Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH/Abt.

44

Pilot Programme for the Promotion of Environmental

Management in the Private Sector of Developing Countries
(P3U)

ISO 14001: an Indian Case Study

and General Conclusions

P3U-Working Paper No. 13e September 1998

Published by:

GTZ-Pilot Programme for the Promotion of Environmental Management

in the Private Sector of Developing Countries (P3U)
Wachsbleiche 1, 53111 Bonn
Tel.: (+49) 0228 604710 Fax: (+49) 0228 98570-18
E-mail: gtzp3u@aol.com
Homepage: http://www.gtz.de/p3u
Responsible: Dr. Edith Kürzinger (Head of GTZ-Programme P3U)
Author: Wiebke Schlömer

©P3UGTZ: Reproduction possible with authorization of P3UGTZ

Table of Contents

Abbreviations .............................................................................................................. 1

Abstract....................................................................................................................... 2

1. Introduction ............................................................................................................. 2

2. Brief introduction into an Environmental Management System according to ISO

14001....................................................................................................................... 4

3. ISO 14001: A Case Study on Indian Experiences .................................................. 6

3.1 Objectives and Methodology of the Study ......................................................... 6

3.2 Profile of the companies.................................................................................... 7

3.3 Major findings of the case study ........................................................................ 8

3.4 Conclusions from the case study..................................................................... 13

4 Lessons learned from the Case Study ................................................................... 14

4.1 ISO 14001 as a policy instrument.................................................................... 14

4.2 ISO 14001 and its suitability for SMEs ............................................................ 16

5 Conclusions and recommendations for P3U.......................................................... 19

References ............................................................................................................... 23

Annex: Questionnaire
Abbreviations

EMAS Environmental Management and Audit Scheme

EMS Environmental Management System

GTZ Deutsche Gesellschaft für Technische Zusammenarbeit GmbH

IMS Integrated Management System

P3U Pilot Programme for the Promotion of Environmental Management in

the Private Sector of Developing Countries

SIDBI Small Industry Development Bank of India

SME Small and Medium-sized Enterprises

USAID United States Agency for International Development

1
Abstract

Globalisation and the subsequent pressure to increase competitiveness as well as

the deterioration of the environment are the reasons why environmental management
systems (EMS) according to ISO 14001 are becoming increasingly popular in
developing countries. The following article presents the results of a case study on
experiences with the introduction of ISO 14001 in India. Special attention is given to
the underlying motivation to adopt ISO 14001 as well as to obstacles encountered
and economic and environmental benefits identified during implementation. Apart
from the company-level perspective towards ISO 14001, this article examines the
potential economic and ecological effects of ISO 14001 from a policy perspective and
finally discusses the applicability of this EMS to small and medium-sized enterprises
(SMEs).

1 Introduction

With regard to private sector development on the one hand and industrial pollution on
the other, entrepreneurs in developing countries are actually facing two major
defiances which require prompt and adequate action. Firstly, they have to adapt to
new market developments resulting from globalisation. Due to stronger international
business relations, trade liberalisation and, consequently, increased international and
national competition, enterprises in developing countries have to raise the economic
efficiency of their production. They also have to cope with new environment-related
standards as well as increased consumer demand in industrialised countries for
environmentally sound products. Secondly, the overall environmental degradation at
all levels demands reaction and a change of behaviour of every single actor including
those in developing countries.

The case study on Indian experiences with ISO 14001 was carried out by the supra-
regional Pilot Programme for the Promotion of Environmental Management in the
Private Sector of Developing Countries (P3U) of GTZ, the German Agency for
Technical Co-operation in collaboration with the Environment Management Division
of the Confederation of Indian Industry (CII). The P3U Pilot Programme aims at
elaborating an integrated concept for the promotion of environmental management
and at testing it by way of example in selected countries. The concept is supposed to
be demand-driven and consensus-based and expected to enhance environmentally
sound production processes and products in developing countries, thus contributing
to the prevention and reduction of negative environmental impact caused by industry.
Targeting at Small and Medium-sized Enterprises (SME), P3U currently develops
four instruments of environmental management which are expected to be implemen-
ted easily and at low cost. All P3U instruments are supposed to identify and
implement win-win measures which allow for achieving economic and environmental
benefits at the same time.

As P3U is working in the field of environmental management, the international,

certifiable environmental management system (EMS) ISO 14001 is an important topic
to – sooner or later – deal with. Due to the fact that an internationally recognised
certification can be obtained, a rising interest can be observed particularly in develo-

2
ping countries. The overall positive public attitude towards this EMS, however,
seems to be based on general, theoretical and intuitive assumptions while little
empirical analysis of experiences has been conducted so far. The suitability of ISO
14001 for developing countries has not been examined in detail and little empirical
data can be found on its applicability for SME in developing countries. Finally, there
are no quantitative data to substantiate that and to what extent ISO 14001 helps to
improve the environmental performance of the certified companies.

The major motive for P3U to undertake a study on ISO 14001, constisting of a desk
study and a case study on experiences in India1, is to figure out if, to what extent or in
which manner P3U should focus on this certifiable EMS in the second phase of its
project. Therefore, the objectives of the study are:

• to learn about the effects (costs/benefits) of ISO 14001, especially in developing

countries such as India that already counts with a considerable number of certifi-
cations;
• to determine motivational factors, major achievements and problems encountered
when implementing ISO 14001;
• to learn about the role of intermediary institutions like business associations,
chambers etc. with regard to the promotion of ISO 14001;
• to explore information on the environmental effects (improvement) of this EMS;
• to draw conclusions whether ISO 14001 could be an appropriate instrument for
SME, or for a certain type of SME respectively;
• to develop ideas about adequate approaches for the introduction of ISO 14001 in
SMEs.

