Business Strategy and the Environment, Vol.

5, 69-80 (1996)

DEFINING ENVIRONMENTAL PERFORMANCE INDICATORS: AN INTEGRATED FRAMEWORK

Giovanni Azzone and Giuliano Noci, Department of Economics and Production, Politecnico di Milano, Milan, Italy; Raffaella Manzini, LIUC, Castellanza, Varese, Italy; and Richard Welford and C. William Young, Centre for Corporate Environmental Management at the University of Huddersfield, Huddersfield, UK

Environmental performance indicators are becoming increasingly important at the company level. This is due, in part, to stakeholders demanding environmental improvements and proof that these have been made. The need for an integrated framework for environmental performance indicators is considered; the indicators fall into four categories: the state of the environment; corporate environmental policy; environmental management systems; and the products and processes of the company as evaluated by an ecobalance improvement. The state of the environment evaluates the companys relative contribution to the national and European environmental impact and hence the companies own impact compared with the reference document Europes Environment: Statistical Compendium for the Dobris Assessment. Corporate environmental policy is the basis of the framework and 21 key aims are suggested to ensure that comprehensive statements are produced and that all significant environmental initiatives undertaken by the company receive
CCC 0964-4733/96/020069-12 0 1996 by John Wiley and Sons, Ltd and ERP Environment.

recognition. The environmental management system indicators are divided into qualitative and quantitative economic indicators and quantitative non-economic indicators to evaluate environmental performance. The ecobalance tool is used to evaluate the environmental performance of the companys products and processes.
INTRODUCTION
ompanies are constantly facing competitive challenges: low cost was the most competitive priority of the 1960s, flexibility became the strategic weapon of the 1970s whereas the implementation of total quality management based programmes was perceived to be the most effective managerial solution for achieving good performance in the 1980s (Azzone and Noci, in press). At the beginning of the 1990s corporations considered their environmental performance and, in particular, the reduction of their impact on the state of the environment by the implementation of environmental efficiency programmes (Bloom and Scott Morton, 1991; Welford and Gouldson, 1993; Clark et al., 1994; Walley and Whitehead, 1994; Welford, 1995). Companies growing concern about environmental issues is due mainly to pressures exerted by regulators and public opinion and this has forced corporations to improve their environmental performance (Bartolomeo, 1995). In fact, some

BUSINESS STRATEGY AND THE ENVIRONMENT

DEFINING ENVIRONMENTAL PERFORMANCE INDICATORS

companies have integrated green issues into their overall process of strategy formation (Miiller and Koechlin, 1992; Roome, 1992) and have published environmental reports with the aim of providing supporting information for stakeholders (Gray and Stone, 1994; Gray et al., 1995). In some sectors, depending on the level of environmental risk attributed to their key activities, some companies acted well before the 1990s, whereas in others activity is still sporadic. For example, companies operating in the chemical industry have, under heavy pressures from environmental groups and local communities, compiled environmental reports for a number of years, whereas firms in the automotive or electronic industries have only recently begun to report their impact on the environment. In spite of the growing demand from the public, regulators and pressure groups for information on companies environmental performance, there are few studies that have systematically defined the type of information and measures that are needed to make an objective assessment of a companys environmental policies and performance. The objective of this paper is to rectify this and to define an integrated framework for environmental performance indicators, aimed at supporting managers in the design of effective environmental reports. The paper is divided into three major sections. The first briefly describes the motivations that have induced companies to compile public documents reporting their environmental performance and the limitations that can be identified in an analysis of the structure of the current environmental reports. The second section defines a conceptual framework aimed at describing the main aspects that an environmental report should consider and the overall structure and context of such a document. Finally, the paper concludes with some remarks and recommendations.

THE COMPANY ENVIRONMENTAL REPORT: A CRITICAL EXAMINATION OF CURRENT PRACTICES

Environmental groups, local communities, employees, shareholders,banks, insurers and customers are exerting pressures on companies to push them to improve their environmental performance in relation to production processes, products and logistics (Welford and Gouldson, 1993; Azzone and Berteli., 1994; Porter and van der Linde, 1995). Thus many companies have decided to adopt the environmental report as a communication tool aimed at strengthening relationships with stakeholders (Adams, 1992; Ing, 1992; Roberts, 1992). The environmental report can be considered as a technical document that points out how the
70

