A Business Case for an ISO 14001 Certification Essay

A Business Case for an ISO 14001 Certification A Final Project Presented to the Faculty of the School of Business In Partial Fulfillment of the Requirements for the Degree of Masters of Science in Business Administration By Abstract of Thesis A Business Case for an ISO 14001 Certification By Problem In response to the raising awareness of damage to the environment, a series of standards for environmental management systems called The ISO 14000 was introduced in 1996. It provides guidelines on the ingredients that an environmental management should necessarily posses and also on the supporting technologies. These standards were not so specific as regards to how it should be done rather it more emphasizes on what should be done. ISO 14000 is an environmental management standards designed to guarantee products and services to cover the minimum environmental impact. The ISO 14000 series takes the international standards system to the field of environmental concerns. ISO 14001 focuses on the development and maintenance of an Environmental Management System, within the ISO 14000 series. The ISO 14000 series is of relatively recent origin, having been instituted in 1991. However, it has emerged as a significant force within a short time. The ISO 14000 series is relevant for the world of business, for governments and regulators, for organizations that work not-for-profit and for entities of all types and sizes, wherever they may be. Its universal nature makes it a unique and dominant system for all people who are concerned with pollution, waste and about the consumption of resources that are limited and which cannot be renewed. ISO 14000 promotes professional conduct. Training people and involving them in key processes lie at the heart of the ISO 14000 system. The rigors of certification serve to develop human resources. It can serve to motivate people at all levels of the hierarchy, and to foster team spirit. The ISO 14000 system is not limited to altruism and to noble intentions. It is worth hard cash. ISO 14001 puts great pressure to bear on achieving productivity improvements that translate to valuable cost savings. Major international corporations enjoy impressive profit growth through the ISO 14000 series. All ISO certifications carry the benefits of independent and international recognition. ISO extension in to the field of environmental concerns through the 14000 series brings desirable pressure on companies that produce hazardous substances and which generate enormous amounts of waste. Customers everywhere have the choice to insist on ISO 14000 certifications. Companies may find themselves excluded from significant market segments if they continue to ignore or to avoid ISO 14000. Some organizations may find themselves out of business if they do not secure ISO 14000 certification. Apple leads a galaxy of the world’s most respected enterprises in using ISO 14001 certification as a cornerstone of competitive strategy. Lithium ion battery technology is an example of innovation that a commitment to environmental conservation can present. Solutions inspired by ISO 14001 can have welcome economic benefits, apart from noble achievements in terms of environmental conservation. Reduction in energy consumption is an outstanding example, since power generation can be both expensive as well as polluting. ISO 14000 calls for abiding commitment on the part of all entities that seek certification. The system consumes major portions of employee time. ISO 14000 becomes a major element of cost, though it does produce handsome returns. The ISO 14000 series follows a highly structured implementation procedure. There is comprehensive documentation widely available that any organization can use to enter the system. Most organizations find it expedient to use consultants to guide them through the process. Independent auditors are inevitable. External auditors must be knowledgeable, experienced and accredited. ISO 14000 has important weaknesses. Loss of proprietary information is the most serious risk. Certified companies may find that their defenses have been compromised in the event of litigation. This arises from the documentation and management reviews that are integral to ISO 14000. ISO 14000 leaves organizations free to choose their own goals, priorities and standards. It therefore lends itself to potential abuse by organizations that may push important social concerns to the background, or to prevaricate about deleterious aspects of environmental degradation. Some organizations may not be able to fund the investments in time and money that ISO 14000 requires. The benefits may therefore evade small enterprises. ISO 14000 documentation needs can also duplicate documentation that other systems and some regulations require. Training and audit infrastructure is inadequate for widespread and global application of ISO 14000. Some organizations, especially in remote regions can find themselves excluded though they may wish to enlist. ISO 14000 confines itself to the environment. It does not consider issues of human wellness. There are many community concerns that ISO 14000 does not address. It is not a guarantee of ethical performance of an organization on all fronts. Business interests may be served best if