing Productivity and Environmental Performance: An Integrated Approach
could be organized as independent cost centres.
Environmental allocation keys will then be assigned to environment-relat-
ed expenditures and new accounts can be created for certain environmental
costs. If the EMA project reveals that some environmental costs included
in overheads are not significant compared to total production costs, then
these costs may remain in general overheads, depending also on existing
accounting regulation61. Regardless, companies can choose to make envi-
ronmental overheads visible within the general overheads.
Existing information related to environmental costs can also be reorgan-
ized into a parallel environmental cost sheet. In the case of allocation to
a product for example, a new category `environmental costs' could be cre-
ated within the product cost structure.
The information base needed for flow-cost accounting is gathered from the
material flow model and a defined database. The material flow model maps
the structure of the material flow system and is relevant for the calcula-
tion of non-product output costs. The database contains data needed to
quantify the material flow model. It is used as the basis for calculating the
quantities, values, and costs allocated to the material flow model.
11. Reviewing EMA
An EMA system is to be implemented using a step-by-step approach, and
reviewed and updated on a continual basis as new developments occur or
with the addition of new cost items not considered during previous allo-
cation phases. Changes in production, products or in the regulatory regime
can occur that make certain environmental cost items previously not con-
sidered significant, relevant for the business operation.
12. Conclusions
EMA is a relatively new tool in environmental management. Decades ago
environmental costs were very low, so it seemed wise to include them in
the overhead account for simplicity and convenience. Recently there has
been a steep rise in all environmental costs, including energy and water
61
In some countries, there are cost accounting regulations that forbid the allocation of
fines and penalties to products. This has to be taken into account.
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prices as well as liabilities. In Europe the Pollution Prevention Pays pro-
gramme of 3M played a crucial role in the spread of the EMA concept,
while in the US the high level of potential liabilities pushed companies to
better evaluate their environmental costs. Now, especially transition
economies are going through a fast change that will impose a requirement
for more accurate control of production inputs and outputs.
Environmental costs are no longer a minor cost item that can be pooled
together with other costs: the use of EMA saves money and improves con-
trol.
Still, many companies need external help in creating or improving their
EMA, as those skills are not widespread and rarely available internally. EMA
has to be tailored to the special needs of the company rather than be
applied as a generic system. Text Box 8 discusses the implementation strate-
gies used in four companies in the Danube River basin and how EMA was
customized to meet their individual conditions and goals. The costs and
benefits of building such a system has to be considered and the scope of
the EMA properly selected. Building the EMA incrementally is a common
implementation strategy among companies.
Text Box 8. Introducing EMA: Experience from the TEST Project in the
Danube River Basin
EMA systems were introduced in four companies, namely at Herbos (a her-
bicide producer - Croatia), KAPPA (pulp and paper sector - Slovakia),
Nitrokémia 2000 (chemical sector - Hungary) and SOMES (pulp and paper
sector - Romania)62.
The scope of the EMA was customized at each of these companies to meet
their individual needs and circumstances. In two companies (Herbos and
KAPPA), the scope was limited to calculating the total environmental cost of
the enterprise. At SOMES, the scope was to allocate environmental costs to
products for product pricing, whereas Nitrokémia 2000 chose to allocate the
costs for comparing different products.
62
Roberta De Palma and Maria Csutora 'Introducing Environmental Management
Accounting at Enterprise Level - Methodology and case studies from Central and Eastern
Europe', 2003
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A comparison of the four case studies shows that the factors that may influ-
ence the scope of an EMA include:
· The type of processes (industrial branch)
· The willingness of the management
· The existing management accounting practices
· The skills of the accounting department
· The communication between the environmental department and
the accounting department
· The position of the environmental function in the company hierar-
chy and its recognition by the top management
In general, the calculation of environmental costs focused on the raw mate-
rials and auxiliary materials portion of the non-product costs (the energy and
labour portion related to non-product output costs was not considered in any
of the four case studies). The studies revealed that raw material costs asso-
ciated with non-product outputs are on average 3 times higher than the waste
and emission treatment costs.
In the pilot enterprises, the actual environmental costs (calculated after imple-
mentation of the EMA system) were much higher than had been originally
estimated by the enterprise at the start of the project, by a factor of 2 to 10
times higher. Figure 18 shows the difference at KAPPA between the initial
estimate of environmental costs, the costs as calculated after the initial steps
in EMA implementation and those calculated after the EMA module was fully
implemented. It should be mentioned that this estimate is still conservative,
since not all possible environmental cost categories were considered during
the pilot introduction of EMA in the four companies.
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Figure 18. KAPPA-Environmental Costs Chart-Beginning vs. End of Project
600
528
500
400
300
243
[%]
200
100
100
0
1
2
3
Environmental costs estimated by the company at project start
First estimate of environmental costs [WWTP and Management System
department,fees and purchased services]
Environmental costs calculated by the end of the EMA module
Overall, the environmental costs in the four companies were shown to be sig-
nificant if related to the total production costs, being equivalent to between
5 and 10 percent of total variable production costs, a surprise for the man-
agement of these companies. Figure 19 shows the breakdown of production
costs of the Atrazine plant in Herbos, Croatia.
Figure 19. Breakdown of Atrazine Product Costs (in percent)-HERBOS
4.4% 3.0%
11.5%
51.0%
22.8%
1.6%
4.3%
0.4%
0.7%
0.4%
Raw materials, packaging
Energy, water
Direct labour costs in production
Other production costs
General overhead
Non-product costs: raw material, packaging and energy loss
Non-product processing costs: lost raw materials
Pre-treatment environmental costs
Direct environmental costs
Environmental overhead
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As it is showed in Fig. 19, the direct raw material costs at Herbos represents
more then 50 percent of the total direct production costs. This is the reason
why non-product output costs represent approximately 7 percent of the total
production costs.
Environmental managers found it very useful to have an EMA in place. They
recognized that it was a very good tool for justifying environmental projects.
The bargaining power of the environmental managers increased significant-
ly, as they were able to demonstrate to managers the economic significance
of environmental costs with respect to total production costs. The calculation
of non-product output costs and their subsequent allocation to the produc-
tion steps (where they originated), revealed unexpected figures to the compa-
nies. This allocation made it possible to show which portion of the
environmental costs implementing CP solutions could reduce and which por-
tion of environmental costs could be avoided by full adoption of BAT.
Figure 20 shows the results of the EMA project at Nitrokémia, Hungary. The
study provided a comparison between the originally estimated environmental
costs and the calculated environmental costs of the company based on the-
oretical and technological norms. The calculation of non-product output costs,
based on technological norms is much lower compared to the value based on
theoretical norms. This shows that there are limited opportunities for cost
reduction through the implementation of good housekeeping measures (this
was also confirmed during the implementation of the CPA, where a relatively
low potential for CP measures of Types A and B was detected). Significant
savings on environmental costs could only be achieved in the long-term with
major technological change (EST investment, implying major technology
change, were in fact identified during the TEST project).
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Figure 20. Nitrokémia 2000 Product Enviromental Costs-Before EMA and
after EMA (%)
350
300
250
200
[%] 150
100
50
0
Fumaric acid
Ferrous
Phthalimide
fumerate
Environmental costs based on theoretical norms
Environmental costs based on technological norms
Environmental costs estimated before the EMA-TEST project
By the end of the TEST project, three out of the four companies where the
full EMA module was implemented had established an EMA system. Several
environmental costs were pulled out of the overheads accounts, new envi-
ronmental accounts were created within the accounting department for envi-
ronmental expenditures and internal procedures were put in place to monitor
the environmental costs of the company on a periodic basis and to calculate
product costs. The EMA systems were fully integrated into the existing man-
agement accounting systems at the companies.
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E. Environmentally Sound Technology Assessment
1. Introduction
In many if not most cases, the introduction of good management prac-
tices alone is insufficient to completely solve a company's environmental
problems. Investment in technological change or end-of-pipe solutions, are
usually necessary to achieve significant improvements and to comply with
environmental regulations. In the context of the TEST programme and in
line with the definition provided by Agenda 21, UNIDO has adopted a def-
inition of EST that includes both cleaner technology and end-of-pipe solu-
tions. The concept of EST builds also on the concept of Best Available
Techniques (BAT), where `best' refers to best environmental performance
while `available' refers to economic feasibility as well as availability of the
technology on the market.
Many businesses in developing countries and countries with economies in
transition have already recognized the benefits of investing in EST.
However, the EST market is constantly changing, and entrepreneurs as well
as business experts need access to information on the latest technological
solutions and financing opportunities.
Experience from the TEST programme in the Danube River basin showed
that even when financial resources are available within a company, diffi-
culties exist which may lead management to take the wrong (sub-optimal)
decision for new investments. These include:
· Difficulty in accessing information on new technologies
· Difficulty in accessing information on environmental legal
requirements
· Difficulty in accessing information on trends
· Language barriers
· Time constraints
· Insufficient skilled internal human resources
· Insufficient skills or expertise of the external local consultants
The common practice in many enterprises is to make investment decisions
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without performing a deep investigation or analysis of the market oppor-
tunities and the best technological solutions available. In some cases,
investments are analyzed without using the traditional financial indicators
(NPV, IRR, etc.) or without the proper sensitivity factors; for example, the
environmental costs arising from future changes in the regulatory regime
are often neglected. Another problem may be technology adaptation to the
local needs and conditions.
An additional barrier is created by the fact that banks and other financial
institutions are hesitant to approve investment proposals without per-
forming a sound feasibility and risk analysis. Access to cheap capital also
means access to information on existing opportunities. In some countries,
the existing environmental funds from governments or other sources to
assist companies with environmental initiatives are not fully used each year
because managers are not informed or because they are not familiar with
the application requirements.
The ESTA module of the integrated TEST approach aims to help entrepre-
neurs overcome these barriers and:
· Generate ideas
· Reduce uncertainty
· Conduct pre-feasibility studies following a standardized format
· Incorporate environmental criteria (considerations) into the deci-
sion-making process
· Bring an investment decision in EST to the implementation
stage
2.
Scope and implementation of the ESTA tool
The basic purpose of the ESTA tool is to allow managers to perform more
detailed techno-economic evaluations on those EST options identified in
previous steps of the TEST project that require a large investment in clean-
er technologies and/or end-of-pipe solutions.
The ESTA tool can be considered a natural extension of the CPA tool. The
problems to be addressed and the preliminary focus of the ESTA have
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already been highlighted in the initial review. The final selection of what
the ESTA should focus on should coincide with the medium-long term
investment plans of the enterprise and should be based on the company's
strategy. The ESTA should also focus on those technologies that will
enhance the competitive advantage of the enterprise (revealed during the
market and financial viability assessment).
A preliminary identification of the Type C CP options (those requiring large
investment) will already have taken place in the CPA module. However,
the final selection of the options (Type C and end-of-pipe) to be analyzed
will be done at the start of the ESTA module i.e. options will be screened
from the technical point of view using sector guidelines and sector-specif-
ic expert judgment, and a detailed economic evaluation of the technical-
ly viable options will be conducted. A pre-feasibility study needs to be
prepared and profitability indicators of the investment need to be calcu-
lated. This is the basis of the work undertaken in the ESTA module. Practical
experience from separately implementing CP options and EST options in
two steps is very positive and shows the importance of:
· Optimizing existing processes prior to the identification of spe-
cific technical needs that require significant investment
· Devoting enough resources to the financial appraisal of measures
requiring large investments prior to their being implemented
· Using appropriate computational tools for financial appraisals,
such as COMFAR63, which allow for a detailed sensitivity analysis
as well as an evaluation of long-term environmental costs and
benefits
· Presenting a set of feasible measures requiring investment in one
package so that a comprehensive strategy for their implementa-
tion (which may have to be done in several stages) can be pre-
pared
The ESTA tool has the following basic steps:
· Final selection of potential cleaner technologies and end-of-pipe
solutions, involving a technical evaluation of the options and
63
(http://www.unido.org/doc/3470),
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preparation of technical specifications for the identified tech-
nologies, including the preliminary identification of possible sup-
pliers
· Conduction of a pre-feasibility study, including environmental
accounting analysis (the COMFAR software tool developed by
UNIDO can be used for the calculation of profitability indicators
and for performing detailed sensitivity analyses)
· Understanding the related benefits and risks
· Identification of possible sources of funding
The selection of ESTs should be done using existing sector guidelines64,
which are a good source of benchmarking information, as well as expert
judgment. In cases where such guidelines are not available, then sector
experts could follow the following steps during the identification of ESTs:
1. Creation of a table with all relevant factors for each group of ESTs.
2. Identification of the key environmental indicators (consumption
or emission per unit of production) for each such group.
3. Qualitative ratings of other factors (cross-media effects, technical
applicability and economic aspects) for each group, where quanti-
tative data are not available.
4. Ranking the groups of ESTs by their environmental performance,
in terms of reduction of the key indicators (related to specific emis-
sions or to consumption).
5. Assessment of the environmental cross-media effects caused.
6. Assessment of the technical applicability.
7. Assessment of the costs (investment and operational).
8. Identification of the EST.
Assessment of the environmental performance of possible ESTs can be
expressed as an absolute or relative reduction against a reference/existing
technology. Assessment of technical applicability should reflect the com-
64
There are several sector guidelines like the BREFs (Best Available Technique Reference
Documents), http://eippcb.jrc.es/pages/FActivities.htm
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Increasing Productivity and Environmental Performance: An Integrated Approach
plexity of the technology as well as effects on product quality. Assessment
of costs should be expressed in:
· Environmental terms (for example, expressed in USD per unit of
abated emission)
· Economic terms, including the evaluation of any benefits (such
as product quality, safety, or the reduction of raw materials and
utilities/resource consumption).
In order to assess the economic viability of an EST, the existence of nation-
al or international financial incentives needs to be investigated. The invest-
ment and annual operating costs of an EST could be compared with the
income level of the company/sector.
After the selection of the technology is completed and the first level of
technical specifications is prepared, the financial appraisal can be finalized.
UNIDO has developed a computational tool named `COMFAR' that can be
used at this stage of the ESTA module for the preparation of data for the
financial appraisal. The software is user-friendly and can support local
experts in the calculation of discounted financial indicators for stand-alone
investment projects, including impact on the balance sheet. It will make
it easier to do sensitivity analyses as well as to compare different project
alternatives. It should be noted that many financing institutions and banks
all over the world accept the COMFAR software.
If the pre-feasibility study and the related sensitivity analysis show that the
investment is profitable and is affordable, a full feasibility study and busi-
ness plan can be prepared. A business plan will be needed to justify the
specific EST investment to banks and/or to shareholders of the company.
It usually contains 7-8 chapters plus annexes:
1. Company presentation
2. Products and services
3. Process(es)
4. Markets and competition
5. Management team
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6. Project (including drawings)
7. Financing and key risks
8. Annexes:
Annex 1 - Actual financial statements for the past three years:
income statements (to determine the operating and net prof-
itability), balance sheets (effects on the company assets, liabilities
and equity), and cash flow statements.
Annex 2 - Financial forecast: operations (products and sales),
income statements, balance sheets, and cash flow statements.
Annex 3 - Project appraisal (including environmental costs as a
result of EMA) Annex 4 - Key assumptions in developing the
business plan (markets, inflation, etc.)
The start-up of the full feasibility/business plan and tendering phase of an EST
investment requires the full commitment of top management for the specific
investment and the availability of financial resources or bank guarantees.
Depending on the financial resources available and the size of the invest-
ment, there could be technical assistance provided within the framework
of a TEST project, for example in the design or evaluation of a tender doc-
ument. However, full feasibility studies and tendering, including bargain-
ing with potential suppliers, should be the sole responsibility of the
enterprise, especially if large investments are being considered. This was
the case in the majority of the companies during the implementation of
the TEST programme in the Danube River basin.
Relevant links also exist between the ESTA tool and SES. The objective of
the former is to provide substantive inputs on major technology changes
needed as part of sound strategic decisions on new investments. The iden-
tified investments in EST have to be in line with the business strategy and
should therefore support/enhance the enterprise's competitiveness in the
medium- to long-term. On the other hand, the internalization of the envi-
ronmental concerns as one of the criteria for the selection of EST/new invest-
ment might in turn have an important effect on the business strategy.
Once the ESTA is completed, a business plan should usually be developed
for the new investments. Where relevant, the business plan should include
a schedule of changes to be implemented to bring the facility into com-
pliance. In addition, in such cases a negotiated environmental compliance
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schedule should be developed or updated and (re) negotiated with the rel-
evant environmental authorities. The purpose of this agreement is to obtain
assurances from the authorities that they will not take enforcement actions
against the facility as long as it stays on the proposed schedule of improve-
ments65. In cases where the proposed EST investment will result in lost jobs,
the business plan should also include a social action plan. The social plan
should be discussed and agreed upon with the trade unions and should
reflect the existing national and local policy in this area.
