metadata: authors: 0: author: Gozun,Elisea G.
1: author: Laplante,Benoit
2: author: Wang,Hua
count: East Asia and Pacific
docna: 0: docna: Design and implementation of environmental
            performance rating and public disclosure programs : a
            summary of issues and recommendations based on experiences
            in East Asian countries
docty: Policy Research Working Paper
subtopic: Environmental Strategy,Environmental Management,Pollution Management & Control,Air Quality & Clean Air,Hydrology,Brown Issues and Health,Global Environment
teratopic: Environment,Water Resources,Energy
abstracts: cdata!: A number of countries around the world
            have in recent years implemented environmental performance
            rating and public disclosure programs, and, where evidence
            is available, these programs have been shown to induce
            pollution reduction. Based on previous research and
            practical experiences from several Asian countries, this
            paper provides a systematic review and discussion of the
            practical issues involved in designing and implementing
            environmental performance rating and public disclosure
            programs, including the legal and institutional framework,
            scope and coverage determination, performance rating
            methodology, data collection and verification, disclosure
            strategy, credibility assurance, program set-up and
            expansion, etc. The authors offer comments and
            recommendations, where appropriate, for environmental
            regulators to tackle these practical issues. The reviews and
            discussions are intended to be concise, simple, and
            systematic, and alternative options are discussed in a
            succinct manner, so that they can be readily used by
            interested environmental regulators and researchers.
repnme: repnme: Design and implementation of environmental
            performance rating and public disclosure programs : a
            summary of issues and recommendations based on experiences
            in East Asian countries
display_title: Design and implementation of
            environmental performance rating and public disclosure
            programs : a summary of issues and recommendations based on
            experiences in East Asian countries
listing_relative_url: /research/2011/01/13689698/design-implementation-environmental-performance-rating-public-disclosure-programs-summary-issues-recommendations-based-experiences-east-asian-countries
topicv3: Water m1326522 137,Air Pollution m1327122 1791,Environmental Management m1327125 598,Environment, Natural Resources and Blue
            Economy m1327391 566,Water Pollution m1327598 1798
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Environment,Water Resources,Energy
no_of_pages: 36
author_keys: 0: author_key: 142285
1: author_key: 97490
2: author_key: 96347
model_extractions: WPS5551 Policy Research Working Paper 5551 Design and Implementation of Environmental Performance Rating and Public Disclosure Programs A Summary of Issues and Recommendations Based on Experiences in East Asian Countries _Elisea G. Gozun Benoit Laplante Hua Wang_ The World Bank Development Research Group Environment and Energy Team January 2011
Policy Research Working Paper 5551

# **Abstract**

A number of countries around the world have in recent years implemented environmental performance rating and public disclosure programs, and, where evidence is available, these programs have been shown to induce pollution reduction. Based on previous research and practical experiences from several Asian countries, this paper provides a systematic review and discussion of the practical issues involved in designing and implementing environmental performance rating and public disclosure programs, including the legal and institutional framework, scope and coverage determination, performance rating methodology, data collection and verification, disclosure strategy, credibility assurance, program set-up and expansion, etc. The authors offer comments and recommendations, where appropriate, for environmental regulators to tackle these practical issues. The reviews and discussions are intended to be concise, simple, and systematic, and alternative options are discussed in a succinct manner, so that they can be readily used by interested environmental regulators and researchers.

This paper is a product of the Environment and Energy Team, Development Research Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at hwang1@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Design and Implementation of Environmental Performance Rating and Public Disclosure Programs: A Summary of Issues and Recommendations Based on Experiences in East Asian Countries**

By Elisea G. Gozun Independent Consultant <u>bggozun@gmail.com</u> Benoit Laplante Independent Consultant <u>benoit_laplante@hotmail.com</u> Hua Wang<sup>1</sup> World Bank Hwang1@worldbank.org

**Acknowledgements.** Bebet Gozun and Benoit Laplante acknowledge the generous technical and financial assistance of USAID’s Eco-Asia program in support of this report. The views expressed in this paper are those of the authors and do not necessarily reflect those of the World Bank, its Executive Directors, or the countries they represent.

1 Correspondence: Hua Wang, email: hwang1@worldbank.org; fax: 202-522-2714; phone: 202-4733255.
# **I. Introduction**

Over the past 15 years, a number of countries around the world have piloted or implemented environmental performance rating and public disclosure (EPRD) programs. Examples can be found in countries such as China, Indonesia, Philippines, Vietnam, Ukraine, and Ghana. Where evidence is available<sup>1</sup> , these programs have been shown to induce targeted facilities (or a subset of them) to reduce pollution. More and more countries are getting interested in learning and testing such a pollution control strategy.

In the literature, one can find extensive discussions on the rationale of using disclosure strategies for pollution control.<sup>2</sup> Serious empirical assessments of some of the existing disclosure programs can also be found in the literature<sup>3</sup> . However, no systematic discussions can be found on the practical issues in designing and implementing an EPRD program. Environmental regulators, especially those who would like to set up disclosure programs in their countries or jurisdictions, are wondering what steps they need to follow, what are the major issues they need to tackle, and how to solve those practical issues, in designing and implementing EPRD programs.

This paper is intended to fill this gap by providing a review and discussion of the practical components involved in designing and implementing EPRD programs, based on previous research and the authors’ practical experiences in various countries. Mostly drawn on experiences in China, Indonesia, Vietnam and Philippines, this paper presents the major steps and activities that have been involved in designing and implementing EPRD programs, the ways that the countries or regions have dealt with those practical issues, and the authors’ comments and recommendations, where appropriate, for handling those practical issues. This paper is also intended to serve as practical guidance for environmental agencies embarking on the design and implementation of such programs or reviewing the design and implementation of existing programs<sup>4</sup> , and therefore, the discussions and recommendations provided in this paper are concise and simple; alternative options are also discussed in a succinct manner where appropriate.

This paper comprises six sections: Section II provides a brief discussion of the key components of an environmental performance rating and disclosure program; Section III discusses about two important factors when considering whether or not to set up an environmental performance rating and disclosure program; Sections IV and V focus on the design of the _performance rating_ component and the _public disclosure_ component of a program respectively; Section VI contains a summary of the key steps, recommendations and discussions. A list of references is also provided at the end, which may be of further interest to some of the readers.

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# **II. Context and Components**

# **2.1 Context**

Traditionally, environmental regulators have applied the ‘command-and-control’ approach to restrict pollution discharges from industrial facilities. Under this approach, industrial facilities are required to limit their pollution discharges to amounts within regulatory standards (generally – albeit not always – specified in concentration terms). Technology based standards also are used to mandate application of specific processes to limit pollution. These often are derived from broader requirements to use “best available technology” for pollution prevention or pollution control. Incentives for compliance with the stated regulatory requirements rely heavily on:

- (1) The regulator’s ability to observe, measure, and assess the overall compliance status of regulated facilities. This is generally achieved by requiring that regulated facilities self-report their levels of discharges on a regular (albeit not necessarily frequent) basis, and by undertaking inspections.

- (2) The use (or threat) of fines or penalties (typically ranging from administrative penalties to civil and criminal penalties) if and when the facility is deemed to be out of compliance with the regulatory requirements.

In many developing (and developed) countries, this approach has typically suffered from: 1) insufficient and/or unreliable self-reporting requirements; 2) the regulator’s limited capacity, expertise and resources to enforce the regulatory requirements; and 3) often times, a reluctance on the part of the administrative and judiciary systems to enforce the laws and impose significant penalties on violators.