This paper will give a short introduction to ISO 14001 in section 2 in order to
summarise basic information needed for the further assessment of ISO 14001.
Chapter 3, the main part of this report, presents the Indian experiences with ISO
14001. Based on the basic information on ISO 14001 and the findings of the case
study, chapters 4-6 will comment on ISO 14001 from a policy perspective, discuss its
suitability for SME and finally draw conclusions for the work of the P3U pilot
programme.

1
I am particularly grateful for the assistance of and fruitful discussions with Mr. K P Nyati, Head of the
Environment Management Division of the Confederation of Indian Industry (CII) and his colleague Mrs.
Ranjana Ganguly when conducting the case study in India.

3
2 Brief introduction into an Environmental Management System
according to ISO 14001
An environmental management system (EMS), in simple terms, is a structured
system integrated with the rest of a company’s operations. It is developed to ensure
compliance with the company’s own stated environmental policies and objectives.

ISO 14001 describes the basic requirements of an EMS, which is the standard that
companies will implement and the standard to which they will either self-declare
conformance or seek third-party registration. The basic model for this EMS includes a
five-step process:

1. Definition of an Environmental Policy

2. Planning
− Environmental aspects
− Legal and other requirements
− Objectives and targets
− Environmental management programmes
3. Implementation
− Structure and responsibility
− Training, awareness and competence
− Communications
− Environmental management system documentation
− Document control
− Operational control
− Emergency preparedness and response
4. Checking and Corrective action
− Monitoring and measurement
− Non-conformity and corrective and preventive action
− Records
− Environmental management system audit
5. Management review

The ISO 14001 standard is relatively short, the requirements are straightforward and
deceptively simple. Companies that have well-developed management systems in
place will be well along the road to complying also with ISO 14001 requirements,
while in companies with less-developed systems or rudimentary management the
implementation may take a considerable time.

The standard is supposed to be applicable to all types and sizes of organisations, i.e.
it is by no means restricted to industry. It is meant to accommodate diverse geo-
graphical, cultural and social conditions and to be successfully applied everywhere.

One key point issue that will facilitates the an understanding of theis standard is this:
the ISO 14001 standard is a process-oriented – not a performance-oriented –
standard. Consequently, it does not tell companies what type or level of
environmental performance they must achieve. Instead, it offers companies the
building blocks for a system that will help them to achieve their own goals. The basic

4
assumption is that improved environmental management will automatically lead to
improved environmental performance.

As ISO 14001 is a process-oriented standard, it implies a commitment to continuous

improvement. Notably, this continuous improvement only refers to the improvement
of the management system and not to the improvement of environmental
performance itself, which is supposed to be the indirect result of an improved EMS.

Comparison ISO 14001 and EMAS

As this study focuses on experiences with ISO 14001 in developing countries, there
is no obvious relation to the European Environmental Management and Audit
Scheme (EMAS). Since, however, this study is supposed to assess ISO 14001 and
draw conclusions for the further work of the P3U Pilot Programme, it is useful to
compare it with another EMS in order to discover and evaluated both critical and
positive aspects more easily.

There are some basic differences between EMAS and ISO 14001.

1. As EMAS is the European standard, it applies only to sites within the European
Union (EU) while ISO 14001 is applicable worldwide.

2. EMAS focuses more directly on the improvement of environmental performance

than does ISO 14001, which concentrates on establishing and improving the
EMS, while considering the improvement of environmental performance as an
implicit, but not a indispensable consequence.

3. EMAS requires the publication of a validated environmental statement and an

annual simplified statement. In contrast, ISO 14001 does not require a public
statement and simply calls on companies to consider external communication. It is
up to the company to decide what and how much information to communicate. In
addition, while EMAS requires the company to make information on its policies,
programmes and EMS system publicly available, ISO 14001 only requests the
environmental policy to be made available to the public.

4. EMAS is site-specific and relates to industrial activities only, whereas ISO 14001
applies to activities, products and services across all sectors, including non-
industrial activities such as government and other services.

5. According to EMAS, a company must adopt an environmental policy that,

implicitly, provides compliance with all regulatory requirements. With respect to
ISO 14001, the company shall define its environmental policy so that it includes
the explicit commitment to comply with relevant environmental legislation.

6. EMAS prescribes the “economically viable application of best available

technology“ (BAT), while ISO 14001 says that the organisation should consider “its
technological options“ when setting its objectives and targets.

5
3 ISO 14001: A Case Study on Indian Experiences

3.1 Objectives and Methodology of the Study

The case study on Indian experiences with ISO 14001 was carried out by the supra-
regional Pilot Programme for the Promotion of Environmental Management in the
Private Sector of Developing Countries (P3U) of GTZ, the German Agency for
Technical Co-operation in collaboration with the Environment Management Division
of the Confederation of Indian Industry (CII). The reason to undertake such a
research in India was that there already exists a comparatively large number of
companies that have either been certified according to ISO 14001 standards or are in
the process of implementation. This is to a large extent due to the proactive role of
CII’s environment division, as well as to the response of Indian firms to new
international developments.

This study does not intend to be representative in accordance with criteria of quanti-
tative statistical methods. The approach however aims at getting some qualitative
appreciation and first-hand information about practical experiences with ISO 14001 in
selected companies according to criteria such as sector, region and size. Of specific
interest were the companies’ motivation to introduce this environmental management
system (EMS), the problems which arose during the implementation process and - as
far as already known – costs and benefits, both economic and environmental. As
expected, most of the firms that have introduced ISO 14001 so far, are relatively
large, progressive and innovative. This is also reflected in the sample of companies
visited.

Notwithstandiong the fact that P3U’s target group are small and medium-sized
companies (SMEs), these large companies had to be considered in the case study,
as no smaller companies had seriously started to adopt ISO 14001 in India at the
time of the interviews. The main objective of the study therefore was to learn about
experiences with an EMS according to ISO 14001 standards in order to draw con-
clusions on whether or to what extent the findings, such as experienced benefits and
obstacles, are applicable to all sizes of companies. In the meantime CII has initiated
a pilot programme which introduces ISO 14.001 into companies of different sizes,
including a small and a medium-sized firm.

