Environmental management and reporting involves identifying,

Guidelines on Environmental

Management and Reporting

for the Financial Services Sector

A practical toolkit

E

nvironmental management and reporting involves identifying,

understanding, controlling and communicating environmental

impacts, risks and opportunities.

These Guidelines on Environmental Management and Reporting provide an

implem-entation toolkit that seeks to enable wider and more consistent engagement in

environmental management and reporting across the sector.

Building upon the experience of many financial services organisations, the Guidelines

highlight why environmental management and reporting is an important part of

corporate governance.

The Guidelines identify the business activities that create key environmental issues for

the sector. It gives step-by-step guidance for developing management processes such

that environmental risk can be avoided, governance standards met and business

opportunity realised.

These Guidelines are the first step and they will evolve as market and legislative

demands develop to address new challenges. It may be appropriate, in time, to expand

the Guidelines to include social and ethical governance and sustainability.

Developed by the FORGE Group

These Guidelines have been prepared by the FORGE Group – a consortium of some of

the UK’s leading financial service organisations. The consortium consists of

representatives from The Abbey National Bank, Barclays, CGNU, Lloyds TSB Bank,

Prudential, The Royal Bank of Scotland and Royal & Sun Alliance. Development of

the Guidelines was led by CGNU and consulting support was provided by

PricewaterhouseCoopers. The Guidelines also incorporate input from a wider selection

of financial and non-financial sector organisations that participated in a stakeholder

dialogue process. The UK Department of Trade and Industry sponsored development of

the guidance with support from the Department of the Environment, Transport and the

Regions. The Association of British Insurers (ABI) support the development of these

Guidelines and British Bankers Association (BBA) recognise the Guidelines as an

important step.

Contents

Part 1: The Financial Services Sector and the Environment

. . . .

Page 3

Why is environmental management and reporting important for the sector and how it can impact bottom line performance and licence to operate?

Success in environmental management and reporting involves knowing what needs to be managed and how this can be achieved. The latter sections of the guidance aim to address these information needs.

1.1 What is driving environmental management and reporting?

1.2 What are the benefits of environmental management and reporting? 1.3 What are the environmental impacts of the financial services sector? 1.4 How can these environmental impacts be managed and reported? 1.5 About these Guidelines

Part 2: Toolkit for developing a management and reporting system . . . .

Page 8

2.1 Planning for system implementation

The early decisions before developing a programme; making fundamental decisions on scope, timeframe and approach.

2.2 Phasing system implementation and development

Deciding where to start – what to consider when determining programme development and roll-out.

2.3 Implementation toolkit

Guidelines for the individual/team responsible for the development of a complete management system. Presented as individual stages, with Tips for implementation, to enable the system to be built right first time in a planned and structured manner. The following stages are discussed:

1. Develop the evidence 2. Obtain Board approval

3. Complete an Environmental Review

4. Draft the Group Environment Policy and Objectives 5. Design the environmental management system (EMS) 6. Implement and operate the EMS

7. Audit the EMS 8. Report to the Board

9. Prepare Environmental Reports (internal and external)

Part 3: Business Activity Guidelines

. . . .

Page 36

For business managers and practitioners, these Guidelines present a route map for integrating environmental management and reporting into key business processes. Individual action points take practitioners from starting out to progress towards achieving current good practice for the sector, including identification of some suggested environmental reporting data for each business activity.

The following business activities are discussed:

Indirect (core business) impacts

 General insurance and reinsurance

 Risk control surveying

 Fund and asset management

 Property portfolio management

 Capital raising, equity ownership and project finance

 Commercial lending

 Debt recovery

 Leasing of equipment and property

 Retail banking and personal lending

Direct (operational) impacts

 Property design and facilities management

 Energy management

 Waste management

 Transport management

 Procurement and supply chain management

Appendices . . . .

Page 67

Appendix 1: Technical Reference sheets

These offer all those involved with environmental management and reporting an understanding of some key environmental issues, legislative requirements and best practice standards.

They discuss and provide references to further information on: 1. Environmental legislation and other standards

2. Environmental management and reporting standards and guidance

3. Working with small suppliers and customers which are small and medium sized enterprises 4. Climate change (also known as the "greenhouse effect" and global warming)

5. Global environmental damage: ozone layer, biodiversity, deforestation 6. Sustainable development and eco-efficiency

7. Environmental labelling and "product" take-back schemes

Appendix 2: Further information sources on the internet Appendix 3: Glossary

Part 1

The Financial Services Sector

and the Environment

Why is environmental management and reporting important for the sector

and how it can impact bottom line performance and licence to operate?

1.1 What is driving environmental management and reporting?

1.2 What are the benefits of environmental management and

reporting?

1.3 What are the environmental impacts of the financial

services sector?

1.4 How can these environmental impacts be managed and

reported?

Part 1

The Financial Services Sector

and the Environment

1.1 What is driving environmental management and reporting?

The financial services sector is under increasing scrutiny – both internal and external – to demonstrate commitment to environmental management and reporting. External scrutiny – increasingly publicised through the issue of performance indices and rankings – focuses on measuring and ranking performance against competitors. In some instances these indices are produced remotely with the target company having no opportunity to contribute to or review the results before they are launched into the public domain:

The scrutiny of internal and external stakeholders is twofold: performance in terms of direct (operational) impacts, and indirect (core business) impacts resulting from the management and delivery of financial sector products and services. This scrutiny is no longer from just environmental activists, increasingly it includes:

All of these stakeholder groups have the ability to influence a business’ short-term success, operational continuity and long-term future.

Whilst risk drives action, so can opportunity. For this sector, substantial achievements in environmental performance can occur as a direct result of taking market opportunities that increase income; for example, new products and new product delivery and service channels. Whilst engaging in environmental management and reporting remains voluntary for the sector due to limited directly relevant environmental legislation, it is increasingly achieving priority at the highest management levels. Key influences include:

Turnbull Report guidelines for achieving internal controls to manage all business risks

Company Law Review analysing Directors’ duties and corporate responsibilities to

stakeholders

Pensions Act requiring trustees to state their position on environment and social issues in investments

In addition, the UK Government has stated its intention to "name and shame" those who do not make environmental performance information publicly available. Various governments are introducing environmental criteria as a mandatory component of documents of tender such that, to be eligible to participate, demonstrable environmental management processes need to be in place; and there are emerging requirements of individual Socially Responsible

Investment (SRI) codes and ethical investment policies.

