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Evaluation of predominant environmental management practices in the Canadian pulp and paper industry Zerbe, Piotr Maciej 1996

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EVALUATION OF PREDOMINANT ENVIRONMENTAL MANAGEMENT PRACTICES IN THE CANADIAN PULP AND PAPER INDUSTRY by PIOTR MACIEJ ZERBE M . Eng., Poznarf Technical University, Poland, 1987 M . B . A . , McGi l l University, 1994 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in THE FACULTY OF GRADUATE STUDIES (Department of Resource Management and Environmental Studies) We accept this thesis as conforming to the required standard T H E UNIVERSITY OF BRITISH C O L U M B I A September 1996 ® Piotr Maciej Zerbe, 1996 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of The University of British Columbia Vancouver, Canada DE-6 (2/88) Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry ii ABSTRACT This study investigated whether formal environmental management systems (EMS) exist in the Canadian pulp and paper industry, and whether the development of EMS by companies positively affects the environmental performance of their mills. The study further examined the array of environmental strategies pursued by pulp and paper companies in Canada as well as the selection of approaches to corporate environmental management from among those in increasing use in the larger environmental management field: environmental auditing, life cycle analysis, activity-based costing, environmental benchmarking and Total Quality Environmental Management. Finally, the study examined which factors influence Canadian pulp and paper companies in undertaking action on environmental issues. Information was collected directly from a sample of 33 companies and 55 mills in four provinces, through questionnaires and follow-up interviews as well as from published reports. The results confirmed the existence of some rather well-developed EMS across the majority of firms in the Canadian pulp and paper industry. However, the level of EMS development appeared to vary significantly. In general, pulp and paper companies were found to succeed at securing appropriate people and information, but weaknesses were identified in terms of system design and follow-up action. Among the exogenous and endogenous factors studied, the most salient influences on a firm's environmental decision-making were environmental regulations and the degree of vertical integration. Other factors found to be important influences were: customer requirements, owners' requirements, directors' liability, and production technology. The Canadian pulp and paper companies seem to favour two types of environmental strategies with respect to government regulators: cooperation and collective proactivity. In general, companies reported that they tend to cooperate with regulators on environmental issues and seek to influence the government, particularly with regard to regulations, through collective action. The study showed that environmental auditing and environmental benchmarking are the most popular approaches to environmental management in this industry in Canada. Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry iii While environmental performance at most companies has improved over the three-year period studied (1993-1995), no clear correlation was found between environmental performance and EMS scores, due in part to the presence of confounding variables and the sampling methodology. Mill location, effluent treatment technology and the degree of vertical integration were found to be more important predictors of environmental performance than the level of development of EMS. Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry iv T A B L E OF CONTENTS Abstract ii Table of Contents iv List of Figures viii Acknowledgements x Acronyms xi Chapter 1 SETTING THE STAGE 1.0 Introduction 1 2.0 Objectives of the Thesis 2 3.0 Model for Analyzing Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry 3 3.1 Corporate Environmental Management 3 3.2 Environmental Practice in the Canadian Pulp and Paper Industry 9 Chapter 2 CORPORATE ENVIRONMENTAL MANAGEMENT: BACKGROUND 1.0 Introduction 15 2.0 Historical Background 15 3.0 Industry's Response to Demands for Greater Environmental Responsibility 17 3.1 The CERES Initiative 19 3.2 ISO Environmental Standards 19 3.3 The European Community Eco-Audit Program 21 3.4 ICC Business Charter's Environmental Management Principles 22 3.5 British Institute Standard BS 7750 22 3.6 Responsible Care 23 4.0 Conclusions 23 Chapter 3 CORPORATE ENVIRONMENTAL MANAGEMENT 1.0 Introduction 25 2.0 Corporate Environmental Strategies 25 Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry V 2.1 The Company's Response to the Environmental Demands of its Stakeholders 26 2.2 Major Factors Influencing a Company's Choice of Environmental Strategy 28 2.3 Choice of Environmental Strategy 32 3.0 Environmental Management Systems 34 3.1 Environmental Management Systems - Structure 34 3.2 Benefits Attributed to Environmental Management Systems 43 4.0 Selected Approaches to Environmental Management Practised by Industry Today 48 4.1 Environmental Auditing 49 4.2 Life Cycle Analysis (LCA) 55 4.3 Activity-Based Costing 60 4.4 Environmental Benchmarking 66 4.5 Total Quality Environmental Management 70 5.0 Environmental Performance 76 6.0 Conclusions 81 Chapter 4 PREMISE OF THE CASE STUDY AND OUTLINE OF ISSUES TO BE INVESTIGATED 1.0 Introduction 84 2.0 Environmental Record 84 3.0 Public Perception 85 4.0 Market Pressure 86 5.0 Pressure from the Trade Association 87 6.0 Compliance with Regulations 88 7.0 Structure of the Canadian Pulp and Paper Industry 89 8.0 Questions to Be Answered 91 Chapter 5 ENVIRONMENTAL REGULATIONS APPLIED TO THE CANADIAN PULP AND PAPER INDUSTRY 1.0 Introduction 94 2.0 Evolution of the Environmental Regulations Affecting Pulp and Paper Mills in Canada Over the last 25 Years 94 Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry vi 2.1 Evolution of Federal Effluent Regulations 95 2.2 Evolution of Provincial Regulations 97 2.3 Enforcement of Regulations 99 3.0 Present Federal and Provincial Effluent Limits 102 4.0 Environmental Effects Monitoring (EEM) 104 4.1 Objectives and Content of E E M 104 4.2 Strengths and Weaknesses of the E E M Program 105 4.3 Is the E E M Program the Right Thing to Do ? 110 5.0 Pulp and Paper Regulations in Other Countries 110 5.1 United States I l l 5.2 Australia 115 5.3 Finland 116 5.4 Sweden " 116 5.5 France 117 5.6 Developing Countries 117 6.0 Conclusions 118 Chapter 6 RESEARCH METHODOLOGY 1.0 Introduction 120 2.0 Framework for Evaluating Environmental Strategies 120 3.0 Framework for Evaluation of EMS 123 4.0 Framework for the Evaluation of Environmental Performance 131 5.0 Relationship Between Environmental Management and Exogenous and Endogenous Factors 136 6.0 General Information About the Sample 138 6.1 Companies in the Sample 139 6.2 Mills in the Sample 140 Chapter 7 RESEARCH FINDINGS 1.0 Introduction 142 2.0 Corporate Environmental Management in the Canadian Pulp and Paper Industry 142 Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry vii 2.1 Environmental Management Systems 143 2.2 Approaches to Corporate Environmental Management 157 2.3 Environmental Management Strategies Pursued in the Canadian Pulp and Paper Industry 167 3.0 Exogenous and Endogenous Factors Influencing Environmental Management in the Canadian Pulp and Paper Industry 173 3.1 Exogenous factors 174 3.2 Endogenous Factors 184 4.0 Environmental Performance 193 4.1 General Trends 193 4.2 Environmental Performance in the Companies Sampled 196 Chapter 8 CONCLUSIONS 1.0 Introduction 204 2.0 Answers to Research Questions 204 3.0 The Sample 217 4.0 Methodology 219 4.1 General Comments on Information Gathering 219 4.2 Specific Comments on the Frameworks for Analysis 219 5.0 Future Agenda 223 6.0 FinaljRemarks 224 Bibliography 225 APPENDICES Appendix 1: Pulp and Paper Companies in Canada 243 Appendix 2: Firm Questionnaire 248 Appendix 3: Mill Questionnaire 254 Appendix 4: Tests for Statistical Independence between Two Variables . . . 260 Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry V l l l LIST OF FIGURES Page Fig 1.1a: Model for Analyzing Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry 4 Fig 1.1b: Model for Analyzing Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry 5 Fig 2.1: Major Environmental Initiatives by and/or for the Industrial Sector 20 Fig 3.1: Environmental Pressures as Ranked by Canadian Industry in 1995 31 Fig 3.2: Map of Environmental Strategic Options by Source and Commitment Level 35 Fig 3.3: Canadian Standards Assocation's Environmental Management System Framework 38 Fig 3.4: Selected Approaches to EMS. Their Orientation and Key Drivers 49 Fig 3.5: Environmental Auditing: Major Steps, Activities and Objectives 52 Fig 3.6: Typical Environmental Audits in the Pulp and Paper Industry 54 Fig 3.7: Major Stages, Activities and Objectives of Life Cycle Analysis 57 Fig 3.8: Activity-based Costing: Steps, Activities and Objectives 63 Fig 3.9: Benchmarking: Steps, Activities and Objectives 68 Fig 3.10a: Total Quality Environmental Management Matrix 72 Fig 3.10b: Total Quality Environmental Management Matrix 73 Fig 3.11: Generic Environmental Performance Indicators 79 Fig 3.12: Comparison of Environmental Performance Indicators, as Chosen by Two Power Companies: Ontario Hydro and Niagara Mohawk 80 Fig 3.13: Environmental Performance Index: Categories and Parameters 82 Fig 5.1: Evolution of Federal and Provincial Pulp and Paper Effluent Regulations . . . 100 Fig 5.2: Comparison of Major Effluent Quality Limits for Bleached Kraft Pulp Mills across Canada 103 Fig 5.3: Summary of the Selected Effluent Quality Parameters Regulated in Effluent from Bleached Kraft Mills in 1996 by Jurisdiction 112 ix Fig 5.4: Comparison of Limit Values of Selected Effluent Quality Parameters in Different Jurisdictions 113 Fig 6.1: Matrix for Qualifying an Organization's Relations with Regulatory Bodies over a Period of Time 124 Fig 6.2: Model for Evaluating an Organization's Environmental Management System 126 Fig 6.3: Framework for Evaluation of Environmental Performance 134 Fig 7.1: Evaluation of EMS in the Companies Sampled 144 Fig 7.2: Evaluation of the State of T Q E M in the Companies Sampled 166 Fig 7.3: TSS and BOD Discharges by Region - 1989 and 1993 195 Fig 7.4: Results of the Evaluation of Environmental Performance by the Companies and Mills Sampled 197 Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry X ACKNOWLEDGEMENTS This thesis would not have been possible without the valuable assistance of the following: Professor William T. Stanbury, who established some very high standards of quality for this project, and provided continued guidance in helping me to meet the required goals; Professor Les M . Lavkulich and Professor Sheldon Duff, who supplied their valuable perspectives and secured much of the needed academic and material resources for this work; The Natural Sciences and Engineering Research Council, who provided valuable financial assistance through their network of Centers of Excellence in Sustainable Forestry Management. Mr. Robert Ollerenshaw, environmental consultant formerly with Dames & Moore International, who introduced me to the areas of environmental auditing and due diligence in the corporate setting; Professor Nigel Roome of York University and Manchester Business School, who helped to shape my interest in corporate environmental management; last but not least, my wife Jacqueline, who provided great editorial assistance and continued spiritual support. Predominant Environmental Management Practices in the Canadian Pulp and Paper Industry x i ACRONYMS A B C Activity-Based Costing ADt Air Dried Tonne (of pulp and paper) A O X Absorbable Organic Halogens B A T Best Available Technology B A T E A Best Available Technology Economically Achievable BMP Best Management Practice BOD Biological Oxygen Demand BS British Standard CEMAS European Community Eco-Management and Audit Scheme CERES Coalition for Environmentally Responsible Economics CGLI Council of Great Lakes Industries CICA Canadian Institute of Chartered Accountants COD Chemical Oxygen Demand COFI Council of Forest Industries CPPA Canadian Pulp and Paper Association CSA Canadian Standards Association E E M Environmental Effects Monitoring EMS Environmental Management System EPA Environmental Protection Agency EPI Environmental Performance Index GAAP Generally Accepted Accounting Principles G A T T General Agreement On Tariffs and Trade GEMI Global Environmental Management Initiative ICC International Chamber of Commerce ISO International Standards Organization L C A Life Cycle Analysis MIS Management Information System NOPP National Office of Pollution Prevention PAPRICAN - Pulp and Paper Research Institute of Canada PPER Pulp and Paper Effluent Regulations SETAC Society of Environmental Toxicology and Chemistry T Q E M Total Quality Environmental Management T Q M Total Quality Management TSS Total Suspended Solids Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 1 CHAPTER 1: SETTING THE STAGE 1.0 INTRODUCTION The concept of environmental management is becoming a common part of the broader field of business management, as industrial and other companies have begun to include the environment in their strategic planning1. While still in its formative stages in many industries, environmental management is growing rapidly, with the effect that firms are reforming their operations, products and, in some cases, their corporate culture. Whether undertaken voluntarily or, more frequently, induced by new or more stringent environmental regulations, environmental management is now practiced by many firms and industries in different countries. Commitment to this new field of management, however, varies, as its economic value is subject to question, in part because its costs and benefits are particularly difficult to measure. While much debate about the private costs and benefits of environmental management continues, industries which face strong pressure to reduce their impact on the environment are among the main proponents and practitioners of corporate environmental management. The purpose of this study is to find out whether Canada's pulp and paper industry is among these. ^or consistency and clarity, several key terms that appear in this text are identified along with definitions provided by the International Standards Organization (ISO, 1994, p.5): Environmental management: Those aspects of the overall management function of an organization (including planning) that develop, achieve, implement and maintain its environmental policy and objectives. Environmental policy: A statement by the organization of its intentions and principles in relation to its overall environmental performance, which provides a framework for action and for the setting of its environmental objectives and targets. Environmental management system (EMS): The organizational structure, responsibilities, practices, procedures, processes, and resources for implementing and maintaining environmental management. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 2 2.0 OBJECTIVES OF THE THESIS In this thesis, I intend to provide a fairly detailed picture of the state of environmental management in Canada's pulp and paper industry. I will also seek to provide suggestions for improving environmental management, both for the benefit of the pulp and paper industry and for the public at large. The major objectives of this thesis are as follows: • to examine the current state of corporate environmental practice in the Canadian pulp and paper industry, and to identify opportunities for future improvement in the management of environmental problems; • to review the various approaches to environmental management, with emphasis on their practical application and impact in the industrial context; and • to identify and understand observed variations and/or similarities between different pulp and paper companies in Canada in their use of environmental management systems. A series of questions were posed in the investigation. These questions led to a series of expectations, based on the review of relevant literature and tested directly by the research. 1. Do corporate environmental management systems exist within the Canadian pulp and paper industry? What differences are there among environmental management systems across companies? Are any major, well-recognized approaches to environmental management pursued within the Canadian pulp and paper industry? 2. Which environmental strategies predominate in the Canadian pulp and paper industry? Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 3 3. Which factors influence pulp and paper companies to develop and enhance their environmental management systems? Given the expectation that companies will vary in their commitment to environmental action, even within the same government jurisdiction, what salient exogenous and endogenous factors explain differences in environmental management among Canada's pulp and paper companies? 4. What is the state of environmental performance in different pulp and paper companies? How does this performance correspond with the state of EMS? 3.0 MODEL FOR ANALYZING PREDOMINANT ENVIRONMENTAL MANAGEMENT PRACTICES IN THE CANADIAN PULP AND PAPER INDUSTRY A model which was used to analyze the predominant environmental management practices in the Canadian pulp and paper industry is outlined in Figure 1.1a and Figure 1.1 b. The model seeks to explain the origin and scope of corporate environmental management, and applies it to the case of the Canadian pulp and paper industry. Two major parts of the model are presented below: the area of corporate environmental management, and then corporate environmental management in the Canadian pulp and paper industry. 3.1 Corporate Environmental Management Historical Background The model begins by examining the historical circumstances which appear to have led to the emergence of corporate environmental management (see Figure 1.1a). Prior to these historical events, environmental programs occupied the fringe of companies' operations and were regarded as peripheral to core business activity (Petrini, 1994). The sequence of events which seem to have had the greatest influence on the development of corporate environmental management as a strategic business activity include Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 4 •J3 S en K <D o c (0 (B O CZ practi rfo practi CD o practi CL indi c .2 © <D CD E o 4— o ran 1 Envi > > CD Envi Of Of I 2 CD u_ Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry If! u tc a § OA a 1 S E in .3 g. 3 S c 2 S1 » 5 c 3 i « I 5 " c c 8 15 P J2 i2 - i 3 cr co 2 "E i i o p •o 2 CD 3 CL CO E c*-I i f 8 _ co c >-m CO LU eg co 2 1 6 | i c Ui c C ~ <D I • 13 o- >. 5 O L ' CD g 0- to c CD a. c co r T ~ 2 - £ CO E c p o CO I. = a L U c CO E 0) O) CO c CO OJ c CO O) imar men stin j= o c roni o $ •> o CO c XJ ro LU co >, CA CO c CO ualit ffl E ualit >. nviron O ctivi nviron otal < LU t-CO * ; • = s o I & i_ P CTJ S i J Ul c CO a c co E co D) co c CO E 8f ° S S f | o . ta CO co > o o c CO 11 °- "P. E 2 L U a. ad c > 2 a TJ e co e CO £ s L U a 52 u_ Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 6 the following: • major industrial disasters causing serious environmental damage, particularly Bophal and Exxon Valdez, recorded in the 1980s (although these catastrophes were perpetrated by specific companies, they had the effect of increasing public awareness of the issue of environmental safety of industrial operations in general), • progressive depletion of natural resources and deforestation, for which industrial enterprises were often assigned collective blame, • resulting increase in environmental awareness and public demand for industry accountability, and • government's response to public calls for more restrictive measures to prevent pollution and improve the state of the environment. Many researchers argue that government actions have been the greatest impetus for companies to develop their own environmental programs (Henriques and Sadorsky, 1995; McCloskey and Maddock, 1994; Weinraub et al., 1995). The influence of government regulations on corporate environmental management is discussed in Chapter 3. Environmental Initiatives by Industry. While McCloskey and Maddock (1994) argue that companies adopt environmental programs only to remain in compliance with regulations, a number of voluntary pro-environmental initiatives did emerge in response to the sequence of events discussed above. Because of the role which these initiatives have played in the evolution of corporate environmental management (a subject discussed in Chapter 2), they are also included in the model. While a variety of environmental initiatives appeared, this study examines the following six, because they received the greatest public attention and industry support: • the Coalition for Environmentally Responsible Economics (CERES), • the International Chamber of Commerce's Charter of Environmental Management, the international series of environmental management standards ISO 14000, • British environmental management standard BS 7750, Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 7 • Responsible Care, and • Eco-Audit. Popular demand for environmental accountability and such concrete environmental initiatives as these are deemed in the model to have resulted in the emergence of the field of corporate environmental management. Within this larger field, I identify four key dimensions: the choice of environmental strategy, the approach to environmental management which is adopted, the structure of environmental management systems put in place within the organization, and environmental performance. Environmental Strategies. Corporate environmental management encompasses the domain of environmental strategy, through which a company defines its commitment to the environment and the general course of action it wishes to pursue. A discussion of strategic options available for industries is presented in Chapter 3. While there exists a plethora of potential strategies, a few researchers have narrowed the field down to a few general categories. One of the best classifications of potential corporate environmental strategies is provided by Roome (1992). His five categories are: • non-compliance strategy, • compliance strategy, • compliance plus strategy, • commercial and environmental excellence strategy, and • leading-edge strategy. The relationship between corporate environmental management and environmental strategy is a two-way one. It is the company which, in the process of corporate environmental management, determines its environmental strategy; on the other hand, an organization's choice of strategy is usually reflected in the nature and degree of development of its environmental management. In other words, corporate environmental management can be viewed as a consequence of the choice of environmental strategy. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 8 Approaches to Corporate Environmental Management. Another aspect having a two-way relationship with corporate environmental management is the specific approach or approaches which the company adopts. A number of these have emerged, differing in terms of their orientation (legal, scientific, financial, etc.). I selected five of these approaches for consideration in this study: • environmental auditing, • life cycle analysis, • activity-based costing, • environmental benchmarking, and • Total Quality Environmental Management. The definition, content and existing practice of each of these approaches is reviewed in Chapter 3. While companies may vary in terms of the approaches taken, each of these approaches represents an important aspect of corporate environmental management, reflecting differences in perspective and different environmental priorities (for instance, impact on the environment as opposed to economic burdens). On the other hand, the approach adopted also determines the nature and orientation of corporate environmental management itself, for example, whether it is regulation-, efficiency- or cost-driven. Environmental Management Systems. Corporate environmental management functions through a number of specific procedures. As the number of procedures has grown, companies have sought to organize them into formal environmental management systems (EMS). As described in Chapter 3, companies who have established formal EMS have been concerned with the following: • compliance with regulations, liability avoidance, • public image, • competitive advantage, and Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 9 • productivity improvement. Because the concept and structure of EMS are the focus of much of this thesis, I will not develop these in detail here. Environmental Performance. Another important aspect of corporate environmental management is environmental performance. Just as sound financial management is the goal of business management generally, the major purpose of corporate environmental management is to improve environmental performance. While there exist objective means for appraising financial performance (such as the generally accepted accounting principles or GAAP), there exist no generally recognized principles for measuring environmental performance, aside from determining whether a company remains in compliance with all legislated environmental limits (European Green Table, 1993). Bearing this in mind, I make an effort to address the problem of measuring environmental performance in a systematic fashion. In Chapter 3,1 examine: (1) key environmental performance indicators, and (2) existing practice in measuring environmental performance. 3.2 Environmental Practice in the Canadian Pulp and Paper Industry The study moves from the general concept and practice of corporate environmental management to more detailed analysis of the case of the Canadian pulp and paper industry (see Figure 1.1b). Through the use of this part of the model, I make an effort to determine (1) the state of corporate environmental management in the Canadian pulp and paper industry, and (2) how this state has been conditioned by a set of givens for the industry, derived from its history and structure, as well as the exogenous and endogenous factors which individual pulp and paper companies face. Background Information. To better understand the nature of this industry and appreciate its Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 10 role in the Canadian society and economy, the following aspects of the Canadian pulp and paper industry are investigated: • economic role, • environmental record, • public perception, • market pressures, • pressure from the trade association, and • compliance with regulations. I include this background information in the model to show how the concept of corporate environmental management is relevant to and needed by this particular industry. This argument, which represents the premise for choosing the Canadian pulp and paper industry for my case study, is developed in detail in Chapter 4. Regulatory Framework In recognition of the arguments presented by many authors (Henriques and Sadorsky, 1995; McCloskey and Maddock, 1994; Weinraub et al., 1995) that regulations are indeed the primary driving force behind environmental action by industry, the model features an examination of the regulatory framework applicable to the Canadian pulp and paper industry. Understanding regulatory requirements and the dynamics of regulatory change is essential for pulp and paper companies to adequately design and execute their corporate environmental management. Hence, in Chapter 5, the study reviews the following: • the evolution of federal and provincial pulp and paper environmental regulations in Canada, • present federal and provincial effluent quality limits, • the idea and ramifications of environmental effects monitoring, and • makes a comparison of the requirements for Canadian pulp and paper companies and those in other countries. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 11 Exogenous and Endogenous Factors of Influence. While the background information and the regulatory framework apply to the Canadian pulp and paper industry on the whole, individual companies can be expected to differ, in terms of the development of corporate environmental management. At the level of the individual firm, there are a number of factors, both exogenous and endogenous, that can influence their environmental actions. Exogenous factors are those factors which are considered largely beyond companies' control in the short run. The ones considered in this study are: public pressure, • government regulations, • environmental groups, pressure from trade associations, • pressure from customers, pressure from creditors, and facility location. Endogenous factors are within the power of companies to change over time, although in the very short run, most of these are taken as givens (Stanbury, 1993a). For the Canadian pulp and paper companies sampled, the factors identified include: • size of the company, • degree of vertical integration2, • owners' requirements, • liability of directors and managers, • pressure from employees, and • production technology. 2 Vertical integration, in this context, refers to the number of steps, in the sequence of transforming raw materials into finished goods, in which the company in question directly participates . For instance, in the case of the pulp and paper industry, a highly vertically-integrated company would be one which has woodland operations, sawing, and pulp and paper manufacturing. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 12 The reason for looking at these specific factors is discussed in Chapter 3. The influence they were found to have on corporate environmental management in the Canadian pulp and paper companies sampled is reviewed in Chapter 7. The evaluation of the influence of these factors was made on the basis of: (a) responses to questionnaires sent directly to the companies and (b) where possible, tests of statistical independence between the presence/importance of individual factors and companies' EMS scores. After addressing the circumstances taken as givens for the Canadian pulp and paper industry, the model profiles each of the four generic aspects of corporate environmental management. The remainder of this study is devoted to understanding what the major components of environmental management, i.e., environmental strategies, environmental management systems, approaches to corporate environmental management and environmental performance -are like in the Canadian pulp and paper industry. Review of Strategies Designed to Influence Regulators. The study focuses on six selected strategies which may be pursued by companies in the attempt to influence the actions of government relating to the environment. In Chapter 6,1 specify these strategies and propose a framework for their identification in the company context. In Chapter 7,1 report which strategies are pursued and how often, as well as provide concrete examples illustrating these strategies. The six strategies investigated are: • cooperative strategy, • antagonistic strategy, • individually proactive strategy, • collectively proactive strategy, • competitively opportunistic strategy, and • rent-seeking strategy. State of Environmental Management Systems. As mentioned earlier, central to corporate environmental management are specific procedures, often organized into a formal Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 13 environmental management system (EMS). In order to evaluate EMS as currently existing in the companies sampled, I use a framework to qualify and quantify individual EMS components. The framework is featured in Chapter 6 and the results of the evaluation are included in Chapter 7. Following are the EMS components that were analyzed in detail: • establishment of EMS, • environmental policy, • organization and personnel, • environmental risk management, • environmental targets and objectives, • environmental management information systems, • environmental monitoring and reporting, and • review of EMS. Approaches to Corporate Environmental Management. As shown in Figure 1.1a and Figure 1.1b, another important aspect of corporate environmental management examined in this study is the specific approach to environmental management which a company chooses. The approach selected is a reflection of the company's orientation regarding environmental issues. Conversely, the approach adopted can influence the nature and prioritization given to various aspects environmental management itself (for example, whether the focus is on regulations, efficiency, costs, or other drivers). I determine the presence and degree of development of selected approaches in the Canadian pulp and paper industry by comparing the information received from the companies themselves with the major characteristics of the approaches, which are described in Chapter 3. Chapter 7 contains the major findings regarding each of the approaches selected. State of Environmental Performance. As stated above, there exist no generally recognized principles for measuring environmental performance, aside from determining whether a company remains in compliance with all legislated environmental limits. For that reason, to evaluate the environmental performance of the companies sampled, I designed a framework Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 14 that examines BOD and TSS discharges during the period 1993-1995 and addresses some key criteria for judging environmental performance: • meeting provincial effluent quality limits, • lowering concentrations of emitted pollutants over time, and • managing fluctuations in pollutant concentration management. The choice of BOD and TSS is justified along with the description of the framework in Chapter 6. The results of the environmental performance evaluations are contained in Chapter 7. Evaluating environmental performance is not a mere exercise here; the major purpose is to investigate whether there is a correlation between environmental performance and the state of development of EMS in the Canadian pulp and paper industry. This issue is discussed in Chapters 7 and 8. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 15 CHAPTER 2: CORPORATE ENVIRONMENTAL MANAGEMENT: BACKGROUND 1.0 INTRODUCTION The purpose of Part I is to "set the stage" for the study of environmental management practices in the Canadian pulp and paper industry. Chapter 2 provides necessary background information on what has been done in the area of corporate environmental management so far in Canada and worldwide. Section 2.0 describes the historical background of changes leading to greater awareness of the issue of industry's impact on the environment. Section 3.0 discusses industry's response to public pressure for change. 2.0 HISTORICAL BACKGROUND Industrial firms, in their pursuit of profitability and growth, used to pay minor attention to the long-term costs of damage to the environment, or what economists call negative externalities. In the 1960s and early 1970s, most firms tended to respond to environmental issues as they arose: fighting a lawsuit, responding to an alleged violation, and, at best, replacing faulty equipment that was causing environmental damage. As the first wave of environmentalism swept through many of the developed countries in the early 1970s, it was followed by an increase in the quantity and complexity of environmental regulations. As a result, some .companies began to make efforts to ensure that their operations remained in compliance with these regulations (Howatson, 1991). A dramatic change came, however, in the 1980s, resulting from public outrage after two major environmental disasters caused by the negligence and/or incompetence demonstrated by the industrial sector: Bophal and Exxon Valdez3. Cahill and Kane (1994) contend that these 3 In December 1994, Union Carbide's methyl isocyanate release was the direct cause for numerous deaths and chronic injuries of residents of Bophal, India. The oil tanker Exxon Valdez was responsible for the leakage of 11 million gallons of crude oil into Alaska's Prince William Sound in 1989 resulting in the widespread destruction of marine and bird life in the areas surrounding the spill (Stanko and Zeller, 1995). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 16 accidents, as well as global phenomena such as chronic deforestation and the depletion of the ozone layer, provoked massive public concern for the environment and consequent demands for accountability and responsible environmental conduct by the industrial sector. Howatson (1991, p.2) states that "[a] whole generation of young adults, raised with awareness of environmental matters, has begun to expect that the corporations for whom they work and from whom they purchase will take seriously their responsibilities to minimize the adverse environmental impacts of their operations." In Canada, public interest in the environment is strong and has grown over years. Levy (1992) reports that in 1986 only 17 percent of Canada's residents viewed the environment as a "top of mind" issue. By 1989, 75 percent of Canadians declared they were concerned about the environment. This number corresponds with those cited by Pasquero (1990), who says that over 80 percent of the Canadian population claims to make environmental protection a personal priority and there is a strong willingness to pay higher taxes to support environmental protection. This changing societal context is typified by the quote attributed to an anonymous Canadian politician, who noted that "ten years ago we didn't hear about the environment; now it is all around us" (Homenuck, 1994, p. 11). Pasquero (1990, p.86) reports another official's observation that "more Ontarians use blue boxes to separate wastes and recycle garbage than voted in the last provincial election", interpreting this as an encouraging sign. These facts and opinions are in striking contrast with the quite sarcastic comment made by the senior technical editor of Pulp and Paper, A. Harrison (1993, p.9), who wrote: "Let's face it, John Q. Public is going to be more interested in where Elvis was last seen than how much post-consumer recycled content is in today's newspaper". Leaving unanswered any speculation as to the truth of this statement, it must be recognized that the pro-environmental concern attributed to the general public was nonetheless echoed by the messages sent by the government through its own initiatives. In 1990, the government of Canada came up with its Green Plan, featuring details on a wide Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 17 range of policies, programs and regulations, after a series of extensive, cross-country consultations with citizens and stakeholder groups. Among its over 100 initiatives, there are those directly targeted at industry. The Plan announced new regulations to eliminate certain industrial toxic wastes, new initiatives to promote industry's commitment to codes of practice, improve energy efficiency, and prevent spills. In 1985, federal Environment Minister Thomas McMillan urged industry representatives to recognize that a healthy environment is one of the major keys to a prosperous economy. Underlining that Canadian industries would suffer if they continued to treat the economy and the environment as two solitudes, he added that "we need clean air, pure water and healthy soil in order to make living for ourselves. It's that simple. A violated environment restricts economic opportunity" (McLaren, 1985, p. A3). 3.0 INDUSTRY'S RESPONSE TO DEMANDS FOR GREATER ENVIRONMENTAL RESPONSIBILITY The industrial sector in Canada and other developed countries did not remain deaf to the environmental concerns of the public, which became embodied in new environmental regulations. Cohan and Gess (1994/95) observe that environmental management in the industrial sector has changed dramatically over the last 20 years, from a purely reactive, regulatory driven activity that focused on permitting and compliance, to a more proactive management responsibility. They make the claim that at most large companies, environmental management has moved beyond compliance with the regulations. Arguably, this is an overstatement, since there is no factual evidence of a massive and uniform shift across countries and industries. In fact, McCloskey and Maddock (1994) point out that by 1994, few organizations had achieved a truly "green" corporate strategy4. The authors attribute it to the lack of a systematic approach to monitoring and measuring the environmental threats caused by their operations. Underwood (1993) supports this opinion, quoting the outcome of the 1992 EPA survey of American companies; the survey revealed that the great majority of McCloskey and Maddock (1994) imply that a truly "green" corporate strategy is one through which, for a company, environmentalism becomes one of the top management concerns and a competitive issue in the market for their product(s). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 18 companies sampled had not established programs that would make aggressive pollution prevention possible. This rather pessimistic picture of the U.S. industry finds, to a degree, its reflection in Canada. Canadian corporations and institutions, in aggregate, do not measure up to public expectations in taking care of the environment. This conclusion was derived from two major studies in Canada. One of them, which was commissioned by Ernst & Young in 1993, surveyed 187 firms and found that Canadian companies study their environmental practices more but do less than European ones (Israelson, 1994). In the other survey, based on 1,754 Canadian organizations in 1994, K P M G Environmental Consultants concluded that although many organizations believe that they have an effective system in place to deal with environmental issues, "in reality these systems are not sufficiently developed to ensure that organizations take advantage of all opportunities" to adequately respond to environmental problems (KPMG, 1994, p. 1). Despite such evidence of corporate inertia regarding environmental issues, one can observe the emergence of more proactive phenomena in the corporate attitude toward the environment, as demonstrated by companies around the world. Examples include, among others, efforts to lower and/or eliminate environmental risk, to measure waste generation and pollution emission, as well as to identify and implement pollution prevention efforts. Initially chaotic and isolated, industry efforts toward environmental improvement have resulted in a variety of environmental initiatives. While these initiatives share a common purpose, leading to improvement in the interaction between industry and the environment, the initiatives vary in terms of (1) who initiated them, and (2) where they are being used. Due to the sizable number of different initiatives worldwide, it would be beyond the scope of this work to list them all in any detail. However, it is possible to review the principal, well-known initiatives, which Cahill and Kane (1994, p. 411) say "will likely shape the future of corporate environmental expectations". Namely, they are: (1) the CERES initiative, (2) the International Chamber of Commerce's Charter of Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 19 Environmental Principles, (3) the International Standards Organization's environmental standards (currently under development), (4) British Standard BS 7750, (5) Responsible Care and (6) the European Community Eco-Audit Program. These initiatives are worth special attention for several reasons. First, they are well-known within the industrial community and their names are part of the lexicon for industrial environmental management. Second, so far they enjoy the broadest support in terms of the number of companies which have responded to them. Third, many local and sectoral initiatives were modelled after them. Figure 2.1 presents the breakdown of these initiatives, showing their initiators, year of inception, geographic scope and some of the elements which they include. The elements common to many of these initiatives are: EMS, Product Environmental Management, Community Stewardship, Ecosystem Protection, Environmental Research & Development, Sustainable Use of Renewable Resources, and Monitoring and Disclosure. 3.1 The CERES Initiative CERES (Coalition for Environmentally Responsible Economics) is a non-profit membership organization that comprises, among others, major environmental groups, labour organizations, public pensions and other interest groups. It represents over 10 million people and more than $150 billion in invested assets (Cahill and Kane, 1994). Hence, it is able to exercise considerable influence through its investment choices. CERES was established after the Exxon Valdez incident in March 1989; this explains why originally its principles were known as the Valdez principles. CERES requires that companies who endorse these principles pledge to go voluntarily beyond the requirements of the law in the area of environmental protection. 3.2 ISO Environmental Standards The Geneva-based International Standards Organization is known for its long history of developing quality standards. Arguably, its best known series of standards is the ISO 9000 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 20 © W .Is I K s a hH a u •a a es % > M C3 C g fl o '£ fl w p "c? s-fl WD w 3 u u 03 .9 £ 3 A ? a. I 1 2 o 6b 8 O Vi O I > •s •a o 1 8 s 2 ^ o .g •a •I u CM o Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 21 series, certification under which has become an important stepping-stone to commercial success for a large number of companies. Anderson (1995) states that by 1995, 45,000 companies worldwide had achieved ISO 9000 certification. Presently, the organization is preparing a new series of international environmental management standards, collectively known as ISO 14000. The major purpose of the series is to promote a common approach to environmental management similar to what was done for quality management through the ISO 9000 series. Moreover, the series is intended to enable the organization to enhance its ability to attain and measure improvements in environmental performance. Fulfilment of the requirements specified in the series will be a prerequisite for ISO 14000 certification. The beneficial consequences of such certification for companies are potentially numerous (Zerbe, 1995). Hence, some authors (Kirschner, 1995; Ouellette, 1995) predict that the quest for ISO 14000 certification and, subsequently, the impact on the way business is done, will be even more significant than was the case with ISO 9000. 3.3 The European Community Eco-Audit Program The European Community Eco-Management and Audit Scheme (CEMAS) appeared in mid-1993. CEMAS is designed to promote continuous improvement in the environmental performance of industrial organizations. CEMAS features its own rules and limits which go beyond official regulations, strictly concerning issues of corporate environmental management. Participation in CEMAS is voluntary. It is important to notice that CEMAS affects only European Community members and, as such, does not apply to any Canadian or other North American entity5. 5 Official Journal of the European Communities, No. L 168/1, July 10, 1993. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 22 3.4 ICC Business Charter's Environmental Management Principles The International Chamber of Commerce Business Charter features 16 environmental principles to guide companies in building forward-thinking environmental management programs. In its December 1992 issue, Environment Today reported that within one year of the charter's inception in 1991, over 1,000 companies, including large multinational firms, had signed on to the principles. According to ICC's own publication, the number of industrial signatories was expected to rise to 4,000 by 1995 (Santaholma, 1993). There is at least one distinctive feature of the Charter as compared to the other initiatives listed here. According to ICC's own sources, the Charter is "not a precise program but a framework", and it is "not absolute standards, but a process of continuous improvement" (Bright, 1994, p. 2). 3.5 British Institute Standard BS 7750 This is one of a number of national environmental management standards for industry presently followed worldwide. The importance of this particular national standard can be distinguished for the following reasons: (1) it was the first published national standard dealing with a complete approach to environmental management (Welford, 1992), (2) it is considered very demanding (Roberts, 1995), and (3) it has been a model for other national standards (including Canada's CSA 2750: Guideline for a Voluntary Environmental Management Systems). The standard "is designed to enable any organization to establish an effective management system, as a foundation for both sound environmental performance and participation in "environmental auditing schemes" (BSI, 1992, p.2). ''Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 23 3.6 Responsible Care Responsible Care, promoted and practised by the chemical industry, is an example of a single industry initiative toward improved environmental conduct. The initiative features a series of codes of practice, corresponding with the components identified in Figure 2.1, adoption of which is a requirement for membership in the trade association. Each of the codes prescribes the management system that should be exercised in a company in order to meet the objectives of a sound environmental protection program. Over the past few years, Responsible Care was often praised for its achievements, but it also earned criticism for inconsistency. Cahill and Kane (1994, p.415) explain: The Responsible Care Program is a good indicator of how and why expectations can become fragmented and confusing. Its concept was initially developed by the Canadian Chemical Producers Association and modified by the [American] Chemical Manufacturers Association for the use in the United States(...) While the U.S. and Canadian codes are similar, they are not identical. Variations have typically occurred in standard-setting programs because of either the variation of geo-politics of the individual country or because, frankly, most organizations wish to place their own particular signature on developing trends. 4.0 CONCLUSIONS This brief inventory of some of the better-known environmental initiatives by and for industry suggests that changes have taken place in terms of industry's responsiveness to environmental issues. It is reasonable to suppose that these initiatives would have been less likely to have occurred in the absence of public and government pressure. Yet, they set up expectations for corporations' environmental responsibilities, and represent a valuable forum for a type of "peer pressure" to exert its influence. Observers may disagree over the likely trend in public interest and concern about the environment, but these and other industry initiatives help to induce companies, regardless of their industry and the magnitude of their burden on the environment, to think seriously about developing their own corporate environmental management, four Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 24 major dimensions of which are discussed in the following chapter: environmental strategy, environmental management systems, approaches which may be adopted, and environmental performance. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 25 CHAPTER 3: CORPORATE ENVIRONMENTAL MANAGEMENT 1.0 INTRODUCTION Part of Chapter 2 was devoted to presenting some collective industry responses to increasing demands from different stakeholders for sound environmental practice. A review was made of some industry-wide initiatives or regional, national and international guidelines and standards for business. At no point, though, was a description offered for what specifically individual companies have done or could do to respond to demands for greater environmental responsibility. The objective of Chapter 3 is to discuss viable options open to companies wishing to respond to the environmental demands of regulators, customers, interest groups and other stakeholders. An effort is made to provide legitimate answers to the question of what companies can do, and have done, to improve their standing on environmental issues. The chapter is organized as follows: section 2.0 offers a review of the environmental strategies observed in industry to date, frameworks of available strategic choices as suggested by several analysts, as well as the major factors that have been implicated in these choices. Section 3.0 focuses on the structure and content of environmental management systems, and presents some of the benefits which have been attributed to the application of EMS. Section 4.0 is devoted to the review of some of the major tested and practised approaches to environmental management in the corporate setting. Section 5.0 discusses the issue of environmental performance. Finally, section 6.0 provides a brief recap of the chapter. 