Insider blames City short-termism for ICI's environmental problems

The demand for short-term profits from the UK's financial institutions has discouraged ICI from developing and investing in cleaner processes to solve some of its most pressing environmental problems, according to a former senior ICI manager. In a rare insider's insight into the internal dynamics of a major manufacturing business, he also blames the group's inability to keep pace with the environmental agenda for fostering a defensive attitude to external pressures for environmental improvement.

The ex-ICI manager, who left the group recently, prefers to remain anonymous. He aired his views after reading ENDS' coverage of a recent Environment Agency report on dioxin releases from the company's Runcorn works (ENDS Report 264, pp 24-26 ). Since then the firm's top management has been hauled over the coals by the Agency for three major incidents in less than a month (see pp 23-26 ).

ICI's Chemicals & Polymers business reacted angrily to our report that the Agency was preparing to ask it to extract and destroy some 300,000 tonnes of chlorinated wastes deposited in brine cavities near the site - displaying a sensitivity which may have been connected to its worries that at least some of the works' activities may be sold off. Such a sale is now firmly on the cards to help pay for ICI's £4.9 billion acquisition of Unilever's speciality chemicals business in May.

ICI, the former manager believes, has a strong technical case that the wastes in the brine cavities at Runcorn pose no environmental hazard. But the Agency's suggestion that they should be removed has come as no surprise. "It was clear by the early 1990s, if not before," he says, "that the developing concepts of sustainability and public opposition to any contamination of the environment meant that sooner or later the issue was likely to arise. Needless to say, any suggestion to this effect was dismissed with disbelief verging on hostility."

The acceptability of continuing to use the cavities has been debated within the group since at least the late 1970s. But ICI stuck with the soft option - and as a result no pressure was exerted to develop alternatives to the chlorinated solvents process at Runcorn. This technological inertia had effects beyond Britain, according to ENDS' source, "because when the process was exported to Australia a major, and in environmental terms much more serious, waste disposal problem arose at the Botany Bay site where there are no convenient brine cavities."

"One of the great puzzles for me," he says, "has been why ICI persisted with technologies which were so evidently primitive and out of date: a statement as true of the nylon process at Wilton - another massive polluter - as of the chlorine chemicals processes at Runcorn.

"This, despite all the evidence that all the major competitors were developing and investing heavily in new and cleaner processes. By comparison, ICI used its very considerable technical and intellectual ability to defend that which ultimately was fated to become indefensible."

The explanation, he believes, can be found in "the demand for unrealistically high earnings from ICI's institutional shareholders and the resultant short-termism afflicting industrial investment.

"The Board are in thrall to the City. Consequently they demand of the businesses a return of 25% or more on assets. Since such a return is almost impossible to achieve in commodity chemicals, it leaves no scope for investment in anything which does not produce an almost immediate and sizeable return. But any significant return from projects such as developing an alternative disposal route for chlorinated wastes is likely to lie well in the future and outside the time frame forced on management, and in particular the Board, by the City's demand for profits today - or at worst tomorrow."

These financial pressures create a powerful internal dynamic. For ICI's businesses, the result is that "any plea that expenditure on better waste disposal systems is essential invites the decision to get out of the business or close it down. Left without that option, all those involved will be variously motivated to defend the status quo with all their considerable skills: either to advance their careers by pleasing the Board, or to defend their livelihood - because if the business folds that is at risk - or, less selfishly, because the whole or the major part of their working life has been committed to building the business either technically or commercially.

"Anyone making that defence more difficult - be they someone within the company, a perceptive journalist, an environmental activist, or a conscientious regulator - becomes an enemy."

For ICI's chemists and engineers, the same constraints have often brought frustration in seeing innovations thwarted. "Even when elegant new synthesis routes were developed which could have solved major parts of the company's pollution problems," says ENDS' source, "examples exist where the Board could not or would not fund their implementation. Experiences like that breed a mind-set in the whole organisation which tends towards the negative and defensive rather than the positive and imaginative."

Some of ICI's main competitors work under a much less onerous financial regime. With their different ownership structure, the three German chemical majors - BASF, Bayer and Hoechst - "are expected to achieve a rate of return on capital perhaps as low as half to one-third of that expected in the UK," ENDS' source points out.

"This is a phenomenal difference, even taking into account the higher costs of labour in Germany. It has enabled them to invest in cleaner and, more critically, more efficient plants."

The analysis is not unique to ICI. Many UK businesses labour under the same constraints - posing the question whether reform of the City holds one key to improving their environmental performance as well as their competitiveness.

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