company contributes to the degradation and/ or conservation of the state of the environment and describes the most important links between a company and the environment (Johnson and Bullock, 1995). Documents published by companies and studies carried out by researchers suggest that the report is made up of two parts: a commentary which contains mostly qualitative information and a quantitative assessment of the effects on the environment (Blaza, 1992). The environmental report is therefore produced to allow the company to establish a dialogue with its stakeholders and to serve as an internal document for the company to provide a tool for internal communication to emphasize the importance of each employees contribution to environmental protection. Given these broad objectives, we can identify some limitations of environmental reports and associated technical documents. The most significant problems are related to the lack of clarity of the report and to the limited usefulness of the document to the reader. In particular, environmental reports are too often attempts at green marketing, containing statistics which can be confusing and are presented in a self-congratulating manner. Independent third-party verification is relatively rare and real stakeholder involvement in defining the content is even rarer. Such limitations, in our opinion, emerge for two main reasons. (i) The intrinsic complexity associated with environmental issues means it is difficult to understand all the feasible actions available to a firm for reducing its impact on the environment. Such complexity makes it difficult to accurately assess the real environmental performance achievements made by the firm. Indeed, the effects of the companys processes and products on the ecosystem can be expressed only by referring to a number of non-compliance measures (e.g. pollutants, solid wastes, energy consumption and waste water) requiring distinct measurement units. Underlying the choice of measures will be a set of values about the most significant environmental impact; these values are rarely revealed to the readers. (ii) There is a lack of clarity in defining how information should be structured and presented in relation to different stakeholders requirements. Little work has been carried out on synthesizing the information into a clear conclusion which enables stakeholders to make judgements on a companys overall record.