2.0 CORPORATE ENVIRONMENTAL STRATEGIES Section 2.0 begins by presenting some contrasting viewpoints on how individual companies may and/or ought to handle environmental issues, then specifies some of the factors which may influence individual companies' environmental choices. A review is made of various environmental strategies suggested by authors writing about environmental management. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 26 2.1 The Company's Response to the Environmental Demands of its Stakeholders There have been at least two viewpoints in the literature on business' relationship with the natural environment; these are win-win and win-lose. Win-win proclaims that making .environmental improvements is often the best way to increase a company's efficiency and, consequently, profitability. Indeed, recent years have been marked by a number of projects which successfully accomplished both: they provided environmental benefits and created financial returns. Section 4.0 on environmental management approaches provides more detailed information on several examples of such projects, completed by companies who adopted one of the five approaches to environmental management reviewed in this work. The success of such endeavours contributed to the creation of a new school of thought, according to which the environment and the economy need not be in a state of conflict. Porter (1991) has supported the argument that the perceived conflict between economic competitiveness and protection of the natural environment is a false dichotomy. Porter particularly favours environmental regulations, stating that: Strict environmental regulations do not inevitably hinder competitive advantage against foreign rivals; indeed, they often enhance it ... Properly constructed regulatory standards,which aim at outcomes and not methods, wil l encourage companies to re-engineer their technology. The result in many cases is a process that not only pollutes less but lowers costs or improves quality (Porter, 1991, p. 168). Another prominent example of the support for the notion of a successful merger between environmental benefits and economic accomplishments is derived from U.S. Vice President A. Gore's book, Earth in the Balance. In his forward to the book, Gore (1993, p. 4) paints the following picture for his fellow Americans: "we can prosper by leading the environmental revolution and producing for the world marketplace the new products and technologies that foster economic progress without environmental destruction". The theory of profitable corporate environmental awareness frequently has found its reflection in practice. After having studied a number of industries with regard to their environmental Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 27 practice and economic performance in their recent book, Corporate Environmental Practices, Climbing The Learning Curve, Richards and Frosch (1994, p.215) seem to endorse Gore's and Porter's views to a degree. They state that: ... improvements in environmental quality often produce cost savings and increase efficiency, and large companies can use their leverage over suppliers to influence markets and reap environmental benefits, for example, by requiring a minimum recycled content in corrugated packaging. Lessons which are, of course, not particularly new, as they are proven, good management strategies to achieve familiar goals, such as quality; here, however, they are seen in a new light, [emphasis added] In contrast to this perspective is the second view on the same issue, win-lose. Despite successful cases of economic gain through environmental improvements - which should be acknowledged and applauded - some advise caution in forecasting such results from environmental initiatives. For instance, J. Hirschorn reports in The Greening of American Business, that "while many people embrace the notion of turning environmental issues into profits, doing so over the long-term is terribly difficult"(quoted in Parker, 1993, p. 32). This message is amplified considerably by such authors as Walley and Whitehead (1994, p.46), who profoundly disagree with both Gore and Porter, calling their ideas "unrealistic", and the win-win rhetoric "dangerous". Walley and Whitehead stress that "environmental costs at most companies are skyrocketing, with little economic payback in sight". They support this statement with a few examples. They say that, for instance, in May 1994, Texaco faced having to invest $1.5 billion per year, over a five year period, on environmental compliance and emission reductions. The total investment of over $7.0 billion was three times the book value of the company and twice its asset base. Another example offered by Walley and Whitehead (1994) shows that the Clean Air Act was expected to cost U.S. petroleum refiners $37 billion, which was over $6 billion more than the book value of the entire industry. In further defense of the win-lose theory of corporate environmental management, Walley and Whitehead cite a 1991 McKinsey survey of several hundred executives worldwide, The Corporate Response to the Environmental Challenge, according to which top managers expect environmental expenditures to double as a percentage of sales over the next decade. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 28 As compelling as these cases may appear, one cannot conclude that the win-lose side is closer to the truth than the win-win. However, it is worth noting that if environmental benefits invariably came hand in hand with economic gains, then the free market mechanism would probably have pushed companies to invest in environmental protection a long time ago. Walley and Whitehead (1994) suggest a form of accommodation in the form of tradeoffs. The objective of tradeoffs is to minimize the decrease in shareholder value that is likely to result from massive environmental costs, rather than to attempt to create value through environmental improvements. While this may appear to be an extension of the win-lose hypothesis, it does promote a greater propensity to act. As Walley and Whitehead (1994, p.47) state, [J]ust because environmental managers should not continue to search exclusively for win-win solutions does not mean that they should return to their old ways of fighting, ignoring, and hamstringing any and all environmental regulatory efforts. On the contrary, being conscious of shareholder value while protecting the environment requires, among other things, a deep understanding of the environmental and strategic consequences of business decisions, collaboration with environmental groups and regulators, involvement in shaping regulation (and even avoiding the need for it), and a sincere commitment to cleaning up and preventing pollution. The challenge for managers today is knowing how to pick the shots that will have the greatest impact. To achieve truly sustainable environmental solutions, managers must concentrate on finding smarter and finer tradeoffs between business and environmental concerns, acknowledging that, in almost all cases, it is impossible to get something for nothing. 2.2 Major Factors Influencing a Company's Choice of Environmental Strategy If the tradeoff approach were a paradigm for the whole economy, it would be at an individual company's discretion to decide whether to commit to environmental protection, and if so, to what degree. Henriques and Sadorsky (1995, p.6) present the economic argument that rational companies considering environmental action "examine the gross benefits and costs of an activity and Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 29 undertake it if, and only if, it is the best possible choice given its net positive benefits." They continue that: ...a firm deciding to implement an environmental plan must consider such benefits (both monetary and non-monetary), the acquisition and/or maintenance of market share, potential efficiency gains and an increased positive reputation. The costs include the costs of implementing the environmental plan, regulatory compliance costs as well as the associated opportunity costs which are defined as the benefits that would have been earned if the firm had chosen to invest in the next best activity (Henriques and Sadorsky, 1995, p.6). There are both endogenous and exogenous factors influencing the company's decision about its commitment to environmental protection. For example, environmental regulation is a largely exogenous factor because it is outside the control of individual companies in the short term. Another factor, such as production technology, which might influence a firm's environmental decisions, would be an endogenous factor because it may from company to company within the same industry, depending on these companies' own decisions. Below, the list of exogenous and endogenous factors considered in the present study is provided. Exogenous Factors Influencing Environmental Management These include: • the set of legislation in force and pending in the area(s) in which the company operates, • environmental interest groups, • public pressure in the area(s) in which the company operates6, • pressure from customers, • pressure from creditors, • pressure from the company's trade association, and location of the company's operations. In this study, public pressure is deemed to include pressure from residents in local communities adjacent to, or affected by, the company's operations, as well as other members of the public not specifically affiliated with environmental groups. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 30 Endogenous Factors Influencing Environmental Management These include: size of the company, degree of vertical integration, type and requirements of the company ownership, • directors' and officers' liability, • pressure from employees, and • type of technology in use. Henriques and Sadorsky (1995) made an effort to list some of these factors on the basis of a study of Canada's 400 largest companies (as measured by 1990 sales). Figure 3.1 below presents the findings. Henriques and Sadorsky report that the greatest individual inducement to undertaking environmental actions was government regulations, and when companies were asked to specify the most important factor, government regulations (46 per cent) and customers (17 per cent) were most often cited. That government regulations are the greatest individual factor influencing the company's decisions for environmental action is hardly surprising. Homenuck (1994) states that for most companies, dealing with environmental issues has meant taking the steps necessary to ensure that they are in compliance with regulations. McCloskey and Maddock (1994) add that many companies adopt environmentally sound policies only to comply with regulations. In appreciating the importance of environmental regulations, an additional fact to consider is the introduction of directors' and manager's personal liability for environmental violations. Greeno (1993) observes that regulatory amendments and court decisions have broadened executives' liabilities for environmental violations in civil and criminal cases. This effectively ended the era of "safe harbour doctrine", which used to protect directors and managers who were not fully informed of the company's environmental management shortcomings. Greeno argues that this new regulatory development has led many companies to take a stronger interest in how the environment is treated by them. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 31 Figure 3.1: Environmental Pressures as Ranked by the 400 Largest Canadian Companies in 1995 Mean score on scale of 1 (not at all important) to 7 (very important). PRESSURE SOURCE MEAN STANDARD ERROR Government Regulations 6.03 0.06 Cost of Controls 4.74 0.08 Employees 4.71 0.08 Efficiency Gains 4.71 0.09 Customers 4.69 0.1 Neighbourhood/ Community 4.67 0.09 Shareholders 4.46 0.1 Environmental Organizations 3.95 0.09 Suppliers 3.35 0.09 Other Lobby Groups 3.25 0.09 Source: Henriques and Sadorsky (1995) F IG3 1.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 32 2.3 Choice of Environmental Strategy In all its decisions regarding the natural environment, an organization will tend to demonstrate an explicit or implicit strategy which guides its action. Given that more than one factor bears on a company's decisions with regard to the environment, a company must decide where to place environmental protection on its list of priorities. The position relative to other management priorities, such as sales growth and cost containment, is likely to determine the actual environmental strategy the company will chose. Beharrell (1991) states that any environmental strategy must be based on sound commercial and environmental logic if it is to survive in the long term. Such a statement recognizes that there can be more than one possible strategy. Many of the authors cited later (Greeno, 1993; Steger, 1990; Roome, 1992; McLearn, 1994/95; McCloskey and Maddock, 1994) seem to agree that there are strategic options for a firm in the face of environmental issues. Only Davidson (1994, p.439) seems to suggest that there are few options for corporate environmental strategy, and exclusively advocates the one based on ecological principles: [ Management's environmental strategy must be one] that is based on protecting the very elements that are required for future growth - good air, soil, and water. This strategy must be nurtured to assure that it is firmly rooted in solid regulatory compliance and to assure that it is growing in the right direction to achieve its goals and reach full maturity. The number of environmental strategies identified by the authors reviewed in the present research varies from three to five, depending on the author and source. Steger (1990), Greeno (1993) and McLearn (1994/95) identify three strategies each. The fullest range - five viable environmental strategies - is offered by Roome (1992). The first three of these are set against standards of both compliance and social pressure. They are as follows: Non-compliance strategy, where organizations do not react to changing environmental standards. Similar to this one is Greeno's problem solving strategy which indicates less commitment than required to ensure compliance. The strategy does involve taking Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 33 occasional actions on environmental issues in order to avoid burdensome costs. • Compliance strategy, which is a reactive strategy where solutions to environmental problems are developed as legislation sets the agenda. This strategy corresponds with McLearn's compliance strategy and Greeno's managing for compliance. Steger's defensive strategy, where companies simply comply with environmental legislation, is close to this type of strategy. • Compliance plus strategy, which applies to organizations behaving proactively and seeking mechanisms to integrate EMS into their business strategies. This strategy corresponds with Steger's offensive strategy, which calls for the development of environmentally sounder products which provide an additional benefit for the consumer and a competitive advantage for the corporation. Steger points out that critical factors influencing this strategy are time, as the leadership position is normally most successful, and the ability to effectively market the environmental advantages. This strategy also seems to correspond with what McLearn and Greeno describe as commitment and managing for assurance, respectively. The remaining two options observed by Roome (1992) are the following: • Commercial and environmental excellence, a strategy which assumes the organization has reached the logical conclusion that sound environmental management is good management. This strategy corresponds with McLearn's competition strategy. • Leading edge, a strategy which revolves around "state-of-the-art" environmental management; organizations which practice this type of strategy set the standard for other businesses. This strategy corresponds with Steger's innovative strategy, which assumes more radical changes in the production processes or a completely new design for products. This strategy is very challenging because of obvious risks such as higher R&D costs, uncertainty of demand, problems with quality standards, underinformed Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 34 customers and further technological progress. On the benefit side, the innovative strategy offers potential early profits, setting standards, product differentiation and increased product appeal as well as avoidance of environmental protection costs. All the environmental strategies, as identified by Steger (1990), McLearn (1994/95), Greeno (1993) and Roome (1992) reflect varying levels of environmental commitment and can be mapped accordingly. Figure 3.2 below presents a simplified map of strategic options, as offered by the mentioned authors and assembled according to the environmental commitment criterion. The model suggests that companies are likely to choose among various environmental strategies depending in part on their level of commitment to the environment. 3. 0 ENVIRONMENTAL MANAGEMENT SYSTEMS This section explores the principal components of EMS, as suggested by some well-recognized domestic and international standards. Special attention is paid to the criteria according to which various EMS components could be evaluated in the practical context. 3.1 Environmental Management Systems - Structure In its 1991 publication, the V N O Federation of Netherlands Industry stated that the importance of EMS for companies was becoming generally recognized by the government and the industrial community for stimulation of (1) compliance with government regulations, (2) control of environmental risks and responsibilities, and (3) improved interaction between companies, government and local inhabitants. The same source indicated that while EMS models were already available to guide companies in structuring their own systems, it would be the type and size of company that would determine to what degree an EMS is required and which key elements ought to be defined therein (VNO, 1991). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 35 a CD s 1 s o a 3 O = O w "53D § GO s E a o u '> a W 0 a 1 CU > co J? AO c _ c 0} o c eg Ol c •Q. c n E CO o c : o CO i 2 c T : CD CO O) a) "D _j LU c d) ?! E O UQJjA cellei c LU X LU CU o c co Q . E Cfl o 3 O a cu o c .£5 "5. E o o O O ) c 2 GO c 2 So .2 2 <D CD c CD E E o O CM CO I LL. 2 N 9 0£ CD 2 3 O CO 2. o a) o> co C c to o cn 2 8 <u ^ E Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 36 Between then and now, further efforts have nonetheless been made to formalize and internationalize the structure of EMS. Internationally, several EMS standards or guidelines have been released. Selected examples include: • British Standards Association - BS 7750: Specification for Environmental Management Systems, 1992, South African Bureau of Standards - SABS 0251: Code of Practice - Environmental Management Systems, 1993, the European Union - EEC No. 93 (6865/93 ENV 157): Eco-Management and Audit Scheme, Canadian Standards Association - CSA Z750 : Guidelines for Voluntary Environmental Management Systems, 1993 (Draft), and the National Standards Authority of Ireland - Guiding Principles and Generic Requirements for Environmental Management Systems (Draft). In this study, two standards, the Canadian Standard CSA Z750, and the newly drafted international standard ISO 14000, are reviewed in detail. The Canadian standard, CSA Z750, deserves attention within the context of the present research for the following reasons: (1) The study focuses on companies operating in Canada, which is the domain for CSA Z750. (2) The standard is a consensus-based guideline developed by the CSA, under the auspices of the Standards Council of Canada, in partnership with representatives from industry, government, academia and the public. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 37 (3) The CSA is an active participant in the development of international environmental initiatives such as ISO 14000. The content of CSA Z750 is summarized in Figure 3.3. Increasing attention by the industry, governments and other stakeholders has been focused on the international environmental management standard, ISO 14000. Unlike some of the national standards mentioned above, ISO 14000 is still in the draft phase and is expected to be implemented sometime in 19967. There are at least two reasons why such a standard is important. First, there is practically uniform support from the majority of governments for ISO 14000 worldwide. As Ouellette (1995) reports, ISO 14000 is being prepared by representatives from over 100 countries, many of them delegated by regulatory agencies. In Canada, the federal government's support for ISO 14000 has been expressed on many occasions. For instance, documents issued by the National Office of Pollution Prevention (NOPP)8, express the government's endorsement of the idea of ISO 14000 and encouragement to firms in their pursuit of certification once the standard is implemented. D. Durrant, an NOPP executive, reports that the Canadian government "sees the ISO 14000 series as an important multi-lateral approach to environmental protection"9. In his address to the participants of a recent ISO 14000 7 The Canadian Standards Association claims that the formal implementation will take place sometime in 1996 (See: "Toward a global solution", Environmental Update, CSA, September 1995, p.l and 7). However, Balikov (1995, p.l) expects that due to the slow process of developing the new standard, "the ISO 14000 process should culminate before 1999". 8 These documents, many of which came in the form of untitled memoranda, were obtained upon request from the National Office of Pollution Prevention, a department of Environment Canada. 9 Ibid. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 38 Figure 3.3 Canadian Standards Association's Environmental Management System Framework The framework addresses E M S in four dimensions: learning, purpose, capability and commitment. Each dimension features a list of components that encapsulate the C S A guidelines for the establishment and enhancement of an organization's EMS. EVIDENCE OF ENVIRONMENTAL LEARNING CLARITY OF PURPOSE • Regular measurement & monitoring of performance against established targets • Regular communication & reporting to stakeholders • System audits & management review to continually adapt to changing needs • Continuous improvement and timely follow-up on audits & reviews • An environmental policy, formally communicated to stakeholders & employees, with specific guiding principles • Risk assessment & system for prioritization of risks associated with each of the company's activities • Objectives & targets for environmental performance developed in cooperation with those responsible & assessed as part of the planning process • Design and establishment of an EMS CAPABILITY TO ACT DEMONSTRATION OF COMMITMENT • Adequate human, physical and other resources to implement environmental policies • Systems to build employee knowledge, skills & training • Management of information relating to environmental policy & performance • Defined processes and procedures for operations affecting the company's environmental performance • Evidence of shared values in employees' & managers' actions & attitudes toward environmental initiatives • Alignment & integration between organizational structure and environmental management system • Defined environmental accountability & responsibility for personnel managing, doing & verifying work affecting the environment Source: Canadian Standards Association (1993). conference, he went on to say: The context for the use of ISO 14000 standards and environmental auditing is rapidly evolving in Canada. Leading industry sectors, business and professional groups, and governments are anxious to put a national recognition scheme in place for competitive advantage, market need, and for use as a complement to regulation (Durrant, 1995, pp. 1-2). The second reason for recognizing the importance of ISO 14000 is the significant level of interest demonstrated by industry itself. After a very positive experience with ISO 9000, a Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 39 series of quality standards, Canadian and worldwide industry have expressed support for ISO 14000, expecting similarly positive repercussions for their industries and businesses. Writing about the Canadian forest industry alone, Alexander (1995) reports that most exporters are eager to obtain the ISO 14000 certification to demonstrate environmental stewardship. Anderson (1995) predicts that the EMS standard has the potential to make a bigger impact -in terms of sheer numbers and interest - than did ISO 9000. CSA Z750 and ISO 14000 have several points in common. Essentially, both standards assume: (1) the establishment of EMS based on a specific environmental policy. The EMS has a formal organization and is operated by trained personnel; (2) the setting of specific targets and objectives, as well as procedures for their achievement; (3) the mitigation and elimination of environmental risks and continual improvement of environmental performance, subject to regular monitoring, systematic record-keeping through an environmental management information system and reporting; and (4) systematic reviews of the EMS. These major components of an EMS are briefly described below. Further, for each component, a set of criteria is proposed for use in evaluating EMS as carried out in the Canadian pulp and paper industry. Establishment of EMS. Townsted (1994) observes that too often, companies view environmental protection issues as a summation of separate environmental items rather than ones interrelated with the total operation. His argument is that, by utilizing a systematic approach, such as through an established and well-operated EMS, these issues can be Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 40 combined to develop an environmental portfolio that provides decision makers with a better perspective on the total impact and indicates where efforts should be focused for a more environmentally sound operation. He justifies his analogy to an investment portfolio, by pointing out that there is a need to (1) assess the company's current position on issues such as overall environmental impact, environmental risk levels, and communication to stakeholders, and (2) make informed decisions today about future position, based on strategy, controllable and uncontrollable variability of different factors (such as costs, regulations) and identification of major drivers. A company may attempt to handle these issues through establishing and operating a formalized EMS. Environmental Policy. Environmental policy is the key document in the EMS. It officially communicates the company's position on the environment. Hence, it is important to realize that the selection of words and clarity of the message should reflect the intentions as well as the degree of commitment to specific actions and measures. Eckel et al. (1992) state that an environmental policy must address two fundamental issues: the level of responsiveness or responsibility the firm will adopt, and the range of matters for which responsibility will be taken. These authors also advise companies to have not more than 10 or 15 complementary, rather than conflicting objectives. Objectives will be more or less specific, depending on their nature and characteristics. BS 7750 (1992) calls not only for concrete commitments as parts of environmental policies, but also for specification of the methods by which companies will seek to fulfil these commitments. Organization and Personnel. EMS, as any management system, can work provided that it is operated by people with adequate skills and resources. The following organizational aspects must be clearly defined: responsibilities, authority and interrelations of key personnel who manage, perform and verify work related to the environment. Greenberg and Unger (1993/94) add that success with EMS also depends on the degree to which individuals and teams are Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 41 encouraged to use initiative to address environmental management issues and to solve problems, as well as what limits are placed on their authority to do so. Apart from environmental personnel, adequate material resources ought to be allocated to EMS. Environmental training and awareness building are other factors to consider. Often underestimated, training and communication bring benefits to the company and the environment. Johannson (1995) describes environmental training for 1,200 employees of the pulp and paper company, Stora Forest Industries Ltd. in Port Hawkesbury, Nova Scotia. As a result of the training, not only did environmental performance in both woodlands and mill operations improve, but the company won an "Award for Business for Outstanding Contributions to the Enhancement and Preservation ofthe Nova Scotia Environment". Furthermore, Stora won a court case on the basis of "due diligence", referring to its training as an example of its desire to operate in an environmentally-responsible manner. Risk Management. Patton (1993) suggests that the assessment and management of environmental risks is a cornerstone of environmental decision making. McKone and Bogen (1991) agree with her, adding that managing environmental risks is a complex matter due to the simultaneous coexistence of three types of risks: (i) actual risks, which rarely can be measured, (ii) calculated risks, which are based on science, and (iii) perceived risks, which are neither actual nor based on science. Bradford (1992) argues that no program will eliminate environmental risks completely. Rather, the best way to prepare for a potential pollution problem is to design a plan that will quickly respond and keep adverse effects to a minimum. Such plans are usually prepared and approved by management as well as by regulatory agencies, if required (Pierce, 1992). Environmental Objectives and Targets. EMS is established to accomplish certain objectives. These objectives, consistent with and often incorporated within the environmental policy, come first before management can identify risks to their achievement (Greenberg and Unger, 1993/94). BS 7750 advises that the objectives include a commitment to continual, year-on-Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 42 year improvement in overall performance, though not necessarily in all areas of activity. Environmental Management Information Systems (EMIS). Eckel et al. (1992) state that EMIS are related to the organization's environmental policies and objectives, existing environmental regulations as well as society's perception of how a company's operations affect the environment. Apart from being a prime source of information for management, these can also serve as an important defence against environmental liability, by showing that relevant standards have been recognized and measures taken to ensure due diligence. Bolstridge (1995, p. 78) has argued that "compliance is record-keeping" meaning that the most important element of compliance is maintenance of accurate information about the organization's interaction with the environment. Therefore, it is essential to establish and maintain a procedure for the identification, collection, indexing, filing and storage of environmental management records. Monitoring and Reporting. The monitoring and reporting of environmental performance are an indispensable part of any EMS. The former enables an organization to determine whether its EMS actually works and whether established targets are being met. The latter is essential for such knowledge to be communicated and for learning to occur. Through a well-established monitoring procedure, a company ought to be able to measure all key characteristics of its processes leading to environmental impacts and, consequently, to verify compliance with both regulatory requirements and internal targets and objectives. Environmental reporting became an art in itself in recent years. Elkington (1993) argues that environmental reporting is no longer optional for larger companies. It has become an important tool for communicating with governments, investors, employees and other stakeholders. In addition, the available literature on how to prepare such environmental reports has been growing10. To illustrate how seriously environmental reports are coming to be For more detailed information on the form and content of environmental reports see: VNO Federation of Netherlands Industry (1991), European Chemical Industry Council (1993), Deloitte Touche Tohmatsu Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 43 treated, it is worthwhile to note that environmental reports are often rated by independent bodies. For example, in Canada there are at least two independent rankings established for environmental reports: one of them, run by the Task Force on Churches and Corporate Responsibility, is used to determine the winner of a Financial Post Annual Report Award; the other is published by the International Institute for Sustainable Development. Management Reviews. EMS requires periodic reviews in order to ensure suitability and effectiveness, and in order to maintain desired continual improvement. BS 7750 recommends that reviews be held at defined intervals, and that their scope be comprehensive. However, not all components of an EMS need to be reviewed at once. Once a management review has taken place, results should be summarized in a report. Reports of reviews should make clear the reason for their conduct. Observations, conclusions and recommendations reached as a result of review must be submitted for necessary measures by the company's management. 3.2 Benefits Attributed to Environmental Management Systems While the origin, content and objectives of the various environmental initiatives by and for industry presented in Chapter 2 differ, two common inducements to create such programs have been the call for public disclosure of environmental conduct, as well as a call for the establishment and use of (EMS). The latter drive, to make environmental protection part of the organization's overall management system, has come to represent a vehicle for organizations to systemize their overall environmental conduct and improve their interaction with the environment. This section discusses some of the major reasons why a company may decide to develop such a system. International (1993), U.N. Environmental Programme Industry and Environment (1994). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 44 K P M G Ltd. (1994) defines an EMS as a framework of processes designed to help a company manage its environmental agenda and document its environmental performance in response to: (1) constantly changing laws and regulations, (2) social, economic and competitive pressures, and (3) environmental risks. An EMS operationalizes a company's environmental policy and, according to KPMG, must be fully integrated into the complete management system of an organization to be effective. This point is stressed by others as well (Kamlet, 1992; Anderson, 1991; Willits and Giuntini, 1994). Yet, Cohen and Gess (1994/95) observe that even companies with the most comprehensive EMS in place still regard pollution prevention as an additional and perhaps secondary activity, above and beyond the basic goals of running a business in increasingly competitive environments. Both authors suggest that firms will maximize both business and environmental performance only if they move beyond thinking of pollution prevention as an additional goal or program, and evolve toward a point at which pollution prevention goals and practices become one element of their core business practice. While the major components of a successful EMS can be essentially the same across a range of industries, there are different factors that will motivate individual companies to establish their EMS. Green and Lafontaine (1995) state that an EMS is the only reasonable response to the current environmental problems facing companies, and that it is only a matter of time before regulators, courts, boards of directors, banks and insurers, customers, capital markets and other stakeholders will routinely require evidence of an effective EMS. The need to comply with environmental regulations and to avoid environmental liabilities are likely the primary factors nowadays, but other viable reasons may include: public image or competitive advantage enhancement, attempts to improve productivity, and concerns stemming from the financial sector. Compliance and Liability Avoidance. Arguably, compliance with regulations is the primary reason for undertaking any environmental action. This reality is accepted even by those executives who continue to regard environmental protection as a cost source for their businesses. K P M G Ltd. (1994) reports that in Canada's manufacturing and natural resource sectors, compliance is the very top reason for which environmental action has been Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 45 undertaken. This finding is consistent with the outcome of similar research by Henriques and Sadorsky (1995) discussed in section 2.0 above. The second most important reason, according to KPMG, is liability avoidance. Environmental legislation imposes responsibilities on corporate directors and officers for environmental damage caused by their companies. For instance, the Canadian Environmental Protection Act established a provision that, when an organization commits an offence under the legislation, responsibility for that offence goes to the executive in charge. The penalty for such offenses includes fines, jail sentences and other kinds of severe punishment. D. Saxe (1990) discusses the issue of corporate environmental liability at length. Willits and Giuntini (1994) argue that an EMS can be a partial remedy for a liability threat. These authors state that the U.S. Department of Justice has provided guidelines indicating that violators of U.S. environmental law may receive prosecutorial leniency if an EMS is in place. Public Image. In light of public opinion polls indicating high levels of public concern over the state of the environment, prudent environmental conduct guided by a well designed EMS may be a critical factor in building up the reputation of many companies. Wolfe and Howes (1993) support this argument by citing Fortune magazine's survey about America's most admired companies, in which eight attributes were identified that contributed to corporate reputation. These attributes were: quality of management, financial soundness, employees, use of assets, quality of products and services, innovation and community and environmental responsibility. Wolfe and Howes observed that in comparison to a similar survey conducted three years earlier, environmental responsibility is new and indicates the maturing of the environment as an issue. Competitive Advantage. While many companies still regard environmental management as purely a cost to their business, with little or no benefits, Petrini (1994) argues that some companies shifted their traditional perception of environmental management programs from being an expense to being a potential revenue source. The familiar profit motive is raised by management consultants such as Harris (1993), who states that a sound environmental policy Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 46 can provide an edge in the race for the consumer's business. Willits and Giuntini (1994) add that companies that pursue a "green strategy" may gain competitive advantage in a marketplace characterized by the increasingly pro-environmental attitude of consumers. A "greener" positioning may lead to perceived value added to products, thereby enabling a premium price to be charged. However, companies entertaining such thoughts ought to be cautious. For example, in its report prepared for Environment Canada, Thompson Lightstone and Co. Ltd. (1993) report that, even if they are willing to pay $l,000-$2,000 extra for an. environmentally friendly car, Canadians, on aggregate, believe that they should not pay more for environmentally friendly products. Moreover, they found that there is a widely held belief that although environmentally friendly products are generally more expensive at present, this is part of a marketing 'scam' and when they become more widely available, prices will be forced down (Thompson Lightstone & Co., 1993). Companies which elect to use their environmental record as part of their marketing strategy may have to consider the consequences of such a move. Frause and Colehour (1994) indicate that both the government and other stakeholders, particularly environmental groups, are aware of attempts made by certain companies to use "greening" as a marketing gimmick only, rather than a meaningful change in their approach to the environment. Such companies loudly proclaim their environmental friendliness, but their declarations are rarely substantiated by concrete steps taken or results achieved. Harris (1993) argues that some marketing departments will pressure a company to stake out an "environmentalist" position in the marketplace prematurely, before there is any substance to the claim. This can frequently backfire, bringing the company ill-will among the general public. Productivity Improvement. Anderson (1991) argues that many companies that implement an EMS are able to reduce overall facility operating costs. Given that one of the objectives of the EMS is to eliminate emissions up-front, costs associated with "end-of-pipe" control technologies are lowered and savings are achieved through source or process change. Other economic benefits attributed to EMS include lower reporting and permitting costs, lower worker health and safety costs, reduced waste disposal costs, savings from increased operating Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 47 efficiency and utilization, and minimization of product and/or raw material loss. Selg (1994) argues that environmental protection arrangements often take time to show profits, but producing less pollution and consuming less materials can allow companies to produce more goods, more jobs, and more income per unit of production. That leads precisely to what business leaders call "eco-efficiency". Concerns of the Financial Sector. Evidence of a well functioning EMS is gradually becoming an important factor for banks and insurance companies. According to Lornic (1992), some bankers predict that so-called "dirty" industries will face a credit crunch and their cost of capital will rise due to the perceived threat of environmental liability. He observes that in Canada, banks and other lenders are implementing environmental risk procedures designed to protect the continuing viability of their loan portfolio. Lornic (1992) refers to T. Glassop, Toronto-Dominion Bank's credit VP, who implies that some banks ask borrowers to submit detailed environmental "business plans". Here, a well designed EMS can be indispensable. Willits and Giuntini (1994) present an argument, from the insurer's perspective, for having an EMS. They cite a report by the U.S. General Accounting Office, which states that nine major U.S. insurance companies surveyed settled almost 2,400 lawsuits involving pollution liability in 1989 alone, with each of them spending an average of $16 million on such suits. Given the magnitude of environmental claims, some of which relate to pollution that occurred years ago, insurers are increasingly excluding coverage to environmental incidents and often seek to avoid paying claims related to environmental damage. Willis and Giuntini suggest that a company that has a well-functioning EMS would likely find it easier to get insurance coverage or be able to negotiate better rates as such systems, if operated properly, should reduce markedly the likelihood of an environmental "accident". Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 48 4.0 SELECTED APPROACHES TO ENVIRONMENTAL MANAGEMENT PRACTISED BY INDUSTRY TODAY Different ways of making environmental management work have been established in recent years. EMS can comprise different concepts and techniques, many of which have been tested in a number of countries, industries and companies, often with varying results. The objective of section 4.0 is to review five of the better-known, tested and practised approaches to corporate environmental management: (i) environmental auditing, (ii) life-cycle analysis (LCA), (iii) activity-based costing (ABC), (iv) environmental benchmarking, and (v) Total Quality Environmental Management (TQEM). These five approaches were selected from a larger pool of concepts and techniques. The rationale behind the selection is the following: first, all of them are established, clearly described and documented, and have been tested in practice. Second, each of them possesses a set of tangible features, which can guide an organization in establishing and operating an EMS. Third, their elements are easy to identify in a company's management practice, even if this company does not formally subscribe to them. This last justification is particularly relevant to the planned research. Members of an organization may attempt to tackle environmental issues intuitively, without knowing that they are pursuing, either in whole or in part, one of these documented approaches to corporate environmental management. The five approaches selected for this study may seem to some as similar or even interchangeable, but they differ in important ways. Two of these areas of distinction are: the orientation (e.g., legal, scientific, engineering, financial reporting) of the environmental management approach and the drivers (e.g. compliance, cost reduction, impact minimization) behind the particular environmental management approach. Figure 3.4 was assembled on the basis of information provided by James (1994). It classifies all five approaches according to their orientation and drivers. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 49 Figure 3.4 Selected Approaches to EMS. Their Orientation and Key Drivers. APPROACH TO EMS ORIENTATION DRIVERS Environmental Auditing Legal Compliance Life-Cycle Analysis Scientific Impact Minimization Activity-Based Costing Reporting • Accounting • Cost Reduction Benchmarking Engineering Efficiency Total Quality Environmental Management Continuous Improvement • Customers / Stakeholders Concerns and Interests • Pollution prevention Though James has distinguished between these five approaches, there is still a degree of overlap between them. For instance, similar elements appear in L C A and ABC. Moreover, some of them are integral parts of others: environmental auditing may be used in L C A ; L C A , ABC and benchmarking may appear in the course of practising TQEM. It is, at least in part, the company's sense of priority, as relates to regulatory bodies, trade, financial results, etc, that determines which, if any, of these approaches to EMS is chosen. For each of the mentioned approaches, the review below is composed of three parts: the definition, a description of components and a review of current practice. It is hoped that this organization will provide the reader with an instant orientation to the fundamentals of each approach and the ability to relate them to existing situations in any pulp and paper company. In the case of TQEM, a component matrix endorsed by the Council of Great Lakes Industries is utilized. 4.1 Environmental Auditing Definition. The terms environmental audit and auditing have several definitions, of varying degrees of content and clarity. In fact, Komreich (1995) observes that it is difficult to reach Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 50 agreement today on what exactly the term "environmental audit" means. Hence, for the purpose of this work, two definitions of environmental auditing are considered. The first is a rather broad definition proposed by the Canadian Standards Association, which reads as follows: [Environmental audit] is a systematic process of objectively obtaining and evaluating evidence regarding a verifiable assertion about an environmental matter, to ascertain the degree of correspondence between the assertion and the established standards and criteria, and then communicating the result to the client. (Canadian Standards Association, 1993b, p. 23). Arguably, this definition is too complicated for general use. Much simpler is the second definition, proposed by the Association of Consulting Engineers of Ontario (1993, p. 28): [Environmental audit] is a systematic study of the environmental performance of an operation to obtain and evaluate objective information regarding that condition or performance and communicate it to appropriate parties Both definitions have much in common: they point out that environmental auditing is about evaluating environmental performance and communicating the results. As an approach to environmental management, environmental auditing leads to management by compliance with environmental regulations. Several authors (Blumenfeld, 1989; CGA, 1991; Billing and Willis, 1992; Chaynoveth and Keller, 1992) tend to agree with the statement by Environmental Manager (1994, p. 13) that a major goal of environmental auditing is to "achieve and maintain compliance [with environmental regulations]". Components. Morelli (1994) states that environmental auditing is both a technical exercise and a legal art. To conduct a comprehensive and effective environmental audit requires a team of individuals who, combined, have broad engineering skills, a knowledge of chemistry, and specialized legal experience with all the relevant environmental regulations. Hence, she advises that an audit team should have at least three members: an environmental attorney, an environmental consultant and an environment, safety and health expert. Such audit team composition corresponds with at least one example from the pulp and paper industry. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 51 Goldman (1983) provides evidence of successful auditing practice at Erving Paper Mills, Erving, Mass., where audits were conducted by a team with expertise in (i) pulp and paper mill operations, (ii) environmental requirements, (iii) environmental science, and (iv) field environmental investigations. While it may be relatively easy to assemble an environmental audit team, so far there are no generally accepted standards governing environmental auditing (Gray, 1993). Some of the first efforts to standardize environmental auditing are being made under the broader umbrella of the new international environmental management standards series, ISO 14000 (See: Revised Committee Draft, ISO/CD 14011/1-2: Environmental Auditing and Related Environmental Investigations, Geneva, 1995). According to D. Durrant (1994) of Environment Canada, an official implementation of ISO 14000 is scheduled for 1996. Meanwhile, companies may elect to take advantage of the broad selection of literature on conducting environmental audits, including step-by-step manuals offered by Blumenfeld (1989) and the Ontario Waste Management Company (1989). The literature repeatedly mentions certain characteristics of an environmental audit which are fairly generic. Some commonly emphasized characteristics include: a well-defined and planned structure, methodical investigations, and reporting to all appropriate management. Figure 3.5 summarizes the key steps, activities and objectives of a typical environmental audit. While the components are the same, there are different types of environmental audit. Gray (1993) argues that certain types, such as the legal compliance audit, waste audit, material and energy efficiency audit, transport audit and landscape and habitat audit, can be considered common for a very broad variety of industries. Goodfellow and Willis (1991) propose a different breakdown of environmental audit categories. According to them, there are four major categories: environmental policy audit, environmental risk audits, contract compliance audits and material (or supplier) audits. Since at this point the concept of environmental auditing is neither precisely defined nor regulated, these classifications as well as other potentially existing ones do not greatly differ in their validity. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 52 Figure 3.5: Environmental Auditing: Major Steps, Activities and Objectives Figure 3.5 presents major steps in environmental auditing with accompanying objectives and activities designed to reach these objectives. STEP ACTIVITY OBJECTIVE Pre-audit * Selection and scheduling of * to minimize time spent at the site Activities facility to audit by: - selected criteria (e.g. type of wastes * to prepare the audit team to manufacturing process, specific operate at maximum productivity regulation) - assigned priorities * Selection of audit team Activities * Identification and assessment * to gain information on all at Site of management control systems existing significant management in place, such as: control systems - organizational monitoring * to adequately assess the - formal planning documents for effectiveness of management prevention and control of control systems in achieving accidental release their objectives - record-keeping procedures * Gathering of audit evidence * to verify whether control - testing: solid wastes, effluent, air systems provide the results emission, energy efficiency, intended health and safety * to confirm compliance with - reviewing existing environmental regulations and standards records * Evaluation of audit findings * to assess significance of - development of a complete list each potential deficiency of findings or pattern of deficiencies in - integration, summary and the overall functioning of the interpretation of findings control mechanisms Post-audit * Preparation of the final report * to present findings of the Activities audit in a systematic manner * Development of a corrective * to offer recommendations for action program immediate as well as longer-term improvements Source: Figure 3.5 was complied by author from information adapted from Blumenfeld (1989), Goldman (1983), and Kornreich (1995). FIG3_5.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 53 Gamer (1991) narrows environmental audits practised in the pulp and paper industry down to three major types. Figure 3.6 presents his findings with respect to three types of environmental audit and their individual objectives. Review of the Existing Practice. In Canada, environmental auditing has evolved during the last two decades and is still in its formative stages. It emerged as an activity per se in the late 1970s (CICA, 1992). Almost a decade ago, in the CPPA 1987 survey, 91 per cent of 116 Canadian companies in 11 industrial sectors responded that they had heard about environmental auditing. A total of only 20 companies, including two from the pulp and paper sector, were found to be practising environmental auditing in Canada at that time (Reed, 1988). There exist grounds to believe that this situation has changed over the years. In the absence of recent Canadian data, it is useful to consider that the results of a Price Waterhouse 1994 survey of American companies may be extrapolated to the Canadian reality. Hanson (1995) reports the outcome of that survey, according to which 75 percent of firms surveyed have environmental audit programs and 60 percent of those that do audits have formal company policy statements on this procedure. Over 95 percent report that management awareness has improved as a result of these audit programs. Hanson also cites R. J. Jordani, director of Price Waterhouse's Environmental Services Group, who says that, in general, the larger the firm, the more likely it will do audits. Jordani concludes that "essentially, every company with more than $ 1 billion in sales does [environmental] audits" (quoted in Hansen, 1995, p.7). Still, varying response to environmental auditing may be based on the legal repercussions for companies. In Canada, environmental auditing is not required under statute or regulation. However, there is a reference made to environmental auditing in the Enforcement and Compliance Policy issued by Environment Canada (1988, p.78): "... Environment Canada recognizes the power and effectiveness of environmental audits as a management tool for companies and government agencies, and intends to promote their use by industry and others". In the U.S., in 1986 the Environmental Protection Agency issued a final policy statement in Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry Figure 3.6: Typical Environmental Audits in the Pulp and Paper Industry. 54 Type of Audit Objectives Regulatory audit Determine capabilities of treatment for discharge compliance Diligence Audit Determine status of regulatory compliance, evaluate treatment facility operating standards and procedures Transactional Audit Determine environmental liabilities during mergers, sales or divestitures Source: J. Garner (1991) FIG3_6>W 4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 55 which it endorsed self-auditing by companies to avoid environmental penalties. The Agency, however, reserved the authority to request relevant portions or the entire environmental audit report on a case by case basis in several circumstances, including where the environmental audit material is essential to a criminal investigation against the company (Morelli, 1994). Hanson (1995) reports that this is a key reason why many firms are still reluctant to have environmental audits conducted on a regular basis. He cites the Price Waterhouse survey, according to which companies would perform more extensive audits if they were sure that the authorities would not use the results to charge them with expensive law violations11. While this viewpoint may hold true, companies ought not to miss the positive side of regular environmental auditing. Abelson and Balco (1992), who described in detail a few cases of environmental liabilities which ended with the imprisonment of top management officials, add that periodic environmental audits often help to persuade prosecutors to reduce penalties imposed for violations. 4. 2 Life Cycle Analysis (LCA) Definition. Life cycle analysis12 is an approach to environmental management which accounts for all of the environmental impacts of a company's products, packaging, or service or the business entity itself. Some definitions, such as the ones offered by Fava (1992), Begley (1992), the Society of Environmental Toxicology and Chemistry (SETAC) (1993), and others, characterize L C A as 'objective', implying that the approach is free of bias and is credible. However, L C A does exhibit some imperfections and shortcomings, which will be pointed out later on. For the purpose of this work, L C A is understood according to the definition provided by SETAC, an expert body with a well-recognized environmental record and reputation: The Life Cycle Assessment is an objective process to evaluate the environmental loads associated with In Price Waterhouse's survey of nearly 400 firms, almost two-thirds of those now performing environmental audits would expand their programs if penalties were eliminated for violations they themselves identify, report, and correct (see: Hanson, 1995). 1 2 Certain sources use "life cycle analysis" and "life cycle assessment" interchangeably. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 56 product, process or activity by identifying and quantifying energy and material used and wastes released to environment, to assess the impact of those energy and materials used and released to environment, and to evaluate and implement opportunities to affect environmental improvement. The assessment includes the entire life cycle of the product, process or activity, encompassing extracting of raw materials; manufacturing, transportation and distribution; use, re-use, maintenance, recycling and final disposal. (SETAC , 1993, p.98) Components. The L C A definition clearly identifies three major stages or components of the life cycle analysis: inventory analysis, impact analysis and improvement analysis. Figure 3.7 presents these components along with corresponding activities and planned objectives. Bond (1995) reports that as of early 1995, most L C A practitioners are carrying out only the first component, the life cycle inventory, or at best the first and the third, which is the life cycle improvement analysis. He goes on to say that because the methodology for life cycle impact analysis is still incomplete with regard to the second component, impact analysis, L C A is rather inadequate for decisively evaluating product environmental risks and benefits for the environment. L C A , as practised today, is not free of weaknesses and shortcomings. Critical voices point to a few of them. First, there is a great deal of variability of data, as it frequently comes from different sources. That leads to varying results and, effectively, unreliability of the analysis (Bothwell, 1993). Second, there exist unresolved gaps in L C A methodology. Probably the most criticized is the problem of L C A boundary identification. There are known cases where results of the L C A analysis changed when boundaries in a given study were expanded (Krivyakina, 1993). Illustrative of the boundary determination problem is the case of fast food chain McDonald's. The Economist (1993, p.77) presents it as follows: How far should life-cycle analysis be taken? A classic use of the technique was the decision by McDonald's, America's biggest fast-food chain, to abandon the polystyrene clam shells in which it packaged its hamburgers. Under attack in 1990, it accepted help from the Environmental Defence Fund, a green lobbying group. McDonald's thought the answer was to develop ways to recycle polystyrene. EDF convinced it that a better answer is to reduce waste. So McDonald's abandoned its clam shells and Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 57 Figure 3.7: Major Stages, Activities and Objectives of Life-Cycle Analysis STAGE ACTIVITY OBJECTIVE Life-cycle inventory Study of: - a product's raw material outsourcing - process energy use and emission of pollutants * to identify and quantify potential environmental impacts of roanufacturing processes and products Life-cycle impact assessment Study of: - environmental impacts, based on the results of a life-cycle inventory * to qualify, quantify and to value identified impacts on ecosystems, human health and natural resources Life-cycle improvement analysis Study of: - opportunities to achieve improvements through various means, including redesign of processes and products * to identify, evaluate and propose actions that target and eventually eliminate priority environmental burdens Source: Composed by author from information provided by Gray (1993) F I G 3 _ 7 . W K 4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 58 used instead a light wrap made of paper and polyethylene. But imagine trying to study the environmental impact of an actual McDonald's hamburger, not just packaging. Do you start with the conversion of forest to grazing land? What weight should be given to the health factor? "The idea of a hamburger life-cycle analysis is terrifying", admits Dirk Long of the Management Institute for Environment and Business in Washington. "Cows defecate. That fouls water quality. They belch. That produces methane and that contributes to global warming. You have hundred of impacts. Third, environmental science is exposed to political and social pressure. In effect, the interpretation of what is environmentally beneficial shifts with socio-political developments (Kulik, 1994). Fourth, L C A is perceived as a costly and time consuming process which is difficult to implement company-wide (Gloria et al., 1995). Bond (1995) warns that managers ought to ensure that L C A findings are not used for propaganda purposes, e.g., by environmental groups for "product bashing". Review of the Existing Practice. Despite the mentioned impediments, L C A is an increasingly popular approach elected by companies to tackle their interaction with the environment. It gained momentum in the early 1990s, when companies started implementing it, even if, as a concept had been known for over two decades (Begley, 1992). There appear to be two major reasons for which firms would decide to run their environmental management issues on the L C A basis: government requirements and trade. The new international series of environmental management standards, ISO 14000, embraces L C A as one of its pillars. It is likely that ISO 14000 will be treated by governments like ISO 9000, the international quality management standard. According to Dubbs (1993), to be a supplier to the Canadian government, the company must make application for ISO 9000 registration. Further, ISO 9000 has been recognized by NATO, and regardless of its geographic location, each member country's defense ministry purchases from those producers who adhere to this standard (see: Borthick and Rosh, 1992). Some countries decided not to wait for formal international L C A standard and subsequent requirements. Aeolian et al. (1995) report that U.S. President Clinton's Executive Order 2873 clearly spells out that future Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 59 government procurement should be based in part on LCA. This is a very important message for producers, including pulp and paper companies, for whom government institutions are among the key customers. Another important reason behind L C A pursuit is trade, especially trade with Europe. In July 1993, the European Community officially launched its European "Eco-label" scheme to identify products that are significantly less damaging to the environment than competing products. The criteria for eco-labelling are developed through L C A (Bergstrom, 1993). Stevens (1994) states that under the General Agreement on Tariffs and Trade (GATT) rules, importing countries cannot restrict imports based on how they are produced. The "Eco-label", in a way, overcomes this principle, by virtue of its voluntary nature. It is the manufacturer who chooses whether or not apply for an eco-label. Although goods which do not comply with eco-labelling criteria may be imported, they are likely to suffer from competitive disadvantage, if customers develop a preference for eco-labelled products. This may be a crucial, and sadly familiar reason for which the Canadian pulp and paper industry, which suffered from consumer boycotts in Europe on environmental grounds, may want to seriously consider LCA. Gloria et al. (1995) list other reasons for companies to choose the L C A approach: product improvement, determination of environmental liabilities, proactive environmentalism, and cost reduction. Despite the underlined gaps in the L C A methodology, some companies successfully manage to use this approach for making environmentally beneficial and economically sound management decisions. For example, Proctor & Gamble used L C A to search for ways to reduce the energy consumed in the manufacture of its laundry detergent, Tide. It experimented with different chemical compounds. An L C A study showed that 80 percent to 90 percent of the energy was used long after the detergent left the manufacturing facility - to heat the water in the washing machine. Therefore, Proctor & Gamble's next move was to develop a cold-water detergent, with the potential to be marketed as a "truly green" product (The Economist, Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 60 October 9, 1993). Through similar studies, a DuPont plant in Texas reduced ammonium sulphate emissions due to acrylonitrile manufacturing from 100 million to 40 million pounds a year and cut annual manufacturing costs by $1 million with no capital investment required (Fiksel, 1993/1994). Companies practising L C A ought to be aware that this approach may bring surprising and unexpected outcomes. For example, during the 1993 OECD workshop in Paris, the outcome of two L C A studies were presented. These studies analyzed the life cycle of cars in Sweden and newsprint in Canada. In both cases, the studies showed that the politically popular solution of encouraging recycling could be more environmentally harmful than alternative options (The Economist, 1993). 4.3 Activity - Based Costing (ABC) Definition. In recent years a debate has been underway across the accounting community about reviewing traditional cost accounting principles to include accounting for the environment. A new term, environmental accounting, has been coined. While the debate is not finished and there is a lack of consensus on how exactly environmental accounting ought to be carried out, there seems to be agreement on what can be accomplished once environmental accounting is in place. Russel et al. (1994b) observes that environmental accounting differs from traditional cost accounting in the way it treats costs associated with the environment. They argue that traditional cost accounting, which focuses on such generic cost drivers as labour hours, gasoline gallons or square footage, treats environmental costs like "peanut butter" and spreads them over many activities. That leads to a situation wherein real polluters have been paying their environmental costs at a bargain rate, since they are subsidized by overhead contributions from processes that have not been generating pollution. By contrast, environmental accounting is intended to uncover and to recognize the environmental costs associated with specific operations. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 61 One method of accounting for the environment that has been well researched and described in recent years is activity-based costing (ABC) 1 3 . ABC, when applied to environmental matters, focuses directly on the environmental costs generated by each product and process. A B C is deemed by some to be a natural link between EMS and financial management and accounting practice. Russel et al. (1994a) states that ABC 'provides a blending of the goals of EMS with the information collection and allocation abilities of traditional cost accounting systems'. Owen (1995) expresses the same idea, but differently. He argues that some EMS activities such as the scrutiny of the toxicity, volume and cost of wastes generated in operation processes can be translated through ABC into a familiar language and framework for business people. Owen (1995, p.62) quotes M . J. Epstein of Stanford University, who said that "the framework [of ABC] is accounting and the language is dollars". For the purpose of this work, the definition of ABC to be used is one suggested by the Society of Management Accountants of Canada and later adopted by the U.S. Environmental Protection Agency: Activity-Based Costing (ABC) is a means of creating a system that ultimately directs an organization's costs to the products and services that required these costs to be incurred. Using A B C , overhead costs are traced to products and services by identifying the resources, activities, and their costs and quantities to produce output. (EPA, 1995, p.37) Components. The ABC methodology is most successful when all the environmental aspects of running a business are recognized and identified. Brooks et al. (1993) emphasize that certain environmental costs, such as disposal costs, technology modifications, and monetary fines are explicit and readily identifiable. On the other hand, implicit costs are more difficult to quantify, for example, those costs associated with training programs. Bailey (1991) offers a four-level classification of environmental costs: (1) Usual costs and operating costs, such as infrastructure, labour and materials. Detailed information regarding A B C methodology is provided by, among others,: Sharman (1994), Awasthi (1994), Norkiewicz (1994), Estrin et al. (1994), Smith (1994). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 62 (2) Hidden regulatory costs such as costs of notification, reporting, permitting, monitoring, testing, training and inspection. (3) Contingent liability costs such as penalties and fines for non-compliance, legal claims, settlements for remedial action, property damages, personal injuries and accident-related environmental concerns. (4) Less tangible cost-related items such as cost savings through increased revenues and decreased expenses due to improved consumer satisfaction, employee relations and corporate image. ABC is composed of two steps, as presented in Figure 3.8. The first step is to identify the activities and environmental costs. R. Pojasek, an ABC expert and senior program director at Cambridge Environmental, Inc. in Cambridge, Massachusetts, calls this step "doing a process map". He advises constructing a diagram that shows what is being done at each stage of the production process, denoting the materials used and the wastes generated. Then, he suggests making a chart showing all the waste streams, and all the activities required by regulations pertaining to these streams, such as monitoring and disposal (EnvironmentalManagerA995a, p.8). The second step is to assign the costs identified above to the appropriate activities (Brooks et al., 1993). This leads to costing products and operations on the basis of the individual product's or operation's demand for these activities. Subsequently, a decision can be made whether all current activities add value to the product or process. If certain activities do not, the goal would be to eliminate, or at least minimize, their necessity (Kreuze and Newell, 1994). Review of (he Existing Practice. Operating an EMS through the A B C approach may be viewed by some as a good idea. Arguably, it is a clear and comprehensive concept with promising results. Unlike L C A , A B C has a well-defined methodology and can be attractive to Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 63 Figure 3 . 8 : Activity-Based Costing: Steps, Activities and Objectives STEP ACTIVITY OBJECTIVE Process Map * Review of the steps of the * to concisely present the series of production process including: steps through which the input - flow of materials materials must pass as they are - specification of caused transferred into the final product environmental effects Table of * Identification of relevant * to assign costs to individual phases Environmental Costs costs including costs of: and activities in the production - permitting process - reporting * to identify activities and losses - monitoring that generate the largest fraction - record-keeping of the environmental cost - inspections * to find these activities which are - waste treatment environmental cost-drivers and - waste disposal to prioritize their elimination - protective equipment - training - auditing - labeling - raw materials Source: Composed by author from information provided by Barlett et al (1995) FIG3_8.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 64 companies who, according to S. Ali, consultant with Arthur D. Little's Center for Environmental Assurance, need to fully charge their environmental costs to products. C. Stinson of the University of Texas adds that "most companies don't even need to set up new accounts" to find their full environmental costs; they just need to look at data they already have, from a different perspective ( quoted in Plishner, 1993, p.32). Yet, a study of 125 major U.S. corporations found that only 11 per cent had accounting policies that address environmental accounting specifically (Surma and Vodra, 1992). So far A B C is implemented with success primarily by companies in a non-environmental context. The application of the approach has enabled some companies to make better quality decisions about their processes and products. Yet, the method is not free of criticism. Examples A and B illustrate both successful and unsuccessful implementations. Example A. In 1991, an ABC pilot project was undertaken in the die-cast engine parts area of the Volkswagen Canada Inc. plant in Barrie, Ontario. The project turned up numerous profit laggards. One of the not-so-profitable parts was an engine-mounting bracket. Because a snapped bracket could be a safety hazard, Volkswagen was X-raying every single bracket. Recognition of this high cost of inspection spurred a decision not to inspect as many brackets. Workers now X-ray 25 from each bin. They only inspect the rest if a "reject" is found in the sample. Volkswagen's example shows that a concept such as A B C - and targeted style of management it inspires - is especially handy in a free-trading era when manufacturers are being urged to adapt to low-cost competition (Southerst,1994). Example B. The case of one aerospace company in southern California showed that ABC does not work at every organization. The company has three major product lines and the procurement department is organized by product lines and material type. External consultants recommended using a new A B C system to better conduct cost-benefit analysis of the company's processes and products. After a trial, the company's reaction to the A B C system was quite negative, and it resisted making a change in the accounting system. Many believed that benefits to the system did not outweigh the cost of its implementation and use (Pattison Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 65 and Arendt, 1994). Instances of unsuccessful applications, as well as less than uniform acceptance of ABC by companies in general as a reliable accounting method, are among the reasons why it is not as popular as it could be. In telephone interviews conducted in December 1995 and January 1996 with R. Pojasek and N. von der Schulenburg respectively, both independently admitted that A B C in the environmental context is not practised to a significant degree14. Others, however, provide examples of companies experimenting with ABC as well as with other environmental accounting methods. For instance, Awasthi (1994) reports that Martin Marietta Energy Systems used A B C for analyzing the causes of environmental, health & safety activities. U.S. telecommunication company A T & T established a Green Accounting Team that determined the usefulness of ABC to A T & T "as a tool for identifying the true costs of products, thereby providing an impetus for process improvement or reengineering that does not necessarily arise from traditional cost accounting systems, which do not highlight environmental costs" (EPA, 1995b, p.23). Other companies, such as Dow Chemical, Ciba-Geigy, Amoco and S.C. Johnson Wax, participated in a special project launched by the World Resources Institute, which was anticipated to enhance the credibility of applying ABC to handling environmental costs (Russel et al., 1994a; Thayer, 1995)15. Notably, the U.S. Environmental Protection Agency gave its support to the project. In June 1995, the EPA published An Introduction to Environmental Accounting as a Business Management Tool: Key Concepts and Terms, to guide companies willing to practice ABC and other methods of environmental accounting. Dr. R. Pojasek is a Senior Program Director at Cambridge Environmental, Inc., and N. von der Schulenburg works for Arthur D. Little, Inc. Both specialize in the area of environmental costing and accounting. 1 5 The project was concluded by the report, Green Ledgers: Case Studies in Corporate Environmental A ccounting. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 66 4.4 Environmental Benchmarking Definition. The essence of benchmarking is comparison. A company may attempt to address environmental issues by setting an EMS that aims at improvement through adopting best practices from within or outside its industry. In such a case, the EMS and environmental actions are contrasted with, or benchmarked against successful predecessors in the given area. The Global Environmental Management Initiative (GEMI), formed by 27 large companies from different industries to foster environmental excellence by business worldwide, offers the following definition of benchmarking: "Benchmarking is a process of comparing and measuring an organization's business process against best-in-class operations to inspire improvement in the organization's performance" (GEMI, 1994, p.l). This general definition can be applied to the industry context under examination in the present work, that is, the Canadian pulp and paper industry. Benchmarking, as noted by Bhat (1995), is broader than mere competitive intelligence gathering. The purpose of benchmarking is also to identify performance shortfalls and to take action to fill the gaps. Bhat also adjusts G.E.M.I.'s rather broad definition to the environmental context. Environmental benchmarking may also include the following yard sticks: • need to comply with current and future environmental regulations, • waste treatment and disposal costs, • potential environmental and safety liability, • quantities of wastes generated, • toxicity, corrosivity, reactivity and flammability of wastes generated, • effects of waste on the employees and surrounding communities, • cost reduction potential, and • recyclability of materials. Components. What distinguishes benchmarking from environmental auditing, L C A and A B C is a quest for unquestioned excellence, rather than efforts toward partial improvements. While Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 67 the two previous approaches implied satisfaction with relative environmental gains, benchmarking dictates following the exemplary firms and their solutions in order to ultimately reach their level of environmental excellence. Benchmarking, as a process, is composed of nine steps, as presented in Figure 3.9 below. The process in Figure 3.9 was originally designed by AT&T, and later endorsed by G.E.M.I.. It has since become a popular model for other companies. Benchmarking calls for both precision in plans and flexibility in execution. Nonetheless, the objectives at each step, and the corresponding actions for achieving them, are broad enough to leave room for interpretation and adjustment to individual organizations' needs. A support for this observation was published by Environmental Manager in November 1992. The magazine quoted A. Gagnet, vice president of Environmental Quality Corporation and a former State of Florida pollution prevention consultant, who stressed the importance of keeping an open mind when doing environmental benchmarking. The major message conveyed was that benchmarking is not about what is the best way of doing the things we do know, but what is the best way of reaching the goal of being the best. Says Gagnet: Let's say you have a wet process. You've always done it wet and as far as you know that's how everybody does it. If you look only at what the best wet process is, you've already excluded thinking about the possibility of doing the same process dry. Yet there could be a dry process for doing the same thing that is better for environment and cheaper for your company {Environmental Manager, 1992, p.10). Review of the Existing Practice. Karch (1994) has noted that greater attention to benchmarking as a method for solving environmental difficulties by companies became evident around mid-1987. Credit for the rise in popularity goes primarily to Xerox Corporation. Karch also points out that despite the lack of available information in the public domain, explaining how to benchmark, and despite the scarcity of consultants with relevant experience, Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 68 Figure 3.9: Benchmarking - Major Steps, Activities and Objectives STEP ACTIVITIES OBJECTIVES Project Conception Establishing senior management commitment Gathering necessary project funding Selection of benchmarking targets Setting a procedure for data collection Review of the logistics of the benchmarking process design Assessment of time needed for project completion : Identification of expertise needed Selection of a benchmarking project manager Review of project objectives and schedule Benchmarking training (if needed) Establishing communication reporting & project management to establish an environment favorable to benchmarking to establish a project scope to estimate resource requirements to set project schedule to form a benchmarking team : to develop project specifics [Planning Final review of project scope and schedule to finalize the benchmarking project plan Preliminary Data Collection Development of'best-in-class' selection criteria such as: - industry type - size - company location - critical customer requirements - process characteristics - waste complexity - environmental accomplishments Development of data collection techniques and sources Collection of preliminary data to gather data on industry performance relative to the targeted programsand procedures [Best-in-class Selection Setting up a meeting with representatives of potential 'best in class' companies Study of the candidate 'best-in-class1 companies' data profiles to select companies with 'best-in-class' proi to refine question sets for detailed data seU Best-in-class Data Revisiting data collection approach Scheduling of data collection sessions Assignment of team roles and responsibilities Collection of required data Development of visit reports to plan, schedule and participate in visits of 'best in class' companies Analysis of collected benchmarking data: - compilation of visit data - recording of key characteristics of the data - data arrangement for comparison purposes - determination of whether the data elements are critical to a 'best in class' program Definition of elements of'best-in-class' model - establishing ranking system for data - assignment of collected data to logical groups Determination of process gaps - good gaps (if achievement levels are greater than those of benchmarking partners) - bad gaps (if performance lags behind the best and calls for an improvement plan) Development of recommendations to make relevant comparisons between programs and processes under study to identify potential areas for improvement Implementation {Planning Definition of operational goals Definition of operational plans such as: - organizational strategies/practices - accountabilities, responsibilities - measures - recognition and reward system • human resources policies and systems Development of implementation plan with emphasis on: - scope of the effort - resources required - measurements and standards - contingency plans [Implementation Monitoring changes and reporting on progress to manage the process change Recalibration Assessment of improvements Determination of whether additional benchmarking is needed to verify that improvements made brought the company closer to 'best-in-class' performanci Source: Compiled by author from information from G.E.M.I. (1994) FIG3_9.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 69 successful efforts to benchmark in the environmental field were known even before 1987. Interestingly, one of the environmental benchmarking pioneers was U.S.-domiciled Weyerhaeuser Company. Karch reports that while Weyerhaeuser enjoyed a positive reputation for environmental management, topping the list in its industry segment in Fortune's annual "most admired companies" survey, its management realized that there was much that the firm could learn from others. With no developed methodology to follow, Weyerhaeuser was forced to develop its own benchmarking process. The project lasted from 1983 through 1987, and was based on the 33-step process designed by the company. The benchmarking team eventually worked with six "best-in-class" benchmarking partners and came up with 34 key findings. These findings were then analyzed, and at the end of the process, seven short-term measures and a number of longer-term measures to address were recommended in order to improve Weyerhaeuser's environmental performance. Successes in environmental benchmarking have been recorded in different industries on a larger scale. This has been possible because of essentially the same components existing for benchmarking in different industries. Bhat (1995) mentions that certain companies, such as 3M, Dow Chemical and Ben & Jerry, became true leaders and world-class partners for environmental benchmarking. Barron (1994) cites R. Price, environmental stewardship manager with Du Pont Corporation, who took part in what was called the "Business Roundtable on Facility Level Prevention Benchmarking Program". Price expresses the observation that there are common elements to organizing a successful pollution prevention benchmarking program which transcend industry sectors. Weaver (1993) concurs with this view, but advises caution when considering the benchmarking approach. She argues that: Benchmarking may be with peer companies or by function with companies outside your industry. It's a key tool in order to get best-in-class performance. But you don't want to start benchmarking very early in your process. You do it at the point where you've identified some key gaps. Benchmarking is a rifle shot, not a shotgun. You want to aim precisely at identifying areas where you need to improve {Environmental Manager, 1993, p. 11). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 70 4.5 Total Quality Environmental Management Definition,. T Q E M is a product of merging environmental management with the concept of Total Quality Management (TQM). T Q M had its origin in the United States during World War II, when statistician W. Edwards Deming helped engineers to use statistical theory in order to reach improvements in product and production quality. After the war, Deming's work received considerable interest in Japan, the later success of whose cars and electronics was credited to the application of T Q M principles ( GEMI, 1993). The T Q M principles include: continuous improvement in products and production process, teamwork and empowerment, a strong orientation toward stakeholders, and a prevention orientation. T Q E M is the application of these Total Quality principles to environmental management (Environmental Manager, 1993). For the purpose of this work, this definition of T Q E M will be adopted. Neidert (1993) states that T Q M depends on close observation and measurement of deviations from performance standard specifications with a focus on continuous improvement. The connection between T Q M and T Q E M lies in the inclusion of environmental performance as a component of production performance. In the case of T Q E M , emissions to the environment are treated as quality defects, similarly to deviations in product specifications. Both sets of defects carry with them the costs of nonconformance. In both instances, raw materials and labour are spent and revenues are lost on the production of nonsalable products or services. This view is supported by Johansson (1995, p. 135), who states that "waste of any kind, be it human, air, water, land, or time, is lost profit". Components. According to Johansson (1993/94), T Q E M offers tools and processes that allow a company to take a philosophical vision - sustainable development - and work toward it by integrating quality- and ecology-related goals into the business functions continuously overtime. Arguably, T Q E M is the most advanced and demanding of EMS concepts. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 71 Reliable, prescriptive information sources on T Q E M are still scarce. Weaver and Vorehauer (1993) indicate that regrettably the T Q E M literature consists, for the most part, of anecdotal, case-study oriented materials. The demand for an organized approach to T Q E M was partly satisfied recently by the creation of a T Q E M matrix, published by the Council of Great Lakes Industries16. The matrix, which was originally proposed and used at Kodak, shows a series of T Q E M components as well as suggests possibilities for both qualitative and quantitative assessment of TQEM. Moreover, it provides a roadmap for T Q E M implementation. According to the CGLI model, there are seven major categories that make up T Q E M , as presented in Figures 3.10a and 3.10b. Weaver (1993) characterizes the relationships between these categories as follows: • T Q E M begins and ends with the Stakeholder. Knowledge of stakeholders' expectations will lead to the development of systems that improve the company's performance in order to better satisfy stakeholders' needs. • To accomplish this objective, Leadership from senior management itself is a prerequisite. Without that leadership, it is impossible to gain the organization's commitment to resources to achieve the objectives of TQEM. • Once senior management is committed, gathering Information may begin, followed by the analysis of this information. Then the information may be relayed into the company's Strategic Planning. • Throughout the planning, goals and objectives are set, and expected measures for The Council of Great Lakes Industries (CGLI) groups companies from the U.S. and Canada. Among the members of the CGLI are Argonne National Labs, Ford Motor Co., Dow Chemical, Xerox Corporation, B A S F , International Paper, Eastman Kodak, Avenor, and the Federal Reserve Bank of Chicago. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 72 Figure 3.10a: Total Quality Environmental Management Matrix Category and Weighting LEVEL RANK LEADERSHIP 15% INFORMATION & ANALYSIS 7.5% STRATEGIC PLANNING 7.5% HUMAN RESOURCES DEVELT 10% Maturing 10 Benchmarking indicates unit is "best-in-class' in leadership and senior management commitment. Benchmarking indicates unit is best-in-class' in use of EHS info management strategies. Unit's EHS strategies position urrit as "best-in-class1 in EHS stewardship. Benchmarking indicates unit is "best-in-class' in effective involvement of work force in EHS management 9 Senior management strategies for customer/stakeholder dialog/partership contribute to achievement of units EHS and business objectives. EHS cost-tracking systems in place; data widely available; life-cycle data used where appropriate to improve EHS performance. Information on competitors' EHS strategies used to improve unit's strategies and performance. EHS needs fully integrated into unit's human resource development plan. Training/education programs for EHS staff include key business knowledge. S Senior management proactive! y participates in EHS public policy process; communicates plans/ accomplishments externally as appropriate. EHS information systems integrated with higher-level systems and used to support strategic planning. EHS integrated into long and short-term business plans for all of unit's products, processes and services. Career opportunities providing EHS experience are widely available. Employee EHS involvement improves both EHS and business performance. 7 Continuous improvement used by senior management to improve EHS management, strategies and objectives in response to changing needs. EHS data/info analyzed and correlated with other data to support decision-making. Strategies/objectives consistent with EHS principles and values. Employees proactively initiate activities to improve EHS performance. Growing 6 Senior management uses reward/consequence systems to reinforce responsible EHS performance. EHS data/info used to plan and design new products, services and processes. EHS plans and deployment consistently aligned at all levels of the unit Unifs re ward/rec ogrri ti on systems reinforce responsible EHS behavior. Measures/trends exist for employee attitude/perceptions of EHS. 5 Senior management conrnnuricates unit's EHS values and principles externally to key customers and other relevant parties. EHS data/info routinely used to improve existing processes, products, services; EHS information management systems in place. Action plans, responsibilities, timelines to implement key EHS objectives in place. Key objectives communicated throughou unit Measures of EHS training effectiveness in place; employees with potential to impact EHS are competent to perform EHS responsibilities. 4 Senior management committed to unit's key strategies, plans, measures and resource commitments. Management regularly reviews/ improves EHS management system. External EHS data gathered, including key customers' EHS needs and interested parties1 views. Long and short-term plans that include EHS objectives are reviewed and improved at least annually. Key measures include EHS measures. Employees aware of risk/potential impacts of individual behavior. Employees trained to respond to emergency and other non-routine situations. 3 Senior management integrates EHS into decision-making; organizational structure contributes to realizing EHS objectives. Processes in place to assure and improve data quality; baseline internal EHS data gathered and trends identified. Resource allocation consistent with EHS commitment; EHS prioriti integrated with other business technical, operations priorities to create unit's strategies & gpaXs. AH employees have received appropriate EHS training; employees aware of EHS compliance requirements. 2 Senior management acts as role model & mentor. Framework to enable effective employee involvement in EHS programs in place. EHS legal, regulatory and other internal requirements defined; key EHS risks, hazards determined. Key EHS data on customer needs, risks, compliance, views of relevant parties, EHS impacts. Data used to create EHS priorities. Appropriate EHS training/education programs developed and scheduled Systems in place for periodic retraining, and for new employees. Beginning 1 Unit-level EHS vision, principles, values and ethics in place; comiromicated and understood throughout unit Process in place to identify EHS data needs in support of unit's key business needs; data quality needs defined. A long-term (3-5 yr) and short-term (1-2 yr) planning process used that addresses EHS needs; annual operating plan includes EHS management needs. EHS training/education needs identified; resources committed. EHS roles, responsibilities, authorities assigned and documented. Source: Weaver (1993) and Weaver & Vorhauer (1993). F I G 3 _ 1 0 A . W K 4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 73 Figure 3.10b: Total Quality Environmental Management Matrix (continued) LEVEL RANK Category and Weighting PROCESS MANAGEMENT 15% EHS Results 30.0 % Customer/Stakeholder Satisfaction 15.0 % Maturing 10 Benchmarking indicates unit is best-in-class' in area of process management. Benchmarking shows unit is best-in-class' in EHS performance. Benchmarking shows unit is 'best-in-class' for customer/stakeholder satisfaction with unit's EHS performance. 9 Continuous improvement used unit-wide for all EHS activities. Benchmarking results used to improve EHS performance. Customer/stakeholder-focused EHS improvements correlated with financial improvements, market share, public opinion of EHS performance. 8 Evidence exists that early inclusion of EHS considerations into product/ process design cycle improves delivery, productivity, and customer/shareholder acceptance. Benchmarking measures identifi benchmarking initiated. External communication of EHS results to relevant external parties . EHS data/information correlated with other data to predict future market direction opportunities. Growing Beginning 7 Process in place to ensure suppliers and contractors meet unit's EHS requirements. EHS improvements contribute to financial and business improverr. EHS training/education/communication f r customers and other relevant parties improves satisfaction. 6 Process in place to incorporate customer/other EHS requirements in design/development cycle for new products, processes and services. Supplier/contractor EHS performance meets unit's requirements. Customer/stakeholder EHS data and information managed and commuriicated effectively and used to improve performance and satisfaction. 5 Prevention focus in place. Root cause analysis used for preventive/correctivi action. Cross-functional EHS expertis in place. Operational controls in place Positive improvement trends in unit's key EHS measures. Positive improvement trends in customer/stakeholder satisfaction. 4 Unit-wide EHS audits used to evaluah improve EHS management system and to determine conformance with regulatory requirements & other commitments. EHS measures reviewed and improved at least annually. Customer/stakeholder satisfaction measures identified. 3 EHS documentation meets regulatory and internal requirements. Records retention and document control process in place. EHS results compared with objectives and targets and used to improve effectiveness of management systems and performance. Effective processes used to learn, anticipate, and respond to long-term customer/stakeholder EHS requirements. 2 Monitoring and measurement in place for all operations that can have significant EHS impacts. Process exis to translate EHS principles into standi practices. EHS results communicated internally.  to • s/ Effective processes used to receive/ resolve EHS questions and concerns from customers and stakeholders; data used to anticipate and prevent problems. 1 Monitoring and measurements needs defined. Process in place to ensure measurement data quality; emergency preparedness/response procedures in place. EHS performance measures identified. Baseline data and trends collected. Effective process used to provide required EHS regulatory information to customers and relevant parties. Source: Weaver (1993) and Weaver & Vorhauer (1993). FIG3_10B.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 74 success are chosen. In order to implement T Q E M , management must engage the appropriate involvement of people - Human Resources - who need to work effectively together, using teamwork and consensus. There is a need for a system of checks and balances, or what is called Quality A ssurance. These review or feedback loops help the company to continuously make improvements in the overall EMS. • Finally, the focus of T Q E M remains on Environmental Results that satisfy Customer/Stakeholder needs. The CGLI model also enables companies to quantify their actual T Q E M practice. Each of these seven categories is weighted differently to reflect the relative importance of different categories. The scoring is organized in the following manner: (1) a cell of the matrix receives 1 if the activity shown in it is fully in place, (2) a cell receives 0 if no activity is underway, and (3) a cell receives 0.5 if some activity is underway. Further, no score is provided for higher cells, once a cell is reached that has no activity. The rationale behind this ranking system is that activities in lower cells need to be in place, since they are fundamental to the success of higher-ranked cells. Review of the Existing Practice. Implementing T Q E M can be neither simple nor easy. The TQEM Primer (1993) warns that a T Q E M system does not happen overnight. Rather, the process becomes an evolution in the culture of the organization. Furthermore, the financial and human resources required led O'Dea and Pratt (1995) to question whether smaller companies can truly get involved in the pursuit of TQEM. Despite these challenges, implementing T Q E M often pays off. There is evidence that (i) regulatory authorities endorse this concept, and (ii) certain companies have achieved Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 75 considerable economic successes due in large part to practising TQEM. T Q E M resonates well with regulators. In the U.S., the EPA is encouraging T Q E M in the companies it regulates. According to F. H. Habicht, EPA deputy administrator, the agency's recent pollution prevention initiatives are founded on Total Quality principles (Kirschner, 1992). T. Donahue, president of Earthwise, a Connecticut-based environmental marketing and strategic planning group, thinks that T Q E M may be a panaceum to firms' problems with regulators and other stakeholders. He says: There is no question in my mind that TQEM is the key with which business can begin to rebuild its credibility and influence among legislators who formulate environmental regulations; and [among] the public at large who have a deep-seated distrust of business in this regard (quoted in Johansson, 1993, p.468). In Canada, support for T Q E M is just as strong. Johansson (1993) illustrates this by quoting D. Durrant, special advisor to Environment Canada's National Office of Pollution Prevention in the Conservation and Protection Service. Says Durrant: There is a need to combine environmental and [total] quality management to more effectively address both corporate and public policy concerns and opportunities about the environment. The Canadian federal government is combining these through a 'mix' of regulatory and non-regulatory approaches, with emphasis on pollution prevention ...( quoted in Johansson, 1993, p. 470). Tangible operational improvements resulting in economic gains are another incentive, apart from the support for T Q E M from governments. For example, O'Dea and Pratt (1995) report that T Q E M at Xerox spawned an asset recovery program. At 3M, it expedited several changes which were responsible for saving the company millions of dollars. Thompson and Rauck (1993) present A T & T as a true T Q E M success story, where T Q E M has resulted in the development of environmental design parameters for products. Kirschner (1992) informs about Du Pont's T Q E M program, under which a new tetrahydrofuran plant was constructed in Asturias, Spain. In the course of the program execution, changes to the production process, as well as to general housekeeping, cut organic compound emissions by 99 per cent. