Management: The Environment:

 

Environmental Issues and Crisis Management*

 

By Professor Emeritus Akira Ishikawa

Aoyama Gakuin University, Tokyo, Japan

Former Dean, GSIPEB

Senior Research Fellow, ICC Institute, University of Texas at Austin

Doctoral Program Chair

 

[Editor’s Note: * This chapter is adapted from the article

in Annals of Crisis Management Research, No. 10, May 2002, pp. 1–5. – JP]

 

1. Introduction

Dr. Hideo Itokawa, an authority on rocketry who passed away in 1999, predicted in his last book, Would the Human Race Be Annihilated in the 21st Century!? (1994), that “Humankind is destined to be wiped off from the face of the earth within 50 years, just like mammoths in the past.” In order to avoid this catastrophe, he proposed what is called “Population Theory” — a theory of propagating altruistic love instead of egotistical love. Unfortunately, he passed away before his theory was completed.

 

While somewhat more optimistic than Dr. Itokawa’s theory, Dr. Junichi Nishizawa, recipient of the Order of Culture and president of Tokyo Metropolitan University, co-authored with Dr. Isao Ueno a similar book titled Humankind Will Become Extinct in the

Next Eighty Years, in February 2000. The nucleus of this book is that while it is predicted that it will take another 150 years for carbon dioxide concentrations to reach the lethal 3% level where people will suffocate to death, as methane hydrate, which had been stable at the bottom of the sea, is becoming more and more unstable, it is highly likely that this will trigger the “Devil’s Cycle” of methane and carbon dioxide, considerably escalating carbon dioxide concentration.

 

Therefore, it is not so erroneous a prediction to say that humankind will be exterminated in about 80 years from now. Dr. Lester Brown, director of the Worldwatch Institute — a

renowned American environmental think-tank — reports that the atmospheric carbon dioxide level has now reached the highest level in the past 150,000 years, and that most of the 232 species of primates that are closest to human beings among the mammalia are on the brink of extinction. Furthermore approximately 10,000 people are starving to death everyday on earth, and about one billion people who live on the sterile lands in the African and Asian continents are barely surviving day-to-day.

 

The Herald Tribune published a summary of the IPCC panel’s 1,000-page report on climate change on January 23, 2001. Well over 500 specialists and professionals were involved in drawing up this report. It is generally considered to be the most comprehensive analysis and evaluation of the earth’s climate change situation. Notably, the report gave 5.8 degrees Celsius as the highest average temperature in 100 years from now, which is considerably higher than the 3.5 degrees Celsius given in a previous analysis. Consequently, sea levels are predicted to rise as high as 90 meters, which would not be so different from sea levels of 100 million years ago. The climate change in the next 100 years is likely to entail far graver consequences than that of the past 10,000 years, which may constitute a strong basis for the theories of humankind’s imminent extinction that are mentioned above.

 

In the face of such grave environmental issues, effective crisis management is needed urgently as never before, on a global scale.

 

2. Public Hazard Issues and Environmental Risk

We become aware of the fact that environmental issues have arisen when corporate activities, especially manufacturing and the fruit of their activities — products — harm our lives, properties, and health, and when our living conditions deteriorate.

 

When such environmental issues emerge, companies are liable for the damage, which constitutes environmental risk for them. Moreover, if the soil is polluted to the extent that groundwater is contaminated in violation of the environmental laws, the offending companies bear the risk of being liable to administrative penalties or criminal charges, even if there is no actual damage to the community.

 

As environmental laws become more stringent, companies’ environmental risks become higher, and they have to make bigger investments in preventative measures. Quite a few corporations have gone bankrupt because they could not afford to secure funds for preventative measures and litigation risks.

 

What is notable here is that the term” environmental issues” refers to two different phenomena both before and after the mid-1980s. Until the early 1980s, the principal offenders of environmental issues were mainly private companies; “environmental issues” meant pollution problems caused by corporate activities. Therefore, their causes were easy to identify, and they could be dealt with as local problems.