FRAMEWORK FOR ENVIRONMENTAL PERFORMANCE INDICATORS

The preceding discussion suggests that frameworks introduced by firms to establish a dialogue with
~~~

BUSINESS STRATEGY AND THE ENVIRONMENT

G. AZZONE ET AL. external stakeholders present problems because of the complexity associated with the measurement of the companys environmental performance and the need for an accessible and balanced environmental report. For this reason, our aim is to identify an integrated model which, starting with the identification of the key environment-related factors to be included in the report, defines how environmental performance can be expressed and how distinct measures can be aggregated to achieve a more complete picture. Defining the Set of Environment-Related Factors to be Included in the Report We start by defining a hierarchical framework identifying the key factors in characterizing the companys green strategies and programmes and how they affect the ecosystem and the state of natural resources (see Figure 1).Initially, we need a clear definition of the companys environmental aims. In this perspective, the starting point of the reporting procedure must be the characterizationof corporate environmental policy, which allows us to describe the current environmental programmes and to make forecasts about the impact on the environment. Indeed, such forecasts represent the baseline for an assessment of any improvement in the companys environmental performance; they define the environmental objectives and determine the principles that must guide operational and management activities. At a second level, the reporting procedure should describe: (i) the corporate effect on the state of the environment to assess how the companys operating procedures and its processes affect the ecosystem; and (ii) the main effects of the intended green strategy on a firms management processes and its production process. More precisely, indicators expressing how the firm is contributing to the conservation/destruction of natural resources (effect on the state of the environment) allow us to both verify the internal consistency of the intended green strategy and to define the level of environmental risk associated with the firms plants. These indicators will be related to national and international state of the environment data so that companies can be benchmarked against each other and their contribution to national and European environmental problems quantified. The set of reference indicators chosen is Europes

Environment: Statistical Compendium for the Dobris;

this shows the companys contribution to major environmental problems such as global warming, its impact on depletion of the ozone layer, eutrophication, etc. With respect to the internal effects of a specific green strategy, we consider evidence that the corporate environmental policy should affect the environmental management system (EMS) implemented by the company, the definition of project specifications and of the environmental performances of the product and the environmental impact of production processes. The corporate EMS could provide interesting information for some stakeholders by: (i) characterizing the relative importance of environmental issues within the companys strategic management; (ii) demonstrating the continuous engagement of environmental issues in the long term; and (iii) evaluating the firms capacity to control environmental risk through the management of operational systems that monitor the environmental impact of its activities. According to this framework, a complete characterization, suitable for external communication, of the companys EMS must point out: (i) the relevance of the environmental issues within the corporate managerial system by describing the level of commitment of its financial and human resources and of the corporate departments for improving environmental performance; (ii) the type of initiatives adopted by the company to reduce its impact on the state of natural resources resulting from its products and processes; (iii) compliance with
71

Emissions, Waste, Enu&v & Trqonrtioo

Stnte of the Environment

7
Environmental Policy
1
I

f
4
Stakeholders
Stock

Figure 1. Structure of the integrated framework.

BUSINESS STRATEGY AND THE ENVIRONMENT

DEFINING ENVIRONMENTAL PERFORMANCE INDICATORS

environmental legislation; (iv) the type of relationships with other firms - for example, programmes jointly developed with suppliers could be useful information for some stakeholders to evaluate the companys future capacity to improve its environmental performance by introducing new components that can be recycled; and (v) stakeholders satisfaction and relations, such as the interaction of the company with stakeholders in major decisions which affect the environment and stakeholders. The identification of the environmental impact associated with the products produced by the company is one of the most important topics to be included in the environmental report. Although companies are not yet legally responsible in Europe except for the effect of the packaging of their products, there is increasing concern about corporate liabilities due to product use and disposal. The characterization of the overall environmental impact associated with the companys production processes also requires meaningful reporting which should indicate evidence for the main environmental characteristics of the technologies adopted by the company and how the production process itself affects the ecosystem. The ecobalance analysis encompasses the evaluation of the environmental impact of both the products and the production processes and hence this management tool will be used to produce relevant performance indicators. Ecobalance analysis in many aspects is similar to the concept of environmental auditing and incorporates aspects of product life cycle (cradle to grave) assessment. The ecobalance refers to a structured method for reporting the physical inflows and outflows of resources, raw materials, energy, products and wastes occurring in a particular organization during a specified period of time. It is constructed from three main components: the company balance, the process balance and the product balance (White and Wagner, 1994): the company balance encompasses all the energy and materials going into and out of the entire company over the course of one year; the process balance provides an overview of the resources and energy used in specific production processes; and the product balance is prepared to assist management in determining the environmental impact of particular product lines. Together, these three balances make up a companys ecobalance. Data in an ecobalance are collected and reported using an input-stock-outputs scheme specifying the major areas of interest or of significant environmental impact - for example, air emissions and energy use, The scheme analyses all materials entering the company, currently in stock or holdings and leaving the company in various forms. A multitude
72

of physical units is used, increasing flexibility and speeding implementation. In all probability it will prove impossible to collect data for some measures - for example, air inputs and noise - as their presence on the balance sheet serves as a useful reminder of areas for improvement (White and Wagner, 1994). Seven major categories of inputs and the corresponding stock and outputs are shown in Table 1.

Identifying the Metrics for Describing Environmental Performance

We have suggested that indicators for the key factors to be included in an environmental report can be expressed by referring to different measurement units depending on the main objective of the technical document. To be precise, we can distinguish two indicators. Firstly, there are factors, such as those related to the identification of the corporate environmental policy, that can be characterized only by introducing qualitative indicators expressing the managers overall judgements on the companys strategic orientation and long-term oriented plans. Secondly, there are factors such as the technological efficiency of the production processes that can be expressed according to a wide set of indicators according to the type of stakeholder the report is addressing. From a general viewpoint, the factors can be operationalized by referring to indexes expressed in physical, quantitative economic and qualitative terms. Physical indexes are measures that can be expressed along a quantitative scale, but do not refer to any economic based parameter (Azzone and Noci, in press). Hence indicators pointing out, for example, air emissions, solid wastes, energy consumption and waste water resulting from production process can be considered within this category (Kruwet et al., 1995). Quantitativeeconomic measures refer to indexes that can be operationalized in monetary units, thus indicators pointing out environmental operating
Table 1:Major categories of the ecobalance. Inputs Land Buildings Plant and equipment Product-related goods Energy Water Air Stock Land Buildings Plant and equipment Product-related goods output Land and contaminated land Buildings Plant and equipment Products and solid waste Energy emissions Waste water Air emissions

BUSINESS STRATEGY AND THE ENVIRONMENT

G. AZZONE ET AL.

costs that the fr must bear to ensure the working of im clean technologies belong to this group of measures. Finally, qualitative measures describe intangible items or difficult to quantrfy variables such as the characterizationof the type of environmental strategy carried by the company, e.g. a reactive or a proactive strategy (Steger, 1993; Wook and Green, 1994).Hence according to these metrics, it may be possible to characterize in more detail all the feasible indexes/ indicators that allow managers to operationalize the key variables identified in the integrated framework Characterization of Corporate Environmental Policy Corporate environmental policy can be described in qualitative terms. A common approach to developing an environmental policy will ensure that comprehensive statements are produced and that all environmental initiatives undertaken by the organization receive recognition. A checklist of 21 issues to be included in the corporate environmental policy as discussed by Brophy (1995) is shown in Table 2. Even if organizations are not currently active in all areas at once, a comprehensive statement needs to be produced and companies should at least identify their policies for each of the basic environmental issues. If this is not undertaken, then companies working through environmental programmes may find it difficult to benchmark their environmental performance over time.

Describing the Effect on the State of the Environment The effect on the state of the environment is defined by quantitative indexes evaluating the result of loads placed on the environment by a companys full range of activities. The company does not need to measure its direct effect on the environment, but by measuring their releases to the environment at the facility boundary companies can estimate their relative contribution to the national and European environmental impact. The environmental performance framework state of the environment section is compared with Europes Environment: Statistical Compendium for the Dobris Assessment, which is compiled jointly by: Eurostat, the European Commission; the European Environment Agency Task Force; the DG XI and PHARE European Commission; the United Nations Economic Commission for Europe; the Organization for Economic Co-operation Development; and the World Health Organisation. The areas which are comparable with company level are: emissions; waste; energy; and transportation. Indicators used to measure the contribution of these issues to the global environmental performance of the state of the environment are expressed as quantitative, noneconomic indicators focused on the measurement of physical data (Table 3). Presenting the Corporate EMS The effective characterizetion of the corporate EMS requires the introduction of both quantitative and qualitative indicators because there will be a wide range of stakeholders to whom the technical document is addressed. Indeed, referring, for example, to the identification of the relevance attributed by the company to environmental issues, we can suggest physical measures describing the number of employees involved in programmes for the improvement of corporate environmental performance and qualitative indicators expressing the type of green competencies available within the firms human resources. With respect to items related to the identification of stakeholders satisfaction, we need to design mainly quantitative indicators describing the number of complaints from local communities due to the low environmental performance of the firms plants and/or customers because of the high environmental impact associated with the sold product. In contrast, to operationally characterize the type of relationships between the company and its stakeholders, in particular those belonging to the supply chain, we have to refer to only qualitative items describing, through managers verbal judgements, whether, for instance, the firm has achieved
73

Table 2: Defined indicators aimed at characterizing corporate environmental policy (Brophy, 1995).
~~~ ~