The total number of firms taken into consideration by the study was comparatively
small, i.e. 67, consisting of all ISO 14001-certified companies (32) and those in the
process of implementation (35). Considering the above mentioned criteria, as well as
aspects such as the availability of knowledgeable people at the time of the interviews
etc., a sample was proposed by CII. Out of 13 companies targeted for interviews and
visits of the factory, 11 companies were actually visited, as two appointments had
been cancelled at short notice.

Each company was personally visited by a team consisting of one person from GTZ-
P3U as interviewer and one from CII's Environment Management Division as
facilitator. Each interview was followed by a tour of the company. The interviews were
conducted according to an interview guideline which contained open as well as
closed questions and a short assessment of motives, benefits and problems in

6
connection with the introduction of IS 14001 in order to make the different answers
more comparable. The entire guideline is contained in annex 1.

3.2 Profile of the companies

With regards to sectors, the companies belonged to either the automotive, textile,
electronics, ceramics, tobacco or the services sector. Since the idea of the case
study was not to focus on one region, but to get impressions from at least three
different geographical industrial areas, companies from the Delhi, Bangalore,
Bombay and Ahmedabad region were included in the sample.

Measured according to the number of employees, the size of the companies varied:

Number of employees Number of companies

100-499 4
500-999 3
1000-4999 3
> 5000 1

With exception of the services company, the costs for materials and inputs repre-
sented the major part of the companies’ costs, amounting to 45-50% on an average
(measured as a percentage of the turnover), whereas the share of labour costs was
at an average of only 10% of the annual turnover. Therefore, a major starting point
for cost reductions could be a more efficient use of raw materials and other inputs.

The organisational and hierarchical structure of the interviewed companies is charac-

terised by the existence of various management levels including a pool of qualified,
technical personnel who in many cases is responsible for the implementation of top
management decisions.

Regarding the markets served by these companies, only three of them currently
export more than 20% of their total production, the major markets being Europe,
North and South America, Australia and the Gulf countries. For the rest, exports play
a minor role, with destinations in the neighbouring countries like Sri Lanka,
Bangladesh, Nepal and Pakistan, or no role at all.

Environmental management before the implementation of ISO 14001

Whereas all companies had already established quality management systems (QMS)
according to either ISO 9000 ff. or, in the automobile sector, QS 9000 respectively,
none of them had introduced any environmental management system before the
implementation of ISO 14001. Most of them had concentrated on pollution control,
mainly by installing treatment plants. Preventive technologies had hardly been intro-
duced in the production process. Two rather progressive enterprises had started
initiatives to reduce losses or minimise waste during the production process.

7
More than half of the companies interviewed had a person or even a division with
environmental responsibilities, often combined with a responsibility for safety issues.

3.3 Major findings of the case study

Motivation for the implementation of ISO 14001

What makes an EMS according to ISO 14001 attractive for companies and conse-
quently, why do they decide to implement this type management system is one of the
most interesting questions for policymakers and intermediary institutions.

For the interviewed enterprises, the most important aspect was to improve the
company’s image and add a “green“ component to the overall perception. The
target group to be influenced by this “green“ impression includes customers, both in
national and, what is more important, in international markets, but also governmental
institutions like the State Pollution Control Boards (SPCB) and the general public.

The second major motivational factor was the implementation of so called win-win
measures, which refer to a realisation of economic benefits through cost reductions
or increases in productivity, while simultaneously achieving ecological benefits
through a more efficient use of natural resources. Possible cost reductions or increa-
ses in productivity as well as an improved image are expected to help secure the
companies’ competitive position, mainly in export markets, and even enhance the
expansion of the market share in foreign markets in the long-term. These aspects
were primarily mentioned by the export-oriented companies. Companies focusing on
the domestic market, however, are likewise convinced to be able to secure or even
expand their competitive position in the national market due to cost reductions.

A third motivational force was that by following an EMS they were offered a very
structured, determined and comprehensive approach to address environmental
matters and, at the same time, to establish a flexible, yet certifiable management
system. By this, the enterprises can assure that all, or at least the major divisions of
the company are taken into consideration during the environmental audit and that
recommended measures do not only focus on selected, single problems but do
integrate them into a systemic approach. Subsequently, one expected result was that
the operational and administrative efficiency would be improved. Since ISO 14001
standards include the commitment to continuous improvement, the companies
appreciate starting a process which, on the one hand, offers a clear line to follow, but
on the other leaves flexibility to prioritise specific problem areas.

Fourthly, the anticipation of an increase in energy and, to a lesser extent, water

costs, and an envisaged water shortage motivated companies to start an EMS which
is supposed to assist in using these resources more efficiently. Consequently,
companies expect to be less severely exposed to such price increases or shortages
of supply than without an EMS.

Fifthly, due to pressing environmental problems, not only within India but globally,
many companies anticipate new national legislation as well as international

8
environmental standards to become tighter and stricter. By implementing ISO
14001 at an early stage, they hope to be better prepared for meeting these challen-
ges. As this EMS is designed in a flexible way and committed to continuous
improvement, it offers a large variety of possibilities for adjustment to specific
conditions which may arise in the future.

Sixthly, while in many industrialised countries the private sector is confronted with
increased pressure from the environmental movement, this has not yet become
an important factor for Indian industry so far. Hence, as no or hardly any such
pressure is experienced by the interviewed companies, it was not a driving
motivational force for the implementation of ISO 14001.

Seventhly and finally, it was discussed with all the companies whether the main
motivation was to implement an environmental management system or whether a
major incentive evolved from the certification of this EMS.
The answers to this question were rather diverse. Four companies put a strong
emphasis on the management system itself and clearly stressed the advantages and
benefits resulting from its structured, systematic approach. In addition, they pointed
out that most of the monetary benefits, such as costs reductions, resulted rather from
increased efficiency of production through the EMS than from the marketing effects of
the certificate. Three companies, however, highlighted the important marketing and
image effect of the certification and their lack of interest in an EMS which is not
certifiable. In summary, all companies agreed that the certification is at least a
valuable “by-product“ which could be understood as a “reward“ for a certain perfor-
mance or “result“ after a sometimes difficult process of implementing the EMS.

