Reimagining Environmental Governance: Unpacking the ‘Black Box’

Introduction:

Sustainability is an oxymoron, as even seasoned professionals vaguely understand it and casually quote a definition from 1987 Brundtland Report. Sustainable development is understood to be different aspects to disparate stakeholders. The context is the kingmaker. Every geographic reality will have unique demands. Environmental, Social and Economic Strands are deeply intertwined in ways more nuanced than simplistic portrayals of portraits (Prasad 2017).

Sustainability has an element of social and ecological justice operationalized into politics/reality through policy, programs, projects and tactics. Sustainability at its heart is livable communities at the sidelines of a rapidly urban space. Sustainability lies at the disciplinary borderlands of theory, praxis and imagination for a better world, undergirded by geopolitics, local governance and the neoliberal instinct to make a quick buck.

Reimagining Sustainability is a hollow tag line if there has not been enough thought to think through the limitations of a climate change skeptic polity, identity driven articulations of everyday life and the sheer mad rush for the bottom line. Sustainability can only take root if this ethical paradigm can be understood by the CFO over a casual water-cooler chat; the battle between short term and long term returns. Unlocking value from sustainability initiatives can take place if triple bottom-line thinking could dominate the thinking in strategic planning of SME’s. Rhetoric makes paper buy ins temporary, and rule books don’t manufacture clean air; a will to do things for a healthier community is a better approach.

The Environmental Governance Landscape:

 In the past few years, “sustainability”, at least in ethos and rhetoric, has crept in to the everyday conversation regarding globalized private sector companies, especially those with fragmented yet structurally tightly knit supply chains, who source materials and
products from across continents (Prasad 2015). Meanwhile, social and environmental safeguards have
become a critical aspect of lending by multilateral financial institutions, such as the
International Finance Corporation and the Asian Development Bank. These safeguards are enforced as part of financial packages agreed between lenders and borrowers. But
despite such progress, labor protection in the developing world is a crucial chink where
legal and voluntary corporate drivers falter in the globalization discourse.

In this VUCA (volatility, uncertainty, complexity and ambiguity) era, that companies are navigating, environmental compliance is often akin to a paper trail. As an EHS Auditor, this researcher has observed the HR Manager double up as an EHS focal point. Environmental Compliance is perceived as a roadblock in the development narrative in India. The environmental governance architecture is mapped along the follow set of legislations in temporal fashion:

(India has enacted more than 200 laws for protecting the environment with significant provisions in the constitution as per Sandhu & Sidhu 2015)

1. The Wild life (Protection) Act of 1972
2. Water (Prevention and Control of Pollution) Act, 1974
3. Forest (Conservation) Act, 1980
4. Air (Prevention and Control of Pollution) Act, 1981
5. Environment Protection Act, 1986
6. Public Liability Insurance Act (PLIA), 1991
7. The National Environment Tribunal Act, 1995
8. The National Environment Appellate Authority Act, 1997
9. The Biomedical Waste (Management and Handling) Rules, 1998
10. The Environment (Sitting for Industrial Projects) Rules, 1999
11. The Ozone Depleting Substances (Regulation and Control) Rules, 2000
12. The Batteries (Management and Handling) Rules, 2001
13. The Biological Diversity Act 2002 and Biological Diversity Rules
14. National Environment Policy of 2006
15. NAPCC: National Action Plan on Climate Change
16. National Green Tribunal Act, 2010
17. The Noise Pollution (Regulation and Control) Amendment Rules, 2010
18. Plastic Waste (Management and handling) Amendment Rules, 2011
19. Plastic Waste (Management and handling) Amendment Rules, 2016
20. The Biomedical Waste (Management and Handling) Rules, 2016
21. Solid Waste Management Rules, 2016
22. Construction and Demolition Waste Management Rules 2016
23. Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016
24. E-Waste (Management) Rules, 2016

The six laws related to environmental protection and wildlife by the current administration (of the above list) which are being amended are: The Environment (Protection) Act, 1986; The Forest (Conservation) Act, 1980; The Wildlife Protection Act, 1972; Water (Prevention and Control of Pollution) Act, 1974; Air (Prevention and Control of Pollution) Act, 1981 and The Indian Forest Act, 1927 (Down To Earth, 2015). In India, the manufacturing sector facility leads consider, environmental compliance as a ‘green tape’, stifling growth as the compliance paperwork takes eons to kick start real work on the ground. This is however a limited perspective when environmental compliance is taken as a ‘tick the box’ measure. Environmental Compliance is proactive in Indian subsidiaries of foreign companies, which are listed in bourses in New York, London or Singapore (which is introducing compulsory Sustainability Reporting for all listed companies), as reporting requirements are stringent and bound by law, for example- anti corruption training is a mandatory on boarding requirement for employees of US based organizations in India (the researcher had to undergo one as well in an employment stint in India).