1 Waste minimization 2 Legislative compliance 3 Assessment of environmental performance 4 Energy efficient 5 Shared responsibility 6 Minimized impacts on the environment 7 Environmental training 8 Targets and objectives set 9 Liaison with local community 10 Public disclosure 11 Transport 12 Beyond minimum compliance 13 Sustainable development 14 Habitat conservation 15 Research and development 16 LCA 17 BS 7750 and EMAS 18 World-wide standard 19 Compensation for environmental damage 20 Reduce consumption of non-renewable resources 21 Liability on environmental issues

BUSINESS STRATEGY AND THE ENVIRONMENT

DEFINING ENVIRONMENTAL PERFORMANCE INDICATORS

Table 3: Defined indicators aimed at characterizing the impact of companies on the state of the environment. Measures Emissions Waste Coverage Quantity of SO,, NO,, VOCs, CO, NH3 and COz emitted Consumption of CFCs and halons Total amount of non-hazardous waste generated Amount of non-hazardous waste generated by category Amount of non-hazardous waste disposed by destination type Total amount of hazardous waste generated Amount of hazardous waste generated by category Amount of hazardous waste transported Amount of hazardous waste treated Amount of hazardous waste disposed by destination type Recycling recovery rates Amount of energy consumption by type: solid fuels, petroleum products, gas, electricity and heat Total amount of energy consumption Number of cars and/or distances Number of passenger transport vehicles and/or distances Number of goods vehicles and/or distances Number of aircraft and/or distances

Energy Transportation

integrated relationships with suppliers to jointly design new green materials or whether it has a good image with respect to local communities, green movements and banks. In this section, the set of indicators will be described with direct reference to the framework suggested in the preceding section; in this perspective it should be noted that the assessment of the environmental performance of the EMS implies the evaluation of the commitment of the firm, i.e. the effort produced by the firm to face environmental problems; the compliance of the firm - that is, its capacity to respect the requirements of norms and to avoid legal prosecutions; the stakeholders satisim faction related to (i) the capability of the fr to convince public opinion of the environmental compatibility of its activities and of the effectiveness of its efforts and (ii)the relationship with external stakeholders (suppliers and downstream stakeholders), i.e. the explicit links that the firm creates with its suppliers and downstream stakeholders to control the environmental quality of inputs, of outputs or by-products rejected and of wastes disposal. Starting from this framework, we now suggest operating indicators which should clanfy how the company has structured its EMS with reference to each of the issues, i.e. a firms commitment and compliance and stakeholders satisfaction. It is clear that, depending on the informational requirement@), we introduce both quantitative (economicand physical) indicators and qualitative metrics (see Tables 4-9). These groups of indicators, used by the company to characterize the global environmental performance of the EMS, can be assessed by the company to compare the indicators over time and to compare them with the aims and objectives outlined in the
74

