Economic and Social Council

 Distr. GENERAL
20 April-1 May 1998
ORIGINAL: ENGLISH

Economic and Social Council
Commission on Sustainable Development
Sixth session
20 April-1 May 1998

                 Industry and sustainable development

                    Report of the Secretary-General

                               Addendum

                Industry and environmental protection*

(*  The present addendum was prepared by the United Nations Environment
Programme, in accordance with arrangements agreed to by the Inter-Agency
Committee on Sustainable Development;  it is the result of consultation and
information exchange between United Nations agencies, international
organizations, interested government agencies and a range of other
institutions and individuals.)

Contents          

                                                     Paragraphs   Page

  I. Introduction . . . . . . . . . . . . . . . . . .   1-3         2

 II. Industry's impact on the environment . . . . . .   4-6         2

III. Policy challenges for government and industry. .   7-32        2

 IV. International policy responses and challenges. .  33-44        6

        I.     Introduction

1.    Business and industry play a crucial role in the
economic and social development of countries. The
production of industrial goods and services involves the
extraction of natural resources, their utilization in the
manufacture of products, the disposal of waste, and the
distribution, use and disposal (including reuse and
recycling) of the final product. Environmental impacts can
occur with varying degrees of risk along this entire
industrial life cycle, and appear as local, regional,
transboundary and/or global environmental problems. Many
industrial processes are themselves hazardous and can
result in serious accidents with harmful effects to human
health and the environment.

2.    Although industry is a major user of natural resources
and a direct or indirect source of pollution and other
environmental impacts, business and industry must remain
a key partner in the common endeavour to achieve
sustainable development. Business and industry have the
technology, know-how, resources and the entrepreneurial
spirit to innovate, which can be used to achieve
environmental goals and objectives.

3.    The environmental impacts of industrial activities are
relatively well known, and appropriate responses to these
impacts continue to be discussed in a number of
international and national forums. What is now crucial is
the urgency for action. Although both industry and
Governments have responded considerably to the
challenges legitimized at the 1992 United Nations
Conference on Environment and Development, the response
remains localized, particularly in multinational corporations
and developed country Governments. What is now required
is a concerted effort by the international community to
encourage all Governments and industries -- both large and
small -- to respond and to act.

       II.     Industry's impact on the environment

4.   The main environmental impacts of industrial
activities are becoming better known and understood, and
an assessment of these impacts leads to a number of key
conclusions that need to be taken into account when
developing and implementing responses to them. It is
increasingly evident that the environmental consequences
of industrial emissions and discharges to specific media
(air, land, water etc.) are interrelated and rarely localized
in one medium. Unfortunately, many policies currently
being implemented by Governments are medium specific
and can lead to the transfer of pollution from one medium
to another. Consequently, there is a need for an integrated,
holistic approach to environmental policy.

5.   In addition, the scale of environmental impacts is
increasing. In particular, the time lag between emission,
impact and ultimate environmental or health consequences
is becoming longer. Although environmental impacts can
be most evident at a local and/or regional level, the
environmental problems stemming from industrial activity
are influencing the global environment and therefore
require global solutions. There is also an increasing
dispersion of environmental contaminants, which may lead
to long lasting impacts that are often not well known or
understood.

6.   Many Governments, particularly in developed
countries, have adequate systems in place to monitor air
and/or water quality. However, in addition to monitoring
emissions, there is now an urgent need for Governments to
also monitor the consumption of natural resources by
industry and to correlate the consumption of natural
resources with environmental degradation.

      III.     Policy challenges for government
               and industry

7.   The role of Governments is to provide leadership
through an integrated policy approach and regulatory
framework that sets clear environmental goals and
objectives for business and industry. Governments also play
a crucial role in monitoring environmental quality and the
environmental performance of business and industry to
ensure that these goals and objectives are being met. To
facilitate a smooth transition towards sustainable
development, Governments, together with local authorities,
must design an appropriate enabling framework. The
establishment of national environment/sustainable
development strategies called for in Agenda 21 provide the
opportunity to design such frameworks.