Text Box 9. The IPPC-EU Directive and the TEST Project in the Danube
River basin: An Example on How Regulation Can Drive the EST Transfer
Process.
The introduction of the EU's Integrated Pollution Prevention and Control
(IPPC) Directive (96/61/EC) was the first time the concept of Best Available
Techniques (BATs66) was brought into most of the EU member states67 and
EU pre-accession countries in CEE. These pre-accession EU countries have all
already adopted this piece of legislation, thus providing an important legal
framework. This legal framework helped to obtain the necessary commitment
from the managers for investing in EST within the framework of their indi-
vidual TEST projects.
The IPPC Directive promotes the adoption of a more integrated approach to
preventing and controlling pollution from industrial sources. The main aim
of the Directive is to achieve a high degree of protection of the environment
as a whole, by preventing, or, where that is not practicable, reducing emis-
65
This could be done within the framework of the project advisory board.
66
'Best available techniques' (BAT) means the most effective and advanced stage in the
development of activities and their methods of operation. BAT indicates the practical
suitability of particular techniques for providing, in principle, the basis for emission
limit values designed to prevent and, where that is not practicable, generally to reduce
emissions and the impact on the environment as a whole:
·
'Techniques' include both the technologies that are installed and the way in which
the installation is designed, built, maintained, operated and decommissioned,
·
'Available' techniques mean those developed on a scale which allows implementa-
tion in the relevant industrial sector, under economically and technically viable
conditions, taking into consideration the costs and advantages, regardless of whether
or not the techniques are used or produced inside the Member State in question,
as long as they are reasonably accessible to the operator,
·
'Best' means the most effective in achieving a high general level of protection of
the environment as a whole.
67
Some European countries like Sweden, UK and Ireland have had some kind of BAT con-
cept in place since the early 90's and this provided the blueprint for the Directive.
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sions into the air, water and land. The IPPC Directive applies to a broad
range of industrial sectors, covering both existing and new installations.
Regulators must in turn set permit conditions to meet the Directive's objec-
tives and provide a high level of protection for the environment as a whole.
These conditions are based on the use of the `Best Available Techniques'
(BAT), which balances the costs to the operator against the benefits to the
environment.
Ten of the seventeen enterprises participating in the TEST project were already
included on their national authorities list of industrial installations that
would be obliged to comply with the IPPC Directive. Therefore, the imple-
mentation of the ESTA module within the TEST programme in the Danube
River basin was tailored to assist these industrial installations in the prepa-
ration of techno-economic studies for the introduction of BATs in accordance
with the specific requirements of the IPPC Directive.
The BREFs (Best Available Techniques Reference Documents) elaborated by
the EU Joint Research Centre in Seville were the main reference during the
identification of ESTs, along with sector guidelines. The BREFs provide gen-
eral indications of the emission and consumption levels that could be con-
sidered appropriate for a BAT. For this reason, they contain relevant technical
information concerning BAT for a range of industrial sectors. EU governments
are requested to use these emission and consumption levels as a basis for
setting environmental quality objectives standards.
Operators of installations covered by the IPPC Directive have to apply for a
permit from their regulator (the Environment Agency or Local Authority)
before operation. The applicant must consider all the environmental impacts
associated with the installation when preparing a permit application.
Applications for permits for operators of existing installations will have to
negotiate are subject to public consultation requirements under the IPPC-EU
Directive, therefore implementation will be on a case by case basis
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Text Box 10. Coming into Compliance with the IPPC Directive in a
Romanian Company Through the Implementation of the ESTA Module
Through the TEST programme, installations covered by the IPPC Directive
have acquired a clear indication of the type of investments needed and the
related costs for complying with the IPPC Directive. The TEST project has
been very beneficial to these companies as well as to the local authorities for
the preparation of the requirements for the integrated permit.
In Romania in particular, TEST meshed with existing national priorities: all
companies have been requested to produce estimates of the time and funds
necessary to comply with the IPPC Directive. It was very beneficial to the
Romanian company, ASTRA, to have a methodology and an example at hand
for its HRFU-Hydro refining unit (the subject of the company's TEST project)
to generate these estimates.
The full case study on the implementation of EST at ASTRA's Hydro Refining
unit is included in this document in Annex IV. Two EST options were iden-
tified: revamping the HRF Chemical Reactor and upgrading the Gas Scrubber
Column. The estimated outcomes from implementing these two EST options
will be to reduce a number of the environmental impacts associated with the
unit; specifically, reduce environmental taxes, contingency costs and spend-
ing for waste treatments. Fresh water, an important resource environmental-
ly, will be saved by virtually eliminating its consumption for the gas wash,
while optimal operation of the reactor will contribute to reduced power, util-
ities, and catalyst consumption.
The economic analysis does not include the possible replacement of the cat-
alyst, which could further improve the environmental record of the unit (by
hopefully eliminating heavy metals from the catalyst). As research is still
underway, the outcome for the catalyst replacement has not yet been esti-
mated.
All environmental taxes and fees in this unit are expected to be lower because
less water will be sent to the wastewater treatment facility. This will result
in fewer chemicals and labour being needed and less energy, utilities and cat-
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alyst used per tonne of product, etc. This will result in savings on the oper-
ational costs of the WWTP.
Lower consumptions are expected for specific materials (power, raw materi-
als, chemicals, energy). However, these reductions will need to be confirmed
over several months of continued operation (at nominal plant capacity or as
near as possible to it). Implementing the two EST options are preliminary
steps in complying with the stricter regulations that will be operative once
Romania applies the current EU norms for best available techniques.
Text Box 11. Implementing the ESTA Module: Experience From Slovakia
Enterprise
The implementation of the ESTA module within individual TEST projects
showed that it was possible to overcome the traditional barriers to the trans-
fer of ESTs requiring large investments in several cases. Experience from imple-
mentation of the ESTA module is illustrated at a Slovakian enterprise (KAPPA)
(full case study is reported in Annex V).
The situation at the company was one where the water costs and water pol-
lution fees were consistently increasing, with higher costs expected in the
future. In addition, there was significant pressure on the company to improve
its environmental performance, especially from future EU-compatible regula-
tions and implied liabilities (especially the IPPC Directive). Therefore, the
company was very interested in benchmarking its environmental performance
in preparation of its response to these pressures.
The company strategy for the future focused on expansion, thus a proposed
major investment project target was set for increased profitability, increased
production output, improved environmental performance and compliance with
EU regulations. KAPPA had already defined its investment plans for the next
five years in three areas before its TEST project:
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· Change in the main process in the pulp mill, to simplify it and
increase the efficiency of the chemical recovery plant by switching
to non-sulphur pulping.
· Increase in the capacity of the paper mill and in the degree of
recycled paper used (as one of the main raw materials).
· Expansion of the WWTP by installing a biological treatment
system.
The main goal of the TEST project was to review the company's vision of its
future and to help integrate the environmental issues with the investment
considerations. The assistance given, within the framework of the project,
focused on providing advice in setting specific targets and limits in such a
way that they would be in compliance with BAT specifications while being
technically achievable and `typical' for BAT levels.
Two new EST investments were identified within the TEST project, focusing
on the minimization of water consumption, reduction of pollution loads and
optimization of production. The idea of focusing on preventive measures before
building the new addition to the WWTP sounded very attractive to the man-
agement of the company.
These EST investments will improve the company's environmental perform-
ance and increase its productivity. Both investments were analyzed using
COMFAR. During the preparation of the pre-feasibility study, a sensitivity
analysis was performed taking into consideration contingency environmental
costs, such as future liabilities, expected future increase of pollution fees and
future fines (based on lower levels of possible intervals) and expected increas-
es in the costs of raw materials. The sensitivity analysis revealed significant
changes in the financial indicators of the proposed project: by considering
contingency environmental costs the proposed EST, investment became more
profitable.
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F.
Evaluation of Implemented Measures
At this final stage of the TEST approach, several identified measures will
have been already implemented after the ESTA module. Before proceeding
to the final SES module, it is important to measure the results of each proj-
ect tool, compare, and evaluate the environmental and economic per-
formance of the company before and after implementing the TEST
approach. The overview generated from this analysis will reflect the posi-
tive changes, which occurred after implementing the identified measures,
and provide the information needed to convince the management to reflect
and incorporate (as applicable) the TEST approach at the strategic level of
the enterprise.
The evaluation process consists mainly of three steps:
1. Selecting indicators
2. Measuring indicators
3. Reporting
Appropriate indicators should be identified first. At the enterprise level,
indicators can be grouped into two categories:
1. Management Performance Indicators (MPIs)
2. Operational Performance Indicators (OPIs)
MPIs should provide information on the organization's capabilities and
efforts in managing matters such as training, legal requirements, efficient
resource allocation and use, environmental cost management, purchasing,
product development and documentation or corrective actions which have,
or can have, an influence on the organization's environmental perform-
ance68. MPIs can be further divided into the following categories: imple-
mentation of policies and programmes, conformance (with the standard
and procedures), financial performance, and community relations.
68
ISO 140031 - Environmental performance evaluation
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Within the context of the TEST project indicators, MPIs could be set with
reference to each project tool. Examples of MPIs used within the various
enterprise-level TEST projects are given in table 9.
OPIs should provide management with information on the environmental
performance of the organization's operations. OPIs relate to: production
inputs and their supply, production outputs (products, waste/pollution) and
the delivery of outputs69. Key operational performance indicators (KPI's)
should have been selected and measured by the end of the initial review
to provide a baseline for comparison of environmental performance. OPIs
will provide an eco-efficiency measurement of the CP and EST measures
implemented and are therefore reported in relation to a production unit
(or added value). Some examples of OPIs are:
· Water consumption per unit of production
· Energy consumption per unit of production
· Waste generation per unit of production
· Waste recycling rate
· Material usage per unit of production
· Pollution loads per unit of production
· Emissions per unit of production
Traditional environmental indicators can also be used to complement the
information provided by the OPIs, giving an indication of the magnitude
of the reduction achieved through the implemented CP/EST measures.
Examples of such indicators are: total water intake (m3/year), total waste-
water discharged (m3/year), contaminant levels in discharged wastewater
(for example tonnes of BOD/year in effluent), total waste generated
(tonnes/year), or total CO2 emissions (tonnes/year).
The measurement of MPIs and OPIs occurs after the implementation of
each of the TEST tools (CPA, EMS, ESTA and EMA) and should be com-
pleted before the last TEST project module, SES, starts.
69
ISO 14031
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Table 9. Management Performance Indicators and TEST Project Tools
TEST Project
Management Performance Indicators
Comments
Module
Number of pollution prevention measures
It may be a good idea
CP
implemented/under implementation/to be
to differentiate
ESTA
implemented versus the total number of
between Type A, B
feasible measures identified
and C options
Minimum and maximum (range) of the PBP,
For Type B and Type
CP
IRR or NPV related to investment-needing-
C options
ESTA
measures implemented/
under implementation/to be implemented
Minimum and maximum (range) of
For Type B and Type
CP
investment for the measures
C options
ESTA
implemented/under implementation/to be
implemented
Total investment for the measures
For Type B and Type
CP
implemented/under implementation/to be
C options
ESTA
implemented
Total savings achieved through the
For Type B and Type
CP
implementation of cleaner production
C options
ESTA
measures - reduction of production costs
Completion of EMS elements according to
EMS
the ISO 14000 standard
Organisational changes (creation of the
EMS
environmental manager/environmental
department)
CPA
Number of employees trained in TEST tools
EMS
EMA
ESTA
SES
CPA
Number of man-days of training given during
EMS
the TEST project
EMA
ESTA
SES
Participation of the employees in the project,
Overall Project
in man-days, vs. the total working days of the
Team over the duration of the project
Number of employees with environmental
Overall Project
requirements in their job description vs. the
baseline situation (prior to the project start)
Top management participation in TEST
Overall Project
training or meetings, in man-days
CP
Number of regulatory non-compliance issues
ESTA
resolved
EMS
Economic savings from preventing penalties
CP
and/or fines due to the implementation of
ESTA
selected measures
Total investment in end-of-pipe projects
planned prior to the project start vs. total
ESTA
investment in end-of-pipe planned to be
implemented after implementation of TEST
project tools
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G.
Sustainable Enterprise Strategy
1.
Introduction
From the point of view of sustainable development, it has been argued
that there is no such thing as a sustainable enterprise. This is because its
sustainability is an integral part of larger systems. Recognizing this, it is
still possible to assess the sustainability of an enterprise, where the entire
chain of production and consumption related to that particular enterprise
is the minimum `sustainability unit' that should be considered. In this
sense, a sustainable enterprise is understood in this guide to be an enter-
prise that is able to sustain its competitive advantage while properly reflect-
ing the environmental and social concerns of its stakeholders.
The starting point of the TEST approach is the integration of the relevant
environmental and social concerns into the business' operations. In this
way, these environmental and social challenges can be transformed into
business opportunities. The drivers for this process are the expectations of
stakeholders: the base of the management pyramid. These expectations
should be reflected at each level of the management pyramid, from the
enterprise's vision and mission statement, through the operational strate-
gies and procedures, to its processes and products.
The practical implementation of the TEST approach and its tools (CPA,
EMS, EMA and ESTA) at the operational and managerial levels of the man-
agement pyramid has proved that exploring the links between an enter-
prise's operations and its environmental and social aspects can lead to
increased competitiveness in the medium-long term. ANNEX V illustrates
the results of the full application of the TEST approach at one company
participating in the TEST project in the Danube River basin
However, to sustain the positive results achieved during the implementa-
tion of each TEST tool in the long-term, the TEST approach and its prin-
ciples have to be reflected at the strategic level of the enterprise70. This can
be achieved through the formalization and translation of the core strate-
gic environmental/social success factors that have been identified, into an
70
The strategic level includes vision, mission, core values and strategy.
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enterprise's business strategy objectives (a system to measure and track the
performance of the company against the objectives set should also be put
in place).
Tracking and reporting the successes achieved with the TEST tools (as dis-
cussed in Part III - F, Evaluation of Implemented Measures) is very impor-
tant to secure the sufficient confidence from management before they will
permit any changes to be incorporated in the company's strategies.
At this final stage of the TEST project, a significant amount of trust should
have been built-up between the outside consultants, management and
shareholders. Only if this trust exists will they discuss the details of their
business and operations, which are often proprietary or confidential, with
someone from outside the company and allow them to have an influence
on its strategies.
The SES module of the TEST approach has been designed to address the
strategic level of the enterprise. However, it must be remembered that SES
is not a tool for building an enterprise strategy, but rather a tool to inte-
grate environmental and social considerations into an existing strategy.
Therefore, the existence of a clear business strategy is a pre-condition for
introducing SES. Depending on the specific situation at an enterprise, they
may require differing types and degrees of assistance in the field of strate-
gic management and planning.
The TEST Team may face a number of barriers during the implementation
of the SES project module, such as:
· A relative lack of commitment to the use of this tool, demonstrated
notably by management's unavailability for interviews and an
unwillingness to invest the necessary amount of time
· The existence of a non-formalized `intuitive strategy', which lacks
a structure or empirical basis
· An excessive attachment to the existing strategy, resulting in a
resistance to change it
· A lack of commitment to environmental issues
· An unwillingness to share confidential information about the busi-
ness strategy, because it is thought that this will threaten any com-
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petitive advantage (real or perceived) the company has over other
companies in the same field
NOTE: For a better understanding of the terminology used in this section
it is recommended that the reader refer to Annex I, `The General Principles
of Enterprise Strategies and its Development'.
2.
Objective and scope of the SES
Defining the scope of the SES tool involves analyzing the enterprise's vision,
mission and strategic process. To some extent, this is done during the mar-
ket and financial viability assessment performed in the initial review71.
However, usually additional information has to be gathered. This can be
done at the initial step of the SES, by a guided interview with the man-
agement (the structure of figure 28 in Annex I could be used for asking
the relevant questions).
The scope that will be given to the SES tool and the implementation scheme
that will be adopted will depend greatly on the situation found in each enter-
prise and on the availability of financial resources: any technical assistance
has to be evaluated from this point of view in order to achieve realistic
results. In general, the preliminary scope of the SES is set during the initial
review and it is further defined at the start-up of the SES module.