corporate environmental policy and to show whether the corporate environmental policy has been achieved. Describing the Environmental Performance of Products and Processes

A set of indicators is outlined for measuring products and processes through the use of the ecobalance tool. According to the reference framework described previously, assessment of the environmental performance of the products and processes by the ecobalance tool implies the evaluation of (i) the inputs of the firm, such as i m such as resources; (ii) the stock holding of the f r , capital; and (iii) the outputs of the firm, such as waste. Information is in the form of quantitative non-economic indicators focused on the measurement of physical performance; it can be synthesized as described in the following section.
Defining how to Aggregate Different Measures The identification of the level of aggregation of information for calculating the identified indexes represents an important task for managers who have to design an effective document for external communication. In particular, managers dealing with the aggregation of data face two choices. On the one hand, they have to consider whether to report indicators of environmental performance at the level of the firm as whole or for each specific site. A global indicator for a firm is a synthetic measure, useful for comparing different periods, pointing out improvements and deterioration, whereas indicators for particular sites give analytical information and allow managers to identify

BUSINESS STRATEGY AND THE ENVIRONMENT

G. AZZONE ET AL.
Table 4 Indicators for commitment. Measure Qualitative indicators An assessment of the explicit commitment of the top management Through official documents such as environmental reports or annual reports This is helpful in understanding the role assigned by the fr to im environmental issues (in intention, at least) and the level of conviction, within the firm, of objectives concerning the environment Coverage Purpose

A description of the functions and roles dedicated to environmental management

Definite and stable units or specific roles (such as environmental manager)

This is relevant to determine if the activities related to the environment are really integrated within the organizational structure of the fr im
This is helpful in assessing the qualitative level of the human resources allocated to the environment
These activities give further indications of the capacity of the firm to translate its intention of engagement into real actions

An analysis of the professional profile of people employed

Within environmental functions or dedicated to environmental issues Such as the organization of conferences and training programmes, the participation in environmental projects (for example, Responsible Care) and the realization of voluntary clean-up All the firms activities

A description of specific activities related to the environment

A description of the system for monitoring and controlling the physical environmental impact of the firms activities A qualitative analysis of technologies dedicated to the environment

This is important to determine the spectrum of environmental damage that is continually monitored and, hence, the quality of the EMS as a control system
This provides a measure of the qualitative level of the technological resources, such as human resources allocated and the success of environmental policies

Both hard (for example, clean technologies, technologies used for environmental control) and soft (for example, the information system used within the EMS)

Quantitative economic indicators An assessment of the amount of monetary resources Allocated to: (i) investments, (ii) operational costs, (iii) others (conferences, training programmes, environmental projects, voluntary clean-up, etc.) This measure should evaluate the economic unity of the commitment of the firm - that is, how its engagement is supporte by financial resources

Quantitative non-economic indicators The number of people dedicated to environmental functions or activities Including full-time and others where part of the job description involves environmental activities The measure of the amount of human resources allocated gives indications that are complementary with those provided by the descriptionof the professional profile of people dedicated to the environment This measure is related to the efficiency and effectiveness of the EMS as a control system

Number and frequency of environmental audits

Auditors (internal/external) and purpose (managementtool/part of EMS/ insurance/ acquisition/ compliance)

BUSINESS STRATEGY AND THE ENVIRONMENT

75

DEFINING ENVIRONMENTAL PERFORMANCE INDICATORS

Table 5: Indicators for compliance. Measure Quantitative economic indicators Environmental fines Caused by lack of compliance with current legal requirements These represent the most direct economic consequence of the current environmental impact of firms activities These costs represent the economic effects of the environmental risk that characterizes the firm Represents the economic consequences for actions that have been camed out, in the past, respecting legal requirements, but that become irregular according to more limiting standards defined by most recent norms. This is a direct measure of the environmental risk that characterizes the firms activities This measure should indicate the entity of the environmental damage caused by incidents and the capability of the firm to react to them Coverage Purpose