companies were to use ISO 14000 for internal review, without going in for certification or even registration. It would then be an effective tool of risk management without opening the firm to unwelcome public scrutiny. As stated ISO 14000 can prove to be a significant undertaking that can task the resources of any size organization, if the task is undertaken correctly and managed well the benefits will outweigh the costs in many ways, from financial to organizational image. Method The Historical/Case study method is used in this thesis. The study consists of real life cases gathered from, various sources. These cases are evaluated for relevance as well as content. Cases used will be from varying sizes and types of organizations, public and private as well as local and international. Further research analysis by overview of the statistical research methods, selection of the sample and descriptive statistics is also used in this thesis as a corroborative evidence to substantiate the findings of this thesis. Conclusion This study has shown that ISO 14000 certification can tax the resources of organizations, but in the majority of cases the end result has proven that the benefits of certification exceed the costs. The study of the data presented has demonstrated that, for most organizations, not implementing ISO 14000 can be much more costly than implementation. Recently several universities, including the University of Michigan, suspended contracts with Coca Cola on campuses (Dump Coke at U of M, 2005). While several reasons are given for the suspension of contacts at the campuses including human rights violations, specifically mentioned is â€Å"Environmental Devastation† in India. Perception is key for business in today’s global economy, being able to prove environmental responsibility as stewardship on the organizations behalf can result in the loss or gain of business. Table of Contents Chapter No Headings Page No Chapter 1 IMPORTANCE OF THE STUDY AND INTRODUCTION 6 Statement of the Problem 7 Purpose of the Study 10 Scope of the Study 11 Rationale of the Study 12 Definition of Terms 12. Overview of the Study 17 Chapter 2 REVIEW OF THE RELATED LITERATURE 2. 1 Introduction 21 2. 2 The Sustainability Imperative for Environmental Management 23 2. 3 Image Incentives for Environmental Management 25 2. 4 The Lines of Business 30 2. 5 Implemental aspects 31 2. 6 ISO 14000 and Global Trends 31 2. 7 ISO 14001 and Profits 34 2. 8 ISO 14001 and Seasonal Business 37 2. 9 ISO 14001 and Building Projects 39 2. 10 ISO 14001 and Equator Principles 40 2. 11 SME Experience with ISO 14001 41 2. 12 Summary of Benefits of Environmental Management Systems 44 2. 13 What is it? 46 2. 14 Environmental Labeling and ISO 14000 50 2. 15 ISO 14001 for International Corporations 53 2. 16 ISO 14001 in Mergers and Acquisitions 58 2. 17 Detailing Product Life Cycles 58 2. 18 Specific Benefits That Business Can Expect From ISO 63 2. 19 ISO 9000 AND ISO 14000 65 Chapter 3 METHODOLOGY Approach 66 Data Gathering Method 67 Data Base of Study 68 Validity of Data 68 Originality and Limitation of Data 69 Summary 70 Chapter 4 DATA ANALYSIS 4. 1 BAXTER INTERNATIONAL INC 71 4. 2 ELI LILLY 72 4. 3 Beyond Compliance by Baxter and Eli Lilly. 74 4. 3. 1 EPA ‘s 33 / 50 program 74. 4. 3. 2 Responsible Care Compliance 75 4. 3. 3 Green Products 75 4. 3. 4 Environment Audits 76 4. 4 An analysis of Environment compliance by Baxter and Lilly. 76 4. 5 Policy Dynamics 76 4. 6 Baxter International Inc and Environment Compliance 77 4. 6. 1 Baxter’s Environment Performance –At a glance. 78 4. 6. 2 Green House Gas Emission 80 4. 63 Reduction in Emissions in Carbon Di Oxide 81 4. 6. 4 Baxter Historical Performance as reported in 1997 81 4. 6. 5 Baxter’s Environment Program through year 2010 81 4. 6. 6 Baxter’s Cost Savings due to Environmental initiatives 82 4. 6. 7 Environment Performance Data of Baxter 83 4. 6. 8 Baxter’s Cost Reduction Data’s 84 4. 6. 9 The Toxic Release Inventory and the 33/50 Program by Baxter and Lilly. 85 4. 7 Baxter and Lilly ISO 14000 -Response 86 4. 8 Blue Scope Steel and ISO 14000 86 4. 9 ISO 14000 & Rockwell Automation, Twinsburg –Ohio 87 4. 10 Plasti Color -Ohio 88 4. 11 Xerox Corporation 88 4. 12 IBM 88 4. 13 Carter Holt Harvey Tissue –New Zealand 89 4. 14 3M Corporation 89 4. 15 Case studies of ISO 14001 Companies 91 4. 16 Coca-Cola 95 4. 17 Research Approach Methodological of Sample Collection 98 4. 18 Methods of Resources 98 4. 19 Description of dependent and Independent variables –Table -1 99 4. 20 Table 2- Entity Type 101 4. 21 Table 3 – Categories of NED 102 4. 22 Table 4-Multiple Regression results for test Of H1 through H 4. 103 Chapter 5 SUMMARY , RECOMMENDATION AND CONCLUSIONS 105 REFERENCES 118 List of Table and Charts Chapter No Headings Page No Chapter 4 4. 6. 1 Baxter’s Environment Performance –At a glance. 78 4. 6. 2 Green House Gas Emission 80 4. 63 Reduction in Emissions in Carbon Di Oxide 81 4. 6. 6 Baxter’s Cost Savings due to Environmental initiatives 82. 4. 6. 7 Environment Performance Data of Baxter 83 4. 6. 8 Baxter’s Cost Reduction Data’s 84 4. 15 Case studies of ISO 14001 Companies 91 4. 19 Description of dependent and Independent variables –Table -1 99 4. 20 Table 2- Entity Type 101 4. 21 Table 3 – Categories of NED 102 4. 