Practical implementation of the TEST programme in the Danube River basin
showed three possible scenarios could occur, each requiring either differ-
ent types of technical assistance or different ways to proceed when imple-
menting the SES:
1. If an enterprise already has a formalized set of strategies and a per-
formance measurement system in place (i.e., it already has strate-
gic management), the SES tool can be introduced with limited
resources. In such cases, the main benefit of the SES tool would
be in reviewing the existing strategic objectives and if necessary,
including recognition of the contribution that environmental and
social aspects make to the competitive advantage of the business.
71
See also section A in PART III
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This should be reflected both at the business strategy level and at
the functional strategies level (marketing, operational, financial).
2. Where an enterprise does not have formalized strategies, i.e. where
it operates based on an intuitive strategy; basic strategic manage-
ment principles should be introduced first to help the enterprise
formalize its existing strategy (including environmental and social
considerations). This is the most common situation in developing
and transitional countries. Assistance in strategic management is
not the primary focus of TEST, but if financial resources are avail-
able, a way should be found to work on formalizing the strategic
level. This could be done, for example, by using the SBSC method,
(described in Text Box 12), which can be used to help formalize
the existing verbal (intuitive) business strategy into a written ver-
sion while incorporating the social/environmental dimensions at
the same time (this could be done at least at the level of an SBU72,
as a demonstration case).
3. Some enterprises do not have any form of business strategy. This
will be revealed in the initial review during the market and finan-
cial viability assessment. In this case, the first question that comes
to mind is `should such an enterprise undertake a TEST project at
all?' The answer to this question is a value judgment best made
by a financial expert. However, even if the TEST approach is intro-
duced under such circumstances, the SES module cannot really be
applied. In this type of enterprise, an in-depth analysis of the com-
pany and its business environment will show an overall need for
strategic restructuring and positioning of the enterprise (but out-
side the scope of a TEST project).
3.
Stakeholder participation and social aspects within the SES
framework
Stakeholders should be used as a key resource for identifying the sustain-
ability concerns that should be integrated into the operations of a com-
pany. Likewise, the process of developing a strategy will also, by definition,
help identify these concerns.
72
SBU - Strategic Business Unit
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To identify the strategically relevant social aspects a comprehensive group
of potentially relevant stakeholders can be consulted. These relevant stake-
holder groups can then be divided into internal stakeholders, stakeholders
along the product-value supply chain, stakeholders in the local communi-
ty and societal stakeholders. Once the key stakeholders for the specific busi-
ness are identified from these groups, the core social strategic issues relevant
to reaching the business financial objectives can be formalized by per-
forming a social audit following the SA 8000 standard73 or the GRI guide-
lines74.
The question of when and how to involve particular stakeholders ultimately
resides with the enterprise. The TEST programme offers some mechanisms
on how to do this, such as using the national project Advisory Board.
However, there has to be some basic level of trust and positive motivation
developed first.
Sometimes it is better to involve some of the stakeholders after the enter-
prise has completed its first experiences with the TEST approach and has
evaluated the results. However, this should not be a one-way process.
Dialogue stimulates learning and can improve relationships. Thus, it is eas-
ier to facilitate this dialogue if the people are invited to participate to some
degree in, or at least informed about, the project from the very beginning.
If stakeholders are not involved until the end, they can be informed about
the project through meetings and from reports, describing what was
learned. This allows them to participate in the conceptual step of reflec-
tion/use of the experience gained. Typical questions that may be posed by
stakeholders include:
· How does this experience affect our values and visions?
· What does it mean for our relationship and further cooperation?
4.
Links between SES and other TEST project modules
The SES module has links with all levels of the management pyramid, there-
fore aspects of the business and functional strategies are addressed within
73
Social Accountability International Standard - http://www.cepaa.org/
74
GRI - www.globalreporting.org/
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each of the TEST tools. In particular, the initial review is the tool where
the business environment and the business functions are analyzed to pro-
vide the correct direction to the implementation of the enterprise-level
TEST project. After the initial review, most elements of the business strat-
egy are acquired and will be used setting the scope of the SES implemen-
tation (to take place at the end of the project).
Another important link is between the EMS and the SES. One of the first
steps of the EMS implementation is the formalization of an environmen-
tal policy, through which environmental management will be linked to the
core concerns and vision. This can be seen as the first step toward the
implementation of the SES75.
5.
Implementing the SES
5.1. General principles
The purpose of the SES is to help the management of the company turn
the core strategic environmental/social success factors, identified during the
implementation of the TEST approach, into formalized performance objec-
tives aligned with the objectives of the company's business strategies (finan-
cial, marketing and operational). This means that the environmental and
social objectives are not stand-alone objectives, but are connected to the
other objectives of the company and ultimately contribute to achieving
the financial goals of the business76.
For instance, an environmental/social objective could be `to promote the
environmentally and socially responsible image of the business'. This objec-
tive contributes to the achievement of another objective of many busi-
nesses, `to increase the market share', which ultimately contributes to
reaching a defined turnover, growth, or financial goal.
Environmental success factors are central to implementing SES and should
be identified first. From those factors, the environmental/social performance
75
The environmental policy is usually an independent document, and it reflects the more
specific vision of the company with respect to environmental concerns.
76
Typical strategic objectives of a business, seen from the financial perspective, can be
grouped together under the following categories: revenue growth, productivity growth,
and asset utilization.
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objectives for each perspective of the company (marketing, operational and
financial) can be derived and integrated into the functional strategies.
Examples of objectives that reflect the environmental and social dimensions
linked, for instance, to the marketing function of the company are:
· Design of environmentally friendly products (R&D function)
· Social and environmental marketing
· Adding an environmental premium to the price (advertisement/
promotion/direct sales)
More environmentally friendly products and better product awareness
(resulting from emphasizing environmental issues in advertising) can ulti-
mately results in more sales, exports, higher profit margins, government
support at home, etc.
At the level of operational strategy, cost reduction objectives are important
to achieve higher productivity and finally higher returns on sales.
Environmental/social considerations can positively contribute to these
goals as well as through:
· Better management of environmental aspects (within the EMS
module), leading to savings in fines and penalties
· Elimination of environmental capacity bottlenecks (optimal use of
assets)
· Using the cleaner production strategy (within the CPA module) to
obtain savings from optimizing energy, material flows and end-of-
pipe operations
· Creating better quality products by reducing/eliminating toxic
residues in the final product (within the CPA module), thus increas-
ing the volume sold and/or price
· Improved labour productivity achieved through better working
conditions (health and safety). This implies a reduction/elimina-
tion of medical and damage payments to workers as a result of
inadequate working conditions
Environmental considerations can also be reflected in the financial strategies
of the company. This can be done by searching for and applying for `cheap'
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capital (e.g., environmental grants and subsidized loans), cost transparency
by allocation of environmental costs to cost and profit centres (as promot-
ed within the EMA module) and by considering contingency environmen-
tal and social costs when making new investments (the EST module).
Table 10 provides some examples of environmental and social performance
objectives derived from the TEST tools that can be set in relation to the
key elements of the main functional strategies.
Table 10. Enviromental and Social Performance Objectives Related to the
Key Elements of Main Functional Strategies of a Business
Functional
Key Elements
Performance Objectives
Strategy
·
R&D
·
Design of environmentally- friendly products
·
Products
(R&D function)
Marketing
·
Price
·
Social / environmental marketing
Strategy
·
Distribution
(advertisement/promotion /direct sales)
·
Processes
·
Cost reduction by better resource use and
·
Location
management of environmental aspects (saving
·
Layout
of energy, materials)
·
Procurement
·
Better labour productivity achieved through
·
Quality
better working conditions (health and safety)
Operation
·
Human
·
Quality control purchasing
Strategy
Resources
·
Better quality achieved through the
·
Environment
reduction/elimination of toxic residuals in
products
·
Elimination of environmental capacity
bottlenecks
·
Leverage and
·
Access to inexpensive capital (environmental
investment
grants & subsidised loans),
·
Credit policy
·
Cost transparency by allocation of
Financial
·
Cash
environmental costs to cost and profit centres
Strategy
management
(EMA),
·
Access to capital
·
Consideration of contingency environmental
costs in new investment selections
5.2. Translating SES into action: performance measurement and the
Sustainability Balanced Score Card
Modern approaches to strategy development stress the fact that the more
detailed and fixed the formal formulation of strategies, the lower the prob-
ability that it will be actually implemented. An effective enterprise strate-
gy is dynamic and evolves over time (through learning); hence, the initially
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Increasing Productivity and Environmental Performance: An Integrated Approach
formulated strategy is only a starting point for action. The results of this
action are evaluated and the experiences gained are reflected back at the
strategic level. This should affect further strategy development and imple-
mentation of subsequent actions.
Feedback on the actual effects of the strategy is crucial for its further devel-
opment. Performance measurement includes the means of monitoring and
maintaining organizational control, which is how management ensures
that the organization is pursuing strategies that will lead to the achieve-
ment of its overall business goals and objectives.
A popular management framework for measuring organizational performance
is the Balanced Scorecard (BSC)77. BSC translates organizational vision into
clear measurable outcomes that define success and that are shared through-
out the organization. It has been developed to better address the intangible,
non-financial assets/values necessary for an organization's success.
As a strategic management tool (see figure 21), the BSC describes and
depicts the causal contribution of major, strategically relevant issues to a
successful achievement of a firm's strategy (Kaplan & Norton)78. Thus, it
appears promising to use the BSC methodology as a starting point to inte-
grate the environmental and social management into the general man-
agement of a firm.
As an instrument for performance measurement, the BSC can be used to
coordinate the translation of the business strategy and to communicate it.
The gap between strategic and operative planning can be bridged by break-
ing down the previously formulated business strategy into the four per-
spectives of the BSC79:
1. Financial perspective - How do we look to our shareholders?
2. Customer perspective - How do our customers and other stake-
holders see us?
3. Internal business process perspective - What must we excel at?
4. Innovation and learning perspective - How can we continue to
improve?
77
Kaplan Robert S, Norton David, 1996
78
Ibid
79
Kaplan & Norton, 2001, pp 65
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Figure 21. The Balanced Scorecard (Amaratunga 200180)
Financial Perspective
How do we look to our
shareholders?
Customer Perspective
Internal Business
Process Perspective
How do our customers see
us?
What must we excel at?
Learning and Growth
Perspective
How can we continue to
improve?
The purpose of the BSC is to generate a system hierarchy of strategic objec-
tives in the three perspectives, and align them with the financial perspec-
tive. Based on such a causal system of objectives, corresponding measures
are formulated in all four perspectives.
The BSC is a good tool to assist management internalize those environ-
mental and social aspects that contribute to the financial business goals.
In the most recent evolution of the BSC, the Sustainability Balanced Score
Card (SBSC), this can be done in three different ways. First, environmen-
tal and social aspects can be integrated in all, or in some of the four stan-
dard perspectives (partial or total SBSC). Second, environmental and social
aspects can be taken into account (additive SBSC). Third, a specific envi-
ronmental and or social scorecard can be created (transversal SBSC, exten-
sion of the two variants)81. In addition to these approaches, a firm may
also resort to a `Shared Services SBSC' involving only some parts of the
organization.
80
Process improvement through performance measurement: the balanced scorecard
methodology, Dilanthi Amaratunga, Baldry David and Sarshar Marjan,
http://www.mcbup.com/research_registers
Work Study, Volume 50. Number 5. 2001. pp. 179±188, MCB University Press.
81
(Deegen 2001, pg. 50; Episten 1996, pg.73; Figge et al. 2001 and 2002; Sturm 2000, pg.
374)
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 22 shows the different ways the environmental and social consid-
eration can be integrated in the traditional four perspectives of the BSC.
Figure 22. Approaches for integrating sustainability considerations in the BSC
BSC
BSC
Finance
Finance
SBSC
SBSC
Customers
Customers
Finance
Finance
Processes
Processes
Complete
Customers
Customers
Integration
Learning
Learning
Processes
Processes
into BSC
Society
Learning
Learning
Society
Society
BSC
BSC
Finance
Finance
SBSC
SBSC
Customers
Customers
Finance
Finance
Processes
Processes
Partial
Customers
Customers
Integration
Learning
Learning
Processes
Processes
into BSC
Society
Learning
Learning
Society
Society
Restricted to
Enlarged to
4 Perspectives
5 Perspectives
The decision on which approach is more appropriate for a specific busi-
ness unit depends on the business' organization and on the nature of the
relevant environmental and social aspects (of the strategies) identified in
the process of formulating a SBSC. The choice of how environmental and
social aspects are integrated occurs during this process, rather than at the
beginning.
Depending on the type and the size of the organization, a SBSC should be
prepared for the corporate level, looking at the vision and mission and set-
ting the financial goals. However, social and environmental strategies iden-
tified in the corporate SBSC should flow down to the strategic business
units (SBUs) of the organization.
The process of formulating a SBSC at the business level can be divided into
three major steps:
1. First, the strategic business unit has to be chosen.
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2. Second, the environmental and social aspects of concern have to
be identified.
3. Third, the relevance of those aspects, for the specific business unit's
strategy, has to be determined.
Determining the strategic relevance of environmental and social aspects is
at the core the SBSC. By going through the perspectives in a cascade-like
process, starting from the financial perspective (as indicated in figure 23),
guarantees the causal linkage of the strategically relevant aspects. This
serves to align relevant aspects of a business unit toward the successful
conversion of the strategy and thus toward long-term economic success.
At the next stage, appropriate objectives are set for each perspective of the
SBSC, including those related to environmental/social issues. Then, a set
of leading and lagging indicators82 will be identified for each objective.
After identification of the appropriate measures to address each of these
objectives, an action plan is prepared for implementation of the strategy.
82
Lagging indicators measure whether the strategic core aspect in the perspective has been
achieved, as compared to the performance of the company in the past, leading indica-
tors show how the results in each perspective, compared to the lagging indicators, are
to be achieved in the future. Additionally risk factors also exist: those factors have to
be managed sufficiently to guarantee business operations, however addressing them does
not lead to any competitive advantage.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 23. Process of Formulating a SBSC (Figure et al 2002)83
Choose the Strategic Business Unit
Identify Environmental and Social Exposure
Determine Strategic Relevance of Environmental and Social Exposure
Financial
Perspective
Market Perspective
Internal Process
Perspective
Learning and
Growth Perspective
Non-Market
Perspective
The formulation of a SBSC can be successfully conducted using the infor-
mation generated by the TEST tools at the level(s) where environmental
and social exposures are identified. The strategic relevance of the environ-
mental and social aspects is then defined and objectives are identified. TEST
offers the opportunity to implement the SBSC within the SES component
with a top-to-bottom and a bottom-up approach: the measures identified
within the TEST tools are important inputs for building the action plan to
implement the SBSC. Practical experience from implementing the SBSC
within the SES component of the TEST project is reported in Text Box 12.
83
Process improvement through performance measurement: the balanced scorecard
methodology, Dilanthi Amaratunga, Baldry David and Sarshar Marjan,
http://www.mcbup.com/research_registers
Work Study, Volume 50 . Number 5. 2001. Pp. 179±188, MCB University Press.
166
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TEST BOX 12. Practical Experience From Implementation of the SES in
the Danube River basin
Overview
The turbulent framework conditions in the Danube River basin countries'
with economies-in-transition made it very challenging to work on their strat-
egy level. As a result, the SES tool could be introduced only in few enter-
prises. However, this does not diminish the importance of the questions SES
raises for successful practical implementation of the TEST approach.
The experience from implementing the TEST module showed that one of the
main barriers in introducing the SES is the difficulty of explaining to the
managers and shareholders the benefits of this aspect of the project, espe-
cially if strategic management is not in place. The majority of the enterpris-
es involved in the pilot implementation of the TEST project in the Danube
River basin were lacking formalized business strategies: operating mostly on
the basis of intuitive strategies. A need for strategic management was revealed
during the application of the SES tool in almost all the enterprises, and rep-
resented a major barrier.
Furthermore, it was difficult to approach the shareholders of a company dur-
ing a consulting assignment if the consultancy was not their initiative. Either
they are multi-nationals or they do not have the time or desire to cooperate
on this initiative. One possible way to overcome these barriers (and imple-
ment the SES) is through the idea that the consultants may be able to influ-
ence shareholder strategies indirectly, through top management.
Most of the TEST enterprises were not part of a larger corporation, therefore
an all- encompassing corporate strategy was not an issue and key strategic
decisions were taken at the level of business strategy. As such, the compa-
nies themselves had to make the decisions, at all levels of the hierarchy,
including positioning of an enterprise in its global, economic, political and
social framework conditions at the first level of the corporate strategy. Only
two TEST companies were part of larger multi-national corporations. In these
companies is was practically impossible to address key issues of corporate
strategy, thus SES was implemented at the level of business strategies only.
