Environmental Auditing: A closer look (Part I)

This article is based on a presentation that I made at Moray House last Thursday evening. It seeks to provide answers to two of the following five questions that I had posed.

 

What is environmental auditing?

Why is it so important in today’s environment?

How is environmental auditing different from other forms of auditing?

Who is responsible for conducting environmental auditing? and

What are the techniques used in conducting environmental auditing?

 

Environmental auditing in perspective

In a previous article, we defined an environmental audit as an independent review or evaluation to assess the extent to which an organisation is conducting its operations with due regard to the need to safeguard the environment against degradation, and in compliance with applicable laws, standards, regulations, rules and policy guidelines. Where deficiencies or gaps are identified, they are reported along with an assessment of their impact, and recommendations made for corrective action. Environmental auditing is not dissimilar to financial auditing, except that the focus is on the environment instead of the financial statements.

The International Organisation of Supreme Audit Institutions (INTOSAI) considers environmental auditing as “performance, compliance or financial audit addressing the approach taken by responsible bodies (e.g. government) to a specific environmental problem, or environmental policies, or programmes, as well as their performance in managing environmental issues”. On the other hand, the International Chamber of Commerce defines it as “a management tool comprising systematic, documented, periodic and objective evaluation of how well environmental organisation, management and equipment are performing with the aim of contributing to safeguard the environment by facilitating management control of practices and assessing compliance with company policies, which include regulatory requirements and standards applicable”.

An environmental audit is not to be confused with an Environmental Impact Assessment (EIA). The latter involves evaluating the likely environmental impacts of a proposed project or development, taking into account inter-related socio-economic, cultural and human-health impacts, both beneficial and adverse. According to the United Nations Environment Programme (UNEP), it as “a tool used to identify the environmental, social and economic impacts of a project prior to decision-making. It aims to predict environmental impacts at an early stage in project planning and design, find ways and means to reduce adverse impacts, shape projects to suit the local environment and present the predictions and options to decision-makers. By using EIA both environmental and economic benefits can be achieved, such as reduced cost and time of project implementation and design, avoided treatment/clean-up costs and impacts of laws and regulations”. Environmental auditing is a regular ex post evaluation on an organizational basis, in contrast to an EIA which is project specific undertaken on an ex ante basis before any approval is granted to proceed with the project.

Importance of environmental auditing

Consider the following. By the end of the century, the global temperature is likely to rise by more than two degrees Celsius. This prediction is based on two different studies recently published in the journal, Nature Climate Change. If this mark is surpassed, the likely consequences are: (i) a further rise in sea levels thereby threatening coastal cities; (ii) mass extinctions of plant and animal species; (iii) super droughts; (iv) increased wildfires; (v) intense hurricanes; (vi) decreased crops and fresh water; and (vii) further melting of the ice in the Arctic and Antarctic regions.

Across the United States, average temperatures since the 1980s have risen faster than at any time in the past 1,700 years, and each of the last three years has been the warmest on record globally. According to a recent report from the Medical Society Consortium on Climate and Health, rising temperatures and shifts in weather patterns would lead to reduced air quality, food and water contamination, more infections carried by mosquitoes and ticks, and stress on mental health.

The World Health Organization estimates that: (i) 12.6 million people die globally due to pollution, extreme weather and climate-related disease; and (ii) climate change between 2030 and 2050 will cause 250,000 additional global deaths. Another recent study indicated that by the end of the century, it would be fatal to go outside in some parts of the world because of soaring temperatures and high levels of humidity. The study identified northern India, Bangladesh and southern Pakistan, the home of 1.5 billion people, as the most vulnerable to these extreme weather conditions.

 

Scientists and climate change experts have advocated: (i) a significant shift away from the use of what Al Gore described as ‘dirty’ fossil fuels from crude oil and coal production to clean renewable energy; (ii) increase financial incentives to avoid greenhouse gas emissions; and (iii) increased funding for research in new technologies to mitigate the impact of climate change. According to Al Gore, the good news is the cost of generating energy from solar, wind and other sources as well as the cost of storing the energy overnight in batteries, have decreased dramatically, resulting in lower energy costs compared with those relating to the use of fossil fuels. In India, there has been a record drop in the cost of solar power to Rs. 2.44/kwh or 3.76 US cents/kwh.

