Staying in compliance with regulatory requirements is one of the most important concerns for companies who want to reach their sustainability goals. Ever-evolving regulatory standards, coupled with the rapid rise of ESG investing, has put more pressure on environmental professionals to build proactive compliance reporting strategies. Such strategies must encompass collecting data for hazardous chemicals, tracking it for reporting, and ensuring its accuracy and timeliness to avoid non-compliance.
Encamp recently hosted “The Path To Proactive Environmental Compliance” live event featuring a panel of compliance experts to discuss these issues. The panel included Encamp CEO and co-founder Luke Jacobs, together with Bill Pennington, EHS Research Director for Verdantix, and Renee Decker, EH&S Program Engineer at Hexion. The panelists shared their thoughts on the significance of proactive environmental compliance as well as operational excellence and business continuity. Following are five key takeaways from the event.
“You need to have a system that allows you to collect that information before it’s a fire drill.”
As Luke pointed out, the EHS industry has typically always been reactive to potential compliance issues. If you or your team spend more time putting out fires rather than making sure there aren’t any flammable materials to start one, it’s time to explore more proactive strategies in your approach to environmental compliance management.
Being proactive goes beyond just knowing what to do. It also means knowing which information you need and where it will come from. Compliance management software (such as Encamp) aids EHS teams by centralizing their information streams into a single source of truth so that when EPCRA and Tier II season comes along, they are confident and ready to submit their reports.
“It’s reputational damage, it’s loss on advertising that we’ve spent years building to establish a brand, it’s loss of stakeholder trust, and it’s operationally specific costs like stoppage time.”
Ever since the pandemic started, “business continuity” and “resilience” has been the buzzword around the C-suite and their organizations. How can you make sure your business can tackle daily business continuity challenges head-on? More importantly, is there a way to proactively protect your business?
Being in a highly-regulated industry, non-compliance risks are not only considered blockers to business continuity but they can also be company killers. Whether it’s not managing your data sufficiently or failing to submit required compliance reports, once the EPA determines your business is in violation of its regulations, you can incur hefty fines. More than the financial burden and potential reputational damage, stakeholder trust may also be lost.
As the panel discussed, many EHS professionals go through this nightmare day in and day out, since staying in compliance plays a big part in ensuring their business continues for many generations to come.
“It helps ensure that we are adequately weighing the EHS part and not just how much product we are pushing out. As an ethical company, we really want to be focused on the environment and sustainability as well.”
As Health and Safety Compliance continues to forge its own path, we are also seeing Environmental Compliance pave a path of its own in the form of Environmental, Social, and Governance (ESG). ESG criteria has allowed environmental professionals to take a well-earned seat at the corporate table equal to other stakeholders because of their quantifiable environmental goals. In particular, an organization’s ESG score is important for investors to measure potential growth, ethical impact, and sustainability.
As Renee Decker shared, as an ethical company, Hexion, Inc. maintains a blueprint of their environmental goals to ensure that each and every one of its employees are aware of what the level of sustainability the company wants to achieve. As we’ve always said, what’s good for business is good for the environment.
“I’m an environmental person but I need my facilities person to collect data that I need. Being able to communicate to that person why this matters and how you do it and to make it really easy for them to be able to do it and do it right is critical.”
EHS software is a dime a dozen in this market, but as an environmental compliance professional, you need a system that addresses your particular need. During the event, the panel discussed that this particular solution for environmental compliance will allow you to collaborate with different stakeholders and give visibility to the data you need. Such solutions would alleviate you and your team from complex spreadsheet formulas and having to constantly retrain new hires on non-standardized systems.
“The Biden Administration has really signalled that enforcement is going to increase pretty drastically over the next four years. Some states are proactively leading the charge in enforcing environmental regulations.”
As our CEO Luke Jacobs mentioned during the event, Encamp will also continue to see a continued complexity with environmental regulations, specifically state-level regulations. This scenario makes it harder for companies, such as yours, that have multiple facilities across multiple states and would need to compile their data into one place. Not only that, you would also need to know which specific data or form to report for which state. In addition, more states are slowly adopting digital technologies, so we will be seeing more regulatory agencies requiring digital submissions for reports.
Staying proactive with your environmental compliance management goes beyond due diligence when some things go wrong. Again, it’s not about eliminating things that could go wrong, it’s about being prepared and understanding what is needed for compliance management to go right. Streamlined and simplified environmental reporting translates into confident and proactive environmental compliance.
By now, more than a few readers have likely heard colleagues or management use the term “ESG” (Environmental, Social, [Corporate] Governance) to describe a new program, business driver, or company objective. Some of you might be puzzled by this acronym or maybe you’re trying to figure out how it affects you at all.
The Corporate Governance Institute frames Environmental, Social, Governance criteria as “a set of standards for how a company operates regarding the planet and its people.” Today, socially conscious investors now use ESG criteria to screen companies to ensure environmental performance is in line with their values and objectives.