22 Table 4-Multiple Regression results for test Of H1 through H 4. 103 A Business Case for an ISO 14001 Certification A Case Study Chapter 1 Importance of the study and Introduction Several industries are trying very hard to change their public image as environmentally â€Å"unfriendly†. The oil industry with its need to seek more sources, often in wilderness areas, chemical companies which have in the past legally dumped toxic waste, the timber industries and the automotive industry which continues to produce large gas guzzling SUV’s and trucks are all very sensitive to public perception. Perception is very powerful and a company does not want to be perceived as harmful to the environment or not environmentally friendly. Frequency of industrial accidents and media publicities such as the publication of Rachel Carson’s Silent Spring (1962) highlighted the environmental consequences of unfettered industrialization . Respecting the public concerns; the United States Congress has made several laws stipulating environmental standards and technologies for manufacturing companies. Only after Rio Summit in 1992, the policy makers seem to have acceded the fact that the governmental coercion alone will not bring any success and right incentives must be provided to the industries. In recent years, United States Environmental Protection Agency (EPA) has launched voluntary beyond –compliance programs such as Green Lights, Project XL and 33/50. The ISO 14000 certification system can be used as a tool to not just say that are concerned about the environment, but to show what you have been doing, are doing and will be doing to improve your performance. In doing so you should be able to add to your bottom line, both direct and indirect. As more and more of these companies will seek and obtain the ISO 14000 certification and they require suppliers to do so as well. This study seeks to contribute to the on-going debate within some sections of industry about the economics of ISO 14001. It is known that large corporations invest in registrations, often under duress from social activists. But is there money to be gained by following the system? Can there be purely business reasons for seeking ISO 14001 certification? Can smaller enterprises participate? These are some of the questions that this study seeks to answer. Statement of the Problem The problem; organizations have a need to show environmental stewardship but what is the cost of doing so and how so they justify the cost to management and/or shareholders. Today companies and organizations face many financial challenges and to survive in the global economy they must be fiscally responsible. There is also a need to be considered environmentally responsible and perceived as such. The ISO 14OOO series specifies beyond –compliance management systems . These standards have been sponsored by the International Organization for Standardization, a Geneva -based non governmental organization . ISO 14000 could be viewed as an industrial code of practice that needs to be certified by external auditors. Currently such certification costs about $ 20000 per facility. The cost has acted as a barrier for many financially weak corporations to have the ISO 14000 Certification for their facilities. Recently several universities, including the University of Michigan and New York University, suspended contracts with Coca Cola on campuses (Dump Coke at U of M, 2005). While several reasons are given for the suspension of contacts at the campuses including human rights violations, specifically mentioned is â€Å"Environmental Devastation† in India. Perception is key for business in today’s global economy, being able to prove environmental responsibility and stewardship on the organizations behalf can result in the loss or gain of business. Most companies still have a choice whether to obtain certification or not and the best illustration for this is Baxter International Inc and Eli Lilly , a U. S based multinational Companies , the details are discussed in the Research Analysis chapter in this thesis. However, more and more must obtain certification to maintain their status in the supply chains of other companies. To ensure suppliers are meeting environmental benchmarks, manufacturers such as General Motors Corp, Ford Motor Co, DaimlerChrysler, IBM, Xerox, Honda Corporation, Toyota are requiring suppliers to be ISO 14001 certified. Generating environmentally damaging emissions and waste is often an indication of an un-optimized production process, and manufacturers that implement ISO 14001 requirements can realize improvements in efficiency and profitability — and retain their positions in OEM supply chains†. (Susan Gilbert-Miller n. d). It is very likely that both public and private demand for environmental responsibility will continue to fuel the shift towards certification as proof of doing so. In the global economy today an ISO 14000 certification could become as important, to show a company’s environmental responsibility, as ISO or QS 9000 is to show a commitment to quality. It may become a prerequisite to doing business with some companies and in more industries as it has in the automotive industry. The direct cost of certification can range from a few thousand dollars for a small facility to hundreds of thousands for larger companies and