Articles
 
MASSACHUSETTS
LAWYERS WEEKLY - August 16, 1993
CORPORATE ENVIRONMENTAL POLICY
COMING UP 'GREEN' ON THE BOTTOM LINE
By James P. DeMaria

Few events in modern American industrial history have given corporations cause to reassess themselves and their activities as much as the proliferation of environmental law and regulation has during the past three decades. The complex and voluminous federal and state legislation, which sought to address the country's increased understanding of environmental ills and the swell of social activism of the 1960s, also sounded the death knell for corporate "business as usual," regardless of a company's industry or size.

Many corporations have sought to capitalize on this wave of environmental consciousness by actively projecting a public image as a "green company". For some, the strategy has been accomplished by marketing efforts which call attention to a company's development of consumer goods that are less toxic, are sold in reduced and biodegradable packaging, are recyclable or are otherwise "environmentally friendly." Other companies have focused their attention on marketing the environmentally sensitive aspects of their business activities, ranging from the development of good-neighbor policies to company-wide pledges of environmental responsibility.

In short, the concept of "greenness," when applied to corporations, has traditionally been perceived by the public as the definitional equivalent of "environmentally moral." Marketing efforts aimed at achieving that distinction have been rooted in the notion that consumers, when given the choice, will direct their business toward companies seen to share the public's concern for the integrity of the environment. Create a public image and increased sales will follow.

Beyond Public Relations

Forward-thinking companies, however, have begun to recognize that a successful corporate environment policy has little in common with the marketing of an environmentally responsible public image. While outwardly projecting a "green" public image may produce shore-term gains, the greatest achievements are being realized by corporations that understand the link between future long-term vitality and the effective management of their internal environmental affairs. The concept of becoming "green" within, a notion that has been emerging in corporate culture in recent years, is based upon the premise that the development of a successful corporate-wide policy of environmental awareness can result in positive, far-reaching effects on a company's business beyond marketing and consumer sales.

While the forging of corporate environmental policies is hardly novel, surprisingly few corporations have grasped the mind-set that provides the underpinnings of successful environmental management. For those who have, a distinction is drawn between the "greening" of in-house policy and the marketing of a "green" public image.

First, unlike "green" marketing strategies, environmental awareness in corporate management policy is not a function of public perception. Rather, it is a corporate-wide recognition that the expanding scope of environmental law and regulation has, for all practical purposes, reached the realm of basic, every day corporate decisions in the same way that companies regularly consider issues such as corporate finance or shareholder relations.

Second, successful corporate environmental policies are not rooted in "environmental morality." While corporate ethics may provide a robust topic for seminars and business theorists, it has limits in its application to corporate environmental policy on the manufacturing floor. To begin with, "environmental morality" is as subjective as any other ethical inquiry. As such, the notion of what constitutes sound environmental management from an ethical standpoint is likely to differ from division to division, facility to facility and from employee to employee. Moreover, since corporations are, by nature, creatures of profit, environmental management needs to make sense from a business standpoint in order to survive within the organization.

Environmental Management As A Business Tool.

What do corporations that successfully manage environmental affairs know that other companies have yet to learn? Quite simply, that an effective, pro-active corporate approach to environmental management can have a profoundly positive effect on a company's bottom line.

Many companies believe that they are effectively dealing with environmental issues within their organization by simply working to minimize environmental liabilities. To their credit, they have at least recognized that the drain in financial resource and manpower associated with the liabilities for non-compliance can affect their company's vitality and can divert the organizations' energy away from achieving its goals. In a larger sense, however, simply responding to the "command and control" nature of environmental law is just the beginning of a sound, well-reasoned corporate strategy.

The idea of promoting "green" within an organization is more than minimizing liability; it is seeking to generate increased profit from passing everyday corporate decisions through a prism of environmental inquiries and uncovering the opportunities for growth in ways that may be less obvious.

Environmental Policy On The Manufacturing Floor.

Take for example the area of materials use and water generation in the manufacturing process. Because most environmental laws and regulations focus on "end-of-the-pipe-line" management of wastes and are only beginning to address the issue of waste minimization, many companies end their compliance inquiries by complying with the mandates of waste disposal laws.

Forward-thinking companies, however, are reassessing their manufacturing operations to find new and innovative ways of minimizing their use of toxic chemicals and reducing the amount of waste generated by their processes. Those efforts are often paying handsome rewards.

To begin with, these companies are enjoying the benefit of reducing hazardous waste disposal costs and thereby, ultimately cutting operating costs. Whether by investing in systems to recycle wastes or by redesigning process operations to increase the ratio of finished products to wastes generated, some companies are recouping initial investments in as early as one or two years.

In addition, many companies are gaining the benefit of taking their operations out of the regulatory loop altogether by reducing the volume of manufacturing by-products to below regulatory thresholds. In doing so, these companies are limiting the manpower and resources needed to obtain costly permits or to comply with time-consuming reporting requirements.

At the front end, companies committed to toxic use reduction are realizing the advantages of engineering harmful chemicals out of their manufacturing processes. Use of more benign feedstock, for instance, eliminates toxic spills and limits worker exposure which, in turn, fosters measurable benefits in areas ranging from controlling absenteeism to reducing workers' compensation insurance costs to enhancing labor relations.

Taken as a whole, these measures to reduce toxic use and to minimize waster, when made part of a pro-active corporate environmental policy, enhance a company's bottom line by decreasing operating costs and increasing profits from more competitive pricing for goods and services waste.