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Building the SES at a Romanian enterprise: experience from the implementation
of the SBSC
ASTRA Romana is the oldest and the most profitable oil refinery in Romania
and one of the four Romanian companies that participated in the imple-
mentation of the TEST project. After successful completion of the previous
TEST tools, and in particular after the positive financial benefits achieved
with the CPA/ESTA (for the results of the ESTA at ASTRA, please refer to
Annex III), the management was convinced and committed to start the SES
module. Enough trust was already built during the project implementation to
start addressing the strategic level of the enterprise.
The SWOT (strengths, weaknesses, opportunities and threats) analysis con-
ducted already during the initial review revealed that although the company
is viable, it operates in an unstable business environment and major threats
and opportunities that are likely to influence the business operation in the
medium-long term were identified. However, at the start up of the SES there
was a need to gather additional information on the existing strategic process
at ASTRA, before defining the scope of the SES module. This initial gather-
ing stage was done utilizing various tools like:
· Interviews with the top managers
· Social performance questionnaires (following the SA 8000)
· Baldrige self-assessment checklists
The initial assessment revealed that the company operates on the basis of
an intuitive strategy with lack of strategic process, mainly due to:
a. 50 years under the previous political climate resulted in a style of
management that discouraged any intent to improve things and often
disqualified any innovations. A top-down approach was the rule dur-
ing the former regime. A reactive mentality, characterized by being
precautious with what could affect one's personal status, led to
extremely high barriers for open and honest communication.
b. Employees are diffident, reticent, reserved in any direct approach, but
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have many valuable ideas when their identity is respected and strict
confidentiality observed.
c. The Polytechnic education (most of the ASTRA specialists are engi-
neers) does not include a solid economic training. Employees and
managers are very good technicians, but they are not familiar with
the business environment and do have a holistic view of the mar-
ket in which the organization operates.
Having acquired all the necessary inputs, the scope of the SES was set and
the work was organized. An internal team was appointed at ASTRA, com-
prising of several top managers and unit directors (including the team lead-
ers who participated in the implementation of previous TEST tools) and a
strategy local expert, hired to provide training, on-site consultancy and assis-
tance during the development of the SES.
The scope of the SES at ASTRA contained two main objectives:
1. Review and renormalizing ASTRA strategy (including developing a
strategic planning capacity).
2. Start to set-up a Sustainability Balanced Score Card (SBSC) as the
strategic management system of the company.
Given the very favourable conditions at ASTRA it was decided to provide
assistance and basic training to their employees in the field of strategic man-
agement, which was needed to successfully apply the SES. The existing vision,
mission, core values and strategy of the business were reviewed to make sure
that valuable sustainability elements were included.
After this initial stage, there were discussions about what kind of SBSC would
be more appropriate for a company like ASTRA. Given the high environmen-
tal/social exposure (type of production, size of the plant), a transversal SBSC
(with the environmental and social aspects integrated in the traditional four
perspectives) with an additional fifth sustainability perspective should be uti-
lized. However, due to the complexity of this SBSC approach and giving the
existing start-up situation at ASTRA, it was decided to use a complete inte-
gration into the traditional 4 perspectives of the BSC (see also figure 22).
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The SBSC at ASTRA was initially developed at the corporate level: perform-
ance objectives were identified for each perspective of the business, including
the objectives related to the environmental and social exposure. Figure 24
reflects the cause and effect diagram of the SBSC developed at ASTRA: it
shows the relationship between the different objectives set for each of the four
perspectives.
Figure 24. Corporate SBSC at ASTRA: Cause and Effect Diagram
Increased
Increased
Capitalizing on
Share-
e holde
d r
Company
Financia
Financi l
Increased
valu
Val e
Increased
u
Image
Perspective
Perspectiv
Value Added
de
New &
Diversified
Non profit
Income Sources
Spending
Proactive
Cu
C stomer
Customer
Delivery Value
Satisfaction
Perspective
Perspectiv
Green Brand
Integrated
Increased
Product &
Market Share
Services
CP & ZERO
Internal
Wastes
Highest Quality
Processe
Pr
s
ocesse
TQM
New Profit
Perspective
Perspectiv
EST
Centres
ZERO hazard
Re-engineering
Incidents
&
Consumptions
Co-operation
Technical &
with Authorities
Learning
Managerial
Better Working
& Public
Skills
&Grow
& Gro t
wh
t
h
Environment
Value
Employees
Sustainable
Perspective
Perspectiv
Development
Policy
Co
C rp
r orate Social
orate Soci
Responsi
R
b
esponsi ility Objectiv
y
es
ASTRA SBSC
Objectiv
ASTRA SBSC
The implementation of the previous TEST tools (CP, EMS, ESTA) was very
effective when developing the SBSC, since they contributed in clearly identi-
fy the environmental/social objectives to be incorporated into the SES.
Defining the objectives provided the grounding to then define a core set of
the key performance indicators (KPI), both lagging and leading, that would
allow the performance of the company to be measured against the objectives
set. Table 11 summarizes the KPI categories identified for each perspective.
Each KPI category corresponds to a set of diagnostic and analytical indica-
tors to be measured.
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Table 11. SBSC at ASTRA: Key Performance Indicators (KPI)
The Five Perspectives
· Corporate
·
· Customer
· Internal
· Learning &
Financial
Social
(stakeholder)
Processes
Growth
Perspective
Responsibility
perspective
Perspective
Perspective
Perspective)
Lagging KPI (Outcomes)
· Revenue
· Market share
Growth
· Customer
· Employee
· Freedom of
·
· Innovation
Productivity
acquisition
satisfaction
action
Process
Growth
· Customer
· Employee
· Legality and
·
· Specific
Share Value
retention
retention
conformity
·
Consumptions
ROCE
· Customer
· Employee
· Asset
satisfaction
productivity
Utilization
Leading KPI (Enablers, Performance Drivers)
· Product
attributes
· Employee
· Capitalizing
· Consumer
·
skills
Product quality
· Lobbying
on Company
(stakeholder)
·
· Technical
Product cycle
· Environmental
good TBL
relationship
·
infrastructure
BAT alignment
reconstruction
record
· Green Brand
& equipment
Customer
· Climate for
profitability
action
The SBSC defined for the corporate level of ASTRA cascades to each strate-
gic business unit of the company: each unit will extract objectives from the
corporate SBSC and adapt the KPI to its own situation. In this way, the align-
ment of the corporate sustainability objectives will be achieved by replicat-
ing the SBSC at the lower management levels.
In conclusion the following outcomes were achieved through the implemen-
tation of the SES TEST module at ASTRA:
a. A more comprehensive strategy was developed that integrates all
existing valuable company strategy components, as well as the TEST
modules results in a sustainability-vision approach.
b. The Sustainability Balanced Scorecard implementation was started
as a strategic management system and measurement tool, at the
company level as well as at operational levels.
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c. A strategic planning capacity was created that will result in the
future establishment of a strategic planning department within the
organizational structure of the company.
The SES module of the TEST approach was developed in 2 ways:
1. Top-down: ASTRA top managers reviewed and complemented the
company strategy with elements added by the TEST approach and
its tools.
2. Bottom-up: most of the new sustainability components added to the
strategy (like CP, waste minimization, EST, EMS) have already been
implemented at the company through the previous TEST tools, start-
ing from the plant level and were already well understood and prac-
ticed by lower managers before being inserted in the strategy.
The positive results achieved at ASTRA showed that the approach used was
effective: the TEST tool should be a pre-requisite for a direct SES implemen-
tation. Once lower managers have the SBSC Cause & Effect Diagram they
will easily recognize modules and activities to which they had a direct con-
tribution and they have been practiced for sometimes (CP, ESTA, EMS).
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H.
TEST project cycle
The introduction of the TEST approach follows the cyclic pattern of con-
tinuous improvement of environmental, economic and social performance,
which is based on the learning cycle. The learning cycle describes the gen-
eral process of obtaining new skills and insights and it is composed of the
following four steps (introduced already as the Deming scheme in the chap-
ter on EMS, Part II -C):
1. PLAN - existing concepts and strategies are used as starting points
for planning
2. DO - implement the plan
3. EVALUATE - evaluate the activity
4. ACT - act on the experience: the experience gained from the prac-
tical implementation is reflected and used to further develop strat-
egy, eventually resulting in the revision of its starting points
(strategic objectives or even vision and mission)
The learning cycle is a perpetual engine of desired changes. It does not
turn just once per project as it may appear from the 1-4 sequence above
or from the development cycle of the EMS within the project. It is com-
pleted every time people learn: through evaluating, reflecting, acting and
implementing new planning based on what they've learned. This means
that the cycle is (or should be) repeated at the individual, group and enter-
prise levels in small day-by-day cycles. These small cycles can be done with-
in larger cycle periods as part of the whole project, or have no fixed end
time i.e. can continue after the project is over or be overlapped with the
Deming scheme (within implementation of EMS or any other advanced
management system).
A failure to complete the learning cycle is a common source of problems.
For example, if the reflective part of the cycle (evaluation and acting) is
missing, people lack feedback for improvement and continue to repeat old
routines and follow old strategies. Or, if people only implement activities
and evaluate their results without reflecting on the experience gained when
planning in the future, then they are just learning new skills, not gain-
ing any new insights on why things work as they do. To overcome these
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problems, adequate emphasis should be put on the development of good
conditions for learning, including good feedback systems. This is one of
the core requirements that must exist for the continuous improvement of
environmental performance, and which is the basic goal of the TEST
approach.
With preventive environmental management projects in industry, experi-
ence has shown that the weak point of the learning cycle is usually with
a lack of reflection (acting). Consequently, there is a lack of integration of
new approaches into enterprise operations. This is why SES is placed at the
end of the project cycle where the most amount of information is avail-
able to reflect upon: information obtained from the project. This inte-
grates the TEST approach into the enterprise strategy and consequently
sustains the use of the TEST tools to meet enterprise needs. However, the
process of gaining insight into the benefits of the TEST approach should
have started at the beginning, during the initial part of the project and
should be driven by reflecting on the specific project steps and results.
The sustaining and reflection process is done within the individual mod-
ules. However, the overall evaluation and reflection of the project is done
at the very end using the SES module to complement their analysis and
integrate the evaluation of each tool into assessing how they work as a
whole.
All TEST modules and tools fit into the learning cycle. ANNEX VI shows
a table describing the contribution of each TEST tool to the general out-
puts of the TEST project learning cycle (plan, do, evaluate and reflect). It
highlights links to show how the outputs of a single step of a specific tool
can be used to assist another tool more effectively reach its outputs and
demonstrate the synergy of this approach to produce better results more
efficiently. Please note however, the table in ANNEX VI does not reflect
either a real-time duration or a temporal sequence of the project activities.
The recorded time lines, sequencing and duration of the activities of each
project tool will depend to a great extend on the situation in the compa-
ny when initiating the project, as well as on the number of tools chosen
for implementation at the end of the initial review. Text Box 13 provides
a comparison of these time-related elements of TEST project activities in
two companies participating in the TEST project in the Danube River basin.
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Text Box 13. TEST Approach: Temporal Sequence and Duration of
Activities of Each Project Tool
Figures (25 and 26) provide an example of the duration and scheduling for
implementing the TEST tools in two comparably sized large industries in the
Danube basin. The comparison shows that because it is needs driven, the
TEST approach does not need to follow a rigid implementation structure: the
duration of each module and actual sequence of activities related to each
module, can vary significantly from one company to another.
The first figure (25) refers to a chemical company in Hungary, while the sec-
ond (figure 26) refers to a pulp and paper company in Romania: the first
company started with the CPA, while the second with the EMS. Regardless
of how each started, in both cases the EMA was introduced after the CPA's
detailed analysis had been completed. The duration of EMS implementation
was very different, comparatively, due to the different initial starting points:
the Hungarian company had already implemented some basic elements of
EMS prior the TEST project. EST assessment had a longer duration in the
Hungarian company than in the Romanian company, due to how extensive
its focus area was and the technological implications. The SES module could
not be introduced in the Romanian company due to an ongoing redefinition
of the plant's business strategy at a corporate level.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 25. TEST Work Plan for a Chemical Company in Hungary
2001
2002
2003
ID
Task Name
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
1
Initial Review (IR)
Environmental
2
Management System
(EMS)
3
Cleaner Production
Assessment (CPA)
Implementation
4
of Cleaner
Production(CP)
Measures
Environmentally
5
Sound Technology
Assessment ( ESTA)
6
Investment and
Promotion
Environmental
7
Management
Accounting System
(EMAS)
Figure 26. TEST Work Plan for a Pulp and Paper Enterprise in Romania
2001
2002
2003
ID
Task Name
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
2001
2002
2003
ID
Task Name
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
1
Initial Review (IR)
1
Initial Review (IR)
Environmental
2
Management System
(EMS
Envir )
onmental
2
Management System
(EMS)
3
Cleaner Production
Assessment (CPA)
3
Cleaner Production
As Implem
sessm ent
ent at
(C io
P n
A)
4
of Cleaner
Pr
I oduc
mpl
t
em ion(
ent C
atiP
o )
n
Meas
of Cl ures
4
eaner
Production(CP)
Environmentally
Measures
5
Sound Technology
Assessm
Envir
ent
onm
( E
entall S
y TA)
5
Sound Technology
Assessment ( ESTA)
6
Investment and
Promotion
6
Investment and
Environm
Prom ent
oti al
on
7
Management
Account
Envir
ing Sy
onment s
al tem
(E
M MAS)
7
anagement
Accounting System
Sustainable
(EMAS)
8
Enterprise Strategy
(SES)
Sustainable
8
Enterprise Strategy
(SES)
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Part III TEST Tool
I.
CONCLUSIONS
TEST aims at providing a systematic approach to integrating the concepts
of industrial competitiveness and environmental/social responsibility to
allow the company to attain corporate sustainability. Enterprises using the
TEST approach become more productive and competitive through the bet-
ter management of their existing processes and by integrating environ-
mental considerations into the decision-making process for new
investments.
The TEST integrated approach is implemented through the introduction of
different tools. Each of the TEST tools promotes and contributes to the
overall competitiveness of the company:
· Initial market viability assessment (within the initial review) -
reveals existing opportunities and threats in the business envi-
ronment and is beneficial to strengthen the position of the com-
pany in the market
· CPA - provides the methodology to identify production cost
reduction measures, resulting also in environmental benefits
· EMS - contributes to improving the company's image to the
stakeholders (clients, customers, authorities) while increasing the
awareness of existing environmental aspects
· EMA - reveals the financial implications of the environmental
aspects of the company, bringing a competitive advantage in
terms of better control of production costs and particularly envi-
ronmental costs
· ESTA - enables optimal decision-making (management) for
investment solutions in new technologies
· SES - helps the managers integrate the core environmental and
social aspects into business strategic objectives
Implementation of the TEST integrated approach at the enterprise level fol-
lows a specific step-by step process. First, improve the existing situation
by better management of the processes, then consider the introduction of
new technology or use end-of-pipe solutions (as a last resort), reflecting on
and considering the lessons learned at a strategic level and use the gained
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Increasing Productivity and Environmental Performance: An Integrated Approach
insight for the planning follow-up activities. The TEST enterprises, which
underwent these steps with the pilot project implementation in the Danube
River basin, have continued this process, understanding that this road will
lead them towards a continuous improvement of their economic and envi-
ronmental performance.
The design of the TEST programme as it was developed for the Danube
River basin, is uniquely different from its earlier design. Currently there
are on-going technical cooperation projects, addressing industrial pollution
in three aspects.
1. Continued participation of the facilities in the TEST programme is
contingent upon improving while assessing. This means that enter-
prises must implement at least some of the improvement measures
identified by each assessment before/while they proceed to the next
assessment in the TEST approach. For example, they must imple-
ment the no and low cost cleaner production options identified
during the audit while proceeding to the EST assessment.
2. The TEST project is not the typical diagnostic study usually under-
taken by outside international and national experts. Rather it is an
integrated assessment and improvement project conducted by
enterprise teams under the guidance and supervision of outside
international and national experts. The integrated TEST approach
results in more improvement options being generated and the qual-
ity of measures implemented and maintained improves. Active par-
ticipation of enterprise members at both operational and
managerial level has shown itself to be its second important ben-
efit. These are built into the internal capacities within the enter-
prise and within the country so that they can continue with the
TEST approach on its own on the both levels. It should be noted
that by using internal employees, the company and its workers
take an ownership for the project and results that having the work
performed solely by external personnel can never attain. Inclusion
leads to a pride in seeing their work succeed.