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 76 Kirschner (1992, p.61) cites J. Plaut, Allied-Signal's director of worldwide environmental programs, who admits that, while the benefits of environmental management are not always easy to measure, T Q E M offers companies savings because "accidents cost money". He says that with the U.S. National Safety Council's estimate of an average clean-up cost $20,000 per environmental accident, the 10 percent annual decrease in accidents at Allied-Signal which was attributed to T Q E M yielded considerable savings. Plaut adds that the company also reduced hazardous waste by 50-60 percent in four years, which produced savings in the cost of handling and decreased in liability. 5.0 ENVIRONMENTAL PERFORMANCE The importance of measuring and evaluating companies' environmental performance is often emphasized by practitioners. At stake is not only the matter of remaining in compliance with regulations, but demonstrating progress on environmental issues when expectations are high. Cahill and Kane (1994) suggest that environmental performance is a platform on which companies can demonstrate how well they respond to the challenge of the 1990s17. Peattie and Ringler (1994, p.216) add that environmental performance "will become an increasingly important issue for companies when it comes to winning business, attracting investment and staying within the law". Miakisz (1994, p.47) suggests that measuring environmental performance is important for at least three reasons. First, "what gets measured, gets done". Miakisz, as well as Haines (1993), argue that on a daily basis, environmental managers are overwhelmed with data detailing waste tracking, material/emission balances, compliance and monitoring reports, etc., and that it is in their interest to establish comprehensive environmental performance measurements or indicators in order to better orient themselves to the environmental situation faced by their Cahill and Kane (1994) discuss the February 1990 World Economic Forum where 650 industry and government leaders ranked the environment as the number one challenge for business. They add that 'sustainable development' is no longer a fashionable cliche but one which makes high expectations for corporate environmental performance a reality. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 77 companies and thereby position themselves to direct actions toward improving this situation. Second, measuring environmental performance creates an opportunity to identify strengths and weaknesses. Quantitative measures of environmental performance enable a company to gauge achievement with respect to annual goals and to determine progress relative to previous years. Those companies striving for continuous improvement need a system for measuring and demonstrating environmental performance. Third, a measurement system allows a company to report its environmental performance in an accurate manner to its internal stakeholders such as employees, as well as to external stakeholders, like regulators, consumers and investors. Miakisz (1994) observes that independent observers such as the Council on Economic Priorities are increasingly publishing environmental performance ratings of companies for investment firms and other clients. In that light, what some may find surprising is the fact that so far there is no established, consistent way of measuring performance and improvements achieved in corporate environmental management (see: European Green Table, 1993). This may be a viable explanation for the fact, reported by Miakisz (1994), that often companies who are subject to evaluation of environmental performance by unsolicited external evaluators, find fault with the data or evaluation approach. Consequently, bad publicity is generated by a poor rating. Evaluation of environmental performance usually involves examining different environmental performance indicators. There are at least two types of environmental performance indicators: absolute and relative. Absolute indicators provide information about the total amount of natural resources an organization uses and its total impact on the environment. These are the simplest indicators to calculate, because they involve adding sets of like volumes together for a specified period of time. Relative indicators also relate to a specific period of time, and describe environmental improvements over that period, or compare efficiency of resource use between sites or activities within the organization. The Canadian Institute of Chartered Accountants (1994) notes that a common approach for developing efficiency indicators is to divide an absolute amount by the units of production. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 78 Haines (1993) points out that a basic premise for establishing corporate environmental performance indicators is the balance between compliance and business economics. In other words, in the business context, environmental improvements ought not be achieved at prohibitive costs virtually put a company out of business. In general, management is aware that environmental compliance has an impact on profits. This opinion corresponds with the tradeoff option as advocated by Walley and Whitehead (1994) and discussed in section 2.0. Haines (1993) also offers a number of generic environmental performance indicators, all based on the premise of comparison and improvement. Figure 3.11, constructed on the basis of information provided by Haines (1993), presents these indicators along with the objectives they serve, some formulas for calculation and means for interpretation. These indicators are clearly defined and easy to measure. They make a good starting point for the development of more industry-specific environmental performance indicators. Yet, as it happens, chosen environmental performance indicators vary between companies which are not only in the same business, but are even located in proximity to each other. Figure 3.12 provides a comparison of three classes of environmental performance indicators, (i) air management, (ii) waste management and (iii) energy management, as adopted by Canada's Ontario Hydro and the United States' Niagara Mohawk Power Corporation, showing tangible differences in what companies may individually perceive as important to reflect their environmental performance. Recently, the management consultancy Arthur D. Little Inc. developed the concept of the Environmental Performance Index (EPI), through which a large volume of quantitative environmental data is translated into a single numerical score. The EPI, which has enjoyed remarkable publicity recently18, can be appealing due to its relative versatility of application, regardless of the nature of the industrial operation. Its key role is to communicate information Information on the EPI was found in: Sebastian (1995), Chemical Week (1995), Chemical and Engineering News (1995), Environment Today (1995), Environmental Manager (1995b), International Risk Management (1995), Waste Tech News (1995), and Environment, Health & Safety Management (1995). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 79 Figure 3.11: Generic Environmental Performance Indicators INDICATOR SUBJECT OBJECTIVE FORMULA FORMULA COMPONENTS Water * Effluent Pollution * to measure a plant's performance in maintaining a high standard of compliam * to promote continuous improvement and the requisite action plan to reach and maintain 100% compliance. % C = {(Ts-Es)/Ts) x 100 e; % C= percent compliance T= total number of samples taken for the reporting period E= total number of samples exceeding permit requirements Air Emission (Total quantity) * Air Pollutio * to determine air emission per unit of production for a standard time period (typically expressed as tones of emission per unit of production per month or year). % A = {(Ap - Ac)/Ap} x 100 %A= percent air pollution reduction per unit of production between periods Ap= air pollution produced per unit of production for previous period Ac= air pollution produced per unit of production for previous year Percent Waste Reduction * Solid Waste * Hazardous Wastes * to compare solid/hazardous waste produced per unit of production to the quantity of solid/hazardous waste per unit for a representative baseline period. %S={(Sb-Sc)/Sb}xl00 %S= percent solid/hazardous waste reduction per unit of production Sb= reduction in solid/hazardous wastes produced per unit of production for baseline year Sc= reduction in solid/hazardous wastes produced per unit of production for current year Energy Efficiency * Energy Consumptio * to determine energy consumption per unit of production for a standard time period. % E = {(Ep - Ec)/Ep} x 100 E= percentage of energy consumption change per unit of production Ec= energy consumed per unit of production for current period Ep= energy consumed per unit of production for previous period Source: complied by author from information adapted from Haines (1993) FIG3_11.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 80 Figure 3.12: Comparison of Environmental Performance Indicators, as Chosen by Two Power Companies: Ontario Hydro and Niagara Mohawk. PARAMETER ONTARIO HYDRO NIAGARA MOHAWK Air Pollution Management: Coal sulphur content # Sulphur dioxide emissions • • Carbon dioxide emissions • • Nitrogen oxides emissions • Visible emissions • Radioactive emissions • Waste Management: Solid waste # • Hazardous waste • • Used oils • PCB inventories • • Herbicides • • Spills • • Combustion wastes • • Radioactive effluents • Heavy metals in effluent Energy Management: Energy savings • • Heat rate efficiency • Alternate fuel vehicles • Source: Compiled by author from infromation provided by Miakisz (1993) and Wolfe et al (1993). FIG3_12.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 81 for more informed decision-making, and as such, the EPI can be especially appreciated by senior executives. The EPI draws on data for specific performance parameters, grouped in four categories: (1) compliance, (2) environmental releases, (3) resource consumption, and (4) environmental remediation. Figure 3.13 presents the EPI categories along with corresponding subcategories and parameters. Quantitative data of varying importance is scored and weighed. While the index certainly has the potential to be used by environmental managers at pulp and paper companies, with a few adjustments, it represents rather low utility for this study for the following reasons. First, it treats environmental violations and exceedances uniformly, i.e. does not make provision for the magnitude of the occurrence. For instance, it treats identically different pollutant loads as well as durations of the exceedance. Second, it treats certain groups of pollutants collectively while the others are considered individually. For example, there is no distinction between organic and non-organic water pollutants, while in the case of the EPFs Global Environment category, specific distinctions are made between individual gaseous pollutants. Third, it features parameters not necessarily critical for the pulp and paper industry and its impact on the environment, such as electricity consumption, paper purchases and thermal energy consumption. For these reasons, the EPI in its current form will not be used for this study. Instead, a separate environmental performance evaluation framework is devised and presented in Chapter 6. 6.0 CONCLUSIONS Any industrial company, including ones in the Canadian pulp and paper industry, faces a choice of strategic responses to the issue of environmental protection. These responses range from non-compliance to leading edge strategy and are influenced by different exogenous and endogenous factors, such as environmental regulations, public pressure and current production technology. While there are a number of companies who achieved economic benefits through Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 82 Figure 3.13: Environmental Performance Index: Categories and Parameters CATEGORY SUBCATEGORY PARAMETERS Compliance * Notes of Violations Received * Fines * Exceedances * Incidents Environmental * Air Releases - Air Toxics Release - Ozone Precursors - Particulates - Acid Rain Causing Substances * Water Releases - Water toxics - Other water releases * Land Releases - Solid Waste to Landfill - Hazardous Waste to Landfill - Total Hazardous Waste Generated - % of Hazardous Waste to Recycle and/or Reuse * Global Environment - Carbon Dioxide - Halocarbons - Carbon Monoxide - Methane - Ozone Depleting Substances Resource * Thermal Energy Consumption Consumption * Electricity Consumption * Water Consumption * Paper Purchases Remediation * Effective Number of Sites * Risk Factor Source: Arthur D. Little Ltd. (1995) FIG3_13.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 83 environmental improvements (hence supporting the win-win proposition), often environmental action leading to impact mitigation entails high and sometimes prohibitive costs for many companies, thus jeopardizing their economic welfare (thus bearing out the win-lose proposition). These observations have prompted some environmental practitioners to advocate a tradeoff approach to the setting of environmental strategy, where by a company's economic welfare is not sacrificed in the pursuit of environmental goals. Rather, they advocate finding a balance between economic costs and environmental benefits in the design of an environmental strategy. Focusing on end-of-pipe results and investing in environmental abatement hardware is one way to address environmental impact problems. Another emphasizes prevention attained through well-designed environmental policies, duly executed through an EMS. The success of an EMS depends on the quality of its design as well as on the people responsible for its operation. Environmental management systems themselves can be patterned on a number of available approaches. Some of the approaches are reviewed in Chapter 3: namely, environmental auditing, L C A , ABC, environmental benchmarking and TQEM. This review shows how differently an organization may approach environmental management, depending on its management orientation (such as legal, scientific, or continuous improvement) and associated drivers (such as compliance, impact minimization and stakeholder interests). Appropriate environmental policies and effective EMS have the potential to improve companies' environmental performance. This performance may be measured in terms of such pollution control indicators as TSS and BOD, which have been selected for this study. Part II will revisit each of these aspects of corporate environmental management, in presenting the direct research regarding environmental strategies pursued, the state of EMS in place, dominant approaches to environmental management and actual environmental performance in Canadian pulp and paper companies. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 84 CHAPTER 4: PREMISE OF THE CASE STUDY AND OUTLINE OF ISSUES TO BE INVESTIGATED 1.0 INTRODUCTION Chapter 4 begins Part II by underlining the premise of this thesis, first, by addressing the relevance of corporate environmental management to the Canadian pulp and paper industry, then by demonstrating the inherent diversity of the industry, and finally, developing a list of questions about environmental management in this industry to be answered in the course of the research. The Canadian pulp and paper industry is one of the key pillars of Canada's national economy. It is the largest manufacturing industry, both in terms of value of production and in terms of total wages paid (Doering et al., 1992). Furthermore, Canada is one of the world's leading exporters of pulp and paper, with more than 80 per cent of its products exported to 100 countries worldwide (CPPA, 1995). Given the importance of this industry to the welfare of relatively many Canadians and their families, as well as to the general condition of Canada's economy, it is worth examining whether the pulp and paper industry, both in Canada and elsewhere, has reasons to practice environmental management and establish EMS. This chapter looks at several aspects of the industry which might lead to environmental actions: its environmental record (section 2.0), public perception (section 3.0), market pressure (section 4.0), pressure from the trade association (section 5.0), and required compliance with regulations (section 6.0). Section 7.0 looks at the structure of the industry and section 8.0 introduces the questions to be answered by the research. 2.0 ENVIRONMENTAL RECORD When writing about the Canadian pulp and paper sector, Marotte (1990, p. 7) characterizes it as "a notoriously pollution-prone industry". In numerous cases, such as twenty Quebec mills Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 85 who dumped excess toxic wastes in rivers in 1993, this reputation may be well-deserved (Derfel, 1995). Harrison (1992) provides a macro picture of the varying degrees to which pulp and paper mills in Canada were breaching environmental regulations. She observed that while the situation was the worst in eastern Canada, the B.C. mills were also far from full compliance. Annual expenditures on the environment, by the industry each year are sizable, and in many individual cases amount to millions of dollars19. Thompson (1994) notes that even though Canadian mills have greatly reduced emissions and discharges during the past 30 years, by and large they still lag behind their main foreign competitors in overall pollution control. Mannisto et al. (1996) confirm this claim, by showing the data on BOD discharges in the pulp and paper industries in three countries: USA, Finland and Canada20. 3.0 PUBLIC PERCEPTION The industry has reasons to be concerned about its general public image. By virtue of its operations and generated wastes, the pulp and paper industry is perceived to be a serious polluter. In Canada, a 1989 CPPA survey found that as many as 75 percent of Canadians were concerned about air and water quality damage caused by pulp and paper mill operations (see: Pulp & Paper Journal, September 1989). In the U.S., the opinion of the pulp and paper industry by the general public, employees and plant communities, as of 1992, was one ofthe least favourable among 11 industries in the sample. A net negative change in favourability toward various industries from 1991 to 1992 was clearly the highest for the pulp and paper industry (Hunter and Mullin, 1992). Details regarding total and environmental investments, as borne by the Canadian pulp and paper industry, can be found in the following sources::Canadian Papermaker (1995), Karl (1993) and Karl (1994). 2 0The results reported by Mannisto et al. (1996) show that in 1980, 1990 and 1993, the proportions of BOD 0tg / A D t ) discharges from Canadian, U.S. and Finnish mills, respectively, were in the approximate ratios of 50:30:6, 21:8:5,and 12:3:4. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 86 The industry seems to acknowledge these facts and declares a need to change. Leaving aside the question of whether words will be followed by deeds it is relevant to quote Ian Donald, chairman of the board at Fletcher Challenge Canada, who said the following during the 77th annual meeting of the CPPA in 1990: If this industry wants to survive the new industrial revolution of the 1990s, and the changing social attitudes that go with it, then it must clean up its act as the first step in reestablishing its credibility (Marotte, 1990, p.7). 4.0 MARKET PRESSURE Odendahl (1994) states that since Canada remains the world's largest exporter of forest products (comprising pulp and paper, converted paper products, and wood products), the Canadian forest products industry is particularly vulnerable to certain international trends. She refers to the federal government's 1993-1994 International Trade Business Plan21, which points out that there are several environmental trends potentially affecting markets and trade. One such trend is the increasing use of environmental issues as non-tariff barriers to keep out products, processes or whole industries based in countries that are perceived to have less stringent environmental standards. Even if a product reaches the market, it is clear now that customer demand, particularly in Western countries, is not solely a function of the price of the product. Recent years were marked by increasing environmental awareness on the part of consumers, who often chose not to buy goods manufactured in a process adversely affecting the environment. For instance, Stanbury and Vertinsky (1995) provide a thorough account of the organized campaign against and effective consumer boycott of Canadian forest products in the European market, because these were deemed to be producing severe negative impacts on Canada's natural environment. See: Government of Canada (1992) Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 87 5.0 PRESSURE FROM THE TRADE ASSOCIATION While pressures from the buyers and other members of the public are most dominant, pulp and paper companies also face pressure from their own trade association. Pulp and paper companies are likely to be attentive to what the Canadian Pulp and Paper Association signals, as trade associations give their members a sense of industry-wide uniformity. The firm's executives can gain an "outsider's" perspective from trade associations that can increase candor and clarify the vision for each firm (Stanbury, 1993a). With regard to the environment, the CPPA published a position statement which clearly binds its members to "support the responsible stewardship of resources, including forests, recyclable materials, fish and aquatic habitat, wildlife, air, land and water" (CPPA, undated). While, arguably, these words are vague enough to permit the companies to avoid action without losing face, the CPPA goes on to state, inter alia, that: • the companies [of the Canadian Pulp and Paper Association] commit themselves to excellence in sustained yield forestry and environmental management, and will conduct their business in a responsible manner designed to protect the environment and the health and safety of employees, customers, and the public; • the companies will assess, plan, construct, and operate facilities in compliance with all applicable regulations; • the companies will manage and protect forest resources under their stewardship for multiple use and sustained yield; and • the companies, beyond or in absence of regulatory requirements, will apply sound management practices to advance environmental protection and reduce environmental impact. (CPPA, undated, p.l) Pulp and paper companies have an interest in heeding the official environmental policy of the CPPA. They know that the association stood for them as a collective representative in Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 88 international environmental disputes. For example, it was the CPPA who played a considerable role (both organizational and financial) in counteracting the boycotts of Canadian forest products in Europe (Swift, 1992; Hamilton 1994). Domestically, the CPPA often acts as an advocate for the industry, representing it before the government. Bueckert (1992) cites the CPPA's active involvement in opposition to certain aspects of the proposed 1992 dioxins and furans regulations, which were to give Environment Canada the right to inspect operations inside pulp and paper mills. The CPPA voiced the opinion that the government's job was to set environmental standards and not to meddle with internal operations. Due to its leverage as a valuable advocate for the industry, environmental policies published by the trade association may put significant pressure on member companies to comply. 6.0 COMPLIANCE WITH REGULATIONS While all of the above factors can potentially play an important role in the pulp and paper company's decision to establish EMS, the industry as a whole is similar in many ways to the ones surveyed by KPMG. Ferguson (1994) observes that, for instance, among the key pressures inducing environmental action at Weyerhaeuser Paper Co., its VP of manufacturing and technology R. Erickson recognized the regulations as the very top factor. Erickson says that along with market forces, regulatory issues drive pulp and paper companies to act. This opinion is not isolated. A McKinsey survey of senior executives worldwide showed that over 50 per cent of pulp and paper industry respondents ranked compliance with environmental regulations as the first objective of their environmental policy. This was reportedly well ahead of other objectives such as preventing incidents, integrating the environment into corporate strategy, enhancing a positive image or realizing new market opportunities (Weinraub et al., 1995). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 89 7.0 STRUCTURE OF THE CANADIAN PULP AND PAPER INDUSTRY At the 1995 Environmental Conference sponsored by Technical Section of the CPPA, chairman J . Roberts of Noranda Forest said that there were three realities emerging now. First, compliance with regulations is increasingly expensive for companies. Politicians must respond to the public's concern for the environment, and the industry must respond to the government's subsequent regulations. According to Bailey (1995, p. 11), he said, "we find ways to comply, not because we are particularly altruistic, but because we want to do good business". Second, the nature of dealing with environmental problems is different than it used to be and there is an increase in voluntary emission reduction programs as a way of dealing with environmental matters. Third, there is the emergence of EMS, the implementation of which brings increased credibility for the industry. Roberts concluded that the Canadian pulp and paper industry is witnessing great changes. In light of this summary of ongoing changes presented by a prominent industry representative, one could expect to see an effort made by the Canadian pulp and paper industry toward establishing and implementing reliable EMS aimed at compliance with regulations and potentially improved interaction between the industry and the natural environment. Given the structure of the industry, it is difficult to expect a collective and uniform effort to do so. The Canadian pulp and paper industry is neither homogenous nor heavily concentrated, and clear differences exist among the various pulp and paper companies in terms of size, economic performance, ownership, technology, location, and degree of vertical integration. Therefore, one might expect differences in the various companies' approaches to environmental management and to EMS. Herein lies a major premise of this thesis. There are 84 pulp and paper companies in Canada, 56 domestically-owned, 24 in foreign hands, and 4 jointly held by domestic and foreign interests (Pulp & Paper Canada,\99A). There are a total of 152 mills across the country, with the highest concentration in Quebec (54), Ontario (37) and British Columbia (31)22. 44 percent of the pulp is produced 2 2 ibid. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 90 mechanically and approximately 50 percent is produced through chemical means (Forestry Canada, 1994). Appendix 1 presents an analysis of some important characteristics of the pulp and paper companies in Canada. The analysis was based on the following criteria: 1. Ownership CAN F CAN/F 2. Backward integration 3. Mill location 4. Pulp technology SM K SC DIP SP INT -Canadian -foreign-owned -joint-venture with mixed ownership -indicates if the company carries out its own woodland operations, -indicates either coastal or interior location. -identifies which type of pulp process is used at a given mill: -mechanical-sulphite spectrum of processes, including the following: • low-yield sulphite • high-yield sulphite • thermomechanical process • chemothermomechanical process • sulphonated chemomechanical • groundwood -kraft -semi-chemical -deinking -special pulp23 -integrated mill with more than one pulp process 5. Paper 6. Effluent receiver -indicates if paper is manufactured at the mill, -indicates where the effluent stream is directed from the mill -premises; this criterion weighs markedly on the required quality of discharged effluent. In such a diversified industry, it is natural to expect different management styles and different management decision processes to be practised. That expectation may apply to environmental 23 This classification has been used by N. McCubbin et al. (1992). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 91 management too. 8.0 QUESTIONS TO BE ANSWERED At the beginning of Chapter 1, a number of questions were posed which were to guide the research into predominant environmental practice in the Canadian pulp and paper industry. Each of the questions posed earlier is restated here, for convenience, along with some expectations drawn from the discussion in Chapter 3. Subsequent chapters in this thesis will determine whether these expectations are, in fact, confirmed. 1. Do corporate environmental management systems exist within the Canadian pulp and paper industry? What differences are there among environmental management systems across companies? Are any major, well-recognized approaches to environmental management pursued within the Canadian pulp and paper industry? It is expected that environmental management systems will be found to be in operation in the Canadian pulp and paper industry, but that the level of development of these systems will differ, depending on one or more factors which the research will seek to uncover. In terms of approaches, the expected result is that this industry will, similarly to other industries such as the automotive, telecommunications, and chemical industries, practice to varying degrees all five of the selected approaches to environmental management identified in Chapter 3. 2. Which environmental strategies predominate in the Canadian pulp and paper industry? It is expected, based on the diverse nature of the industry, that a range of environmental strategies will be found to exist. However, given the industry's reputation for poor environmental conduct and excessive pollution (see Marotte, 1990), I expect antagonism as a strategy vis a vis regulators to prevail over cooperation. Also, based on the observation that the Canadian pulp and paper industry is highly fragmented, as opposed to concentrated in the hands of a few players, I expect incidences of collective proactivity to exceed those of Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 92 individual action. 3. Which factors influence pulp and paper companies to develop and enhance their environmental management systems? Given the expectation that companies will vary in their commitment to environmental action, even within the same government jurisdiction, what salient exogenous and endogenous factors explain differences in environmental management among Canada's pulp and paper companies? Based on the literature reviewed (Henriques et al., 1995; Homenuck, 1994; McCloskey and Maddock, 1994; Greeno, 1993; Ferguson, 1994; Weinraub et al., 1995) as well as the historical sequence of regulation and industry's response discussed throughout Chapters 2 and 3, it is expected that regulations will emerge as the most important exogenous factor influencing pulp and paper companies in their environmental management. However, given the claims of Cohan and Gess (1994/95) that corporate environmental management is becoming less regulation-driven, as well as the series of competitive and cost-related motives suggested by K P M G (1994), Willits et al. (1994), Anderson (1991), Lornic (1992) and others for establishing EMS, one can hypothesize that certain other factors, both exogenous and endogenous, may emerge as important considerations, and that some will help to explain how environmental management at different companies and mills, even those within the same jurisdiction, may vary. 4. What is the state of environmental performance in different pulp and paper companies? Does this performance correspond with the state of EMS? The expectation accompanying the first of these questions is that one may find a modest, but improving level of environmental performance in the sample studied, due to the previously poor record of the industry, as well as the emergence of stricter federal and provincial standards (as will be discussed in Chapter 5, following). Beginning from a reputedly low point, and having hurdles of increasing height to clear, these companies could be expected to exhibit levels of environmental performance which are far from ideal. Nonetheless, it can be Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 93 hoped that the results on environmental performance will show a strong trend in the direction of reducing emissions. The second question is expected to be the most revealing one for the future of EMS in the Canadian pulp and paper industry, and indicative perhaps of the prospects for EMS in industry generally. If a highly developed EMS is found to be reliably correlated with improved environmental performance, this would surely be an encouraging sign for EMS proponents and industry practitioners alike. Conversely, if two divergent patterns are found, one for environmental management and another for actual performance, it might suggest that to some extent, EMS can be considered of little operational influence, and its overall value might be put into question. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 94 CHAPTER 5: ENVIRONMENTAL REGULATIONS APPLIED TO THE CANADIAN PULP AND PAPER INDUSTRY 1.0 INTRODUCTION As stated earlier, different studies (KPMG, 1994; Weinraub et al., 1995; Henriques and Sadorsky, 1995) indicate that compliance with environmental regulations is a key reason for companies to undertake environmental action. Assuming that this applies to the Canadian pulp and paper industry too, it is important for this industry to realize what regulatory reality it faces. The purpose of Chapter 5 is to review the evolution of environmental regulations applicable to the Canadian pulp and paper industry in the last 25 years, and is intentionally limited to effluent quality regulations only. Chapter 5 is organized as follows: section 2.0 reviews changes in the evolution of federal and provincial environmental regulations applicable to the Canadian pulp and paper industry over the last 25 years; section 3.0 examines the details of current federal and provincial effluent quality limits; section 4.0 focuses on the Environmental Effects Monitoring program, a new and innovative aspect of the 1992 federal regulations; Section 5.0 contrasts the present effluent discharge standards in Canada with corresponding standards in other pulp and paper producing countries, and section 6.0 offers conclusions on the subject of Canada's environmental regulations for the pulp and paper industry and how they compare with those elsewhere in the world. 2.0 EVOLUTION OF THE ENVIRONMENTAL REGULATIONS AFFECTING PULP AND PAPER MILLS IN CANADA OVER THE LAST 25 YEARS In Canada, both federal and provincial governments have the authority to regulate and to seek to control pollution. This authority results from the power delegated to them by the British Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 95 North America Act of 1867 and its successor act, the Constitution Act of 1982. Both acts specifically list subjects, including natural resources, over which the federal and provincial governments have legislative authority. The purpose of section 2.0 is to review the evolution of both the federal and provincial regulations affecting the pulp and paper industry in Canada. This review will show whether the regulations evolved in gradual increments, and by reviewing federal and provincial regulations separately, it will also establish a platform for characterizing differences between these two major groups of regulations in Canada. Section 2.0 will also look at how effluent regulations have been enforced in Canada. 2.1 Evolution of Federal Effluent Regulations Doering et al. (1992) point out that while Canada's first paper mill was built in 1803, the first federal pulp and paper regulations for limiting the discharge of conventional pollutants (biodegradable organic wastes) were not formulated until 1971. Harrison (1995b) explains that these regulations were enacted as a response to the first wave of public attention to the environment. The 1971 regulations distinguished between "old mills" (those existing before the regulations were enacted) and "new mills". According to Sinclair (1988), the regulations also featured three levels of compliance: more stringent standards for new mills, a less restrictive target for old mills, and a standard somewhat in between the old and new for existing mills that undergo modification. According to the B.C. Ministry of Environment, Lands and Parks (1994), this diversification of compliance standards resulted in a situation wherein the existing mills - 90 percent of mills around Canada - were not subjected to the more restrictive regulations. The 1971 federal regulations set effluent quality standards based on what a reasonable producer could achieve by using in-plant pollution controls. Stanbury (1993b, Ch.2, p.7) argues that the objective of such an approach, known as best practicable technology (BPT), was "to have national standards without putting a disproportionate burden on specific mills". Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 96 Such arrangements also meant that the standards could be changed with changes in production technology. Stanbury (1993b) adds that despite such positives, the regulations scored negative points too, primarily among environmentalists, who argued that the regulations, in that form, did not protect the aquatic environment adequately. Harrison (1995b) observes that it took fifteen years before the issue of effluent from pulp and paper mills returned to the public agenda. She suggests that two facts contributed to this return: a second wave of general public concern for the environment and the highly publicized issue of detection of dioxins in pulp mill effluent. In 1992, new pulp and paper effluent regulations were made into law by the federal cabinet. They were amendments to the 1971 regulations, providing for the establishment of maximum permissible rates of release for BOD and TSS on a daily and monthly basis. Environment Canada (1993) states that the rates are based on a mill's reference production rate and the maximum daily and monthly release limits, per unit of production, as specified in the regulations. Additionally, the regulations prohibit mills releasing effluent that is acutely lethal to fish. As such, they are a departure from a technology-based approach, and move closer toward an ecosystem-based approach. Aside from the change in the approach toward regulations, Stanbury (1993b, Ch. 2, p. 15) lists the following differences between the 1992 and 1971 Pulp and Paper Effluent Regulations (PPERs): • The 1992 PPERs have much tighter limits (standards) than the 1971 version. The 1992 PPERs cover all mills (vs. 51 of 122 mills in 1990) after December 1, 1992. They also cover off-site treatment facilities. • Both cover the same pollutants: TSS, BOD, acute lethal effluent (toxicity). • The 1992 PPERs require an EEM study every three years (focus on fish habitat). • Old mills can get authorization to exceed the limits up to December 31,1993 (and this can be extended by the Minister to December, 1995 under extraordinary circumstances). They must provide plans indicating how/when they will come into compliance. Also in 1992, the federal government enacted a set of regulations called the Pulp and Paper Mill Liquid Effluent Chlorinated Dioxins and Furans Regulations (Stanbury, 1993b). These Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 97 regulations set minimum national standards for the two most toxic forms of dioxins and furans. Simultaneously, the Pulp and Paper Mill Defoamer and Wood Chip Regulation was passed. This regulation requires the virtual elimination of dioxins and furans from defoamers and was to prohibit mills from using dioxin- and furan-contaminated wood chips. These regulations appeared four years after the 1988 Canadian Environmental Protection Act recognized the potential danger of polychlorinated dibenzodioxins and polychlorinated dibenzofurans to the environment and human health and put them on a Priority Substances List. 2. 2 Evolution of Provincial Regulations Individual Canadian provinces enacted their respective regulations much later than 1971, although some of them, such as B.C., stated quality objectives for the pulp and paper industry in the early 1970s. The first province to introduce its own effluent quality regulations for the pulp and paper industry was Quebec. Harrison (1992) reports that while Quebec's 1979 regulations were patterned on the federal PPER of 1971, they featured more categories of standards to recognize different types of mill, and included more detailed daily limits as well as monthly ones. These regulations were later revised in 1988. Stanbury (1993b) reports that, in 1991, Quebec published new draft regulations regarding pulp and paper mills under the new, more restrictive Environment Quality Act. In Ontario, after a government-industry consultative process, the Effluent Monitoring - Pulp and Paper Sector Regulations were enacted in 1989, as a part of Ontario's Environmental Protection Act (Stanbury, 1993b). The effluent quality limits featured were set on the basis of "best available technology economically achievable" (BATEA). Shift in this approach took place in 1993, when new and much more restrictive regulations were announced. Then Ontario's Environment Minister R. Grier is cited by Stanbury (1993b, Ch.2, p.26) as declaring that "human health is at risk and it is time to act...". Implied in the minister's statement is a Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 98 departure from the B A T E A to more of an ecosystem-approach as the basis to setting effluent quality limits. The most important environmental control statute recently enacted in British Columbia has been the Waste Management Act (WMA), which replaced the 1967 B.C. Pollution Control A ct. The W M A regulates discharges of pollutants to the air, water and land through an established permit and approval system. In early 1990, BC Environment issued a new Pulp and Paper Mill Liquid Effluent Control Regulation. This regulation was designed to address both the organochlorine contamination problem, as well as prior inconsistencies in the requirements for coastal and interior mills (BC Ministry of Environment, 1994). Further, all mills were required to have secondary effluent treatment systems. The regulation also established maximum limits of TSS, BOD and A O X discharge. The latter restriction was amended in 1992, and now B.C. Environment requires even stricter A O X control, with the goal of zero A O X discharge by the year 2002. Mills are also required to prepare environmental effects reports, similar in nature to those required by the federal E E M program. All the current effluent quality limits in B.C. have been set on the basis of the ecosystem approach. In Alberta, the 1993 Environmental Protection and Enhancement Act replaced the Clean Water Act and other statutes to which the province's pulp and paper mills were subjected (Stanbury, 1993b). The limits were set for each type of mill individually on the basis of the "best available technology" approach (COFI/Pulp and Paper Canada, 1991). Stanbury (1993b, Ch. 2, p.26) notes that Alberta officials also point out the importance of "the assimilative capacity of the receiving waters". The latter, that is the essence of ecosystem-based regulations, is said to be the usual controlling factor in applications of Alberta pulp and paper effluent limits. This brief overview of the provincial regulations applicable to the pulp and paper industry shows that the regulations were not introduced gradually over the years. After the 1971 PPERs there was a considerable time gap before Quebec introduced its provincial regulations Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 99 in 1979. Then, as shown in Figure 5.1, it also took almost a decade for other provinces to pass their own environmental regulations on pulp and paper effluent. The late 1980s and early 1990s brought a wave of both federal and provincial regulations which dramatically tightened the requirements faced by all Canadian mills. 2.3 Enforcement of Regulations Doering et al. (1992, p.3) state that the regulatory system for Canada's pulp and paper industry is "characterized by jurisdictional fragmentation, inherently flawed regulations and intermittent enforcement leading primarily to a process of negotiations with all the confusion and inconsistency this entails". For example, in B.C., the Waste Management Act gives a government official responsible of administering the Act on a regional basis, a great deal of discretion in issuing an effluent discharge permit. Such an official may refuse to grant a permit, either in whole or in part, and may impose any conditions that he considers advisable. As a regulation enforcer, the government often acts as a "paper tiger". In its own report, Environment Canada (1994) stated that in the years 1993-1994 it only issued warning and advisory letters to mills only even in the most significant incidents of non-compliance. Harrison (1995a) adds that a typical response to noncompliance with environmental standards has been for government officials and the regulated company to negotiate a schedule for the company to gradually come into compliance. For example, according to Hamilton (1992) none of the 31 mills in Quebec that surpassed legal pollution limits in 1991 has been prosecuted. Derfel (1995) reports that twenty of Quebec's pulp and paper mills dumped excess toxic waste into rivers in 1993, yet the province took only four companies to court. Negotiation and flexibility on the government's part seems to be the rule in regulatory enforcement in Canada. Thompson (1980, p.33) summarizes this phenomenon as follows: ...bargaining is the essence of the environmental regulatory process practised in Canada. For, if the command and control/penalty model is to have substance, there must be clearly defined rules (commands) that must be obeyed. Yet, the reality is that the rules of environmental regulations are never clearly stated or certain, except in a purely symbolic sense. Instead the norms of conduct are the 100 ON C/J fl OX) fl <u fl UJ u a> CS PM <3 fl o c o O-T3 fl 03 "c3 u a> o o fl o o s-fl La-CO o> CM o> O) LU CL CL c: CD E TJ c CD, E < CO CJ CO < UJ CL LU to cn cr: CL «j CL o o a> a> a> oo - c g -° .9 •*-• • C CO CD UJ cn o < CO a •> c LU CL oS( CL CO cn a: 8 CO oo oo cn co o> < CO a> O ) cr: LU CL CL LU Q LU U. O m LU O err < c o £ T J " iB .22 £r2 co -cn CD -CrT c o £ 2. ^ CL o LU m LU Z> a CO c g cn 2? XJ c CO CO 0) "a "co -•-» CO CO a) to XJ E o CM D) CU XJ . . w CD </> O <D fc. . c ° 1 CO •§ b Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 101 subject of negotiations and renegotiations between the regulator and the regulated right down to the moment of compliance or non-compliance. In this sense, rules stated in statutes or regulations are merely points of departure for negotiating modifications of behaviour; and compliance or non-compliance means agreement or disagreement. Only if there is an ultimate disagreement is the enforcement procedure utilized, and even then its role may be but another step in a drawn out negotiating process, of little more significance than a variety of other weights such as tax concessions, that the regulator may bring to bear. Harrison (1995a, pp.226-227) makes an interesting observation which may help explain such an enforcement practice. Examining the behaviour of Environment Canada, she states that: With the exception of toxicity compliance, for which federal officials never held very high expectations, Environment Canada repeatedly made overly optimistic projections of the progress toward compliance that would be made over years to come. Even as federal officials were forced to acknowledge their inaccuracy of their last prediction, they continued to view the future with optimism. Later she also suggests that: ...federal officials accepted each new failure to achieve objectives as a mere aberration, rather than as evidence of a more systematic problem. This conclusion is supported by enforcement histories of several individual mills, which reveal that when mills failed to abide by their negotiated compliance schedules, federal and provincial officials time and again renegotiated deadlines for compliance, rather than going to court (Harrison, 1995a, pp. 227). Harrison (1995a) also contrasts environmental enforcement in Canada with environmental enforcement in the U.S. Such comparison may be justified for the following reasons: (1) the economies of both countries are closely integrated, and (2) until the 1990s both countries relied on technology-based national discharge standards, with responsibility for enforcement falling primarily on provincial and state governments, respectively. She argues that, unlike Canada with its cooperative approach to enforcement of environmental regulations, the United States is an example of a country where the style of regulations is adversarial and prosecution-oriented. Harrison (1995, p.225) also cites Magat and Viscusi (1990), who stated that "the EPA sets standards for which compliance is feasible and then enforces these Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 102 standards relatively vigorously". In summary, the regulations on effluent from the pulp and paper industry have not been introduced gradually. After the 1971 PPER there was a considerable time gap before new regulations, either federal or provincial, were passed. Effluent limits have been tightened in a "revolutionary" rather than "evolutionary" manner. In the case of both federal and provincial regulations (except Alberta) a departure from a technology-based approach toward more of an ecosystem-based approach with strong consideration for a pulping technology can be observed. Finally, the enforcement of the effluent regulations has been subject of criticism. 3.0 PRESENT FEDERAL AND PROVINCIAL EFFLUENT LIMITS Harrison (1995b, p.23) argues that one of the major reasons for some provinces establishing effluent regulations was their eagerness "to prove that they were not only doing a good job, but a better job than their neighbours". She adds that it resulted in competition between Ontario, Quebec, Alberta and British Columbia to claim the most stringent standards24 which probably resulted in tighter regulations for the pulp an paper industry in these major provinces. The purpose of this part is to contrast the current federal with the provincial regulations in B.C., Alberta, Ontario and Quebec. Effluent discharge limits as required by the federal government and these four major Canadian provinces are provided for existing bleached kraft pulp mills, in Figure 5.2. The rationale behind the choice of pulp technology in this analysis is that this technology is among the most popular and is represented in each Canadian province. For the same reason it will be used as a common denominator to make comparisons between effluent quality standards in Canada and other jurisdictions. For example, The Financial Post (1993, p.3) called the new Ontario effluent regulations "the toughest" in Canada. Williamson (1992, p. Bl) writes about B.C.'s 1992 AOX standards as "the world's toughest". Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 103 es T 3 C3 S es V Vi Vi 2 a s X3 1 42 S fl I W u © C M O fl O •e as a S © • • Quebec 1,3 Monthly Average 55 c o CO 1.5/2.5 1.0/2.0 0.8/0.8 N/A Quebec 1,3 Daily Max. 12/12 16/16 1.5-2.5 1.0/1.0 V/N Quebec 1,3 Effective Date Sep 30/95 Sep 30/95 Dec 31/93-Sep 29/95 Sep 30/95-Dec 30/00 Dec 31, 2000 Sep 30,1995 Ontario Monthly Average o i n 7.87 i n m oo c\i T - 1 o Ontario Daily Max. 10.0 13.4 3.22 1.93 1.03 8 II A Ontario Effective Date Jan 1/96 Jan 1/96 Nov 25/93 Dec 31/95 Dec 31/99 Jan 1/96 Alberta 2 Monthly Average 1.5-6.5 3.0-9.5 0.54-1.5 Alberta 2 Daily Max. 3.0-11.0 6.0-18.0 0.927-3.0 8 II A Alberta 2 Effective Date British Columbia 1 Monthly Average m 11.3 m m British Columbia 1 Daily Max. i n 18.75 3.8 zero 8 II A British Columbia 1 Effective Date Dec 31/94 Dec 31/94 Jan 21/92 Dec. 31/95-Dec. 30/02 Dec 31/02 Dec 31/94 Environment Canada Monthly Average i n 11.25 N/A Environment Canada Daily Max. 12.5 18.75 N/A o o V A Environment Canada Effective Date Dec 31/95 Dec 31/95 N/A Dec 31/95 PARAMETER BOD5, kg/ADt TSS, kg/ADt AOX, kg/ADt Toxicity (LC50), % Q. Ui c I i CO •a g "S3 P <B a = c I I ! a . D c r a . 