involve increased risks for individuals who may be held accountable. Enterprise
Act/cartel offences; false accounting; corporate manslaughter; assumption of
personal duty of care; and wrongful trading are examples. The new UK Company
Chapter 3 â€“ Drivers and trends in sustainability risk management 47
Law 2006 has in it, aside from the duty to report on environmental and social
matters, a specific duty for company directors to â€˜have regard toâ€™ their impacts
on the environment, employees, suppliers and communities.
Growth in government legislation: particularly in the area of reporting and of
the environment, companies are facing new and growing amounts of regulation
and legislation aimed at increasing their accountability to society.
Recent activities include:
Economic and governance rules:
There will be increased moves to standardise accountancy standards, the
internationalisation of rules and legislation as companies are held account-
able outside their home countries, or fall under the remit of legislation in
other countries as a result of economic activity with them (US Sarbanes-
Oxley and Alien Tort laws);
Within the UK there has been the Combined Code on Internal Controls (the
Turnbull Code); the Pensions Act (1995) Amendments; the Company Law
Review; the Companies Act which may make it mandatory for business to
report anything concerning the welfare of the employees, community, envir-
onment and the company itself; and a newly proposed carbon emissions
Kyoto-related bill for 2007;
New rules on anti-bribery are slowly being drafted as there is a realisation
that bribes are not in the interest of the global economy and only add costs of
contracts to projects indirectly and covertly. The World Bank has launched a
renewed anti-graft (anti-bribery) campaign but admits it lacks resources at
The legal infrastructure has gained a boost as they seek to let cartel members
escape prosecution in exchange for information on their agreements with
other parties; and
The Institute for Public Policy Research (IPPR) says the UK should introduce
a throw-away culture tax as their report calls for a new tax on items such as
throw-away cameras, disposable razors and non-rechargeable batteries fol-
lowing the success of European countries that have imposed similar taxes.
Employment and social legislation:
Employment laws and those covering equal opportunities and diversity have
increased in occurrence (Chapter 14), as have health and safety laws (Chapter
16). There are a wide range of external factors that influence the workforce
including: codes and standards, legislation and trade union factors.
Environmental legislation: there are several hundred new environmental laws
newly passed each year globally. This large body of legal statutes is likely to
continue growing. Examples of emerging new laws are that:
Under newly adopted EU laws, some manufacturers are required to accept
returned product packaging, and certain products such as computers, at the
end of their shelf life. Risk experts say such regulations will force companies
to use materials that recycle more easily or contain fewer toxic ingredients.
Part A â€“ Overview of Risk Management
EU countries will be more aggressive in adopting and enforcing pollution
The European Commission supports moves to tighten vehicle emissions limits
further than those foreseen in current proposals; and
Many US states are going ahead with their own legislation as a local response
to climate change and other air quality issues, in the face of what they view
as limited national action. For example, state officials in Wisconsin are
developing new rules to limit emissions from coal-burning power plants and
other sources of ozone, particle pollution, visibility-reducing haze, and mer-
cury. The new limits are estimated to cost industries in excess of US$1 bil-
lion. One of those measures, the Clean Air Interstate Rule (CAIR), places
additional pollution control requirements on utilities and certain factories to
cut emissions linked to a variety of health problems like respiratory illnesses.
2.2.4 Ethical trends
The following are ethical issues (viewed as the difference between right and
wrong conduct) of increasing importance and focus:
Those covered in other chapters, but which have an ethical dimension, for
example it is wrong to eradicate species, pollute the planet, use inappropri-
ate marketing, etc., these are most specifically reviewed in Chapters 7, 10, 12,
14 and 15;
There may be moves to reinforce values, regenerating community, and pro-
tecting, guiding and supporting children, the mentally ill, the disabled and
UN General Assembly may consider adopting the Declaration on the Rights
of Indigenous Peoples, and companies like Alcan are already advancing cor-
porate practice by launching their own policy; and
Bribery and corruption will become an issue of increased significance to pol-
icy makers and the public (see Chapter 7).