As a complement to command-and-control regulations, market-based instruments (MBIs) aim to generate incentives for pollution control by introducing or creating a price for pollution discharges.<sup>5</sup> When applied directly to pollution discharges, MBIs include instruments such as tradable or marketable permits, and emission or effluent charges (or fees or taxes) among others.<sup>6</sup> Under this approach, incentives for pollution reduction originate from the possibility of reduced fee payment for pollution discharges, or revenue generation from selling discharge permits that are no longer needed. Incentives also may be created by use of effluent fees or other revenues to reward particular kinds of pollution mitigation investments or practices.

MBIs are in principle preferred to the traditional command-and-control approach on the ground that they allow achieving a given target level of pollution reduction at minimum aggregate pollution control cost across all sources of pollution.<sup>7</sup> Furthermore, and perhaps more significantly, MBIs unlike regulatory standards, are capable of continuously generating incentives for pollution prevention and control<sup>8</sup> .

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However, the effective implementation of MBIs, as they apply directly to pollution discharges, has thus far proved challenging for environmental regulators experiencing limited institutional capacity and resources. Indeed, to a large extent, these MBIs do not alleviate the significant difficulties pertaining to the monitoring and enforcement of the effective implementation of these instruments. Moreover, the same political constraints on imposing strong and enforceable command-and-control requirements have in many cases limited the use of MBIs that could create “pollution prices” high enough to significantly induce its mitigation.

Environmental performance rating and public disclosure programs (henceforth EPRD programs) have recently emerged as an alternative or a complementary approach to create incentives for pollution control. They are rapidly gaining ground throughout the world, including in developing economies.

In simple terms, the EPRD approach involves the release of information on a polluter’s environmental performance in a manner that is clear and understandable to a large and varied audience. The underlying assumption behind public disclosure is that industrial facilities (or a subset of them) may be sensitive about their reputation in the market place or in the communities where they are located, and will thus avoid this reputation from being tarnished, or will seek this reputation being enhanced in the public arena. In other words, it is believed that for such firms, social and/or market pressure, in addition (or as opposed) to fines and penalties, can generate strong incentives for pollution control, in a way that traditional enforcement tools or MBIs may not be able to achieve. If and when this is the case, environmental regulators may make beneficial use of the situation by publicly releasing appropriate information pertaining to the firm’s environmental performance.

Even though there has been no systematic research, the practical experiences show that the EPRD approach can be viewed as a low cost supplement or complement to the traditional approaches. With the same amount of information about the polluters available to environmental regulators and the same amount of enforcement efforts, the EPRD approach may be able to generate incentives for pollution reduction to a level that a traditional enforcement approach cannot reach. Alternatively, with the same amount of information about the polluters and the same level of target in compliance or pollution reduction, the enforcement cost with the disclosure approach can be lower than the traditional approaches<sup>9</sup> . If the traditional approaches are in place, the additional cost of using the EPRD strategy can be low while the additional benefit or pollution reduction can be big.

An EPRD program should be regarded as one of many regulatory instruments available to environmental regulators to address environmental issues and in particular to create incentives for pollution control. While an EPRD program may be effective at creating such incentives for at least a subset of industrial facilities, it may not create pollution control incentives for all of them (Box 1). Accordingly, an EPRD program belongs to a portfolio of instruments and is best used in combination with other appropriate tools and policies.

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# **2.2 Components of EPRD programs**

As illustrated in Figure 1, an EPRD program requires that the program comprises two separate but related components: a _performance rating_ component, and a _public disclosure_ component.

While this may appear self-evident, it is important to note that performance rating may exist without public disclosure, and that public disclosure may exist without performance rating. Indeed, environmental regulators often maintain a list of industrial facilities deemed to be ‘large polluters’ or significantly ‘out of compliance’ with regulatory standards while not publicly disclosing the name of these industrial facilities. These lists generally aim at guiding monitoring and enforcement activities and are meant to be for internal use only (Box 2).

On the other hand, a number of public disclosure programs are not based on the actual rating of the firms’ environmental performance. For example, public disclosure programs along the lines of the United States Environmental Protection Agency’s (USEPA) _Toxics Release Inventory_ (TRI) relies _not_ on a _rating_ of industrial facilities’ environmental performance against specific criteria, but instead on a _ranking_ of industrial facilities from largest to smallest discharge sources of specific pollutants.<sup>10</sup> The EPRD programs referred to in this paper are those where both of these components (performance rating _and_ public disclosure) are integral parts of the program, and where performance rating is undertaken explicitly for the purpose of public disclosure.

Furthermore, a number of programs focus on the public disclosure of only one type of industrial facilities: those whose environmental performance is deemed to be lacking (such as ‘black list’ of polluters; see Box 3) or those whose environmental performance is deemed to be superior (such as ‘green awards’ schemes).

The EPRD programs referred to in this paper are those where both types of environmental performance (‘good’ _and_ ‘bad’) are part of the program (Box 4).

# **III. Setting Up**

Prior to their setting up, most EPRD programs have had to tackle two important issues, one pertaining to the legality of the public disclosure of firms’ environmental performance, and one pertaining to the expected sustainability of the program over the long term. We discuss each of these issues in turn.

# **3.1 Legal system**

In the course of its inception phase, an EPRD program is likely to have to tackle whether or not it is legal<sup>11</sup> to publicly disclose the environmental performance of targeted facilities: 5
- Is it legal to publicly disclose the environmental performance of targeted facilities?

- Can information contained in self-reports submitted by industrial facilities be used for the purpose of rating and public disclosure?

- Will the agency be constrained to use only the information that it itself has collected by means of monitoring and inspections for purpose of rating and public disclosure?

- Could the targeted facilities argue in a court of law that the public disclosure of their environmental performance violates privacy laws?

- Is there any article in any law (such as the Constitution, or an environmental protection law, or rights to information act) which the environmental regulator could use to legally justify the public disclosure of environmental performance?

Without such an anchor in the legal system, an EPRD program is likely to be challenged by targeted facilities, and its comprehensive implementation may never benefit from appropriate resource commitments. EPRD programs have thus sought such anchors in various laws, even including the country’s constitution in the case of China and the Philippines (Box 5). We would like to suggest that all interested environmental agencies identify an anchor within the legal framework which may give a legal mandate or right to the environmental regulator to disclose the environmental performance of targeted facilities.

# **3.2 Institutionalization**

An EPRD program will be a source of greater incentives for pollution control if it is known by targeted facilities that not only the existing environmental performance is subjected to rating and disclosure, but also that changes in the environmental performance over time will also be subjected to rating and disclosure. For example, upon being rated and publicly disclosed with a poor environmental performance, a firm’s incentives to improve this performance will greatly depend on whether or not such efforts and actual improvements will also be subjected to a revised (and better) rating and disclosure. To this extent, the effectiveness of an EPRD program greatly depends on its expected sustainability over a long period of time and its commitment to revise ratings as a facility’s environmental performance changes over time.

The expected sustainability of the EPRD program has important consequences on the nature of the budget, resources, and staffing commitments. To this extent, _pilot projects_ typically do not benefit from the same level of commitments and ownership as do programs established through the adoption of an appropriate legal instrument, and implemented by a dedicated unit (or division or department) of the institutional structure (Box 6).

