Dan Atkins, SENIOR CONSULTANT, DELOITTE & TOUCHE - ENVIRONMENTAL SERVICES, DENMARK.
A new group of stakeholders is beginning to review the environmental performance of companies and their activities in this area will further re-inforce management’s need to integrate environmental considerations within their organisation’s operations.
Previously, pressure on companies to consider environmental performance has come from stakeholder group’s including government authorities, consumers, customers, suppliers and other interest groups. More recently however, financial institutions are becoming increasingly aware that environmental matters can influence the financial performance of companies.
Considerable discussion and research of the financial implications of environmental matters and the need to evaluate companies environmental performance is being undertaken by various interest groups throughout Europe. Notably, some of the leading bodies are The Swiss Bankers Association, The European Federation of Financial Analysts, United Nations Conference on Trade and Development, World Business Council for Sustainable Development and many global Accounting Bodies.
Some financial institutions in Europe have also begun incorporating environmental aspects into their business evaluation criteria. The are three reasons for this:
Firstly, the way an organisation manages its environmental responsibility can affect its credit risk evaluation. The potential of environmental liabilities, fines, adverse corporate profile and the impairment of assets due to environmental contamination are some of the areas where the environment can affect the financial performance of a company. Another area that has raised attention, is the possibility of future environmental taxes being implemented by some governments. For example, companies that are able to demonstrate superior performance in the generation of pollutant emissions to air may be able to gain a future competitive advantage in the form of lower environmental taxes.
The second reason is the market opportunities available for companies designing products to meet the future markets of environmentally responsible products. Many investment analysts have described this emerging industry as having a high growth potential and recent initiatives by companies such as Shell, BP and the automotive industry tend to support this perception.
Thirdly, to complement the financial institution’s role as a professional advisor, the awareness of the financial ramifications associated with environmental matters helps them provide advice to their clients on an emerging business issue.
The application of these consideration’s can be evidenced by the development of environmental assessment guidelines for the Danish banking institutions by Deloitte & Touche commissioned by the Danish Environmental Protection Agency. The guidelines formed part of an overall operational handbook aiming at the integration of environmental questions into daily credit risk evaluations. It also included training programs to educate bank managers of the need to integrate these considerations into their evaluation procedures. The Swiss Banking Corporation, various Hungarian bank’s, many investment and pension funds have also incorporated similar procedures within their evaluation procedures.
No longer can companies neglect the importance of considering environmental issues as a primary business objective. Management is now being assessed of their commitment to managing environmental issues and a company’s future financial performance has the potential to be influenced by its level of environmental performance. Overwhelming evidence suggests that these financial institution’s initiatives are just the beginning and given that companies rely so heavily on banking and investor support it is an area that warrants considerable attention by Australian companies.
This is the first of Dan Atkins’s regular columns on business and the environment from a European perspective. Dan has recently transferred from Deloitte Touche Tohmatsu’s Melbourne office and is working with the Deloitte & Touche Environmental Services Practice in Denmark.
This article has been reproduced with the permission of the Asia-Pacific Centre for Environmental Accountability
