Global Compact Principle 7

"Businesses should support a precautionary approach to environmental challenges"

What is the precautionary approach?

Introducing the precautionary approach, Principle 15 of the 1992 Rio Declaration states that “where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation”.

Precaution involves the systematic application of risk assessment (hazard identification, hazard characterization, appraisal of exposure and risk characterization), risk management and risk communication. When there is reasonable suspicion of harm and decision-makers need to apply precaution, they have to consider the degree of uncertainty that appears from scientific evaluation. Deciding on the "acceptable" level of risk involves not only scientific-technological evaluation and economic cost-benefit analysis, but also political considerations such as acceptability to the public. From a public policy view, precaution is applied as long as scientific information is incomplete or inconclusive and the associated risk is still considered too high to be imposed on society. The level of risk considered typically relates to standards of environment, health and safety.

Why is the precautionary approach important for business?

The key element of a precautionary approach, from a business perspective, is the idea of prevention rather than cure. In other words, it is more cost-effective to take early action to ensure that irreversible environmental damage does not occur. Companies should consider the following:

• While it is true that preventing environmental damage entails both opportunity - and implementation - costs, remediation environmental harm after it has occurred can cost much more, e.g. for treatment costs, or in terms of company image.
• Investing in production methods that are not sustainable, i.e. that deplete resources and degrade the environment, has a lower, long-term return than investing in sustainable operations. In turn, improving environmental performance means less financial risk, an important consideration for insurers.
• Research and development related to more environmentally friendly products can have significant long-term benefits

What steps could companies take in the application of the precautionary approach?

Issues for the company to deal with under this approach include providing better information to the consumer, communicating potential risk for the consumer, the public or the environment. It also includes obtaining prior approval before certain products, deemed to be potentially hazardous, may be placed on the market.
Steps that the company could take in the application of this approach include the following:

• Develop a code of conduct or practice for its operations and products that confirms commitment to care for health and the environment.
• Develop a company guideline on the consistent application of the approach throughout the company.
• Create a managerial committee or steering group that oversees the company application of precaution, in particular risk management in sensitive issue areas.
• Establish two-way communication with stakeholders, in a pro-active, early stage and transparent manner, to ensure effective communication of information about uncertainties and potential risks and to deal with related enquiries and complaints. Use mechanisms such as multistakeholder meetings, workshop discussions, focus groups, public polls combined with use of website and printed media.
• Support scientific research, including independent and public research, on the issue involved, working with national and international institutions concerned.
• Join industry-wide collaborative efforts to share knowledge and deal with issues, in particular production processes and products around which high level of uncertainty, potential harm and sensitivity exist.

(Last update 12 February 2009)