2 o7 E . CO ' CL CL (0 5 . TJ O Ul to oi I in CD CM cn cn CO < X o CO CM <*i Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 104 Figure 5.2 shows the federal and provincial effluent limits for bleached kraft effluent. Aggregate limits seem the most stringent in Ontario. Yet, in Alberta the limits for TSS and BOD, which are site-specific, are even more restrictive. Stanbury (1993b) suggests that Alberta's mills are more modern, and that therefore stricter limits can be enforced; B.C.'s long-term A O X limits are the most stringent in all of Canada. Overall, one can observe that provincial limits vary across the country, in many instances even considerably. From the perspective of a multi-mill company with operations across Canada, this fact necessitates an individualized approach to effluent management as opposed to a uniform (technology-based) approach. 4.0 ENVIRONMENTAL EFFECTS MONITORING (EEM) The new Pulp and Paper Effluent Regulations (PPER), contained in the federal Fisheries A ct of May 1992, feature a new requirement for pulp and paper companies. The PPER deserve special attention because they establish a new dimension in environmental compliance practice. Under the new federal regulations, pulp and paper mills are required to conduct what are known as Environmental Monitoring Studies (EEM) of their receiving water environment. 4.1. Objectives and Content of EEM According to Colodey (1994), the E E M program focuses on three objectives: the protection of fish, of fish habitat and use of fisheries resources. Andrews (1993) reports that Environment Canada justifies the E E M program by saying that effluent standards, such as those in the PPER, may not provide adequate protection of the receiving environment. Of particular concern are low level, persistent chemicals that accumulate in organisms or have a cumulative effect on fish after a lifetime of exposure. According to Andrews (1993), the E E M program is designed as a sequence of monitoring Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 105 cycles in which the requirements of each cycle are determined by the results of the preceding cycle. The program begins with what is called "pre-design study", that is, preliminary gathering of background information required before any monitoring cycle can begin. The pre-design study has the following components: (i) delineation of effluent mixing zone, (ii) habitat and resource inventory, (iii) historical information about the receiving habitat, (iv) evaluation of effluent quality in relation to the standards set by the PPER, and (v) description of mill history and current operations. In addition to these, a reference area unaffected by the mill is established. Upon completion of the pre-design study, the first actual E E M study is conducted. At this stage, the study consists of a list of standard requirements, including (i) an adult fish survey, (ii) a benthic community survey, (iii) the analysis of fish tissues for dioxins and furans, (iv) physical and chemical analyses of the receiving water and bottom sediments, and (v) chronic toxicity testing of the effluent. The outcome of this stage of investigation is the basis for the preliminary assessment of environmental effects. If significant effects are identified, the second cycle will require additional studies to find their cause and extent. Otherwise, the second E E M study repeats the core monitoring requirements. Companies are required by the 1992 PPER to complete the first cycle by April 1996. Thereafter, they will be required to report on environmental effects on a three year cycle. The E E M program is mandatory for all pulp and paper mills which discharge effluent directly to the environment. The exemption covers those mills which discharge their effluent to municipal sewage treatment systems, provided that they discharge less than 5 t/d of BOD or contribute less than 20 percent of the BOD entering the treatment site. 4.2 Strengths and Weaknesses of the EEM Program It is anticipated that E E M studies will be used to assess the adequacy of effluent regulations at each receiving water site. Andrews (1993) argues that from Environment Canada's viewpoint, this represents a major shift in the way regulations are set. Rather than conducting Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 106 research on the adequacy of the regulations on its own and then publishing new effluent quality limits if the old ones are ineffective, the federal government opens an interesting possibility for individual mills to become actively involved in setting their own regulatory limits. Given the qualitative change in the regulatory approach, the potential for environmental improvement which the E E M program represents, it is important to review some of the strengths and weaknesses of the new regulatory reality as faced by the industry and the government. Sjrengths.The idea and potential outcome of the E E M process exhibit considerable strengths for both the mills and the government. The process is likely to provide a better picture of the overall impact of mill operations on the aquatic environment and will help focus attention on the monitoring procedures of the greatest importance to the environment. The strengths, from the point of view of the industry and the government, respectively, are presented below. Industry's perspective. The E E M process offers certain benefits for mills engaged in it, such as problem isolation and lower long-term sampling and analytical costs . Problem Isolation Through the E E M process, a mill will be more likely to understand better the specifics of its overall impact on the environment and to distinguish between minor problems and those that have major consequences to the environment. Consequently, the mill will be in a better position to focus attention and the resources on more in-depth investigation of important environmental impacts. Lower Long-Term Sampling and Analytical Costs Once the E E M process yields negative effects in certain areas, i.e. no environmental effects of a particular kind, the mill can save costs through decreased levels of sampling, although some sampling would always be required to confirm the quality of receiving environmental Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 107 conditions and resources. Government's perspective. The E E M process has a number of strengths from the government's prospective. Among the more prominent of these are: verification of regulations, expansion of the information base, and coordination and integration of federal and provincial efforts. Verification of the Effectiveness of Regulations Andrews (1993) states that the effectiveness of regulatory standards in protecting the aquatic environment is subject to increased scrutiny. Traditional one-dimension, number-based standards are criticized for being based on often imprecise toxicological tests, on species which are not always the same as those which the standards are supposed to protect. The E E M process offers an opportunity to examine how well these standards have been set, and to improve upon them. Expansion of the Information Base Another strength from the regulator's viewpoint is the ability to gain fuller information on the magnitude and extent of mill-related effects on the receiving environment itself. The E E M studies, performed over set time intervals, will likely provide for continuous observation of changes in the aquatic environment, thus creating a basis for evolution and further decision-making. Coordination and Integration Environment Canada intends to coordinate the E E M program at a national level to ensure consistency in the application of requirements in all Canadian provinces. In provinces such as British Columbia, where mills have provincial monitoring requirements, federal and provincial requirements have been integrated to enhance coordination and avoid duplication. This aspect of the E E M program is likely to be appreciated by the industry, which has frequently Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 108 signalled its support and preference for common federal and provincial regulations (Olivier, 1991) Weaknesses.The E E M process is not free from criticism. For instance, its methodology demonstrates similar weaknesses to those of a standard environmental impact assessment process. Although these weaknesses present problems primarily to pulp and paper mills, the E E M process may be challenging to the government too. For example, both parties may interpret differently what the E E M program calls "significant environmental effects", as this term has not been clearly defined. Below, a brief overview of weaknesses, as seen by companies and the government respectively, is presented. Industry's Perspective. The weaknesses of the E E M process as introduced in 1992, from the company perspective are dual in nature: scientific and economic. Scientifically, there are still several undefined or unclear elements of the E E M process which a company is required to address, and because the guidelines are not clear, the company's actions may later be challenged by the government as inadequate. Andrews (1993) specifically emphasizes four issues: E E M study boundaries, multiple discharges, required expertise and high costs. Boundaries of the Study It may be difficult for the mill to determine correctly the study boundaries. Any choice of study area downstream from the mill may be questioned as either too small or too large. In the former case, the study may be rejected on the grounds of incompleteness, while in the latter case, there may be environment impacts taken into account which are not mill-originated. Multiple Discharges In many cases, pulp and paper mills are located in areas where other points of either municipal or industrial discharge are present. In such instances, there may occur interaction Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 109 between pollutants from different sources, causing either amplification or reduction of the ultimate environmental effect. Furthermore, it may be very difficult for a mill to determine the actual delineation of the effluent plume and its individual impact on the aquatic environment. A question may be also raised regarding how far back an E E M study should go to evaluate the cumulative impact of mill (and other entities) operations on the environment. Requirement of Specialized Expertise The E E M process in its current form requires a great deal of expertise in a wide range of disciplines such as: fisheries biology, aquatic toxicity, analytical chemistry and statistics. Andrews (1993) underlines that, in general, mills do not have such expertise in-house and it may be costly for them to hire external experts. High Study Costs Not only does the requirement of specialized expertise tend to elevate the costs borne by mills, but the cost aspect of the E E M process is even more significant with respect to possible follow-up actions which may be required by the government once the E E M study is completed. Andrews (1993) speculates that of these possible follow-up actions, the most costly could be the remedial action plans where required. Government's Perspective. The E E M process represents certain weaknesses from the government's viewpoint too. Andrews (1993) argues that most prominent among them will be maintaining of consistency of interpretation of the E E M studies when a large number of regional staff is involved. Other weaknesses of the process include the completeness and reliability of the data as well as funding for follow-up actions. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 110 4.3 Is the EEM Program the Right Thing to Do ? The E E M program seems both challenging and complex. It establishes a new set of additional responsibilities and requirements for the industry, exposing it most likely to even more public scrutiny. Colodey (1994) states that, despite its complexity, the program is still less intensive and more focused than, for example, analogical baseline and operational monitoring programs legislated on the pulp and paper industry in Australia, as described by Crossland and Abel (1992). Arguably, it is a step in the right direction, toward integrated environmental management that comprises both the industrial management and ecosystem management. 5.0 PULP AND PAPER REGULATIONS IN OTHER COUNTRIES The purpose of this section is to examine whether the regulatory requirements faced by the Canadian pulp and paper industry are more demanding than foreign pulp and paper regulations. The section reviews foreign pulp and paper effluent regulations, both in terms of the government's approach to the regulatory process and in terms of the limit values for individual pollutants. As before, the focus on effluent regulations since the aquatic environment is the one primarily affected by pulp and paper mill operations. Doering et al. (1992) caution that it is difficult to make accurate comparisons of environmental regulations among industries in various countries, due to variations in regulation among different countries. Ullman (1994) adds that even within the same trading bloc, such as the European Community, there are considerable differences in the member countries' approaches to pulp and paper effluent regulations. For instance, in Sweden, Finland and the United Kingdom, effluent limits are routinely established for each individual mill; however, in Germany, France and Spain condition values are assigned on a technology basis. Despite the variation in approaches, it is useful to examine the scope and magnitude of effluent regulatory requirements across countries. For the purpose of comparison with Canada, Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 111 five developed countries: the United States, Australia, Finland, Sweden and France as well as in several emerging economies: Indonesia, Brazil, China, Thailand, Malaysia and India are reviewed below. These countries have been selected for two major reasons (1) they directly compete with the Canadian pulp and paper industry in international markets, and (2) different regulatory approaches to the pulp and paper industry have been taken in these countries. Similarly to the analysis of federal and provincial regulations in Canada, featured in Section 2.0, effluent quality parameters are taken for bleached kraft pulp mills. Figure 5.3 indicates which effluent quality parameters are regulated in the countries selected, while Figure 5.4 shows numeric values of effluent limits for four major pollutants: BOD, COD, A O X and TSS. 5.1 United States Until now, the basis of the American approach to controlling effluent from pulp and paper mills was the Clean Water Act, first passed in 1972, then revised in 1977. The Act charged the EPA with establishing technology-based effluent regulations, which would require pulp and paper mills to meet pollution control requirements equivalent to the "best available technology" (BAT) by 1977, and "best available technology economically achievable" (BATEA) by 1983 (Doering et al., 1992). Individual state governments have since been in charge of enforcing the EPA limits and have had discretionary power to constrain them on a site-specific basis. Given the role of the U.S. in the global economy, as well as its proximity to Canada, it is important for Canadians to note the considerable regulatory change currently taking place in the U.S. As Ludwiszewski (1994) reports, in 1993 the EPA proposed a what was termed "multi-media" rule making under both the Clean Water Act and the Clean Air Act, to regulate emissions from pulp and paper mills. This new type of rule-making seeks to develop an integrated pollution control strategy for all of the emissions of a specific industry by "clustering" together EPA rules issued under different statutes. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 112 Figure 5.3: Summary of the Selected Effluent Quality Parameters Reguls in Effluent from Bleached Kraft Pulp Mills in 1996 by Jurisdiction JURISDICTION Acute Toxicity AOX BOD COD Colour Nitrogen Phosphorus PH PCDD& 1 PCDF Temperature TSS Canada • • • • Alberta • • • • • • • B.C. • • • 2 • 2 • 2 • • 2 • • Ontario • • • • • • • Quebec • • • • • • • U.S. EPA • • • Australia • • • • • Finland • • • • • Sweden • • • • • France • • • • • • • Brazil • • • o • • • • • Indonesia • « • • China • • • Malaysia • • • Thailand • • • India • • • 1. PCDD and PCDF mean polychlorinated dibenzo-p-dioxin and polychlorinated dibenzofuran. 2. Only one mill in B.C. has limits for phosphorus, nitrogen and colour. Not all mills have temperature limits. Source: H.A. Simons (1996), Mehta (1995), Mehta (1994). FIG5_3.WK4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 113 CO CO |^ cn Q O O |< 5 " r«." D O m |< x o < as o 3 o c CO < — G>. jo o>| 3 J C CD o a 51 ch 5 '5 p 5 CO < CO O l 3 03 jo 3 J C 0) 1 ? o ^4 C O m 8 8 CL P i ° O u> S 1 o - g > CO P o ff. ffl <D C L O CO u : O l ^ CO CO co E £ e r a s | f o . H e e ^ a c - c to 0) o . f a 3 0 O I I p 0 TJ £ P co 8 •s P ^ u i 01 £ E C — T=> T> S. 2 CO $ £ o E 3 co 5) .1)1 to o 08 lO o < p CO Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 114 The purpose of the new regulations is to reduce the combined discharge of water pollutants and the emission of hazardous air pollutants from the pulp and paper industry (Nichols, 1994). The focus is not just on so-called "end-of-pipe" or "add-on" controls, but also on eliminating or reducing the formation of these pollutants at their source. Among other requirements, the cluster rules: (1) reduce the number of pulping categories from 26 to 12 and recognize only six "best available technology" (BAT) classes, specifically indicating which pulping category belongs to which B A T class; (2) regulate different pollutants such as AOX, COD, dioxin, and colour; (3) include the additional requirement of adherence to a list of "best management practices" (BMP). According to Chandra (1994), BMP will include, inter alia, training, environmental control, emergency preparedness and record keeping measures. By virtue of their content, BMPs may be considered a valid starting point for formal environmental management systems. Nichols (1994) reports that failure to comply with the BMP will result in permit violation, even if the effluent limits are all met. The industry received the proposal of the new effluent guidelines with disappointment. Fleming (1994) calls them extremely restrictive, with A O X and COD levels that some mills simply cannot meet without stopping operations. He adds that the effect on older mills and their communities will be devastating. The EPA predicts the closure of between 11 to 13 mill closures as a result of the new regulations, while the industry estimate is of 30 closures, with a total loss of 19,000 mill jobs. The cluster rule is likely to have a real impact on the future of the pulp and paper industry in Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 115 the U.S. Bottiglieri (1995) cites C. Buettner, process engineering manager for Brown & Root Forest Products in Houston, Texas, who is of opinion that if the cluster rule regulations are passed in their original form, the majority of expansion projects initiated by pulp and paper companies will be cancelled, due to the capital requirements needed to meet the regulations. Bottiglieri predicts long-term implications if the proposed cluster rules are enacted. He cites B. Thorp, VP process technology at James River Co., Richmond, Virginia, who says: First, needed capacity will move offshore, changing world economics, but not world environmental conditions. Second, US wood exports will increase. Third, we will experience supply/demand problems in virgin pulp (quoted i n Bottiglieri, 1995, p.24). 5.2 Australia Allison and Sakai (1992) report that the regulatory environment in Australia has changed markedly during the last few years. The federal government of Australia released a comprehensive set of environmental guidelines for any future bleached eucalyptus kraft mills. The guidelines cover effluent and air emission, solid waste management, and site suitability criteria. Moreover, baseline studies of potential recipients, which Colodey (1994) regards as far broader than Canada's E E M , are required. According to Pulp and Paper magazine (1990, p.7) the Australian government itself calls these new guidelines "the world's most stringent limits on pollution levels for new bleached eucalyptus kraft pulp mills". Allison and Sakai (1992) stress that the announcement of the federal guidelines, which do not cover existing facilities, has reportedly put tremendous pressure on existing bleached chemical pulp operations in Australia, leading to a number of process modifications. The modifications aim at reducing the use of molecular chlorine and increasing the use of peroxide and oxygen as well as chlorine dioxide. In terms of the approach, the new guidelines require that any new mill in Australia use the "best available technology economically achievable" (BATEA). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 116 5.3 Finland In Finland, in 1988 the government established a program for environmental conservation. Ullman (1994) reports that Finland's program features certain quantitative restrictions on effluent quality parameters, based on recommendations of the Helsinki Baltic Environmental Protection Commission. The restrictions represent upper limit values for effluent emissions at individual mills. There are no industry-wide standards for effluent discharges from Finland's pulp and paper mills. Instead, effluent quality limits are set in permits and depend on the local ecosystem conditions. Water-emission permits are granted by the regional water rights court to each mill on an individual basis. For certain technologies, such as kraft and sulphite pulp, benchmark limits on effluent quality are also set (Anonymous, 1994). Ullman (1994) informs that the government's program will likely influence the decisions of the body responsible for granting water-emission permits, that is the water rights courts. 5.4 Sweden H.A. Simons Ltd. (1996) provided information on Swedish pulp and paper effluent quality limits, which shows that there are no national discharge standards for the Swedish pulp and paper industry. Instead each mill is investigated individually, with conditions determined on a per case basis. However, the government has adopted industry-wide A O X discharge targets. The actual limits for different technologies, usually monthly or annual average values, are considered benchmark values. When exceeded, the authorities can issue a decree requiring that measures be taken to prevent recurrence. If a mill decides to ignore such a decree, charges may be pressed against it (Ullman, 1994). For suspended solids as a measure of effluent quality, a less stringent test method is used. It tends to give relatively higher allowable suspended solids values than in other countries. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 117 5.5 France According to Ullman (1994), in France regulation of the water environment is decentralized. There are six local "water boards", which are apportioned on the basis of the six main geographic water areas in the country. The environmental regulations applicable to the pulp and paper industry, which became effective in May 1994, are technology-based. Six pulp manufacturing technologies are recognized with their own minimum limits of effluent, air emission, solid waste and noise parameters. The regulations distinguish between "old" and "new" mills. "New" mills are defined as either totally new or as location where production has increased by at least 25 percent or emissions by over 10 percent, thus including plants which have expanded operations. As far as BOD and COD loads are concerned, the regulations also distinguish between hardwood- and softwood-based production technologies, similar to the regulations in Quebec. 5.6 Developing Countries Environmental regulations and enforcement differ across the various developing countries review include: Brazil, Indonesia, Malaysia, Thailand, China and India - countries where pulp and paper products have a significant presence on the international market. Despite the sector's importance to their economies, some of these countries, such as Brazil and Malaysia, do not have regulations specific to the pulp and paper industry. Mehta (1994) observes that in a number of countries the regulatory standards are based on the concentration of pollutants in the wastewater stream expressed as mg/1 as opposed to mass of pollutant divided by mass of products. Arguably, such regulatory arrangement do not promote water conservation and enables the companies to easily manipulate their pollutant discharge values. As shown in Figure 5.3, among the developing countries, Brazil is the only one which regulates a number of non-conventional pollutants such as COD, colour, AOX, nitrogen and Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 118 phosphorus. The other countries regulate only one non-conventional pollutant: COD. In all of these countries the regulatory approach to effluent quality requirements is "technology-based". 6.0 CONCLUSIONS As a summary of the information provided in Chapter 5, the following facts can be recapitulated: 1. Pulp and paper effluent regulations in Canada have not been developed and altered gradually. After the initial regulations of the early 1970s, there was a 21-year period of no new regulations. Then three sets of regulations were created in 1992. 2. Canadian pulp and paper companies face a dichotomy of regulations. They must meet requirements set by the federal and the provincial governments. With the exception of the United States, where individual states may come up with limits more stringent than the federal limits, none of the countries scrutinized above force pulp and paper companies to deal with different requirements. 3. As Harrison (1995a) underlined, regulations in Canada are not always realistic to meet. Furthermore, some of regulations, such as A O X regulations in British Columbia and Ontario, are often politically driven rather than based on solid scientific grounds (See: Stanbury, 1993b). The result is questionable benefits that may not offset considerable costs, in terms of the required environmental spending as well as associated social costs such as potential employment reductions at the mills. 4. Enforcement practices in Canada still leave room for improvement. It is fair to notice, that in this area Canada is no different from all major pulp producing countries except for the U.S., where enforcement is strong. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 119 5. Canadian regulations, both federal and provincial, set daily and monthly discharge limits. Such requirements force pulp and paper companies to monitor effluent quality more thoroughly than they would if there were annual discharge limits only. Further, such consistent monitoring leads to quicker reaction in case of exceedences. In contrast, Swedish and Finnish mills are obliged to meet monthly and annual average limits, which is far more convenient for them, but probably does not serve the environment as well. 6. In terms of the number of pollutants regulated, Canada leads among the major pulp and paper producing countries. Further, Canadian effluent quality limits are among the strictest in the world. 7. Canadian regulators have been gradually departing from technology-based limits to ecosystem-based limits. Due to its greater recognition of the importance of the effects of pollution, the ecosystem approach has a greater chance to benefit the environment and society. More importantly, the Environmental Effects Monitoring program, introduced at the federal level (and practised in British Columbia already) opens an opportunity to eliminate certain redundant aspects of monitoring and to shift focus toward truly important ones. It also constitutes a platform for both the government and the industry to jointly design future environmental effluent limits and other regulatory arrangements. Overall, the environmental regulations in Canada can be deemed challenging to its pulp and paper industry, if compared to other jurisdictions. However, because of their complex nature as well as imperfect enforcement practice, one can expect a range of varying strategies pursued by the pulp and paper companies in Canada with regard to environmental compliance. This issue and others are discussed further in Chapter 6. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 120 CHAPTER 6: RESEARCH METHODOLOGY 1.0 INTRODUCTION The purpose of Chapter 6 is to introduce the methodology used to research the dominant environmental management practices in the Canadian pulp and paper industry. It presents and justifies a set of evaluation frameworks designed to: (1) investigate which environmental strategies are pursued, (2) evaluate the state of EMS and (3) to appraise environmental performance. These frameworks are discussed in sections 2.0, 3.0 and 4.0, respectively. In section 5.0,1 discuss the approach taken to evaluate the influence of a range of exogenous and endogenous factors on environmental management. The methodology used to select and observe the sample of companies and mills is described in section 6.0. 2.0 FRAMEWORK FOR EVALUATING ENVIRONMENTAL STRATEGIES In the domain of environmental strategy, there are a large number of dimensions which can be examined. Chapter 3 attempted to provide an overview of some of these. A dimension of strategy which can be deemed among the most important for this industry is the company's interaction with regulators. I decided, for the sake of maintaining manageability, to focus this particular component of the research, the strategy component, on determining what specific strategies are pursued by the Canadian pulp and paper industry with respect to government regulators. In Henriques and Sadorsky's (1995) study regarding the major factors influencing companies' degree of commitment to the environment, government regulations were found to play the most important role. Regulations, including environmental regulations, are a frequent platform on which governments interact with companies. Stanbury (1993a) argues that for many businesses, governments are a major influence in determining the size and character of the Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 121 enterprise, as well as its profitability. The degree of impact the government has through regulations is not the same for all companies. Leone (1986) contends that by virtue of differential costs, all government actions create winners and losers in the competitive marketplace, regardless of the aggregate impact, beneficial or detrimental, to the interests of an industry. This is the essence of what Leone calls the Iron Law of Public Policy. An example of the role of environmental regulations in determining economic winners and losers can be found in the U.S. federal water pollution control regulations that took effect in 1977. These regulations applied the same regulatory standard to all competitors in a given industry. This did not yield uniform costs for different firms for reasons of scale, location, age, etc. The result was that some firms maintained healthy profits through the transition, while others floundered in the attempt to meet the new standards. Leone (1986) suggests that many firms can be expected to exercise their political and economic strengths to jockey for the position of winners. Companies' responses may differ based on whether it is before or after the enacting of regulations, and so can fall under the classification of either ex ante or ex post behaviour. Ex Ante Behaviour. In the face of pending legislation, the entire industry and its individual members (or groups of members) may respond in one of several ways. One can imagine several different types of responses: one is to simply cooperate, passively or actively, with the government in its effort to pass new legislation; another is to engage, either individually or through collective action, in efforts at influencing or lobbying the government; finally, in addition to cooperating and possibly aligning oneself with the government, one can attempt to use this relationship in order to gain some sort of competitive advantage over other companies. All three of these types of responses can be said to have been exhibited within the Canadian pulp and paper industry, before the enactment of the 1992 federal pulp and paper regulations. The industry was split between the relatively modern mills in western Canada, which had already invested in technology for greater pollution control, and the mills in Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 122 eastern Canada, which would require substantial funds to make their facilities comply with new regulations. Stanbury (1993b) reports that while many mills in eastern Canada lobbied against the new regulations, their western counterparts did not. One can infer from this behaviour that they expected to gain from seeing some older, inefficient mills in eastern Canada shut down. A year before the new regulations were to be implemented, Stone Consolidated's Executive Vice President and Chief Operating Officer L. Olivier, writing about less efficient mills, argued that "those who cannot survive must be left to die in peace" (Olivier, 1991, p.40). Ex Post Behaviour. After legislation has been passed, one may also expect to see different responses to government bodies, ranging from cooperation to outright conflict. Some organizations may also attempt to obtain discretionary decisions from the government in their favour, which is one way of attempting to influence the regulators. Or, as was the case in 1990 with Kruger Inc. and the deinking line at its mills in Quebec, an organization can direct its efforts at securing financing from the government in order to fund adaptations to the regulations being imposed (Marotte, 1990). Based on the above examples, a matrix has been developed to analyze and describe the sample companies' strategies with respect to environmental regulators. The categories listed below can be viewed as distinct strategic choices, but need not be mutually exclusive. In other words, an organization may choose to pursue more than one of these strategies in its relations with government at any given time. In addition, some may more frequently appear in ex ante scenarios - prior to new regulations - whereas others may be more typical ex post. Moreover, some strategies may be observed both before and after new regulations are enacted. The following categories and questions provide the basis for this study to classify each organization's behaviour toward regulating bodies: • Cooperative: Does the company cooperate with regulatory bodies on environmental issues? Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 123 • Antagonistic: Is it troublesome and regularly fights the government? • Individually proactive: Does the company attempt to influence environmental regulations on its own? • Collectively proactive: Does the company attempt to influence environmental regulations through a trade association? • Competitively opportunistic: Does the company use its relationship with the government to gain competitive advantage over other industry players? • Rent-seeking: Does the company pursue government subsidies or differential regulations to increase its profits? The matrix of these categories is given in Figure 6.1, which contains an added dimension: frequency of occurrence. This can be used to compare companies according to the extent to which a particular type of relationship with governing bodies has been evident over a given period, between 1993 and 1995 - years in which several changes in both federal and provincial regulations took place. 3.0 FRAMEWORK FOR EVALUATION OF EMS Both EMS standards, CSA Z750 and ISO 14000, were found to share a common weakness: they do not offer any framework for evaluating EMS. Therefore, objective grading of EMS relative to the standards is rendered more difficult. Undeniably, both standards represent a useful starting point for a company to establish an EMS, but they do not, in their current form, represent an analytical tool for evaluating a company's environmental management system. For example, in the case of the CSA standard scheme, it may be difficult for a researcher in the field of EMS to obtain objective evidence of such intangibles as "shared Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 124 Figure 6.1: Matrix for Qualifying an Organization's Relations with Regulatory Bodies over a Period of Time This matrix can be used to organize the observed differences between companies in their responses to regulatin bodies. It will be completed using information about actual behaviours over the time period considered. Relations with Regulatory Bodies, 1993-1995 Behaviour Type Frequency o1 • Occurrence Usually Occasionally Once Never Cooperative Antagonistic Individually proactive Collectively proactive Competitively opportunistic Rent-seeking F I G 6 _ 1 . W K 4 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 125 values toward environmental initiatives", without his very presence biasing the discussion of values within the organization. With regard to ISO 14000, since this standard is still a draft document, it, like CSA Z750, cannot be currently used as an ultimate evaluation tool for companies' EMS. A principal question emerges: in the absence of an approved EMS evaluation framework, how can one evaluate EMS in a defensible manner? A review of the literature shows that attempts have been made to provide EMS practitioners with methods for such evaluation. The degree of detail varies depending on the method; some methods are highly descriptive, such as J. Elkington's (1993) "Ten Steps to Environmental Excellence". Others, such as one offered by Pierce (1992), boil down to more detailed check lists. Finally, the Global Environmental Management Initiative offers a self-assessment procedure, whose essence is to uncover whether the assessed company subscribes to sixteen principles spelled out in ICC's Business Charier for Sustainable Development Principles for Environmental Management. Several authors (Eckel at al 1992; James, 1994; Greenberg and Unger, 1993/94) make an effort to describe what a good EMS should look like by providing readers with "benchmark" of their own. Despite the range of available evaluation methods such as those described, I felt that none of them adequately fulfilled the objectives of the present study, particularly the determination of the current state of EMS within the pulp and paper industry in Canada. While they can be used to look at companies qualitatively, none of them features any quantification mechanism. In the absence of an evaluation model offering both a quantitative and qualitative approach, I have developed a new model to evaluate EMS in the Canadian pulp and paper companies to be sampled. The model, as presented in Figure 6.2, is based on the eight EMS components identified in Chapter 3, and based in large part of the CSA and ISO standards. For each component, a number of criteria can be established which will be relevant to the sample companies. Each of these are listed according to their particular component. J Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 126 Figure 6.2: Model for Evaluating an Organization's Environmental Management System Yes No COMPONENT 1: Establishment of an EMS Does the organization have documented EMS procedures and instructions? 1 0 Are these procedures and instructions based on a recognized standard or code? 1 0 Have the documented EMS procedures and instructions been implemented: - in all operation units? 2 0 - in selected operation units? 1 0 Total score available : 4 Normalization factor: X 25 COMPONENT 2: Environmental Policy Does the environmental policy specifically address the organization's: - activities? 1 0 - products? 1 0 - environmental impacts? 1 0 Does it specify the organization's mission, values and guiding principles? 1 0 Does it clearly state commitments to continual improvement of environmental performance? 1 0 Does the policy drive the setting of environmental objectives and targets? 1 0 Is the environmental policy publicly available? 1 0 Does the policy guide the organization toward: - monitoring legislative and regulatory changes? 1 0 - seeking out the best available industry technology and management practices? 1 0 Is the policy approved by the Board of Directors or other governing body? 1 0 Is the policy effectively communicated to both: - internal stakeholders? 1 0 - external stakeholders? 1 0 Is the policy consistent with other organizational policies (safety, quality, etc.) 1 0 Total score available : 13 Normalization factor: X 7.69 COMPONENT 3: Organization and Personnel Does me organization have an environmental management structure: - at the executive level? - at the operational level: (a) in each mill? (b) in selected mills? Do environmental managers have appropriate background and knowledge: - at the executive level? - at the operational level: (a) in each mill? (b) in selected mills? In addition to environmental managers, does the company have in-house environmental expertise & support? Is identification of costs and benefits relating to environmental management, practiced? Does the environmental structure or department: - identify environmental problems ? - initiate preventive actions ? - participate in planning ? Is the environmental structure or department appropriately staffed, in terms of quality and caliber? Are financial resources requested by the environmental structure, normally made available? Is environmental training for employees provided: - at regular intervals? - to all employees? Total score: 15 Normalization factor: 6.67 1 0 2 0 1 0 1 0 2 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 FIG6_2.WK4 Page 1 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 127 Figure 6.2: Model for Evaluating an Organization's Environmental Management System Yes No COMPONENT 4: Risk Management Does the company practice risk assessment of its operations? 1 0 Have the potential risks of the company's operations been identified: - for each mill? 2 0 - for selected mills? 1 0 Have the consequences of these potential risks been evaluated: - for each mill? 2 0 - for selected mills? 1 0 Does the company have a detailed environmental risk response procedure in place: - for each null? 2 0 - for selected mills? 1 0 Total score: 7 Normalized score: X 14.3 COMPONENT 5: Environmental Objectives and Targets Does the company have clear environmental objectives? 1 0 Does the company have specific environmental targets set out to be achieved? 1 0 Are these targets measurable? 1 0 Are these targets set within the context of the environmental policy & risk assessment? 1 0 Which of the objectives and targets have been addressed? - regulatory compliance 0.25 0 - pollution prevention 0.25 0 - environmental impact reduction 0.25 0 - continous improvement 0.25 0 Does the organization have a program for the implementation of objectives and targets? 1 0 Does the program designate responsibility for target implementation: - at the executive level 1 0 - at the operational level 1 0 Does the program specify the means by which targets are to be achieved? 1 0 Total score: 9 Normalized score: X 11.1 COMPONENT 6: Environmental Management Information System Does the organization have an established information system to gather & analyze environmental data? 1 0 Does the organization keep a record of legislative and regulatory requirements? 1 0 Does the organization keep a register of environmental impacts? 1 0 Does the organization keep a record of environmental audits and reviews? 1 0 Does the organization detail: - failures to comply with its policy? 0.2 0 - incidents and follow-up actions? 0.2 0 - complaints and follow-up actions? 0.2 0 - monitoring data? 0.2 0 - inspection and maintenance records? 0.2 0 Total score: 5 Normalized score: X 20.0 FIG6_2.WK4 Page Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 128 Figure 6.2: Model for Evaluating an Organization's Environmental Management System Yes No COMPONENT 7: Monitoring and Reporting What kind of audit does the organization perform? - compliance audit 1 0 - waste reduction audit 1 0 - material/supplier audit 1 0 - other audits 1 0 Are audits performed regularly? 1 0 Are audits ratified by an independent party? 1 0 Do audit findings induce modification of the environmental policy? 1 0 Does the audit provide for the development of corrective measures? 1 0 Are there other monitoring systems in place: - at all mills? 2 0 - at selected mills? 1 0 Does the organization publish au environmental report? 1 0 Total score: 11 Normalized score: X 9.09 COMPONENT 8: Management Reviews Does the organization have an internal process that benchmarks current practices & identifies areas for improvement? 1 0 Does the organization verify that corrective actions are effective and timely? 1 0 Is a review of the environmental management system conducted regularly? 1 0 Total score: 3 Normalized score: X 33.3 FIG6_2.WK4 Page Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 129 Establishment of EMS. Examination of this component should answer the following: • how well an EMS is documented, • whether the EMS procedures are derived from a recognized source, such as a standard or code, and • whether and to what degree the documented EMS has been implemented. Environmental Policy. Environmental policy should be looked at with regard to: • clarity of objectives, • consistency with other company policies, • support from executive management, and availability to interested parties. Organization and Personnel. Investigation of this component should take into account the following: • formal organizational arrangements for carrying out EMS, • professional expertise of personnel delegated to operate EMS, • sufficiency of human and other resources to meet EMS objectives, and • adequacy of environmental training. Risk Management This component should be assessed with respect to the following: • level of recognition and evaluation of potential environmental risks, and • state of emergency preparedness and response across the company. Environmental Objectives and Targets. Examination of this component should take into consideration the following: Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 130 • type and quantity of objectives and targets, • clarity and consistency with the environmental policy, • measurability, and • means through which targets and objectives are to be achieved. Environmental Management Information System (EMES). Examination of this component should answer the following: • advancement and functionality of the EMIS, and • number of types of information gathered within the EMIS, Monitoring and Reporting. Investigation of this component should take into account the following: • formal monitoring arrangements in place, • regularity and content of environmental audits, • environmental audit follow-up activities, • quality of environmental report. Management Reviews. This component should be looked at to address: formal arrangements for EMS reviews, • frequency and regularity of EMS reviews, and • degree of EMS review follow-ups. The proposed EMS evaluation model features a number of questions formed on the basis of the preceding criteria. Each question is constructed in a manner which requires either a yes or no answer. Scoring is performed in the following manner: Each question, depending on either a positive or negative answer, yields 0 or 1 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 131 respectively; in some cases, where a distinction must be made between practices at all mills, some mills, or none within a given organization, the ranks assigned will be 2, 1 and 0, respectively25. • For each of the eight components, the total score will be calculated and normalized onto a scale of 0-100. The scoring system allows for direct comparisons between different components of the model as well as between companies. The proposed evaluation framework addresses the major EMS components and manages to assess them in a uniform and unbiased way. Furthermore, it opens an opportunity to create a matrix of results from the sampled organizations in order to conduct comparisons between companies and groupings of companies in the advancement of their EMS. Information about a company's EMS can help to define its position relative to environmental issues. The framework for evaluating EMS will help to generate a picture of how seriously a given organization regards the mitigation of its impacts on the environment, as judged by its policies, decisions and actions. This picture, however, can be full only if the EMS is appraised against the company's actual environmental performance. 4.0 FRAMEWORK FOR THE EVALUATION OF ENVIRONMENTAL PERFORMANCE The objective of section 4.0 is to establish a framework for evaluating environmental As indicated earlier, the proposed EMS framework was created on the basis of the content of the Canadian EMS standard CSA Z750 (CSA, 1993), and the ISO 14000 standard draft (ISO, 1994). Both these documents describe the contents of an EMS without accentuating the importance of some features or components over others. Accordingly, I decided to weigh all the EMS components and their individual items evenly, which is reflected by the marks, 0 or 1, assigned to each of the EMS features identified. Had the standards indicated that some components are more important than others, a range of values for scoring could have been assigned, and a sensitivity analysis of the impact of such values to total scores performed. However, in the absence of such clear indication, I did not see the need for such a sensitivity analysis of EMS scores to be performed here. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 132 performance, which can be used to fulfd the purpose of this study. To arrive at the appropriate model, a review of current practice in the evaluation of environmental performance was conducted in Chapter 3. Based on this, a framework appropriate for the study of the Canadian pulp and paper industry is presented. As indicated in Chapter 3, there are neither generally approved environmental performance indicators nor standards for measuring them. Regrettably, this fact is true for the pulp and paper industry as well. In the course of this research, no example of a specific framework for measuring environmental performance indicators for this industry was found. Hence, for the purpose of this study of the Canadian pulp and paper industry, a set of environmental performance indicators must be proposed along with the framework for their evaluation. Recognizing the complexity of EMS, as well as the varying levels of environmental performance found among the pulp and paper mills across Canada, it is crucial to use a consistent set of indicators regardless of a mill's technology, location or compliance requirements. According to Woodruffe (1994), in order to serve an analytical purpose, the indicators ought to, inter alia, be: • based on readily available data (to recognize the cost of data collection), • clearly defined and unambiguously interpreted, able to show trends of performance over time, and • measurable with the required level of accuracy. Through the research, it was found that only certain effluent quality data are readily available in a format permitting analysis within a realistic time frame. Through a number of interviews conducted with both federal and provincial environmental enforcement officers, the following facts have been established: 1. Only for the last three years (since 1993), has effluent quality data been collected and archived electronically. Pre-1993 data are primarily stored in a hard-copy form which Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 133 is often difficult to access. 