April 22nd is Earth Day. Did you know it’s the world’s biggest environmental movement and now in its 48th year?
Whatever your view on the environment, we must all recognize that we – as a planet, civilization and business community – are living through a fundamental time of transition. Arguably, the transition started back in the late 1960s, early 1970s when Earth Day was first conceived. However, this transition has accelerated considerably in recent years and is manifesting itself in a variety of forms. For example:
- The energy transition. “Traditional” fossil-fuels are still our main source of energy – but they are not unlimited. Solar, wind, wave and other forms of renewable energy are experiencing massive growth.
- The technology transition. Everyone is a potential whistle-blower. Everyone has a smartphone (with camera) in their pocket. Information and big data are a new form of global currency.
- The social transition. Everyone is more connected and has a voice. Trends on Twitter help to define what we now consider “news”
So how invested are you in the environmental concepts that both led to the founding of Earth Day and have kept it going for 48 years? You’re probably more invested than you think! Try answering/thinking through a few questions:
Do you want to live in a dirtier world? I expect regardless of your personal politics and views; most people would answer “no” to this question. Certainly, at the start of the first industrial revolution, people didn’t really understand what pollution was, or its wider implications for their health and the environment around them. However, these days, it is becoming increasingly apparent that urban air pollution, for example, is much more of a problem than we ever realized.
Are you concerned about climate change? Whatever your view on the causes of climate change, the science is irrefutable and our climate is changing. Although the impacts may be subtle, or far away, they cannot be ignored. After all, climate change knows no borders.
Why do environmental laws and regulations exist? Are they there to deliberately hamper business operations? Do lawmakers and enforcement agencies get some kind of sadistic pleasure from imposing yet more administrative and regulatory burden on companies and individuals? No. The reason environmental laws and regulations exist is, for the most part, because a person or company did something irresponsible in the past which resulted in some form of damage to the natural environment and which needs to be prevented from occurring again. In some cases, laws may have evolved pro-actively: to counteract potential irresponsible behavior, or to tackle new evidence or science of environmental impacts. Either way, environmental laws are there not to stifle business, but stifle irresponsible business.
Does it help your company’s bottom-line if you contribute to environmental pollution? This is a blatantly leading question. However, there may be circumstances in which you feel you can justify at least some pollution on the basis of the overall common good that your company and its products deliver, and you are willing to accept a certain level of associated costs and reputational damage as a result.
That being said, it is an undeniable fact that in the last few years, high-profile public relations disasters have had long-term impacts on many companies, for example:
- BP: Deepwater Horizon disaster in 2010 resulted in BP losing more than half its value on the stock market- it has still not recovered fully,
- Volkswagen: “Emissions gate” scandal resulted in loss of nearly one quarter of company value,
These are just two examples of the speed at which an issue can become global news, permeating social media, resulting in damages to reputation, reduced sales from consumer boycotts and in each case, a startling drop in the share value of the company in question.
More recently we’ve been seeing a “Corporate Responsibility Transition”, where companies are expected to be the moral voice in society, to act responsibly and recognize that they have responsibilities beyond their share price. After all, in many cases, companies hold more global power and influence than local governments. This is why Earth Day now matters more than ever, and matters for business in particular: An environmental incident, act of pollution or degradation will impact your company more than it has ever done in the past.
Reputational damage is one thing, and can be hard to quantify, but the numbers also back up this argument.
In the United States, for example, the Environmental Protection Agency (EPA) recently published the following highlights of its Enforcement Annual Results for Fiscal Year 2017:
- An increase in clean-up commitments by private companies to more than USD 1.2 billion (from USD 1 billion in 2016).
- Nearly USD 20 billion in investments by companies in actions and equipment to control pollution (up from USD 13.7 in 2016, and USD 5 billion in 2015!).
- An increase in the total of criminal fines, restitution, and mitigation to USD 2.98 billion.
- USD 1.6 billion in administrative and civil judicial penalties (higher than any of the previous ten years, with the exception of 2016, but which included the USD 5.7 billion BP was required to pay). By way of comparison, the total collected in 2015 was just USD 207 million.
The numbers provided by the EPA clearly illuminate a critical truth: U.S. companies are no longer exposed to court risks in the millions of dollars; environmental enforcement actions are now collecting billions of dollars.
It’s not just in the US where we see an increase in the number and level of fines. If we take China as another example, the Ministry of Environmental Protection now publishes monthly news articles summarizing enforcement actions that includes the number of enforcement cases as well as the amount of fines.
Statistics from the Ministry show that, from January to November 2017, the total number of cases where environmental enforcement penalties (including continuous fines on daily basis, seizure, production restriction or suspension, administrative custody, and criminal prosecution) are imposed increased 102.4 percent compared to the same period in 2016 (that is, 35667 for 2017, 17620 for 2016). The continuous fines on daily basis in the period amount to 1,075,400,000 CNY (approximately USD 170 million), representing an increase of 43.4 percent compared to the same period in 2016. There is sharp increase of cases which lead to administrative custody, which has increased 139.1 percent (that is, 7827 in 2017, 3274 in 2016).
There are increasingly high-profile enforcement cases in China as well. For example:
- A German car parts manufacturer was indirectly impacted (self-claimed losses of 300 billion yuan (USD 45.53 billion)) by closure of its main metal wiredrawing supplier in Shanghai due to environmental law enforcement;
- Eight companies were sentenced to a penalty of 569 million yuan (USD 86 million) for contaminating soil and had to pay an additional 6 million yuan (USD 952,848) to a public welfare fund for environmental damage;
- Two truck makers were fined at least 38 million yuan (USD 5.84 million) for emissions fraud;
- A company was sentenced to compensate for river water pollution caused by 44 tons of phenol discharged from its inappropriate unloading operation.
The increased cases of environmental penalties and fines can be ascribed to the large-scale environmental protection inspection drive announced by the Ministry of Environmental Protection in 2017, and the strengthening of provisions related to the imposition of fines. The Ministry of Environmental Protection has already announced that it will launch a 2nd environmental protection inspection program in 2019.
So, whether it is the direct financial implications of damaging the environment; the indirect costs to your business of reputational damage; or simply because you enjoy a stroll through a park, green field or fishing in a clear lake, getting your business involved in Earth Day (or similar) events and initiatives is increasingly becoming a business imperative.
From our team to yours- Happy Earth Day!