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Solid State Technology - Asia Pacific (Pittsfield, MA USA), April 1999

Headline: Economics and ISO 14001 in Asia

Byline: Burton Hamner, Asian Institute of Management, Manila, Philippines, and Hamner and Associates LLC, Seattle, Washington

Abstract: A quiet but disturbing increase in pollution in certain regions of Asia indicates that the current economic crisis is causing some companies to save by turning off effluent and waste controls. This could have a serious impact on the relatively good environmental record of the semiconductor industry in the region and may indicate increasing operational deficiencies in production as well.

Begin body: The economic crisis in Asia is causing severe environmental problems, according to a recent World Bank study. In Indonesia, for example, there has been an increase in pollution intensity per unit of industrial production and an overall increase in pollution, despite the decrease in industrial activity. The most likely cause is that stressed companies are simply turning off pollution control equipment to preserve cash flow (see "The economic crisis and environmental performance in Indonesia").

This has disturbing implications for the global semiconductor industry and its consideration of ISO 14001, the environmental management system (EMS) certification standard (see "ISO 14000 series of standard"). The industry has adopted EMS in general, and ISO 14001 in particular, faster than any other sector. Beyond its role in reducing environmental compliance risks, a good EMS, which need not necessarily be compliant with ISO 14001, is now recognized as an important means for reducing production waste and disposal costs. Many view it as a sign of production excellence. Buyers are learning that a supplier that has no EMS of any kind probably has other management deficiencies as well. At the least, the supplier is disturbingly unaware of major external issues that could affect its reliability. The ISO 14001 standard, and the management qualities a good EMS represents, now play a major role in the semiconductor industry.

Subhead: ISO 140001 in Asia

Asia has seen the fastest adoption of ISO 14001, and its electric-and-electronics sector has led the way. Worldwide, about 6,600 firms were certified to the standard through Q3 1998. About a third are in Asia, where Japan leads all countries in certifications with about 1,320 as of October 31, 1998. About 60% of certified Japanese companies are in the electronics sector (Fig. 1).

Caption: Figure 1. ISO 14001 certified industries in Japan. (Source: www.ecology.or.jp)

Electronics-sector firms were the first to become certified in Philippines, Thailand and Malaysia and dominate the ISO 14001 scene in those countries.

Asia has seen some unusual developments that make ISO 14001 certification even more important there than in other regions. For example, certification can lower insurance costs in Japan. In July 1998, Sumitomo Marine and Fire Insurance Company began providing liability insurance at discounted rates to those companies whose quality management and environmental measures comply with ISO and other international standards. Rates for environmental impairment liability coverage will be lowered for those companies implementing ISO 14001, and the amount will vary depending on the extent to which the standards are implemented. Companies certified to the standard for all offices or plants will receive a 30% reduction. This is likely to become a major competitive issue in the insurance industry and provide more incentive for firms to become certified [1].

In Indonesia and the Philippines, the environmental protection agencies are experimenting with programs to give public environmental performance labels to companies. The labels are color-coded, with "black" firms being completely out of compliance and "gold" firms having advanced environmental systems and performance. Governments will publish lists of companies with their color code. ISO 14001 certification will be a major factor in determining which code firms in these countries receive.

Governments in Asia are increasingly relying on ISO 14001 as an important component of their environmental protection strategies. But as they are faced with dramatic economic problems, many governments in developing Asian countries are reducing their budgets for environmental protection. And with their own cash flows being squeezed, many companies in these countries are assuming they can increasingly ignore legal requirements. Even companies that have become certified to ISO 14001 may be reducing their commitments to implementing EMS. And it should be remembered that ISO 14001 certification is not an assurance of full legal compliance, even when competent third-party auditors are used. In tough times, the size of the "gray area" between management system performance and actual environmental performance usually increases.

This increases the concern many in the electronics industry have with ISO 14001 certification: What exactly does their certification tell you about a facility or company? Even if they are certified, they may still be wasteful and polluting, or not fully following requirements, or in danger of production disruptions from legal enforcement or community upset. They probably have fewer concerns than their competitors who are not certified to ISO 14001, but that may simply mean they are the best of a bad bunch when it comes to resource efficiency, waste reduction and environmental risk. This is especially true in developing countries facing difficult times, such as in Asia.