Graph 1: Major Motivational Forces for Implementing ISO 14001

V ery Im p ortant
Im p roving
C om p any Im p lem en ting
S ec u ring /
Im ag e W in -W in
S tren gth en in g
M eas ures
C om petitive
F ollowin g
P os ition A n tic ip atin g
a S tru c tu red
H igh er
A pp roac h
E nergy/W ater
Im p ortan t C os ts E xp ec tin g
a T ig hter
L egis lation

L es s Im p ortant In c reas ed
P res s ure from
"G reen G rou p s "

U n im p ortant

Source: own calculations; average values calculated on the basis of the companies’ assessment of the various
aspects with 1=very important down to 4=unimportant

9
Benefits derived from ISO 14001

Although the sample companies had either received their certification only shortly
before the interview or were still in the implementation process, some concrete
benefits had already been derived and could be named.

First, the most important benefits were monetary benefits derived from reduced
energy costs as a result of increased energy efficiency. At the same time, the EMS
had led to environmental benefits, i.e. reduced overall energy consumption. One
company reported an increase in energy efficiency of 5% during the last two years.
Apart from energy, reduced consumption of water and other raw materials was also
reported. One impressive example is the reduction of fresh water consumption by
68,7% in one company since its certification in June 1996, i.e. in less than two years.

Second, various “soft“ benefits were achieved by the companies. They reported
about improved industrial relations with either the government or with competitors
from their sector, as well as with business associations. In addition, greater
shareholder and customer confidence was observed. Most of these achievements
were supposed to result from their “pioneer status“ acquired in the field of
environmental management in India.

Third, an increase in labour productivity was observed, although not yet quanti-
fiable; this was attributed to improved work ethics and corporate identity. Since an
EMS according to ISO 14001 is based on the participation of the entire staff, it
enhances the integration of every single worker and motivates him/her feel to actively
participate in changes within the enterprise. It is, however, particularly the initiation of
this participatory process that is accompanied by problems which will be discussed
later.

Fourth, companies expected increased sales as a result of positive marketing

effects due to the certification and improved industrial relations. Nevertheless, the
interviewed Indian companies could hardly confirm or quantify this potential benefit,
as most of the companies either had not yet or had just recently been certified.

Fifth, another benefit often associated with the adoption of an EMS is that it helps to
address a trend among insurance companies to exclude certain pollution incidents
from their insurance coverage or place a surcharge on certain polices. In order to
remove or reduce increases in the insurance premiums, companies may use ISO
14001 to decrease the potential risks and the probability of environmental liabilities.
For the companies interviewed, this benefit is of no relevance at present, although it
might become an issue in future.

10
Graph 2: Major Benefits resulting from ISO 14001

V ery Im p ortan t
In c reas ed E n erg y
E f f ic ien c y L ow er
R es ou rc e
C os ts
Im p roved In d u s trial
R elation s

Im p ortan t
In c reas ed L ab ou r
P rod u c tivity

In c reas ed S ales

L es s Im p ortan t

R ed u c ed
In s u ran c e
P rem iu m s

U n im p ortan t

Source: own calculations; see Graph 1

Obstacles and constraints for the implementation of ISO 14001

Several obstacles were experienced during the introduction of the EMS. A general
problem - not only in the context of ISO 14001 - and thus an important factor for
environmental pollution of Indian industry is the lack of common disposal facilities.
This complicated the implementation of ISO 14001, as all companies that wanted to
incorporate the adequate disposal of toxic or other waste into their environmental
policy needed their own treatment plants or disposal facilities, a fact that involved
significant investment costs.

ISO 14001 standards are based on the participation and involvement of all staff
members. This, however, implies various problems. Especially in developing coun-
tries like India, there is a severe lack of environmental consciousness among
workers. Consequently, it is difficult to make them understand why they should
change some of their operations and their usual behaviour. In general, changing
behaviour can rarely be achieved within a few months, it is rather a long-term
process. At the same time, resistance to changes is often experienced and is hard to
be overcome. Moreover, if a company has a hierarchical structure, the employees at
lower levels are not used to participating in discussing changes and may therefore
not respond to ideas or suggestions in the expected way. In addition, managers may
not be sufficiently prepared to modify hierarchical behaviour and assist workers in
adequately carrying out the necessary changes.

Another constraint experienced by the Indian companies is a lack of skilled trainers

or consultants for in-house training and consultancy during the implementation
process. All interviewed companies had been assisted by CII, but apart from this
institution, there hardly seem to be other organisations or individual consultants who

11
could offer adequate support. Should the private sector’s interest in ISO 14001
should increase, there will thus be a strong need for training qualified intermediaries
and for broadening the base of private consulting services in the field of environ-
mental management.

Finally, many companies mentioned that they missed legal incentives for
environmental protection in general, such as market-based instruments, and for the
implementation of environmental management systems in particular. Possible
incentives for ISO 14001 certified companies could either be financial, or, more
important, administrative, such as the exemption from the annual control by the State
Pollution Control Board or a change to one control every two years. This would re-
duce the rather bureaucratic, time-consuming procedures of the annual surveillance.

Graph 3: Problems encountered during implementation of ISO 14001

Very Important

Lack of Common
Disposal Facilities

Lack of Env.
Important
Conscience among
Personnel Lack of Skilled
Consultants
Resistance Lack of
to Change Legal
Incentives
Less Important

Unimportant

Source: own calculations; see Graph 1

The Role of Intermediary Institutions

The role of intermediary institutions, i.e. the Confederation of Indian Industry and, in
particular, its Environment Management Division in the context of the case study,
refers to two different fields:
− Its role in motivating companies to agree to the introduction and establishment of
ISO 14001;
− Its role during the implementation process such as consultancy, training etc.