3. The TEST approach should not be seen as the traditional step-by-
step methodology focusing only on selected levels of the manage-
ment pyramid. TEST is designed to be used as a viable integrated
approach driven by enterprise needs. The advantage of the TEST
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Part III TEST Tool
approach is that the embedded tools used to implement it address
not only the operational level but also other levels of the man-
agement pyramid e.g., the managerial and strategic levels as well.
The environmental performance of the enterprise is analyzed in
connection with its economic and financial performance.
The TEST programme and its integrated approach is based not only on the
mastering of particular tools and tailoring them to the specific situation
but, what is crucial and unique about this process, is using all the syner-
gies possible between the particular tools and modules to support each
other. This means that TEST implementation, in practice, does not have
to rigidly follow the simplified TEST programme implementation scheme
(in the TEST approach) presented in figure 3, which can give the impres-
sion of being more structured and linear. This feature should be used to
organize the project into manageable and logical units and teams. The com-
munication between these groups is crucial, particularly at specific steps of
their implementation, where there is an ability to go back to completed
steps for more inputs. For these reasons it is important that particular tools
will not be implemented as a self-standing and isolated projects. The dif-
ferent tools should not only build on each other, but they should be imple-
mented within one logical strategy, leading to the integration of the
particular tools (for example EMA or CP assessment) or approaches (for
example CP strategy) into the enterprise operation.
Focusing on important advantage points, using all the possible synergies
from the particular modules and the possibility to sustain the results
through the ongoing improvement provided by the SES tool, will make
the implementation of TEST easier and more effective. Experience shows
that this is the way to prevent difficulties, which could rise from the com-
plexity of the TEST. It also ensures that particular tools and approaches
will continue to be used long after the specific module is formally termi-
nated. The EMS and SES are the crucial crosscutting modules, which should
guide this integrated approach through the whole of TEST and sustain its
benefits in the long term. Only with such an arrangement can the desired
continuous improvement of the enterprise's environmental performance
and competitiveness occur.
Enterprises undertaking the TEST approach will be enabled, by the end of
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Increasing Productivity and Environmental Performance: An Integrated Approach
the project, to formalize their own sustainability strategy, which best fits
with management's desires and the existing business environment
(although where basic strategic management skills are already in place this
process is smoother). There can be different corporate sustainability strate-
gies and they can be distinguished from each other by the four types of
environmental competition strategies84:
1. Clean: environmental market buffering strategies - in order to
defend existing markets
2. Efficient: environmental cost strategies in order to be cost and
environmentally efficient
3. Innovative: environmental differentiation strategies in order to dif-
ferentiate by environmental product
4. Progressive: environmental market development strategies in order
to develop markets environmentally
Each higher level of strategy includes the previous ones, which become
active after they are explored.
Due to the existing business environment and drivers in CEE, the TEST
tools and the overall implementation strategies were tailored during the
first application of the TEST approach in the Danube River basin to sup-
port the adoption of an `efficient' type of corporate sustainability strategy
at the company level.
By focusing on setting a scope for an efficient type of strategy, the TEST
pilot implementation did not specifically include the products and servic-
es, which are placed at the upper level of the management pyramid and
their links to the baseline of the pyramid (stakeholders): product and serv-
ices were addressed only in an indirect way through CPA and EST.
The innovative and progressive types of sustainability strategies were con-
sidered too advanced to apply at the time, considering the realities of the
situation in the CEE at the time of the project start. In fact, all the com-
panies that participated in the first application of the TEST project in the
Danube River basin were without a corporate sustainability strategy, and
84
Adopted from Dyllick/Belz and Schneidewind (1997:076-1776)
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Part III TEST Tool
90 percent did not have a strategic management structure in place either.
The transitional economic situation which characterizes CEE countries, and
the challenges faced by local enterprises from the EU accession were con-
sidered the main drivers and criteria for the selection of the most suitable
type of corporate sustainability strategy for the local companies. The focus
on the efficient strategy proved to be a very good choice (and the right
choice at the time) in the pilot implementation of TEST: the existing frame-
work in CEE countries enabled the implementation of this strategy, with
demonstrable benefits compared with the traditional and reactive `clean'
environmental strategies. This created a market to further spread the TEST
approach in CEE countries.
However, future applications of the TEST approach can be done different-
ly and even more proactively. Strategies toward corporate sustainability
could be promoted to further develop the environmentally friendly prod-
ucts `niche' just beginning in the business environment (the `innovative'
strategy) or eventually aim at stimulating the creation of new environ-
mental markets (the `progressive' strategy). The decision on which corpo-
rate strategy type to focus on will depend on the framework conditions
(appropriate drivers in the business environment like customer demands,
supply chain mechanisms, economic incentives, etc.) and on the willing-
ness and capacities of the target companies.
Therefore a second generation of the TEST approach might include other
tools such as `Design for Environment' to address products and services as
well as stakeholders in a more systemic way. In this case, the overall TEST
implementation strategy might be revised accordingly, but it is still rea-
sonable to imagine that tools like CPA and EST, which focus on process
optimization, as well as EMS, EMA and SES will be needed in most cases
and will have to be applied within an integrated framework to achieve the
best results.
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Increasing Productivity and Environmental Performance: An Integrated Approach
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Hart S. L.: A Natural-resource-based View of the Firm, Academy of
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Indian Cleaner Production Centre: Cleaner production Assessment
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Supporting Techniques, 1996, page 2
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Jorgensen T. H. Environmental Management Systems and Organizational
Change: Eco-Management and Auditing, 7/2000. John Wiley & Sons, Ltd.
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Kaplan Robert S, Norton David: The Balanced Score Card - Translating
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Karlsson Marten, Hakan Rodhe: Textbook on Cleaner Production, IIIEE,
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Senge Peter M. [et al.]: The Dance of Change: The Challenges of Sustaining
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PART IV
ANNEXES
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ANNEX I -
Enterprise Strategy and its Development
Process
General Principles
To have a strategy means to have a consistent set of approaches and pri-
orities, as well as a general understanding that guides management in mak-
ing decisions on how to achieve the enterprise's mission statement and
objectives. The development of an enterprise strategy is shown in figure 27.
Figure 27: Developement of Enterprise Strategy
Mission
Statement
Objectives
Analyze
Analyze
Business
Company Function
Environment
Formulate
Business Strategy
Once the business environment and the company have been analyzed85 the
next logical step is to the enterprise strategy. An enterprise strategy can
have three basic levels: corporate, business and functional. These strategies
are interdependent; hence, they overlap in practice.
85
The analysis of the business environment and of the company function is done with-
in the initial review and is complemented during the TEST implementation.
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A three-level model of the hierarchy of an enterprise strategy is a con-
venient way to present how to develop a strategy using these guides, indi-
cating the `top-down' relationship between particular levels (meaning that
the business strategy is devised only within the context of a well-defined
corporate strategy, and the functional strategies only within a well-defined
business strategy). Each strategy level is characterized by a set of strategic
decisions to be taken and by a number of influencing elements that have
to be analyzed. The three-level hierarchy model is presented in figure 28.
However, strict adherence to this step-by-step scheme is neither ideal nor
realistic.
Figure 28. Strategic Decision-Making and Influential Elements
Level of Strategic
Key Strategic Decisions
Influencing
Decision-making
Elements
Which strategic business units should be kept
and which should be divested?
Corporate
Business Environment
Strategy
How to co-ordinate each individual Business
Strategy?
Community ownership
and history
How to re-allocate financial resources?
Business 3
What is the competitive advantage of the
business?
Customers / market dynamics
BusineStra
ss 2 tegy
Busine
Str
ss 1 ategy
Strategy
How does the company compete in the Market?
Competitors activity
How to co-ordinalte functional strategies to reach
Core Technology
strategic objectives?
Financial constraints
How to translate the business strategy into
Function 3
Human skills
functional objectives?
Strategy
Function 2
Organisarion of the function
Strategy
Function 1
What performance improvement priorities must
Strategy
be set?
Installed capacity
How to manage the function resources?
1.
Corporate strategy
The corporate strategy can be formulated using the gathered information
on the business environment. Many models exist to answer key questions
and help build the corporate strategy. The key questions are: which strate-
gic business units should be kept and which should be divested, what is
the best way to coordinate the individual business unit strategies to achieve
synergies and how to best reallocate financial resources? Those who are
interested in the method should refer to the following resources for fur-
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Part IV Annexes
ther details (Boston Consultancy Group, General Electric Grid, Charles
Hoffer Matrix).
2.
Business strategy: the Porter model
The purpose of a business strategy is to find the `Competitive Advantage'
of the company. According to Porter's model, there are two types of mar-
kets (broad and narrow) and two kinds of competitive weapons to acquire
these types of markets (cost leadership and differentiation) as indicated in
figure 29. Both competitive weapons are mutually exclusive: it is either one
or the other.
2.1. Cost Leadership
Low costs enable an enterprise to compete through low pricing and high
sales volumes, which lead to increased profits. Use of this strategy is lim-
ited by the fact that there is a place for only one true cost leader. (For
example to make a price difference significant, it has to be at least 5 per-
cent lower, compared with the competing products.)
Companies which focus on this type of strategy might find it very useful
to incorporate the cleaner production strategy of the TEST approach into
their operations: this will lead to higher process efficiency and/or lower
production costs. Such a situation was very common among the enterprises
participating in the first TEST project in the Danube River basin.
3.
Differentiation
Differentiation can be achieved by a variety of means such as flexibility,
specialty, innovation, loyalty and brand. A `differentiated product' creates,
in contrast to the `low cost product', brand loyalty and a positive reputa-
tion that facilitates premium pricing, which can be used as a baseline for
increasing profits.
The TEST approach can bring, for example, differentiation within the
process through introduction of the ISO 14001 standard.
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According to Porter's Model, there are four types of business strategy as
indicated in figure 29:
1. Focused price leadership
2. Focused differentiation
3. Broad price leadership
4. Broad differentiation
Figure 29. Porters Model of Business Strategy
L o w e s t C o s t
D iffe re n tia tio n
F o c u s e d P ric e
F o c u s e d
L e a d e rs h ip
D iffe re n tia tio n
a
r
k
et
B ro a d P ric e
B ro a d
Type of M
L e a d e rs h ip
D iffe re n tia tio n
W e a p o n s
The business strategy defines the way the business wishes to compete in
its markets and determines how to coordinate the functional strategies to
achieve the strategic objectives. Once the competitive advantage of the
business is defined, the set of objectives of the functional strategies is deter-
mined by it.
4.
Functional strategies
Functional strategies are important in defining how to translate the busi-
ness strategy into functional objectives, what performance improvement
priorities to establish and how to manage the available resources to achieve
a competitive advantage. Each function of the business needs a strategy to
guide its actions.
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Part IV Annexes
More detailed, functional objectives are set at this level. There are three
main functional strategies for marketing, operations and financial man-
agement (plus R&D strategy where applicable).
Elements of the marketing strategy include:
· Research and development
· Products
· Price
· Distribution
· Communication
Elements of the operational strategy include:
· Processes
· Location
· Layout
· Procurement
· Quality
· Human resources
· Environment
The elements of the financial strategy include mainly:
· Leverage
· Investment
· Credit policy
Accounting and legal services are supporting functions for the day-to-day
management of the business and the strategic business decision.
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Increasing Productivity and Environmental Performance: An Integrated Approach
5.
Strategic planning
The functional strategies are finalized and translated into concrete objec-
tives. The next level of the strategy building process can be to develop the
company's long-term strategic plans, spanning 5-10 years, by setting the
performance objectives of the functional strategies. For example, in the case
of the operational strategy, objectives are related to: production capacity;
material utilization, energy utilization, labour productivity and quality.
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ANNEX II -
Case Study: Implementing CPA at a
Bulgarian Enterprise
A.
CP and Energy conservation opportunities (ECO's)
Situated in the town of Gorna Oriahovitza near the River Yantra, (flows
into the River Danube) ZAHARNI ZAVODI AD is the largest sugar and alco-
hol production company in Bulgaria. The enterprise was established in 1913
as a sugar-processing factory. In 1922, the Alcohol Production Factory (APF)
was built. From 1959-60, the Sugar Production Factory (SPF) was renovat-
ed, and the Thermal Power Plant (TPP) was erected and started to supply
the different facilities with steam and electricity.
At present ZAHARNI ZAVODI AD is a private enterprise, which has a work-
force of 1360 workers and annual turnover of 72,408,000 BGN.
Due to the high degree of complexity of the technological processes and
the large number of production units, the TEST project focused its atten-
tions on the CPA module, at the unit with highest environmental prob-
lems, the APF.
Analysis of the processes in the APF focused on three areas of interest:
material, energy and cooling water flows. These flows are connected and
it is very difficult to isolate a single environmental impact, therefore they
were addressed as a group. The goals of the CP assessment were defined
as follows:
· Reduction of the slop water flow and its pollution loads (high
COD load) entering the River Yantra
· Reuse of the wasted heat energy from all waste water flows from
APF
· Recuperation and reuse of cooling water
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Increasing Productivity and Environmental Performance: An Integrated Approach
B.
Environmental problems
The wastewater flows from the APF are the main source of organic-matter
pollution to the River Yantra. The APF flow consists of three independent
streams:
· Slop water flow (a liquid distillery residue from the distillation
column)
· Water of Luther (a liquid residue from the rectification and fusel
columns)
· Wastewater flows from cooling equipment and from washing of
single technological components, including wastewater from
other sections (fermentation of molasses, production of yeast
and yeast culture production of CO2 etc.)
The energy audit of the section responsible for the production of pure alco-
hol revealed very high heat energy losses from the wastewater flows. Heat
recovery technology was not in place for this source. Not only is the heat
energy wasted by not being reused, but also it contributes to the thermal
pollution of the Yantra when it is discharged into the river.
It was only reasonable then, given the results of the initial review audit,
to perform a detailed water audit of the pure alcohol production section,
given the high inefficiencies in the cooling water system. The existing sys-
tem uses once-through water-cooling, pulling fresh water from either the
Yantra or from the company's own water wells. As the name implies, it
is used once to cool the heat exchangers then discharged into the waste-
water stream of the APF. This is the reason an additional focus area, con-
nected with cooling water flows, was selected.
C.
Brief description of CP selected measures
1.
Material flows
To achieve the goals of the material flows focus area, and after having com-
pleted the detailed mass-balance of the process, several CP measures have
been identified and divided into five groups, depending on the techno-
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Part IV Annexes
logical changes proposed:
1. Amending the process steps and equipment/technology currently
in use in the APF
2. End-of-pipe technologies for the removal of organic matter from
the wastewater
3. End-of-pipe technologies for producing commodity products from
slop water
4. Change of raw material without changing the existing technology
5. Change of raw material in conjunction with a change of the tech-
nology
Some of the identified measures were good housekeeping measures (type
A). These are:
· Improvement of the fermentation process with small technologi-
cal changes to increase the alcohol content of the molasses and
therefore the input of pure alcohol itself
· Raising qualifications/skills of operational staff by attending a
training course connected with CPA
· Revision of the chemical laboratory procedures. Checking the
system of process steps and controls and their compatibility with
international standards for alcohol production
· Improving scheduling management to avoid leaks from periodic
equipment maintenance
· Improving raw material (molasses) storage and performing quali-
ty tests in the laboratory to guarantee the necessary quality lev-
els
· Improve the heat exchangers and chemical cleaning process
· Adjust the water consumption used in the heat exchangers
installing on-line control devices (without modifying the tech-
nology or affecting its efficiency)
These measures were implemented in 2003. The results from their imple-
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mentation are expected to slightly improve the quality of the final prod-
uct and have some positive economic effect.
Almost all of the measures from groups (2) - (5) require significant invest-
ments and during the assessment were classified as categories type C. Those,
identified by the CP team as the most promising options, in conjunction
with decrease of organic pollutants from slop water are listed below, and
includes some end-of-pipe solutions as well as major investment in new
EST technology:
· Conventional activated sludge treatment (biological waste water
treatment of the slop) to destroy organic matter followed consec-
utively by ultrafiltration (UF) and reverse osmosis (RO)
· Reconstruction of the existing cooling water system from a once-
through system to a recirculation cooling water system
· Treatment of the slop in a membrane bioreactor (MBR-technolo-
gy)
· Change of raw material by introducing an appropriate technolo-
gy of alcohol production able to convert the organic matters of
the slop into commodity products
The replacement of molasses from sugar beet (presently used) to molasses
from wheat has been suggested as the most promising solution and will
be further investigated with the EST module.
D.
