Issue 9 February - May 2002by Johann Moller

Traders spoke to Johan Moller, National Manager of Certification Services at KPMG*, about the business implications of environmental certification.

What benefits does environmental certification offer to companies?
First and foremost, by implementing an environmental management system, a company demonstrates to the business community, public and all other interested parties that it operates responsibly.

On a more tangible level, environmental certification has bottom line financial benefits to companies that embark on the process. As part of the audit, we attempt to find ways of reducing a company’s consumption of all natural resources. Companies are obliged to put in place mechanisms for reducing consumption of these resources, and in so doing, they create a mindset within the company that it has to operate more economically. As an example, we recently conducted an environmental audit on a manufacturer who revealed that, each morning, all their machinery was fired up at the same time. As a result the company was being charged for maximum demand as well as ordinary consumption. On our recommendation, the company introduced a staggered start-up system, which saved them a great deal on money. By looking at their energy requirements, we also found that they had been paying their neighbour’s electricity bill for a period of five years!

In addition to the bottom line savings, any business wishing to expand its operation should consider environment accreditation. Banks—especially development banks—require reduced risk, which is achieved, in part, by a company demonstrating that it is a responsible corporate citizen.

Finally, any company looking at the export market increasingly requires environmental certification. Most European companies that source products and components expect their suppliers to be ISO 14001 compliant before they will even consider doing business with them.

In summary therefore, it is the economic benefits, the opportunity to overcome trade barriers and access to capital that are the main business drivers behind environmental certification.

What is the first step in the process?
I believe the first step towards sound environmental management systems is the building of national/continental pride. People often try and get away with lax standards by saying, “This is Africa, it is not like Europe here”. I say, “Exactly, you have to work a little harder if you want to meet the African standard!” In all my dealings I try to promote a sense of pride in Africa. Mindsets must change. Many Africans believe that Europe’s level of development is what it is because of the efforts of their governments and not because of the will of the people. They want to sit back and wait for government to deliver, not realising that you have to work very hard yourself to achieve long term objectives as a nation and as a people. Africans also allow themselves to be exploited. A lot of African businesses go for short-term financial gain and don’t consider the long-term implications of their actions.

Can you outline how the auditing process works?
We have specific mandate requirements by which we determine how many man-days we will require to fully assess the environmental management system and its implementation. The formula we use takes into consideration the geographical scope of the operation, the number of employees, turnover, tonnages in terms of mining, etc. It starts with a visit to the client’s premises to access the actual operation.

We then conduct a risk assessment in which we look at the reputational risk to KPMG. As a certifier, we are acutely conscious of our own credibility in the market place, which in the long term, will affect the reputation of our clients. If approved, the client is issued with a quote and, if accepted, an engagement letter setting out exactly how the assignment will be conducted.

We undertake an initial assessment—usually referred to as a pre-certification audit—in which we focus on management system capability. We usually give the client some time to correct any non-conformances that we might find, before going onto the next step, which is the final assessment—or certification audit. During the certification audit we focus on successful implementation and workability of the management system.

Once complete, more visits can be scheduled if there are still non-conformances outstanding. Usually however, the position is such that the client can just send us documented evidence of what has been done to correct the situation. We then proceed with approval of the certification.

The audit manager prepares a report with his recommendations. This report is sent to the KPMG approvals board in The Hague. KPMG has an anchor practice in each world region, and the South African office falls under KPMG Certification BV in The Hague, Netherlands office. All our auditors are approved and recognised by the anchor practice and all certificates based upon our audit work are issued from there, ensuring international consistency and quality control.

Once the certificate has been issued, we will conduct periodic surveillance audits, usually at six, twelve and twenty-four month intervals. After thirty-six months, the organisation is re-certified and a new contract is entered into. If we find that the situation has deteriorated, we reserve the right to withdraw the certification or schedule additional surveillance audits.

What criteria do you evaluate against in an environmental audit?
Firstly, we identify all areas of environmental impact, including actual impacts, indirect impacts, potential impacts and positive impacts that might hold risk or opportunity. The company being audited will need to set targets as to how they plan to improve their environmental performance and are required to provide us with a detailed plan of how they are going to achieve set targets.