Environmental Compliance as a Business Driver: A Case of IKEA

Environmental Compliance is however a driver of ‘competitive advantage’ in a Porter-esque vain, if embedded as a core value of corporate citizenship. IKEA is the gold standard for actualizing Sustainability and CSR as a proactive business strategy, far beyond the rhetoric although they have been criticized for green washing as well. Operational businesses do not however operate in a utopian environment and are subject to various external pressures. Millennial and Centennials have social impact as a vital value as component of their brand map, and contribute enormously as a brand differentiator. IKEA as Google (as an analogue in the search engine space) is a heuristic for environmentally conscious sourced affordable furniture. Ikea states:

“Sustainability shall be an integrated part of our business, which means that all IKEA strategies and business plans must clearly and systematically integrate sustainability improvements and investments as part of everyday operations. (IKEA 2010 p.14)”

IKEA’s sustainability reports states that IKEA is member of UN’s Global Compact and commits to its ten principles that embrace human rights, work, environment, and anti-corruption. Furthermore, IKEA maintains dialogue with stakeholders allowing the company to do more than it would on its own. The list of main stakeholders on the global level includes WWF, Greenpeace, Better Cotton Initiative, Forest Stewardship Council, Global Social Compliance Programme, Business for Social Responsibility, Rainforest Alliance, Save the Children, International Labour Organization, and UNICEF (Boström et al. 2013). IKEA’s secret sauce had its stringent supplier policy and how the firm partners suppliers over the long term and recognizes the risks that they face in their daily operations. Suppliers are ‘audited, unannounced’ on an annual basis as well. IKEA’s beyond compliance mind set is an anchor for brand differentiation and a buffer for business continuity disruption aka resilience. Resilience is a long-term initiative to build capacity in response to risks identified by floor staff to the C Suite, as there an entire basket of threats/risks which organizations work with.

Environmental Compliance: A Smokescreen

One significant touch point to reform environmental governance is to redeem less-explored type of symbolic compliance is what we term attention deflection, which refers to companies highlighting certain desirable activities in order to avoid scrutiny of their other practices that do not conform to institutional norms. Companies engaging in attention deflection have pursued different strategies such as creating their own corporate governance standards (Okhmatovskiy & David, 2012), developing voluntary self-regulation programs (Gunningham, 1995; Sasser et al., 2006), and bolstering their social image (Morris & King, 2010), all of which are designed to avoid scrutiny of illegitimate or questionable activities (Marquis & Toffel 2012)

Global Supply Chains and Reputational Capital: The Rana Plaza Disaster

Reputation is a key strategic concern for modern firms (Roberts and Dowling, 2002), and environmental, social, and governance (ESG) performance has become an increasingly important dimension of firm reputation. Poor ESG practices may make firms targets for activists, harming their reputations as well as their bottom lines (King and Soule, 2007), and firms are increasingly held accountable by financial analysts and investors for ESG performance (Ioannou, 2014). Furthermore, firms that mislead stakeholders about their ESG performance through inaccurate disclosure may find their reputations tarnished (Fombrun, Gardberg, and Barnett, 2000 in Short et al, 2015)

As firms continue to outsource production globally, their reputations have come to depend not solely on their own practices but also on those of the companies in their extended supply chains (Heide, Kumar, and Wathne, 2014), raising the risk of reputational spillover costs from these transactions. That risk is particularly high when production is outsourced to countries where labor and environmental standards are so low that suppliers commonly take “unwarranted risks in their project execution . . . that the outsourcing principal would never tolerate if it kept control of the activity” (Geis, 2007: 979). For instance, in the wake of the Rana Plaza building collapse in Bangladesh that killed 1,100 factory workers, the bulk of media, consumer, and activist scrutiny focused on the global retailers that sourced from suppliers using the building (Greenhouse, 2013a). Many of these global retailers were under such intense reputational pressure that they agreed to adopt a legally binding agreement to spend hundreds of millions of dollars to fund fire-safety and structural improvements in the factories of their Bangladeshi suppliers (Greenhouse, 2013b). Bangladesh since 2005 has faced a barrage of industrial factory accidents related to the garments sector leading to a numerous loss of precious lives which are simply accounted for as statistics in annual EHS statistics reports (sometimes these loss of lives are simply brushed under the carpet by third party vendors interested in lowest costs as costs and prices for fashion high streets is the lowest common denominator for supply chain economics).