While ESG may seem to have come out of nowhere, it first took shape decades ago.
Like many things in business, ESG has become a bit of a buzzword, but it’s not a new concept. In fact, the concept of investing for social or environmental good dates back to the 1950s when trade unions invested in various activities designed to foster healthy and vibrant communities. Towards the turn of the century, the term triple bottom line was coined by John Elkington, founder of SustainAbility (acquired by ERM in 2019), in 1998.
Through the early 2000s, more and more research demonstrated that ESG performance was complementary to a firm’s bottom line. In many cases, performance was a predictor of a firm’s financial performance. A retrospective study by Gunnar Friede et al. in 2015 reviewed more than 2,000 empirical studies, and found that about 90% of them showed a non-negative correlation between ESG and corporate financial performance; the majority of studies demonstrated a positive finding.
In 2006, The United Nations developed the Principles for Responsible Investment (PRI), which established a voluntary framework for investment firms to sign on to. Signatories agree to use ESG performance metrics and criteria as part of their financial evaluation of a company. According to PRI, there are currently nearly 4,000 signatories with over $120 trillion in assets under management (AUM).
Today, ESG encompasses both investors and corporate management. This is relationship is encapsulated perfectly encapsulated by G&A Institute’s definition for ESG:
ESG is an approach being taken by investors and corporate management that considers material environmental, social and governance issues in the governance, strategies, policies, programs and disclosure of the company.
The simple answer is that investors are getting louder. Publicly traded companies are required under SEC Rule 14a-8 to put most shareholder measures up for a vote during the annual proxy meeting. Any investor who owns at least $2,000 worth of shares or 1% of securities for one year can submit a shareholder proposal to be included in the annual proxy vote. This has led to a wave of ESG-focused proxy votes over the last five years according to a report in the Harvard Law School Forum for Corporate Governance. Shareholder measures have focused on a myriad of topics, including asking executive management to disclose details on climate change, water scarcity, human rights, indigenous rights, political spending, and anti-corruption practices, to name just a few recent areas of focus.
These proxy measures are driving the C-suite and corporate boards to pivot away from business as usual, and identify and implement programs and processes to improve operational excellence, risk management, corporate governance, and sustainability. All of these efforts have a cost. But as Gunnar et al. showed in their research, such efforts more often than not positively impact the bottom line when implemented correctly. A recent panel discussion hosted by EY America highlighted a number of areas that corporate leaders — especially boards of directors — need to be cognizant of in order to fulfill their fiduciary responsibility to shareholders.
For most companies, access to capital markets is critical for success. Angry shareholders and poor stock performance can impact access to these markets or result in a company paying more to borrow less — which is the opposite of the virtuous cycle. Institutional investors are realizing that the need for systemic change in how companies are evaluated is both needed and desired by their clients. Whether hedge funds, private equity firms or traditional investment firms, the demand for ESG focused products and services is growing, as is the amount of assets under management.
As noted by Alicia McIlhaney in her recent article in Institutional Investor, asset managers across the globe are finally starting to take ESG seriously. According to a recent article from CNBC, ESG funds doubled in value in 2020 — the height of the COVID-19 pandemic, while an article from Finerva demonstrated that ESG leaders outperformed the markets and laggards during the COVID-19 selloff in early 2020. Bloomberg also noted that ESG funds may represent $53T in AUM by 2025 — which would be more than one-third of all assets under management.
These are data points that CEOs and CFOs can’t just ignore. This is why it is critical that the C-suite and board of directors look for opportunities to address their company’s most pressing ESG issues, or risk getting left behind as shareholder and consumer attitudes and expectations evolve beyond dollars and cents.
It’s no secret that environmental compliance has oftentimes been viewed as the stuff companies can’t do rather than a business driver. It is strategically impossible to drive operational excellence, mitigate risks, and address critical ESG concerns without strong environmental compliance programs.
The growth of ESG, SRI, and sustainability initiatives are providing environmental teams an opportunity to flip the narrative and help companies develop comprehensive business strategies that drive real results while minimizing environmental risks and impacts.
I recall working for one of the largest renewable energy companies, and reminding colleagues that billions of dollars of capital deployed by the company to build new wind and solar sites couldn’t have happened without the Environmental Department securing approvals from state and federal environmental agencies — as well as ensuring that compliance was maintained during construction through the operating life of the facilities.
With that anecdote in mind, think about all of the compliance and risk management objectives you and your colleagues are tasked with on a daily, weekly, monthly, and annual basis. Are you overwhelmed by the scope of breadth? Whether you’re managing stakeholder relationships, helping the company expand its operations, handling agency reporting, or ensuring Operations is meeting their environmental compliance obligations facility by facility, Environmental teams are critical to success across a wide-array of companies spanning various industry sectors.
I’ll close with five open ended questions based on an article from McKinsey & Company, “Five ways that ESG creates value”.
We’ll discuss more aspects of ESG in future posts. Stay tuned.
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