How to make ESG commitments, save money & the planet
As part of the “E” or environmental component of Environmental, Social and Governance (ESG) principles, companies of all sizes are making environmental commitments a part of their business vision and practice, leading to measurable cost savings, growth due to improved brand image, and satisfied employees and consumers. Environmental commitments include actions and policies to protect the quality of the natural environment, adhere to regulatory requirements, reduce waste and emissions, adopt new technology, and partner with other organisations to make a more significant environmental impact. The time is now to assess your environmental commitments and create intelligent environmental policies. To begin, here are five areas of policies and practices that your company can consider to demonstrate its commitment to the environment.
Conduct formalised periodic environmental audits to discover and report violations - don’t wait until it’s too late
Companies can consider making a commitment to comply with environmental laws and regulations by implementing a formalised environmental audit programme to discover and self-report environmental violations. Not only do these programmes allow companies to demonstrate a high degree of environmental responsibility, but they can also allow a company to satisfy the U.S. Environmental Protection Agency’s (USEPA) Audit Policy. The Audit Policy, formally called “Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations,” provides immunity for self-disclosure of violations.
The Audit Policy provides several major incentives for companies that discover and disclose their violations – most significantly, large penalty reductions and in some cases total immunity against penalties. In situations involving extreme violations, use of the policy has also resulted in no recommendation for criminal prosecution. However, the Audit Policy provides these incentives in limited circumstances, where the violation was voluntarily discovered through either an “environmental audit” or a “compliance management system” – both of which have specific definitions – in place to prevent, detect and correct violations. The company must also promptly disclose the violation to EPA and correct and remediate the violation within 60 calendar days.
In addition to USEPA’s Audit Policy, many states have their own audit/self-reporting immunity policies, which protect against state enforcement and penalties in certain circumstances.
While there is certainly a business cost associated with designing and implementing an environmental audit programme or compliance management system, given the significant penalties that USEPA and state environmental agencies can assess, the cost of this self-policing policy is often very worthwhile.
Environmental counsel can review their clients’ environmental audit reports to determine whether any findings constitute violations that may be eligible for federal and state audit policies. Those attorneys can then assist companies in self-reporting violations and negotiating reduced penalties afforded by the policy.
Get serious about utilising renewable energy as a power source
Companies can explore various renewable energy options to lower their carbon footprint, including on-site wind, solar and battery installations. For example, companies with unused land, roofs, parking lots, landfills or waste treatment operations can consider installing distributed generation power sources on-site. In addition, companies can explore off-site procurement options through power contracts with renewable energy power generators. Unlike traditional power contracts, no physical power from the project is sold to the company. Instead, the purchasing company and renewable energy power generator agree to a long-term fixed purchase price for the power. Then, the renewable energy power generation company sells the power to the market, and the purchasing company pays the difference if the market price is less than the fixed price or receives any surplus if it is more than the fixed price.
Other renewable energy power arrangements include behind-the-metre installations that deploy the offtake and generator behind the same interconnection point, where energy transfer occurs before hitting the grid. In these arrangements, the generator gets an offtaker at a fixed price and can negotiate beneficial terms, while the offtaker can avoid transmission charges. Any company can utilise renewable energy as a power source, and they can use wind or solar for a small portion of their energy needs or go big and offset all or nearly all of their energy usage. (See our news alert on our work on Lightsource bp Renewable Energy Investment Ltd.’s 300 MW Bighorn Solar Project in Pueblo, Colorado, which offsets approximately 90% of the annual electricity demand from the EVRAZ Rocky Mountain Steel facility immediately adjacent to the solar project, making the EVRAZ facility the world’s first solar-powered steel mill.)
Once a company takes the renewable energy leap, it can consult the World Resources Institute (WRI) Greenhouse Gas protocols and the International Performance Measurement & Verification Protocol (IPMVP) to help calculate their carbon emissions reductions and publicise their efforts.