Supplier monitoring is a transactional governance mechanism designed to provide buyer-firms with information that can help them manage supply chain risk and make strategic outsourcing decisions. However, it is not clear that buyer-firms are getting complete and accurate information from their supply chain monitors (e.g., Esbenshade, 2004; Heras- Saizarbitoria and Boiral, 2013; O’Rourke, 2002). For instance, in 2012, just weeks after social auditors certified that a factory in Pakistan met the SA8000 working conditions standard created by a respected nonprofit, a fire there killed hundreds of workers, some of whom were trapped by locked emergency exits and barred windows—clear violations of that very standard (Walsh and Greenhouse, 2012). When monitors fail to accurately assess suppliers’ adherence to standards, they undermine buyer-firms’ ability to make fully informed outsourcing decisions and subject these firms to the risk of catastrophic reputational consequences (Short et al. 2015). Vulnerability is the inverse of resilience and as per Charles Perrow’s seminal work ‘Normal Accidents’, complex systems have an inherent vulnerability built in to them, and these packed supply chains are akin to complex systems.

There are a plethora of international standards, which are voluntary in character such as SA8000, BSR, Global Reporting Initiative and the ISO family. In this hyper digital era of fake news and big data, corporate reputations, which have taken years to build painstakingly, can be crumbled by a single event. Corporate reputations and brand building will have transform to a real time paradigm from a yearly audit cycle. There are many smart phone applications funded by USAID’s Humanitarian Innovation Fund which enable workers in textile sweat shops in Bangladesh to report non compliances on the shop floor to the management with a press on the red button on the application which triggers an alarm.

Deepwater Horizon, Union Carbide and Rana Plaza were all tectonic events that had a shattering impact leading to unfortunate loss of lives, catastrophic shock to natural environments and massive financial loss to proprietors via fines, legal payouts, settlements and stock face values plummeting.

Asia Pulp & Paper and Trans-Boundary Haze Pollution Crisis:

Few companies globally have been in the heart of a regional crisis as Indonesian paper major Asian Pulp and Paper (APP). As a multinational company whose products are agricultural-based, APP uses a lot of natural resources to create its paper-based products, including tissue and packaging materials. The paper production process involves the cutting down of a lot of trees, amounting to more than 20 million metric tons of pulp and paper per year. APP is headquartered in the island nation of Indonesia, which has the largest rainforest in Asia and the second largest in the world (after Brazil).

There’s a fine line between the business of producing paper and reckless deforestation practices, and according to activist non-government organizations (NGOs) like Greenpeace and the World Wildlife Fund, APP crossed that line and then some, since the charges were leveled that the company was endangering the flora and fauna of the rainforest by stripping bare the habitats of tigers and orangutans, threatening the lifestyles of indigenous peoples living in the rainforest, and even contributing to climate change due to greenhouse gas emissions at an alarming rate [3]

The seriousness of the charges against APP was sufficient to convince several major customers, such as Mattel, Office Depot, Staples and Wal-Mart, to end doing business with APP. That fall from grace, coupled with the loss of a lot of business, prompted APP to embrace sustainability in a big way, which resulted in its Forest Conservation Policy (FCP). The central premise behind the FCP is APP’s intent to dramatically reverse the effects of deforestation by halting the harvesting of natural forest timber throughout its entire supply chain. Among other things, APP’s stated plan is to be completely reliant on plantation-sourced (as opposed to rainforest-sourced) pulpwood, and that carbon emissions will be reduced by 26% by 2020. To prove to the world that it meant what it said, APP also invited the Rainforest Alliance, a prominent NGO, to independently evaluate the company’s progress.

But, as the company recognizes, its efforts in isolation will not be sufficient. “We are a big company with significant resources, but we are only one actor among many in the landscapes in which we operate. We need all actors in those landscapes to pull in the same direction if we are to achieve meaningful change,” says Aida Greenbury, a former sustainability leader at APP [7].

APP has overhauled its sustainability leadership team a number of times in the past couple of years, in the midst of the public relations crisis triggered by regulatory action by both Singaporean and Indonesian authorities in the midst of the deadly haze, which engulfs Singapore and the Riau Islands of Indonesia. APP investments in resilience building are a bit too late in the day but better late than never, as sustainability is a central thematic core of the business.