We think it is important that the program becomes an explicit and legally recognized instrument that the environmental regulator may or must use for the purpose of 6
pollution control, and that the program becomes an explicit feature of the legal and institutional framework.

# **IV. Designing the Performance Rating Component**

As shown in Figure 1, the design of the environmental performance rating component of an EPRD program can be divided into the following 8 steps: Step 1 Assess overall scope and capacity; Step 2 Determine program area; Step 3 Select pollutants and polluters; Step 4 Ensure credibility and reliability; Step 5 Ensure a clear implementation process; Step 6 Design rating methodology; Step 7 Collect, verify and analyze data; and Step 8 Determine final ratings.

Each of these steps is discussed in detail below.

# **4.1 Assess overall scope and capacity**

The specific features and characteristics of an EPRD program will vary depending on a country’s (or a region’s) needs, socio-economic and political conditions, national or local development priorities, as well as environmental conditions and targets. Hence, before embarking on the actual design of the rating system, it is important to review national (or local) development objectives, to be aware of the social, economic, and political situation at the national or local levels so as to enhance the acceptability of the program to key stakeholders as well as to seek solid and cost-effective environmental benefits for the populace as a whole.

To be successful, an EPRD program should be well-conceived from the outset, and respond to well identified priorities. This should include identifying the sources for the information which will be used for purpose of rating the environmental performance, as well as taking stock of the resources and capacity which will be needed to implement the program effectively.

More specifically, based on our practical experiences, we think it is important to:

- **Identify the major and precise environmental issues** that the EPRD program aims to target (e.g., air quality, water quality, etc.). The implementing agency should be able to justify this choice based on existing environmental conditions, strategies, or action plans;

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- **Establish clear and realistic goals and targets** in terms of the number of industrial facilities that the EPRD program will aim to target, as well as the time horizon over which these targets are to be achieved;

- **Identify the resources and capacity (people, equipment, and data)** available for program design and implementation. Indeed, while the program may have ambitious objectives, its actual implementation and coverage will invariably be constrained by the extent to which resources, data, and capacity are available;

- **Determine sources of data and information** which will be used for purpose of feeding the rating methodology.

- **Consult extensively** at the outset and actively engage interested and potentially impacted parties and stakeholders, both public and private, both governmental and non-governmental.

# **4.2 Select the program area**

When determining the overall scope of the EPRD program, an important issue to consider is whether the program should cover a specific area and/or focus on a specific industrial sector, wherever the industrial facilities within the sector may be located. Insofar as selecting which geographic area and industry to include, there is no right or wrong choice. Even when designing a program where a nationwide geographic coverage may be desirable, available resources and capacity may limit a program from such extensive coverage. This indeed explains why often times EPRD programs are piloted on a geographical basis (Box 7).

However, the disadvantage of creating a program with a narrowly defined geographical area is that the program necessarily includes facilities which happen to be located within the selected geographical area, and excludes facilities which are not located within the selected area, even though belonging to the same sectors and competing with one another in the market place. This raises important issues of fairness and equity as well as cost-effectiveness insofar as the program may unduly advantage or disadvantage industrial facilities, not because of different environmental performance, but simply because one firm is located in the area where the program is implemented while another firm, with an identical environmental performance (good or bad) is located in an area where the program is not implemented. To this extent, it may be preferable to select the coverage of the EPRD program on the basis of sectors of activities (Box 8) if an EPRD program is to be implemented by a national government. However, a key disadvantage of this approach is that facilities from the selected sector(s) may be widely dispersed over a large geographical area, and across multiple jurisdictions thus increasing the costs of implementing the program.

We suggest undertaking a detailed assessment of possible targeted sectors of activities. To the extent that the program targets industrial facilities, a detailed 8
analysis of the industrial sectors in the country or region along with information about the types of industrial activities (e.g., sectors, location, number of facilities, size, etc.) could provide useful insights as to whether a geographical coverage or sector coverage may be more appropriate. In some circumstances, it may be that most facilities within the selected sector(s) of activities will be concentrated in a given area of the country or region. All of this needs in turn to be balanced against concerns with maximizing the environmental benefits gained and achieving them in a costeffective way.

# **4.3  Select pollutants and polluters**

The types of pollutants included in the EPRD program for purposes of assessing environmental performance clearly depend on the scope and target of the program.

A number of EPRD programs, especially in their initial phase of development, have focused on a single medium. This is largely explained by data availability. Environmental regulators may have better records and history of information (including self-reports and inspections) on discharges of one types of pollutants than on others. However, as regulators’ capacity and expertise increase, there is often a desire to move towards a multimedia program (Box 8).

Each approach has advantages and disadvantages as shown in Figure 2 below. A _key disadvantage_ of a multimedia rating scheme is that it invariably implies the construction of more complex rating indices, which may, or may not, be intuitive. But the single medium rating system may not be able to provide a balanced view of the performance and can distort the pollution control effort from one type of pollution to another. Within the set of water pollutants or air pollutants, there typically exists a large subset of pollutants, such as organic and non-organic in the case of water pollutants and conventional and non-conventional in the case of air pollutants. The list of regulated pollutants often exceeds the capacity of environmental regulators to effectively monitor them. Existing EPRD programs implemented in Southeast Asia have focused (especially in their initial stage of implementation) on a small subset of regulated pollutants, typically those for which information already exists in the hands of the environmental regulators (Box 9). For water pollutants, this meant including organic pollutants (such as biological oxygen demand (BOD), chemical oxygen demand (COD), and total suspended solids (TSS)), while air pollutants included conventional pollutants (such as total suspended particulates (TSP), sulfur dioxide (SO2), and nitrogen oxide (NOx)).

In the initial phases of the EPRD program, it is often preferable to limit the coverage to a relatively small number of important pollutants and heavy polluters for which there already exist information with a history of self-reporting and monitoring. Once the program is well established, additional pollutants and polluters may then be added as necessary.

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# **4.4 Ensure credibility and reliability**

The degree of success of the EPRD program significantly depends on the reliability and credibility of the rating of the environmental performance. For this purpose, all programs have found it important to set in place a technical advisory committee comprised of multiple stakeholders who can attest to the reliability of the rating of the firms’ environmental performance. The more representative and credible this technical advisory committee, the less likely the entire program, including the rating component, will be challenged (Box 10). The roles and the operation manners of the technical committees have been different in different countries. It is important to let the technical committee approve the final ratings before disclosure, and in this way, the potential corruption issue may be minimized. However more research needs to be conducted on this point.

# **4.5 Ensure a clear implementation process**

As the program and outreach is taking shape, stakeholders will want to know as precisely and specifically as possible how the program is going to be implemented. Moreover, stakeholders are interested in not only the nature of their participation, but also at which point in the process their participation may be requested. While undoubtedly some implementation details may change during the process, stakeholders need to be reassured that the environmental performance rating and public disclosure program is the result of a well-crafted and carefully thought out process (Figure 3 presents PROPER’s implementation process). Key milestones which will guide the implementation of the program may need to be established at the beginning.

# **4.6 Determine the rating methodology**

Designing the rating methodology is at the very heart of establishing an effective EPRD program. Every program has devised its own rating methodology. For purpose of illustration, rating methodologies used by PROPER (Indonesia), the Industrial EcoWatch System (Philippines), the Green Watch Program in Jiangsu and Hohhot (China), and the rating methodology being piloted in Vietnam are presented in Figures 4 to 7, respectively.

