New Wine in Old Bottle: IFC Performance Standard PS 1 and ISO 14001 EMS  

Environmental Management Systems (EMS) play a role in helping organizations to be proactively compliant and continually improve their environmental performance. Many organizations today are certified to ISO 14001 EMS. Although ISO 14001 is voluntary, certifications are sought to meet the investor and market requirements as well as build reputation.

Most ask me whether investing in establishing, operating and maintaining ISO 140001 EMS really worth? There are many who have seen a partial paralysis of the EMS post establishment and believe that certification exercise is more of a green wash or simply ticking the check box.  But indeed there are few, who have achieved an impressive return on investment.

According to me ISO 14001 EMS is absolutely worth if the middle management understands its power  and its recognizes systems flexibility to respond to the new challenges and opportunities. ISO 14001 EMS has to be a living document and should be ideally co-created and not solely driven by the consultant. The top management should support the middle management to make necessary customizations, expansions and refocusing, cleverly using the various provisions and clauses. You simply don’t need to discard the old bottle but instead pour new wine for the business parties you want to hold!

Certainly, the core principles of PDCA (the Demming cycle) are robust enough and so are the clauses that can be used to accommodate organizations growing interests. You can weave in topics like double materiality, GHG emissions management, biodiversity, SDG orientation, Eco-product design etc. by working on the relevant clauses while maintaining the core management system. The old bottle will stay.

I often get into situations, especially at the funds and their investee companies on how to handle existing ISO 14001 EMS when the Limited Partners (LPs) ask compliance with IFCs Performance Standard (PS 1). Although both ISO 14001 and PS 1 share the PDCA approach, the purpose of the two management systems is bit different. Hence, a step of integration is necessary to reduce the overlaps, avoid additional costs of maintenance.

The International Finance Corporation’s (IFC) PS 1 is a sustainability framework and is primarily aimed at guiding private sector companies and financial institutions in managing the environmental and social risks and impacts associated with their projects and investments. IFC has published detailed Guidance Notes (of approximately 1000 pages covering 8 standards) and has recently developed a free web based tool to do self-assessment of ESMS for financing institutions.  On the other hand, ISO 14001 is an international standard that provides a systematic approach to managing environmental aspects within an organization including supply chains.

PS 1 is essentially pushed at the borrowers by the investor community. It is a generic and principle based EMS but with no certification procedure. I often call PS1 as a soft tool compared to ISO 14001 EMS as it has all the hard elements such as certification, periodic internal and external audits, much more detailed record keeping and inclusion of addressing E&S issues over the supply chain.

Further, in ISO 14001, E&S risks are covered in normal, abnormal and emergent situations of the activities. If cleverly used then the system can lead to generation of a comprehensive E&S management plan over the life cycle of the organization’s business and also help in developing special plans for emergency preparedness, GHG emissions and biodiversity protection.

In IFC PS1 risk assessment of projects/transactions is however much more rigorous using processes such as ESDD and ESIA.  Further, PS1 places a strong emphasis on stakeholder engagement, including local communities. This can help build positive relationships with affected communities and mitigate potential social conflicts, which are particularly important in project/transaction based contexts.  PS1 also addresses a wide range of environmental and social subjects, including labour and working conditions, biodiversity conservation, indigenous peoples’ rights, and cultural heritage. Finally, PS1 aligns with international development goals, such as the United Nations Sustainable Development Goals (SDGs). Compliance with PS1 can thus contribute to an organization’s efforts to meet these global targets.

It is possible to integrate all these elements of IFC PS 1 in ISO 14001 EMS using certain clauses. This however requires a thorough and deeper understanding of both management systems. For example, it is possible to include double materiality assessment through Clause 4.3: Determining the Scope of the Environmental Management System, Clause 6.1.2: Environmental Aspects, Clause 6.1.3: Compliance Obligations, Clause 6.2: Environmental Objectives and Planning to Achieve Them and Clause 9.1.2: Evaluation of Compliance.

While ISO 14001 EMS does not directly address SDGs, there are connections between ISO 14001 EMS and the SDGs, and organizations can use ISO 14001 as a tool to contribute to SDGs such as Goal 6: Clean Water and Sanitation, Goal 7: Affordable and Clean Energy, Goal 12: Responsible Consumption and Production, Goal 13: Climate Action, Goal 14: Life Below Water and Goal 15: Life on Land.

Additionally, ISO 14001 is part of a broader family of ISO standards related to sustainability, including ISO 26000 (Guidance on Social Responsibility) and ISO 14064 (Greenhouse Gas Accounting and Verification). Organizations interested in a more comprehensive approach to sustainability, which includes social and gender-related aspects, may choose to integrate these standards into their overall sustainability management system alongside ISO 14001 EMS.

Unlike IFC PS 1, ISO 14001 EMS can include the consideration of eco-design principles for products. A Product-Oriented Environmental Management System (POEMS) is a specialized approach to environmental management that focuses on the environmental aspects and impacts associated with specific products or product lines within an organization. Unlike a traditional EMS, which typically addresses an organization’s operations, a product-oriented EMS zooms in on the environmental considerations related to the entire lifecycle of a product, from design and development through production, use, and end-of-life disposal. This approach not only reduces environmental impacts but can also lead to cost savings and improved competitiveness in the marketplace. The big bonus here is that of innovation or creating a knowledge capital. IFC PS 1 is pretty weak in this context.

Addressing supply chain environmental impacts in ISO 14001, especially when an organization has limited control over its suppliers, can be challenging but is still feasible. ISO 14001 recognizes that organizations have varying degrees of control over their supply chains, and it provides guidance on how to manage environmental aspects and risks within supply chains, even when direct control is limited. Here are some strategies to address supply chain issues in ISO 14001 that include identification of  relevant suppliers, communication of expectations, conducting supplier audits and risk assessments, setting supplier environmental performance criteria, encouraging environmental Improvement, promoting supplier collaboration, maintaining supply chain transparency and looking for alternative suppliers. PS 1 on the other hand indirectly addresses the supply chains by asking compliance of the contractors and subcontractors, assessing labour and working conditions, ensuring community engagement and by protecting human rights.  

To conclude, it is worth that organizations with ISO 14001 EMS certification, adapt to expectations of the IFC PS 1 instead of developing a separate ESMS. Such an integration will lead to enhanced sustainability performance, streamlined management systems, reduced duplication of efforts, improved stakeholder engagement, and the ability to meet the requirements of a diverse range of stakeholders, including investors, regulators, and local communities. Organizations like IFC should provide guidance on such an integration and not compel their borrowers to create separate ESMS documents just for the sake of compliance or to  tick in the check box. Finally, consultants who are used to generate a boiler plate ESMS should do little more insightful work, be more creative and add value to their consulting service.

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