Costs related to environmental incidents

Environmental liabilities

Costs involved in interrupting production flows, for repairing environmental damages and for recovering a green image Potentially contaminated land included from heavily polluting industries

Quantitative non-economic indicators Number of environmental incidents Work days lost for environmental incidents/ for lack of compliance Unforeseen events that cause environmental damage Total of person work days lost, including hospitalization and closure of plant

Table 6: Indicators for stakeholders. Measure Qualitative indicators Coverage Joint projects, programmes and ventures Purpose This indicator should measure the environmental quality of the all productive chain of the firm that is, its capacity to control either the inputs and outputs of its production This is the only direct measure to evaluate if the firms behaviour is considered environmentally friendly by external stakeholders This indicator, in particular when referred to informal accusations, gives important signals of the real image that the firm, with its pretended commitment, has been able to create in the public opinion This measure gives complementary information on the environmental quality of all the productive chain This measure gives complentary information on the environmental quality of all the productive chain

A description of collaborations with suppliers/ downstream stakeholders to define standards for the environmental quality of inputs/produds rejected and wastes disposal Direct inquiries to suppliers, clients, customers and to the community located near the site of the firms activities Quantitative non-economic indicators
Number of accusations

Questionnaires, meetings, reply cards, etc

Both formal (legal prosecutions) and informal (public demonstrations against firms activities)

Percentage of suppliers/ downstream stakeholderswhose environmental performance is controlled or certified Percentage of inputs/products dismissing and wastes disposal whose environmental quality is directlv controlled

Policies and standards, company and external

Green purchasing

76

BUSINESS STRATEGY AND THE ENVIRONMENT

G. AZZONE ET AL.
Table 7 Indicators of input. Measure
~ ~~~

Coverage Sealed land, such as car parks, green land, including grassed areas and natural habitats; and built-over areas, which is further subdivided in the next section Production, including, for example, hotel rooms and other activities of the service industry, distribution and storage, administration and others Production machines; office and communication machines, such as photocopiers and computers; vehicles; and industrial facilities, such as technical equipment Includes materials that go directly into the product or service and is split into: raw materials; semi-finished and finished goods; auxiliary goods and ancillary goods Including gas, electricity, oil and other fuels From various sources: potable, i.e. treated, water from an external source; rain water; and raw water, i.e. from rivers An estimate of air used for production and energy production

Purpose

Land area bought or othenvise acquired by the company

To determine the quantity and quality of land used by the company

Usable buildings bought or otherwise acquired

To determine the types of use of buildings to understand the nature of environmental risk

Major pieces of plant and equipment bought or otherwise acquired by the company

To determine the amount and type of resources used by the company

Product and/or service related goods

To determine the amount and type of resources used by the company

Consumption of energy

To determine the amount and type of natural resources used by the company

Consumption of water

To determine the amount and type of natural resources used by the company
Can realistically only be an estimate, but is necessary to balance the inputs and output of the firm

Consumption of air

Table 8: Indicators of stock. Measure Land area which is owned, leased or otherwise occupied by the company Coverage Sealed land, such as car parks; green land, including grassed areas and natural habitats; and built-over areas, which is further subdivided in the next section Production, including, for example, hotel rooms and other activities of the service industry, distribution and storage, administration and others Production machines; office and communication machines, such as photocopiers and computers; vehicles, including type, number, distances driven, fuel consumption and oil consumption; and industrial facilities, such as technical equipment Purpose

To determine the quantity and quality of land used by the company

Usable buildings which are owned, leased or otherwise occupied

To determine the types of use of buildings to understand the nature of environmental risk

Major pieces of plant and equipment owned, leased or otherwise used by the company

To determine the amount and type of resources used by the computer

BUSINESS STRATEGY AND THE ENVIRONMENT

77

DEFINING ENVIRONMENTAL PERFORMANCE INDICATORS

Table 9: Indicators of output. Measure Land area sold or otherwise divested by the company Coverage Sealed land, such as car parks; green land, including grassed areas and natural habitats; and built-over areas, which is further subdivided in the next section Production, including, for example, hotel rooms and other activities of the service industry, distribution and storage, administration and others Production machines; office and communication machines, such as photocopiers and computers; vehicles; and industrial facilities, such as technical equipment Includes by-products, i.e. goods or services that are not categorized as waste; and packaging, including product and transporting Treatment, landfill, incineration and others in the categories: hazardous waste; waste which is recycled, internal and external; and residual waste In the form of heat and others which have not entered the product; and noise generated by activities of the company Quantity; destination, i.e. river, sewerage system, landfill and others; and concentration of pollutants contained in the waste water Quantity of emissions; and the concentrations of pollutants in the air emissions Purpose To determine the quantity and quality of land used by the company