Dow Jones Sustainability Group Index…

Business in the Environment Index…

PIRC Survey …SERM rating

National governments…

Institutional investors… Shareholders

Figure 1: Summary of key drivers for environmental management and reporting

1.2 What are the benefits of environmental management and reporting?

Demonstrating a commitment to environmental issues is increasingly becoming a necessity. It is no longer a question of whether environmental management and reporting will become

Several within the sector have recognised the implications – how negative risk must be avoided and reduction in environmental impact achieved – and commenced environmental management and environmental reporting programmes. Certain global financial organisations, some with a diversity of financial services activities, are implementing global management systems and are committed to producing verified public environmental reports. All of these organisations have recognised the benefits and opportunities that environmental management and reporting enables them to achieve:

1.3 What are the environmental impacts of the financial services sector?

 Direct impacts from internal operational activities. Significant ‘direct’ environmental

impacts are primarily associated with internal operational activities. These include heating and lighting in buildings, transport of employees and materials, waste in all its forms, purchasing of goods and services and use of resources such as energy, paper and water. Good management of these activities will assist in achieving performance improvements, improve operational efficiency and create potential for improvement in the cost : income ratio.

 Indirectly, as a result of commercial activities. The environmental issues associated with

company policies and practices for lending, investment, insurance and other business activities may create financial, legal, operational or reputational risk. These indirect impacts are more difficult to manage, as frequently the sector can only exert influence rather than control. However, they are becoming a priority due to (a) the potential Improve market share through

new/enhanced products/services Provide support to wider business strategy, opportunity for new strategic initiatives, and improved brand positioning

Enhance value to shareholders/stakeholders

Improve risk management and internal controls

Demonstrate tangible response to stakeholders who want to see evidence of corporate environmental commitment Respond to a real, and growing, risk to (and opportunity for) business commitment

Improve operational efficiency Reduce operational costs – contributing to improved cost : income ratio

Respond to increasing level of external monitoring and benchmarking of performance by external organisations

Provide transparency in performance to institutional investors, shareholders and other stakeholders Establish dialogue with stakeholders Achieve self-assessment of corporate governance processes, in respect of environmental risks

Drivers to implement environmental

management and reporting

Strategy

Management

Reporting

Operational performance

Improves the cost : income ratio

Protects income

Attracts new income streams

Improves brand positioning

Achieves investor confidence

1.4 How can these environmental impacts be managed and reported?

A management and reporting system must include:

 Determination of the environmental impacts including prioritisation of impact areas,

identifying management systems, achieving data collection, analysing performance and setting objectives and targets;

 Board level commitment and input to the environmental programme to ensure effective

uptake and implementation of Environmental Policy throughout the organisation;

 Robust procedures and systems which are integrated into business management

processes, rather than operated as a "virtual system" which is detached from the wider business decision making processes;

 Flexibility in approach which allows each area of the business to implement policy in a

manner that will withstand change within the business and evolve and develop in line with market demands and expectations;

 Training and awareness raising, to gain understanding and buy-in from staff at all levels

and in all areas of the organisation, also creating the opportunity to inform stakeholders and raise stakeholder understanding;

 Regular monitoring and reporting of key performance areas in order to advise the Board

(and stakeholders) where policies and procedures are working well and where improvements are required; and

 On-going dialogue and engagement with stakeholders inside and outside the

organisation to continue to raise awareness levels and achieve improved understanding, confirm that the issues of concern (actual and perceived) are being addressed and that the response reflects current knowledge and good practice.

The necessary scale and complexity of environmental management and reporting will be specific to every organisation, dependent on the nature and scope of the services provided and internal organisational structures and processes.

The Guidelines identify the key stages of development of a management system and discuss individual tasks that need to be completed within each stage. They contain tips on how to achieve these efficiently and effectively (Part 2). Full use of existing management processes is encouraged.

These Guidelines highlight some of the main business activities that create environmental impacts and suggest environmental management and reporting plans for each (Part 3). Through this, the Guidelines start to identify where environmental factors could encourage business practice and product design to deliver enhancement in environmental performance.

Figure 2: Integration of environment into core business processes

Integrate environment into business decision making to demonstrate the direct and material connections with business performance

Differentiate products/services using environmental criteria

Proactively manage environmental risks and opportunities to support shareholder value

Include environment within existing risk management policies and processes. Establish key environmental

performance indicators and targets Integrate environmental objectives into staff performance criteria and training Expand internal audit and controls to cover environmental management systems

Incorporate environment into procurement policies and supplier reviews

Incorporate environmental factors into transport and travel management Include environmental considerations in property design and facilities management programmes

Include environment in investor relations programmes

Include environment within community programmes

Undertake stakeholder communication and encourage feedback on performance

Integrated environmental

management and reporting

Strategy

Management

Reporting

Operational performance

1.5 About these Guidelines

This toolkit has been developed to help to achieve a higher level of engagement across the sector and encourage consistency in approach. When implemented, the tools contained within these Guidelines are designed to provide a foundation upon which the organisation will be able to build in order to meet related future environmental management and reporting needs. Prepared by some of the leading UK based financial services organisations, the Guidelines build upon the lessons already learned within the sector and have been designed specifically to recognise the difficulties and issues for the sector in engaging and delivering environmental governance. These issues include, in particular:

 The organisational structures and cultures of financial services organisations;

 The significance of indirect impacts over which there is limited potential to achieve direct management control;

 The rapid pace of change currently taking place throughout the sector, its global reach and impact;

 The difficulty in balancing the often long-term nature of environmental risks and opportunities with the short-term focus of the financial markets; and

 The culture and level of awareness of environmental issues within the sector which, to date, have not driven action.