 

After the late 1980s, however, environmental issues became a serious matter of survival for the entire planet. Apart from industrial and urban pollution problems, other complex global issues such as global warming, ozone depletion, destruction of forests, desertification, acid rain and marine pollution came to pose serious threats to our survival. When we say “environmental issues,” therefore, it is not a simple, local matter for a single company or conglomerates, but for the entire country, the entire world, and the entire eco-system. Unless we take fundamental measures on these levels, environmental issues will not be solved.

 

3. Crisis Management Regulations for Global Environmental Issues

In this section, we will examine major cases of crisis management from the perspective of global environmental issues.

 

3.1. Events relating to global warming

1988: The Intergovernmental Panel on Climate Change (IPCC) was established, co-sponsored by the United Nations Environment Program and World Meteorological Organization.

 

1994: At the United Nations Conference on Environment and Development (UNCED), the United Nations Framework Convention on Climate Change (UNFCCC) was signed by 163 countries including Japan, and it became effective in 1994.

 

1995: The first UNFCCC Conference of Parties (COP1) was held in Berlin; however, it failed to conclude an emissions control policy on global warming, and forming of a concrete plan was postponed to 1997. While the Netherlands and other EU countries attempted to enforce stringent emissions control, the US and Australia, whose economy is characterized by high oil consumption, opposed them. Oil-producing nations supported the US and Australia, for fear of loss in oil demand.

 

1997: 161 countries participated in COP3 in Kyoto, Japan. After a series of negotiations, the Kyoto Protocol was adopted. Figure 4 shows COP3 major countries’ carbon dioxide reduction targets.

 

1998: At COP4 held in Buenos Aires, Argentina, the host nation, Argentina, submitted a proposal to encourage developing countries to join the Convention voluntarily. However, 19 developing countries rejected it and only two decided to join it. (Further developments will be discussed in Section 4.)

 

3.2. Events relating to the ozone depletion

1985: The Vienna Convention for the Protection of the Ozone Layer was adopted in Vienna, Austria; the parties agreed to a 50% reduction of the ozone-depleting substances (ODSs) such as chlorofluorocarbons (CFC) and halons within the next ten years. To supplement the Vienna Convention, the Montreal Protocol on Substances That Deplete the Ozone Layer was concluded in 1987, which prescribes regulatory action plans for various ODSs.

 

1989: The Helsinki Declaration was adopted at the first conference of the parties to the Montreal Protocol; it called for phase-out of CFCs and halons by 2000, tightening the timetable agreed upon in the Montreal Protocol.

 

1992: ODS-control measures were further tightened; the ban was accelerated by four years and specified CFCs and specified halons, along with three other ODSs, were to be eliminated by 1996.

 

3.3. Events relating to acid rain

1979: Acid rain is caused by sulfur oxides and nitrogen oxides in long-distance, cross-border air pollution. Therefore, the Convention on Long-Range Transboundary Air Pollution was concluded, with the United Nations Economic Commission for Europe (UNECE) as its principal body, though initially the issue was raised by OECD.

 

1985: The next phase was emission reduction of each pollutant. Firstly, the Protocol on the Reduction of Sulfur Emissions was concluded in Helsinki, Finland.

 

1988: Secondly, the Protocol on the Control of Nitrogen Oxides was concluded in Sophia, Bulgaria.

 

1995: It was discovered that one of the causes for acid rain in Japan was quite likely cross-border air pollution from Southeast Asia brought on by the monsoon, according to research by the Agency of the Environment and the Research Institute of Innovative Technology for the Earth. Accordingly, the Agency of the Environment proposed to 10 southeastern countries the construction of a Southeast Asia acid rain network for monitoring acid rain.

 

3.4. Events relating to forest destruction

1992: “The Statement of Principles for Sustainable Management of Forests” was adopted at the United Nations Conference on Environment and Development (UNCED). This statement presented principles for various methods of sustainable management of forests; however, it was not a treaty.

 

Of special note is the fact that the equatorial countries’ national policies, regional development, urbanization, and wood exportation greatly influence tropical forests. Forest destruction is also closely related to other factors such as the above-mentioned long-range transboundary air pollution that causes acid rain, and sulfur and nitrogen oxide control. Therefore, deforestation cannot be solved unless these other issues are also taken into consideration.

