Cambridge Syllabus Notes

6.1 External Influences – Environmental

Learning objective

Understand how a business and its stakeholders may use an environmental audit – a systematic, documented review against legislation, recognised standards and the company’s own environmental policy – to assess and improve environmental performance.

1. Physical environmental issues that influence business

Businesses operate within a wider natural environment. Each issue can affect the three‑pillar model of sustainability (economic, social, environmental) and therefore the firm’s costs, reputation and strategic choices.

Issue	Quantitative/example impact	Link to sustainability pillar(s)
Climate change	UK carbon tax rose 10 % in 2023 → average manufacturing cost ↑ 2 % (≈ £0.30 per tonne of CO₂)	Economic (higher operating costs), Environmental (emissions), Social (public pressure for low‑carbon products)
Resource scarcity	Water‑use restrictions in the South East cut supply by 15 % → water‑intensive processes face a 5 % price rise	Economic (input‑price volatility), Environmental (conservation of scarce resources), Social (community water security)
Pollution	Air‑quality breach fines of £150 per µg/m³ of NO₂ over the legal limit	Economic (fines, remediation costs), Environmental (air quality), Social (health impacts on local residents)
Waste generation	Landfill levy £120 per tonne of mixed waste → a 10 % reduction in waste saves £12 000 annually for a 10 000‑tonne plant	Economic (disposal costs), Environmental (landfill reduction), Social (community waste‑management concerns)
Biodiversity loss	Loss of 5 % of local wetland area reduces natural flood‑mitigation capacity, increasing flood‑damage risk by £250 000 per event	Economic (insurance & repair costs), Environmental (habitat loss), Social (community resilience)

Identifying which of these issues is most material to the firm helps decide the scope and focus of an environmental audit.

2. What is an environmental audit? – and how does it differ from an environmental impact assessment?

Environmental audit: a systematic, documented review of an organisation’s activities, products and services against legislation, recognised standards (e.g., ISO 14001) and the company’s own policy. It looks at past and current performance and seeks compliance gaps and improvement opportunities.
Environmental impact assessment (EIA): a forward‑looking study carried out before a specific project is implemented, to predict and mitigate likely environmental effects. An audit, by contrast, evaluates existing operations and management systems.

3. Why conduct an environmental audit? – mapping reasons to stakeholder groups

Regulatory compliance – Regulators need evidence that the firm meets permits and legal limits.
Reputation & CSR – Customers, local community and NGOs look for proof of responsible practice.
Financial performance – Shareholders & investors are interested in cost savings from reduced waste, energy use and fines.
Risk management – Insurers & senior management use audit findings to assess environmental liabilities.
Strategic planning – R&D, product managers and supply‑chain teams use the data to shape greener products, sourcing policies and market positioning.

4. Key stages of an environmental audit

Stage	Typical activities	Brief evidence checklist	Typical output
1. Planning	Define scope, objectives and audit criteria; appoint internal or external auditors; develop timetable.	Audit brief, scope document, audit‑criteria matrix, risk‑assessment log.	Audit plan, checklist, agreed schedule.
2. Data collection	Review documents, conduct site visits, interview staff, measure emissions, waste and resource use.	Utility bills, waste‑log sheets, emission monitoring reports, photographs, interview transcripts.	Evidence base (records, measurements, observations).
3. Evaluation	Compare performance with legal limits, ISO 14001 clauses and best‑practice benchmarks; rate significance of each impact.	Compliance matrix, gap‑analysis worksheet, impact‑severity rating sheet.	Compliance summary, gap analysis, risk‑rating report.
4. Reporting	Draft a written report, include an executive summary, formulate recommendations and an action plan.	Draft report, management response form, corrective‑action schedule.	Formal audit report, executive summary, action‑plan timetable.
5. Follow‑up	Implement recommendations, monitor progress, review effectiveness and schedule the next audit.	Improvement log, revised policies, performance dashboards, re‑audit calendar.	Updated procedures, performance‑improvement record, next‑audit plan.

Feedback loop: Findings from the audit feed directly into strategic planning – e.g., setting new waste‑reduction targets, informing capital‑investment decisions (such as installing renewable energy) and shaping product‑development road‑maps.

5. Legislation, regulations & standards that shape the audit

UK/EU primary legislation – Environmental Protection Act 1990, Climate Change Act 2008, Waste (England and Wales) Regulations 2011, Water Resources Act 1991, Air Quality Regulations 2016.
International standards – ISO 14001 (Environmental Management Systems), EMAS (EU Eco‑Management and Audit Scheme), ISO 14064 (GHG accounting).
Sector‑specific rules – REACH (chemicals), EU Emissions Trading Scheme (ETS), UK’s Plastic Packaging Tax, Renewable Transport Fuel Obligations.
Global benchmarks (useful for multinational firms) – UN Global Compact environmental principles, World Bank Environmental and Social Framework, GRI (Global Reporting Initiative) standards for disclosures.