With respect to the motivation of companies, half of the interviewed companies

stressed the important role of CII in raising their awareness for ISO 14001 through
introductory seminars or workshops on environmental management. Furthermore,
one third of the companies underlined that CII was particularly helpful in motivating
and convincing the top management of the companies to introduce an EMS
according to ISO 14001. Most of the companies emphasised full top management
commitment as a precondition for the successful implementation of ISO 14001, and a

12
business association (confederation) like CII can contribute enormously to settle the
conditions for this type of activities within their member companies.

During the implementation process of ISO 14001, CII played a major role in
offering consultancy to the companies as well as in carrying out training courses for
the responsible staff. The advisory work mainly referred to the design of the
environmental policy and the EMS in general as well as to methodology and contents
of the in-house training programmes for the staff. Moreover, CII assisted in develo-
ping an adequate and realistic timetable for the individual steps of the implementation
process. As all interviewed companies had already established a quality
management system according to ISO standards, they were familiar with
documentation requirements and the rationale behind a management system in
general. Thus, they predominantly needed support in ISO 14001-specific issues.

One sample company was part of the United States Agency for International
Development (USAID) “Sustainable City Project“. While establishing ISO 14001, this
company was assisted by both USAID and CII. Notably, the company reported that
both institutions were complementary as USAID offered valuable information on the
EMS and excellent documents while CII provided the country- and company-specific
knowledge.

3.4 Conclusions from the case study

The case study on experiences with the implementation of ISO 14001 by selected
Indian companies gives valuable information on expected as well as realised benefits
on the one hand, and on problems and constraints on the other.

The major benefits were:

− For large and progressive companies the major motivational aspects are to
improve the company’s image and to strengthen the company’s competitive
position, both in the domestic and in international markets.
For all interviewed companies, the realised and potential economic and other benefits
show that the problems and costs associated with the establishment of the EMS
outweighed the effort.
− The interviewed companies, however, have not yet registered a net economic
benefit resulting from the implementation of ISO 14001. Although they reported
some economic benefits, amortisation of investments and/or other costs incurred
by the implementation had not been realised at the time of the interviews. More
and especially long-term experiences of companies will have to be evaluated to
clearly prove the cost-effectiveness of their EMS.

When more practical experience has been gathered with the EMS, it will be easier to
deal with the various problems.
− Addressing the training needs of personnel is to a large extent a long-term process
which requires adequate training methods and a more participatory management
style.

13
− The lack of skilled consultants might be mitigated once ISO 14001 becomes more
popular in India and, as a consequence, the demand for qualified external
facilitators is rising along with their qualification.
− As there is a comparatively large number of international companies and
organisations promoting ISO 14001 in developing countries already, they should
ensure the availability of the required know-how and expertise in India, if
requested enen on a short-term basis.
− Training of local consultants and thus the formation of multipliers needs to be
intensified and supported by national as well as international organisations.

With respect to intermediary institutions, the important role of CII in promoting and
establishing ISO 14001 as well as addressing the respective problems was con-
firmed. Particularly at this early stage of environmental management in developing
countries, the work of institutions like CII on EMS is crucial.

The following two chapters contain further conclusions and recommendations

resulting from the case study. These mainly refer to a policy perspective and to the
question of whether and to what extent ISO 14001 is suitable for SMEs.

4 Lessons learned from the Case Study

The results of the Indian case study lead to the question of what lessons can be
learned about ISO 14001. The first part of this chapter will discuss some ideas that
may be of interest to policymakers and intermediary institutions working in the field of
either environmental policy or private sector development. The second part will
analyse the question of whether and to what extent ISO 14001 might be a suitable
and applicable EMS for SMEs in developing countries.

4.1 ISO 14001 as a policy instrument

1. ISO 14001 may not necessarily improve the overall environmental situation.

ISO 14001 encompasses the objective of promoting or supporting an instrument

which helps to improve the environmental performance and competitiveness of the
private sector. By promoting the EMS, one aims at improving the overall
environmental performance of companies, thus contributing to the reduction of
industrial pollution.

In order to understand the ISO 14001 standard it is important to note that it is a

process-oriented – not a performance-oriented – standard. Consequently, it does not
prescribe any specific environmental performance to companies. Due to its focus on
the process and the development of the EM system, companies have a certain
freedom to prioritise some activities while postponing others. Hence, a company's

14
environmental priorities may differ from priority areas and activities as seen from an
environmental policy’s perspective.

In addition, as ISO 14001 is a process-oriented standard, it implies a commitment to

continuous improvement. This continuous improvement, however, refers to the
improvement of the environmental management system, not necessarily to the
improvement of the environmental performance as such, which is supposed to be the
result of an effective EMS. Thus, an improved environmental performance could be
interpreted as a nice side-effect: if it does not happen,, it does not impede the
(renewal of the) certification as long as an improvement in the management system
has been achieved.

2. Legal incentives for ISO 14001 may have a counterproductive effect by

enhancing rent-seeking behaviour.

Some interviewed companies proposed the introduction of legal incentives such as

tax reductions, subsidies for technology or exemption from the annual surveillance by
the State Pollution Control Boards for the introduction of an EMS according to ISO
14001 standards. From the perspective of environmental policy, such legal incentives
must be carefully considered: they might have a counterproductive effect, i.e. in
particular a loss of control since the certification is conducted by private consultants
and not by the government.

In order to receive the benefits from such incentives, companies’ interest in voluntary
application of environmental management, especially of certifiable systems, might
increase. The reason for such a rising interest, however, would not be that the com-
panies recognise the importance of environmental management and the objective of
improved environmental performance. Their intention would only be to benefit from
legal incentives through certification as such. Therefore, there is a danger that public
incentives for the adoption of these voluntary schemes at company level might lead
to a rent-seeking behaviour, i.e. an inefficient use of scarce resources to take
advantage of artificial, non market-induced privileges. This behaviour might either not
contribute to the improvement of the industry’s environmental performance or, if it
does, it would lead to an improvement which is below the level that could be
achieved without incentives, i.e. to a sub-optimal solution.