The Guidelines have been constructed as a toolkit, to enable users to select individual tools that are of use to their own circumstances or to enable adoption of the full toolkit to provide a complete system. It contains a series of tools for those:

 With Board level responsibility, or directly answerable to the Board, for developing and overseeing Environment Policy, objectives and targets, and Group level stakeholder interaction; and

 With Group or business unit responsibility for day-to-day policy implementation and targets achievement and contributing to Group performance reporting.

These Guidelines will also help to achieve wider understanding of the sector’s approach to environmental management and reporting among other interested parties and stakeholder groups.

These Guidelines have been deliberately restricted to address environmental management and reporting issues. It is recognised that some emerging issues, for example social and ethical governance and responding to the sustainable development debate are very pertinent to the sector. As these issues develop, management processes will need to evolve to take them into account.

These Guidelines are the first step to encourage all those in the sector to engage in environmental management and reporting. Subsequent revisions of these Guidelines are anticipated which will address more advanced environmental management and reporting issues and the wider governance issues created by the global move towards achieving a more sustainable future.

Part 2

Toolkit for developing a management

and reporting system

2.1 Planning for system implementation

The early decisions before developing a programme; making fundamental

decisions on scope, timeframe and approach.

2.2 Phasing system implementation and development

Deciding where to start – what to consider when determining programme

development and roll-out.

2.3 Implementation toolkit

Guidelines for the individual/team responsible for the development of a

complete management system. Presented as individual stages, with Tips

for implementation, to enable the system to be built right first time in a

planned and structured manner.

The following stages are discussed:

1. Develop the evidence

2. Obtain Board approval

3. Complete an Environmental Review

4. Draft the Group Environment Policy and Objectives

5. Design the environmental management system (EMS)

6. Implement and operate the EMS

7. Audit the EMS

8. Report to the Board

Part 2

Toolkit for developing a Management

and Reporting system

This section of the toolkit is targeted at the Group function which has the company-wide responsibility for the design and management of an environmental programme. It gives advice on getting started and obtaining Board commitment and then provides a stage-by-stage approach to implementing the programme.

2.1 Planning for system implementation

The objective is to identify the strategic and significant environmental impacts of the organisation and establish an overall environmental management framework with supporting management processes. This framework should not be developed in isolation. Wherever possible, at all levels through the business, the framework and the supporting processes should be integrated into existing management structures and processes.

In order to establish an environmental management system it is necessary to have: 1. An understanding of the environmental impacts of the organisation;

2. Board commitment to policy and stated objectives; 3. Planning and appropriate resourcing;

4. Definition of the environmental aims of the organisation; and 5. An understanding of the concerns of key stakeholders.

Developing and implementing a full environmental management and reporting system is usually achieved in a series of stages to build a management process and associated feedback and reporting cycles. These stages are defined in the toolkit presented in this section.

The key components of a management system should be common to all systems such that the outputs are broadly comparable. These are defined in this section and, as presented, accord broadly with international guidelines on environmental management systems. The specific detailed structure of the system will be unique to each organisation taking into account, for example:

 Existing organisational structures;

 Existing organisational priorities and commitments;

 Company culture;

 Product mix; and

 Customer base.

2.2 Phasing system implementation and development

Most organisations develop a plan for the roll-out of the management programme such that, over a defined period of time, the entire business is incorporated within the system. Determining an appropriate programme requires consideration of:

 Business activities;

 Environmental impacts; and

 Environmental opportunities.

2.2.1 Business activities

In the first phase, most organisations select one business unit or region. Core components of the system are defined, developed and put in place before implementation across other units/regions. The first phase should include a part of the business which:

(a) Has the most significant environmental impacts; (b) Represents a significant proportion of the business; and

(c) Is supportive of the development of the management and reporting programme. See Part 3 for description of the environmental issues relating to some of the main business activities.

2.2.2 Environmental impacts

Management systems do not have to address all environmental impacts at once – it is important that priority is given to the significant impacts. The significance of impacts and the subsequent prioritisation will be determined by each organisation based on the identification and rating of the environmental impacts of the organisation/business (discussed further in Stages 1 and 3). Some prioritisation criteria are presented in Stage 3 and include:

 Are there applicable legal and governance requirements?

 Have the issues been subject to scrutiny and questions from investors?

 What level of risk (financial, legal or reputational) does this impact present to the business?

 What is the scale and severity of the associated environmental impact?

The timeframe for implementation can range from months to years, and is at the discretion of the organisation. Factors that need to be taken into account when considering the timeframe for implementation include:

 The importance (actual and perceived) of environmental issues to the organisation;

 Resources available (primarily people and capital);

 Pressures, in particular from shareholders and other external parties;

 Competitor developments;

 Specific needs (for example, terms of reference requirements for certain investments);

 Legal and international environmental commitments (e.g. treaties);

 Industry benchmarks and codes of practice; and

 The current status of environmental management processes.

Achieving a successful environmental management and reporting system is a goal in itself. For most organisations, it is a first step towards achieving a more comprehensive programme that, over time, could form the basis for the management of emerging governance issues, for example social and ethical issues and sustainable development.

These Guidelines have been geared to provide information for those organisations starting an environmental management and reporting programme. For those organisations already

2.3 Implementation stages

The first and most fundamental step is to collect hard, persuasive evidence and determine a corresponding business case and programme of action for presentation to the Board. The subsequent critical step is to gain Board commitment to develop an environmental management and reporting system including, in particular, an Environmental Policy and objectives. Experience has shown that achieving buy-in from the Board can be a challenging and time-consuming task, frequently taking many months and some reiterations.

From there, it is critical to develop the commitment of the business units to support and participate in system development and implementation. It is vital to establish communication and feedback mechanisms to inform all, including external stakeholders, of progress and achievements.

As with other significant business issues, it is common practice to have a Board Director with responsibility for the environment. In medium and large organisations, the Board Director will normally require the support of a central environment management function (one or more persons) with responsibility for the actual development and implementation of the environmental management and reporting system. A network of environmental champions or managers typically supports the central team across different business functions (see Stage 2 of the implementation programme).

