The Argument for Environmental Assessments (Part 1)

Monday, January 16, 2023

It’s a fact recognized by every well-behaved child: the attention always goes to the misbehaving sibling or classmate. Similarly, companies with strong environmental audit/assessment programs rarely receive much acclaim, despite publicizing their efforts in great detail. And why should they? These gold-star companies have minimal interaction with the enforcement arms of federal and state agencies.

Forest floor

But virtue is its own reward. Companies—such as those belonging to the Environment, Health, Safety, and Sustainability (EHS&S) Executive Roundtable—value strong EHS and sustainability programs. What about those that don’t?

Non-compliance brings real consequences—and bad publicity

BP’s oil spill in Deepwater Horizon, the Volkswagen cheating scandal on air violations, Carnival Cruise Line ocean dumping, and the Duke Energy coal ash spill…do these sound familiar?

Non-compliance in the EHS&S arena can bring high visibility to environment, health, or safety problems, which immediately impact a company’s reputation, share prices, and public standing. The best and most recent example of significant consequences flowing from an inadequate compliance program is the Volkswagen prosecution. The car manufacturer allegedly tricked emissions tests to falsely represent vehicle emissions to EPA and California. Ill-gained profits turned into a substantial loss: Volkswagen paid over $20 billion to settle allegations brought in multiple federal, state, and private suits. On the criminal side, Volkswagen pleaded guilty to three counts of conspiracy, obstruction of justice, and false statements. The price tag was a $2.8 billion penalty. The consequences didn’t stop there: three civil consent decrees required the company to repair or buy back 600,000 vehicles, establish a fund for states to mitigate pollution arising from the illegal air emissions, and pay into a separate fund to promote and advance zero-emission vehicle infrastructure. The consent decree also mandated the company make significant changes to its corporate structure and submit to monitoring by a court-approved special master.

An EH&S New Year’s resolution: Getting into shape

“How do I start off 2023 on the right foot?” a nervous company might ask. Chapter 8 of Law of Environmental Protection gives a detailed roadmap, but we can offer a few basics here.

A good place to begin is the DOJ criminal policy. The policy asks the three basic questions that are at the heart of evaluating a corporate compliance program. The first is, “Is the corporation’s compliance program well designed?” Second, is the program being applied earnestly and in good faith? In other words, is the program being implemented effective? And finally, does the corporation’s compliance program work?

Getting into shape, learning a new language, writing that novel—all these require a fundamental shift in attitude and commitment to follow through. An environmental audit/assessment program is no different and should constitute an integral part of a general management system. This system is the basic scaffolding for companies to organize and manage effective environmental programs that positively answer these DOJ questions. It can also be the best instrument to assure operational compliance. Importantly: This should not be primarily a legal exercise, but a management-oriented review, which in turn establishes compliance. An environmental audit/assessment program provides both corrective and preventive assistance by identifying potential problem areas or new requirements that may require immediate or long-term capital    or operating expenditures.

It gets better: The results of audits/assessments bring benefits beyond compliance. Environmental considerations can play a significant role in helping a company engage in sound business planning (including financial planning), develop new product lines and expansions, and carry out risk management activities.

Going beyond auditing: Why assessments are (or should be) all the rage

“Auditing” takes up a lot of airtime, but is only one aspect of responsible environmental management. Lawyers tend to focus on “auditing” because it appears (and often is) legally oriented, involving auditing standards, acquisitions, potential criminal issues, and the attitudes of EPA and the Department of Justice. “Assessments,” such as program reviews, are more management oriented and, I argue, in most cases are far more effective than a legally oriented environmental audit. Why? For one, there are more opportunities to integrate the assessment into day-to-day management operations. An “assessment” is less formal than an “audit” and relies more on individual judgments rather than detailed protocols. Just note that, like audits, assessments should also be carried out in an independent manner.

For another, legally oriented audits are often completed by auditors who look primarily at details, checking the appropriate boxes while overlooking an audit/assessment’s broader role in environmental management and maintaining legal compliance. A management system that is legally based is often inadequate because it is not integrated into how the company does business on a day-to-day basis.

This is Part 1 of a two-part blog series on environmental audits/assessments. Part 2 discusses the key characteristics of a robust assessment program. To learn more, check out the latest edition of ELI’s Law of Environmental Protection.