Environmental Assessment Sourcebook UPDATE

1 Environment DepartmentAugust 1995 The World BankNumber 11 Environmental AuditingInsert in UPDATE Binder chapter 11 Mounting public concern over the quality of the environment and stricter Environmental legislation have led to a de-mand for reliable Environmental information on industries and other types of enterprises. In recent years, environmentalauditing has come to be seen as a tool for generating such information and for assessing enterprises for the potential envi-ronmental risks they may cause, their Environmental liabilities, and their degree of compliance with Environmental stan-dards and legislation. Users of such information are the companies themselves, customers, commercial banks, other lendinginstitutions, local and national governments, and the general public.

2 Environmental audits help reduce Environmental andpublic health risks, and assist in improving Environmental management at the company level. The World Bank increasinglyrequests that Environmental audits be done for certain types of projects. The audits are part of the overall Environmental as-sessment (EA) process and may complement or substitute for normal EA studies, depending on the type of UPDATE discusses the principles of Environmental auditing, different types of audits, and how they can be used inthe context of Bank , including standards for Environmental au-diting (the ISO 14000 series).Over the last few years, Environmental audits havealso begun to be promoted by multilateral develop-ment banks as Environmental management institutions use Environmental audits primarilyto assess the past and current Environmental perfor-mance of companies and utilities that they directly orindirectly finance.

3 When an audit shows that a com-pany or utility is failing to meet certain standards, orthat there is a liability due to contamination, financ-ing may be conditional on investments in pollutioncontrol or is an Environmental audit?An Environmental audit is a methodical examinationof Environmental information about an organization,a facility, or a site, to verify whether, or to whatextent, they conform to specified audit criteria may be based on local, national or inter-national Environmental standards, national lawsand regulations, permits and concessions, internalmanagement system specifications, corporate stan-dards, or guidelines of organizations such as theWorld Bank. The reasons for undertaking an auditand the aims to be achieved will determine theaudit the 1970s, some European and North Americancompanies started to systematically evaluate theirown compliance with Environmental legislation.

4 Thepractice in many ways resembled financial auditingand so it became known as Environmental use of Environmental audits spread rapidly in in-dustrialized countries due to stricter environmentallegislation and the increasing exposure of the privatesector to the risk of being held legally liable for envi-ronmental damage. As far as companies were con-cerned, this trend turned Environmental problemsinto financial the mid-1980s, the International Chamber ofCommerce presented Environmental auditing as an in-ternal management tool to facilitate management con-trol of operating practices and to assess compliancewith company policies. Around 1990, many commer-cial banks in a number of industrialized countriesstarted to use Environmental audits as a tool to limitand manage credit risks related to the environmentalperformance of their borrowers.

5 National standardsfor Environmental management systems (EMS) andenvironmental auditing have also been introduced insome countries, (see boxes 1 and 2). The InternationalStandards Organization (ISO) is presently developinga range of standards in the area of Environmental man- Environmental AssessmentUPDATES ourcebook2baseline information for an Environmental assessmentstudy whenever a rehabilitation or expansion isplanned at an industrial understand what constitutes an environmentalaudit it is useful to compare it with financial Environmental and financial audits should beconducted by qualified auditors, according to system-atic procedures, and encompass an examination toverify that the issues under consideration conform tospecified or planned arrangements.

6 They rely on audi-tor objectivity, professional judgment, and verificationof reported findings. However, Environmental auditsare less structured and usually lack legal backing andgenerally accepted accreditation procedures. None-theless, this is changing. The United Kingdom (UK) Environmental Auditors Registration Association(EARA) Scheme is the only scheme operating interna-Box 1. Indonesia: Introducing an environmen-tal audit policyThe Indonesian Government is introducing environ-mental auditing as a tool to help business and industryimprove Environmental management, reduce financialrisk and compete on the world market. As the firstdeveloping country in East Asia to take such an initia-tive, Indonesia is preparing an Environmental auditguideline in the form of a decree from the State Minis-try for Environment.

7 The guideline has the followingmain objectives:(a) encourage the private sector to self-regulateits Environmental policies and practices and toincrease its responsibility to share-holdersand society;(b) create more opportunity for public participationin the light of increasing public awareness of envi-ronmental issues; and(c) enhance competitiveness in the world market byintroducing higher Environmental business stan-dards, in areas such as cleaner production, wasteminimization and policy is based on standard international defini-tions of Environmental auditing and will be introducedon a voluntary basis. It will, however, become manda-tory under certain specified conditions, for example, ifan activity is suspected to endanger the public or publicinterest.

8 In such cases, the State Ministry for Environ-ment may require the parties to conduct an audit andsubmit the results to the policy is designed to complement already exist-ing Environmental Assessment (AMDAL) using AMDAL to assess the Environmental impactof a proposed development and auditing to assess andmonitor the impacts of the operational phase of that de-velopment, Environmental stewardship can be pro-vided from pre-feasibility to decommissioning of the audit guidelines, coordinationof audit training, control and monitoring of the auditsystem, and development of protocols for implementa-tion will be the responsibility of BAPEDAL, the Envi-ronmental Impact Management Agency, which is alsoresponsible for the AMDAL Environmental audit can be viewed as a snapshot of the Environmental situation at a givensite.

9 It does not, like most Environmental assessments,attempt to predict the potential impacts of planned in-vestments (although Environmental risks associatedwith an existing operation or a planned expansion areoften identified). However, Environmental audits canbe useful to assess the implementation of a projectagainst requirements derived from an environmentalassessment. Audits may also serve as a source ofBox 2. Norway: Internal control regulationNorway is one country where the government is pro-moting Environmental audits to improve environ-mental performance in both the public and privatesector, and to supplement traditional inspection workin the mid 1980s a governmental working groupfound that the results of the authorities attempts toimprove company performance in the areas of safety,occupational health and Environmental protectionwere not commensurate with their efforts.

10 It was con-cluded that the traditional command and control in-struments like regulations and enforcement needed tobe complemented with a systems approach on thepart of both enforcement bodies and companies. Withthe advent of the Internal Control regulation compa-nies are required to provide assurance that they havesystems in place enabling them to meet all applicablelegislative requirements, the burden of proof forenvironmental compliance is reversed. In this waythe regulation underscores that the responsibilitiesfor the Environmental performance clearly rests withthe company and not with the regulation specified the necessary elements ofa quality assurance system in the areas of safety,health and the environment.