3. A reliable, impartial accreditation system and qualified, external certifiers of

integrity are needed to avoid “inflationary“ tendencies with a certifiable
EMS.

With respect to rent-seeking behaviour, companies would try to invest resources only
to receive the certificate of ISO 14001, mostly without establishing an effective EMS.
Theoretically, this should not be possible due to external certification. But since
corruption does exist in the real world, such rent-seeking activities are likely to
happen. Even if there are no legal incentives to re-enforce the interest in ISO 14001,
it is important to count on a reliable, impartial accreditation system for certifiers. As
experiences with the quality management system according to the ISO 9000 series in
India have shown (as reported in the interviews), the interest in such a certified
15
management system just for its own sake - and not for the economic and ecological
benefits of a functioning system - is increasing rapidly once the economic benefits
resulting from the mere certificate are clear. If the certifying agencies are primarily
profit-oriented, the certification process may easily not be conducted as carefully as it
should. As a consequence of this tendency, the value of a certification according to
ISO 9000 has deteriorated considerably in India.

In order to prevent such inflationary tendencies with an EMS following the ISO 14001
standards, it is important to carefully examine and (re)design the accreditation
responsibilities and procedures. Each country needs to have a reliable accreditation
authority or council staffed with trustworthy and competent environmental personnel,
capable of assessing the quality of expertise and personnel of certification agencies
required to undertake serious environmental certification. In India as well as in many
other countries, there is a great danger that an EMS loses its value sooner or later
due to inadequately set incentives which provoke rent-seeking activities. Such a
situation may also reduce the possibilities for local consultants to successfully
compete with foreign consultants, who may be considered more reliable and effective
by exporters or foreign clients.

4. Command-and-control regulations, market-based instruments and voluntary

environmental management schemes need to be complementary.

Legal incentives may help to promote the establishment of EMS in the private sector
and may contribute to an improvement of the environmental performance of industry.
However, such incentives should only be adopted if the system, into which they are
to be integrated, can prevent misuse. All in all, voluntary environmental management
schemes, command-and-control regulations and market-based instruments need to
be complementary. Voluntary schemes should remain as independent and voluntary
as possible, since they represent a chance to mobilise the entrepreneurs’ own
interest in a good environmental performance beyond compliance, and to stimulate
their permanent commitment to a process of continuous improvement of economic
and environmental performance.

4.2 ISO 14001 and its suitability for SMEs

Although SMEs are very often referred to as a specific type of enterprise, it should be
taken into consideration that it is a very heterogeneous group, encompassing all
kinds of size, owners, sectors as well as traditional and export-oriented firms. As it is
very difficult to draw conclusions for SMEs in general, the following considerations
are based on the results of the Indian case study and some general reflections on
SMEs, whose specific problems and constraints have to be taken into account in
order to assess ISO 14001’s suitability for environmental management in SMEs.

1. The costs of the EMS, particularly the consultancy and certification fees,
may be prohibitive for SMEs.

16
When asking about problems and obstacles, none of the companies in the case
study considered financial aspects or the costs of ISO 14001 as a problem. However,
various costs are connected with the implementation of the ISO standard, like
consultancy fees and the certification itself.
These costs may be prohibitive for SMEs, particularly if the rate of return cannot
clearly be quantified and if financial incentives for the establishment of the EMS are
not available. Proposed investments and needs for changes identified during the
environmental audit, however, may not necessarily imply costly investments. Very
often, the audit suggests a reorganisation of operations, low-cost adjustments in the
technical production process or simply a more careful use of resources in order to
increase efficiency. This is especially true for SMEs, who often have not (fully) tapped
the no-cost/low-cost options to improve productivity and resource use. If, however,
larger investments are implied, loans are hardly available from financial institutions,.
thus turning the scarcity of financial resources into a major problem for SMEs.

2. The availability of and access to technology may cause severe problems for
SMEs.

This aspect likewise was not mentioned as a problem by the interviewed companies,
but it is likely to impose restrictions to SMEs. If a company intends to make invest-
ments as a result of the EMS, the lack of knowledge about state-of-the-art technology
in the domestic market as well as the restricted access to information about imported
technologies may be a problem. In addition, the costs for imported technologies may
not be affordable for SMEs, particularly as long as import tariffs do exist.

3. The time horizon of SMEs may be too short for a mid-/long-term and time-
consuming EMS like ISO 14001.

The time horizon of SMEs normally is rather limited. They are not used to or cannot
afford to plan within a long-term dimension since their primary objective and need is
to survive actual market pressures. The establishment of ISO 14001 standards, how-
ever, is a rather time-consuming process which may only pay off in the mid or long-
term. The case study stated an average time for the implementation (from the
decision to establish the EMS up to its certification) of about one to one and a half
years. This might be less for smaller units, but still it only refers to the time required to
implement the EMS. Benefits, particularly net monetary benefits are unlikely to be
achieved during this period, which is a major obstacle for SMEs.

4. The documentation requirements may be too comprehensive for SMEs,

requiring too much personnel and knowledge.

The implementation of ISO 14001 requires a comprehensive, detailed and

continuous documentation of all activities undertaken and results achieved. None of
the interviewed (larger) companies considered this a major obstacle, primarily
because all of them had already established a documentation system when
introducing the ISO 9000 series. Notably, they all admitted that at that time the

17
development of the documentation involved many problems and delayed the
certification since the building of a documentation system and its continuous updating
were time-, personnel- and knowledge-intensive procedures.

This aspect might therefore imply enormous problems for SMEs and might even
prevent them from introducing ISO 14001. Still, once a tailor-made, lean and effective
documentation is established, it may help them in more easily detecting inefficiencies
due to increased transparency and information.

5. The implementation of an environmental management system according to

ISO 14001 may be too complex for SMEs, although a systematic approach
may help them to reduce inefficiencies.