 

Incidentally, the International Tropical Timber Organization (ITTO) is one of the institutes that are deeply involved in tropical forest management.

 

3.5. Events related to wild animals

1971: In order to preserve valuable wetlands, 77 countries adopted the “Convention on Wetlands of International Importance, Especially as Waterfowl Habitat” in Ramsar, Iran.

 

1973: Given that an international treaty was absolutely necessary for protection of wild animals, particularly the rare species, 120 countries including Japan signed the Convention on International Trade in Endangered Species of Wild Fauna and Flora, in Washington, D.C., America.

 

1992: At the Earth Summit, 163 nations including Japan signed the Convention on Biological Diversity, for preservation of the diversity of wild life, not only in eco-systems and in species, but also at the level of genes. It came into force in 1994. Some issues remain unresolved such as those of regulations for the use of genetic resources, and of technology transfer in biotechnology.

 

2008: COP9 for the Convention on Biological Diversity was held in Bonn, Germany. Among other topics, the 2010 target of lowering the rate of biodiversity loss was discussed.

 

4. Global Warming Regulations

At the Kyoto Conference on Prevention of Global Warming held from December 1–10 in 1997, a standard proposal for the reduction target of CO2 emissions was submitted by each country. According to this proposal, reduction targets of 0% by the US, 2.5% by Japan, and 15% by the EU were submitted, respectively. Since the differences were so remarkable, Chairperson Estrada began to negotiate with each country. As a result, while Japan did not change its initial proposal, the US changed its reduction target from 0% to 5% and the EU from 15% to 10% on December 5.

 

On December 8, while Japan yielded from 2.5% to 4%, the US backpedalled from 5% to 2% and so did the EU from 10% to 8%. At this stage, US Vice President Gore revealed his flexibility and Chairperson Estrada himself proposed Japan 4.5%, US 5%, and EU 6%, respectively, one day before the final agreement. On December 10, the COP3 final reduction targets were determined.

 

Agreement over the reduction targets was barely achieved at COP3, and it left many unresolved issues. COP4 was held in Buenos Aires in 1998, and COP5 in Bonn in 1999, to discuss additional issues. However, rifts resurfaced between the US, EU and Japan at COP6 held in The Hague in November 2000. On March 28, 2001, after the Bush administration came into office, the US declared its intention to leave the Kyoto Protocol.

 

Reportedly, the main reason for this decision was that the Bush administration, in valuing the energy industry’s support, decided that the US’s target of a 7% reduction was more detrimental to the American economy than beneficial. Moreover, the US criticized the Kyoto Protocol as unfair in that developing countries were not subject to it.

 

An unofficial ministerial meeting was held in New York on April 21, in an attempt to persuade the US to reach an international agreement based on the Kyoto Protocol. The US, however, rejected the Protocol, and stated that it would propose an alternative international framework at COP6 that was to be resumed in July 2001 in Bonn, Germany.

 

It was left undecided whether the Protocol should enter into force without the US’s ratification. The US was not the only cause of dissent, however; there was discord between the EU and Japan too.

 

While Japan insisted on leaving emissions trading to the discretion of each nation, taking forest sinks into full consideration, the EU continued to assert that emissions trading must be regulated, without taking much notice of forest sinks. Meanwhile, developing countries advocated further support for technological transfer.

 

Conferences of the Parties to the United Nations Framework Convention on Climate Change still take place every year. In addition, since COP11 in 2005 when the first Meeting of the Parties to the Kyoto Protocol (MOP) took place, COP and MOP have been held together annually.

 

More than 10,000 delegates from 180 countries gathered together for COP13 in 2007. On December 3, 2007, Australia, which had been refusing to officially endorse the Kyoto Protocol, finally signed and ratified the Protocol. Thus, the US became the only developed country that had not yet ratified the Protocol.

 

COP14 took place in Poznań, Poland, in December 2008. Dr. Rajendra K. Pachauri, Chairperson of the IPCC, emphasized in his address the importance of political leadership in combating global warming. He also indicated his intention to propose to the

UN Secretary-General that future COPs should be held at summit-level by the world leaders, including the President-Elect of the US.

