Ever-changing environmental challenges confront U.S. businesses, and they will continue to do so throughout 2014. The shifting focus of environmental concerns beyond regulatory compliance and risk management to sustainability and corporate social responsibility will significantly influence corporate thinking about how best to manage environmental affairs, and what the environmental priorities should be. Climate change and energy considerations also will remain important factors in strategic planning.
The following nine issues represent critical concerns that businesses, and their leaders, need to be aware of:
1. Corporate Social Responsibility
There is growing emphasis on corporate social responsibility (CSR), an initiative generally defined to mean how companies manage business to have a positive impact on society. Commonly referred to as the “triple bottom line,” CSR advocates encourage investors to judge companies on the basis of social, environmental and economic performance. According to the U.S. Chamber of Commerce, the number of companies issuing CSR reports has risen from 500 in 1999 to 3,500 by the end of 2012.
Environmental sustainability is of significant importance to CSR advocates and businesses. In a 2013 PricewaterhouseCoopers survey of U.S. CEOs, 81 percent agreed that their companies will pursue sustainability initiatives. Sixty percent agreed to do so even if such actions resulted in increased costs.
However, environmental sustainability need not be unprofitable. In 2013, the U.S. Chamber of Commerce Foundation’s Business Civic Leadership Center launched its Environmental Innovation Map. This special initiative details 100 projects in which the business sector has turned environmental challenges into business opportunities. Therefore, “doing good” and “giving back” may not only be the right thing to do, but may be good for business, too.
2. Water Scarcity
Water risks increasingly pose critical challenges for U.S. businesses and their investors, particularly for water stresses that may rise to the level of a material liability and, therefore, must be disclosed under Securities and Exchange Commission regulations. Since water covers 70 percent of the Earth’s surface, it is difficult to imagine how water shortages exist. Drought conditions, changing weather patterns and extremely low precipitation, however, have resulted in record-low water levels and exacerbated existing water-scarcity concerns.
While water scarcity exists today, the type, quantity and severity of water risks will differ from business to business. For example, businesses operating in some parts of the world likely are familiar with the impact of water shortages on their operations. For domestic concerns, most companies will have the luxury of evaluating water conservation alternatives and water supply viability plans in the absence of real-time water scarcity burdens. Companies should take advantage of any opportunity to determine how best to minimize their water footprint, ensure the sustainability of their water supply and understand the impact of their operations on available water resources in the community.
3. Shifting Federal Enforcement
The U.S. Environmental Protection Agency’s latest approach to enforcement might be described as “work smarter, not harder.” In late 2013, the EPA released its draft “Strategic Action Plan” for the next five years. In this plan, the agency envisions fewer inspections and enforcement actions. To mitigate the reduction’s impact, it states its enforcement efforts will target the most serious water, air and chemical hazards in communities first.
Additionally, the federal government shutdown in October 2013 underscored the interdependent relationship that the EPA has with state environmental agencies. While the EPA relies on state and local environmental agencies in light of scarcer resources, in its “National Strategy for Improving Oversight of State Enforcement Performance” [PDF], last year it outlined measures to address reported inadequacies in state-level enforcement of environmental laws. For corporations, this changing approach to “outsourced” federal environmental enforcement could mean varied and haphazard regulatory approaches across states.
4. Green Chemistry
The buzz continues to grow around “green chemistry.” The EPA defines green chemistry as the design of chemical products and processes that reduce or eliminate the use or generation of hazardous substances. The late Senator Frank Lautenberg (D-NJ) introduced two bills aimed at reforming the Toxic Substances Control Act (TSCA), both of which are consistent with the aims of green chemistry. At least one, the Safe Chemicals Act, proposes expedited review for new chemicals considered safer than existing chemicals. Similarly, the EPA’s “Design for the Environment” recognition program continues to gain momentum, with Wal-Mart Stores Inc. announcing that, starting in 2014, it will label its private brand cleaning products under the program.
Under California’s Green Chemistry Initiative, the “rubber met the road” late last year when Safer Consumer Product Regulations took effect. The regulations require that manufacturers examine whether they can replace existing chemical ingredients with “safer” alternatives. Given the size of California’s economy and the state’s historical role as a trailblazer in environmental regulation, the effects of these regulations on the supply chain likely will be felt both nationally and internationally.
The size of the nanotechnology market by 2020 is estimated to be $3 trillion globally, with two million U.S. workers engaged in relevant production. Scrutiny by agencies and plaintiffs’ lawyers is sure to follow. The National Institute for Occupational Safety and Health (NIOSH) recently released its strategic plan on protecting workers engaged in nanotechnology research and materials production. This strategic plan encourages a focus on 10 critical areas, including, among other items: toxicity, exposure assessment, epidemiology, risk assessment and personal protective equipment. The International Agency for Research on Cancer (IARC) also announced that in mid-2014, a working group of interdisciplinary experts would investigate certain nanomaterials and produce a report on its findings. Corporations engaged in nanotechnology research and materials production must continually ensure they are stakeholders in these varied regulatory developments.