The nine stages of the programme are outlined in Figure 3. Remember that:

(a) Existing processes may already cover some stages. It is important, when developing the system components to determine whether these can deliver the required level of management control; and

(b) The environmental management processes should be integrated, wherever possible, into existing management structures and processes.

Figure 3: Key stages in the development of an environmental management and reporting system

Stage 1: Develop the evidence

Stage 2: Obtain Board approval for environmental management and reporting strategy

Stage 3: Complete an environmental review to identify environmental issues and impacts

(if considering external verification – process needs to start at this stage)

Stage 4: Draft an Environment Policy and objectives

Stage 5: Design and develop the management system components

Stage 6: Implement and operate the management system

Stage 7: Audit the management

system

Stage 8: Achieve Board level review

and agree the way forward

Stage 9a: Prepare environmental reports (internal)

Stage 9b: Prepare environmental reports (external)

(external verification is advised)

Key: continuous improvement feedback

STAGE 1: DEVELOP THE EVIDENCE

TASKS

1.1 Gain familiarity with the issues pertinent to the sector and competitor activity in environmental management and reporting

1.2 Undertake a strategic review of the business to identify the key environmental impacts, risks and opportunities to the business

• Determine, at a strategic level, the nature and scale of the environmental impacts. Document the risks that are presented to the business and potential opportunities for enhancing business performance.

• The overview should:

– Determine performance from a review of existing data;

– Review scope of data collection systems and collect further essential data if required;

– Determine scope of existing management processes (Group and businesses);

– Collect/review stakeholder feedback on (a) the issues for the sector and (b) the organisation’s performance; and

– Identify the environmental aspirations and commitments of the organisation.

TIPS FOR IMPLEMENTATION

TIP: This will involve reviewing reports and information within the sector, emerging best practice guidelines and

government activities relevant to the sector, including position statements and legislation.

TIP: Call on competitors already practicing environmental management reporting, where appropriate.

TIP: The overview must recognise any gaps or deficiencies in the existing management processes.

TIP: There are various options for undertaking stakeholder dialogue. These include:

• Review of existing, publicly available survey data;

• Consultation (frequently via surveys) to gain information; or • Direct interface through joint meetings and discussion groups.

Typically, a representative sample of stakeholder groups is selected. External expertise is frequently sought to assist with this process. Once started, the dialogue will need to continue at key stages in the process. The level of detail and scope of dialogue develops as the system matures.

Do not raise expectations through dialogue with external stakeholders at this stage if it is uncertain whether the Board will approve further development of environmental management and reporting.

TIP: Clearly identify the criteria that will be used to determine the significance of the identified issues (see TIPS

STAGE 1: DEVELOP THE EVIDENCE

1.3 Evaluate the findings of the strategic review

• The objective is to determine the sources of impact to inform decisions concerning the business need for a management and reporting system and its required scope.

• Develop an outline of the business need, to present to the Board sponsor. This will form the core of the business case (Stage 2.2), and should identify:

– Key objectives; – Risks and benefits; – Estimated resource need;

– Outline implementation programme (stating key business units, functions and/or activities); and

– Indicative timescale.

1.4 Identify and engage Board sponsor

• Identify a sponsor on the Board.

• The Environment Manager should present an outline of the business need for environmental management and reporting to the Board sponsor to engage wider board commitment.

• Where no Environment Manager has been identified, the Board sponsor will need to identify a suitable candidate.

TASKS

TIPS FOR IMPLEMENTATION

TIP:This review is probably the most critical stage in the management process as, at a strategic level, it forms the reasoning and justification to the Board for taking action and defining the type of action required.

TIP:In the experience of the sector, the Environment Manager needs commitment to the project, a wide understanding of the business (in particular, core business products and services) and some environmental knowledge and prior training. Consider whether this is a full or part- time role – this will depend up on the size and management structure of the organisation, as well as the scope of the intended programme.

TIP:Commonly in the sector, sponsors have risk or facilities management responsibilities. However with indirect impacts resulting from products and services becoming an important issue for management, it is essential that the sponsor has a sufficient level of understanding of core business products and services.

STAGE 2: OBTAIN BOARD APPROVAL

2.1 Develop options for an environmental management system (EMS), using the findings of the strategic review and views of the Board sponsor

• Options may include:

– Integrate as an element in key business management processes; – Establish management processes in key parts of the business; or – Establish a full, dedicated management system.

• Determine preferred option and provide justification.

TASKS

TIPS FOR IMPLEMENTATION

TIP:In determining options consider: impacts on the business during implementation; ability to deliver short and long term goals; corporate aspirations in relation to competitor positioning and external stakeholder and regulatory pressures. In particular, the following issues should be considered:

• Key environmental issues requiring management attention;

• Key points of management control: the degree of central control/business unit autonomy; • Existing environmental controls: optimum utilisation of existing systems/additional systems; • Existing data collection and management systems;

• Policy structure: single Group policy/local Group and Business Unit policies;

• Environmental management structure: current and future (by business unit, region or function);

• Internal/external environmental reporting needs (including external verification if deemed appropriate): Group and/or Business Unit reports;

• Integration with other management systems: minimise cost/maximise benefit;

• Resource demand: personnel needs at Group and Business Unit levels during implementation and operation; • Priorities: strategic and operational relating to brand and/or products;

• Applicable deadlines: existing commitments (e.g. reporting commitments), legal deadlines; • Key values and principles; and

STAGE 2: OBTAIN BOARD APPROVAL

2.2 Prepare business case for environmental management and reporting strategy

• Consider developing draft alternative strategies for Board review.

2.3 Obtain business unit support and establish network of "champions" who will form the implementation team

• The team should include:

– Business unit personnel (see Part 3, for key business activities/units); – People from each geographic territory (as appropriate);

– For direct impacts: staff from central support functions (in particular facilities management, risk management, credit management); – For indirect impacts: staff from within the core business units; – Environmental specialists; and

– External expertise (optional).