The rating system upon which the environmental performance is assessed must be credible, transparent, reliable, and provide a correct assessment of the firm’s environmental performance. To achieve this goal, the rating system should be based on a limited set of objective, measurable, and practical criteria which are known, clearly understood, and can be defended not only with those industrial facilities whose environmental performance is subjected to assessment and rating, but also more broadly in the public arena.

While every program has adopted a different rating methodology, they all share a number of important characteristics. These are: 10
- To achieve status of adequate or superior environmental performance, a facility _must_ demonstrate at a minimum compliance with relevant regulatory standards. By contrast, a facility’s lack of compliance with relevant regulatory standards is a sufficient condition to achieve status of inferior environmental performance. Hence compliance or the lack of compliance with relevant regulatory standards is a key determinant of the facilities’ performance rating;

- In all cases, _national_ (or occasionally provincial or local) regulatory standards (not international standards) are used to rate compliance with regulatory standards;

- Additional criteria are then used to sub-divide superior environmental performance as well as inferior environmental performance into sub-categories. For this purpose, a large number of criteria, suited to the specific purpose and characteristics of the program, are used in the process of rating the environmental performance. In numerous programs, the presence of citizens’ complaints is a criterion used in the rating methodology to delineate poor from very poor environmental performance. Similarly, whether a facility has obtained the ISO-14000 certification is a criterion often used to delineate very good from good environmental performance; and

- All EPRD programs have rated the firm’s environmental performance into a few categories (3 to 7)<sup>12</sup> , ranging from out of compliance, compliance, and better than compliance. The categories ‘out of compliance’ and ‘better than compliance’ have occasionally been sub-divided into 2 categories to distinguish ‘slightly out of compliance’ from ‘significantly out of compliance’; and to distinguish ‘better than compliance’ from ‘significantly better than compliance’.

We think that compliance with regulatory standards for the selected pollutants should be a key necessary condition in the facilities’ rating. In particular, it should not be possible for a facility lacking compliance with regulatory standards to be rated with a good environmental performance. It is useful to use additional criteria to delineate in further detail the true status of the facilities’ environmental performance. Even though a facility may be out of compliance, efforts to comply may be recognized by the rating methodology. Similarly, even though a facility may be complying with regulatory standards, efforts to achieve superior performance (beyond simply compliance) may be recognized by the rating methodology. Too few rating categories, such as three, may have difficulties in generating incentives for pollution reduction because it may be difficult for a polluter to improve between the categories. But if the number of performance categories is too big, it may become a source of confusion.

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## **4.7 Collect, verify, and analyze data**

Data collection, data verification, and data reliability are crucial to the credibility and sustainability of an EPRD program. Put simply, unlike any other regulatory approach (including command-and-control and market-based instruments), errors and mistakes that may change the rating categories of the facilities are simply not acceptable. Indeed, to the extent that social and market pressure may be brought upon rated facilities,<sup>13</sup> the ratings need to be timely and accurate.

In addition to data and statistics available in various records and self-reports accumulated over a number of years, an environmental performance rating and public disclosure program may be complemented with an additional data collection exercise if budget allows, which may include:

- Surveys and visits of targeted facilities to fully understand the nature of the effort (or lack thereof) undertaken by the facility in terms of pollution control;

- Additional, frequent, and numerous samplings of the facilities’ pollution discharges in order to assess as accurately as possible the true status of compliance relative to regulatory standards; and

- Discussions with local residents and communities to better understand the local residents’ perception of the facility’s environmental performance.

With needed information and data in hand, a well-established information management system should be in place to support the program. In particular, record saving and data processing should be facilitated by a computerized system.

We recommend doing all that is reasonably possible to ensure that the data used for purpose of rating the environmental performance of the targeted facilities are reliable and credible, and ensure that the analysis of the data is accurate. Collect additional primary or secondary data when there is significant doubt and possibility. In a situation of uncertainty about the accuracy of the data that may change the rating categories of some companies, it may be preferable to avoid publicly disclosing the ratings of those companies until the uncertainty can be resolved.

# **4.8 Determine final ratings**

Once all the information available has been thoroughly assessed and analyzed, ratings can then be determined according to the devised rating methodology. It is particularly important at this stage that the Technical Review Committee plays its crucial role to ensure that the rating is correct, adequate, and accepted by members of the committee. Attention needs to be paid to the possibility of corruption as some polluters may be powerful enough to change the data or the ratings.

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If reasonable disagreements or doubts cannot be resolved satisfactorily at the time of discussion, additional data may be collected to address the issues involved; or, a public disclosure may be avoided.

# **V. Designing the Public Disclosure Component**

This component may be divided into the following 3 steps.

Step 1 Prepare the ratings for public disclosure; Step 2 Determine the public communication strategy; and Step 3 Determine the timing and frequency of public disclosure.

# **5.1 Prepare the ratings for public disclosure**

Once ratings are available, the agency must take steps to get the message out to the public. All the hard work undertaken in the course of rating the environmental performance will come to no avail if public disclosure is not conducted in a manner that has effective exposure and impact.

For this purpose, it is of utmost importance that the disclosed information be:

- Simple, limited, and non-technical;

- Clear and precise; and

- Unambiguous as to its meaning.

To a large extent, this explains that all EPRD programs have avoided numbers (such as 1 to 5 for example or letters such as A to F) to disclose firms’ environmental performance. Indeed, if the environmental performance were publicly disclosed with numbers such as 1 to 5 (or A to F), it may not be immediately clear whether 1or 5 (A or F) stands for the best environmental performance.

Following in the footsteps of the PROPER program, all EPRD programs in Asia<sup>14</sup> have adopted color schemes to convey the nature of the rated environmental performance to a large audience.

As may have become apparent in the previous section, all EPRD programs with color-coded ratings have adopted the colors Black and Red to indicate an inferior rating. These two colors appear to be universally understood to indicate inferior performance, and in this case inferior environmental performance. Agencies have used a combination of Blue, Green and Gold to indicate an adequate or superior environmental performance. In some instances, Blue is used to indicate an adequate performance, while Green or Gold is used to signify a superior environmental performance.

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Across countries and cultural diversity, colors (and amazingly the same sorts of colors) appear to be similarly understood by a large public in a way that letters or numbers or symbols could perhaps not achieve.

Finally, throughout the rating process, environmental agencies have typically maintained close communication with industrial facilities. These efforts not only informed and provided industry with detailed explanations about the rating system, but in almost all cases the agencies also informed industry of their ratings, and provided them with a grace period during which time they could attempt to improve their environmental performance before public disclosure occurred. This approach minimizes the potential for creating antagonistic relationships between the industrial facilities and the environmental agencies.

# **5.2 Determine the public communication strategy**

For purposes of determining the public communication strategy, it is important to recognize that:

- A large variety of individuals, groups, organizations, and associations at the local, national, and international levels may have direct or indirect interest in the rated environmental performance;

- Different individuals, groups, organizations, and associations have different means of accessing information made available by environmental regulators or agencies. While ‘the web’ may appear to many as being the most appropriate medium to convey the information, it is important to recognize that many citizens in developing countries do not have access to ‘the web’ on a regular basis, if at all. Similarly, many (particularly the poor) may not buy newspapers on a daily basis;

- In some countries, media have a tendency to focus on covering and reporting those facilities with an inferior environmental performance. As a result, it is generally preferable that bad performers and good performers be disclosed separately (on separate days) to avoid a situation whereby the media only reports on the poor performers.