Recognizing the need to protect the environment by curbing the use of planet-harming fossil fuel and encouraging the generation and use of renewable sources of energy, 195 countries came together to sign the 2016 Paris Agreement on climate change. The aim is to strengthen the global response by keeping global temperature rise this century to well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit it even further to 1.5 degrees Celsius.

 

According to Newsweek, impacts are still expected at 2 degrees of warming, but at least some of the world’s coral reefs could survive. Beyond this level, coral reefs, which a quarter of the world’s marine life and half a billion people depend on, are expected to be completely wiped out. Newsweek further stated that “The terrifying math of climate change shows us that in order to stay within the 2-degree safety limit, the majority of the world’s existing fossil fuel reserves need to stay in the ground and not be burned… At six degrees of warming, which we could get if all remaining fossil fuels were burned, falling oxygen levels could be a threat to the survival of life on earth”. Several major banks, including the African Development Bank and Asian Development Bank, have already decided not to invest in oil and gas exploration.

Today, carbon dioxide levels are at its highest in 800,000 years at more than 403.3 parts per million, compared with 400 ppm in 2015. UNEP has stated that world greenhouse gas emissions, mainly from burning fossil fuels, are now about 54 billion tons a year and should be cut to 42 billion by 2030 to get on track and stay below 2 degrees Celsius. The average motor car emits about six tons of carbon dioxide every year which works out at 20 pounds for every one gallon of gas used. Ice is melting at an ever-increasing rate at the earth’s poles, especially in Antarctica where a 400-foot waterfall has been found.

Recently, the cities of San Francisco and Oakland in California filed separate lawsuits against five oil companies – ExxonMobil, Chevron, ConocoPhillips, BP and Royal Dutch Shell –  seeking compensation to protect them against rising sea levels which they blame on climate change. The two cities are alleging that the companies have “knowingly and recklessly created an ongoing public nuisance that is causing harm now and in the future risks catastrophic harm to human life and property.” They are seeking compensation to finance infrastructure to deal with rising sea levels. Several counties in California have filed similar lawsuits while prosecutors for New York and Massachusetts are investigating ExxonMobil over the possibility that it misled investors in public statements on the risks of climate change. In a recent interview, Al Gore asserted that ExxonMobil has produced the “finest” climate change denial and is operating in a manner deeply unethical in terms of the promises made every year.

 

In the wake of hurricanes Harvey and Irma that left a trail of destruction of enormous proportions in southern United States and the Caribbean, Pope Francis had the following to say: “You can see the effects of climate change and scientists have clearly said what path we have to follow…All of us have a responsibility, all of us, small or large, a moral responsibility. We have to take it seriously. We can’t joke about it. Each person has their own. Even politicians have their own”. The Pope cautioned that these events should prompt people to understand that humanity would “go down” if climate change is not addressed, and that history would judge those who deny the science on its causes. He warned that political leaders who do not want to work with other countries to stem global warming should be held morally responsible for future effects on the planet.

 

Last month, an iceberg about four and a half times the size of Manhattan broke off Antarctica. It occurred in the interior section of the glacier, leading scientists to theorise that it could be the result of warm ocean water attacking the ice from below causing instability. Were the glacier to melt in its entirety, sea levels could rise by over one and a half feet. Earlier this year, a similar occurrence took place when an iceberg about the size of Delaware broke off Antarctica. Currently, there are drought conditions in South America, Africa and Indonesia which result in less carbon dioxide being absorbed by plants during photosynthesis. And in Northern California, wild fires continue to rage mainly due to heat which causes water to evaporate.

 

A few days ago, a massive hole, known as a polynya, almost the size of South Carolina, appeared in the middle of the frozen Wendell Sea of Antarctica. It is located far from the coast where such occurrences frequently take place, which makes this occurrence unusual. Scientists are uncertain whether it is related to climate change, some having speculated that the polynya’s formation is part of a cyclical process.

Having regard to the above, I am convinced that every individual, every organisation and every government, indeed the entire global community, must display the highest degree of consciousness of the urgent need to protect the environment against all forms of degradation. We must, of necessity, phase out the use of fossil fuels and switch to clean renewable sources of energy such as those derived from hydropower, wind, solar and other sources. I hope I have made out a case of importance of environmental auditing as a means of providing assurance as to how well we are protecting the environment.

 

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