The company is also obliged to delegate the responsibility of environmental management appropriately and see to it that competency is created within the organisation for this role. Controls to monitor improvement or decline in the company’s long-term performance must be implemented, and provision for emergency situations made. Self-assessment is a key component to the process.

It is also imperative that environmental management be aligned with other disciplines of management, such as human resources management, asset management and financial management. In other words, there must be evidence of an integrated process. If an organisation’s environmental management system is deemed to be on the periphery of its overall operational strategy, it will be ineligible for certification. An example of this would be a company undertaking to implement a certain change within a set timeframe, but not making provision for such action in its operational budget, or allocating staff members for completion of the task in question. ISO 14001 requirements are that the company demonstrates the means by which it plans to achieve its targets.

How much does it cost to conduct an environmental audit?
In the Americas and Europe the average daily rate for an auditor is between USD1600 and USD1800 a day. In South Africa, it is substantially less expensive. KPMG has entered the market here at R3600 per day. In evaluating the cost to company, however, one must consider the value being added by the audit. Our auditors are specialists in their field, and provide an expert service that adds value to our clients.

What are the training requirements for auditors?
Everyone in our group has a technical background. At KPMG, we will look at any degree in natural sciences or engineering. A Bachelor of Arts degree in certain areas (eg Geography) would also be acceptable. Appropriate work experience in high-impact industries is important.

Once employed, auditors are required to undertake a number of short courses on subjects such as waste management, rehabilitation, environmental law, etc, as well as undergo in-house training on the audit methodology. In addition to the above, auditors will initially work under strict supervision to ensure their competency before they are officially recognised by KPMG.

Is there a move to develop auditing skills into Africa?
We are presently assisting in the development of local competency in KPMG Nigeria, so that the local KPMG office can partake to a greater extent in the work that we do for one of the international oil companies there. It is a slow process to develop the appropriate competencies and we cannot compromise on our standards. Trainees partake in the work, but do not have capacity to manage the entire contract as yet. Our long-term goal is to develop competency with regards to sustainability assurance services throughout Africa. KPMG currently operates in 25 African countries.

How good is environmental legislation in Africa?
The level to which legislation has been developed differs from country to country. Some countries have very good environmental legislation, but implementation and enforcement is limited; in other cases, the development of legislation still needs to go a long way. Unfortunately, as a certifier, we cannot impose any legal requirements over and above the law of the country. However, if a company has an environmental policy that exceeds the legal standards, as is often the case with multinationals operating in Africa, we are required to audit their performance against those policy requirements.

Is there a move in Africa by governments to tighten legislation?
Most definitely. In the past, ex-British colonies adopted British legislation. Looking to first world countries to adopt their standards is not a bad thing, but it needs to be properly adapted for the African environment and conditions. Some countries are now taking into account the environmental legislation of other African countries, such as South Africa, who have developed regionally appropriate standards.

What would you like to see happen, ie what is your ideal picture?
We are busy assisting the business communities in other countries to establish forums where issues relating to business sustainability can be discussed and information disseminated, along the lines of the Business Council for Sustainable Development in South Africa. We have already assisted Mozambique in developing such a forum, and Zimbabwe has one established. I would like to see this programme rolled out to at least the whole of Africa, and have people on the continent communicating openly with one another with regards to sustainable environmental management issues. Everything is in place to make Africa the richest continent on earth; we just need to make it happen!

KPMG’s Sustainability Services Unit conducts certification of management systems to ISO14001, ISO9001: 2000, and OHSA 18001 standards, as well as forestry(FSC)and HACCP certification dealing with food safety issues. The Unit also offers assessment of corporate governance strategies and verification of environmental reports. Due diligence investigations are carried out when mergers and acquisitions are considered to determine whether the environmental liability of companies has been accurately reported. The Unit’s other main service line is financial audit assists. This is required by an international audit standard ( IAPS 1010) and locally by SAAS 2501 that compels audit firms like KPMG to look at the financial provisions for environmental liability.

Author's Contact Details
Author: Johann Moller
Email: johann.moller@kpmg.co.za