A key issue is how best to ensure that the information does indeed reach these media. Agencies have accordingly applied various means for this purpose, including:

- Organizing press conferences where results are announced with pamphlets and posters distributed to attendees;

- Organizing official ceremonies to publicly and visibly recognize those with adequate or superior environmental performance with prominent leaders and decisions makers in the country, like the President or the Prime Minister;

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- Organizing journalist forums or workshops not only to disclose the actual ratings, but simultaneously to explain the nature of the rating systems, thus allowing journalists a better understanding of the program and of the regulator’s effort to address environmental issues.

In summary, we think it is important for an EPRD program to be designed for a multimedia public disclosure strategy, and public disclosure should aim to target all concerned stakeholders. An effective public disclosure strategy will devise means of communication to reach targeted stakeholders in the most effective manner. High visibility should be given to the announcement of the ratings by ensuring that individuals in high level positions (mayors, ministers, prime ministers) attend the public disclosure ceremony. This will increase the profile of the event and may provide even greater incentives to targeted facilities to improve their performance.

# **5.3 Determine the timing and frequency of public disclosure**

Previous experiences are that public disclosure is conducted mostly over a yearly basis and coincides with events of environmental interest such as the World Environment Day, taking place on June 5 of every year, or the Earth Day, taking place on April 22 of every year, or other days of national interest. Public disclosure needs to take place on a frequent and perhaps even a regular basis. While there is no magic formula to determine the appropriate frequency for public disclosure, it is important to note that public disclosure should be sufficiently frequent to ensure that the disclosed rating is correct at the time of disclosure. This would call for a disclosure of results to occur more or less as the ratings are determined.

# **VI. Summary and Discussion**

Extensive research on the rationale of using disclosure strategies for pollution control can be found in the literature. The consensus is that public disclosure of environmental performance should be able to generate additional social and/or market pressures or appraisals for further pollution control. Serious empirical assessments of environmental performance rating and public disclosure (EPRD) programs can be found in Indonesia and China, and the results show that the polluters did respond significantly to the EPRD programs and reduced their pollution emissions. However, no systematic research can be found on the practical issues in designing and implementing an EPRD program.

Based on previous research and practical experiences in China, Indonesia, Philippines and Vietnam, we have in this paper summarized and discussed a list of major issues potentially involved in designing and implementing an EPRD program. Where appropriate, we also provided comments on the existing programs and recommendations for designing and implementing new programs. Our reviews and suggestions are intended to be concise, simple and systematic, and alternative options are also discussed in a succinct manner, so that they can be readily used by interested environmental regulators. Our reviews and suggestions can also serve as 15
a list of research issues that environmental policy researchers may find of interest, as the list of issues in designing and implementing an EPRD program that we discussed has not been well studied; in fact, we have not found any serious studies that have been conducted on those issues.

Previous experiences show that before setting up an EPRD program, an environmental agency should first identify an anchor within the legal framework of the country or region which may give a legal mandate or right to the environmental regulator to disclose the environmental performance of polluters. It should also be ensured that the program can become an explicit feature of the future institutional framework. Once the legal and institutional issues have been addressed, the work of designing a performance rating and public disclosure program can start.

When trying to design an EPRD program, an environmental agency needs first to assess the overall scope of the program and capacity to implement the program. It needs to identify the major and precise environmental issues that the EPRD program aims to target (e.g., air quality, water quality, etc.) and the areas (national and regional) that the program should be applied. The agency should be able to justify this choice based on existing environmental conditions, strategies, or action plans. Once the location and the major environmental issues have been determined, the agency needs to establish clear and realistic goals and targets in terms of the number of industrial facilities and the specific pollutants that the EPRD program will aim to target, as well as the time horizon over which these targets are to be achieved. The necessary resources and capacity (people, equipment, and data) available for program design and implementation also need to be assessed at the beginning. Indeed, while the program may have ambitious objectives, its actual implementation and coverage will invariably be constrained by the extent to which resources, data, and capacity are available.

The determinations of the program’s coverage (program area, pollutants, polluters, etc), performance rating methodology, as well as data collection are interrelated. A program can be very simple, with only a few major pollutants or performance indicators, applied to major polluters in one municipality or region, and with existing data. A program can also be very complex, if necessary data and resources are available. When determining program coverage of pollutants and polluters, the previous experiences are to limit the coverage initially, and then expand. In the initial phases, it is sometimes preferable to limit the coverage to a small number of pollutants and polluters for which there already exist information and a history of selfreporting and monitoring. Once the program is well established, additional pollutants and polluters may then be added as necessary.

In determining the rating methodology, the previous experiences are that compliance with regulatory standards for the selected pollutants is a key determinant of the facilities’ rating. In particular, it should not be possible for a facility lacking compliance with regulatory standards to be rated with a good environmental performance. Additional criteria may be used to delineate in further details the true 16
status of the facilities’ environmental performance. Even though a facility may be out of compliance, efforts to comply may be recognized by the rating methodology. Similarly, even though a facility may be complying with national regulatory standards, efforts to achieve superior performance may be recognized by the rating methodology. Rating categories ranging from 3 to 7 have been used in the existing programs to provide information about the status of the facilities’ environmental performance. We feel that three may be a number too small as it may be too costly for a facility to change categories, and that seven may be a number too big as it may become a source of confusion for the general public.

In designing the public disclosure component, the ratings for public disclosure should be clear and understandable to all. The outcome of the rating system must be publicly disclosed in a manner that is fully understood by all parties without possibilities of misunderstanding or confusion. In particular, the public must clearly understand whether the program covers only a subset of the environmental performance of the firms (for example, water pollution) or aims to assess the overall environmental performance of the firms. Color codes have been widely used to convey the nature of the environmental performance rating of the targeted facilities.

In determining the media strategy, public disclosure should aim to target all concerned stakeholders. For this purpose, public disclosure should take place through a variety of media as different groups of interested parties will typically access different means of communication. While it has become generally assumed that the ‘internet’ is a preferred avenue to disclose information, it is important to recognize that a large number of stakeholders may not have access to internet and rely on long-tested means of communication such as print media, posters, and town hall meetings. An effective public disclosure strategy will devise means of communication to reach targeted stakeholders in the most effective manner. It is advised to give high visibility to the announcement of environmental performance by ensuring that individuals in high level positions (mayors, ministers, prime ministers) attend the public disclosure ceremony. This will increase the profile of the event and may provide even greater incentives to achieve better environmental performance.

The assessment of the firm’s environmental performance should be timely and be based on data which is truly representative of the firm’s environmental performance at the time of the public disclosure. Indeed, to the extent that the public as well as consumers and investors may react positively or negatively to the public disclosure of a favorable or unfavorable rating, it is crucial that this rating reflects the performance of the firm as it stands at the time of the disclosure, and not as it may have once stood in the distant past. In practice, there is always a time gap between disclosure and performance observation. Notes should be provided if there might be a significant performance change during this time gap.