2.3 Environmental drivers
The industrial revolution of the last century and a half was enabled by a shift
in energy technology to oil and gas, mechanisation and the tremendous
exploitation of natural resources of all kinds, including clean air, water and
soil, to enable massive production and increases in wealth.
This has led to a wide range of associated costs, including:
Rising sea levels and desertification together will present the world with
reduced land resources and an unprecedented flow of environmental
refugees â€“ and the potential for civil strife;
Within this reduced land area the Earth is required to accommodate a popu-
lation growth of humans and animals which is adding increasing demands to
our ecosystem at a rate of 70 million extra humans and 35 million livestock
per year; and
Chapter 3 â€“ Drivers and trends in sustainability risk management 49
There are also losses of biodiversity, losses of quality drinking water, damage
to the ozone layer and the increased risk of damage from ultraviolet radiation
as a result of this and other examples of the damage we are causing.
Some further trends more directly relevant in a business context are:
Resource scarcity: some resources are becoming in short supply as we alter our
Signs appear to indicate that this revolution is facing challenges as global
supplies of oil are estimated to peak in 2010 and then start to decline. About
50 countries, including the US have already passed their production peak.
Therefore the shift away from the internal combustion engine and to fuel
cells will gain momentum;
Reduced land resources as civilisation is being squeezed between advancing
deserts and rising seas:
Nearly 1400 square miles are going to desert annually in China, and Nigeria
is losing 1355 square miles of rangeland and cropland to desertification each
year. All the countries in central Asia are also losing land to desertification.
Water shortages are occurring and will gain in severity of impact. Companies
requiring water resources for their processes will find their business models
endangered in some severely hit countries. The WBCSD report entitled Business
in the World of Water at www.wbcsd.org highlights that the water crisis can hit
all business and how the issue will drive up business operating costs; and
To sustain present levels of seafood consumption, humans would need more
than 2.5 times the area of all the Earthâ€™s oceans, The Fishprint of Nations
2006 report estimates that 91 countries, including the United States, over-
fished their biological capacity in 2003. The report is by Redefining Progress,
the Ocean Project, and the Center for Sustainable Economy.
Increased resource efficiency: the other side of the scarcity debate is that it is a
driver of efficiency. There are moves towards resource reuse, repair and eco-
efficiency (as reviewed in Chapters 18 and 19) and an example of this is the
development of land in various jurisdictions, as with â€˜brownfieldâ€™ land use for
house building sites.
Energy: the energy sector accounts for the majority of greenhouse gases (GHGs),
also aviation now accounts for 50% of total energy-related emissions of GHGs
Environmental health factors resulting from the production of energy will
gain prominence, for example:
The life expectancy of children can be reduced by up to two years by long-
term exposure to particulate matter from power plants, industry, vehicles,
household cooking, and construction and waste incinerators. This is mostly
from the increased levels of bronchitis and lung problems. More legal actions
will be generated as a result of air quality issues (source: www.un.orgesa/
Part A â€“ Overview of Risk Management
More than 2.4 billion people still rely on traditional biomass, such as wood
and dung. There will be an increase in the deaths of children from respiratory
infections caused by this of over 2 million per year at present.
Energy efficiency: oil amounts to 35% of total primary energy supply, with the
largest share going to transport, which also increased four times more than that
for industrial use from 1971 to 2003 (source: www.un.orgesa/sustdev/publica-
tions/trends2006/index.htm). This trend is set to continue and efficiency meas-
ures and substitutes will gain prominence as risk issues.
Energy efficiency labels and minimum energy performance standards are
common measures taken by countries and will continue with the further
development of international labels; and
Building standards: buildings use a large proportion of a countryâ€™s energy
consumption. For instance, it is estimated that buildings consume around
40% of overall energy in the EU. Energy efficiency standards for dwellings
and service sector buildings have been set up in most OECD countries
including European countries, Australia, Canada, the USA, Japan, Korea, etc.
Some other countries (e.g. Singapore, Philippines, etc.) establish mandatory
or voluntary standards for service buildings.