8.   Although national environmental policy plans (NEPP)
need to reflect national priorities, experience has shown that
successful national environmental policy plans are designed
through the following policy cycle: planning (setting
environmental goals and objectives); implementation
(regulations, market mechanisms); monitoring (of
implementation of plans, environmental quality and
industry environmental performance); and corrective action.

9.   A number of planning tools, such as strategic impact
assessment and environmental technology assessment, are
currently used by national Governments to help support the
development and application of environmentally sound
technologies, risk assessment for the environmentally sound
management of chemicals, environmentally sound siting
and planning of industrial activities, and monitoring and
state-of-the-environment reporting. The planning (siting
and zoning) of industrial activities to avoid or minimize
environmental impacts has been weak or non-existent in
many countries. In addition, the integration of
environmental considerations into the design of various
public services, such as transport, energy and infrastructure
development, is needed.

10.  Environmental impact assessments (EIAs) are
widespread and their increased use has improved
environmental sensitivity in decision-making at the
enterprise level. However, EIAs are not always used
effectively, mainly due to a lack of baseline data, little
provision for cumulative and synergistic assessment of
impacts from a number of sources, and a general lack of
monitoring. In addition, conclusions drawn from EIAs are
often not taken into account in the decision-making process,
nor are EIAs used in conjunction with other planning tools,
such as risk assessment and contingency planning.

11.  Industrial polices set within the NEPP framework
should include an integrated approach to environmental
management that focuses on prevention rather than cure,
and extends producer responsibility to encourage the
practice of shared responsibility for the environmental
impact of products among the designers, suppliers,
manufacturers, distributors, users and disposers of those
products.

12.  Most countries have designed regulatory frameworks
to control industrial operations by setting emissions
standards. These command-and-control regulations have
been used with varying degrees of success. In particular,
expertise and institutional capacity for the development,
implementation and enforcement of environmental
regulations are weak in many countries. Furthermore, there
is often an unclear division of responsibilities among
government authorities. Recent experience demonstrates
that the environmental performance of industry can best be
improved by a judicious mix of instruments, including
incentives as well as restrictions, that facilitate innovation
and complement economic policies. The continuing
liberalization of trade will also require Governments to
further develop and implement appropriate regulatory
frameworks.

13.  Environmental regulations and the corresponding
compliance and enforcement schemes have often been
designed to tackle a single-medium problem, such as solid
waste, water or air pollution, and fail to recognize that
pollutants move from one medium to another. Emission
standards with short-term objectives also tend to encourage
end-of-pipe controls, such as treatment plants, filters and
scrubbers, leading to the transfer of pollutants between
media as well as high investment costs, with no economic
payback. Integrated approaches and the setting of long-term
quantifiable goals rather than prescribing specific
technologies can encourage the adoption of cleaner
technologies and preventative measures in industrial
facilities.

14.  Economic instruments, such as taxes, levies and other
fiscal instruments, are increasingly being applied by
Governments worldwide. However, few economic
incentives, if any, have actually replaced regulations,
because most have been introduced with the primary
objective of increasing government revenues rather than
altering behaviour towards more environmentally sound
activities. Taxes, for example, are usually not set high
enough to internalize environmental externalities, and
therefore do not make the "polluter pay". Although some
progress has been made, pricing policies still need to be
dramatically reformed so that environmental externalities
are internalized and producers, transporters and consumers
of various commodities face the full environmental costs
of their activities and ultimately reorient their consumption
patterns. Some subsidies artificially lower prices for natural
resources, which are then often used profligately, creating
both pollution and shortages. The environmental impacts
of subsidies need to be studied further and appropriate steps
should be taken.