In order to ensure the credibility and reliability of the EPRD program, it is advised to establish a technical advisory committee with respectable or reputed members representing all relevant parties, who will be responsible to advise and oversee the 17
design and implementation of the program, as well as review and attest the reliability of the rating of the firms’ environmental performance. The committee or the agency should consult extensively at the outset and actively engage interested and potentially impacted parties and stakeholders, both public and private, both governmental and non-governmental. They should do all that is possible to ensure that the data used for purpose of rating the environmental performance of the targeted facilities are reliable and credible, and ensure that the analysis of the data is accurate. Collect additional primary or secondary data whenever possible if there is doubt. The ratings should be determined and the accuracy should be ensured with the support of the technical review committee which oversees the overall implementation of the EPRD program. The technical committee should maintain close communication with the rated facilities and at the initial stage, allow them to react privately to the rating of their environmental performance. In doing so, rated facilities will perceive the purpose of the program being to create incentives for pollution control as opposed to simply shaming them in the public arena.

The cost of an EPRD program mostly depends on data availability. If based on existing data, the total cost of designing and implementing an EPRD program can be marginal or even negligible. However if a primary data collection effort is involved, it can be costly. In general, comparing to the traditional regulatory strategies, the disclosure strategy is of low cost, especially in developing countries where environmental enforcement is a difficult task. The disclosure approach seems especially cost effective where the traditional regulatory instruments are in place and have generated substantial data related to environmental performance.

The impacts of an EPRD program should be determined by the nature of program design and implementation as well as the socio-economic, environmental, legal and cultural characteristics of a country and region. Therefore, it is difficult, if not impossible, to judge the strength or weakness between different EPRD programs. The issues summarized and the discussions, comments and suggestions provided in this paper on EPRD program design and implementation are based upon the practical experiences that the authors have accumulated in helping design and implement the EPRD programs in China, Indonesia, the Philippines and Vietnam. Serious research, both theoretical and empirical, on the issues summarized and the suggestions provided in this paper are warranted in the future.

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# **Box 1 Characteristics of facilities most responsive to an EPRD program**

Recent research has been conducted to assess both the nature of the impacts of EPRD programs and the characteristics of the firms most responsive to the program. In the case of the Program for Pollution Control Evaluation and Rating (PROPER) in Indonesia, it was found that the EPRD program was particularly successful at generating significant reductions in the discharges of pollution _by those industrial facilities with the poorest environmental compliance records_ . The program was not particularly effective (though with exceptions) at inducing industrial facilities with adequate performance to seek an even better or superior environmental performance. In terms of allocating limited monitoring resources, these results appear to indicate that EPRD programs may be best targeted at those facilities with worse environmental records. However, in the case of China, the Green Watch Program designed and implemented in Jiangsu Province has induced pollution reductions from both good performers and bad performers, and those firms closest to being in compliance reduced the pollution the most.

See Garcia Lopez et al. (2004), Powers et al. (2008), Jin et al (2010b) for more details.

# **Box 2**

# **List of seriously polluting facilities in Vietnam**

On 22 April 2003, the Prime Minister of Vietnam committed the Government to addressing the most seriously polluting facilities in the country as a matter of highest priority through _Decision No. 64/2003/QD-TTg_ . Two separate stages were identified in _Decision 64_ :

**Stage 1:** Over the period 2003 to 2007, focuses on 439 polluted facilities. During the first two years from 2003 to 2005, immediately handles 51 facilities, which include 29 industrial facilities, 3 toxic chemical storage facilities, 1 warehouse, 15 pesticide storage sites and 3 landfill sites;

**Stage 2:** Over the period 2008 to 2012, 3,856 listed facilities are to be “completely treated”.

_Decision 64_ includes specific directions for its implementation. However, it does not require nor suggest or allow that the list of facilities be made public.

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# **Box 3 Public disclosure of serious polluters in Vietnam**

On July 3, 2007, the Ministry of Natural Resources and Environment issued _Circular No. 07/2007/TT-BTNMT_ , to facilitate the implementation of _Decision 64_ . A key feature of Circular No. 7 is that it requires the public disclosure of the list of facilities deemed to be serious polluters.

# **Circular 07/2007/TT-BTNMT, Section IV. Implementation**

1. Environmental protection agencies of ministries, governmental agencies and Departments of Natural Resources and Environment (DoNREs) closely coordinate with each other in the process of classifying, updating the list of establishment causing environmental pollution, serious environmental pollution.

2. Departments of Natural Resources and Environment (DoNREs) inform the district and commune People’s Committee regarding the list and decision of handling and **disclose publicly this information** .

3. Vietnam Environmental Protection Agency (VEPA) supervises and monitors the classification of establishments in accordance with this Circular; **publicize on mass media the information of establishment causing serious environmental pollution** in accordance with regulation at Point d, Clause 1, Article 04 of the Law on Environmental Protection.

# **Box 4 . Selected EPRD programs in Asia**

**China** . EPRD programs, informally known as Green Watch programs, were first piloted in the year 2000 in two municipalities, and were expanded in 22 Chinese municipalities in 2005. On April 11 2007, China’s State Environmental Protection Administration (SEPA) adopted Decree No. 35 on Environmental Information Disclosure, which is effective on May 1, 2008. As of June 5, 2008, the Jiangsu Provincial EPRD program alone covers 14,957 firms.

**Indonesia** . Initiated in 1995, Indonesia’s Program for Pollution Control Evaluation and Rating Program (PROPER) is generally recognized as a pioneer EPRD program in Asia. In its initial phase of implementation, until it was temporarily stopped in 1998 as a result of the financial crisis, the program targeted solely water pollution. Since the program was relaunched in 2002, PROPER has evolved into a comprehensive rating of all aspects of a firm’s environmental performance, across multiple media.

**The Philippines** . The Department of Environment and Natural Resources (DENR) of the Republic of the Philippines implemented in 1998 its own EPRD program named the Industrial Ecowatch System. EcoWatch was first introduced by DENR under the Department’s Administrative Order No.51, followed by an amendment of its implementation guidelines which came out in August 2003. LLDA has been particularly active implementing its own EcoWatch System and has rated and recently disclosed the names of more than 700 enterprises in 2008.

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# **Box 5. Legal anchor of selected of EPRD programs**

**China** . Article 11 of the _Constitution_ (1982) of the People’s Republic of China states that: “The competent administrative departments of environmental protection under the State Council, provincial and municipal governments shall regularly publicize environmental status reports.”  In addition to the 1982 Constitution, Article 31 of the _Cleaner Production Promotion Law_ (2003), states that: “For those that are listed as heavy polluting factories, discharge information of major pollutants should be disclosed to the public according to the regulations made by the competent administrative departments of environmental protection under the State Council, and received monitoring by the public.” These two articles paved the way to the Green Watch program.

**Indonesia** . The public disclosure of environmental performance rating is based on Article 5 and Article 10 and of the Law number 23/1997. Article 5 explicitly states that “Every person has the right to environmental information which is related to its environmental management roles.” Article 10 paragraph h states that a duty of environmental authority is to “provide environmental information and disseminate it to community”.

**Philippines** . The adoption of the Industrial EcoWatch System in 1998 by the DENR was based on Section 7, Article III of the Bill of Rights of the 1987 Philippine _Constitution_ which refers to the Right of Access to Information. Specifically, it states: “The right of the people to information on matters of public concern shall be recognized.  Access to official records, and to documents and papers pertaining to official acts, transactions or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law”.

# **Box 6 Implementing EPRD programs within the regulatory framework**

**China** . On April 11, 2007, SEPA adopted Decree No. 35 on Environmental Information Disclosure. This decree specifically defines the duties and responsibilities of the local governments and the enterprises in making environmental information available to the public as well as the rights and procedures that citizens have access to environmental information

**Indonesia.** Implementation of PROPER operation is based on the Decree of Minister for Environment Number 127/MENLH/2002 regarding Company's Environmental Management Performance Rating Program (PROPER). It was further amended by Ministerial Decree No. 250/2004 regarding Amendments of Ministerial Decree number 127/2002 on Company's Environmental Performance Rating Program. The implementation of PROPER is implemented by a PROPER office, institutionalized within the Ministry of Environment.