Energy flow focus area
Measures for achieving the energy goals set for the focus area have been
classified in two groups, according to the composition of the following
wastewater flows:
a. Hot waste water flows containing detrimental substances
b. Non-polluted hot wastewater flows
The measures for energy conservation of these sources are different. The
composition of the flows can be described as follows:
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Part IV Annexes
a. Hot waste water flows in the APF that contain detrimental sub-
stances are slop water flow and water of Luther; their heat energy
capacities being 1,950,000 kcal/hr for the slop water flow and
832,703 kcal/hr for water of Luther. The feasible opportunities for
energy conservation within this group are closely connected to the
installation of heat exchangers to recover waste heat to use for:
· The supplementary heating of alcohol before entering
the distillation column
·
Heating water for domestic use
·
Heating of the incoming input water for the nearby TPP
b. Non-polluted hot wastewater flows in the APF derived from the
cooling water, flows from the reflux condensers of the epuration
and rectification columns; their heat energy capacities being 95,552
kcal/hr for the epuration column and 1,710 436 kcal/hr for the
rectification column
As both these heated cooling water flows are not polluted, the opportuni-
ties for their reuse seem realistic and can be used as follows (see table 12):
· Direct domestic use e.g. toilets (but not to be used in contact
with food or for food preparation)
· Re-pumping to the near by thermal power plant to be used to
heat raw water in the water softening installation
Table 12. ZAHARNI ZAVODI AD-Heat Recovery Opportunities
No.
Heat Recovery Source
Use
Group
a.
Pre-heating of alcohol before
C
distillation
1 Slop
Water
Flow
b. To heat water for domestic use
B
c. To heat input water in the TPP
B
a. Pre-heating of alcohol before
C
distillation
2
Water of Luther Flow
b. To heat water for domestic use
B
c. To heat input water in the TPP
B
Cooling water from reflux condensers of
a. Direct domestic use
B
3
rectification and epuration columns
b. Re-pumping to thermal power plant
B
Following the UNIDO methodology, a feasibility study was conducted for
the third option described in table 12.
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Increasing Productivity and Environmental Performance: An Integrated Approach
This measure covers the use of slop water waste heat energy, by using a
heat exchanger and the necessary supplementary equipment in the APF
and nearby TPP to heat raw water at the TPP inlet.
The slop water heat energy concept is closely connected with the erection
of a prefabricated plate heat exchanger. This measure will result in a reduc-
tion in demand for steam to heat input water, with the total amount cor-
responding to the amount of non-returned condensate from the APF.
Reducing steam consumption will accordingly lead to reduced fuel con-
sumption and consequently a reduction of CO2, SO2 emissions and par-
ticulates to the environment.
Total investment costs, including equipment, installation, engineering and
contingency costs are estimated to be 35,164 BGN. Operational and main-
tenance costs include expected expenses for equipment maintenance and
additional costs for electricity (consumed by the pump), estimated to be
1,586 BGN/year.
Preliminary calculations, done using simulation models (technical and
financial), indicate a fuel consumption reduction of 563 tonnes of coal and
36 tonnes of heavy fuel oil respectively where the operational modes of
the APF were assumed to be similar to those reported for 2001. Annual
savings, at current fuel prices are estimated to be 65,818 BG, which leads
to an amazingly quick pay back period of 6 months.
Since the implementation of the measure is connected with reduced fuel
consumption, it is not surprising that environmental benefits will also be
achieved. The previously mentioned fuel savings are stepping-stones to the
annual reduction of atmospheric emissions, reducing them by 1,187 tonnes
of CO2 (equivalent), 29 tonnes of SO2 and 482 kg particulates annually.
E.
Conclusions
Expected results from the implementation of the proposed measures can
be summarized as follows:
· Several Type A measures that do not need investment have been
identified and implemented. They will ensure improvement in
final product quality as well as reduction of specific consump-
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Part IV Annexes
tion inputs. Reduced water consumption and improved heat
transfer can be achieved through upgrading all cooling water
heat exchangers and by introducing sound cleaning procedures
of heat exchange surfaces to remove scale
· The change of raw materials and appropriate change of alcohol
production technology requires large investments, but at the
same time can solve the problems with polluting the Yantra by
decreasing the organic load of COD /1000 l alcohol to zero; this
will be investigated within the ESTA module
· The energy conservation measure which includes the design,
commissioning and implementation of a heat exchanger and
corresponding supplementary equipment to recover waste heat
energy from slop water involved an investment of 35,164 BGN.
Resulting fuel savings from this measure are 563 tonnes of coal
and 36 tonnes of heavy fuel oil respectively. Annual savings,
estimated using current fuel prices and APF modes of operation,
added up to 65,818 BGN annually and an investment capital
pay back period of 0.5 years
· For heat exchangers that have a high consumption of cooling
water and low outlet temperature, the consumption of cooling
water can be decreased by accurate water flow regulation (by
installing or improving thermocouple units linked with water
flow) without interfering in alcohol production processes
· Replacement of the existing once-through water-cooling system
with a new recirculation cooling system requires a high invest-
ment, but the expected results would be reduced fresh water
losses by 81 percent
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ANNEX III -
Case Study: Introducing EST in Accordance
with the IPPC-EU Directive at a Romanian
Company
A.
Overview
S.C. ASTRA ROMANA S.A. is one of the leading privately owned oil refiner-
ies in Romania. It is listed, along with other 12 companies, in the first cat-
egory on the Bucharest Stock Exchange.
ASTRA is the only producer of lubricants in Romania and its export share
is significant. It was decided the TEST project modules should focus on the
Hydro Refining Unit - HRFU, which is one of the most profitable business
units.
The implementation of CPA revealed a great potential for cleaner produc-
tion options and several CP measures were implemented. This led to a
reduction of specific raw material consumptions and utilities and resulted
in a total financial savings of 60,000 USD during the year 2002.
Environmental benefits were achieved in terms of a reduction of waste-
water discharge, CO2 emissions, and the total elimination of oily products
in the final effluent through internal recycling.
However, despite the increased efficiency achieved through the numerous
CP measures, there were still important differences between the specific
consumptions achieved at ASTRA (e.g. raw materials, catalyst, utilities,
resources such as methane and water) and the BAT standards mentioned
in the BREFs.
The EST module focused on identifying ways of bringing specific con-
sumptions closer to the BAT standards: limiting resource consumption and
pollution became the main goals of the EST Module. Two main EST options
were identified and investigated from a technical and economical point of
view, in order to increase the productivity of the plant and reduce its envi-
ronmental impact.
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Increasing Productivity and Environmental Performance: An Integrated Approach
· Option I: Revamping the HRF Chemical Reactor - by using an
on-line computer system (EVOP) to monitor the operation of the
plant. Using the EVOP framework will result in the optimization
of the operating parameters and flows of materials and utilities
· Option II: Upgrading the Gas Scrubber Column - redesign the
present technology and eliminate fresh water (used for scrubbing
exhaust gases) when the catalyst is regenerated and the oven de-
coked
B.
EST Option I
EST Option 1 groups two types of measures:
A. Optimize the existing installation, to get as near as possible to the
BAT parameters:
· Install extra measurement/control devices on the hydro refining
reactor
· Install automatic devices for maintaining operation parameters
· Connect all existing measuring and control devices to a process
computer
· Proceed with an EVOP modus operandi: in order to reach better
efficiency
· Devise optimal techniques for catalyst replacement, regeneration
and pre-sulphuring to keep environmental impact to a mini-
mum.
See figure 32 for the adopted technical solution (configuration) versus to
the existing configuration.
B. Develop new catalysts with higher sulphur removal efficiencies and
higher reactor efficiencies:
· Test new class MCM-41 meso-porous catalyst materials
· Determine the best composition and geometry of the catalyst
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Part IV Annexes
· Test the catalyst in the industrial reactor
The technical/economical evaluation of the proposed technology, under
the form of a pre-feasibility study, showed the following financial figures
for this option:
The total investment is 2.086 Million euro:
· Pay Back Period (PBP): 9 years at a 10 percent Discount Rate,
(Dynamic PBP: 10 years)
· NPV: 943 euro
· IRR: 11.09 percent (interest 10 percent)
Expected savings are approximately 2.7 USD per tonne or 450,000 USD per
year (at a full capacity of 140,000 tonne per year).
ASTRA has already prepared a detailed project for installing a process com-
puter at the asphalt removal plant, adjacent to the hydro refining plant
studied here. ASTRA specialists will try to attach the hydro refining unit
to the asphalt removal plant process computer, which will reduce costs
considerably. This alternative solution is very straightforward to implement,
the only limiting step is modifying the process computer at the de-asphalt-
ing plant. At present, banks and funding agencies have been contacted to
identify possible sources of financing. ASTRA and ZECASIN-Bucharest (one
of the TEST project partners in Romania) have agreed (October 29, 2002)
upon a joint-project directed at searching for better, environmentally
friendly, catalysts that are more efficient. The experiments have already
started, with extremely promising results. An application for a govern-
mental grant for the development of the new catalyst is awaiting the
approval of the Romanian Ministry of Research. This funding opportunity
was explored also because the problem of low-sulphur oil fractions fits with-
in the priorities of the Romanian R&D objectives.
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Increasing Productivity and Environmental Performance: An Integrated Approach
C.
EST Option II
This option focuses on the optimization of the gas scrubber column, aim-
ing to replace the current fresh water supply with the water from the ASTRA
wastewater separator. The existing deep-well fresh water system is main-
tained as a backup system. Additionally the onsite monitoring of waste-
water quality from the separator will be enforced.
The prefeasibility technical/economical evaluation study of the proposed
technology showed the following financial figures for this option:
The total capital cost of the investment is 1.075 Million euro:
· Pay Back Period (PBP): 9 years at 10 percent Discount Rate;
(Dynamic PBP: 10 years);
· NPV: 318 euro
· IRR: 10.42 percent (interest 10 percent)
Savings are expected to be approximately 1 USD per tonne or 100,000 USD
per year (at a full capacity of 140,000 tonnes per year).
The design for the water recycling system had been completed by early
2003. See figure 33 for the technical solution adopted versus the existing
configuration. The commissioning will start at the end of the life of the
catalyst (during the temporary shout down of the plant for maintenance).
Estimated benefits (technical, economical and environmental) are:
· Fresh water consumption reduced by 90 percent
· Reduce the amount of wastewater produced by ASTRA
· Reduce the environmental expenditures to treat the fresh water
· Minimal technical modifications: no special equipment needed
· Directing efforts toward an integrated water system as recom-
mended by BAT
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Part IV Annexes
D.
Benefits of the EST Options
Figure 30 compares the exiting situation with the situation after imple-
mentation of EST options in comparison and with the BAT average stan-
dards (measured in percent).
Figure 30. S.C. ASTRA ROMANA S.A. - Input Material Consumption: Start-up
Situation, After ESTA (cumulated Implementation Results of Option One
and Two) and BAT Benchmarks
100.00
90.00
80.00
70.00
60.00
50.00
40.00
(percentage)
30.00
20.00
10.00
0.00
Raw Materials
Utilities
Fuel
Fresh Water
Chemicals for
Energy
Treatment
Existing situation
Cumulated
BAT Cumulated
A breakdown of the financial benefits after the implementation of the EST
Options is illustrated in figure 31: all cost categories are included and
important reductions are emerging from all of them.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 31. ASTRA ROMANA S.A.-Estimated Financial Benefits After
Implemention of EST
160
Start-up Situation
140
After Implementation of
120
EST (Option I and II)
100
80
60
(percentage)
40
20
0
Environmental Fees
Environmental
Environmental
Final Products Cost
Net Profit
Penalties
Contingency Costs
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Part IV Annexes
Figure 32. Existing (black) and Adopted EST layout (red) for the Hydro
Refinning Reactor Optimization-ASTRA.
rts
Repo
Luboil
Raw Oil
Analysis
2
Oil / H
2
Flow / Ratio
Recycled H
Process Computer
2
H
2H
ed
cl
y
Fresh /
Rec
2H
Fresh
P
T1
T2
T
T
T
306
T3
T
307
307
308
T5
On Line
Analyzer
lyst
Bed
Cata
IN
OUT
Luboil
red
lphu
Hydrogen + Luboil
-su
e
Hydrogen Lateral Injection
en + D
Hydrog
209
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 33. Existing and Adopted EST Layout for the Scrubbing column ASTRA
r
te
a
W
p
Well
r
Dee
t
o
on
r
a
a
p
e
Pumping
Stati
S
er
ewat
Existing Situation
Wast
Tank
Fresh Water
Flue gas
ed gas
Gas Wash Column
Stripp
ing
product to
Oil
EST Action
reprocess
Recovered
tment
trea
Wastewater to wastewater
Water Separator
t
ation
Pumping S
210
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ANNEX IV -
Case Study: Profitability of an EST invest-
ment and contingency enviromental costs
at a Slovak Enterprise
A.
Overview
KAPPA Stúrovo is located at the Slovak-Hungarian border, directly on River
Danube. The company uses 120 thousand tonnes of waste paper per year.
The main production is fluting, machine board, pasted board and other
types of boards, which are exported mainly to countries in southern and
Western Europe.
KAPPA Stúrovo belongs to the top ten companies, with the highest prof-
it, in Slovakia. According to the ICPDR, KAPPA is also one of largest Danube
polluters in Slovakia.
In June 2001 KAPPA Stúrovo decided to join the TEST project: top man-
agement's main environmental concern was the costs related to an invest-
ment into a wastewater treatment plant, which had already been accepted
as a necessary and unavoidable expenditure. After the initial review, the
CP assessment was conducted. More than 25 feasible cleaner production
measures were identified and proposed to the management. As a result of
the CPA module, water consumption in the cardboard production line
decreased from 120 m3/tonne (May 2001) to 76 m3/tonne (April 2002).
However, it immediately appeared that significant EST investment would
be needed to reach BAT sector standards.
Future company strategy focused on expansion, therefore the TEST-EST
module focused on major investment projects targeted at increased prof-
itability, increased production output, improved environmental perform-
ance and compliance with EU regulations.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Two major technology changes were analyzed within the EST module:
· NSSC Pulp washing (1,960 million euro investment)
· Green liquor sludge disposal (239,300 euro Investment)
The economic evaluation showed that these two investments would
improve the company's environmental performance and increase its pro-
ductivity. During the preparation of the pre-feasibility study, a sensitivity
analysis was performed taking into consideration contingency environ-
mental costs like future liabilities, expected future increases of pollution
fees, future fines and expected increases in the costs of raw materials. The
sensitivity analysis revealed relevant changes in the financial indicators of
the proposed project. Fees and fines were estimated/determined based on
information provided by the Ministry of Environment and documents of
Slovak Environmental Inspection.
Below is a brief description of the two projects.
1. NSSC Pulp washing
The current pulp washer has a very low washing efficiency. The main prob-
lem is that a large volume of wash substances are carried over from the
inflow of the NSSC production line, thus a large amount of contaminated
white water leaves the system to the Effluent Treatment Plant. The main
purpose of the investment in the NSSC pulp washing is to reduce the COD
and BOD discharge to the River Danube.
The objectives of the project are:
· De-bottleneck the washing line i.e. increase the washing line
capacity, from the current 300 BDtpd (peak 330 BDtpd) to 350
BDtpd (peak 370 BDtpd) levels
· Improve the quality of the product by improved washing
· Enhance the efficiency of the cellulose production by closing the
loop of chemicals
· Improve environmental performance by reducing COD and BOD
loads in effluent discharge
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Part IV Annexes
The ability of the investment to reduce the pollution in the wastewater
and reduce wastewater discharge fees is considerable. KAPPA pays charges
of over 11.8 million SKK annually for BOD5). The proposed investment
will have a significant influence on reducing BOD5.
Operation is scheduled to start in the first half of 2004. The assumed life
span is 8 years. Table 13 summarizes the basic assumptions and savings
related to environmental costs.
Table 13. KAPPA-NSSC Pulp Washing Project Assumptions and Projected
Annual Savings (in th. euro)
Yearly Savings
Cost Item
Basic Assumptions
[th.euro]
Chemicals 27
7%
Annual
growth
93
In the first year 2004
Fees for COD Discharges
291 Starting
from
2005
Steam 65
3%
Annual
growth
Environmental Fines
34
Estimated
Table 14. KAPPA-NSSC Pulp Washing Project Financial Indicators (in th. euro)
Environmental Risks and Contingency
Base Situation
Description
Costs Considered
PBP
normal
2 years 2003
3 years 2005
dynamic
3 years 2004
3 years 2005
IRR %
normal
60.66 49.50
modif.
60.66 49.50
NPV [th. euro]
4714.20 3018
NPV ratio
2.47 1.58
The financial benefits of this project strongly depend on an increase in
production. In financial terms, the production has to increase from 25 th.
euro to 41 th. euro to obtain zero NPV. Moreover, table 14 shows that by
considering contingency environmental costs, the proposed EST investment
is more profitable.