Usable buildings bought or otherwise divested

To determine the types of use of buildings to understand the nature of environmental risk

Major pieces of plant and equipment bought or divested by the company

To determine the amount and type of resources used by the company

Products or services the company produces

To determine the efficiency of production from inputted materials and products to output products To determine the type, quantity and final destination of waste to land

Waste the company generates and the destination of the waste

Energy emissions

To determine the level of disturbance through noise and conversion of fuel to energy
Use, quality and destination of water disposal

Waste water including the categories

Air emissions from the company

Conversion of fuel into energy and emissions direct to the atmosphere

areas for improvements, particularly the critical areas. Indeed, to this end we have to consider that a global measure can hide critical situations in an average measure; hence, for internal use, it is more correct to use specific indicators. On the other hand, managers need to define how to calculate selected indices aimed at pointing out the companys impact on the state of natural resources and/ or economic environment-related costs. More precisely, such indicators can be expressed (i) in absolute terms, (ii) in terms of ratios to the level of activity or (iii) can be benchmarked with respect to the competitors performance. The level of activity is measured by the quantity produced (in process industries) or by the value added (in batch manufacturing), whereas
~~ ~~

the introduction of a benchmarking based procedure could respond to the need to assess the companys environment-related position with respect to its main competitors. The environmental performance reference framework deals with these issues by firstly presenting non-aggregated information in a quantitative form through the ecobalance, which shows the movement of materials in and out of the company as well as the quantity in stock. The state of the environment benchmarks the company on key environmental issues by comparing the indicators of the company with respect to emissions, waste, energy and transportation with the reference document Europes Environment: Statisfical Compendium for the Dobris Assessment (Eurostat, 1995).

78

BUSINESS STRATEGY AND THE ENVIRONMENT

G. AZZONE ETAL.

CONCLUSIONS
Environmental performance indicators are a vital step towards effective and verifiable reporting to stakeholdersand strategy formation. This paper has highlighted a reference framework which can be used in a wide range of market sectors to assess companies environmental performance. The corporate environmental policy is important in showing the companys aims and objectives over short and long periods of time. Brophy (1995) produced 21 environmental policy areas which companies should aim to cover. These give a useful indication of the companys attitude towards environmental protection. It has been suggested that if effective environmental performance is to be achieved, companies need to cover all their areas of environmental activities through their policies. Companies contribution to current national and European environmental problems have been shown through the state of the environment indicators. These indicators can also be used for benchmarking the company within industries to show the level of performance the company is attaining. The EMS indicators are used to show companies ability to manage their environmental problems in an effective manner. The approach in this paper was to segregate the indicators into physical, financial and qualitative indicators for easier analysis of the EMS. Three general areas of indicators were developed and it can be suggested that as companies develop their environmental strategies, they move from the indicator area of commitment towards the indicators of compliance to stakeholders. The ecobalance tool was mainly used to assess the quantitative area of company activities. This involves input materials such as resources, stock over time such as capital, and outputs such as products and services. The ecobalance serves as a useful tool to trace the type and use of materials and hence the efficiency of this. The ecobalance can be seen as the hard facts of the success or failure of the policies and the EMS, although both these are part of the long-term planning of the company and the ecobalance is a snapshot in time. This reference framework has been developed after consultation with a range of market sector companies to make it as practical as possible. The next stage is to test the framework in industry to assess companies environmental performance for (at the present) internal communication until the EU passes legislation on the freedom of information. This reference framework can then be used to a greater extent to report to different stakeholders and according to the companys environmental

strategy. Stakeholders and companies can then benchmark and facilitate their progress towards sustainable development.

ACKNOWLEDGEMENTS
This paper is the result of joint work by the authors. However, G. Azzone wrote the first section, R. Manzini the second section, G. Noci the fourth section and R. Welford and C.W. Young jointly wrote section three.