millions for international companies. Presenting the business case for certification will be much easier if the benefits and cost reduction are included as part of the presentation. Purpose of the Study There are a number of excellent consulting services and other resources available at a cost, to help companies through the process of achieving certification. The key is the element of cost. In order to receive funds for consulting services or any other resources, you may have to justify your endeavor financially prior receiving any funding. Even if your company is capable of going through the process without any outside resources there are still direct and indirect costs associated with the process, prior to hiring a certification company to conduct an audit. You will have to buy materials, pull people in full time and part time, audit and update records. Training will be required for employees and management. The purpose is to show that the costs associated with obtaining and maintaining an ISO 14000 certification as part of an Environmental Management System, can be exceeded by the benefits of doing so. The benefits are not just monetary, but also how the company is viewed in the public eye as well, which is increasingly important in today’s global economy. Scope of the Study The majority of the top 100 companies in the United States have already achieved ISO 14000 certification. The same trend exists in the European Union. The research will look at what is driving the movement towards certification. It will also look at what is required to become certified and to maintain that certification. This will be done through case studies of companies that have already achieved certification, how it has affected their companies and in what ways. The main focus being that it makes good business sense, and the justification thereof. The study concentrates on the business and profit reasons for ISO 14000 registrations, with tertiary scans of ethical issues and applicability of not-for-profit organizations. The study includes brief descriptions of all phases of the ISO 14001 process, with outlines of the various sections of the manual that is an integral part of the process. Rationale of the Study While a lot companies have already achieved ISO 14000 certification many more have not. One of the biggest factors in failure to achieve or to get the company to attempt certification, especially in small and medium size companies, is that often the appointed SME (subject matter expert) has little knowledge as to what is required. It is a task that is added to their current â€Å"to do† list and they are not given the proper resources or time to conduct a thorough study as to what needs to be done, the resources it will require and what is most important in some cases, R. O. I. (Return On Investment). This study will help to explain what is required, where to look for information and through case studies show that a positive R. O. I. can be achieved through ISO 14000 certification and the maintenance of the certification. Definition of Terms Climate change: An alteration to measured quantities (e. g. precipitation, temperature, radiation, wind and cloudiness) within the climate system that departs significantly from previous average conditions and is seen to endure, bringing about corresponding changes to ecosystems and socio-economic activity. Associated with greenhouse gas emissions, of which fossil fuel combustion and forest decline are contributors. Code of Federal Regulations: United Stated Code of Regulations, commonly referred to as CFR is a publication established by and Act of Congress. It documents all regulations issued by federal administrative agencies that have â€Å"general applicability and legal effect. † Ecological or Environmental sustainability: This entails maintaining an ecosystem an adjacent ecosystem at the same or higher levels as the ecosystem in question to be able to maintain its productivity, adaptability and capacity for renewal. It requires that forest management respects, and builds on, natural processes. EMAS: Eco-Management and Audit Scheme, In Europe the Eco-Management and Audit Scheme (EMAS) was created and many European countries made implementation of EMAS mandatory for many large manufacturing facilities. EMAS and ISO 14001 are not very different; EMAS has two significant elements more than ISO 14001, namely a baseline environmental assessment and a public environmental performance report. Environmental Aspect: An element of an organization’s activities, products or services that can interact with the environment, whether it be in a positive of negative manner. Environmental Impact: Any change to the environment, whether adverse or beneficial, wholly or partially resulting from an organization’s activities, products or services. Gap Analysis: One of the initial steps in successful implementation of ISO 14000 is gap analysis. The gap analysis looks at a facility’s written programs, policies, and procedures to see how they compare to the requirements of ISO 14000. Once this analysis is complete a guideline will be established to bring them into compliance to prepare for certification Global Warming: The term Global Warming refers to the observation that the atmosphere near the Earth’s surface is warming, without any implications