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Environmental Policy In Acquisitions And Divestitures.

Another example of profiting from a pro-active approach toward corporate environmental management policy is in the area of acquisitions and divestitures. All to often, corporations tend to take a one-dimensional approach to acquiring new facilities by focusing exclusively on issues of liability. They avoid purchasing contaminated property solely out of fear of incurring cleanup obligations.

On the other hand, companies that have made the effort to fully understand the nature of corporate liability under environmental law recognize that there may be investment opportunities from purchasing contaminated facilities, or at a minimum, that the existence of contamination does not, by itself, make an otherwise desirable property unattractive.

In certain circumstances, contaminated facilities can be purchased at "fire sale" prices, which make funding and managing the cleanup a viable business option. In other instances buyers may be able to obtain indemnification, cleanup commitments or remediation funding from sellers that could make the existence of contamination a minimal issue.

Conversely, if a corporation is looking to divest itself of facilities, its previous record of effectively handling environmental issues at those sites will go along way toward determining whether the properties can be sold at full value. Moreover, a company's success in implementing a sound environmental policy at a facility during its ownership will reduce or altogether eliminate the need to be involved with continuing obligations at the site after it is sold.

These few examples are given to illustrate not only the benefits of incorporating well-reasoned environmental management policies into corporate decision-making, but also to highlight what is at stake for companies that do not. For corporations that recognize that environmental affairs now pervade every aspect of business agencies to corporate finance to energy and materials consumption---the opportunities for stability and increased profits are readily available. For these companies, the dividends derived from making awareness of environmental issues a corporate-wide policy will provide rich returns on the investment.

Companies, however, that continue to ignore the prominence of environmental issues in today's corporate landscape will continue to be painfully surprised by it. They will continue to make poor business decisions, squander resources and manpower, and be forced to react on a crisis-to-crisis basis.

Fashioning Corporate Policy From The Top Down.

While many of the aspects of successful corporate environmental policies vary from company to company, there are some elements that are fundamental.

First and foremost is the necessity of establishing a company-wide commitment to improve environmental management. From the board of directors down to line employees, each member of the organization must be instilled with the understanding that the way the corporation handles environmental issues has a direct effect on competitiveness, profitability and success.

Starting at the top, executives at the highest levels must set the tone for the entire organization by projecting a strong commitment to the development and implementation of a well-thought out corporate environmental policy. If the board of directors and upper management fail to recognize the need to continually incorporate an environmental policy into everyday corporate affairs, the program will fail and the company, as a whole, will inevitably suffer.

In some instances, corporations have brought together key players in the organization to form an environmental issues committee to develop and oversee corporate policy. Lawyers, technical staff, division heads or operations managers, and even representative of the board of directors can provide the appropriate mix of individuals with access to both the company's chief executives and the manufacturing floor.

Aside from acting as a clearing house for the organization's environmental practices and policies committee is also responsible for keeping the corporation abreast of changes in law and regulation. If the corporation is not staffed to accomplish this goal, outside counsel must be retained to act in that capacity.

As a functioning body, the environmental committee must turn environmental issues into action. Oftentimes, the best ideas for managing environmental problems or redesigning a manufacturing process come from employees working in close proximity to the situation. The benefit of those ideas, however, will be lost if employees begin to perceive that the environmental committee is nothing more than a place where proposals go to die.

Systematic Environmental Management.

The second fundamental element of establishing a successful corporate environmental policy is the creation of a system for standardizing environmental information and the establishment of channels for its distribution. Terms of art such as "release of hazardous materials into the environment," "deviation" from corporate policy, and "violation" of law or a permit must each have a consistent meaning when used throughout the organization. Similarly, the manner in which incidents are logged, reported and analyzed must be standardized to maximize the organization's ability to track information, recognize trends and isolate problems.

The development of standardized terms and reporting techniques will be of little value without an established system for insuring that information reaches the appropriate decision-makers within the organization. In essence, this requires that a corporation set up a chain of command for environmental issues and that each link in the chain be responsible for moving the information up to the next level and relaying solutions and policy decisions back down through the ranks. Consistent breakdown in the system of communication will have disastrous results.

Another key to managing environmental information is an organization's development of a protocol for self-assessment. At minimum, this is a two-step process. First, a company must gain a grasp of the corporation's current operating status. This requires a thorough assessment of basics such as the scope of permits, the requirements of regulations, and the special conditions imposed by consent decrees or corrective action orders. Second, each facility or division within the organization must develop a workable means of monitoring compliance.

The most efficient and cost-effective approach is to craft and implement periodic facility audits under the oversight of environmental counsel so that changes in legal requirements can be incorporated into the monitoring program.

Conclusion

Through these ideas set forth the essential foundation for a successful corporate environmental policy, they are not an exhaustive list of key elements or a complete blueprint for policy development. These ideas are provided, instead, to generate discussion within organizations about establishing or improving the quality of in-house environmental programs and to offer businesses a fresh way of thinking about environmental policy and its relationship to corporate vitality.

Change within an organization is never easy. Neither is the dispelling of long-standing assumptions about environmental law and its impact on business growth. But when corporations make the effort to recast their perceptions of the role that environmental matters play in their corporate affairs, they unlock a world of previously unseen possibilities that, in the long run, can make a company more efficient and more competitive.