These statutes define the legal benchmarks the audit must assess and often dictate the documentation required (permits, monitoring records, compliance certificates).

6. Stakeholders involved

Internal: senior management, operations & production, health & safety, finance, HR, R&D, procurement.
External: regulators, local community, customers, suppliers, NGOs, investors, insurers, certification bodies.

7. Using audit results – practical applications (with examples)

Stakeholder	How they use the findings
Senior management	Sets a 20 % waste‑reduction target for the next three years and allocates £2 M capital for a solar‑panel project identified from energy‑hotspot data.
Regulators	Cross‑checks audit evidence against emission permits; decides whether to renew the permit or impose additional conditions.
Investors	Incorporates audit‑derived ESG scores into portfolio risk models; may require the firm to obtain ISO 14001 certification as a condition of funding.
Customers	Uses audit‑verified carbon‑footprint data to select a greener supplier; requests proof of reduced packaging before awarding contracts.
Local community	Monitors audit‑reported water‑quality results; collaborates on a joint river‑restoration programme.
Suppliers	Adapts their own processes to meet the buyer’s environmental criteria identified in the audit, securing continued contracts.

8. Benefits of an environmental audit

Improved legal compliance – reduces risk of fines, enforcement action or loss of licences.
Cost savings – e.g., Savings = (Reduced waste tonnes) × (Disposal cost per tonne); energy‑efficiency projects often deliver a 5‑15 % reduction in utility bills.
Enhanced brand image – attracts environmentally‑conscious consumers, talent and media goodwill.
Stronger stakeholder relationships – transparency builds trust with regulators, communities and investors.
Innovation stimulus – audit data highlight opportunities for greener products, circular‑economy models or new revenue streams.

9. Limitations, challenges & mitigation

Resource intensive – time, expertise and cost.
Mitigation: Adopt a phased audit, combine with existing management‑review cycles, or use a cost‑benefit threshold to prioritise high‑impact areas.
Potential bias when internal auditors lack independence.
Mitigation: Engage accredited external auditors or pursue ISO 14001 certification for third‑party verification.
Rapidly changing legislation can render findings outdated.
Mitigation: Schedule an annual legislative review and update audit criteria accordingly.
Difficulty quantifying certain impacts (e.g., biodiversity loss).
Mitigation: Use proxy indicators such as habitat area, species‑richness indices or third‑party ecological assessments.

10. Link to sustainability & corporate social responsibility (CSR)

Audit results provide the quantitative evidence needed to meet CSR objectives and the three pillars of sustainability:

Economic – cost reductions, risk mitigation and improved access to finance.
Social – lower pollution, better community health and stronger social licence to operate.
Environmental – measurable cuts in emissions, waste and resource consumption, contributing to UN Sustainable Development Goals (e.g., SDG 12 – Responsible Consumption & Production, SDG 13 – Climate Action).

These data are typically reported in annual sustainability reports, used to set science‑based targets and to demonstrate progress to stakeholders.

11. Example audit checklist (excerpt)

Area	Audit question	Evidence required
Energy use	Is energy consumption monitored, benchmarked and compared with targets?	Utility bills, energy‑management system reports, benchmark data, calibration certificates.
Waste management	Are waste segregation, recycling procedures and landfill‑avoidance targets documented?	Waste logs, contracts with recycling firms, diversion‑rate calculations, waste‑audit certificates.
Emissions	Do actual emissions stay within the limits set by permits and ISO 14001?	Continuous emission monitoring system (CEMS) data, permit copies, calibration records.
Supply chain	Do key suppliers comply with the company’s environmental policy and relevant standards?	Supplier questionnaires, third‑party audit reports, ISO 14001 or EMAS certificates.

12. Suggested diagram

Flowchart of the environmental audit process – Planning → Data Collection → Evaluation → Reporting → Follow‑up – with stakeholder interaction points highlighted at each stage.

13. Summary

An environmental audit offers a structured, evidence‑based method for businesses and their stakeholders to assess current environmental performance, ensure compliance with legislation and standards, and uncover improvement opportunities. By feeding audit findings into CSR strategies, risk‑management frameworks and strategic planning, organisations can achieve cost efficiencies, strengthen reputation, meet sustainability goals and reduce environmental risk.

how a business and its stakeholders may use an environmental audit