ISO 14001 is an environmental management system. It might be difficult for smaller

enterprises to understand the complexity of the approach and the various dimensions
comprised by a management system. Although SMEs do manage their company
according to some “system“, often they are not aware of the underlying rationale and
have not questioned it so far. In addition, the typical, strictly hierarchical set-up of
small enterprises with one owner/manager who is taking all decisions on one hand,
and a pool of unskilled workers on the other, may cause major problems with regard
to increased participation and active involvement of everybody concerned. Changing
this attitude can be a real challenge for SMEs, both for the owner/manager and the
workers, and will consequently require some time.

Some comparative advantages of SMEs should, however, be considered: If there is a

basic commitment to the introduction of an EMS by the owner, there are less
possibilities for middle management or workers to oppose or undermine action. In
SMEs it is relatively easy to generate consensus and disseminate information within
the factory – whereas these activities absorb a lot of energy in larger enterprises. All
in all, a systematic approach to deal with productivity and environmental problems
and to get a general perception about an effective management system can be
particularly helpful for SMEs. Inefficiencies can be eliminated by considering every
single operation more systematically and by establishing measures accordingly.

6. The commitment to continuous improvement may encourage SMEs to

address environmental matters due to the self-imposed timetable.

The commitment to continuous improvement prescribed by ISO 14001, i.e. the

starting of a process, allows SMEs to take some time for certain actions, setting goals
according to their own capacities, particularly if there are many different areas where
improvement can be achieved. The introduction of the EMS helps to raise awareness
for environmental as well as organisational/managerial and productivity issues which
are supposed to be crucial for the survival and development of SMEs. Furthermore,
certification can be a strong motivational force for modern SMEs, as it is a reward for
their commitment and their willingness to adopt changes.

18
5 Conclusions and recommendations for P3U

1. Environmental management tools

ISO 14001 may be a useful environmental management tool for well-established,

mainly medium-sized enterprises whose organisational, financial and personnel
structure is able to quickly take advantage of the benefits ISO 14001 offers, and
which can cope with its costs in terms of time and money.

Furthermore, specific sectors seem to favour an EMS according to international

standards such as ISO, and it may in the long run be expected from all companies
within these sectors. Thus SMEs, and particularly SMEs that are exporting or
supplying exporters in developing countries, will have to follow this trend in order to
remain in the business.

Nevertheless, rather than encouraging strategically ambitious environmental planning

in SMEs, environmental management tools for SMEs have to focus on successfully
dealing with day-to-day operations and quick positive economic results. The predomi-
nant aim of environmental management for SMEs is to save energy and other
resources, reuse and recycle waste, improve its management, and to start a
continuous learning process in the firm, possibly supported by improved information
and co-operation within and among SMEs.

These objectives might be more effectively – i.e. less costly, but faster - achieved by
instruments which are less complex than ISO 14001. Such instruments could include
an EMS without certification, a simple environmental audit focusing on Good House-
keeping (GHK) measures, Environmental Cost Management (ECM) or an Integrated
Management System (IMS) which combines selected core aspects of environmental
and quality management as well as work place safety, tools developed or adapted by
P3U2. For SMEs, tools should be designed in such a way that certification is possible
in the long run, but that positive short-term results, especially economic benefits, can
be achieved without too much effort and time. When adopting instruments for
environmental improvement, it is of crucial importance for SMEs that they enable
them to reduce production costs and improve product quality, and that economic
benefits are realised as quickly as possible.

The experiences made in India with an EMS according to ISO 14001 give valuable
information for P3U, as they show that it should not concentrate its activities on this
EMS due to several reasons:.
• First, only a sub-group of SMEs, notably the more advanced, probably medium-
sized enterprises working in the modern, export-oriented sectors, may benefit
from applying the complex and time-consuming ISO 14001 standards. Thus, it
seems more advisable that P3U continues to focus on less comprehensive and
easier to-implement instruments. As a potential certification may also encourage
smaller companies to address environmental issues, a modular approach seems
to be most adequate. It should allow the combination of different instruments
which are immediately beneficial and should help to prepare the way for the

2
P3U Working Papers No. 9e (1998) and 10e (1998), P3U Document on Integrated Management
System (1998)

19
 application of more complex instruments, including certification, in the long run.
For example, the development of a non-certifiable Integrated Management
System (see above) involves the establishment of a comprehensive management
system. Such a system may present a basis which could later facilitate an
upgrading to an EMS according to ISO 14001.

• Second, an important objective and factor for the success of P3U is to achieve
broad dissemination of its methodological approach and instruments. As ISO
14001 is a rather time-consuming and complex approach with long-term benefits,
it seems unlikely that it will be widely diffused among SMEs. As the case of India
shows, CII has been actively promoting ISO 14001 on the Indian subcontinent
since the second half of 1996. Some 20 months later, about 65-70 companies, all
of them large ones, either have been certified or are in the implementation
process.

• Third, many international and national, private as well as development assistance

agencies are already active in the promotion and establishment of ISO 14001,
especially through classical seminars and consultancies. Therefore, P3U may do
better continuing to invest its (scarce) resources in developing and practically
implementing instruments which (still) are less popular in public but possibly more
suitable and beneficial for SMEs in developing countries (and probably also
industrialised ones). New findings and practical experiences on ISO 14001
should, however, be continuously observed and analysed and – as far as possible
– integrated into the methodological approach of P3U.

2. The role of intermediary institutions

The case study in India clearly underlined the importance of an intermediary

institution, in this case the Confederation of Indian Industry, for the promotion of ISO
14001. Business associations, chambers and other intermediary institutions,
including banks, play a major role in disseminating information on and supporting not
only an EMS according to ISO 14001, but the various approaches to environmental
management. These institutions are valuable multipliers and can convincingly
demonstrate the necessity of an effective environmental management which leads to
both economic and environmental benefits. Their work on EMS is particularly
important in this early stage of environmental management in developing countries.
Furthermore, like CII has started in India, these institutions need to initiate and
facilitate co-operation among enterprises, not only with regard to ISO 14001, but to
non-certifiable instruments as well.