The use and investment in renewable energy will increase â€“ combustible
renewables and waste and hydro power account for nearly all the worldâ€™s
renewable energy production. â€˜Newâ€™ renewable energy sources such as geo-
thermal, solar, tidal, wave, wind and others will rapidly increase from their
small proportion of production;
China is now the worldâ€™s leading producer of energy from renewable sources,
using it for 7.7% of its total energy supply, and this will increase to 19% of
the nationâ€™s needs by 2020. China is also the worldâ€™s leader in passive solar
energy (for water and space heating) and it is also the largest source of emis-
sions credits under the Kyoto Protocolâ€™s Clean Development Mechanism, and
is expected to remain so (source: http://www.newenergyfinance.com/); and
In 2006 the wind power capacity of the US surged 27%.
Some examples of actions to substantiate these trends are:
BP Solar has unveiled plans for a $70 million expansion project at its North
American headquarters in Frederick, MD;
China will build the worldâ€™s largest solar power station of 100 megawatts in
the north-western province of Gansu, at an approximate cost of 6.03 billion
yuan (US$766 million);
Google took steps in a greener direction, announcing it is to make its Silicon
Valley headquarters the largest solar-powered office complex in the world.
The 1.6 MW of solar power generated will meet about a third of the officesâ€™
electricity needs; and
Chapter 3 â€“ Drivers and trends in sustainability risk management 51
Technology rival Microsoft has installed 2288 solar panels at its research site
in Mountain View, which will produce 480 kW of energy.
Global warming â€“ international context of climate change: it is generally
accepted within the scientific community that the planet is warming. The role
that human activity plays in the warming remains more controversial. An
address by Kofi Annan, Secretary General of the United Nations, mentions:
Climate change is not just an environmental issue, as too many people still believe. It is
an all-encompassing threat.
It is a threat to health, since a warmer world is one in which infectious diseases such as
malaria and yellow fever will spread further and faster.
It could imperil the worldâ€™s food supply, as rising temperatures and prolonged drought
render fertile areas unfit for grazing or crops.
It could endanger the very ground on which nearly half the worldâ€™s population live â€“
coastal cities such as Lagos or Cape Town, which face inundation from sea levels rising
as a result of melting icecaps and glaciers.
All this and more lies ahead. Billion-dollar weather-related calamities. The destruction of
vital ecosystems such as forests and coral reefs. Water supplies disappearing or tainted by
salt-water intrusion. (At the UN Climate Change conference in Nairobi, Kenya, on 15
Some trends are:
Weather extremes will increase according to the Intergovernmental Panel on
Climate Change (IPCC), drawing on scientific advice from around the world;
both drought and floods could be more common due to global warming;
Global warming is threatening the planetâ€™s biodiversity, particularly migra-
tory species like birds and marine animals, and species loss is expected to
Greenhouse gas (GHG) emissions trading will take on greater importance;
The planetary climate will warm over the next several decades, resulting in
sea-level increases of some unknown magnitude;
Increase stakeholder activism on the risks â€“ an example is the Carbon
Disclosure Project (CDP) which has 225 signatory investors controlling tril-
lions of dollars in assets, with the aim to increase greenhouse gas emission
reporting. See the stakeholder analysis below for more details; and
Increased taxation of GHGs. An example is that France is to push coal and
carbon taxes in support of the Kyoto protocol.
3. Stakeholder Analysis (tool 3)
To find out what is going on in their marketplaces many companies are taking
steps to better communicate their progress and challenges to the stakeholders
outlined in the box below and covered in more depth in Chapter 9. They are
increasingly demanding that companies be transparent and accountable for
their commitments and performance.
Part A â€“ Overview of Risk Management
To meet these challenges, companies are developing a variety of tools, pol-
icies and strategies to increase and demonstrate their accountability. One such
practical tool is described in Chapter 9, the Stakeholder Audit, whereas in this
section we seek to undertake a Stakeholder Analysis of the trends taking place.
There is a brief overview of general trends and then by stakeholder groups.
Some current general trends include:
The SERM stakeholder template
* Academic and research organisations;
* Business partners, suppliers and trade bodies;
* Customers and their representatives;
* Direct actions groups and NGOs;
* Employees and their representatives;
* Financial institutions (banking, investor and insurance criteria);