 

COP15, held in Copenhagen in 2009, ended with the Copenhagen Accord; it was agreed that measures should be taken to keep rises in temperature below 2 degrees Celsius, in response to the IPCC reports.

 

5. Corporate Responsibility for Global Environmental Issues

It is clear that environmental issues today have become grave, global matters, not merely local pollution incidents. It goes without saying that corporations need to comply with the Basic Environment Law and the Environment Impact Assessment Law, enacted respectively in 1993 and 1997. Companies should make systematic and proactive efforts to achieve the goal of “zero emissions,” so that their social responsibilities can be fulfilled.

 

Of special importance are the following: (1) reducing environmental impacts, (2) achieving “zero emissions” and thorough recycling of resources, and (3) reforming accounting standards for environmental budgets.

 

5.1. Reducing environmental impacts

In the case of the US, as a measure of reducing environmental impacts, the so-called Muskie Act was enacted in 1970 to regulate automobile emissions. In 1980, the Comprehensive Environmental Response, Compensation, and Liability Act (commonly known as the Superfund) was enacted for disposal of toxic waste, and in 1990 the then President Bush signed the Clean Air Act Amendments, which may lead to the passage of a Zero-Emissions Vehicle Act.

 

In order to quantify environmental impacts, it is necessary to classify and define environmental costs. According to the United States Environmental Protection Agency (EPA), environmental costs are divided into Direct Costs, Hidden Costs, Contingent Costs (penalties, fines, future liabilities), and Less Tangible Costs. Lowering, or eliminating these costs leads to reduction of environmental impacts.

 

Furthermore, in order to reduce environmental impacts, all environmental loads involved in the entire lifecycle of products and their packages must be minimized. This includes environmental loads in procurement of raw materials, production, distribution, sales, consumption, and disposal. We need to develop a process that reduces the amounts of solid, liquid and gas wastes that are released into the atmosphere, underground, and into the sea, minimizes pollutants, and releases eco-friendly substances instead.

 

5.2. Achieving “zero emissions” and thorough recycling of resources

To meet such needs, many companies are engaged in efforts to achieve zero emissions and a thorough recycling system.

 

For example, Fuji Xerox has adopted a scheme of inverse manufacturing, where by re-use and recycling are taken into consideration at the level of product development. As many as 130 design requirements such as ease of dismantling, use of common parts, and selection of materials are listed in the “Recycle-Oriented Product Design Guidelines,” drawn up by its engineers. The company’s subsidiaries and subcontractors are also given “Guidelines on Procurement for Recycling” to ensure that the recycling-oriented production system is strictly adhered to, as well as “Guidelines on Green Procurement” to reduce the amount of potentially damaging chemical substances in their products.

 

Nissan Motor, on the other hand, has developed various clean technologies in order to create zero-emission vehicles. Nissan Sentra CA is a fruit of these technologies; it received an award for its clean technologies from the California Environmental Protection Agency — the only gasoline-fueled car to qualify as a Zero-Emissions Vehicle.

 

These clean technologies were further developed for Nissan Bluebird Sylphy, a mass-produced car model for the domestic market, which qualified as an ultralow-emissions vehicle (ULEV) in Japan, with a more than 50% emissions reduction. Its fuel efficiency has been further improved, and it met the 2010 fuel-efficiency target level.

 

Meanwhile, Chubu Electric Power is endeavoring to establish a reactor fuel cycle by re-using uranium and plutonium obtained from used fuel. If this technology is established, it will be possible to generate energy that is usable for over 1,000 years.

 

5.3. Reforming accounting standards for environmental budgets

The Financial Accounting Standards Board (FASB) sets down the following accounting standards for environmental issues:

 

SFAS 5: Accounting for Contingencies: accounting methods for contingencies, which take probability and degree of estimableness into consideration.

 

SFAS Interpretation 14: disclosure of the minimum amount in cases where reasonable estimation of the amount of a loss is not possible.

 

By the Emerging Issues Task Force (EITF):

 

89–13: Accounting for the Cost of Asbestos Removal (related to the Asbestos Material Ban on manufacture, importation, processing, and distribution of asbestos-containing products that the US Environmental Protection Agency issued in 1989, effective until 1993, based on the 1976 Toxic Substances Control Act).