15.  Currently, most national accounts fail to include many
activities that entail environmental modifications or the use
of natural resources with potential environmental impacts.
Alternative national accounts, which could measure the
total use of natural resources that national economic
activity requires, would support policies that encourage the
efficient use of natural resources, and would lower material
requirements and environmental impacts throughout the
materials cycle.

16.  Voluntary programmes are a relatively new
environmental policy instrument, pioneered by such
countries as the Netherlands, Canada and Germany.
Voluntary programmes to mitigate energy-related carbon
dioxide (CO2) emissions have been implemented or are
being developed in many nations in the Organisation for
Economic Cooperation and Development(OECD). They can
take many forms, and are best combined with other policy
instruments. For example, voluntary codes of conduct can
aim to facilitate and accelerate research and development.
At the other end of the spectrum, negotiated agreements are
often designed to reach numerical targets and/or specific
performance goals. Market-based trade between electric
utilities, notably in the United States of America, of CO2
reductions for sulfur dioxide allowances has reduced both
acid rain and greenhouse gas emissions. More flexible,
voluntary approaches to environmental regulation need to
be explored within NEPPs. In particular, the benefits and
feasibility of tradable permit programmes should be further
explored.

17.  Monitoring of the environmental performance of
industry is an ongoing challenge in most countries. Some
success has been reached through state-of-the-environment
reporting and toxic release inventory types of reporting. It
is also important to extend such efforts to include industry's
consumption of natural resources, and to correlate the
consumption of natural resources with environmental
degradation, which will ultimately require the development
of national indicators with which to benchmark the
environmental performance of industry.

18.  Many industries in all regions of the world lack the
appropriate information, expertise and know-how to
improve their environmental performance. Governments
can support the shift to cleaner eco-efficient industries
through a variety of support measures. For example, green
procurement policies and eco-labelling programmes can
stimulate the market for greener products. Governments can
provide information and technical/managerial advice to
industry, and can support locally relevant investment in
research and development. Educational curricula in
engineering and business programmes should incorporate
the prevention approach, and training programmes for
business and industry leaders on environmental
management need to be developed and/or supported.
Governments can also develop innovative financing
programmes to improve and facilitate access to capital for
small businesses and communities so that they can more
easily invest in cleaner, more eco-efficient practices.
Measures should also be taken to facilitate the transfer of
technology and managerial know-how between one
industrial sector and another, and between large and small
companies.

19.  Government regulations and   increasingly   public
pressure have been the initial drivers in pushing business
and industry to address environmental issues. Many
companies now recognize the importance of environmental
issues, and transnational corporations, in particular, have
started to realize the competitive advantage of reducing
environmental impact while creating economic value.
However, the scale of change required to move from
"business as usual" to sustainable development will require
a well articulated vision of what the sustainable enterprise
should be, which will require leadership and innovation for
the business community as a whole.

20.  The technology response of business and industry to
environmental issues has been developed at three main
levels: (a) treatment technologies, aimed at reducing
emissions and waste after they have occurred (end-of-pipe);
(b) recycling wastes back into the production process; and,
(c) cleaner production and eco-efficiency through the
prevention of pollution and waste generation at the source
of production (preventive approach). Business and industry
has made considerable progress in developing new
technologies, in particular monitoring and information
technologies. However, the long-term, indirect and
unanticipated effects of new technologies have often been
overlooked.

21.  Waste is increasingly being treated as a raw material
and less as something to be disposed of. For example, scrap
steel in tonnage terms is the world's most recycled material.
Through recycling, the steel industry extracts less natural
iron-bearing ores, saves energy and reduces CO2 emissions.
However, recycling of steel can also be very energy
intensive. In the pulp and paper industry, for example, a
study found that recycling processes use less energy than
virgin pulp based ones but generally rely more on fossil
fuels, with the result that greenhouse gas emissions could
increase with higher levels of recycling. 1/ Clearly, recycling
is a feasible option in some industry sectors; however, it is
not the panacea for all environmental problems.