2. Green liquor sludge disposal
This proposed investment focuses on recovering chemicals from the green
liquor, which is produced in the sludge washer in the Recovery plant. This
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Increasing Productivity and Environmental Performance: An Integrated Approach
will result in improved water quality and reduced pollutant levels. Due to
current loss of chemicals and water contamination, the plan is to install
the new equipment consecutive to the existing sludge washer, ensuring
maximum sludge separation and thickening of sludge from suspension to
dumping consistency. All obtained filtrates will be reused in the technol-
ogy.
Table 15. KAPPA-Green Liquior Project Assumptions and Projected Annual
Savings (in th. euro)
Yearly Savings
Cost Item
Basic Assumption
[th. euro]
Waste Treatment Costs
5.3
Fees for storage of the sludge
Recovery of Chemicals from
74.9 7%
annual
growth
Sludge
Fees for Wastewater
10
Starting from 2004
Fines 34
The device started operating in the first half of the year 2003. The assumed
life span is 15 to 20 years.
Tables 15 and 16 provide an overview how important the consideration of
environmental benefits is in project appraisals, especially in terms of inter-
nal rate of return.
Table 16. KAPPA-Green Liquior Project Financial Indicators
Environmental Risks and
Base Situation
Description
Contingency Costs Considered
PBP
normal
4 years 2006
5 years 2007
dynamic
4 years 2006
7 years 2007
IRR %
normal
37.13 14.65
modif.
15.83 6.39
NPV [in th.euro]
224.03 31.53
NPV ratio
1.03 0.13
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ANNEX V -
A Full Case Study: Implementing the TEST
Approach in a Romanian Pulp and Paper
Company
In April 2001, the management of the Romanian pulp and paper compa-
ny SOMES decided to join the TEST project, recognizing the importance
of managing the current environmental aspects of the company and the
benefits to future operations and competitiveness.
After the initial environmental review the bleaching unit was identified as
the TEST project focus area, as it is responsible for the most significant
environmental impacts of the whole plant due to:
· The hazardous pollution generated by the creation of chlorinated
organic compounds
· High water consumption compared to BAT levels
· High material losses (chemicals, product and resources: water,
energy) not well quantified
A number of investment projects were initiated during the TEST project,
which became an important catalyst in the implementation of technolog-
ical solutions and spreading the environmental culture throughout the
employees. The effects of implementing cleaner production measures result-
ed in:
· A decrease of flow and effluent loading from the mill
· A decrease in consumption of specific chemicals at the bleaching
unit (CP project)
· Product quality improvements
· A decrease in maintenance and repair expenditures
· An electric power consumption reduction
As result of the project, a total number of 175 employees were trained (on
215
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Increasing Productivity and Environmental Performance: An Integrated Approach
CP, EMS, EMA, EST), 20 company departments (out of 34) participated at
TEST training sessions and the unit participation in TEST activities amount-
ed to approximately 770 man days.
A real raising of awareness led to organizational changes (a Quality and
Environmental Department was created) and the number of employees
with environmental skills and tasks doubled vs. the situation at the proj-
ect start.
A.
Cleaner production assessment (CPA)
The initial targets of the CPA assessment were: reduction of raw materials
(fibres), chemicals and water as well as the reduction of wastewater flows
and pollution loads.
After the detailed analysis was performed, pollution sources were identified
and a total number of 32 feasible type A and B options were identified (vs.
only three measures already known by the company team). Figure 34 illus-
trates the section of the production process where CP measures were iden-
tified and implemented. The pre-feasibility analysis of the B-type measures
was done using the following steps:
· Technical feasibility was assessed against the existence and per-
formance reached through specific devices and pieces of equip-
ment
· The technically feasible measures were assessed from the point of
view of economic/financial feasibility: only two proposed meas-
ures showed Payback Periods (PBP) longer than one year, most
of them had PBP of less than half a year
· The environmental feasibility was assessed using a multi-criteria
approach, considering the following aspects in addition to emis-
sion quantity & frequency:
· Present and future penalties for exceeding standards
· Cross-media contamination of specific pollution sources
· Intensity of resource consumption
· Adverse health effects
216
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Part IV Annexes
Type A and B CP options were grouped by how they contribute to the
same CP targets. For example, the consumption reduction (of a particular
chemical) was the result of four individual measures:
1. Continuous flow measurements of the material that is treated with
the respective chemical contributed to approximately 30 percent
of the reduction.
2. Continuous concentration measurements of the material that is
treated with the respective chemical contributed to approximately
30 percent of the reduction.
3. Continuous measurement of the chemical content in the generat-
ed effluent contributed to approximately 20 percent of the reduc-
tion.
4. Monitoring chemical-based emission into the atmospheres con-
tributed to approximately 20 percent of the reduction.
Twenty of the 32 feasible CP options were approved by the company's
management and included into the CP Action Plan. CP options included
process control monitoring consumptions and emissions, local collection
of leaked material and its reuse, recycling of alkaline and acid solutions
and `white water'; devices for `down-time' reduction and devices for pres-
surized water for washing.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 34. SOMES CP Module Applied to the Pulp Bleaching Plant
Natural screened
and washed pulp
Filtrate
Recirculation
Chlorination (1)
Extraction
Filtrate
Acid Filtrate
Chlorination (2)
Recirculation
Alkaline Filtrate
Effluent
Extraction
Effluent
Treatment NaOCl
Treatment ClO2
Fine Screening
Filtrate
Recirculation
Thickening
White Water
Bleach Pulp
Storage
Pulp De- watering
Paper Machine
CP Implemented
Existing Plants
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Part IV Annexes
Figure 35. SOMES Effects of Implemented CP Measures: Reduction of
Chemicals and Water Specific Consumption
In 2003 the Total Bleached Pulp Production was 42,000 tonnes
100
- 5%
90
- 10%
- 14%
- 11%
80
70
60
50
Cl2 ClO2 NaOCl W ater
Equivalent
Equivalent Equivalent
Equivalent to
to 260
to 13
to 2.15
1.98 M m3 /yr
tonnes /yr
tonnes / yr
tonnes /yr
In 2000
In May 2003, after implementation of CP
A significant reduction of pollution loads was achieved, i.e. wastewater flow,
TSD, TDM and AOX discharged. The graph in figure 35 shows the effects
of CP measures on bleached pulp effluent based on year 2000 production
levels, before the project started and compared to the BAT standards (BREFs
for pulp and paper industry). Through the implementation of the identi-
fied measures, a significant amount of water and chemicals were saved and
chlorine emissions have been reduced by 92 percent at the bleaching unit,
as indicated in figures 36 and 37.
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Increasing Productivity and Environmental Performance: An Integrated Approach
Figure 36. SOMES-CP Effects on Bleached Pulp Effluent
250
200
Equivalent to 554 tonnes/yr
150
100
50
0
Wastewater
COD [kg/t]
BOD [kg/t]
TSM [kg/t]
AOX [kg/t]
[m3/t]
2000 - Before CP Measures & Before WWTP
2002 - After CP Measures & Before WWTP
BAT - After Biological WWTP Treatment
Figure 37. SOMES-Reduction of Chlorine Based Gas Emissions at the
Bleaching Unit
17%
Cl2
ClO2
83%
100%
-92%
50%
0%
before CP
after CP
Equivalent to
5.2 tonnes Cl/ year
The range of investments for type B CP options varied from a minimum
of 100 USD to a maximum of 31,500 USD. Economic evaluations showed
a pay back period range between one month and 3.7 years. The overall
implementation cost of the proposed CP Action Plan was estimated at
100,500 USD, of which 34,000 USD was implemented in 2002 and 66,500
USD will be completed in 2003.
The calculated economic benefits in 2002 for the implemented CP meas-
ures were approximately 43,000USD (i.e. the investment of the first year
was paid back within a year). These savings resulted in a 9 percent reduc-
220
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Part IV Annexes
tion of raw materials consumption and water costs at the bleaching plant,
equivalent to 2-3 percent of the overall bleaching production costs, as is
illustrated in figure 38. The breakdown of savings in figure 39 also shows
the relative contribution of cost categories to the total savings and empha-
sized that the main saving source was achieved from the reduction of water
consumption and effluent discharge (including fees and penalties), corre-
sponding with the reduction of chemicals.
Figure 38. SOMES-Effects of Implemented CP Measures on Bleached Pulp
Production Costs
9% Reduction of Raw Materials Costs
Equivalent to 2 - 3 % of Total Bleaching Costs
1
0. 95
0.9
0. 85
0.8
Start
May 2002
Oct. 2002
Dec. 2002
Mar. 2003
Jun. 2003
[per tonne of bleached pulp]
Figure 39. SOMES-Reduction of Production: Breakdown Costs by Cost
Categories
Total savings = 43,000 USD/yr
Chlorine
NaOCl sol.
ClO2
58%
Fiber-recovered
Effluent
23%
3%
3%
13%
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Increasing Productivity and Environmental Performance: An Integrated Approach
The importance of CPA was recognized at all management and operational
levels and the detailed analysis was replicated in all operating units (mass
balance completed for all processes). Because of the extension and con-
tinuous application of CPA to other process units (wood chipping) addi-
tional CP measures were implemented.
B. Environmentally Sound technologies Assessment (ESTA)
Despite the significant increase of process efficiency and improved envi-
ronmental performance resulting from the implemented CP measures, the
AOX parameter (Adsorbable Organic halogens) remains very high, about
6.0 kg/BDt, compared to the 0.25 kg/t required and provided by the BAT
(Best Available Techniques) for the Pulp and Paper Industry. At the same
time, despite the 9 percent reduction of water consumption achieved dur-
ing CPA, the bleaching department remains the largest water consumer in
the mill: about 150-160 m3/BDt, compared to 30-50 m3/ADt (total) pro-
vided by using BAT for the bleached kraft pulp production. Although very
diluted, the COD load discharged by the mill is still very high compared
to BAT standards.
Overall, the technology used is quite obsolete and out of compliance with
the national and EU environmental requirements. Besides the growing local
market demand for pulp and paper products, the quality of pulp produced
is low and some paper customers have started looking for chlorine-free
wrapping paper. Elimination of elemental chlorine is a must for the com-
pany's future strategic business position.
Given the existing situation and the BAT requirements it was decided to
focus the EST - TEST project module on a techno-economical evaluation
for a delignification stage before the bleach plant, by extended or modi-
fied cooking and additional oxygen stages as well as a new elemental chlo-
rine free (ECF) bleaching unit. Figure 40 illustrates the new process stages
as identified for implementing EST at SOMES.
A detailed sensitivity analysis of the investment, taking into consideration
long-term environmental benefits and new legislation trends, was per-
formed using the UNIDO COMFAR tool. Despite the overall investment
cost being very high (approximately 11.5 Million USD), the financial indi-
222
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Part IV Annexes
cators of the investment proved to be very positive in terms of NPV and
showed an average IRR of 16 percent.
Substantial savings of raw material, chemicals, process water as well as util-
ities (power and steam) will be achieved by implementing BAT for the
bleaching unit. Additionally, a significant portion of environmental costs
will be reduced, equivalent to approximately 40 percent of the total cost
reduction. Based on a preliminary estimate the cost reduction per each cost
category has been calculated and reported in table 17.
Table 17. SOMES-Reduction of Production Costs by Category at the Bleach
Plant after Implementation of EST/BAT86
Reduction of Production Costs by Category, Due to Implementation of
EST/BAT for Bleached Pulp and Paper
Cost Categories
Sub-Categories
USD/ADt87
Raw Materials, Chemicals and Water
4.7
Utilities (power and steam)
7.74
Environmental Costs
Wastewater
5.4
Treatment Costs
Discharge Fees
1.0
Penalties 4.0
Total savings in pulp production
22.84
Additional cost reduction for utilities
consumptions at the paper unit (reduced
4.7
pulp drying and raw materials costs at the
bleached paper production line)
Data have been calculated based on the nominal pulp and paper production capacity (43,000 tonnes bleached pulp /year)
Data have been calculated based on the nominal pulp and paper produc-
tion capacity (43,000 tonnes bleached pulp /year)
The process' increased efficiency will enhance the bleached pulp charac-
teristics as follows:
· An increase of the final pulp brightness up to 88 - 89 percent ISO
· An increase of the final breaking length of pulp by 1000 - 1200 m
· An increase of pulp purity degree
Due to the quality increase of the product (including its more environ-
ment-friendly performance), it was estimated there would be an increase
86
Adt - Air Dry ton of pulp / BDt - Bone Dry ton of pulp
87
Adt - Air Dry ton of pulp / BDt - Bone Dry ton of pulp
223
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Increasing Productivity and Environmental Performance: An Integrated Approach
in the market price for bleached pulp of about 20 USD per BDt. More
important, of course, is the fact that if chlorine is not eliminated, the
SOMES mill would not be sustainable in the long-term as demand for their
product will continue to decrease.
Figure 40. SOMES-ESTA module Applied to the Bleaching Unit
Input
Output
Natural screened
and washed pulp
Enzyme
Enzyme
Nat. Pulp Wash
Treatment
New Washing
Stage
O2
New O2 Plant
e ion
Oxygen
u
lat
Delignification in
Filtrat irc
Two Stages
Rec
Two New Washing Stages
(Press and Filter)
Filtrate
Recirculation
ClO2 First Stage
Acid Filtrate
Effluent
E/OP
ClO2 Completion
Effluent
Oxidative Extraction
Enforced with Peroxide
Filtrate
Recirculation
ClO2 Treatment
Alkaline Filtrate
Effluent
H2O2
Fine Screening
Filtrate
Recirculation
Thickening
White Water
White Water
White Water
Filtrate
Filtrate
Recirculation
Bleached Pulp
Recirculation
Storage
Pulp De- watering
Paper Machine
New Stages
Completion of
Existing Plants
Existing Plants
224
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Part IV Annexes
Generally speaking, the investment in oxygen delignification and bleach
plant revamping significantly enhances the SOMES mill long-term com-
petitiveness. It reduces the production costs of the product by 22.84 USD
per tonne of bleached pulp while it closes the gap between pulp quality
and pricing by an estimated 20 USD per tonne.
High-cost CP measures (approximately 300,000 USD) for medium consis-
tency pumps, evaluated as a pre-investment for the new chlorine-free
bleaching unit (EST module) were installed within the project period. The
remaining part of the investment is expected to start in 2004.
C. Environmental management system (EMS)
At TEST project start, the choice was to introduce the EMS at the pilot
level of the bleaching unit. A total of 40 employees were trained, repre-
senting 20 functions (of the total of 34) and the unit trained people with
approximately 135 employees. The top management approved an envi-
ronmental policy. At the project's end, the basic elements of EMS docu-
mentation were in place. The skills built at the enterprise motivated the
company to extend the scope of the EMS to the entire plant and the unit
management is now focused in acquiring ISO certification for the entire
plant by 2004. SOMES has quite recently acquired the QMS certification.
It was the SOMES management decision to develop the EMS first at the
pilot level, as a model to be transposed and integrated with the QMS at
the mill later.
D. Environmental management accounting (EMA)
As part of the TEST project, the management of SOMES decided to intro-
duce an EMA system to have a better and more comprehensive approach
to management accounting. SOMES is using a method for costing gener-
ally known as Absorption Costing (AC). The company is organized into
five main cost centres, 5 main auxiliary sections and 5 minor auxiliary sec-
tions as summarized in table 18:
225
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Increasing Productivity and Environmental Performance: An Integrated Approach
Table 18. Absorption Costing at SOMES
Cost
Main Auxiliary
Other Auxiliary
Centre
Main Cost Centres
Sections
Sections
Number
1
Chipping
Regeneration
Finishing
2
Kamyr Digester (Boiling)
Bleaching Agents
Packaging
3 Bleaching
Chemicals
Deposit
4
Pulp Machine
Water Treatment
Administration
5
Paper Machine
Wastewater Treatment
Management
The only environmental cost category recognized in the management
accounting system at SOMES, before the EMA project started, was the waste-
water plant treatment costs. These costs were allocated to cost centres and
to products as overheads. Non-product output environmental costs were
not recognized as environmental costs, but were included in the direct
material costs, while fines and penalties were part of the general overheads.
In table 19 the main environmental cost items and their allocation method
are reported as they were before the EMA project start.