 

90–8: Capitalization of Costs to Treat Environmental Contamination.

 

93–5: Accounting for Environmental Liabilities. By the American Institute of Certified Public Accountants (AICPA):

 

96–1: Environmental Remediation Liabilities. As for Regulation S-X, the US Securities and Exchange Commission (SEC) demands disclosure of total potential environmental costs, and analysis and disclosure of serious effects, serious concerns, disputes, and undecided matters of administrative accountability, and anticipated trends and events in relation to environmental laws such as Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, and Superfund Act.

 

In assessing corporate activities and accomplishments in terms of social and psychological risk, pollution risk, economic risk, and benefits ascribable to financial institutions, investors and consumers, what is crucial is quantitative financial analysis — in particular, cost-performance analysis and cost-effectiveness analysis. As a reference,

Table 3 reproduces part of IBM Japan’s financial statements related to environmental issues.

 

The more solid accounting standards are, the more easily account statements of corporations, industries and even nations can be compared, which will enhance reliability. In that sense, if we are to have healthy environmental accounting, we must first establish accounting standards that are widely acceptable on a global scale. If these standards prompt disclosure of environmental activities, they will help companies improve their environmental information assessment systems, while benefiting investors and users in environmental investment management. Thus, the society as a whole will be enriched and

quality of life enhanced.

 

The Japan Environment Agency (now the Ministry of Environment) published “A Draft Guideline for Measuring and Announcing Environmental Costs” in March 1999.

 

According to this guideline, the costs of environmental conservation are classified as

follows:

(1) Direct costs for reducing environmental impacts;

(2) Indirect costs for reducing environmental impacts;

(3) Costs for reducing environmental impacts involved in usage and disposal of manufactured and distributed products;

(4) Research and development costs for reducing environmental impacts;

(5) Social costs for reducing environmental impacts;

(6) Other costs related to environmental conservation.

 

While costs are comparatively measurable, in general, it is not easy to measure benefits, effectiveness, and contribution. Commonly used concepts include savings effects, reduction effects, and opportunity costs such as cost avoidance. Even with such concepts, however, direct effects may be measured, but indirect effects or ripple effects are likely to be overlooked.

6. Conclusion

In this chapter, we first discussed environmental risks such as pollution problems, and then examined crisis management regulations for global environmental issues of global warming, ozone depletion, acid rain, forest destruction, and loss of biodiversity.

 

Following that, we reviewed the recent situation of global warming regulations, speculating briefly on the future trends, and discussed the difficulties involved in negotiating international treaties. Then, in relation to corporate responsibility in environmental issues, we focused on the three topics of reducing environmental impacts, achieving zero emissions and a thorough recycling system, and improving accounting standards for solving environmental issues.

 

Now that environmental issues have spread worldwide, crisis management needs to be on a global, macro level; yet, it must be meticulously attended to on a local, micro level too. It is hoped that crisis management for environmental issues is managed on both levels harmoniously, and that a good environmental protection system will be constructed to sustain the growth and welfare of individuals, companies, nations, and the world as a whole.

 

References

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Chiba, Mikio, Toyota Environmental Management, Kanki Shuppan, 2001.

Iguma, Hitoshi, Environmental Bankruptcy: Environmental Corporate Selection Has Begun, Nikkan Kogyo Shinbunsha, 1999.

Ishikawa, Akira and Hiroshi Furuta, “Information Systems for Environmental Accounting,” Kankyo Shinbunsha (Environment Newspaper), 2000.

Ishizaki, Chuji et al. (eds.), Crisis Management and Accounting Information, Gakubunsha, 1997.

Itokawa, Hideo, Would the Human Race Be Annihilated in the 21^st Century!?, Tokuma Shoten, 1994.

Nemoto, Kazuyasu, An Introduction to Environmental Risk Management, Hakuto Shobo, 1999.

Nishizawa, Junichi et al., Humankind Will Become Extinct in the Next Eighty Years, Toyo Keizai Shinpo, 2000.