for the cause or magnitude. This warming is one of many kinds of climate change that the Earth has gone through in the past and will continue to go through in the future. ISO 14000: ISO 14000 is a series of environmental management standards developed and published by the International Organization for Standardization (ISO) for organizations. The ISO 14000 standards provide a guideline or framework for organizations that need to systematize and improve their environmental management efforts. The ISO 14000 standards are not designed to aid the enforcement of environmental laws and do not regulate the environmental activities of organizations. Adherence to these standards is voluntary. The ISO 14001 standard is the most important standard within the ISO 14000 series. ISO 14001 specifies the requirements of an environmental management system (EMS) for small to large organizations. An EMS is a systemic approach to handling environmental issues within an organization. The ISO 14001 standard is based on the Plan-Check-Do-Review-Improve cycle. The Plan cycle deals with the beginning stages of an organization becoming ISO 14001-compliant. The Check cycle deals with checking and correcting errors. The Do cycle is the implementation and operation of the ISO 14001 standard within an organization. The Review cycle is a review of the entire process by the organization’s top management. And the Improve cycle is a cycle that never ends as an organization continually finds ways to improve their EMS. The entire process can take several months to several years depending on the size of the organization. If an organization is already ISO 9000-certified, the implementation of ISO 14001 does not take as long. When an organization is compliant, they can either register with a third-party registrar or self-declare their compliance. The ISO 14001 standard is the only ISO 14000 standard that allows an organization to be registered. ISO 9000: ISO 9000 is a series of standards, developed and published by the International Organization for Standardization (ISO), that define, establish, and maintain an effective quality assurance system for manufacturing and service industries. The ISO 9000 standard is the most widely known and has perhaps had the most impact of the 13,000 standards published by the ISO. It serves many different industries and organizations as a guide to quality products, service, and management. Kyoto Protocol: It is a pact agreed on by governments at a United Nations Conference in Kyoto, Japan 1997 to reduce the amount of greenhouse gases emitted by developed countries by 5. 2 percent of 1990 levels during the five-year period 2008-2012. Eighty-four countries have signed the pact and 40 of have ratified it, according to U. N. data. Only one country, which has an emissions target, Romania, has ratified to date. LCA: Life-Cycle Assessment is a systematic approach used to manage the environmental impacts of products and service systems, and it is applied at several levels. It tracks the entire life cycle of a product from inception to disposal and looks for environmental impact throughout and how that can be reduced. Lean Manufacturing: Lean Manufacturing is an operational strategy oriented toward achieving the shortest possible cycle time by eliminating waste. It is derived from the Toyota Production System and its key thrust is to increase the value-added work by eliminating waste and reducing incidental work. The technique often decreases the time between a customer order and shipment, and it is designed to radically improve profitability, customer satisfaction, throughput time, and employee morale (Lean Manufacturing, n. d). Overview of the Study The study will consider the attributes of ISO 14000 as an Environmental Management System. In this paper the main focus will be to define the quantitative as well as qualitative benefits for employing an EMS, in our case ISO 14000. While ISO 14000 will be the primary focus, other EMS systems will also be discussed as alternatives and for relative comparisons. The procedures for and the costs of implementation will also be looked at as part of the study. In the process case studies will be studied and discussed through the use of Internet searches, relevant case studies and publications as well as personal experience and interviews with others in the field. This study will attempt to provide methods for justification of perusing certification. It will also try to give an overview of the process for obtaining certification from the planning stage, through implementation, certification as well as the follow up and continuous improvement required to maintain certification. The Ethical Rationale for Environmental Management Standards Concern for the environment is one of the hallmarks of social concerns during our times. Awareness has been growing since the last quarter of the 20th century. It has snowballed in to a major force. There are signs that countries and people will become increasingly demanding of all organizations with which to deal, in this respect. Though the first world is more influenced by concern for the environment, developing economies are also dragged in to the vortex of global opinion, as electronic media and desire for market access drive even poorer people to conform to conservation