Subhead: Texas Instruments

For some companies in the semiconductor industry, this may not be an issue. Global firms such as Texas Instruments have implemented ISO 14001 with relative ease since they already have solid management systems in place with goals set by global headquarters. In the Philippines, the Texas Instruments facility in Baguio City was the first in the country to become certified. The decision was made at the plant, and corporation provided training using an internal consultant. According to facilities manager Tony Estillore, implementation took about a year and cost about $30,000 for six months of the consultant's time. The firm Det Norske Veritas conducted certification. Estillore says the only major obstacle was conflicting interpretations of the standard between TI and DNV. This was worked out through negotiation.

The major benefits to TI Philippines were identification of environmental aspects and risks, double-checking of quality systems through integration with the EMS, and increased marketing leverage in Japan and Europe.

Estillore provides a caution, however, that reflects the larger issue of what certification really means to a company. He points out that TI already had good management systems in place and was already certified to ISO 9002, and corporate management set the plant's environmental mission. He and others in the industry believe that, without pre-existing commitments to quality, documented management systems and environmental performance, certification to ISO 14001 is much harder and probably more cosmetic than practical.

Subhead: The value in ISO 14001

Given that ISO 14001 certification and environmental management systems are important to the semiconductor industry, and that some Asian firms may be cutting back on their environmental protection efforts even if they are certified, how can industry managers determine if the ISO 14001 label really means anything? More specifically, what should you look for in a company to determine if their environmental performance and management is on the right track?

Recently, I debated this via E-mail with colleagues around the world who specialize in industrial pollution prevention. Most are technical experts who were helping companies reduce waste long before ISO 14001 appeared. They are members of an E-mail discussion group called P2TECH who regularly share technical problems and solutions with each other [2].

I posed the question: What are the few most important indicators of a facility's environmental performance?

After a lot of discussion, we decided on four indicators. If they are found in a facility, it is at low environmental risk and on track for good environmental performance. Four out of four is excellent and would be found in leading US-based semiconductor companies. Three out of four is okay. Two out of four is marginal, and anything less means the facility is in environmental trouble now or will be soon.

· Does the facility have any kind of organized environmental management system? It does not have to be compliant with ISO 14001, but it does need to have many of the elements of ISO 14001 such as policy, planning, operational, procedures, monitoring, etc. If the answer is no, that does not mean the facility is in trouble as long as it answers yes to the other questions.

· Do they know how much waste and pollution really costs them? Most facilities seriously underestimate these costs, and they don't even know how much they could save by investing in waste reduction. If they don't know, they are doing a poor job of cost management in general not just environmentally. Of course if they have no chemicals to use or no significant wastes, then this is not a very important indicator

· Do they systematically try to reduce the use of hazardous or regulated materials? This means organized approaches to green purchasing and looking at the production processes to find out if hazardous or regulated chemicals are really needed. If the answer is no, then they are really missing the point of successful environmental management, which is preventing problems such as toxic wastes or emissions before they happen.

· Do they know about and participate in technical information networks on environmental management? In most Asian countries there are now government or non-profit programs that help industries with waste minimization, waste treatment, etc. Free training and technical information is often available nearby. If they use these resources, great. If they don't, it means they are not paying much attention to the local technology assistance scene and probably missing out on some good opportunities.

Subhead: Conclusion

Any electronics industry operation that has no environmental management system does not know how much their waste really costs, does not try to reduce hazardous chemical use, and doesn't even know about the free help next door is doomed. In contrast, any facility that does show all four of these indicators is very likely to be a good environmental performer. Note that ISO 14001 certification only applies to one of the indicators. If a certified company does not have the other three as well, then their certification is largely cosmetic and they are likely to be high cost and high risk. This is especially true in developing Asian countries where many companies have pursued certification in order to maintain access to European and Japanese export markets, not to really improve their business processes.

Environmental performance is now recognized as a sign of overall management competence in the semiconductor industry, and indeed in all industries. ISO 14001 certification is a step in the right direction for most companies but it is not enough. Managers who remember the four questions above will be able to dig beyond the certification label to find out if business partners really know about environmental management or whether the certification is just a label whose value shrinks in tough times.