**Philippines** . The Industrial EcoWatch System was officially adopted through an Administrative Order of DENR (DAO No. 98-51) in June of 1998. The Administrative Order was amended in 2003 with the adoption of DAO 2003-26.

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# **Box 7 Industry versus geographical coverage**

**China** . The Green Watch program in China is essentially geographically based (municipalities), local program. Its pilot phase took place in Zhenjiang and several other municipalities.

**Indonesia** .  The PROPER program is a national program and includes facilities throughout the country. In general, selection of PROPER participants is based on the following criteria : (1) Companies with significant impact to the environment; (2) Companies with heavy pollution load and environmental destruction; (3) Public companies registered in domestic and or foreign stock exchanges; (4) Export oriented companies.

**Phillipines** . The Industrial EcoWatch System initially targeted on facilities of specific industrial sectors identified to be major polluters of the Metro Manila region. As issues of fairness were raised, subsequent implementation of the program by the Environmental Management Bureau (EMB) targeted 6 industry specific sectors across the country. On the other hand, as implemented by LLDA, the program included manufacturing as well as nonmanufacturing (e.g. commercial) establishments.

**Vietnam** . The pilot EPRD program in Vietnam took place solely in Ha Noi. It is now being expanded to other provinces of the country.

# **Box 8 From single medium to multimedia performance rating**

**Indonesia** . PROPER implementation in 1995 initially focused on assessing facilities’ environmental performance with respect to water pollution. This was deemed most feasible and cost effective at the time. As was then pointed out, this rating was source of confusion since the public did not fully understand that PROPER targeted only on water pollution: facilities rated with good environmental performance were noted to violate air pollution as well as hazardous waste regulations.

In 2002, the assessment of environmental performance also included compliance with water pollution regulations, air pollution regulations, hazardous and toxic waste management regulations, and implementation of Indonesia’s Environmental Impact Assessment (AMDAL).

While the revised approach provides a more comprehensive assessment of the overall environmental performance of the targeted facilities, the PROPER team has also noted that the multimedia strategy is considerably more complex than the single medium strategy in terms of field data collection and rating analysis, and is more time consuming and more costly to implement.

**Philippines** . On April 22 2008, DENR announced that it was expanding its Industrial EcoWatch System to include compliance ratings on air pollution in addition to water pollution which had been the sole focus of EcoWatch since its inception in 1998.

22
# **Box 9 Pollutants included in EPRD programs**

**China** .  In its initial phase of implementation in Hohhot City<sup>15</sup> , the Green Watch program covered only 3 pollutants: COD for water, and TSP and SO2 for air. In Zhenjiang and other 13 municipalities in Jiangsu Province, the program covered 13 regulated air and water pollutants: COD, TSS, oil, volatile hydroxybenzene, chromium, cyanide, lead, arsenic, mercury, cadmium, flue dust, industrial dust, and SO2.

**Indonesia** . In its initial period of development covering the period 1995 to 1998, the PROPER program focused solely on water pollution and rated compliance with BOD and COD standards.

**Philippines** . Until its recent expansion to include air pollution (see Box 8 above), the Industrial EcoWatch System focused exclusively on water pollution, and rated compliance with BOD standards.

**Box 10**

**Technical advisory committees in existing EPRD programs**

**Indonesia** . To guarantee its credibility, the PROPER program has established a PROPER Advisory Board consisting of representatives from university, environmental NGOs, consumer protection NGO, mass media, banks, and international institutions. The duties and functions of the Advisory Board include: (1) To verify and assess the reliability of the firms’ performance rating; and (2) To report the firms’ rating to the Minister of the Environment.

**Philippines - Laguna Lake Development Authority** .  The implementation of the Industrial EcoWatch System is overseen by a group of stakeholders known as the Program Monitoring Group (PMG). The PMG is composed of representatives of local government units, LLDA, the Environmental Management Bureau of the Department of Environment and Natural Resources, the private sector represented by Jollibee Food Corporation, Fortune Tobacco, Manila Water Company, Foremost Farms, and an NGO represented by Sagip Pasig Movement.

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# **Figure 1 EPRD Program: Components and Steps**

<!-- Start of picture text --> EPRD Program<br><!-- End of picture text --> <!-- Start of picture text --> Performance Public<br>Rating Disclosure<br>Step 1 Assess overall scope and capacity Step 1 Prepare ratings for public<br>Step 2 Determine program area disclosure<br>Step 3 Select pollutants and polluters Step 2 Determine public<br>Step 4 Ensure credibility and reliability communication strategy<br>Step 5 Ensure clear implementation process Step 3 Determine timing and<br>Step 6 Design rating methodology<br>Step 7 Collect, verify and analyze data<br>Step 8 Determine final ratings<br><!-- End of picture text -->

# **Figure 2 Single medium or multimedia rating system**

||**Single medium **|**Multimedia**|
|---|---|---|
|**Advantage**|•Simple and clear<br>•Less costly|•Providing an overall<br>assessment of<br>environmentalperformance.|
|**Disadvantage**|•Not a comprehensive<br>assessment of overall<br>performance<br>•Misleading if not properly<br>understood by the public|•More data requirements<br>•More complex and less easy<br>to understand|

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# **Figure 3 Implementation milestones: Indonesia’s PROPER program**

<!-- Start of picture text --> Socialization (Marketing)<br>System development<br>Participant selection<br>Inspection and Report Preparation and Review Stage I Review Stage II Review Stage III<br>data collection development initial rating (Technical team) (Senior official) (Advisory board)<br>Announcement of<br>initial rating to local<br>Ministry of government<br>Environment Final Review by Response to Preparation of<br>Advisory company and<br>reports to rating temporary rating<br>Board local government<br>President<br>Announcement of<br>initial rating to<br>company<br>Dissemination of<br>Decree to<br>companies<br>Ministerial Preparation of PUBLIC<br>Decree to issue disclosure<br>DISCLOSURE<br>Final rating material<br>Dissemination of<br>Decree to local<br>governments<br><!-- End of picture text --> 25
# **Figure 4 PROPER rating system (Indonesia)**

|**Rating**|**Criteria**|
|---|---|
|**GOLD**|Levels of pollution control for air and hazardous waste similar to those for<br>water pollution; extensive use of clean technology; pollution prevention;<br>recycling.|
|**GREEN**|Pollution discharges 50% below regulatory standards; proper disposal of<br>wastes; good housekeeping; accurate emission records; reasonable<br>maintenance of wastewatertreatment system.|
|**BLUE **|Pollution discharges equal to or below regulatory standards.|
|**RED**|Some pollution control effort but pollution discharges exceed regulatory<br>standards.|
|**BLACK **|No pollution control effort or serious environmental damages.|