Build and design in a greener way, but with caution
Buildings contribute 40% of global greenhouse gas (GHG) emissions and present an actionable source of energy efficiency, emissions reduction, and cost savings. Companies can announce GHG or other environmental performance targets that reduce energy use and water consumption through real-time monitoring technologies that adjust building conditions to save money and reduce energy use. However, companies should avoid over-committing themselves to specific emissions reduction targets unless they can track and meet those goals.
Companies can install achievable energy use reduction techniques, including heating, ventilation, air conditioning (HVAC) retrofits, weatherization, insulation, and lighting upgrades. In addition, companies can seek building design and energy-system certifications through the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (“LEED”) programme. Finally, building upgrades are not limited to the interior, as companies can also explore exterior design improvements like water-efficient fixtures, irrigation controls and drought-resistant landscaping.
Companies should know that a LEED project does not always receive the full LEED credit expected for the upgrades, as significant investments to update a building could fall a few points short of a Platinum, Gold or Silver LEED certification. Therefore, companies should aim for an additional cushion of points above the desired certification level. However, concerns about meeting full LEED certifications should not prevent a company from embracing sustainable design.
Additionally, companies should be aware that environmentally friendly products the companies want to use in their building design do not always live up to their claims or can be rapidly replaced with better technology. Therefore, to adequately evaluate their product sourcing decisions, companies should look for sustainability certifications from third parties such as Green Seal, Greenguard, Ecologo and Energy Star, among many options.
Encourage employees to walk the ESG walk, too
Companies can partner with their employees to incentivise smaller-scale decisions like carpooling to in-person work or, where appropriate, choosing to attend a virtual conference rather than travelling to the location. Companies can also make recycling available to employees. Although these are simple choices, promoting environmentally conscious decisions can attract and retain employees and customers who want to work at and support “green” businesses, leading to increased retention, satisfied clients and more investment opportunities. The benefits are not just theoretical and can be measurable in the form of pounds of material diverted from landfill waste streams or reduced GHG emissions measured under USEPA’s Waste Reduction Model (WARM). Companies that advertise those measured reductions can enhance their brand image, leading to growth and increased revenue.
With advertising, however, must come caution. The urgent demand in the market for environmental commitments by companies has led to increased disclosure requirements that measure a company’s environmental actions and impacts, resulting in added transparency that allows the public to compare a company to its peers. Companies should be careful to report, track and measure progress before publishing information on their actions to meet this increased scrutiny and avoid the legal risks and reputational damage of “greenwashing” (see our prior blog post on the topic).
Convert to semi-closed and closed-loop waste systems to avoid Covid-19 supply chain issues
Semi-closed and closed-loop waste systems are the epitome of reusing and recycling, as they allow companies to create new items from production waste. These systems help companies maximize their process inputs and reuse the same materials repeatedly, ultimately conserving natural resources, diverting waste from landfills and increasing profits. Almost any material can be used in these systems, including fabrics, dye water and foams, on top of plastics, metals, technology parts and glass. Investing in the more advanced manufacturing equipment and waste collection techniques allows companies of all sizes to create a waste disposal policy as a last resort. In addition, companies can maximise these efforts by incorporating data collection and reporting protocols for accountability and process improvements.
Semi-closed and closed-loop systems divert waste, save money and reduce emissions while also addressing global supply chain issues caused by the COVID-19 pandemic. Companies not directly involved in manufacturing can still strongly benefit from partnering with suppliers, customers and other organisations that utilise these waste minimization systems. These partnerships reduce the business risk of depending on supply sources that require single-use materials, which are more vulnerable to external supply chain issues.
What this means to you and your business
The time is now to assess your environmental commitments and create intelligent environmental policies. These five areas are policies and practices that your company can consider to demonstrate its commitment to the environment.
Jon Micah Goeller is an attorney in Husch Blackwell LLP’s Chicago office and is a member of the firm’s Environmental practice team.
Megan Caldwell is a Denver-based partner with the law firm Husch Blackwell LLP and is a member of the firm’s Environmental practice team.