TASKS

TIPS FOR IMPLEMENTATION

TIP:The business case needs to reflect the particular pressures and opportunities for the sector as a whole and, in turn, for the organisation, to reflect how and why environmental performance is becoming a key business issue. Particularly, identify how managing environmental performance impacts overall business performance, is necessary to meet corporate governance requirements and is required to maintain competitive position. The business case should identify the timeframe, in terms of getting started and achieving a functioning system.

TIP:Highlight the connections between business and the environment including, in particular: opportunities to improve financial performance through environmental management, competitor initiatives and progress, the level of environmental risk exposure, relevant legal developments (e.g. corporate governance requirements) and new business opportunities.

TIP:Compile supporting information for inclusion in the business case including details of competitor activities, environmental risk exposure and business opportunity potential.

TIP:If external environmental reporting is intended, it needs to be considered from this stage forward in order that reporting (and, if appropriate, verification) needs are addressed.

TIP:Obtaining the support of the business units may take some time and frequently involves a series of meetings, presentations, awareness raising and training sessions. It is critical to achieve their support and involvement to enable the resulting management system to be practical and pertinent to the business and to achieve the required level of ownership throughout the organisation.

TIP:External experts could be used to complement the in-house team to make sure that the organisation establishes ownership of the system and to make sure that the system fits within existing organisational structures and cultures.

STAGE 2: OBTAIN BOARD APPROVAL

2.4 Report to the Board and obtain commitment to preferred strategy

• Present business case to the Board.

• Debate the options and obtain Board agreement to the selected strategy. • Communicate commitment to all staff and key external interested parties

(e.g. investors, customers and shareholders).

TASKS

TIPS FOR IMPLEMENTATION

TIP:An internal note to all staff, signed by the Board sponsor, should be circulated to demonstrate the Board’s commitment. It should identify a contact point and identify the process of development and implementation.

TIP:Once communication with staff has commenced, it must be continued regularly.

TIP:Communication with external stakeholders may be appropriate. Separate, formal communication may not be necessary; however, it is often useful to state the Board position in other communications (e.g. Annual Report and Annual General Meeting (AGM)).

STAGE 3: COMPLETE AN ENVIRONMENTAL REVIEW

3.1 Scope of the detailed environmental review

• Build on the evidence gathered in Stage 1.

• The objective of the review is to determine the detailed nature, scale and source of impacts to provide information for the setting of policy, objectives and targets. It will also inform the process of scoping and designing the detail of the management system and preparing the programme for implementation.

• Define the scope of the review in terms of: – Environmental impacts that will be covered; and

– Coverage in terms of business units/regions/functions to be included.

3.2 Prepare for the environmental review

• Define the review methodology, identify mechanisms to obtain background information, involve key stakeholders and develop a work and interview plan. Provide instruction to the review team.

• Consider preparation of an environmental review questionnaire.

TASKS

TIPS FOR IMPLEMENTATION

TIP:Key tasks within the review include:

• Understand the extent and nature of current environmental management controls and their success, in particular the comprehensiveness and structure of existing data collection systems;

• Identify the environmental impacts over which the organisation will exert management influence (indirect or "core business" impacts), or control (direct or operational impacts);

• Review the state of compliance with existing Environmental Policy and other environmental commitments (e.g. United Nations Environment Programme (UNEP) statements); and

• Determine, in detail, those impacts/activities that will be the focus of the environmental management programme.

TIP:The findings of the environmental review are the foundation for the management programme. The review needs to provide sufficient and accurate information such that the resulting programme is appropriate to the impacts while remaining achievable. If the review misses key risks (either actual or perceived), the future Policy, objectives and targets may be deficient and the system potentially subject to criticism.

TIP:Document reasons for excluding business units, regions and/or certain functions from the review if these have an identified environmental impact that the organisation can influence or control. Wherever possible, justify exclusions using business, as well as environmental, reasoning.

TIP:Consider using external consultants or internal specialists to support the team. Internal specialists will include personnel from central support functions and core business personnel involved with product design, development and delivery.

TIP:The review approach is most commonly influenced by the availability of personnel and the balance between central control and business unit autonomy. The review process can range from travel of a central team to locations to conduct reviews, through travel by appropriate in-country business unit or regional representatives, to local completion assisted by local internal or external experts as required. If reporting is intended, it can be useful to involve the reporting and verification teams at this time.

STAGE 3: COMPLETE AN ENVIRONMENTAL REVIEW

3.3 Gather environmental review information

• Undertake interviews and if appropriate, complete review questionnaires (internal).

• Consider undertaking dialogue with external stakeholders.

• Collate relevant information from other internal sources and external publications (see Part 3 for further discussion of relevant issues) which will help to form a "performance benchmark" against which review findings can be compared.

TASKS

TIPS FOR IMPLEMENTATION

TIP:Identifying pertinent legal requirements and other external requirements is an important element of the review process. There are various ways in which this can be achieved, ranging from preparation of a specific register of environmental regulations and standards, through to use of published sources of information. It should be recognised that any publicly available information is not likely to be tailored to reflect the legislation relevant to the sector. (See Appendix 1, Reference Sheet 1 for further information on environmental legislation).

TIP:It can be helpful to develop the compliance report format (see TIP above) such that requirements are identified in a list/register format. This facilitates updating and revision of the requirements list in subsequent years.

TIP:Data collected to establish the performance benchmark would include, for example: public commitments (e.g. Policy and statements presented in Annual Reports); competitors’ environmental reports; external standards/guidance (e.g. UNEP publications, environmental reporting guidance); relevant legal documents; internal environmental performance data (e.g. energy use information); reports/articles prepared by environmental pressure groups relevant to financial organisations.

STAGE 3: COMPLETE AN ENVIRONMENTAL REVIEW

3.4 Evaluate environmental review data

• Based on the analysis, prioritise the relative significance of each impact in terms of the financial, legal or reputational risk or opportunity for the organisation. (See Part 3 for a discussion of the risks/opportunities by business activity). It is critical that this process is transparent, robust and able to be replicated.

• Consider completing a cost : savings assessment, in particular, for areas of direct, operational impact.