standards. Pollution, use of hazardous substances, non-degradable waste and consumption of limited natural resources are the four principal corners of environmental concerns. Pollution of air and water are most perceptible for lay people, but the effects of landfills can be equally devastating. Pesticides and organic solvents lead a series of chemicals with both acute and chronic effects. Mesothelioma is an example of a consequence of exposure to a hazardous substance, the fatal implications of which can surface after decades. Organochlorine pesticides persist in nature almost indefinitely. People at large have become very concerned about such residues and threats that surround them. Women and children are especially vulnerable. The awareness among the public regarding pollution and hazardous material is of high now-a-days. There was protest in India during January, 2006 against the French government’s decision to send a decommissioned battleship and military air craft carrier† Clemenceau â€Å"allegedly containing toxic wastes to a ship-breaking yard at Alang on the Coast of Gujarat ,in India. Green peace activists claimed the ship was loaded with hundreds of tones of toxic wastes, including 500 tones of asbestos alone and it was a violation of international Basel convention on trade of hazardous materials. Greenpeace activists claimed that â€Å"Clemenceau† is French property containing hazardous waste on ship and can not allowed to dump this hazardous waste in India . Yielding to the pressure , the French Government finally recalled its decision to scrap the ship in India . The concept of supply chains has spurred thoughts about life cycle analysis. Exhaustive labeling requirements have made people more generally aware that an innocuous finished product may involve the use of hazardous substances. Processed foods are common examples of convenience products that may contain harmful ingredients and sources of infection and contamination. This matter also leads to consideration of packaging materials that have been traditionally taken for granted. Consumers are now aware that products made from paper can involve the destruction of forest cover, while plastic has acquired a notorious image for its persistence. This applies to tin and other metals as well. Mercury and other heavy metals in batteries and electronic products are also causes of concern. Clean water has been in acute shortage in many parts of the third world for some time now, but even developed economies have begun to worry about large-scale use of this precious resource, Ground water contamination and depletion of the ozone layer are other matters that engage much popular attention. Large corporations that generate profits are prime targets for pressures to develop environmental management standards. Companies, whose operations transcend national boundaries, have to be especially careful of their environmental footprints. However, government, social service organizations and small business may all affect the environment in serious and indelible ways. Hence it is possible that environmental management programs may become increasingly universal with the passage of time. It may be concluded that there is a strong ethical foundation for environmental concerns. All organizations regardless of their size, nature and location, will be subject to pressures to monitor their environmental impacts, and to find ways of reducing or even eliminating all harmful implications of their transactions. The ethical rationale has a firm linkage with business reasons for ISO 14000 certifications, as there are societal trends that it soon become a pre-requisite for continuing to be in business. Chapter 2 Review of Related Literature 2. 1 Introduction Business survival in today’s global economy is difficult at best. Today business’ look for advantage in every possible area and lean manufacturing programs like Six Sigma with its belts levels to parallel karate, Kaizen, 5S and many others have become not just popular but an integral part of maintaining and doing business. How does an Environmental Management System fit into the â€Å"Lean Culture† of business? That is the question that will be studied in this paper through the review of related literature, case studies, interviews, technical periodicals and Internet sources. An overview of lean manufacturing concepts will be given with the focus on integrating an E. M. S. into a companies existing lean program or as part of the implementation of a lean program. While other Environmental Management Systems will be referenced, I. S. O 14000 case studies and statistics will be used in this study. In the United States and the rest of the world I. S. O. 14000 is a recognized standard for Environmental Management Systems, much the same as ISO 9000 is for quality systems. The literature reviewed in this paper was selected for relevance to either a single topic, Lean Manufacturing, I. S. O. 14000 or the integration of the EMS into the lean manufacturing system and will be reviewed in that order. By the process of lean manufacturing, Toyota, the world greatest manufacturer, consistently makes the highest quality cars with the fewest defects of any competing manufacturer by using fewer man-hours, less on-hand inventory and half the floor space of its competitors.