22.  Cleaner and safer technologies and strategies that aim
to prevent emissions and waste at source can also reduce
environmental impacts over the entire product life cycle
from materials extraction to final disposal. Depending on
the market price of raw materials and local treatment costs,
such an approach can also result in significant economic
savings, as well as environmental benefits. Hence, the term
eco-efficiency is also being used to define this approach.

23.  Clearly, there is also a need to substantially increase
the resource productivity of raw material use. The ultimate
expression of this trend will be a shift within corporate
management from a product-focused strategy to a
service-focused strategy that satisfies the same consumer
demand. A demand-side strategy will also need to be further
developed with industry in order to delink people's needs
(and satisfaction) from the consumption of natural
resources. This will require consumption patterns to
change, moving from quantity (consume more) to quality
(consume differently).

24.  The search for innovative and cost-effective ways to
improve industry's environmental performance has also led
to the development of a wide array of environmental
management tools. Such tools can be used by companies
and Governments to direct industry towards environmental
improvements and cleaner production. The large
environmental management system (EMS) "toolbox" now
includes specific tools that enable companies to: (a) assess
and evaluate the environmental impacts of their processes,
products and operations (for example, cleaner production
assessment and EIAs); (b) manage their environmental
aspects (such as eco-design and eco-labelling); (c)
communicate with their stakeholders, such as
environmental reporting and supply chain management; and
(d) monitor their progress and compare it with that of other
companies (for example, benchmarking, and environmental
performance indicators). New environmental management
tools, such as environmental accounting, in which the price
of goods and services reflect real environmental costs, will
need to be developed and widely implemented by business
and industry. In addition, verifiable and enforceable
performance goals will need to be set in consultation with
stakeholders.

25.  Industry sectors that have not yet incorporated the
environmental dimension into their daily operations will
need to be encouraged to do so. The consulting service
sector, for example, is just beginning to integrate
environmental concerns into their decision-making process.
This sector, which often acts as the "prescriber" of good
practice, has a crucial role in ensuring a sustainable,
preventative approach is implemented in the management
practices of companies worldwide.

26.  In 1996, the International Organization for
Standardization (ISO) published an EMS standard (ISO
14001). As of November 1997, more than 2,000 companies
worldwide had obtained ISO 14001 certification. These
standards can bring important benefits for companies since
an EMS can be a useful tool to increase resource efficiency
and achieve savings. Several countries are taking a
proactive approach to ISO 14001, and are promoting its
implementation at the national level. It is essential that ISO
14001 certifying organizers are properly trained and are
mutually recognized around the world.

27.  There are, however, a number of barriers to
implementing an EMS. For example, the costs of
implementing an EMS may be higher for companies in
developing countries than for their competitors in
developed countries. Small and medium-sized enterprises
(SMEs) in both developing and developed countries have
little awareness of EMS and the corresponding ISO
standards; in most countries, few SMEs have access to
appropriate training and assistance. There is also concern
that to the extent that ISO 14001 certification becomes a
de facto condition for doing business, it may act as a
non-tariff barrier to trade for developing countries if
conformance with the standard is costly or difficult to
achieve for companies in developing countries.

28.  Government regulations have been the initial driver
in industry's response to environmental issues. There is,
however, a growing trend among a variety of stakeholders
to hold companies accountable and responsible for the
environmental impacts of their operations and products
throughout their entire life cycle. Many stakeholders are
further demanding greater transparency from industry.
Financial institutions, for example, have begun to
demonstrate an interest in the environmental strategies of
companies, and are increasingly demanding standardized
information to evaluate company risk and performance.
Some banks, insurers and equity markets believe that sound
environmental management leads to risk reduction, which
is valued by financial markets. This is an encouraging
development which should be supported and further
encouraged.