• Compare the findings of the review with the overview information provided in the business case (see Stages 1 and 2). Identify if there are particular discrepancies or omissions from either review and resolve.

3.5 Report key findings of the review

• Communicate findings to the Board as well as the business units/functions involved with completing the review, agree those findings that will be taken forward and, broadly, the time frame for programme implementation. (See Stages 1 & 2).

TASKS

TIPS FOR IMPLEMENTATION

TIP:Evaluation is typically achieved using matrices rating impact against significance assessment criteria. Frequently, impacts are graded as high, medium or low significance. Significance criteria can include the following: • Legal requirements;

• Internal policy requirements;

• Organisational commitments (e.g UNEP statements);

• Contribution/scale of the source activity within the total business activity (and hence relative scale of the impact);

• Degree of controls already in place or (in the case of indirect impacts) ability to influence and effect change; • Potential to impact business performance;

• Severity/irreversibility of resulting damage; • Level of stakeholder concern (internal and external);

• Position relative to or intentions to adopt/meet good practice; and • Potential environmental opportunities for improvement.

TIP:To achieve cost : savings assessment, existing data on expenditure will need to be collated and assessed. This exercise is able to form the basis of future resource management and consumption/cost reduction plans.

TIP:The analysis needs to identify areas where management changes and improvements need to be made, consider how issues can be addressed most effectively, and, in particular, identify at which level in the organisation they need to be addressed to achieve improvement. For example:

• Procedural or strategic issues should be addressed by taking action at Group level;

• Issues associated with a particular product/service line may need to be addressed at the business unit level; and • Specific operational impacts may need to be addressed at a location or national level, or by a function group

(e.g. facilities management).

TIP:Take into account the overall timescales developed and for those issues which will be addressed in later stages of implementation, particularly the indirect impacts, provide justification for the decision. In many cases the justification will include a "business" reason, for example: commercial sensitivity, commercial confidentiality, business impact and practice. (See Stage 6.2).

STAGE 4: DRAFT THE GROUP ENVIRONMENT POLICY AND OBJECTIVES

4.1 Define the scope of the Environmental Policy and Objectives

4.2 Plan for writing the Environmental Policy and Objectives

• Obtain copies of existing, relevant company policies and programmes which will interact with the Environmental Policy, including:

– Credit/underwriting/investment risk policies (portfolio and site specific) etc;

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TIP:Consider when determining the scope of the Group Policy:

• The strategy agreed with the Board (Stage 2); • The findings of the environmental review;

• Known short-term business changes (which affect the identified environmental impacts); and • Other relevant Group and business unit policy commitments.

The Policy and objective commitments need to be realistic considering what can be achieved within the Policy term (typically 3-5 years) yet challenging. With each Policy revision, the commitments should advance the organisation towards achievement of better and, ultimately, best practice ("continual improvement"). It can be useful to review the environmental policies of other organisations to understand their level of commitment and scope.

TIP:It is essential that the Policy and objectives receive buy-in from all affected Business Units as well as the Board. The mechanisms to achieve this need to be identified and implemented at an early stage in the Policy development process.

TIP:The Policy should include a statement on the organisation’s approach to internal and public reporting and disclosure of environmental information. This could include for example: separate environmental reporting, commentary in the Annual Report and Accounts and promotion at the company’s AGM.

TIP:Objectives comprise high-level aims that provide the means to deliver and manage policy commitments. They can be presented as an integral part of the Policy document or, alternatively, they can be presented separately. For many centrally controlled management systems with local implementation, it can be preferable to provide the objectives in a separate document with more explanation of intent to guide the development of local targets which will deliver achievement of the Objectives (see Stage 5.3).

TIP:Existing environmental management standards (see Appendix 1, Reference Sheet 2) set some requirements for Policy content. It is good practice to adopt these and adoption would be necessary if certification under these

STAGE 4: DRAFT THE GROUP ENVIRONMENT POLICY AND OBJECTIVES

– Procurement policies;

– Property and facilities management policies; – Health and safety policies;

– Corporate governance policies; and – Human resource programmes.

• Achieve buy-in and support of the business units that will be impacted. • Set deadlines for Policy and objective drafting and define Board review

dates.

4.3 Draft the Environment Policy and Objectives

• Policy commitments are supported by objectives, which are supported in turn by targets (see Stage 5.3).

• In addition, consider the development of Key Performance Indicators (KPIs).

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TIP:Some organisations seek stakeholder input to their Policy and objectives development and review stages (see Stage 1.2).

TIP:Within the Policy include: description of the coverage of the Policy in relation to the business activities; commitment to environmental compliance and continual improvement; and achievable aims that will remain relevant for a period of 3-5 years.

TIP:Typically organisations set about 10-15 objectives, most of which are qualitative, but which must be time limited, auditable and able to be supported and delivered by realistic targets. Most objectives are developed to be applicable for a 3-5 year period such that they are reviewed and revised in parallel with the Environmental Policy (see Stage 8). Individual tasks required to achieve the objectives will be specified through targets which are typically reviewed and updated annually (see Stage 5.3).

TIP:KPIs represent indicators of performance that can be used in the long term to track and report business performance and demonstrate the organisation’s core values. To be successful these must be embedded into core business principles and core management processes.

TIP:Frequently, first or early Policies focus on reducing impact including, in particular, direct impacts. However, Policies of organisations with more established management systems are increasingly looking to manage indirect, core business impacts and further reduce direct impact. For example: eco-innovation (finding new ways to do business with less impact), and doing more for less (good business practice) and developing new business opportunities.

STAGE 4: DRAFT THE GROUP ENVIRONMENTAL POLICY AND OBJECTIVES

4.4 Obtain Board commitment and Policy sign off

• See Stage 8 for explanation of the process of reviewing and updating the Group Policy and Objectives.

4.5 Distribute the Environmental Policy

• Provide a copy of the Environment Policy and objectives to all business units/regions/functions.

• Consider the value of wider circulation of the agreed Environment Policy i.e. full public availability, selected stakeholders.