Reimagining/Reframing Environmental Governance

Prof Prasad Modak in his Gujarat Pollution Control Board Presentation Report on the Models of Environmental Governance (available online and cited in the reference list) articulates various conceptual configurations through which the firm, society, market and the regulator arrange themselves in an optimal manner. However, the political/regulatory environment for environmental compliance has drastically evolved in the post truth/Trump era of hyper nationalism and de-globalization in the words of economist Ruchir Sharma. Environmental Governance at the international level, takes years to even reach a basic understanding. The Paris Climate Agreement was reached after years of negotiations and was celebrated until US President Trump withdrew from the agreement with the following tweet “Pittsburgh more than Paris” channelizing the populist anger which snatched away jobs from the steel towns of the North East, to China, and the tiger economies of Asia.

The new normal regarding environmental governance has to incorporate the reality that United States is withdrawing from the ‘global publics’ as a fountainhead of innovation regarding environmental compliance, with persistent efforts to undermine the USEPA, with a climate skeptic administrator at its helm. The so called Global South follows the cues of the West, regarding environmental laws and this withdrawal will be seen as a signal that green legislation does not matter any more. However, there are oases of hope that will shore up the progressive narrative. Private companies such as FMCG major Unilever with its ambitious Sustainable Living initiative and Carlsberg with its Zero Emissions targets are leading the conversation. Cities and regions independent of the federal policies are driving climate change initiatives such as cities in California and the Pacific North West. Silicon Valley behemoth such as Alphabet and Facebook are setting the bar as far as data center emission targets and renewable energy usage.

Resource extraction companies, FMCG firms and manufacturing industries are usually the pollution troublemakers and usually the environmental compliance target audience. The technology sector is low on the conventional pollution standpoint, but other issues are present such as diversity and gender equality issues. Reframing the environmental governance conversation, the new formations would have to be dynamic and real time incorporating elements from technology, social structures and legal frameworks. Democracies with legislation making credentials have a phase lag with real business. The private sector with civil society is stepping up to fill in the vacuum created by governments driven by populism and nationalism. Fourth Industrial Revolution Technologies such as automation and big data shall create unique ‘realities’ which environmental governance has to grapple with.

Configurations of Environmental Governance structures are dependent on context (as stated in the introduction) as enumerated in the cases presented in this research paper of IKEA, APP and the Rana Plaza disaster. After discursively outlining the conceptual categories regarding failures, resilience and vulnerabilities, the following drivers are crystallized as catalyzing the new environmental governance model:

Conclusion:

As the renowned Indian American Critical Theorist Prof. Raka Shome quipped at a workshop on modernity last year at the National University of Singapore, that the act of theorizing is ’the act of imagining alternative futures’. This research paper in response to the research question posed in the title itself, is an act of articulating an alternative, an increment to the existent models of environmental governance, as articulated in Prof Prasad Modak’s presentation to the Gujarat Pollution Control Board (GPCB).

  Reference:

[1] http://www.downtoearth.org.in/news/six-environmental-laws-to-be-amended-soon-49317 information retrieved on 12th June 2017

[2] https://ccbriefing.corporate-citizenship.com/2015/09/04/reimagining-social-performance-in-transnational-supply-chains/ Corporate Citizenship Article on “Reimagining social performance in transnational supply chains” by Manishankar Prasad, September 2015

 [3] http://www.industryweek.com/supply-chain/who-s-taking-responsibility-your-supply-chain?_lrsc=b427f74a-445b-4651-9770-031b6b811236 information retrieved on 12th June 2017

 [4] Sandhu V and Sidhu AS (2015) Environmental Governance in India: A Systematic Review of the Initiatives. Pacific Business Review International Volume 8, Issue 4.

[5] https://changethinker.com/2017/05/30/articulations-about-sustainability/ information retrieved on 12th June 2017

[6] Boström M, Giiek M, Jönsson A M & Karisson M. IKEA
and the Responsible Governance of Supply Chains
- IKEA’s work on chemicals in textiles. Working Paper 2013-1. Sodorton University.

[7] https://www.cdp.net/en/articles/forests/case-study-asia-pulp-paper information retrieved on 12th June 2017

[8] Short JL, Toffel MW and Hugill AR (2015) Monitoring Global Supply Chains. Harvard Business School Working Paper 14-032.

[9] Modak, P. Models of Environmental Governance. Presentation to the Gujarat Pollution Control Board (http://www.gpcb.gov.in/images/pdf/PrasadModak_GPCB.pdf) Information Retrieved on 13^th June 2017

[10] Marquis C and Toffel MW (2012) When Do Firms Greenwash? Corporate Visibility, Civil Society Scrutiny, and Environmental Disclosure. Harvard Environmental Economic Program Discussion Paper 12-43.