Subhead: References

1. More information on ISO 14000 in Japan can be found at the ISO NET website: http://www.iso14000.net

2. More information and a searchable archive of the discussions are at: http://www.great-lakes.net/lists/p2tech/

Biography: Burton Hamner, MBA, MMA, provides executive consulting and training services in sustainable business practice and pollution prevention to companies and organizations in the US and Asia. He is also adjunct professor of operations management at the Asian Institute of Management, where he recently lived and worked for three years. Hamner is president of Hamner and Associates, LLC, 4343 4th Avenue NW, Seattle, Washington, 98107. Tel: 206/789-5499; fax 206/789-5499; E-mail bhamner@mindspring.com; http://www.mindspring.com/~bhamner

Sidebar #1: The economic crisis and environmental performance in Indonesia

Indonesia's enterprise level data on physical output and water pollution for the years 1995-1997 provides an analysis of the impact of the current Asian financial crisis on production trends and environmental performance. As a result of the crisis, the output of the operational plants has declined by around 18%. On the other hand, since the start of the crisis pollution intensity for organic waste in industrial effluents has increased by 15%.

This finding contradicts the simple view that slower, lower or negative economic growth will reduce industrial pollution. On the contrary, pollution may increase because factories adjust their abatement effort in response to the lower regulatory inspection and enforcement, and higher pollution control costs. Indeed, empirical results confirm that during the crisis period there is an increased tendency by factories to dump their waste without treatment. This finding has strong implications for the environmental policy effort during the crisis period.

Three fundamental recommendations emerge from these results:

· Public spending on inspection and monitoring should be maintained.

· Effective policies will require increased reliance on community and market incentives and voluntary programs to control pollution.

· New investments should use clean technologies and pollution prevention processes so the reliance on the end-of-the-pipe systems is minimal.

Based on a report by Shakeb Afsah, senior policy advisor, US-Asia Environmental Partnership (US-AEP); see: http://www.worldbank.org

Sidebar #2: ISO 14000 series of standards

As a result of the June 1992 UN Conference on Environment and Development held in Brazil, the International Organization for Standardization (ISO) made a commitment to support environmental management standards development efforts.

The ISO 14000 series of standards addresses environmental management systems, environmental auditing, environmental labeling, environmental performance evaluation, and life cycle assessment. The first standard, ISO 14001 Specification for Environmental Management Systems, is the standard of most interest to companies at the moment as it is currently the only standard in the series involving certification of business practices. These international standards are voluntary standards for the establishment of a common worldwide approach to management systems that will lead to the protection of the Earth's environment while spurring international trade and commerce. They serve as tools to manage corporate environmental programs and provide an internationally recognized framework to measure, evaluate, and audit these programs.

When implemented, these standards help to ensure consistency in environmental management practice, harmonize national environmental standards within an international framework, simplify registrations, labeling and conflicting requirements, provide a single system for all transnational subsidiaries, and offer guidelines for environmental management excellence.

Even though the standards do not prescribe performance levels, performance improvements are likely to be achieved by any business if its commitment to environmental care is emphasized and employees are trained and aware of the policies in place to protect the environment. The ISO 14000 voluntary environmental management standards and guidelines are intended to be practical, useful, and usable for companies or organizations of all sizes, in both manufacturing and service industries.

There are eighteen documents in the ISO 14000 series. The Environmental Management Systems and Environmental Auditing standards were published in the fall of 1996. Other ISO 14000 series documents in the areas of Environmental Auditing, Eco-labeling, Environmental Performance Evaluation, and Life Cycle Assessment, and Terms & Definitions are at earlier stages of development and final versions of these are expected to be released from 1997-1998.

To determine if your company should implement ISO 14000 standards, you might consider the following:

· Will it improve your environmental performance?

· Will it promote operational efficiencies?

· Will it be required by law or encouraged by the governments in regions where you operate?

· Will your customers to require it?

· Is there significant public expectation?

· What is the cost-benefit analysis?

Source: http://www.iso14000.net