29.  Industry, primarily through industry associations,
responded to the growing demands of stakeholders by
developing voluntary codes of conduct, charters and codes
of practice. Agenda 21 endorses this voluntary approach,
and encourages business and industry to use such codes to
promote best environmental practice. Examples include the
International Chamber of Commerce business charter for
sustainable development and the chemical industries'
responsible care initiative. Many stakeholders, however,
remain unconvinced about the results achieved from such
codes of conduct since they are rarely monitored and/or
enforced. Effective monitoring and follow-up programmes
need to be developed to ensure that codes of conduct do not
remain just words on paper.

30.  Some companies, in particular multinational
companies from industrialized countries, have begun to
voluntarily disclose information on their environmental
activities and emissions through company environmental
reports (CERs). Before 1990, CERs were rare, but each year
the number and quality of such reports is increasing. One
of the major benefits to companies of the CER is that it
serves as a powerful force for internal organizational
change, and is also increasingly seen by companies as a
means to greater accountability and not an end in itself. But
although company environmental reporting has improved
considerably in the past eight years, significant challenges
remain. For example, CERs rarely detail the operations of
multinational companies in developing countries, nor is the
reporting practice widespread. A limited number of national
industry associations report the aggregate environmental
performance of their member companies. This sector-wide
environmental reporting is a positive step and should be
encouraged.

31.  There appears to be a growing trend for companies
to have their CERs externally verified. Such external
verification needs to be increasingly undertaken in order
for CERs to be deemed credible by stakeholders. In
addition, reporting frameworks will need to be standardized
without constraining innovations in reporting. This will
ultimately require the development of common indicators
and metrics from which to measure the environmental
performance of business and industry. These indicators
should be developed in a transparent consultative process
involving stakeholders and taking into account current
efforts to develop macro sustainable development
indicators.

32.  A number of companies have also begun to work in
partnership with their stakeholders to realize common
environmental goals. The aim of most of these partnerships
has been to move from positions of confrontation to
positions of mutually agreed and understood
interdependence. Despite an increasing acceptance of their
value, the awareness and experience of cross-sector
partnerships remains limited. Although anecdotal evidence
of their benefits is growing, there is still much to learn on
how to structure, manage and replicate them, and there is
also a need to understand their limitations.

       IV.     International policy responses and
               challenges

33.  The solutions required for global environmental
problems cannot only be taken by sovereign nations or
industry alone. Shifting the global economy onto a
sustainable path requires an unprecedented degree of
international cooperation. The international community
provides an ongoing, multi-stakeholder platform to discuss
current priority issues, and contributes to building
knowledge and expertise to help decision makers in all
sectors of society make environmentally informed choices.

34.  Regular assessments of resource consumption,
emissions and implementation of policies are required to
guide rational and effective decision-making for
environmental policy formulation, implementation and
evaluation. Currently, however, international assessments
and inventories of industrial emissions and performance
data are seriously lacking. Where national inventories do
exist, they are rarely harmonized and often outdated,
making regional comparisons and global evaluations
extremely difficult. Faced with these difficulties, a number
of United Nations agencies and other bodies do report on
global and regional environmental trends. The 1997 Global
Environmental Outlook, for example, acts as an early
warning system and provides an essential tool to speed up
the pace of environmental action, set priorities and support
informed decision-making. It is an important first step to
reviewing major environmental issues from a regional
perspective and evaluating policy responses that address
regional priority concerns.

35.  The development of cost-effective, meaningful and
useful methods for the regular assessment, monitoring and
review of the environmental performance of industry at the
local, national, regional and global levels is urgently
required. Investment should be made for new and better
data collection of key environmental impacts from
industrial activities, the harmonization of national databases
and the acquisition of global datasets. Particular attention
should be paid to aggregate assessments of each industry
sector's environmental performance.

36.  One of the main barriers to the adoption of cleaner,
eco-efficient technologies and management tools by
Governments and industry is a lack of information. Various
international organizations, in particular the United Nations
Environment Programme (UNEP), the United Nations
Industrial Development Organization (UNIDO) and the
United Nations Conference on Trade and Development,
have been striving to eliminate this barrier by providing
practical and easy-to-use materials and by facilitating
information exchange. These activities have met with
success and should be further supported.