Table 19. Management Accounting System Allocations (Before Introducing
the EMA Tool) at SOMES
Cost Item
Allocation Method
Non-Product Raw Material
Direct Cost As Raw Material
Fines & Penalties
Non-allocated Overhead
Environment Related Labour
Non-allocated Overhead
Solid Waste Disposal Cost
Non-allocated Overhead
Waste Water Treatment Cost
Allocated Overhead (un-appropriate
allocation key)
Contingency Cost / Provisions
Unavailable
The following objectives were set at project start:
· To identify additional environmental costs, focusing on non-
product output costs. This will result in the identification of hid-
den environmental costs, within the Management Accounting
System The exact quantification of total environmental costs will
reinforce management commitment to the implementation of
226
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Part IV Annexes
Cleaner Production measures and EST investments
· To reorganize the accounting system to include `Environmental
costs' in the final cost structure (allocation of environmental
costs to products)
· The reorganization of the management accounting system will
provide the management with the necessary information for cre-
ating a better public image. By showing that the company is
tracing its environmental costs and is acting to reduce them it
demonstrates the company's commitment to environmental
responsibility
1. Environmental Costs items selection
The bleaching unit was initially selected as the focus for the implementa-
tion of the EMA project. However, it was necessary to extend the bound-
aries of the EMA project to the entire plant, in order to conduct a proper
allocation to products.
Considering the existing cost management practices and main environ-
mental aspects of the company, the following environmental costs items
for calculation were chosen:
· Direct environmental costs
· Material Purchase Value of non-product output
Allocated environmental overheads:
· Wastewater Treatment costs
· Solid waste disposal costs
· Non-allocated environmental overheads
· Environmental studies and research
· Cost of personnel from the environmental department
· External services
· Fines and penalties
· Contribution to the environmental fund.
227
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Increasing Productivity and Environmental Performance: An Integrated Approach
Once environmental costs items were selected, all cost centres, including
all process overhead generator centres, were analyzed to collect informa-
tion on the environmental costs and the existing allocation keys.
The calculation of non-product output costs, as well as end-of-pipe costs,
was done using data provided by the material and energy balances from
the cleaner production assessment. It was also possible to define, for each
cost item, what kind of information would be necessary for the EMA sys-
tem and who would provide it.
As a result of EMA, several modifications occurred within the managerial
accounting registration system. New accounts were created for each envi-
ronmental costs item, both for direct costs (to make them visible within
the direct production costs) and for each type of environmental category
included in the overheads (in order to emphasis the `environmental over-
heads' within the total overheads). 88
Solid waste disposal costs were calculated and properly allocated to the cost
centres that generate them. The environmental costs were first allocated at
the cost centre level and then at the product level. Figures 41 and 42 sum-
maries the structure product cost for bleached pulp and provide a break-
down of non-product output costs.
Figure 41. SOMES Production Cost Structure: Bleached Pulp
4% 3%
93%
Other environmental costs [WWTP and waste disposal]
Non-product output costs
Other production costs
88
These costs were analyzed as separate costs in overheads and not used to compute the
production cost (not allocated to cost centres). Later these costs were allocated to prod-
ucts in order to compute the total cost and calculate the profitability of each of the
product
228
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Part IV Annexes
Figure 42. SOMES Non-Product Cost Structure: Bleached Pulp
58%
25%
1%
4%
2%
1%
3%
3%
3%
Wood
Chemicals
Wages
Steam
Energy
Water
Maintenance and Spare parts
Other Indirect costs
Other indirect material costs
At it's conclusion, the EMA component of the TEST project achieved the
following:
1. EMA human skills were built within the company and the EMA
project was extended from the bleaching unit (initial focus area)
to the entire plant.
2. Management Accounting and Data Collection System were reor-
ganized and Procedures were prepared to highlight the environ-
mental costs.
3. Continuous application of CPA for reduction of the environmen-
tal costs was adopted.
4. CPA was extended to the entire plant to support environmental
cost controlling information system (EMA).
5. Integration of environmental criteria in EST investments analysis
(both present and contingency costs/benefits).
The reorganization of the management accounting system was done in the
following steps:
1. Existing cost allocation methods and allocation keys were revised
to take into account environmental criteria.
2. Total environmental costs were calculated and allocated to the
appropriate cost centre and to the products.
229
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Incr
In easin
cr
g
easin Prod
Pr
u
od ctivity an
u
d Envir
ctivity an
onm
d Envir
en
onm tal P
en
erf
tal P
orm
erf
an
orm ce:
an
An Integr
An In
ated Appr
tegr
oach
ated Appr
3. The existing accounting information system was modified by the
creation of environmental accounts.
The information from the newly created environmental accounts will result
in the presence of two categories within the product cost structures: one
for `environmental cost' (end-of-pipe related costs) and another one for
`non-product output'. Table 20 shows the relative importance of non-prod-
uct output compared to environmental treatment costs (end-of-pipe) for
each product. It appears that non-product material costs are more impor-
tant for the company. However, a reduction of total environmental costs
by 50 percent will generate an average increase in profitability of approx-
imately 3 percent. For a turnover of 31,600,000 euro, the amount of sav-
ings will be 948,000 euro.
Table 20. Non-Product Output Costs Compared to Enviromental Treatment
Costs (end-of-pipe) For Each Product-SOMES
Total Production
Environmental Costs
Products
Non-Product Output
Cost
(End-of-pipe)
Value: ROL/kg
Value
%
Value
%
Natural Pulp
8,779
440
5.01
233
2.65
Bleached Pulp
15,149
658
4.34
426
2.81
Unbleached Paper
15,295
633
4.14
233
1.52
Bleached Paper
18,126
617
3.40
318
1.75
230
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Part IV Annexes
n of
r
der
nd
f
r
a
n:
in o
e
a
the
p
s
ge o
o
o
in
tificatio
c
t
a
itive o
mple
s
sed
a
ecision if
,
ted a
ms
x
d
ts
n
e
i
ch s
h
, ba
r
intu
ac
o
m
w
s
ule
l
(
f
or e
e the
proble
S
on
n at
rma
liminary iden
M
imple
fo
E
ntal imp
ostp
i
sio
c
d financial viability
f
a
ks
Pre
e
g
re
p
n be
a
o
i
n
nme
t an
e SES mod
in
fo
c
:
e
d
d.
te
k
i
r
L
l
u
/
or to
r th
ich
tence
e
d
h
fo
ding
n
ndary. D
mar
CPA be
a
w
u
initia
d th
uts
r
t
o
e
tp
e, most fundamental
, exis
s
t
a
ms
PA,
b
b
u
a
l an
CPA (inc
s
policy, enviro
l
C
o
ll
oble
uld
e
ossible Link
for
r to
ta
stem
n
Too
fore
sults of the
roject inclu
s
e
f
the
r
e
stem
ch
p
l
an
ific pr
d sy
o
as w
T
ethe
h
c
up
S
onm
the
t-
the enterpris
ude
f
Ea
d p
MS be
E
n
w
vir
e an
EMA sho
T
spe
n
on
se
of
s o
e
i
th E
cop
y
es
ea a
ess
w
nt attit
t
ep
the
dr
aft
ag
r
t
e
A): s
inar
S
of
based
. Decision
t
a
))
ly ad
r
elim
gem
a
f
the
eme
T
PA, EMS) the
S
n
ick
MS): dr
r to s
g (EM
: p
o
E
u
(
E
C
.
tin
s area
oach and P
ts
(
u
tive advant
ma
s
n
s (
d q
m
ethe
u
c
ic
al sch
te
h
o
f
o
tpu
ue
ule
u
n
nt (CPA): focus ar
w
teg
is case
of
mpeti
o
t
ra
rise an
t
Sys
i
on
t
Acc
tegy (SES)
n
s
th
n
r c
s
ssme
rp
e
in
e
cific O
e
m
m
t
her mod
e
Deci
e
ification
nd Techniq
o
majo
ell as
s.
ente
g
g
Spe
.
w
organizatio
ass
na
na
rise Stra
gie
f
the
te
tion
it an
and
terp
as
and
c
m of EMS
s
u
ary ident
ss
a
d
mm
g EMS)
tal policy.
ra
e
tion o
En
e
t
stra
tin
r
og
t
a
r co
n
ble
r
pro
eakn
al ar
e
nmentally Sou
nmental Ma
nmental Ma
ina
xisten
n
men
onmen
me
prelimin
a
rthe
T:
-e
l
e
fu
ecific p
nction
C
Enviro
to
imple
Enviro
envir
sp
Enviro
imple
ES
Susta
major w
fu
non
f
the TEST Appr
Implementation plan
t
s
u
ng
ti
ools within an Implemented Sy
is
x
oject
pr
e TEST
ols)
l of Outp
osis
r to
e
r th
v
agn
f
o
TEST
l Le
rticula
a
l
l
di
f
the
r
a
rities
e
s o
ated Scheme o
v
e aspects of the e
u
c
een the T
Gener
d its pa
ituation)
1. O
(Cor
s
2. Prio
project
(Fo
an
Review
tial
Ini
ANNEX VI -
Integr
Betw
231
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Incr
In easin
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easin Prod
Pr
u
od ctivity an
u
d Envir
ctivity an
onm
d Envir
en
onm tal P
en
erf
tal P
orm
erf
an
orm ce:
an
An Integr
An In
ated Appr
tegr
oach
ated Appr
l
t
a
.
:
n
d
a for
n
ms
i
t
h
ia for
w
eri
a
l
ite
onme
it
ea
o
ulation of
t
s
o
s
nks
al criter
flow
nal cr
r
ities
A T
ng the
st
o
of envir
i
o
ocus ar
i
o
dition
EM
ental co
t
andi
Ad
Addit
s
tion c
m
n of f
n
ing pr
tt
uc
tes to and li
A:
tification
e
viro
a
lectio
n
EMS:
en
spects
CP
nks
Under
prod
Selection and calc
e
Rel
id
a
se
for s
Li
l
eir
r
i
ty
ia for
r
ationa
rio
e
of
e
and th
tal
r p
ects
th
p
e op
:
tion
tal
MPs)
r
on
Tool
l as
th
h an
i
th
c
ool
i
r
onmen
and fo
lloca
a
v
w
men
oved
.
n
r
e
ard) o
S T
ditional criter
r
ea
d
f
Each
M
i
r
o
to
n
ad
a
sts
nmenta
v
grams (E
.
E
s
e for a
u
o
t
a
e impr
c
En
n))
nd links
i
ble
l c
l s
s
nviro
d
(
lik
t
eps o
n of all en
a
s
f
f
o
uctur
ta
n
ta
o
t e
Po
o
als can focus on
r
example
nicatio
es t
f
o
tificatio
cts
ifican
agement Pro
ned.
of the S
lat
ing.
i
r
onmen
ntified a
i
g
i
r
onmen
e
CPA:
lection
tt
EMA: Str
v
s
v
stem level
mmu
e
e
y
Iden
aspe
R
s
s
en
Sign
ide
Man
de
(EMP go
level (
en
s
co
uts
t
p
e
al
tion
f
th
a
EMP
c
for
s
nmental
ces) o
cific
eration
r allo
t
s
n
l
level
Specific Ou
ol
s
r
ce
viro
llution
o
l
a
a
u
n
a
f
spe
To
b
ol
e op
i
th:
ut fo
i
th:
o
so
al c
th
f
e
p
nt
n of po
e in
mass
tation
/
ESTA
llution
tion o
tio
(
CPA To
a
onme
d links w
ovid
ir
d links w
men
the operation
n
n
CPA
a
ntific
ntifica
n pr
alysis
a
p of po
. (Focus on
o
a
o
ea
ess
Imple
d an
es t
S: ide
A: Ide
es t
S:
cus on
rces c
fo
EM
EM
EM
i
th
Detail ma
focus ar
level).
Relat
aspects
sou
of internal env
Detaile
the proc
Relat
w
ly)
to
te
l of
at
e
f
the
h
v
dia
t
s
o
w
pu
al Le
imme
Out
il Map
ing Priorities
ta
ion
ss
e
Gener
uat
dre
3. D
Sit
4. Sett
(Decision on
ad
lan
P
232
UNIDO_87-.qxd 25.11.2003 18:06 Uhr Seite 233
Part IV Annexes
ts
l
se
n
a
t
c.)
b
e
roduc
ms to
matio
d,
menta
l
s/p
o
t
i
t
e
o
s
eate
nter
of
e
ntinuous
n
cr
A T
environ
t
c
o
s
in the EMA
EM
ental co
a co
co
lecti
e
m
ded
of EMA infor
ts to be
n
n
ation of
un
t
s to
em on
sig
em (environmental
s
viro
inclu
e
co
n
e
c
Alloc
co
-Final s
e
b
syst
-
D
syst
a
nks
Li
s
eir
e
g
r
e
n
su
the
ra
e
and th
rg
la
r
ial mea
e
tions
Tool
ing
g
a
ool
S T
f
Each
M
d man
E
easures to address
al an
t
eps o
n
of m
e EMP includ
th
tio
as end of pipe solu
era
ll
e
of the S
als of
w
Initial set
go
of op
as
uts
t
p
n
EMP
EMP
s for
cific
cific
ntified o
system
ol
ntre
d on
Specific Ou
e
f
spe
f
spe
ide
detailed
ce
To
e
the
d
i
th:
o
i
th:
o
n
.
s
l a
the
tation
f
cost
ue
tation
/
ESTA
(
can b
na
of
o
d links w
men
d links w
men
n
l
costs allocation
CP options bas
n
CPA
peratio
a result
a
finition
a
o
techniq
o
Imple
de
e
menta
Imple
tion causes
) as
es t
S:
A:
ntiv
es t
S:
th the o
alysis
EM
EM
eve
EM
Pollu
bo
levels
an
Relat
environ
Initial set of
pr
Relat
n
io
l of
e
v
ding
t
s
ent
m
pu
e
al Le
rstan
v
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5. U
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6. Impr
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lan
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233
UNIDO_87-.qxd 25.11.2003 18:06 Uhr Seite 234
Increasing Productivity and Environmental Performance: An Integrated Approach
o
in
t
ems t
i
th
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es
l
s i
w
o
y and
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red
t
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asur
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tal cost
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/EST me
o
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sensitivit
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nks
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7. Feasible
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234
UNIDO_87-.qxd 25.11.2003 18:06 Uhr Seite 235
Part IV Annexes
ents
m
l
e
o
o
em.
asur
A T
e
e EMA
EM
n syst
of th
lling m
t-up
ntro
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informatio
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nks
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d
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tifie
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es
nts:
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ro
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and th
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ibilit
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:
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m
t
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ation
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f
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a
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r
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nting
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EMS ele
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tion plan for measures to be
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e
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:
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ld be
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ntation
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ific E
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t
me
s
d
o
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r imp
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spec
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asures.
h in
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me
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hig
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l of
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ures
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s
t
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ed
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al Le
me
sures
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cision on
implemented
ment
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le
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asible
8. D
fe
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9. Mea
imp
Plan
Do
235
UNIDO_87-.qxd 25.11.2003 18:06 Uhr Seite 236
Increasing Productivity and Environmental Performance: An Integrated Approach
ts
:
of
:
ed
i
t
h
n
i
t
h
ives
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s
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ent
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rmance
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ect
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e EMA
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busine
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w
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ction
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egic obj
asures
of th
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th
the
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d
the economic
of
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strat
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n
environmental cos
a
w
S: r
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uating EMA s
to be calculated and
ie
ates to and li
em
ates to and li
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ies
EMS, CPA:
odification
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SES: Refle
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Eval
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items
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Implement require
m
syst
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nks
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f
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ria
.
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t
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vie
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ring
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e
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ement fo
luatio
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g the
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and
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lat
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ol
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ar
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s
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asur
w
enviro
i
th:
f
fe
i
th:
ain
sus
f
e
t
review
experie
r
ate
o
y:
n
n
o
CP me
n of ne
i
thin the
/
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n o
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rp
d
tion
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)
rience g
tive action
o
eme
)
c
d evaluation
d links w
c
d links w
c
pe
n
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n
ua
n
ctio
i
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e
a
a
re
fle
e
e ex
to
ng an
s
particular EMPs
manag
e
plem
S: Eval
ing sele
S: Cor
im
lementation
lementation
EM
clud
EM
SES: R
jectiv
Monitori
the
(Utilizing the TEST indicat
Relates to
Secure sustainabilit
(in
imp
Relates to
Reflect th
imp
ob
s
t
ss
f
l of
e
o
sult
rojec
v
t
s
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ct
p
ti
busine
pu
a
al Le
u
in
tain re
ach
te TEST
Out
al
ra
ach
tegies)
.
Ev
. Sus
l
pro
Gener
0
i
thin e
. . Adopt SES
t
r
a
1
project impa
11
w
too
12
(Integ
ap
s
uate
Eval
Act
236