Can An EMS Promote Technological Innovation?
An Environmental Management System (EMS) is generally regarded an environmental innovation in itself and is steadily becoming a standard, dominant approach to an organisation’s environmental management. However the debate persists over the role an EMS has on environmental technological innovations and its potential to lead the transition from present production systems.
Gregory Unruh offers a thought-provoking theory on the limitations of an EMS. He suggests that while EMS adopters may initially produce improvements in environmental performance, the EMS may in fact constrain organizational focus to the optimization of present production systems rather than exploring superior innovations that could improve the environmental performance of technological and organizational systems.
In this article I will give a brief overview of the main forces that drive diffusion of EMS, as discussed by Unruh; explain how these factors can hinder technological innovation; and consider policy implications of ‘EMS lock-in’.
Factors that create conditions for ‘EMS lock-in’: increasing returns of adoption, learning, network effects, government support
Central to Unruh’s idea is that incumbent industries are prone to inertia and tend to maximize returns through the exploitation of existing dominant designs. In particular, companies follow specific paths in their technological production processes and management hierarchies, which creates stability at the company and industry levels.
In the case of environmental management, increasing returns to adoption from economies of scale and learning can explain the widespread adoption of EMS by corporations. At the simplest level, increasing returns arise because there are large setup costs associated with the creation of the first EMS, which are later exploited and spread across an increasing number of adopting companies.
EMS adoption also creates increasing returns to learning as skills and knowledge accumulate through learning-by-doing and learning-by-using. Firms with EMS routines in place have already acquired relevant skills and knowledge during implementation and use, which familiarize management and lower the cost of putting a similar system in place.
In addition to the above, network or co-ordination effects occur as companies adopt standardized technologies directly through contracts with other organizations. Today, network effects are encouraging EMS adoption through their integration into corporate value chain management. For example, companies such as Ford Motor Co. General Motors, Honda, Toyota Motor Manufacturing and Xerox are seeking to manage their risks and gain legitimacy by requiring their suppliers to obtain EMS registration.
The network expands further as EMS implementation, reporting, audits and third-party verification all drive environmental management towards practices that require frequent standardized consulting and auditing services. This creates a secondary industry (profitable areas for consultants, auditors and rating agencies), which further extends the standardization of EMS practices and at the same time becomes dependent upon the continued adoption of EMS’s.
Network effects also induce third party investors and insurers to support standardized EMS’s as a way to manage their own risks and reputations. Thus the EMS moves from a tool for individual companies to manage environmental issues to a complex set of cross industry standards that create special interests dependent upon on-going extension of the standards.
Finally, governments often provide technical assistance and incentives for EMS adoption that further strengthens the value of EMS’s. For example, the European Union regulation on Eco-Management and Audit Scheme (EMAS) calls for member states to promote EMAS at the national, regional and local levels. Some initiatives in the EU have included providing information on the regulation and fostering participation through public procurement policy and other mechanisms.
As a result of these processes, EMS’s are undergoing an increasing return driven expansion and becoming the standard environmental management approach. On the one hand, a wide spread diffusion of EMS brings improvement in environmental practices through the improvement of existing production practices. However, the standardization also locks out alternative solutions and prevents efforts to explore new, superior production and business models.
It is therefore important that business organizations balance two conflicting needs to survive over the long term. Firstly, firms must continue exploiting existing production systems and product lines to maximize shareholder returns. Secondly, in order to secure competitiveness and a long-term survival, companies need to invest in exploring discontinuous innovations and market opportunities, something that over-reliance on EMSs may hinder.
In the context of the growing enthusiasm for bottom-up approaches to environmental regulation, Unruh offers a more critical view on the EMS. This could help firms to avoid ‘EMS lock –in’ and perhaps encourage adoption of more radical environmental practices.
About the Author Inga Sileryte
Inga holds an undergraduate degree in Political Science from the University of Nottingham and more recently, an MSc in Environment and Development from the London School of Economics. She has previously worked as a trainee in a Brussels based consultancy specialising in energy policies and in the Joint Research Centre of the European Commission. Inga has a broad interest in environmental, energy and R&D policies, its effectiveness and impact on the targeted industries, as well as the role of large business in achieving environmentally sound operations.