2. Although some provinces, such as B.C., Alberta and Quebec, have formal air pollution regulations regarding emissions from pulp and paper mills, the allowable concentrations of air pollutants established by provincial authorities refer to emissions from selected production process stages and/or machines, such as recovery boilers, bleach plants, lime kilns and others. The regulations do not set limits for total emissions or concentrations of air pollutants leaving the site. Furthermore, according to R. Beatty, senior air pollution officer at the B.C. Ministry of Environment, Lands and Parks, the government focuses on monitoring ambient air quality, and no longer measures emissions from individual industrial smoke stacks. Instead, industrial facilities are responsible for their own air pollution monitoring. Their records are occasionally inspected by government representatives known as regional managers. Regional managers make judgement calls regarding compliance and any air pollution limit exceedences. Mr. Beatty also stated that the regional managers do not report their findings to the ministry and therefore, no central data base for air pollution is kept. 3. Generation and handling of solid wastes by pulp and paper companies is not regulated either. Permissible quantities of solid wastes are set in environmental permits on a site-by-site basis. No data on solid waste management is collected centrally by the government. The above facts limit the choice of environmental performance indicators to a certain extent. For the purpose of this research, a selection of accessible environmental performance indicators has been made and a model for quantifying them has been designed. The two selected indicators, biological oxygen demand (BOD) and total suspended solids (TSS) presented in Figure 6.3, relate to effluent quality only. Both indicators are widely used to described effluent quality, and their permissible concentrations are clearly specified by federal Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 134 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 135 and provincial regulations. It is believed that these will provide a sufficient, quantifiable picture of how a given mill performs relative to its most environmentally sensitive aspects, i.e. its direct impacts on the environment. This performance can then be compared with the EMS in place for that mill. These two indicators, BOD and TSS, are common for effluents from all types of mills, i.e. pulp, paper and pulp & paper, as opposed to A O X and acute toxicity, which are used only for the determination of effluent quality from mills producing pulp. Three consecutive years have been selected for the purpose of this analysis: 1993, 1994 and 1995. In order to quantify performance, a score will be calculated based on the analysis of mean monthly average concentrations of BOD and TSS, and the total number of incidents where provincial regulations, deemed more restrictive than federal ones, were violated. For each of the two indicators, coefficient of variation values were computed in each year. Keller et al. (1990) state that the coefficient of variation is an appropriate measure to obtain accurate assessment of the relative variability of data. Thus, through computing of this coefficient and then assigning different weights, it is possible to see how well a given mill manages its effluent quality on a regular basis, in addition to seeing whether the regulatory requirements are fulfilled or not. Accordingly, for each indicator in a given year, the number of exceedences of provincial limits are reported and corresponding weights are assigned to violation incidents depending on their severity. The final score results, first, from the addition of the coefficient of variation weight (that is, the number reflecting the fluctuation in effluent quality levels around the mean) to the number of exceedences weight. Then, where mean values of monthly average concentrations for 1994 and 1995 are lower than the preceding year (1993 being considered the base year), the score is multiplied by 0.5. Conversely, where these monthly average concentrations are higher, the score is multiplied by 1.5. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 136 The two weights mentioned vary in terms of magnitude. The exceedences weight ranges from 0 to 50, but the coefficient of variation weight only ranges from 1 to 6. The difference in these ranges indicates the greater importance attributed to limit exceedence as opposed to mere fluctuation around mean values of monthly concentrations. The final score derived from this analysis is intended to enable direct comparison within the same mill over time, and among the sample of mills. The proposed framework given in Figure 6.3 meets all the requirements - data availability, accuracy, and clear interpretation - set for environmental performance indicators by Woodruffe (1994). 5.0 RELATIONSHIP BETWEEN ENVIRONMENTAL MANAGEMENT AND EXOGENOUS AND ENDOGENOUS FACTORS In Chapter 7,1 examine exogenous and endogenous factors potentially influencing environmental decisions at Canadian pulp and paper companies. Based on my observations and information collected directly from the companies sampled, I attempt to characterize the influence of each of the factors on environmental management practice in this industry. For each of these factors, my observations are verified by the use of statistical analysis. While the sample studied was not selected at random (see: Section 6.0), the relationship between environmental management and different factors could potentially be examined through the use of multiple regression. However, two facts determined that a multiple regression analysis would not be suitable here. First, only two of the variables are represented by actual numbers: EMS scores and environmental performance scores. The inclusion of exogenous and endogenous factors in the multiple regression analysis was not feasible because there were no numerical values attached to these factors26. Second, in the absence of concrete numerical In contrast to EMS and environmental performance scores which are numbers, in the case of exogenous and exogenous factors, the only numbers presented in Chapter 7 are the percentage of companies who perceive Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 137 values describing the factors analyzed, the factors could potentially appear in the analysis as dummy variables. However, the presence of up to nine dummy variables could make a multiple regression analysis awkward to manage and interpret. Given the above, I decided to apply a different method. Specifically, I use contingency tables to test for statistical independence, i.e., to diagnose the relationship between environmental management and different exogenous and endogenous factors. I decided to distinguish between high EMS scores and low EMS scores by setting the threshold value at 6.0. This value represents 75 per cent of the maximum score achievable in the EMS evaluation framework. Three subgroups of such tests for statistical independence were designed. The first subgroup tests the relationship between EMS scores and three factors which were measured in an objective fashion: company size, • ownership, and • the degree of vertical integration. The second subgroup is more subjective, in that it relies on information provided by the companies themselves. It seeks to test the relationship between EMS scores and the "perceived" importance of the following factors to environmental management: • production technology, • location, • pressure from employees, • pressure from customers, • pressure from the trade association, given factors as either important, somewhat important or unimportant. Hence, it was not considered feasible to conduct a multiple regression analysis on the basis of such data types. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 138 • pressure from creditors, liability of directors • public pressure • government regulations • environmental groups27. In this subgroup, in order to minimize the number of cells in contingency tables with expected values below 5 (see: Keller et al., 1990; Conover, W.J., 1980; Siegel, 1956), I combined responses rating these factors as somewhat important or unimportant into a category called low importance. Responses rating a factor as important were placed in the high importance category (see Appendix 4). In the third subgroup, I test the statistical independence of environmental performance from the following variables: • geographic location, • type of effluent treatment, • level of vertical integration, • EMS score for vertically-integrated companies only, • EMS score for all companies sampled. A more detailed description of this analysis is presented in Appendix 4. 6.0 GENERAL INFORMATION ABOUT THE SAMPLE The sample of companies to examine was designed to provide a reasonably representative picture of corporate environmental management across the Canadian pulp and paper industry. The influence of these factors on individual companies' environmental management was assessed by asking the companies sampled to rate each of them as important, somewhat important or not important (see: Appendix 1 and 2). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 139 While the sample of companies and mills was not selected in a perfectly random fashion, the objective behind the selection was to maximize the amount of information collected while making best use of the resources available. Hence, companies from only four provinces are included. The companies to be included were expected to differ from each other in terms of size, ownership and degree of vertical integration. Also, it was believed that the mills to be studied would display differences with regard to the jurisdiction in which they operate, the composition of their products, their production technology and the receiver of their effluent. Executive offices of 35 companies were contacted. All of them received the firm environmental management questionnaires featured in Appendix 2, 33 of them responded, giving a 94 per cent response rate. Similarly, 68 mills belonging to these companies were contacted and received the mill environmental management questionnaires featured in Appendix 3. Fifty five of these mills responded, giving a 81 per cent response rate. The total of 33 company and 55 mill respondents constituted the sample for this research. The examination of the sample with respect to the differences mentioned is presented below. 6.1 Companies in the Sample The companies which were studied differ from each other in a number of ways. For instance, some of them are held publicly, while others are private enterprises. For some of them, forest products are their core or only business, while other companies are parts of large consortiums of different businesses. For the purpose of this research, three criteria for potential segmentation were taken into account: size, ownership and degree of vertical integration. Company Size. Firms included in the sample were considered multi-mill companies if they operate two or more mills. Others, operating just a single pulp and/or paper facility, were qualified as one-mill companies. Of the 33 companies in the sample, 20 were multi-mill and 13 were one-mill. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 140 Degree of Vertical Integration. A company in the sample was deemed vertically-integrated if, apart from pulp and/or paper operations, it has woodland and saw-milling operations. The others, for the purpose of this research, were not regarded or referred to as vertically-integrated. Of the 33 companies studied, 23 were vertically-integrated and 10 were not. Ownership. Three types of ownership were examined: domestic, foreign and joint-ventures. Among the companies included in the sample, 20 were Canadian, 11 were foreign and 2 were joint-ventures between Canadian and foreign interests. In aggregate, the sample includes 39 per cent of all the pulp and paper companies in Canada. 6.2 Mills in the Sample Differences between mills, even within the same company, can be numerous and multi-dimensional. For example, differences may appear in such areas as the type of raw materials used, aspects of production technology or the existence of effluent treatment facilities. For the purpose of this project, the focus was kept on the following four criteria chosen: jurisdiction, product composition, pulp technology and effluent receiver. Jurisdiction. Mills from the following four provinces were included in the sample: Quebec and Ontario in the east, and British Columbia and Alberta in the west. The composition of mills by province is the following: British Columbia: 22 (71 per cent of the provincial total, 31) Alberta: 2 (29 per cent of the provincial total, 7) Ontario: 15 (40 per cent of the provincial total, 37) Quebec: 16 (30 per cent of the provincial total, 54) Total 55 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 141 Production Profile. In terms of production profile, three categories were identified: pulp, pulp and paper and paper/cardboard. Among the 55 mills included in the sample, 12 produce pulp only, 25 produce both pulp and paper and the remaining 19 manufacture paper, cardboard and/or paperboard. Pulp Technology. Among the mills manufacturing pulp, four technologies were identified: kraft, mechanical-sulphite, integrated and deinking. In the sample considered, there are 18 kraft mills, 12 mechanical-sulphite mills, 6 integrated mills and 3 deinking mills. Effluent Receiver. As the type of effluent receiver is likely to impact the mill's environmental management practice, it was decided to examine the sample mills in terms of that criterion. Among the mills studied, 9 discharge their effluent streams to the ocean, 6 to lakes, 16 to high-flow rivers, 18 to low-flow rivers and 6 use municipal sewage systems. In aggregate, the sample includes 36 per cent of all mills in Canada. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 142 CHAPTER 7: RESEARCH FINDINGS 1.0 INTRODUCTION There are a number of approaches which can be taken by the researcher in presenting the results of his/her investigation. Hornig (1990, p.767) has observed that: "science writing can be impersonal or personalized, can suggest controversy or consensus, and can emphasize scientific facts or their sociopolitical implications". Bearing these choices in mind, I decided that the results of this research could be discussed in the first person, indicating my own responsibility for their accuracy and credibility. In this chapter and the next, I intend to avoid divagations toward political or social implications and rather, to focus on the subject of the study and the lessons learned about it. It is hoped that the first-hand nature of the information, provided by various sources and processed in a standardized manner, will add to the legitimacy of the results being discussed here. The rest of this chapter will focus on: findings about corporate environmental management in the Canadian pulp and paper industry (Section 2.0), examination of exogenous and endogenous factors influencing environmental management in this industry (Section 3.0), and environmental performance of the companies sampled (Section 4.0). 2.0 CORPORATE ENVIRONMENTAL MANAGEMENT IN THE CANADIAN PULP AND PAPER INDUSTRY As mentioned in Chapter 4, the Canadian pulp and paper industry is heterogeneous in many dimensions. Examples of such heterogeneity may be found when one looks at marked variations in geographic concentration, technology in use and market share that exist within the Canadian pulp and paper industry. Therefore, it is difficult to treat this industry as one entity and to make simple characterizations of it. Corporate environmental management in CaViada's pulp and paper companies reflects the Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 143 diversity of the industry, often with more differences between firms than similarities. The purpose of Section 2.0 is to make an effort to analyze the complexity of corporate environmental management in the Canadian pulp and paper industry. Three areas of that management are addressed; first, a discussion about the overall state of formal environmental management systems (EMS) is provided; second, key aspects of environmental strategy, as determined in the course of the research, are presented; third, the presence and development of five selected approaches to environmental management are discussed. These approaches are: environmental auditing, life-cycle analysis, activity-based costing, environmental benchmarking and Total Quality Environmental Management. 2.1 Environmental Management Systems Environmental management systems in the companies sampled were evaluated according to the EMS evaluation framework presented in Chapter 6. The framework enables one to look at any EMS either as a whole, or a set of components. The use of this framework made it possible to measure EMS in different companies according to the same criteria and thus to make observations likely to be valid for the whole industry. Among the companies analyzed, one can clearly distinguish two fairly large subgroups, one "proactive" and the other "reactive", on the basis of several of the EMS components as well as the approach taken with regard to EMS. The observed distinction is discussed below. Figure 7.1 presents the results of the EMS evaluation. It is useful to examine these results from at least two perspectives: (1) total or aggregate scores, and (2) scores for individual components. In Figure 7.1, total scores for individual companies are listed in the far right column. An examination of these total scores shows the following: Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 144 a 0 3 •a u •a 3 1 cz> g § 1 fi 2 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 145 • The top score for aggregate EMS by any company was 7.56, the maximum possible being 8. • The top quartile score was 6.87 and the median score was 6.29. • Over 75 per cent of the companies sampled scored above 4. The lowest score was 1.58. The numbers in Figure 7.1 deserve some interpretation28. First, one can note that all of the companies sampled have some elements of EMS in place. The elements present vary between companies in terms of their content and state of development, which is reflected in their scores. Second, a prevailing number of the companies are already in a state where rather strong foundations of an EMS have been laid (Scores above 4), such that further EMS development ought not to be difficult nor require radical measures. Third, judging by the respective scores, one can conclude that to observe that over half of the companies sampled have an advanced EMS in place (Scores above 6), and the top quartile established very advanced EMS, relative to the rest of the industry (Scores higher than 6.87). Examination of individual EMS components among different companies shows that the largest gaps between firms exist in the areas of establishment of EMS, management reviews and monitoring and reporting. In other words, these are aspects of EMS where one observes wide variations in development. On the other hand, the smallest differences can be observed in the areas of organization and personnel, environmental management information systems and environmental risk management. In other words, these components of EMS are developed to a rather similar degree across the industry. The differences can be measured by the value of the coefficient of variation of individual scores in all eight EMS evaluation framework While useful to describe the general level of development of EMS, individual scores of companies on each specific dimension in the framework should not be treated as absolute, because they represent the state of development at a specific point in time as viewed by one specific observer (me). While the framework was designed to quantify observable differences between companies, the scores themselves should not be used to rank any particular company against another. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 146 components. Specific values appear in the bottom of Figure 7.1. To further describe the state of EMS across the Canadian pulp and paper industry, I scrutinized each of the eight components from the EMS evaluation framework components: (1) establishment of EMS, (2) environmental policy, (3) organization and personnel, (4) risk management, (5) environmental targets and objectives, (6) environmental management information system, (7) monitoring and reporting, and (8) management reviews. This examination includes general observations as well as individual cases to fully reflect the existing situation. The major findings on each component follow. Establishment of EMS. While all the companies sampled exhibited at least some of EMS components, as many as 75 per cent are working with established systems. This fraction represents the subset of the sample which scored over 4, or 50 per cent of the maximum mark available in the EMS evaluation framework. The remaining 25 per cent, despite having a few of the EMS components, do not have what can be considered a formal EMS in place. Among those companies operating with environmental management systems, EMS were not established in the same fashion. In most cases, the EMS is the result of evolving environmental procedures and assigned responsibilities. These procedures and responsibilities were initially created to enable the company to react to such phenomena as environmental accidents and emergencies, and were often part of government requirements. Over the last several years, some companies changed their perception of environmental issues and became more proactive in their environmental management. That usually led to the establishment of environmental policies, setting environmental objectives and in many cases action plans to be followed. Another, less common, approach witnessed was to build the EMS according to a recognized standard, code of practice or a set of guidelines. These have a history of less than 10 years and were popularized only recently. Hence, it not surprising that only 10 per cent of the sampled companies with EMS in place established their environmental management systems Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 147 according to a recognized standard. The only standard used to date by the companies sampled, has been the Canadian Standards Association's 1993 CSA Z750 Guidelines for a Voluntary Environmental Management System. Environmental Policy. The importance of an environmental policy, as a document inducing and often stipulating environmental management, is recognized by a vast majority of the Canadian pulp and paper companies. As many as 87 per cent of the companies sampled have a formal environmental policy. Among the remaining 13 per cent, most do not have a formal environmental policy, and one firm includes its environmental policy in a larger document considered an environment, health and safety policy. In studying management policy, it is especially important to ask oneself how much is "mere words". To determine whether environmental policies, as seen across the sample, are meaningful, it is useful to examine them in terms of their content and their weight i.e. the degree to which they can act to police behaviour with respect to environmental issues. Examination of the environmental policies in terms of their content reveals different breadths of scope in defining the company's responsibilities in this area. While practically all the environmental policies analyzed address the companies' operations and the environmental impacts of these operations, a minute fraction, only 6 per cent, address the environmental impacts of their products. It is difficult to deduce if such an approach - that of the majority -is deliberate or not. One can speculate that from the company's viewpoint it is certainly easier to focus efforts solely on operations and the environmental impacts of these operations. Such an approach also reflects a desire to limit a company's environmental responsibility to the manufacturing process only. Following such an approach, the majority of the Canadian pulp and paper companies avoid addressing environmental impacts of their products through either their partial or entire life cycle. The issue of differences in environmental commitment is quite visible too. It is common to see declarations about respecting environmental regulations, working with governing bodies Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 148 and other stakeholders on the environment, or subscribing to the principles of due diligence and good management practice. On the other hand, companies who boldly address, in their policies, an effort toward continuous improvement of environmental performance, are in the minority (33 per cent of the sample). Even fewer companies, 26 per cent, tend to declare their guiding values, such as adherence to principles of sustainable forestry, environmental stewardship and responsible corporate citizenship. After looking at the content of the environmental policies, it is important to ask what weight these environmental policies have, particularly in terms of compelling pro-environmental behaviour of managers and employees. There exist grounds to believe that environmental policies are treated seriously at the executive level. Each of the policies analyzed was approved by the board of directors and signed by at least one of the top executives. Twenty four per cent of the companies sampled formally bind their employees, in the environmental policy, to follow the policy. However, enforcement of environmental policies seems to be a separate issue. In the course of this research it was found, that only one company actually ties up a variable component of its managers' salary to environmental performance. Two other companies informed that they are currently considering similar measures. The remaining companies could not really describe how exactly they enforce the environmental policy among their personnel. Despite attempts to inculcate environmental policies in employees, there is reason to wonder whether the policies are treated with equal importance by all operations subjected to them. One company states that all its employees must sign an environmental policy and their performance on the job is assessed according to it. However, a direct interview with the manager of one of the mills belonging to that company showed that (a) environmental policy has no impact on employees' remuneration, and (b) the environmental manager at that mill did not even know that his company has a formal environmental policy. In the case mentioned, the mill in question faces a different set of variables than its counterparts. It is located in the middle of a large municipality, produces what maybe considered fairly environmentally friendly products (cardboard from recycled paper) and was subjected to municipal by-laws Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 149 only. As such, that mill does not face potential restrictions and uncertainties known to other mills located on waterways and hence subjected to the Fisheries Act. Such a mill, therefore, is likely to do its job to remain in compliance with binding by-laws, without necessarily paying much attention to formal company policy. On the other hand, it is probably reasonable to think that there was no excuse to ignore the company policy. The mill manger ought to have been familiar with it. While this case may be an isolated example (other mills within the same company confirmed that the environmental policy is an important document), it shows that some companies and mills may not necessarily be directly guided by the environmental policy while practising prudent environmental management. In such cases, the environmental policy can be considered, in the words of one environmental manager, mere "window dressing". On the other hand, it is difficult to imagine, given the high profile and public scrutiny of the pulp and paper industry in Canada, that companies would tolerate employees and managers who routinely break environmental policies, expose the company to environmental liability and jeopardize its image and possibly market position. Organization and Personnel. Based on the sample observed, it appears that the pulp and paper companies in Canada understand the importance of an appropriate structure and staff to the quality of corporate environmental management. Eighty five per cent of the companies sampled have established formal environmental structures. The environmental function, at the executive level, is carried out in one of the two following ways: (1) directly, through a separate environmental department, or (2) indirectly, through a larger department involved in other activities as well. In the former case, independent environmental departments are usually headed by vice presidents for environment, and represented on the company's the board of directors. In the latter case, where environmental issues are handled by an environmental structure within a larger department, the person responsible for the environment in most cases is a director of environmental services. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 150 People responsible for environmental management across the Canadian pulp and paper industry seem to have an educational background qualifying them to do so. Top environmental executives have the following backgrounds: chemical/pulp and paper engineering or chemistry (50 per cent), environmental science/engineering (22 per cent), biology (11 per cent), and mechanical engineering (17 per cent). Typically, they have many years of experience in the pulp and paper industry, primarily in management posts. At the same companies, mill level persons appointed to supervise environmental matters have the following educational backgrounds: chemical/pulp and paper engineering or chemistry (72 per cent), environmental science/engineering (11 per cent), biology (6 per cent), others (11 per cent). Many companies are departing from traditional positions of being reactive in environmental management toward more proactive positions. Accordingly, the scope of duties being laid before environmental departments has changed. All the companies sampled responded that their environmental departments - or departments which deal, among others, with environmental issues - participate in identification of environmental problems and initiation of preventive actions. It is worthy of note is that environmental departments play an increasing role in strategic planning. According to several of the environmental executives, their assistance is now sought in decisions regarding such issues as production changes and technology alterations. The organizational and staffing aspects of EMS are not limited to the people directly responsible for environmental management. Increasingly, companies have come to recognize that the quality of EMS seems to be a function of environmental awareness and training of other managers and employees. However, as could be expected, both the level of environmental awareness and particularly the scope of environmental training of employees varied among the companies in the sample. Forty per cent of the companies organize environmental "awareness-building" training for employees. Such training occurs usually either annually or bi-annually. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 151 The prevailing type of environmental training is emergency response, spill management and transportation of dangerous goods. Sixty nine per cent of all the companies sampled carry out this type of environmental training. Employees trained are usually mill employees who may potentially find themselves in the situation of danger. Such training is usually a one-time occurrence. Environmental training for mill managers is practised by approximately 50 per cent of the companies sampled. This frequently takes the form of environmental law training, which covers the interpretation of laws, and is repeated as regulations change. Risk Management. Awareness of the considerable sensitivity of their operations to the environment seems well present among the Canadian pulp and paper companies. All the companies sampled are aware of the potential risks they face through their operations. These environmental risks are addressed through a number of procedures such as spill management and fire emergency preparedness. In most cases, these environmental risk management procedures were established without a formal environmental risk assessment. Instead, they were based on common sense and the experience of similar facilities and operations. Such an approach seems sufficient to begin with, but is certainly insufficient in the longer term. Only 24 per cent of the companies sampled underwent a formal environmental risk assessment, carried out in most cases by reputable external consultants. A majority of the companies sampled said that, although a formal environmental risk assessment was not conducted, they are aware of the consequences of potential environmental risks. Such statements may be qualified as rather bizarre, since a common sense approach would dictate that one cannot fully understand the consequences of events without gaining an understanding of events themselves. What is even more surprising is that in only 15 per cent of cases were these consequences evaluated for all facilities belonging to a given company. In the vast majority of companies sampled, consequences of environmental risks were evaluated Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 152 for selected locations only. Environmental Objectives and Targets. Given the diversity of the Canadian pulp and paper industry, one might not think it likely to find common environmental objectives shared by the majority, if not all, of the companies. However, as turned out in the course of this research, virtually all the companies sampled have at least two key environmental objectives in common. First, all these companies want to remain in compliance with the environmental regulations. This is something that immediately emerges once any company is asked about its objectives. The second objective, which often goes hand-in-hand with the first one, is to prevent and/or mitigate pollution. It is precisely because of this objective, that the companies sampled established procedures such as emergency preparedness and spill prevention. It is interesting to notice that these two objectives are declared unanimously by all the companies, regardless of whether they consider themselves environmentally reactive or proactive. Beyond these basic objectives, differences begin to appear. Two types of environmental objectives that companies may or may not choose selectively have been observed. The first type involves fairly generic objectives, which are shared by some companies regardless of their production, location and others variables, but not by others. Among these generic objectives, the most frequently observed were: water use reduction, reduction in the volume of solid wastes generated and/or landfilled, reduction of key air emissions and elimination of certain toxic chemicals. There does not appear to be any factor underlying the choice of any of these objectives versus another. Another type of environmental objective beyond this basic set are technology-specific environmental objectives. Examples of such technology-driven objectives found in the company sample include reduction of total reduced sulphur emissions, odour management, and implementation of elemental chlorine-free bleaching. Among the companies sampled, all aim to remain in compliance with environmental regulations and to prevent pollution. However, only approximately 66 per cent of companies strive to mitigate their environmental impacts through one or more of the objectives stated above. Even fewer, about 55 per cent of the sample, set continuous improvement of their Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 153 environmental performance as an objective. Environmental objectives, by their nature, indicate general intentions of the company and directions it is going or wants to go. Environmental targets require concrete commitments and actions from the company, often within a stipulated time-frame. Similarly to environmental objectives, environmental targets observed in the sample studied can be either general or technology-driven. Among general environmental targets, the ones frequently mentioned were: completion of employee training, phasing out PCBs, reduction in water consumption and energy savings. Examples of technology-driven environmental targets include phasing out specific chemicals or implementing elemental chlorine-free bleaching. I found in the course of the research, that approximately 50 per cent of the companies sampled have clear environmental targets. It must be indicated that while approximately half the companies have established environmental targets, in not all cases are these targets measurable, i.e., in many cases specific numbers and deadlines are lacking. Some companies respond that it is not prudent for them to commit themselves to specific numbers, deadlines or solutions, as changing regulations by the government are difficult to predict. The most frequent explanation given for vague targets was that the companies were afraid that once they commit themselves to certain measures, processes and/or chemicals, the government may then make these illegal or put other regulatory burdens on the companies. For instance, one company responded that while one of its environmental targets is the elimination of PCBs, it does not want to commit itself either to specific date or a substitute. The company was not certain whether in a few years time, the government will introduce new legislation requiring phasing out a specific PCB-alternative; then the whole effort would have to be repeated. The company seeks to avoid this by leaving the eventual PCB substitute unnamed for the time being, until they have more information about government's intentions. Environmental Management Information Systems (EMIS). All the companies sampled seem to realize that reliable management of environmental data is indispensable for accomplishing at Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 154 least the two basic environmental objectives they share: compliance with environmental regulations, and pollution prevention/mitigation. I found in the course of this research that all the companies and all the mills sampled have some form of EMIS in place. However, differences between companies exist in three principal dimensions. First, companies differ in terms of what data is collected. All the companies collect the environmental data specified in environmental permits granted to their facilities. The data are reported from mills to the government and to the head office. Differences appear when it comes to data not required by permits and as such not reported to the authorities. The gaps are particularly evident in five areas: (1) registration of environmental impacts, (2) records of environmental audits, (3) failures to comply with the environmental policy, (4) environmental incidents and follow-up actions and (5) inspections and maintenance records. I found in the company sample studied that registration of environmental impacts of operations is practised by approximately 62 per cent of the companies. Records of environmental audits are kept by 70 per cent of companies. Failures to comply with environmental policies are recorded by some 50 per cent of all the companies. Data on environmental incidents and follow-up actions are recorded by almost 90 per cent of the companies studied, and, being directly related to compliance, this seems to be the second most important type of data companies collect. Finally, inspections and maintenance records are kept by approximately 35 per cent of all the companies. Second, some differences between companies exist with regard to how frequently the collected data are reported. In most cases, mills send their environmental data to the head office once a month. In some cases, the head office then reports these data to concerned bodies within the company, such as an environmental committee of the board of directors or a joint management/trade union committee. Only in two cases, which probably appear isolated relative to the rest of the industry, was it found that head office management requires the environmental data "only when something happens". Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 155 Third, some differences exist in terms of the means used to collect, process and convey data. It has been found that each mill has a computer data-base where data are stored. In most cases, data are then transferred to the government and head offices in hard copy or on disks. Other more modern means such as e-mail are becoming increasingly used. In my sample, 21 per cent of the companies reported using e-mail in data conveyance. Two companies have fully integrated electronic EMIS connecting all facilities and providing the possibility of (1) instant and continuous updates, and (2) access by the government. Some companies expressed the need to have state-of-the-art EMIS as they continue to develop their EMS. Among the companies studied, over a quarter plan radical changes in the way their EMIS is structured and operated. Monitoring and Reporting. All mills are bound by law to monitor their emissions, and therefore have monitoring systems in place, through which they determine whether they remain in compliance with regulations. I found in the course of this research that monitoring process varies between companies in a predictable manner. In the case of facilities discharging directly into water bodies, monitoring is generally done more frequently and covers a larger number of parameters. Monitoring of some of these parameters is not required by permits, nor by the Fisheries A ct. In contrast, mills which discharge to the municipal system are bound by municipal by-laws as opposed to the considerably more restrictive Fisheries A ct. Hence, monitoring in such cases is simplified and less frequent. Monitoring of environmental impacts is one of the areas which distinguish proactive companies from reactive ones. Some companies, which consider themselves environmentally proactive, use a monitoring system, audits and reviews to see what improvements they attained relative to a base year. That, in turn, determines the environmental objectives and specific targets to be accomplished subsequently. Other companies monitor their operations only to assure they remain in compliance with environmental regulations. The findings from Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 156 these monitoring efforts and audits are used mainly to guide corrections. The latter approach can be deemed reactive. According to the monitoring criterion, 66 per cent of the companies sampled are evidently proactive. The remaining 34 per cent are reactive. It is worth noting that the division of the industry into reactive versus proactive companies could be of limited duration, and that shifts in approach can occur when circumstances change. In a few cases, proactive companies responded that still in the early 1990s they were reactive. This, they say, was due to new regulations, required capital investments in production and environmental technology and some unrest in their international markets. Nowadays, after having gone through considerable changes in production technology and completing required treatment facilities, they find that they can be increasingly proactive, setting new objectives and often undertaking voluntary programs for the environment. A fairly large number of companies report on their environmental practices to both internal and external stakeholders. A variety of means are used, including formal environmental reports, leaflets, press advertisements. As far as environmental reports are concerned, over 80 per cent of the so-called proactive companies produce formal environmental reports. While all aspects of operations are addressed at length, these reports tend to put more weight on woodland operations rather than pulp and paper ones. Companies attribute that to the fact that the general public seems to be more interested in forest management practices than in pulp and paper operations as such. In three cases, companies produce forestry management reports only. Typically, an environmental report document is produced internally by a team composed of representatives from the following departments: environmental, woodland and communications. Usually a professional external editor is retained to design and/or edit the format of the report. With one exception, companies do not have their environmental reports verified for accuracy by an external party. Asked directly why that is, they responded that to date, none of them face any direct need for such independent verification. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 157 As for other reporting means, I found that 12 per cent of the companies have their own pages on the internet to communicate their environmental message, and one company occasionally has TV advertisements produced. Among the remaining means of reporting on the environment, the companies sampled use newsletters (48 per cent of the companies sampled), open door campaigns (10 per cent), press ads (15 per cent), bulletin boards (21 per cent), and leaflets (21 per cent). Management Reviews. The effectiveness and reliability of corporate EMS are likely to be improved through regular management reviews, vehicles of critical analysis (BSI, 1992; ISO, 1994). This viewpoint seems to be shared by half of the companies sampled; it was found that full management reviews of EMS are practised in 50 per cent of the sample. Interestingly, none of these companies does the reviews only for the sake of monitoring EMS efficiency. It seems that the real force driving EMS reviews is a desire to become ISO 14000 certified. All companies among the 50 per cent mentioned above are undergoing a systematic EMS review as part of their preparation for ISO 14000 certification. In all the cases examined, the EMS review takes the form of "a gap analysis", where companies' gaps, i.e. areas for improvement, are determined. In all the cases, such gap analyses are performed by renowned external consulting companies. Among the remaining 50 per cent that do not carry out full EMS reviews, two groups can be distinguished. The first group, approximately 25 per cent of the companies sampled, engage in a similar EMS review process but to a far lesser degree. The major difference is that the review covers only selected aspects of their EMS, such as the examination of emergency procedures, policy review and environmental training. The second group, equally numerous, seem to do nothing in the area of EMS review. 2.2 Approaches to Corporate Environmental Management In Chapter 3, a number of well known approaches to corporate environmental management Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 158 were introduced. These approaches, namely environmental auditing, life-cycle analysis, activity-based costing, environmental benchmarking and Total Quality Environmental Management, were distinguished from each other on the basis of their disciplinary (legal, accounting, etc.) orientation and key drivers (compliance, efficiency, etc.), as summarized in Figure 3.10 In the course of this research, an effort was made to determine which orientation and key drivers, and consequently, which approaches to corporate environmental management are dominant in the Canadian pulp and paper industry. It was expected that: (1) some approaches would be practised more frequently and broadly than others, (2) some companies might practice certain approaches partially, (3) elements of some approaches might co-exist within the same company as they are not mutually exclusive, and (4) some companies may pre-plan taking a certain approach while others may practice it intuitively i.e. without realizing that what they do is actually a recognized approach to corporate environmental management. The research results confirmed at least a few of these expectations. Environmental Auditing. This is the most broadly practised approach to corporate environmental management in the Canadian pulp and paper industry. Environmental audits, particularly compliance audits, are vehicles used to test the company's state of environmental compliance. Given that compliance is often stated to be the number one environmental objective among the companies sampled, one can see why environmental auditing is so popular. I found that 84 per cent of the companies sampled practice environmental auditing. The relative popularity of environmental auditing found to exist in the Canadian pulp and paper industry can be partly attributed to the fact that, unlike some of the newer approaches, environmental auditing has been in existence since the late 1970s (CICA 1992). There seem to exist two different philosophies behind the practice of environmental auditing. The first is generally evidenced by companies qualifying themselves as reactive with respect to environmental issues. The philosophy boils down to a single fundamental question: are we still in compliance? Environmental audits are used to provide an answer to that question. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 159 Usually the company is satisfied if the answer is positive and not much happens beyond that. When an audit show that compliance is compromised, then the company designs measures to restore the desired order of matters. The second philosophy is embraced by more environmentally proactive companies and rests on the principle of seeking continuous improvement. In this case, environmental audits are carried out to provide an answer to a different type of question: are we performing better than last year/time? Results of environmental audits are used not only to evaluate past performance but, more importantly, to plan and design measures aimed at further improvements in corporate environmental management. Environmental auditing is not new to the Canadian pulp and paper industry. Most of the companies have spent several years practising environmental audits in regular - usually annual or bi-annual - intervals. I found that among the companies sampled, 76 per cent were conducting environmental audits before the new 1992 federal effluent regulations. Environmental auditing as an approach to corporate environmental management is usually pre-planned and carefully designed. This planning requires a certain level of expertise. Yet, I found that environmental compliance audits in the Canadian pulp and paper industry are generally conducted internally by company personnel. This practice contrasts with the Canadian Standards Association's standard Z750, General Principles and Practices in Environmental Auditing, which specifies that an auditor should be independent and objective. However, in only 8 per cent of cases did people who actually work in a given facility conduct audits. The remaining 92 per cent of companies had internal compliance audits performed by company personnel from locations other than the one to be audited. Companies underline that this not only gets the job done properly and without bias but also is a great educational experience for auditors and audited alike. Despite relying primarily on internal personnel, Canadian pulp and paper companies seem to understand the vital role of verification of results of environmental audits by independent, Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 160 external consultants. Such verification, even if it does not happen to throw new light on the company's compliance, surely improves the credibility of environmental audits. I found that almost 70 per cent of the companies sampled retain external environmental consultants to either verity audits done internally or to conduct independent audits. Two other observations were made on this subject. First, in the majority of cases where external consultants are contracted - 70 per cent - it is the head office which hires the external consultant to perform or verify audits in all the facilities. In the remaining 30 per cent of cases, mills have the discretion to hire whomever they wish and different mills belonging to the same company often have different external environmental auditors. This may be one of the indicators of a prevailing centralized nature to companies' corporate environmental management as opposed to a decentralized one. Second, in roughly half of the cases, companies have long-term relations with the same consulting companies and in the other half, external auditing is the subject of an open bid by various consultants. Environmental compliance audits seem to be the dominant type of environmental audit practised by the Canadian pulp and paper industry. Another type of voluntary audit practised to a degree is an environmental management audit. I determined that only 33 per cent of companies practice auditing their environmental management procedures. It is worth noting that no company reported doing supplier/raw material audits. This type of audit seems to be of no concern to the Canadian pulp and paper industry. Given the high level of scrutiny, particularly from interest groups such as environmentalists, under which pulp and paper companies find themselves, the absence of supplier/raw material audits may be viewed as somewhat surprising. Yet, even companies buying pulp to manufacture paper report that they are primarily led by pulp quality and price, rather than the environmental friendliness of the manufacturing process used to produce the pulp. Only one type of environmental audit is required by law: the waste reduction audit. So far, the legal requirement for waste reduction audits is limited solely to Ontario, and these are practised by all mills located within the boundaries of that province. Two interesting observations were made on this point. First, even companies which do not conduct Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 161 environmental compliance audits practice regular waste reduction audits as the law requires them to do so. Second, even the most environmentally proactive companies with mills in Ontario and elsewhere were found to carry out waste reduction audits in Ontario only. That prompts the legitimate question, whether these companies are truly proactive, or whether perhaps that the proactivity they profess is driven by regulations. Life Cycle Analysis (LCA). The scientific determination of environmental impacts, which is the core of L C A , is practised in the Canadian pulp and paper industry to a limited degree. At least two facts substantiate this viewpoint. First, in accordance with the 1992 federal effluent quality regulations, all the mills in the sample, except those which discharge their effluent to municipal sewage systems, were subjected to the mandatory E E M project. Within this project, they focused on studying the impact of their effluent on the aquatic environment. Many respondents have limited their engagement in L C A to that project alone. Second, a smaller number of companies performed LCA-like projects called "environmental effects" studies. In these studies, attention was paid to a broader range of potential environmental impacts from industrial operations than is the case for EEM. The studies were typically performed as a part of the preparation of the companies' EMS for ISO 14000 certification. Apart from these two kinds of scientific studies required either by a law or a standard, I found that Canadian pulp and paper companies really do not practice L C A as prescribed by L C A standards and guidelines. Instead, they carry out scientific determination of isolated environmental impacts. Only one company in the sample studied appears to have conducted a life cycle analysis of its operations in accordance with the L C A guidelines, and, has since detailed an inventory of its impacts on the environment in full. A potential explanation for the virtual absence of L C A in the Canadian pulp and paper industry may be: (1) that L C A as an approach to environmental management is fairly new, having only gained momentum in the early 1990s (Begley, 1992) and, (2) that the L C A methodology is still found by some to have considerable weaknesses (see: Bothwell, 1993; Krivyakina, 1993; Kulik, 1994; Gloria et al., 1995). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 162 Other companies, whose activities in some way resemble L C A , do not seem to realize that some of their studies regarding either changes in production technology or waste handling to mitigate certain impacts on the environment, qualify as partial L C A studies. Three examples of such studies were observed." • 10 per cent of the companies sampled report that they are working on producing elemental chlorine free bleached pulp. For the purpose of these projects, the companies usually use their own research and development centres; • 16 per cent of the companies sampled engaged in the analysis of the environmental impacts of post-treatment sludge handling. This effort was usually carried out in collaboration with either PAPRICAN or universities; and One company conducted a toxicity study of chemicals it uses and subsequently made some substitutions benefitting the environment. Activity-based Costing. The area of activity-based costing, and environmental accounting generally, still in the experimental phase in other industries, appears completely foreign to the Canadian pulp and paper industry. I found in the course of this research that no company sampled does activity-based costing or any other form of environmental accounting. In fact, the vast majority of the companies studied had not even heard about ABC, and had only a vague understanding of the concept of environmental accounting. Instead, environmental costs, which in the case of this industry often constitute a considerable fraction of the company's total costs, are considered part of "service costs" and classified as overheads. Although A B C is practised in full by none of the sample companies, some companies happen to engage in ABC-like analyses. For instance, 17 per cent of the companies sampled reported that they use environmental costs, both existing and projected, to conduct occasional cost-benefit analyses of some operations or their fragments. In terms of focus, the most frequently repeated ABC-type analyses were the ones of costs of chemicals used in manufacturing Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 163 processes. Certain chemicals were replaced by others, often cheaper and less harmful to the environment. These projects were conducted out of a sense of prudent economics and the companies were genuinely surprised to be told that their practices approximate the process of ABC. Environmental Benchmarking. This approach to corporate environmental management, which stresses efficiency improvements, seems to be fairly popular among pulp and paper companies in Canada. I found that nearly half of the companies sampled carry out some form of environmental benchmarking, which makes this approach the second most popular, after environmental auditing, despite its being considerably more recent in its rise to prominence29. While Canadian pulp and paper companies do environmental benchmarking frequently, only in two cases examined, was environmental benchmarking conducted by a special task force in the standard manner discussed in Chapter 3. In the remaining cases, environmental benchmarking was carried out through an informal exchange of information between companies. The forum for such an exchange is usually either the CPPA or provincial trade associations. Apart from this informal, yet very popular method of environmental benchmarking, two other, more formal methods of environmental benchmarking were observed: (1) through research and development centres such as PAPRICAN, where companies can find out about new developments in their industry, and (2) through independent consultants. In the latter case, a consulting company is retained to conduct a comprehensive study of how a given problem is addressed across the industry and sometimes even outside the industry, e.g. sludge handling. With respect to the content of such studies, two "types" of environmental benchmarking were identified: (1) policy benchmarking, and (2) technology benchmarking. Karch (1994) noted that greater attention to environmental benchmarking became evident around mid-1987. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 164 Among the companies practising environmental benchmarking, policy benchmarking was conducted by approximately 23 per cent of the companies sampled. They benchmarked their operations against the expected U.S. EPA "cluster rules" and other selected foreign regulations, chiefly from Europe. The rationale behind this benchmarking exercise was to find out how well positioned these companies would be, should they be required to comply with foreign regulations, i.e. by virtue of selling products in these foreign markets. The other area of environmental benchmarking observed, that is the benchmarking of concrete technological solutions, was occasionally conducted by the remaining 77 per cent of those companies, practising environmental benchmarking. The two most frequently indicated issues benchmarked by companies are: (1) the handling of sludge and ash, and (2) A O X handling. Other areas of environmental benchmarking relate to more specific production-related problems. Finding the best ways of handling sludge and ashes seems the most frequent issue addressed through environmental benchmarking. These problems seem to be of great current interest to many companies, and apparently the last word in ash/sludge handling has not yet been heard. Hence, companies eagerly seek better solutions through benchmarking themselves against more innovative firms. A O X management seems to be another area of growing interest. There are grounds to believe that this interest is amplified by restrictive regulations pending in many provinces across Canada. The remaining areas of environmental benchmarking of importance to the companies sampled include the handling of used oils, finding the best containment for underground tanks or soliciting the best equipment vendor for the mill's specific needs. Total Quality Environmental Management (TQEM). Principles of Total Quality Management are known to a fairly large number of Canada's pulp and paper companies. I found that Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 165 approximately half of the companies sampled declared that they monitor and correct environmental performance in adherence to Total Quality principles. This conviction may be explained by the fact that roughly the same percentage of the firms in question are ISO 9000-certified, which means that their products and processes have met the requirements set out by this international quality standard. No company declared that it formally practices TQEM. Moreover, in one case an interesting paradox was observed - one company, that publicly declares its adherence to Total Quality principles, scored very poorly in the EMS field compared to its competitors. Nonetheless, given that many companies appeared to engage in the pursuit of continuous environmental improvement - the very essence of T Q E M - environmental practice in the companies sampled was evaluated against a Total Quality Environmental Management Matrix30 to illustrate how advanced these companies are in TQEM, regardless of whether they are aware of it. Figure 7.2 presents the scores received by the companies, using the T Q E M matrix. Examination of the far right column, which lists total scores, indicates that the top score was 4.85, out of a maximum of 10. The fifth highest score was 4.23, which was obtained, coincidentally, by the top scorer on EMS. Importantly, a correspondence seems to exist between the scores in the EMS evaluation framework and the T Q E M matrix, indicating that one may be a contributor to the other. However, it is important to notice that even the top T Q E M scorers still have a long way to go before they establish the actual total quality environmental management per se, as they barely reach the "growing stage". The Canadian pulp and paper industry, in aggregate, is somewhere between the "beginning" and "growing" stages of TQEM, scoring 2.94 out of a maximum of 10, which is the "maturing" stage. This matrix was developed by the Council of Great Lakes Industries and is described in detail in Chapter 3. While useful to describe the general level of development of environmental management, individual scores of companies on each specific dimension of the matrix should not be treated as absolute, because the matrix itself was not designed for use by independent evaluators. Rather, the matrix is a tool for companies themselves to examine their own areas of strength or weakness in environmental management. Hence, the scores assigned to individual companies by the researcher should be interpreted with caution. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 166 to ^ *2 S 5 " Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 167 2.3 Environmental Strategies Pursued in the Canadian Pulp and Paper Industry Within the scope of corporate environmental management, the issue of environmental strategy of the companies sampled, was to be examined. As indicated in Chapter 6, the analysis was deliberately limited to environmental strategies directed toward what is probably the most influential stakeholder for the companies and mills, that is the government. Six different strategies, as defined in Chapter 6, were examined: (1) cooperative strategy, (2) antagonistic strategy, (3) individually proactive strategy, (4) collectively proactive strategy, (5) competitively opportunistic strategy, and (6) rent seeking strategy. As stated in Chapter 6, these strategies were not conceived to be mutually exclusive. It was found that some of these strategies are pursued by the same company, depending on the circumstances. Only two companies sampled declared that they pursue only one of these strategies. Cooperative Strategy. Cooperative strategy seems to be pursued usually by almost all - 97 per cent - of the companies sampled. Only one company reported they follow it only occasionally. Not only does the Canadian pulp and paper industry strive to cooperate with the government on the environmental issues, but this cooperation seems to be of different quality - even superior - than it used to be. A few company representatives reflected upon the changing times. Nowadays companies and mills are more honest and cooperative. In reciprocation, the government tends to be more accommodating (though some observers may view this as a sign of weakness in the enforcement of regulations). Some companies reported that in cases of unexpected and temporary incompliance due to "Acts of God", the companies inform the government about their problems and work to determine mutually satisfying solutions. This honesty and trust indicates a significant change - the interviewed company representatives admitted that in the past, mills in cases of short periods of incompliance, would not bother to inform the government and would attempt to contain the problem themselves. The qualitative change is reflected in official government publications. For example, in the 1993/1994 Compliance Status Report for British Columbia, the government informs that: In 1993-94, there were 38 days of unauthorized discharge of Afcute} L[ethal] E[ffluent] from BC pulp and paper mills...Sixteen of these were associated with power supply failures, which resulted in the Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 168 direct discharge of untreated effluent. Six were a result of black liquor spill that contaminated a UNOX effluent treatment system. Extreme cold weather conditions that affected woodchip feed stocks and effluent lagoon performance caused 21 failures at three mills. Four warning letters were issued in response to the most significant incidents. (Environment Canada, 1995, p.64) [Emphasis added] This quote indicates that the government took the unusual circumstances into consideration, and instead of punishing companies, issues warning letters only. Antagonistic Strategy. Antagonistic strategy toward the government appears to be followed rarely. Only 17 per cent of the companies sampled admit that they are occasionally antagonistic to the government, and 7 per cent report that they behaved this way only once. The remaining majority, 76 per cent of the companies sampled, said they never pursue an antagonistic strategy. I found that where antagonism occurs between companies and the government, it usually arises around the issues of designing new regulations (ex ante) and interpretation of the existing ones (ex post). The most frequently cited examples of antagonistic strategy pursued regard the following government initiatives: • Provincial A O X regulations in Ontario, where several companies engaged in open disputes with the government about the proposed restrictive A O X provincial limits. The steps undertaken included not only the sending protest letters and distribution of position statement leaflets, but also cases of strategic alliances formed between companies and municipalities to fight the proposed provincial regulations. An instance of such an effort occurred in Thunder Bay, Ontario where a few pulp and paper mills and the municipality of Thunder Bay formed an alliance against the proposed provincial A O X limits. The stakes were different for the allies: the pulp and paper mills did not believe they would be able to meet the proposed standards and, would, thus, be forced to divest from the operations in Ontario or be shut down; the municipalities were afraid that in such a case they would suffer from increased unemployment. This behaviour can be qualified as ex ante; Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 169 • The federally-imposed E E M study, and disputes over, in particular, the content of the cycle II of the E E M study. Some companies were upset that the government started shaping the cycle II requirements without having fully analyzed the results of the cycle I study and without any input from the industry (ex post or ex ante). At the mill level, disputes also occurred over the content of the E E M study which they were asked to conduct (ex ante). Individually Proactive Strategy. Pursuit of an individually proactive strategy may be suitable to companies that boast an exceptionally strong position within the industry. The fragmented structure of the pulp and paper industry in Canada probably explains why there are not any companies in either particularly powerful or privileged position in relation to the rest of the industry. Hence, it is not surprising that only 7 per cent of the conipanies sampled report that they usually try to influence the government on their own; 23 per cent say they do it occasionally and 7 per cent that they did it once. The remaining majority of companies, 67 per cent, state that they never pursue this strategy. Typically, efforts to influence the government individually aim at establishing new guidelines rather than altering the ones proposed by the government. In fact, only in two cases did the companies report that they lobbied for alterations to certain requirements already set by provincial environmental assessment acts. These requirements regarded maximum emission thresholds for certain devices, and the lobbyists wished to elevate these thresholds such that they would not be binding on their own systems. A more common type of individually proactive strategy found was when the company comes up with its own proposals for new guidelines or requirements. Such guidelines, procedures or requirements are presented to the government to pass and implement as compulsory for the whole industry. I observed that these initiatives usually regard management procedures. Some of the initiatives encountered include good management practice, and more specifically water consumption management and sludge landfilling. It is difficult to precisely determine what motivates these companies to come up with the initiatives mentioned. An argument can be Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 170 made that these procedures are already in place at these companies, and perhaps they want to entrench their leadership position at their competitors expense. If that was true, such a behaviour would correspond being competitively opportunistic, as discussed later. Collectively Proactive Strategy. Influencing the government through collective action seems much preferred by the Canadian pulp and paper companies rather than taking individual action. Companies seem to feel that their voice is better heard if expressed through a collectivity. Stanbury (1993a, p. 31) states that "representative bodies find it easier to secure access to the government". This form of interaction between companies and governments seems to be preferred by the latter too. Stanbury (1993a, p.31) adds that "the government prefers to deal with representative bodies because it feels they carry a constituency opinion", as opposed to individual company's self-interest. Asked if they pursue the collectively proactive strategy, 70 per cent of the companies sampled report that they do so usually, while 10 per cent try only occasionally to influence the government. One company reports having been collectively proactive once and 13 per cent state that they never do this. The companies also responded that typically, such a collectively proactive strategy is pursued through the CPPA as well as through the provincial trade associations. All lobbying through collective effort seems to regard current and incoming regulatory requirements. The lobbying is easier in a way because governments routinely consult proposed new regulations with trade associations. Companies embrace this opportunity not only to express their opinion but to try to influence the final shape and content of proposed legislation. Weyerhaeuser (1996, p.33) voices an opinion shared by much of the industry today: "The point is not to abolish regulations, but to ensure that every regulation is needed and subjected to some test for cost and benefit." Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 171 Companies report that through collective action, they are trying first and foremost to ensure the quality of regulations. They lobby for more reasonable, rational, better defined and simpler regulations. This concern was stressed evenly across the sample. Another motive for collective lobbying, as identified in the course of this research, is worth emphasizing - concern about the fairness of regulations. Some companies, especially those located in Western Canada, feel that measures are needed to prevent or counteract the predictable outcomes of what Leone (1986) calls the Iron Lew of Public Policy31. Collective action can be used to lobby for a "levelling of the playing field" - ensuring that the same requirements are set before all companies. This subject was on the lobbying agenda of the Western Canada companies only. Competitively Opportunistic Strategy. This strategy is not pursued by many companies. Only a small number, 7 per cent of the companies sampled, say that they usually attempt to influence the government to gain an advantage over competitors. Twenty per cent report that they do this occasionally. Ten per cent say that they did it once and the remaining majority, 63 per cent, never. Due to the relative insignificance of this strategy in the strategy portfolio of the companies sampled, no specific trends or patterns were determined in the course of the research. However, in order to illustrate the nature of this strategy, it is worth presenting two specific examples of competitively opportunistic behaviour: • A major multi-mill company lobbied the government to strictly enforce the December 1995 deadline for the federal effluent treatment standards and to publish a list of those companies which did not meet this deadline. While the company did not admit to any underlying agenda behind that proposal, there are grounds to believe that exposing competitors' failures could be only beneficial for the company in question. According to Leone (1986), government actions, such as new regulations, create winners and losers in the competitive market place by virtue of different cost impacts for different companies. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 172 • An Alberta company lobbied Members of Parliament to pass tougher federal air pollution regulations to make mills outside Alberta comply with the same abatement requirements that it had faced. The company realized that other companies would not be able to undertake major air pollution abatement projects immediately, and would be placed at somewhat of a disadvantage. Rent Seeking Strategy. This strategy appears to be pursued only sporadically. Most companies indicated their belief that it is wrong in principle in a free market environment to use government subsidies - effectively tax-payers' dollars for purely private projects. Some added that accepting financial handouts would make them dependent on the government. The overwhelming feeling was that pulp and paper companies in Canada, despite their improving relations with the government, do not want to weaken their bargaining position in order to gain financial favours. In this light, it was not surprising to find that no company claims to pursue rent-seeking strategy on a usual basis, and only 7 per cent admit to doing so occasionally. Seven per cent reported that they pursued this strategy once and the majority, 86 per cent, never. In no case was rent-seeking directed toward in the form of obtaining direct subsidies for environmental programs. The companies which pursued the rent seeking strategy, did so in a different and somewhat broader context. Typically, those companies received subsidies for research and development programs. These programs were often joint-ventures by companies and universities or other research institutes and were designed to serve the general public as well as the companies. For instance, in a few cases research and development grants were mentioned for projects related to the handling of pulp and paper wastes, especially composting and agricultural utilization of sludge from mills' effluent treatment facilities. Another, more self-serving, example of rent-seeking was the pursuit of government guarantees of loans for production technology improvement and environmental protection. If these companies' self-reported lack of rent-seeking behaviour in the period 1993-1995 can be believed, this contrasts with past utilization of government grants for environmental Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 173 improvements, which was common practice in eastern Canada during the 1980s. De Silva (1988) reports that twenty companies located in Quebec and ten companies in Ontario benefitted from the Pulp and Paper Modernization Grants Program, a joint initiative by the federal and provincial governments, which provided millions of dollars in funding for environmental and other improvements. 3.0 EXOGENOUS AND ENDOGENOUS FACTORS INFLUENCING ENVIRONMENTAL MANAGEMENT IN THE CANADIAN PULP AND PAPER INDUSTRY A number of factors, both exogenous and endogenous, potentially influencing environmental actions by companies were listed in Chapter 3. The selection of the factors, dictated in large part by common sense, was found in the course of the research to overlap to a great degree with the factors suggested by some industry insiders. One industry voice on some of the factors affecting environmental management is Weyerhaeuser (1996, p.33), which stated: Over the past year or so, much of the pulp and paper industry embraced the goal of "minimum impact manufacturing". It wasn't a matter of choice or coincidence.We are all familiar with the factors driving this effort. Changing environmental regulation, customer demand, public opinion, local community concerns and - not least of all- a host of well-organized, international, computer-networked environmental activist groups all figure in the equation. [Emphasis added] So far, the research results have shown that the state of EMS* of environmental strategy and the approaches to environmental management are characterized by diversity and change. It is appropriate, therefore, to ask whether the differences between companies in terms of EMS, environmental strategy and approaches to environmental management happen at random, or whether there are certain identifiable commonalities or patterns. An examination of the endogenous and exogenous factors potentially influencing environmental management will help reveal how much of the variation in EMS, strategy and approaches to environmental management can be explained by such external forces as customers' demand or by more Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 174 internal factors, such as company size. 3.1 Exogenous Factors In the course of the research, I asked the companies about their perception of the role of seven potential exogenous factors in their environmental decisions: (1) government regulations, (2) public pressure, (3) pressure from environmental groups, (4) pressure from the trade association, (5) pressure from creditors, (6) pressure from customers and (7) geographic location. The responses provided are analyzed from the corporate and the mill perspective. Public Pressure. The overwhelming majority (93 per cent) of the head offices sampled feel that public pressure plays an important or somewhat important role. Mills demonstrated a similar degree of concern about this factor. Ninety seven per cent of mills declare that public pressure is either important or somewhat important. However, the percentage of mills finding it important, that is 47 per cent, is lower than the corresponding figure, 65 per cent, from the head offices. Nonetheless, this represents a reasonably good fit between the perception of public pressure by head offices and mills. Only one discrepancy was found, where the head office of one company declared public pressure to be important, but its mills firmly stated otherwise. The test for statistical independence between EMS scores and the stated importance of public pressure (as reported by the head offices of the companies sampled) showed, however, that the hypothesis that these two variables are independent cannot be rejected (see: Appendix 4, Exhibit 1). Environmental Groups. Environmental groups are not currently perceived as an important factor for pulp and paper companies in environmental decision-making. There is a consensus among the sampled companies on two facts. First, environmental groups are not as active as Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 175 they were in the late 1980s and early 1990s, particularly when the dioxin and furan problems surfaced. Weyerhaeuser (1996, p.33) echoes that view and observes that: The environmental movement rose during the past three decades to warn us of the perils of our ways. Putting aside their emotional rhetoric and sometimes questionable tactics, the environmental movement recognized long before the industry that public values were shifting. Partly as a result of their effective campaigns, the public was receptive to proposals to reduce industrial effluents, achieve sustainability, and preserve more wilderness. The companies sampled reported that once they had upgraded their production and treatment technologies, environmentalists seemed to, in general, have left them in peace. The second fact on which there is agreement among the sample companies is that these groups seem to focus on woodland operations rather than an pulp and paper. The companies analyzed believe the rationale behind that choice to be the fact that the general public pays more attention to spectacular and potentially outrageous acts such as clear-cut logging, than to water quality. Yet, this opinion may only be partly true, since the period mentioned, late 1980s - early 1990s, showed that environmentalists can engage themselves in fighting water quality problems, real or perceived, as was the case with dioxins and furans. Only one company's head office views environmental groups as an important factor. However, slightly over 60 per cent of the companies sampled do view environmental groups as somewhat important. The remaining companies (over 30 per cent) viewed environmental groups as an unimportant factor. Because of the combination of categories to create the contingency tables used in Appendix 4 to statistically test the independence of factors relative to EMS scores, the number of companies in the low importance cell for environmental groups would have been overwhelmingly large. Hence, the results of the test for statistical independence of environmental groups and EMS scores are not meaningful (see: Appendix 4, Exhibit 2). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 176 At the mill level, the proportions rating environmentalists as a factor in environmental decisions were similar. Only two mills declared environmental groups to be an important factor, but they added that this was their general perception, rather than a mill-specific experience. Sixty seven per cent of the multi-mill companies' mills described environmental groups as being somewhat important. Twenty eight per cent viewed environmental groups as unimportant, but it is worth noting, that in 8 of these cases the mills' views were opposite to the views expressed by their respective head offices. This observation suggests that environmentalists may have greater leverage over head offices and influence on the company's public image or policies than is the case when it comes to everyday operations at the mill level. It ought to be reported why one company rated environmental groups as an important factor influencing the company's decisions on environmental issues. In this case, environmentalists did not act alone in pressuring the company, but formed an alliance with a native band in a dispute over the use of local waterways. This lent extra support to their cause and had a stronger impact on the company and its attempts to maintain good relations with the community. Notwithstanding the current perception of environmental groups as a minor factor, the Canadian pulp and paper industry should be cautioned that any relaxation of the pressure by environmental groups over the past several years is probably temporary. Environmentalists are known to operate cyclically, and it can be expected that after a fairly calm period the upward trend in activity will re-emerge. The rationale behind this expectation is provided by Stanbury (1993a, pp. 152-154). He states that "for environmentalists, there are benefits in creating a 'crisis' situation", and adds later that The set of [environmental groups'] goals is unbounded - it is never possible to reach the top of the mountain. Reaching the top of one peak creates internal pressures which result in the perception of other, higher peaks to conquer. Given the importance of the Canadian pulp and paper industry to the national economy and Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 1 77 given the environmental sensitivity of pulp and paper operations, it is reasonable to expect that new environmental goals for this sector can and probably will be found by the environmental groups. Government Regulations. Environmental regulations seem to be the single most important exogenous factor for the sampled companies. Uniformly, all head offices indicated that compliance with limits and regulations is important. Regulations are similarly viewed at the mill level. All mills from multi-mill companies consider compliance with regulations to be important. As indicated above, differences in regulations between the provinces in Canada seem to throw a new light on the environmental proactivity of some companies versus others. Observation of the sample companies' environmental management and the role of environmental regulations leads to the belief that if environmental regulations were not in place, companies would tend to ignore or omit some measures which would otherwise represent positive additions to their environmental portfolio. For example, I found that waste reduction auditing - required by law in Ontario - is practised by companies, even those with the highest EMS and T Q E M scores, only in their facilities located in Ontario. Thus companies which displayed an array of features inherent to being environmentally proactive decided to do waste reductions audits only where required by law. Similar audits in these companies' other facilities were foregone, even if the facilities were located only several dozen kilometres from the Ontario facilities. Another example of the impact of regulations is the fact that in general western Canadian mills tended to have secondary effluent treatment facilities in place. In eastern Canada, where the provincial regulations had been less restrictive during the period in question, such facilities were relatively scarce. Because of the unanimous response rating government regulations as important, a statistical test for the independence of this factor from EMS scores is not meaningful (see: Appendix 4, Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 178 Exhibit 3). Pressure from the Trade Association. Although a majority of pulp and paper companies are members of the Canadian Pulp and Paper Association and/or provincial trade association, the role of trade associations as factors influencing environmental actions was found to be less important than expected. In the sample studied, over 63 per cent of head offices view the CPPA and other trade associations as important (15 per cent) or somewhat important (48 per cent), while 37 per cent find them to be an unimportant factor. Most surprising is that among the latter 37 per cent are companies who are actively participating in the creation of the CPPA's Environmental Management Program. The program is intended to be the pulp and paper industry's equivalent to Responsible Care. While the program is needed and timely, the companies sampled feared that it would not be nearly as successful as Responsible Care was for the chemical industry. Asked why this might be, they responded that their trade associations, and the Canadian Pulp and Paper Association in particular, differ in important ways from the Canadian Chemical Manufacturers' Association (CMA) which manages the Responsible Care program. For instance, in the case of C M A , the association is dominated by a single company, namely Dow Chemical, which assumed a leadership role in the program, and other companies followed. Program acceptance and implementation was also made easier due to the concentration of the chemical industry in central Canada. The Canadian pulp and paper is different: the interviewed company representatives emphasized that there are no single, or few, industry leaders with strong influence and leadership potential, and the industry is geographically quite dispersed across the country. Other reasons mentioned included the traditional east/west cleavage of the pulp and paper industry in Canada. Western Canada's companies tended to underline that in their judgement, the CPPA is dominated by companies from the East, whose environmental perspective is or may be different from that of companies based in British Columbia or Alberta. These facts are, in the opinion of many interviewees, the causes behind the relative inertia in the CPPA's work and a corresponding perception of low influence by the companies sampled. Hence, while participating in the associations' work and often having representatives Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 179 in prominent posts in these institutions, some companies expressed a tendency to show initiative on their own rather than wait for the association's push. Responses from these companies' mills were similar to a degree. Seventy per cent of the mills viewed trade associations as an important (12 per cent) or somewhat important (58 per cent) factor, while 30 per cent thought otherwise. While this seems consistent with the head office results, it was observed that within the same companies, different mills perceived the trade association in different ways. At no company were responses from the head office and responses from the sampled mills consistent with respect to the influence of trade associations. Because so few companies rated trade associations as important, there is an excessive number of cells with an expected value below 5 in the contingency table; hence, the results of the test for statistical independence between EMS scores and the perceived influence of trade associations would not be meaningful, (see: Appendix 4, Exhibit 4). Pressure from Creditors. Banks and other financial institutions appear to be less important to environmental decisions than might have been expected. The pulp and paper industry is one of Canada's most capital intensive branches of economy, and as such is an important and valuable client to financial institutions. On the other hand, pulp and paper companies have a considerable number of different chartered banks, trusts and other financial institutions to choose from. This imbalance of power may help to explain the finding that pressure from creditors does not play a strong role as an exogenous factor on Canadian pulp and paper companies' environmental management. The companies sampled seemed to be in agreement that the financial sector appeared to have considerable leverage over the majority of pulp and paper companies in Canada in the early 1990s, when these companies were going through financial dire straits due to (a) declining demand for their products in international markets, and (b) ongoing heavy capital investments in technology improvements. Nowadays, many companies have an improved debt/equity ratio, Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 180 and the financial sector's influence is less of a factor overall. However, creditors' requirements still play an important role in cases of mergers and acquisitions, when companies are under scrutiny for potential environmental liabilities. Fifty five per cent of the head offices responded that creditor requirements are an important (18 per cent) or somewhat important (37 per cent) factor. The former are companies which have been recently involved in the acquisition of new operations. The remaining 45 per cent of the head offices stated that creditor requirements are not important to environmental decision making. At the mill level, the percentage of mills viewing creditor requirements as somewhat important or important is practically the same (56 per cent) as in the case of head offices. Only 12 per cent of mills perceive these requirements as an important factor. The explanation received from many mills on this issue was that mills do not deal with financial institutions directly. Instead, when it comes to new investments, funds are usually provided by the head office with no interaction between individual mills and banks. Canadian financial institutions do not seem to treat the pulp and paper industry differently than their counterparts in other countries. It appears that in contrast to their behaviour with other manufacturing industries like steel and oil, the financial sector worldwide does not appear to be particularly concerned about potential environmental liabilities of the pulp and paper industry. The industry is viewed as financially strong and its environmental problems as temporary. Smith (1994, p.24) in his report prepared for the United Nations' Environmental Program Round-Table on Commercial Banks and the Environment, writes about the pulp and forest products sector, saying that: This industry faces pressure to reduce or eliminate chlorine bleaching, which has negative effects on water courses, soil and wildlife. Facilities that used chlorine bleaching agents in the past may be liable for costly site remediation. There are also increasingly tough restrictions on logging operations. Moody's [Investor Service of New York] believes that liabilities in the industry are likely to be manageable and spread over many years. Thus, impact on corporate creditworthiness is expected to be Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 181 minimal. It appears that the pulp and paper industry's inherent strength shelters companies from the potentially strong influence of creditor requirements. Because so few companies rated creditor requirements as important, there is an excessive number of cells with an expected value below 5 in the contingency table; hence, the results of the test for statistical independence between EMS scores and the perceived influence of creditors were not meaningful, (see: Appendix 4, Exhibit 5). Geographic Location. This factor can be considered in at least two aspects. First, that in which geographic location is understood literally and indicates the proximity of human settlements, waterways, wetlands and other sensitive sites. Second, when geographic location is a "code name" to reflect historical and cultural differences, such as the noted dichotomy between the East and the West. Geographic location as an exogenous factor is analyzed along these two lines. There is notable consensus between head offices and mills that facility location relative to environmentally sensitive areas plays a considerable role in environmental decision-making. At the head-office level, 84 per cent of responding companies consider facility location to be an important (46 per cent) or somewhat important (38 per cent) factor. Four companies (the remaining 12 per cent) responded that facility location was unimportant and these responses are consistent with their respective mills' responses. At the mill level, responses were almost identical to the ones offered by head offices. Eighty four per cent of mills recognized that facility location is important (53 per cent) or somewhat important (31 per cent). Sixteen per cent of the mills sampled think otherwise. Interestingly, only in one case did the head office and all its mills have exactly the same view on facility location as a factor. All these mills are located in places of high public exposure such as river banks close to large municipalities or sensitive ocean fiords, and hence consider their facility location to be quite important a factor influencing environmental action. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 182 The proximity of large municipalities (and resulting public exposure) seems to be the single most important aspect of facility location as a factor. Mills located close to large municipalities consider location important. On the other hand, the mills who indicated that location was unimportant have remote locations in the northern interior of B.C. and northern Ontario. The proximity of large municipalities seemed more important than provincial jurisdiction -mills from all four provinces provided similar patterns of responses. In contrast, the effluent receiver does not seem to matter to the same degree as proximity to communities. With few exceptions, mills located in the most sensitive areas, such as low-flow rivers or ocean fiords, did not provide responses considerably different than the ones located elsewhere32. On the other hand, none of the six mills sampled which discharge their effluents into municipal sewerages considered facility location to be unimportant, even if their operations do not directly affect any potentially sensitive environments. One of the ways to render an unfavourable location less important an influence is to install effluent treatment technology which is able to prevent or largely mitigate potential environmental impacts. However, contrary to my expectation, I found that differences in the treatment technology did not affect the perceived influence of location. Among all the mills sampled, the ones which viewed location as an important factor did it regardless of how advanced are the treatment processes which they have in place. Another aspect of geographic location, the historical dichotomy between the East and the West, can be clearly observed in the companies sampled. The most obvious difference seen was with respect to strategy and lobbying the government regarding environmental regulations. While companies from both eastern and western Canada were concerned with the It must be indicated that the companies and mills sampled were not asked to address the issue of their attitude to specific ecologically-sensitive areas such as wetlands. The absence of this information does not provide grounds to conclude that such sites are not deemed important. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 183 quality of regulations and wanted to lobby for more reasonable, rational and simpler laws, western companies strongly stressed their concern about the fairness of regulations, feeling that they have often been at a disadvantage to their eastern counterparts. The EMS of western Canadian companies also appear to be somewhat better developed. For instance, of the 33 per cent of the sample who address, in their policies, an effort toward continuous improvement of environmental performance, the vast majority of these companies are from western Canada. Also, western Canadian firms, with one exception, make up the 25 per cent of all companies which underwent a comprehensive environmental risk assessment of their operations. Despite these observations of the importance of location, a test for statistical independence between EMS scores and the perceived importance of location showed that the hypothesis that these variables are independent cannot be rejected (see: Appendix 4, Exhibit 6). Pressure from Customers. In the course of this research, I found that the perception of current customers' requirements as an exogenous factor contributing to environmental decisions goes largely with the type of market which companies are aiming to serve. In general, over 70 per cent of all the companies sampled view their customers' requirements as important (30 per cent) or somewhat important (40 per cent). The vast majority of the first subgroup, which find customers' requirements important, are newsprint manufacturers and specialty papers manufacturers. The former sell their products primarily to the U.S., where in some states there are specific regulations setting quality requirements for imported paper, e.g. a specific percentage of recycled fibre content. In this case, their customers' requirements are induced by regulations. The latter sell directly to a retail market where price is often a secondary consideration and other criteria, such as "environmental friendliness" become a more important attribute of the product. In such cases, customer requirements are the result of the personal preferences of consumers. Stanbury and Vertinsky (1995, pp. 6-7) observe that when it comes to retail markets Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 184 Suppliers attempt to differentiate their products in dimensions which are consistent with post materialistic values. People are buying "ethical wellness" and seek to assuage a bad conscience'when buying everyday items such as newspapers or toilet paper. Thus, for example, Scott U.K.'s "Andrex" toilet tissue in the U.K. has been advertised to exemplify a cluster of values: trust, caring, and environmentally responsible actions. In the other 40 per cent of cases, where companies consider customers' requirements to be only somewhat important, these requirements seem to boil down to customers' routine inquiries about whether the manufacturer remains in compliance with environmental regulations; their prime concern, however, is the price. The remaining 12 per cent of head offices responded that customers' requirements are not important to their environmental management. These companies produce pulp only sold then in the free market or directly to deal-seekers on the basis of its price and chemical and mechanical properties. Hence, for the bulk of this industry customer requirements play any role in prompting environmental action, it is still regulation-driven. When the mill level is taken into consideration, responses within the same companies are found to vary usually depending on a given mill's end customer. In general, 72 per cent of the mills view customers' requirements as important (22 per cent) or somewhat important (50 per cent). Twenty eight per cent consider this factor unimportant. Similarly to the head offices, the 22 per cent finding customers' requirements important are either newsprint or fine paper manufacturers. The test for statistical independence between EMS scores and the perceived importance of customer requirements showed that the hypothesis that these variables are independent is rejected (see: Appendix 4, Exhibit 7). 