# **Figure 5 Industrial EcoWatch System (Philippines)**

|**Rating**|**Criteria**|
|---|---|
|**BLACK**|•<br>Discharge beyond standard and has no wastewater treatment system<br>and/or air emissions control system;<br>•<br>Violation of toxic and heavy metals discharge regulations;<br>•<br>Under a “Cease and Desist” Order;<br>•<br>Willful manipulation of effluent discharge or air emissions such as<br>dilution of discharge, use of by-pass or direct discharge without<br>treatment;<br>•<br>Verified obstruction of inspection activities;<br>•<br>A legitimate and verified public complaint of pollution and no effort has<br>been exerted to address this complaint.|
|**RED**|•<br>Violation of applicable effluent/air emissions standards|
|**BLUE**|•<br>Pollution level consistently within the standards within the rating<br>period of one year;<br>•<br>Full compliance with other regulatory requirements;<br>•<br>Good maintenance of pollution control/treatment system;<br>•<br>The self-monitoring reports are complete and accurate.|
|**GREEN**|•<br>Meets all DENR requirements and has been rated BLUE in the<br>previous period;<br>•<br>Pollution concentrations are consistently lower than the standards by<br>20%;<br>•<br>Well functioning flow meter and continuous emission monitoring<br>system;<br>•<br>Easily accessible discharge points.|
|**SILVER**|•<br>Meets all DENR requirements and has been rated GREEN in the<br>previous period;<br>•<br>Uses cleantechnology, energy andwaterefficiency/conservation|

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||programs.|
|---|---|
|**GOLD**|•<br>Has been rated SILVER for the past 2 consecutive rating periods in all<br>media;<br>•<br>Implements environmental management system and waste reduction<br>program;<br>•<br>Implements a community environmental outreach program.|
|**Under**|•<br>Not enough reliable data;|
|**assessment**<br>**(for a period**<br>**of not more**<br>**than 6**<br>**months)**|•<br>Inspection shows compliance but self-monitoring reports show<br>violations;<br>•<br>Wastewater treatment plant improvement in process.|

# **Figure 6a Hohhot Pilot Rating System (China)**

<!-- Start of picture text --> None of TSP, SO2 and COD YES BLACK<br>meet concentration standards<br>NO<br>All of TSP, SO2 and COD NO RED<br>meet concentration standards<br>YES<br>All of TSP, SO2 and COD NO YELLOW<br>meet load standards<br>YES<br>ISO 14000 Certification NO BLUE<br>YES<br>GREEN<br><!-- End of picture text --> 27
# **Figure 6b Jiangsu Green Watch Rating system (China)**

|Comply with concentration standards||No|> 60%||
|---|---|---|---|---|
|Yes|||||
|Hazardous waste disposal = 100%||No|||
|Yes|||No|Yes|
|Comply with load-based standards<br>Illegal behaviors<br>Administrative penalty<br>Yes<br>No<br>|No<br>Yes<br>Yes|Y|||
|No|Penalty|> 50,000<br>es|||
|Pollution accidents<br>|<br>Yes|<br> <br>No|||
|No|Serious<br>|pollution<br><br>Yes|||
|Internal management requirements|acci<br>No|dents|||
|Yes||No|||
|Utilization of solid waste > 80%<br>Yes|No<br>||||
|Public complaints|Yes||||
|No|||||
|Cleaner production|No||||
|Yes|||||
|ISO 14000<br>Yes|No||||
|GREEN|BLUE<br>YELL|OW<br>RED||BLACK|

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# **Figure 7 Rating methodology piloted in Vietnam**

<!-- Start of picture text --> Serious polluter per criteria set forth in Circular 7<br>Yes No<br>All paper requirements are complied with (EIA,<br>licenses, self-reporting requirements, etc)?<br>No Yes<br>Comply with TCCN Comply with TCCN<br>standards? standards?<br>No Yes No Yes<br>Citizen Citizen<br>complaints? complaints?<br>Yes No Yes No<br>Comply with<br>Decree 67?<br>No Yes<br>Do other<br>good things?<br>No Yes<br>BLACK RED Request RED Request BLUE GREEN GOLD<br>that paper complaint<br>work be be solved.<br>done. If If not,<br>not, RED. RED.<br><!-- End of picture text --> 29
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# **Endnotes**

## 1 Such as in China and Indonesia.

2 Among other sources of information on the rationale of public disclosure programs, see World Bank (2000). 3 An extensive list of references is provided to which the interested reader may access.

4 On April 6-7, 2006, the World Bank and the Asian Environmental Compliance and Enforcement Network (AECEN) cosponsored the _International Workshop on Environmental Performance Disclosure for Developing Countries_ in Beijing, China. In the course of this international workshop, participants suggested to have a simple review of the programs in order to guide the design of an effective environmental performance rating and public disclosure program. A first draft of this work was presented at AECEN’s _Annual Regional Forum_ in Beijing on December 15, 2007. We sincerely thank workshop participants as well as those individuals who have provided comments and suggestions on earlier versions of this document. The authors retain the sole responsibility for any error or omission.

5 In most countries, pollution charges have been adopted as a complement to long-standing regulatory standards and not as a substitute to those standards.

6 It may be argued that these particular MBIs are also of a ‘command-and-control’ nature. Indeed, with these instruments, the ‘command’ is not to comply with regulatory standards but instead to pay a charge (or fee or tax) per unit of pollution discharged, or in the case of permits, not to pollute above the quantity of permits in the hands of the facilities. The ‘control’ requirements with these MBIs remain more or less of a similar nature as with regulatory standards. Nonetheless, we use here the generally accepted way of referring to ‘command-andcontrol’ and ‘market-based instruments’.

7 It should be noted however that this purported advantage is significantly reduced when MBIs (in particular pollution fees or taxes) are used in combination with, and not instead of regulatory standards. In such cases, regulated facilities still have to comply with regulatory standards thus undermining the possibility for pollution control efforts to be distributed across industrial facilities in a cost-effective manner.

8 This approach is also gaining increasing popularity in developing countries. The Laguna Lake Development Authority (LLDA) in the Philippines has adopted a system of environmental user fees since 1997. This (amended) system has been implemented throughout the Philippines with the adoption of the Philippines _Clean Water Act_ in 2004. Vietnam has adopted a system of wastewater discharge fees, effective January 1, 2004. Sri Lanka is nearing the adoption of a similar wastewater discharge fee system. China has been using pollution discharges fees for more than two decades.

9 This is mostly because the traditional enforcement tools such as company shut-down and financial penalty cannot be easily established or enforced, especially in developing countries where economic development and employment are still of the first priorities.

10 A number of countries have set-up web-accessible pollution release transfer registries. While not necessarily being exhaustive, this list includes Austria, Australia, Canada, Chile, the Czech Republic, Denmark, England, France, Germany, Hungary, Italy, Japan, Mexico, the Netherlands, Norway, Scotland, South Korea, Spain, and Sweden. One challenge with this approach is how information on volumes of releases of different substances can be translated into degrees of absolute or relative risks resulting from these releases.

11 Among the concerns about public disclosure, terrorism has been one in some developed countries. But as an EPRD program only discloses the performance ratings, terrorism should not be a significant concern. 12 The Guangzhou Green Watch Program in China uses three categories while Indonesia’s PROPER now cover seven categories.

13 For example, it has empirically been demonstrated that market valuation of enterprises (listed on stock markets) is significantly reduced following the disclosure of inferior environmental performance. 14 The Green Rating Project in India is an exception, but this program is run by an NGO rather than a government agency. Colors are also used by the EPRD programs implemented in Ghana and Ukraine.

15 Mostly due to the leadership changes, the Hohhot program only conducted performance ratings for two years, even though it was perceived as an effective program by the environmental officials.

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