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TIP:It is the responsibility of the Board to review overall Group-wide progress with Policy implementation. The Board’s review is typically achieved annually through the Management Review of the environmental management and reporting programme (see Stage 8).

TIP:The Environment Manager will be responsible for checking progress with Policy implementation and progress towards achievement of objectives on a more frequent basis (e.g. quarterly). Day-to-day responsibility for implementation will be at a local level and assessed by determining performance against targets which underpin the Policy (see Stage 5.3).

TIP:Public distribution of an Environment Policy is a requirement of the existing environmental management standards (see Part 3 and Reference Sheet 5).

TIP:When circulating the Policy internally, it is advisable to enclose a memorandum from the Board stating that the Policy should be made available to all staff and confirming that it provides the overall statement of the Group’s environmental commitment that the management and reporting programme will need to deliver.

STAGE 5: DESIGN THE ENVIRONMENTAL MANAGEMENT SYSTEM (EMS)

5.1 Define the EMS coverage and structure

• Build on the pre-work in Stage 3. (See page 15).

• Understand the existing organisational structure and align the environmental management and reporting structure with it. Wherever possible, make use of existing management processes and tailor them to meet the necessary environmental requirements.

• The scope and structure of the EMS should reflect the scope of the Policy in respect of the activities and products included (see Stage 3.1 and Stage 4.1). The structure should therefore also reflect the agreed strategy and the findings of the environmental review, be practical for achievement and appropriate for the organisation.

5.2 Plan implementation of the EMS

• Identify internal team(s) responsible for detailed design and implementation of the EMS and allocate responsibilities.

• Identify the timeframe for implementation, identify sub-stages and key milestone dates (see also Stage 6.1).

• Define key internal and external communication needs and channels. • Establish processes to monitor the success of implementation and

achievements of the EMS.

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TIP:Many financial services organisations have established central environmental management groups with a designated Environment Manager. In addition to the central team, most organisations have identified environmental champions/managers across the business to provide an implementation network with defined accountability.

TIP:When determining the EMS structure consider:

• Degree of central control vs. a management network;

• Roles and responsibilities of the environmental management team/network;

• Staffing arrangements – internal staff input balanced with external support in development and implementation; • Degree of centralisation of target setting and procedures vs. local autonomy;

• Regional, business unit and function areas and lines of environmental accountability; and • Means of communication, audit and management review.

TIP:If external verification of the report is intended (see Stages 2 and 9) it is advantageous to involve the verification team during this stage in particular to ensure that the management system delivers appropriate and reliable data for reporting purposes.

TIP:It is important to involve the business unit managers/regional managers and/or function managers whose staff will be involved with EMS implementation.

TIP:For staff with key involvement, appropriate training should be provided. Ideally, include their environmental role in their job description and develop appropriate individual performance objectives. All staff should participate in environmental awareness raising initiatives and/or training.

TIP:The overall timeframe for implementation will have been considered during development of the strategy (Stage 1.3 and Stage 2.2). The detailed timeframe needs to be realistic, taking into account other business activities that need resource and priorities of the various business units/regions/functions. In addition, the pace and direction of external influences (e.g. statutory requirements, stakeholder campaigns) should also be recognised.

STAGE 5: DESIGN THE ENVIRONMENTAL MANAGEMENT SYSTEM (EMS)

5.3 Develop the EMS

• The EMS will evolve to achieve increased coverage and system component definition over time and take into account business changes including structure, focus and activities.

• Define the environmental management hierarchy.

• Develop the process for setting environmental targets and corresponding action plans. These should include named responsible individuals, deadlines, reporting and audit data requirements.

• Prepare written operational procedures and integrate these into existing management control procedures where possible.

• Establish Group level performance monitoring and feedback systems including management review processes.

• Communicate with internal and external parties using existing mechanisms where possible.

• Establish Group-wide information systems and reporting structures for key environmental data for internal and external reporting (if external reporting is planned – see Stages 2 and 9). ["Key" environmental data comprises that data which must be collected either to demonstrate meeting of targets, objectives and Policy and/or is necessary to provide data for reporting.]

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See Business Activity Guidelines (Part 3) and Reference Sheets (Appendix 1) for discussion of individual environmental issues, suggested action plan components and reporting data which can be used to guide the development of local action plans and targets

TIP:Refer to European and international guidelines on environmental management systems (see Appendix 1, Reference Sheet 2).

TIP:It is important that the environmental management structure is clear, logical and appropriate for the business. The structure should reflect, and make use of, existing group management systems and structures. In particular data management systems should be embedded into, or aligned with, existing management and financial (accounting) systems. The structure, both in terms of management hierarchy and documentation structure (e.g. procedures and reporting) must be defined but must also be sufficiently robust and flexible to accommodate change. This may include business structure changes (e.g. formation of joint ventures), product mix changes (product and thus impact balance), and the altering roles of, and pressures on, financial services organisations.

TIP:In many cases a combination of central and local operational procedures are developed (e.g. central procedures for assessing the environmental risks of lending and local procedures for business travel). For some environmental issues it can be appropriate to have central "guidance-type" procedures which give an overview of what needs to be achieved and how, such that the corresponding local procedures are comparable (e.g. energy management). With increasing stakeholder attention on the global performance of financial service organisations it may be necessary to consider development of central guidance-type procedures covering areas of indirect activity. It is possible for these to leave scope for local amendment (to make the requirements more stringent or to reflect local priorities and practices) where necessary/practical.

TIP:Targets are the detailed, shorter-term goals that will deliver the Group objectives and Policy commitments. Wherever practical, targets should be quantitative. They must be time limited, measurable and auditable. Most targets have a time expiry of 12-24 months. It may not be possible to set meaningful, quantified targets until 1 or 2 years after system development while data collection systems are put in place. However, qualitative targets, possibly including system development targets, should be set in the first/early years, as soon as circumstances permit.