REFERENCES
Adams, R. (1992) The growing influence of the consumer. In: Green Reporting (Ed. D. Owen), Chapman and Hall, London. Azzone, G . and Bertelk, U. (1994) Exploiting green strategies for competitive advantage, Long Range Planning, 27(6), 69-82. Azzone, G. and Noci, G. Measuring the environmental performance of new products: an integrated approach, International Journal of Production Research, in press. Bartolomeo, M. (1995) Environmental performance indicators in industry. In: Fourth International Research Conference of the Greening of Industry, Toronto, Canada. Blaza, A.J. (1992) Environmental reporting - a view from the CBI. In: Green Reporting (Ed. D. Owen), Chapman and Hall, London. Bloom, G.S. and Scott Morton, M.S. (1991) Hazardous waste is every managers problem, Sloan Management Review, summer, 75-84. Brophy, M. (1995) Review of UK environmental policies 1994-1995, Business and Environmental Abstracts, 2. Clark, R.A., Slavins, R.N., Greeno, J.L., Bavaria, J.L., Kairncross, F., Esty, D.C., Wels, R.P. and Schot, J. (1994) The challenge of going green, Harvard Business Review, Jul-Aug 37-50. Eurostat (1995) Europes Environment; Statistical Compendium for the Dobris Assessment, Office for Official Publications of the European Communities, Luxembourg. Gray, R. and Perks, B. (1982) How desirable is social accounting?, Accountancy, Apr, 101-102. Gray, R. and Stone, D. (1994) Environmental accounting and auditing in Europe, The European Accounting Review, 3(3), 581-590. Gray, R., Kouhy, R. and Lavers, S. (1995) Corporate social and environmental reporting, Accounting, Auditing and Accountability Journal, 8(2), 47-77. Ing, B. (1992) Developing green reporting systems: some practical implications. In: Green Reporting (Ed. D. Owen), Chapman and Hall, London. James, P. and Bennett, M. (1994) Environmental-related Performance Measurement in Business; from Emissions to Profit and Sustainability? Ashridge Management Research Group, unpublished. Johnson, D. and Bullock, M. (1995) Corporate environmental reporting in practice, Business Strategy and the Environment, 4, 36-39. Kruwet, A., Zussman, E. and Seliger, G. (1995) Systematic integration of design for recycling into product design, International Journal of Production Economics, 38, 15-22.

BUSINESS STRATEGY AND THE ENVIRONMENT

79

DEFINING ENVIRONMENTAL PERFORMANCE INDICATORS

Muller; K. and Koechlin, D. (1992) Green Business Opportunities - the Profit Potential, Pitman, London. Porter, M. and van der Linde, C. (1995) Green and competitive: ending the stalemate, Harvard Business Review) Sep-Oct, 120-134. Roberts, C. (1992) Environmental disclosure in corporate annual reports in Western Europe. In: Green Reporting (Ed. D. Owen), Chapman and Hall, London. Roome, N. (1992) Developing environmental management strategies, Business Strategy and the Environment, 1 , 911-24. Steger, U. (1993) The greening of the board room: how German companies are dealing with environmental issues. In: Environmental Strategy for Industry (Eds K. Fischer and J. Schot), Island Press, Washington. Walley, N. and Whitehead, B. (1994) Its not easy being green, Harvard Business Review, May-Tun, 72(3), 46-52. Welford, R. (1995) Environmental Strategy and Sustainable Development, Routledge, London. Welford, R. and Gouldson, A. (1993) Environmental Management and Business Strategy, Pitman, London. White, M.A. and Wagner, B. (1994) Lessons from Germany: the ecobalance as a tool for pollution prevention. In: Proceedings of Environment Virginia 94, 7-8 April, Virginia Military Institute, Lexington, V A , 4852. Wook, L. and Green, H. (1994) Towards commercial and environmental excellence: a greenportfolio matrix, Business Strategy and the Environment, 1-9.

BIOGRAPHIES
Giovanni Azzone and Giuliano Noci, Department of Economics and Production, Politecnico di Milano, Via G. Colombo, 40, 20133, Milan, Italy. Tel.: (39) 2 239 92767. Fax.: (39) (2 239 92720 Raffaella Manzini, Libero Istituto Universitario Carlo Cattaneo, LIUC, Corso Matteotti, 22, 21053 Castellama, Varese, Italy. Tel.: (39) 331 572233. Fax.: (39) 331 480746. Richard Welford and C. William Young, Centre for Corporate Environmental Management, University of Huddersfield, Queensgate, Huddersfield HD1 3DH, UK. Tel.: (44) 01484 422288. Fax.: (44) 01484 516151.

80

BUSINESS STRATEGY AND THE ENVIRONMENT