P3U should continue and enhance contacts and co-operation with intermediary
institutions, since they are closely linked to the target group, know about their specific
needs and interests, and can influence them either because they provide services to
their members (like chambers, associations or confederations) or because of their
business interests (like financial institutions and insurance companies). In particular,
an emphasis on the activities of financial institutions may be recommended in order
to better approach these potential multipliers (see: 4. Open questions, Follow-up)

20
3. Group-centred approaches

Due to the existing problems discussed in chapter 4, there is a clear need for external
support to SMEs when implementing ISO 14001 or other environmental management
tools. A possibility to cope with problems like scarce finances, restricted availability of
information etc. could be group-centred approaches which enhance and facilitate
collaboration among SMEs. Potential objectives for co-operation could include
shared access to information, exchange of experiences, co-operation on know-how
and technology. The co-operation is likely to , bring down costs for external
consultancy, improve collaboration with regard to the reuse, recycling and general
management of waste as well as to joint training and collective lobbying. Major
benefits resulting from such group-centred approaches are the exchange of
experiences, lower costs due to “economies of scale“, and probably an increased
motivation to follow the process of continuous improvement, as the participating
companies understand that they are not alone with their problems. Such joint
learning processes may greatly facilitate the broader dissemination of environmental
management amongs SMEs.

P3U has already gained comprehensive information about successful group-centred

approaches in Brazil3 and to a lesser extent in India4. This group-centred approach
can be combined with each and every one of the instruments developed by P3U, as
it offers many advantages for SMEs.

4. Open questions – Follow-up

The Indian case study on the introduction of an environmental management system

according to ISO 14001 brought some useful empirical information for general re-
flections on the pros and cons of this EMS and its suitability for SMEs. For P3U,
some questions might have remained unanswered, and certain activities could be
considered for the follow-up.

• Regarding group-centred approaches and the integration of smaller companies

into the promotion of ISO 14001: CII has recently adopted a “sector approach“,
launched in the pulp and paper, textiles and automobiles/automotive components
sectors. This approach, which is supported by USAID, is meant to assist one
small, medium and large company respectively in each sector to design and
implement an EMS and become certified according to ISO 14001. P3U should
closely follow the results and experiences of this approach in order to complete its
knowledge on the specific needs of different company sizes.

• Regarding intermediary institutions: the focus on financial institutions could be

strengthened since these are in close contact with and have detailed information
on their customers. With respect to ISO 14001, it could be interesting to carry out
a survey about how development banks/financial institutions assess ISO 14001
and, which “value“ it has in their perspective.

3
P3U Working Papers No. 7e (1997) and 16e (1998)
4
van Berkel (1997)

21
• Furthermore, it might be helpful to examine existing financial support schemes for
the introduction of ISO 14001 or – if not yet available – ISO 9000 in order to learn
about their effectiveness and to find out whether they could be useful for the
dissemination of other instruments of environmental management. One example
is a support scheme for ISO 9000 offered by the Small Industry Development
Bank of India (SIDBI) which reported little interest among companies, and
therefore does not consider any initiatives regarding ISO 14001. The results of an
analysis of success factors of such schemes could be offered to intermediary
institutions or the respective public institutions in order to influence the design of
future schemes.

22
References

Dyllick, Thomas (1995), “Die EU-Verordnung zum Umweltmanagement und zur

Umweltprüfung (EMAS-Verordnung) im Vergleich mit der geplanten ISO-Norm
14001. Eine Beurteilung aus Sicht der Managementlehre“, in: Zeitschrift für
Umweltpolitik und Umweltrecht, Vol. 18, No. 3, P. 299-339.

European Environment Bureau (1995), “ ISO 14001 – An Uncommon Perspective“,

Paper presented at the seminar “Free Trade and Environment: Co-operation between
NGOs of EU and Third Countries, an International Workshop“, 26-28 October,
Brussels.

GTZ-P3U (1997), "Schlüsseldokumente zum Thema Umweltorientierte Unter-

nehmensführung", Working Paper No. 2, Bonn.

GTZ-P3U (1997), "Leitfäden zum Umweltmanagement" vol. 1 , Working Paper No. 4,

Bonn
GTZ-P3U (1997), "ISO 9000, ISO 14001, EMAS: Inhalte, Vor- und Nachteile,
mögliche Synergien", Working Paper No. 5, Bonn.

GTZ-P3U (1997), "Inter-Firm Cooperation in Environmental Management:

Experience from Santa Catarina/Brazil", Working Paper No. 7e, Bonn.

GTZ-P3U (1998), "Good Housekeeping Guide for Small- and Medium-sized

Enterprises", Working Paper No. 9e, Bonn.

GTZ-P3U (1998), "Case Study Environmental cost Management at Cairns Food Ltd.,
Harare", Working Paper No. 10e, Bonn.

GTZ-P3U (1998), "Leitfäden zum Umweltmanagement", vol. 2, Working Paper No.

14, Bonn.

GTZ-P3U (1998), "Group-centered approaches to the diffusion of eco-efficient

production practices: experiences from Brazil", Working Paper No. 16e, Bonn.

GTZ-P3U (1998), "Training Module on Company-based Resource Management for

SME (CEFE Methodology)", Working Paper No. 17e, Bonn.

International Standard Organisation, ISO (1995), “Environmental management

systems – Specification with guidance for Use“, Geneva.

OECD (1997), “Cleaner Production and Waste Minimisation in OECD and Dynamic
Non-member Economies“, Paris.

Tibor, Tom; Feldman, Ira (1996).´, “ISO 14000 – A guide to the New Environmental
Management Standards“, Chicago.

UNDP (1996), “ISO 14000 – Environmental Management Standards and Implications

for Exporters to Developed Markets“, New York.

23