3.2 Endogenous Factors In the course of the research, the following potential endogenous factors were studied: (1) Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 185 company size, (2) degree of vertical integration, (3) type and requirements of the company's owners, (4) pressure from employees, (5) personal liability of directors and managers, and (6) type of production technology used. The observations made are analyzed from the corporate and the mill perspective. Company Size. While companies were not asked directly about the influence of size as a factor, my own analysis of multi-mill versus one-mill companies showed that company size does not seem to be an important endogenous factor influencing either the scale or development of environmental management, even if larger companies tend to have more resources at their disposal to allocate toward environmental management. In the course of the research I found more similarities than differences identified between multi-mill and one-mill companies. The most distinctive similarities were noted in the areas of EMS organization and personnel as well as environmental objectives. On the other hand, the most noticeable differences between multi-mill and one-mill companies were in the field of environmental management information systems. In terms of organization and personnel of EMS, I found that in the case of multi-mill companies, over 60 per cent have separate environmental departments at the executive level, headed by a senior executive, usually a vice president for environment. In the case of one-mill companies, approximately half of the companies have an environmental function at the executive level but almost never does it take the form of a separate and independently staffed department. At the mill level, 75 per cent of the mills belonging to multi-mill companies have environmental departments or environmental structures within larger departments (e.g. technical). As far as environmental objectives and targets are concerned, among the multi-mill companies as well as one-mill companies sampled, 100 per cent aim to remain in compliance with environmental regulations and to prevent/mitigate pollution. Similarly, 84 per cent of multi-mill companies and 80 per cent of one-mill companies strive to reduce their environmental Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 186 impacts. Also, similar fractions of the multi-mill and one-mill sub-samples, 58 per cent and 50 per cent respectively, set continuous improvement of their performance as an objective. The area of environmental management information systems seems to be the one where the most noticeable differences between different-size companies exist. Perhaps understandably, e-mail as a means of data conveyance is only used by multi-mill companies so far. But there are qualitative differences in environmental information handling between multi-mill and one-mill companies. Specifically, I found in the course of this research that: • registration of environmental impacts of operations is practised by 79 per cent of multi-mill companies as opposed to 40 per cent of one-mill companies, • records of environmental audits are kept by 79 per cent of multi-mill companies and 60 per cent of one-mill companies, • failures to comply with environmental policies are recorded by 63 per cent of multi-mill companies and 30 per cent of one-mill companies, • complaints from the public and follow-up actions are recorded by 69 per cent of multi-mill companies and 20 per cent of one-mill companies, and • inspections and maintenance records are kept by 53 per cent of multi-mill companies and 10 per cent of one-mill companies. Despite these differences, the test for statistical independence between company size and EMS scores showed that the hypothesis that these two variables are independent cannot be rejected (see: Appendix 4, Exhibit 8). Degree of Vertical Integration. This was another area for which I did not request companies to rate the factor's importance, but rather, grouped companies according to the scope of their Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 187 activities on the vertical integration dimension, then compared the group's scores in all the evaluation frameworks used. From this it appears that vertical integration is the most salient endogenous factor influencing companies' commitment to the environment. It is also the clearest overall criterion, according to which differences between the companies sampled can be explained and predicted. The differences that have been observed to correlate with the degree of vertical integration include: (1) responses to public pressure, (2) the development of EMS, (3) approaches to environmental management, and (4) pursuit of certain environmental strategies. These differences, as examined in the course of the research, are presented in detail below. First, there exists a difference in how companies of different types (with regard to vertical integration) react to public pressure. Sixty five per cent of the companies sampled consider public pressure important, and with one exception, this group comprises only large, fully vertically-integrated forest products companies. By contrast, only one large company found public pressure to be unimportant. This is a single-operation producer of cardboard and paperboard which uses recycled fibre as its raw material, and as such is generally viewed by the public as helping the environment. By and large, it appears that by virtue of their operations, fully vertically-integrated companies are subjected to more intensive scrutiny by the public, and they report that to a degree their environmental actions are responses to that intensive public scrutiny. Second, having greater overall impact on the environment through logging, sawing and pulp and paper operations, vertically-integrated pulp and paper companies tend to have considerably more sophisticated EMS in place. Differences start with the very establishment of EMS itself. All vertically-integrated companies have EMS in place, while on the other hand, all the companies sampled which do not have EMS in place are single operation firms, such as recycled cardboard, paperboard or paper manufacturers. Also in individual EMS components such as environmental policy, environmental targets and objectives, environmental management information systems, and monitoring and reporting, one can clearly distinguish between fully vertically-integrated forest products companies and single-Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 188 operation ones, the vertically-integrated being the more highly-developed of these. With respect to environmental policies, I observed that 87 per cent of the companies have a formal environmental policy, and with one exception, these are the companies with a considerable degree of vertical integration. Among the remaining 13 per cent, most do not have a formal environmental policy, and one includes its environmental policy in a larger document considered an environment, health and safety document. All of this 13 per cent includes paper or paperboard/cardboard companies. Companies with a considerable degree of vertical integration often have both forestry and environmental policies in place. They also tend to declare their guiding values, such as adherence to principles of sustainable forestry, environmental stewardship and responsible corporate citizenship, unlike companies which run paper or paperboard/cardboard operations only. Another area of clear differences, between companies with different degrees of vertical integration, is that of environmental objectives and targets. For example, among the companies interested in mitigation of environmental impacts and in continuous improvement, notably absent are paper and paperboard/cardboard producers. Further, I found that almost 70 per cent of the companies sampled have clear environmental targets. These are vertically-integrated companies of different sizes and geographic location. The remaining 30 per cent, primarily paper and paperboard/cardboard companies, do not have environmental targets specified, or they are still working on them. In terms of the complexity of environmental management information systems, it is worth noting that while vertically-integrated forest products companies usually have EMIS designed for collecting and processing a broad spectrum of environmental information, single operation companies do not keep records of environmental audits or the environmental impacts of their operations. Vertically-integrated companies appear to be more eager to disclose their environmental management and performance data. This can be probably attributed to the strong demand from Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 189 the public for "the right to know". It turns out that only vertically-integrated forest products companies produce formal environmental reports. In the sample studied, 82 per cent of vertically-integrated companies released such reports33. These companies also try to use more innovative means to communicate their environmental message. For instance, it has been determined that only vertically-integrated companies use the internet and advertisements to inform about their environmental practice. The differences in EMS development between companies that are vertically-integrated and those that are not, are reflected by the scores in both the EMS Evaluation Framework (Figure 7.1) and the T Q E M Matrix (Figure 7.2). In both cases, the top 10 scorers are vertically-integrated forest products companies with extensive woodland operations, saw mills and pulp and paper operations. By contrast, the 5 bottom scorers are paper or paperboard/cardboard manufacturers who do not manufacture their own pulp nor have any wood-handling operations. Vertically-integrated forest products companies tend to behave slightly differently in pursuing certain types of environmental strategies. First, if compared to paper or paperboard/cardboard companies, they tend more often to be antagonistic toward the government and pursue antagonistic strategy on occasion. This fact probably results from the more complex interaction between these companies and the government, which may potentially create more areas of tension and/or dispute. Second, only these companies report that they usually or occasionally pursue an individually proactive strategy. This is not surprising, given the variety of operations with which these companies deal, and the strong research and development efforts in which vertically-integrated companies engage are likely to provide these companies with more opportunity and greater ability to propose new guidelines of practice or regulations. The test for statistical independence between EMS scores and degree of vertical integration While all aspects of operations are addressed at length, these reports tend to put more weight on woodland operations rather than pulp and paper ones. The companies interviewed attribute that to the fact that the general public seems to be more interested in forest management practices than pulp and paper operations. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 190 showed that the hypothesis that these two variables are independent is rejected (see: Appendix 4, Exhibit 9). Type and Requirements of Company Ownership. Owners' and stockholders' requirements are perceived as a very important factor influencing environmental action in the pulp and paper industry in Canada. However, this factor does not explain much of the variation in the results on EMS. The responses given by different companies and individual mills regarding this factor are so similar, that it is impossible to see any differences between domestic and foreign companies, small or large companies, those in different jurisdictions and/or with different production technologies. All head offices of multi-mill companies find owners' and stockholders' requirements important (76 per cent) or somewhat important (24 per cent). At the mill level, 100 per cent of mills responded in the same fashion, finding owners and stockholders requirements important (72 per cent) or somewhat important (28 per cent) in influencing environmental action at their mills. No patterns were found between ownership type subgroups (domestic, foreign, joint-venture) and their ratings on the environmental management frameworks (EMS and TQEM). The test for statistical independence between EMS scores and ownership type showed that the hypothesis that these two variables are independent is rejected (see: Appendix 4, Exhibit 10). Personal Liability of Directors and Managers. Personal liability of directors and managers also seems to be a well-recognized factor influencing environmental action. Indications from the sample are that Canadian pulp and paper companies tend to make their key officers accountable for environmental liabilities, regardless of the company size, ownership, jurisdiction or any other variable. Nearly 90 per cent of the head offices sampled view this factor as important (64 per cent) or somewhat important (24 per cent). Only two companies, located in Eastern Canada, thought Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 191 otherwise. At the mill level, 91 per cent of the respondents consider personal liability of directors and managers important (55 per cent) or somewhat important (36 per cent). Three mills, one in B.C. and two in Eastern Canada, seem to perceive this factor as unimportant. Interestingly, this perception is in contrast to what their respective head offices declare. Similarly, some mills belonging to the two companies whose head offices declared personal liability unimportant, responded that indeed this factor is important. This prompts a hypothesis that the matter of personal liability is not well established and/or communicated by some head offices to mill level operators. The information collected did not permit me to measure this variable independently and use it to explain any patterns/variations in environmental management, therefore the alleged importance of it is based solely on the assertions of the companies themselves. The test for statistical independence between EMS scores and the perceived importance of directors' and managers' liability showed that the hypothesis that these two variables are independent is rejected (see: Appendix 4, Exhibit 11). Pressure from Employees. Employees and their voiced opinion appear to be an important endogenous factor in general, positively contributing to environmental action. All but one of the companies think that their employees are an important (53 per cent) or somewhat important (41 per cent) factor and the proportions of eastern versus western Canadian companies are evenly split. The importance of the employee factor is reflected in individual companies' scores for the Human Resources Development component in the T Q E M Matrix. Over 50 per cent of the companies scored 4 and above for this component, which means that emoployees' environmental awareness and training are high. Among 41 per cent of the companies viewing pressure from employees as somewhat important, the scores varied between 1 and 3, which means that employees received appropriate environmental, health and safety training and appear to be aware of environmental compliance requirements. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 192 I also observed that reported pressure from the employees and the corresponding score on Human Resources Development tended to be lower in smaller companies where (1) trade unions were not as strong as they may be in larger companies, and (2) mills are located in remote locations and are often the only industry in town. In such cases, the asymmetry between the bargaining power of employees and employers is particularly evident, and workers would probably be more concerned about secure employment than in environmental protection. Pressure from employees was another factor which, according to the design of the study, could not be independently measured. However, the test for statistical independence between EMS scores and the perceived influence of employees showed that the hypothesis that these two variables are independent cannot be rejected (see: Appendix 4, Exhibit 12). Type and Age of Production Technology Used. Type and age of technology is viewed as an important factor by companies regardless of geographic location and jurisdiction. Based on the even distribution of mills reporting concern with this factor, it appears that the expected distinction between reputedly modern technology western mills and supposedly old and therefore inferior eastern mills does not apply, at least in the case of production technology, and may in fact belong to the past than the present. Almost 85 per cent of the companies sampled think that production technology is an important (43 per cent) or somewhat important (42 per cent) influence on environmental decisions. The remaining 15 per cent view production technology as an unimportant factor. I observed that those declaring production technology as unimportant were precisely the companies who, in the past several years, underwent considerable upgrades in their production process or even changed it completely. These companies appear at the top of the list of the biggest spenders on capital investments in 1994 and 1995, as reported by Karl (1994, 1995). At the mill level, recognition of production technology as a factor in environmental management goes along the same lines. Eighty four per cent of mills consider production Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 193 technology an important (53 per cent) or somewhat important (31 per cent) factor influencing environmental action. The remaining 16 per cent think otherwise. While there were exceptions, an interesting trend was observed. Within the same multi-mill companies, primarily mills which underwent considerable changes (e.g. introducing CTMP or TMP into the pulp processing) tended to consider production technology an unimportant factor. Other mills within the same company, which did not change their production process radically, did attach importance to technology as a factor influencing environmental action. The exception were three mills which did not alter their production technology but significantly improved effluent treatment capabilities. They also rated production technology as an unimportant factor. Hence, pulp and paper companies and mills tend to view production technology as an important factor in environmental decision-making, except where substantial upgrades have recently taken place, making production technology less of a constraint to environmental management. While it was possible to group mills according to general production technology types (as suggested by McCubbin et al., 1992), these subgroups did not demonstrate significant differences in terms of EMS, environmental strategy and approaches to environmental management. It was not possible to group multi-mill companies according to production technology type, because a range of types were frequently found. However, the test for statistical independence of EMS scores from the perceived importance of production technology showed that the hypothesis that these variables are independent is rejected (see: Appendix 4, Exhibit 13). 4.0 ENVIRONMENTAL PERFORMANCE 4.1 General Trends Different sources report independently that in recent years the aggregate environmental performance of the Canadian pulp and paper industry improved markedly. The National Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 194 Office of Pollution Prevention of Environment Canada (NOPP) is preparing a comprehensive study showing recent trends in that performance. According to the information obtained in a telephone interview with one of the NOPP officers, M. L. Sedach, the report will be completed in 1997. Meanwhile, the NOPP made some concrete data available to substantiate the claim of progressive improvement in the Canadian pulp and paper industry's environmental performance. The data, presented in Figure 7.3. show a radical decrease in TSS and BOD discharges, as measured in kg/ADt, between 1989 and 1993. While the percentage decreases in BOD and TSS were the biggest in the Prairie and Northern region (by 74.4 percent and 65 per cent respectively), as of 1993, the lowest average TSS and BOD discharges were recorded in Ontario (3.9 kg/ADt) and the Prairie and Northern region (4.87 kg/ADt) respectively. This improved aggregate environmental performance is also visible in the comparison of Canadian, American, Swedish and Finnish bleached kraft mills conducted by Mannisto et al. (1996). They looked, among other parameters, at BOD and A O X discharges and concluded: The results show that 80 per cent of bleached pulp in Canada, Finland and the USA was produced with BOD discharges averaging less than 4 kg BOD/ADt... The lowest AOX discharges in 1994 were recorded at Swedish bleached kraft mills, with a mean value of 0.25 kg AOX/ADt of bleached pulp... AOX discharges from Finnish mills were close to those of the Swedish mills... About 70 per cent of Canadian mills reported AOX discharges below 1 kg AOX/ADt. The best performing kraft mill in Canada has an annual average AOX discharge of 0.04 kg/ADt (hardwood mill)...The scarce data available from U.S. mills indicate a mean AOX level of about 1 kg/ADt, which is higher than in the other countries surveyed. (Mannisto et al., 1996, p.48) Overall, the Canadian pulp and paper industry does better in terms of environmental performance than it used to, a fact which must be acknowledged by both the industry's supporters and critics. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 195 o\ o\ TJ S3 C3 OS 00 OS fl o oJD tt OA u tt O O PQ TJ es O) H fl (DD to ft o QQ ft tt tt H 4 * cu 1m u ft O N O N © N 9 0 © N W5 08 CU S . W CU ft CO O N O N O N 0 0 O N vo CN cn in cn O N CO O N i n iri m V O cn CO V O vd o -8 vo vd o CN O N cn O oo ON m V O CN B tJ O •a •c '3 m o O N cn oo vd CN o 5 o 55 o cc! QUI CN in C A cn oo CN O CN vd © cd T J cci U CD T 3 <L> +-» SP •5 2 co I L L Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 196 4.2 Environmental Performance in the Companies Sampled The general picture of recent environmental performance in the Canadian pulp and paper industry gives reason for optimism, though still is not ideal. The focus for the present evaluation is to examine how individual companies' mills were performing and what potentially influences this performance. The environmental performance of the companies sampled was evaluated according to the Environmental Performance Evaluation Framework featured in Chapter 6. The results are presented in Figure 7.4. In general, these results reflect a wide variation between companies as well as individual mills. A considerable number of mills performed very well or at least kept improving their environmental performance. On the other hand, there were companies and mills which continued to perform poorly over years with no indications of improvement34 As described in Chapter 6, scores received by individual mills reflect: (1) exceedance management, i.e. show how well a mill managed to avoid exceeding permissible monthly average concentrations, (2) progress, i.e. whether companies were succeeding in lowering mean values of pollutant concentrations, and (3) effluent quality fluctuation management, i.e. how well a given mill limited fluctuation around the mean of monthly average concentrations of the pollutants examined. Higher scores indicate worse environmental performance. Lower scores reflect improvements achieved and scores below 10 mean that the mill does very well in terms of environmental performance, i.e. remains in compliance and successfully manages fluctuations around mean values of pollutant concentrations. The consistency of environmental performance across mills within the same company was examined. This aspect was applicable only to multi-mill companies. The intention was to examine whether within the same company, mills in different locations and with different technologies do evenly in terms of environmental performance. Approximately 60 per cent of The performance data cover the period 1993-1995. However, during the period in question many companies were still completing their secondary wastewater treatment facilities before the regulatory deadline of December 31, 1995 (imposed by the 1992 federal PPERs). According to M. L. Sedach of the NOPP, radical improvement in both BOD and TSS are expected as early as in the beginning of 1996. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 197 MM* a a n •a a a o U >& = 1 4? 2 d ca > SA 0 t/i 1 E "5 CD a 0 m £ CO E j» .O 2 a. s 1 CO ? '» ?s Q CO co s 0> -IT oi f8 S3 ^ i i 0 01 i i CO T3 1 8 8.S CO 3 T3 C CO •o e .1 S CO <» §1 (A O 8 V (A CP 1 1 co tc: co 2 'g u. P 1 Effloent Jl S a E % 1 | Secondary || | Secondary | | Secondary | | Secondary |[ | Secondary | | Primary || | Secondary j| I | Secondary || | Primary || | Primary | | Primary || j Secondary || | Secondary | | Primary [j | Primary jj | Primary | I | Primary | | Primary | | Primary J| | Primary | | Secondary | | Primary JJ | Secondary | | Secondary | | Secondary jj | Primary | | Primary jj 1 BOD Score 1 tfi ON Os <n m - SO d so CN SO SO CN so CN CN so CN cn so CN so d 00 CN SO c-VO t-03 CN VO CN - JO - - Os CN 00 CN 1 BOD Score 1 I d « - cn so - CN vo r-CN so CN cn so SO CN - lO JO VO r-so t> S JO so r— d - SO d VO r-SO o 1 BOD Score 1 Il993 ! - - CN CN so - *n CN CN CN SO CN so SO so CN SO - CN ui V) m SO CN SO m SO cn CN cn m 1 TSS Score 1 1995 1 so cn m cn «o d - SO - - cn 2 CN - •o d o 00 lO cn CN VO cn oo o SO cn - vo - vo CN 1 TSS Score 1 3! o> so O d u-i SO Os SO cn - CN CN SO d cn cn SO d 00 r~ d 1 S"° CN E so in - - so d - vo r-1 TSS Score 1 1993 - CN CN CN - - - CN CN CN - - - *o CN Z CN - SO - cn - CN CN Pulp Technology | TNT | | INT | tf tf tf tf | INT | l ^ l | INT | | INT | 1 ™ 1 | SM | \ | | SM | tf 1 SM 1 tf tf tf Products | P&P | S) 0 . fc | PULP | | P&P | | PULP | 1 PAP 1 1 PAP 1 | PAP | | PAP | | PAP | l 05  l Si fc % PM | PAP | | PAP | | PAP | 1 06  1 | PAP | | PAP | % fc 0 . 4 ! FM | PULP | | P&P | | PULP | 1 PULP 1 | PULP | | PAP | | PULP | Mill i 26/1 1 26/2 | 26/3 | CN 00 CN o cn 31/1 1 31/2 1 31/3 | ! 32/1 | 32/2 | 33/1 1 33/2 | 33/3 | so cn 38/1 | 38/2 | 39/1 | 39/3 | 40/1 | 1 40/3 1 40/2 | 42/1 42/2 | 43/1 1 43/2 | 44/1 | 44/2 | Company Code fN oe r-l © *n fO »*i v© <-» oe Os <n © 3 3 1 Effluent 1 1 Treatment 1 1 Primary 1 1 Primaiy 1 1 Primary j | Secondary | | Secondary | 1 Secondary j 1 Secondary 1 1 Primary j | Primary | | Secondary | | Primary | 1 Primary 1 | Primary | | Primary | | Secondary | | Primary j | Secondary j | Primary | 1 Primary 1 1 Primary 1 1 Primary 1 1 Primary 1 1 Primary 1 1 Primary 1 | Secondary | 1 Secondary J | Primary | | Secondary j ! jj 1 BOD Score 1 ?! *-CN o 00 o 00 SO CN SO CN so vo r- so CN so CN - SO SO - 00 (N 1 LZ VO CN vo CN SO d r~ -1 BOD Score 1 •* s so r- SO r-SO CN CN SO cn - SO d SO CN VO CN CN CN o CN 00 r~ cn so d CN SO JO VO t> VO r- - 00 r- SO r-SO «T so vo d SO «* 1 BOD Score 1 a o> SO CN SO CN CN - so so cn cn so SO so cn <o cn - cn CN SO so K CN cn so CN so cn cn m CN CN 1 TSS Score 1 »995 - SO CN SO cn - cn cn SO d 00 so oi so W1 CN so - •o d SO - - SO d CN CN VO cn vo o CN 00 CN SO d CN cn CO 1 TSS Score 1 OS Os m d r- V) d so <o d so d VO so CN so SO d - cn lO d so cn d so SO VO - vo CN s cn so d SO d SO d 1 TSS Score 1 2 CN sr, CN CN CN SO SO cn CN cn CN cn cn cn - CN cn CN CN t CN cn CN cn CN CN © * 1 | SM | 1 1 | SM | | SM | u tf | SM | tf tf tf 1 DIP 1 tf tf | SM | tf 1 sc  1 tf M tf tf tf | SM | Products | PAP | | PAP | | PAP | | PAP | | PAP | 1 PULP 1 1 p&p 1 1 P&P 1 | PAP | | PULP | 1 PAP 1 I PAP 1 | PAP | | PULP | 1 06  1 | PULP | | PAP | 1 PAP 1 1 PAP 1 1 PAP 1 1 PAP 1 [ PAP 1 1 PULP 1 | P&P | 1 P&P 1 | PAP | 1 P&P 1 | P&P | Mill CN <n CN CN cn CJ S s so r- 00 OS o CN 22/1 1 22/2 22/3 1 22/4 1 ! 22/5 1 22/6 r-CN CN 1 23/1 1 23/2 | CN SO CN Company Code •* tr. r> oe Os © CN CN CN fN cn C4 •* CN tf) CN L5 Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 198 the multi-mill companies sampled showed consistency in environmental performance, while a little over 40 per cent of these companies demonstrated wide variations in performance from one mill to another. This raises a question about the consistency, and perhaps the effectiveness, of environmental management across multi-mill companies. Having examined how individual mills performed between 1993 and 1995, I then looked at potential variables influencing the level of, and improvement in, environmental performance. These variables include: geographic location, production technology, vertical integration and most importantly, the development of EMS at the respective companies. Examination of the role of EMS in determining environmental performance is one of the key objectives for this project. However, the other three variables were found to be relevant to environmental performance, and provide a basis for comparing the influence of EMS with the influence of other, potentially confounding, variables35. Geographic Location. In general, western Canadian mills perform better than their eastern Canadian counterparts. On the whole, they are ahead in TSS management and they achieve superior environmental performance in terms of BOD. During the period in question, 90 per cent of the western mills remained in compliance and showed improvements in TSS management. As many as 95 per cent of western mills did the same as far as BOD was concerned. The eastern mills examined performed very well in terms of TSS - 71 per cent of them stayed in compliance and demonstrated ongoing improvements in TSS management. However, eastern mills did poorly with respect to BOD. Only 21 per cent of them managed never to exceed permissible monthly average BOD concentrations and keep improving BOD management, while the remaining 79 per cent of eastern mills failed to do this. The test for statistical independence between environmental performance and the geographic location (west vs. east) of mills showed that the hypothesis that these two variables are independent is rejected (see: Appendix 4, Exhibit 14). While these were not the only variables which could have been considered as influences on environmental performance, these were the only ones which were objectively measurable at the mill level. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 199 The explanation for the dichotomy between eastern and western mills may lie in the differences in effluent treatment technology in place, as the presence or absence of secondary effluent treatment is often a function of the regulatory regime in the given area. Of the 95 per cent of the western mills subsample examined which scored well on BOD management, all had secondary (and in one case tertiary) effluent treatment facilities in place, which can be attributable to the more restrictive effluent regulations in Alberta and B.C. at that time. In contrast, the 79 per cent of the eastern mills which scored poorly in BOD management all had only primarily effluent treatment facilities in the period analyzed36. Overall, while there were four cases where mills with only primary effluent treatment did well in both TSS and BOD management, only one mill with secondary effluent treatment facilities did poorly on the management of these two parameters. Production Technology. The comparison of environmental performance between mills with different pulp technology is deliberately narrowed down to two types: kraft and mechanical-sulphite (SM). The rationale behind this is that there are too few integrated and deinking mills in the sample to derive legitimate conclusions. In a direct comparison between kraft and SM mills, there is evidence that kraft mills in general demonstrate better environmental performance than SM ones. For instance, in terms of TSS, 77 per cent of kraft mills but only 50 per cent of SM mills never exceeded permissible monthly average concentrations and continued to improve TSS management. An even larger gap was found between kraft and SM mills in the area of BOD management. Sixty one per cent of kraft mills and 25 per cent of SM mills performed well in this category. Despite these differences in environmental performance, further examination taking into In the very last months of 1995, TSS and BOD concentrations from many eastern mills dropped rapidly, as recorded in the archives of the provincial offices of Environment Canada in Ontario and Quebec. This fact is explained by the cocrirnissioning of secondary treatment facilities in the majority of the eastern mills examined. Should the study be extended for 1996 and beyond, there are grounds to believe that the environmental performance of these mills would be markedly improved in comparison to 1993-1995. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 200 account the quality of effluent treatment, shows that kraft mills probably performed better because many more of them were equipped with secondary effluent treatment facilities. In the cases where kraft mills and SM mills, all without secondary effluent treatment facilities, were examined, virtually no difference was noted. Both types of mills performed fairly well on TSS management but totally failed on BOD management - 100 per cent of the kraft mills and 91 per cent of the SM mills respectively. The test for statistical independence between environmental performance and the type of effluent treatment (secondary or primary) showed that the hypothesis that these two variables are independent is rejected (see: Appendix 4, Exhibit 15). Vertical Integration. The degree of vertical integration was found to have some effect on the level of environmental performance witnessed, although this effect was not confirmed statistically (see: Appendix 4, Exhibit 16). Since vertically-integrated companies can potentially be more environmentally sensitive, due to the increased number of interactions with the environment, I expected the achievement and maintenance of adequate environmental performance by these companies to be more challenging than would be the case for single-operation companies. The Environmental Performance Evaluation Framework scores indicated that this expectation was, to a certain extent, justified. All but one of the single-operation companies scored very well on both TSS and BOD management. As far as TSS is concerned, fully 100 per cent of these one-mill companies sampled in maintaining monthly average concentrations below the permissible level and improving their TSS management. Almost 90 per cent of them achieved similar results in the area of BOD management. Vertically-integrated companies did not exhibit similarly impressive results. Seventy five per cent of the mills belonging to these companies managed to score well in terms of TSS management, while the remaining 25 per cent failed to do so. The scores for BOD management were even more inferior. Only 47 per cent of the mills belonging to vertically-Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 201 integrated companies scored well, displaying both compliance in terms of monthly average BOD concentrations and ongoing improvement in BOD management. All of these mills were equipped with secondary effluent treatment facilities. The remaining 53 per cent had problems in achieving acceptable levels of BOD. The test for statistical independence between environmental performance and the degree of vertical integration showed that at the level of confidence 0.05, the hypothesis that these two variables are independent, cannot be rejected. At the level pf confidence 0.1, the same hypothesis is rejected (see: Appendix 4, Exhibit 16). Development of EMS. In light of the present research on environmental management practices in the Canadian pulp and paper industry, the question of greatest interest with regard to environmental performance is how, if at all, this performance is influenced by the existence of formal environmental management systems. The examination of this question was done on the assumption that EMS, measured at the head office level, corresponds, in some predictable way, with EMS in existence at the mill level37. A comparison of the EMS scores of the companies sampled with the environmental performance of mills belonging to these companies was made. This comparison, however, revealed little, at first glance. The desirable trend of "high EMS score-good performance; low EMS score-poor performance" was not apparent. Neither were the greatest improvements in environmental performance over the period studied (1993-1995) always achieved by mills belonging to companies with the highest EMS scores. To verify these observations, a test for statistical independence between EMS scores and environmental performance was conducted. This test showed that the hypothesis that these two variables are independent cannot be rejected (see: Appendix 4, Exhibit 17). This assumption can be challenged on the basis of a number of findings which emerged from the research. For instance, within the same company, some facilities underwent formal environmental risk assessment, while others did not. Also, certain mills conduct more complex environmental monitoring and reporting than their counterparts belonging to the same company. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 202 Since a trend between well-developed EMS and good environmental performance was not evident, the possibility of confounding variables was considered. The examination above determined that environmental performance is not statistically independent from geographic location and effluent treatment technology are not statistically independent from environmental performance. In other words, there is a strong possibility that currently, a mill's environmental performance is more a function of where that mill is located, and what effluent treatment technology it uses, than it is a function of the actual EMS in place at the company to which the mill belongs. An attempt was made to look at the relationship between environmental performance and EMS while holding constant (a) geographic location and (b) effluent treatment technology. This was done through the test for statistical independence. Appendix 4, Exhibits 18 and 19 feature the results of these two tests. In the case of eastern mills, the hypothesis that environmental performance and EMS are independent cannot be rejected. For western mills, the test for statistical independence was deemed not meaningful, due to the excessive number of cells with expected values below five. For the same reason, the tests on mills with different effluent treatment technologies were also not meaningful. While statistically, environmental performance and the degree of vertical integration were found to be independent, some observations were made with regard to single-operation companies and vertically-integrated companies. In the single-operation companies subgroup, the impact of EMS on improving environmental performance was not observed. Regardless of the score in the EMS Evaluation Framework, virtually all single-operation companies recorded very good environmental performance in terms of both BOD and TSS management. In the vertically-integrated companies subgroup, there is evidence that the presence of a well-developed EMS in place enhances and helps to maintain good environmental performance. Among the top ten EMS scorers who are vertically-integrated companies, there are four Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 203 companies with very good environmental performance as measured by TSS and BOD management results. The remaining six firms show strong improvements in environmental performance, as their totals between 1993 and 1995 grew smaller. Conversely, the vertically-integrated companies with low EMS scores performed poorly with respect to TSS and especially BOD management. Their environmental performance totals fluctuate, are stagnant or grow, but do not generally decrease. This observation is particularly true for the three vertically-integrated companies with the lowest EMS scores. While these observations of the top and bottom scorers on EMS seem to support the proposition that better developed EMS leads to strong and/or improving environmental performance, this effect was not witnessed across the whole subsample of vertically-integrated companies. The test for statistical independence between environmental performance and EMS scores for the vertically-integrated companies subsample showed that the hypothesis that these two variables are independent cannot be rejected (see: Appendix 4, Exhibit 20). Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 204 CHAPTER 8: CONCLUSIONS 1.0 INTRODUCTION In this chapter, I discuss the major results presented above and aim to provide a summary of the lessons learned through this study of Canada's pulp and paper industry. The chapter begins by answering the questions posed in Chapter 1. It then follows with a critical review of the sample chosen and methodology used (Sections 3.0 and 4.0). Section 5.0 provides suggestions for potential subsequent projects that might build on the base of knowledge about this subject. 2.0 ANSWERS TO RESEARCH QUESTIONS Do corporate environmental management systems exist within the Canadian pulp and paper industry? What differences are there among environmental management systems across companies? As discussed in Chapter 4, the expectation associated with these questions was that environmental management systems would be found to be in operation in the Canadian pulp and paper industry, but that the level of development of these systems would differ, depending on one or more factors which the research would seek to uncover. Despite the relative novelty of corporate environmental management systems, the research established that the prevailing number of Canadian pulp and paper companies are already at a stage where solid foundations of EMS have been laid. This is reflected by the EMS scores, the majority - 75 per cent - of which were over 50 per cent of the maximum possible in the EMS evaluation framework. This level of scores, as well as the results on specific EMS components, indicated to me that some of the biggest up-front investments in acquiring environmental management expertise and making formal arrangements for EMS had been made. With these foundations laid, it is my belief that further EMS development ought to be Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 205 achievable, with relatively greater ease, for the majority of the pulp and paper companies. While I can say, based on this research, that to a large extent this industry has implemented EMS, the level of development of these systems varies significantly between companies. The largest gaps that can be witnessed exist in three components of EMS, defined briefly here but discussed in more detail in Chapter 8: Establishment of EMS: the design, documentation and implementation of a system of environmental management procedures based on a recognized source, standard or code. Monitoring & Reporting: formal arrangements for the regular measurement of key characteristics of processes leading to environmental impacts, to achieve required compliance with regulations or stated internal objectives; communication of progress on environmental management to key stakeholders, such as governments, investors, employees and others. • Management Reviews: formal arrangements for comprehensive reviews of EMS at defined intervals, with documented outcomes and follow-up of recommendations by management. These three areas represent those where the greatest room for improvement appears to exist: among the eight EMS components, these three had the lowest mean scores (less than 64 out of a possible rating of 100). In terms of establishment of EMS, it was found that the systems were not so much "designed" as results of evolving environmental procedures and assigned responsibilities. Only a small fraction (10 per cent) of companies with EMS claimed to have established them according to a recognized or previously published set of guidelines. With respect to monitoring, all mills are bound by law to monitor their emissions with Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 206 monitoring systems, but the extent and frequency of monitoring differs between mills, due in part to the requirements resulting from their location and the type of effluent receiver. It was found that the degree of monitoring differs also between so-called "proactive" and "reactive" companies, with 66 per cent of the companies showing that they tend to carry out voluntary monitoring of environmental impacts to a significant extent. It was learned, however, that this behaviour changes over time, and may shift with the circumstances in which a company finds itself; for instance, if a company has adapted to new regulations and is meeting its basic objectives of compliance and pollution prevention and mitigation, it can afford to behave more proactively in its monitoring activities. Environmental reports were found to be produced by only 53 per cent of the sample companies, most of these being companies falling into the so-called "proactive" segment, but also, all of the publicly-held companies were included in this group. This tendency toward greater environmental reporting suggests the potential influence of public ownership as a factor in environmental management. Full management reviews of EMS were found in only 50 per cent of the companies sampled. As stated, regular management reviews are critical to ensure that the environmental management procedures in place are effective in meeting environmental objectives and targets, as well as to ensure desired continual improvement in environmental performance. It may be due to the relative newness of EMS that so many of these organizations have not yet set out to review it, however, at least 25 per cent of the companies sampled appeared unaware and unconcerned with the need for regular EMS reviews. Two aspects of EMS in which Canadian pulp and paper companies appear to demonstrate the greatest, and most evenly-distributed strengths were: Organization & Personnel: adequacy of human resources, training, and organization of employees to meet the company's environmental objectives. Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 207 • Environmental MLS: the establishment of a procedure for the accurate identification, collection, indexing, filing and storage of information about the organization's interaction with the environment. By and large, the people responsible for corporate environmental management across the industry are highly qualified to work in this area. Chemists and engineers (chemical or pulp & paper) dominate at the mill level (72 per cent) and account for half of the top environmental executives. Nearly half of the remaining executives have environmental engineering/science backgrounds, with the remainder divided among biologists and mechanical engineers. These individuals, overall, have taken on increasing responsibility for the identification of environmental problems and initiation of preventive actions. However, much of the variation in the organization & personnel component of EMS came because companies demonstrated different levels of commitment to environmental awareness and training throughout their organizations. Encouragingly, it appeared that environmental awareness-building activities are on the increase, and there is a growing acceptance of the importance of this area to orienting all participants to the achievement of companies' environmental management goals. Environmental information management systems established at the companies varied in terms of collection of data not required by legislation, frequency of information transmission, and use of electronic means. Nonetheless, the main criteria for ranking the EMIS in the framework, were based on the quality of the information collected and stored. For this reason, Canadian pulp and paper companies scored relatively higher and more consistently on EMIS than on any of the other components. Based on the analysis thus far, it appears that in the area of environmental management systems, there has been more emphasis on securing the appropriate people and information, and less on aspects of EMS design and follow-up action. Other areas representing room for improvement in the Canadian pulp and paper industry were risk management, environmental objectives & targets, and environmental policy. These Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 208 components were somewhat less well-developed than personnel and EMIS, and demonstrated a higher degree of variability between companies. In general, the sample companies demonstrated a good understanding of the environmental risks inherent to their operations, and have established procedures to mitigate or counteract risk-related emergencies or accidents. Yet, very few companies established these through formal mill-specific environmental risk assessments. It would be advisable for companies to have environmental risk analyses performed on their operations, not only as a valuable element of their EMS, but also because risk assessments represent a cogent defence in potential legal cases arising from accidents, where due diligence needs to be established. Companies' stated objectives focus largely on compliance with regulations and preventing or mitigating pollution. However, only a limited number of companies address the environmental impacts of their operations and the mitigation of these. Even fewer set continuous improvement as an objective. Measurement of environmental impacts provides a good information base for future decisions regarding the environment, and awareness of these impacts is also a preventive mechanism which can help Companies anticipate and avoid liabilities down the road. Further, addressing the issue of environmental impacts in a company's objectives shows the company's willingness to face the consequences of its operations beyond just the factory gates. Greater weakness was demonstrated in terms of targets. Less than half the sample articulated their commitment to specific, clear and measurable targets, as opposed to objectives (more general statements about directions in which the company intends to go). Setting measurable targets enhances the company's ability to measure its own progress toward its goals stated in its policy or elsewhere. Also, once the targets are clearly defined and easily measured, a company can see how realistic they are, and what steps need to be taken or resources secured to ensure their achievement. In practising environmental management, Canadian pulp and paper companies appear to rely Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 209 on their environmental policies for guidance. The vast majority (87 per cent) of the companies sampled have a formal environmental policy, but the policies vary in terms of the commitment stated to environmental management, and definition of the scope of company responsibilities in this area. Operations and their impacts are routinely addressed, but few companies discuss the impact of their products through either their partial or entire life cycle. Despite this notable omission, many companies have been implementing changes to improve products' environmental "quality" to lessen the environmental burden created by them, e.g. development and implementation of elemental chlorine-free bleaching. While it is not necessary to entrench such activities in corporate environmental policy, expressing a company's willingness to concern itself with the impact of its products themselves would make more credible the environmental values to which many of these companies ascribe, such as environmental stewardship and good corporate citizenship. Aside from the content of these policies, their influence was also examined. While environmental policies appear to have the full endorsement of corporate head office management, the enforcement of the policies, particularly in different operating units, was less apparent. Ensuring that all operating units, particularly those recently acquired, both know and apply the corporate environmental policies can be considered critical, due to the exposure of these operations to the general public, including the media and potentially hostile interest groups, who could try to discredit such policies as mere "window dressing". A number of companies stated that environmental policies play an important role in employee evaluation, but only one company proved this to be the case, pointing to an environmental component to managers' and employees' salary reviews. Formalizing accountability in the environmental policy is one way of ensuring that the policies have the influence their authors intended. Are any major, well-recognized approaches to environmental management pursued within the Canadian pulp and paper industry? The expected result was that this industry would, similarly to other industries such as the automotive, telecommunications, and chemical industries, practice to varying degrees all five Predominant Environmental Management Practice in the Canadian Pulp and Paper Industry 210 of the selected approaches to environmental management identified in Chapter 3. Contrary to these expectations, only two approaches were practiced to a significant extent within this industry. The most dominant appears to be environmental auditing, which was reportedly used by 84 per cent of the companies sampled. The second most popular approach turned out to be environmental benchmarking, which was carried out by nearly half of the companies. Life-cycle analysis and activity-based costing have a very low profile in the Canadian pulp and paper industry. Contrary to expectations, in the course of the research I found that Canadian pulp and paper companies do not practice L C A as prescribed by L C A standards and guidelines. It was also somewhat surprising to find that no company reported doing activity-based costing or any other form of environmental accounting, which was considered in Chapter 3 to be quite a useful and practical approach to corporate environmental management. Total Quality Environmental Management was another area practically ignored within the sample, also somewhat surprisingly, given that half the companies declare adherence to Total Quality principles and continuous environmental improvement - the very essence of TQEM. Nonetheless, an analysis of the practices found within the sample indicated that a significant percentage of the companies were actually in the "beginning" or "growing" stages of TQEM, as defined in the T Q E M matrix described in Chapter 3. Given the specific criteria set out in t