STAGE 5: DESIGN THE ENVIRONMENTAL MANAGEMENT SYSTEM (EMS)

5.4 Issue internal release to demonstrate progress and commitment to the environmental programme

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TIP:Quantified targets and reporting data (that reports performance against target) can be reported as "absolute" data, or they can be "normalised" against a standard unit of business performance with which that performance aspect has a proportional relationship (for example: by revenue, number of customer accounts, number of employees etc). Normalisation, if not presented appropriately, can impact the meaningfullness, transparency and accuracy of the reported data. To be successful, decisions on normalisation need to be made at the individual organisation level such that they take into account business management and reporting structures.

TIP:Issue a Board communication to all staff advising of the development of the EMS and imminent implementation, emphasising the purpose of the EMS and its importance to the business.

STAGE 6: IMPLEMENT AND OPERATE THE ENVIRONMENTAL MANAGEMENT SYSTEM (EMS)

6.1 Plan for implementation – in particular identify the programme of implementation through the business

6.2 Implement first phase of the programme

6.3 Formalise Business Unit management commitment

• Build upon planning work (see Stage 5) and gain formal business unit management commitment to the EMS including:

– Providing specific training/guidance to improve understanding among all staff;

– Definition of individual performance objectives relating to environmental management and reporting (where appropriate); – Inclusion of environmental roles in job descriptions;

– Allocation of management time;

– Integration of environmental procedures into other management processes/systems; and

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TIP:The plan should including the following: milestones and timeline; training schedule; definition of critical path factors; deliverables and benefits; and allocated responsibilities for reporting information.

TIP:Define timetable for roll-out in consultation with the relevant parts of the business.

TIP:It is common for implementation to be phased. The early phases of implementation will typically include Group management activities as well as selected business units/regions and functions. First phase selection typically comprises those business units/regions with a significant environmental impact and/or those high impact activities that apply across the business (e.g. transport policy). The ordering of issues for attention should be based on the priorities of the organisation identified during the course of the environmental review. (See Stage 3).

TIP:Encourage business unit managers to give their commitment to support the entire EMS implementation and operation from the outset. Initially local champions will need to make additional time commitment, this is typically recouped as the management system matures.

TIP:Training options include central training of all staff; business unit/regional training for a limited number of staff who then conduct internal training; or use of external trainers. Many organisations have found workshop style training to be effective. In some instances environmental training can be successfully integrated into other, existing training programmes (e.g. health and safety and internal control audit programmes).

STAGE 6: IMPLEMENT AND OPERATE THE ENVIRONMENTAL MANAGEMENT SYSTEM (EMS)

6.4 Establish communication channels at Business Unit and Group level

• The following structure offers an example:

– Strategic Team (Group wide with business unit input) to discuss strategic evolution of the EMS, competitor and statutory developments;

– Business Unit Groups (e.g. investments, insurance) to consider relevant stakeholder developments, methods for including environmental considerations; and

– Function Groups (e.g. property/facilities management, purchasing) to consider relevant statutory/good practice developments, technological options, to provide specialist assistance.

• Ideally use existing communication channels for wider cascade/staff involvement.

6.5 Continue EMS roll-out across the business

• Implement the EMS according to the phasing plan developed in Stage 6.1.

• Implement ongoing checking mechanisms to monitor the status of programme implementation and achievements. Also identify the action that will be taken in the event of non-compliance with deadlines or conflict.

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TIP:Wherever possible, use existing communication channels for formal management communications (e.g. business unit meetings, management performance reports). Ensuring that the EMS management structure reflects existing management structures and is appropriately integrated into wider business management processes (see Stage 5) will facilitate successful communication with limited additional effort.

TIP:Encourage networking for informal communication.

TIP:The strategic team needs to plan ahead to extend the Policy and EMS application into those business units/regions and/or functions excluded from the first stage of implementation.

TIP:Once commenced, the EMS will be subject to evolution and development. The Strategic Team will need to monitor developments within the organisation which have environmental significance and developments outside of the organisation. This management system will need to be maintained. Business Unit Groups and Function Groups will identify specific changes/developments that need to be taken into account. These updates will be made at defined intervals (e.g. annually in the update of local action plans and targets and group wide through the management review).

STAGE 7: AUDIT THE EMS

7.1 Define internal EMS audit programme

• Define the audit objectives, which EMS components will be audited and how the audit will be achieved. The audit needs to include:

– Review of key system documentation; – Interviews with appropriate staff;

– Audit check of system implementation and performance; and – Review of progress of any previous audit recommendations.

• Decide on audit team(s) members – whoever is conducting the audit must be independent of the EMS implementation teams.

7.2 Prepare for the audit programme

• Provide appropriate auditor training and develop the audit protocol, report format and pre-audit checklist.

• Develop standard evaluation guidance for use by the auditors to facilitate consistent and comparable interpretation of audit findings. This should identify areas of over and under performance against EMS "system requirements" and against targets.

7.3 Conduct audits

• Complete interviews and document review to confirm the level of compliance with the EMS.

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TIP:The audit needs to interrogate the EMS to determine that the processes put in place achieve the required level of management control over the identified significant impacts (see Stage 3.4). The audit must confirm the objectivity of the decision-making processes that determined the scope of the management system. The audit structure will be largely dependent upon the design of the management system.

TIP:The audits can, and should, be integrated with existing internal control processes and where possible use existing functions, such as internal audit or health and safety, to complete much of the work. The frequency, timing and means of completing the EMS audits will be strongly influenced by existing internal control arrangements. If internal audit resource is to be used, it is necessary that they are provided with some environmental training or work with external specialists.

TIP:The audits can be conducted on a rolling programme. For example, they can cover different business units/regions/functions in each year or can be structured to audit Group wide implementation of the different EMS components. Typically, audits are conducted of each part of the system either once per annum or at regular intervals (e.g. every 2 or 3 years).

TIP:There are some approved national auditor training courses available in many countries. The approved courses satisfy the existing environmental management standards. It is not mandatory to have auditors complete this training unless certification under one of the standards is sought. However, attendance usually proves beneficial for auditors with no environmental experience.

TIP:The audit programme should cover the entire business. It is important that in addition to the business units, all Group functions are included.

TIP:Include time to receive questions from the business units and request their suggestions on EMS improvement and development.