6. Public (Mis)perceptions of Specific Environmental Issues
Social media has transformed how quickly the public at large can rally around perceived environmental risks. In 2010, the documentary “Gasland” illustrated the alleged water and air contamination resulting from hydraulic fracturing operations. The film and its social media presence contributed to the public’s understanding of the issue, arguably hastening the introduction of regulations in many states.
In 2012, California placed Proposition 37 on the ballot, which would have required the labeling of genetically modified foods. Early polling suggested that Proposition 37 would succeed, but it ultimately was defeated after business interests marshaled significant resources to highlight the measure’s flawed science and overreach. Finally, the years-long crusade against the Keystone XL pipeline illustrates the staying power of perceived environmental risks. These examples underscore that U.S. businesses must remain vigilant about the perceived environmental risks of their operations.
7. It’s Not All About the EPA
When it comes to regulatory authority and enforcement of environmental issues, it is not all about the EPA anymore. In a recent case, a foundry president pleaded guilty to unlawfully storing hazardous waste. What made the case newsworthy, however, is that an Occupational Safety and Health Administration inspector, not the EPA, identified the violations.
This example showcases the growing involvement of other federal agencies in areas once believed to be the sole domain of the EPA. Interagency agreements and memoranda of understanding have been in place for many years encouraging agencies to work together on environmentally related matters. Examples of such long-standing relationships include OSHA, the U.S. Coast Guard and U.S. Department of Transportation. The U.S. Department of the Interior, and its Fish and Wildlife Service, also has long-standing environmental jurisdiction.
National security interests expanded authority for the U.S. Department of Homeland Security to address chemical security through its “Chemical Facility Anti-Terrorism Standards” (CFATS). The Bureau of Alcohol, Tobacco and Firearms oversees many industrial uses of explosives, including waste-related concerns. The Federal Trade Commission’s involvement in environmental affairs is growing, particularly in connection with its “green guides” [PDF] focused on consumer protection. Continued climate change concerns have brought agencies like the U.S. Geological Survey and the National Oceanic and Atmospheric Administration into the fray, too.
Because these multimedia authorities exist, companies must be prepared for all interactions, communications and possible inspections. Therefore, a federal agency’s interest in a company’s operations may not always be limited to what it seems.
8. Social Cost of Carbon
The social cost of carbon (SCC) refers to the marginal external costs resulting from climate change impacts due to carbon dioxide emissions—an increasing important concept in environmental policy. The SCC will influence a host of regulatory actions and government subsidies. The recent disputes surrounding the SCC appeared to start when the Obama administration released updated SCC figures for the first time in a relatively minor U.S. Department of Energy rule on microwave-oven efficiency. According to industry critics, the agency did so without providing the opportunity to comment on this new data developed through an interagency review process.
A 2010 executive order established the SCC at $23.80 per single ton of carbon dioxide. In May 2013, the SCC was raised to $38/ton but scaled back to $37/ton in November following significant criticism of the process by which these figures were developed, as well as the scientific bases relied upon to justify the increase.
Not only is the SCC a critical part of future regulatory actions, it may signal action on a federal carbon tax. A recent Congressional Budget Office report, “Options for Reducing the Deficit: 2014 to 2023,” concluded that a carbon tax could raise $1.06 trillion in revenue by 2021 and reduce greenhouse gas emissions by 10 percent. U.S. businesses must carefully monitor the SCC given its financial impacts on regulatory initiatives and its potential to form the basis of a new tax.
9. Renewable Energy vs. Environmental Interests
Environmental groups traditionally have been staunch supporters of renewable energy, including wind power. In light of recent developments, wind power may no longer be the favored renewable energy option among some environmental organizations.
In November 2013, Duke Energy Renewables Inc. pled guilty in the deaths of golden eagles and other birds at two wind farms in Wyoming. According to the U.S. Department of Justice, this case was the first criminal conviction under the Migratory Bird Treaty Act for unlawful avian takings at wind projects. Under the terms of a plea agreement filed in the U.S. District Court for the District of Wyoming, Duke Energy Renewables Inc. was sentenced to pay fines, restitution and community service totaling $1 million and placed on probation for five years.
Is it possible for the environmental community to both be in favor of wind power and opposed to it at the same time? For Duke Renewables Inc., this case may best be summarized as “damned if you do, and damned if you don’t.” This criminal conviction reflects a harsh business reality that renewable energy projects are not free from their own environmental challenges.
In light of the tremendous variety of these concerns, U.S. businesses must take careful stock of their operations in the year ahead. Opportunities today may create unexpected costs, regulatory action or liability exposure tomorrow. Understanding these concerns is a step in the right direction, and U.S. businesses must remain vigilant to ensure that this litany of concerns does not translate into a negative impact on the bottom line.
E. Lynn Grayson is the co-chair of and a partner in Jenner & Block’s Environmental and Workplace Health and Safety Law Practice. She serves as lead environmental counsel in U.S. and international transactions, and counsels corporate leadership on the management of material environmental risks and liabilities. Alexander J. Bandza is an associate in Jenner & Block’s Environmental and Workplace Health and Safety Law Practice. Prior to joining Jenner & Block, he was an associate at Exponent Inc., a scientific and technical consulting firm, where he assisted law firms and corporations with environmental risks and liabilities arising out of litigation and regulation.