37.  A number of programmes have been set up to increase
worldwide awareness of the preventive strategy embodied
in cleaner production, and to help government and industry
develop programmes and activities that will expand the
adoption of cleaner production know-how and management
approaches. In particular, nine UNEP/UNIDO national
cleaner production centres have been established to offer
training and technical assistance. In addition, information
is gathered and disseminated through publications (case
studies and technical reports), databases, and information
exchange systems, such as the UNEP International Cleaner
Production Information Clearinghouse (ICPIC). These
efforts need to be continued and supported.

38.  To encourage greater awareness and adoption of the
preventative cleaner production strategy by public and
private sector societal leaders, an international declaration
on cleaner production is under formulation. To be launched
at UNEP's Fifth High-Level International Seminar on
Cleaner Production, to be hosted by the Government of the
Republic of Korea, this declaration will be a public but
non-legally binding commitment on behalf of signatories
to give priority to and to monitor progress in implementing
preventative strategies in environmental policy and
management.

39.  To further encourage widespread adoption of the
cleaner production approach, the international community
could consider adopting a goal for resource productivity.
The recommended target is that factor 4 is to be achieved
between 2020 to 2030 and factor 10 by 2050. If currently
available, cleaner technologies were widely applied,
improvements in the order of factor 4 could be reached by
the year 2020-2030.

40.  In this era of globalization, it is clear that the
imperatives of environmental sustainability must be
carefully balanced with the requirements of an open world
trade system. Currently, there is a widespread lack of
integration of environmental objectives with economic and
trade objectives. With an increasing trend towards trade
liberalization, there is the possibility that some
environmental problems could become worse in the absence
of appropriate domestic controls. Full appreciation of the
environmental issues associated with the globalization of
international trade has not been reached.

41.  In addition, price reforms which begin to internalize
the environmental costs of economic activities are critical
if a more sustainable use of natural resources is to be
achieved. Current market distortions too often encourage
short-term, wasteful and destructive consumption patterns.
The international community should therefore examine the
environmental impacts of taxes and subsidies.

42.  Development aid designated for environmental
purposes has often been directed at pollution control
projects, although many international institutions are
becoming more interested in preventative activities. In
addition, other aid programmes do not always take into
account the environmental dimension. Aid and lending
institutions should thus be further encouraged to make
cleaner production investments possible.

43.  There is an increasing trend to shift from public
towards private-sector investment in developing countries
and economies in transition, and since national
Governments can only provide a fraction of the necessary
development aid, there is a real risk that vital investment
projects may not be undertaken because they may not
appear to be the most profitable short-term option.
Financiers and private bankers therefore have a crucial role
to play in incorporating the environmental dimension into
their investment projects. In addition, recent negotiations
by OECD to negotiate a multilateral agreement on
investment should fully recognize the importance of
environmental concerns.

44.  International, regional and multilateral environmental
agreements refer increasingly to prevention and/or
efficiency activities to mitigate global environmental
problems. Some international conventions, in particular the
Montreal Protocol on Substances that Deplete the Ozone
Layer, have made provisions for information clearing house
functions. Under the multilateral fund established under the
Montreal Protocol, for example, UNEP was given the
responsibility for gathering information, holding workshops
and training courses, networking, conducting country
programmes and acting as an information clearing house.
This UNEP programme has been instrumental in building
the capacity and raising awareness among business,
industry and Governments of the economic and
performance benefits to be realized through compliance
with the Montreal Protocol. This experience could serve as
a useful model to be replicated under other international
agreements with a view to promoting an integrated response
to the variety of environmental challenges addressed under
these agreements.

                               Notes

          1    See World Business Council for Sustainable Development
               and International Institute for Environment and
               Development, A Changing Future for Paper (London,
               1996).

Date last posted: 8 December 1999 15:15:30
Comments and suggestions: DESA/DSD