Who doesn’t want a clear ROI? If I pay X dollars, it will save me 2X dollars in fines or employee costs. Guaranteed! Unfortunately, for those of us dealing with environmental and safety, those results are not so clean and neat. Environmental and safety decisions are complicated. The number of soft costs and ambiguous risks as you navigate and balance the changes to environmental compliance from governing bodies, shareholders, and the general public are complex. For a company’s market position, interest in investment, and valuation, however, environmental and safety as part of Environmental Societal and Governance (ESG) initiatives can be a source of financial strength. Even core compliance, when executed at a high level for those private companies, not subject to ESG, yet, can be leveraged for operational efficiencies and increased revenue. For example, in a report published by the Academy of Management Perspectives , we see that the companies that made Fortune’s “100 Best Companies to Work For” list generated 2.3% to 3.8% higher stock returns per year than their peers over a greater than 25-year horizon. I recently had the opportunity to present at The National Ready Mixed Concrete Association (NRMCA) Concrete Works 2021 on this topic and more. The discussion covered the recent trends associated with environmental and safety regulations and the opportunities to decrease costs through proactive measures. We also dove into the tidal wave that is coming for public and non-public companies around ESG and stakeholder (i.e. general public, customers, and shareholders) pressures and requirements. Here is a breakdown on what you need to know:
EHS Legal & Regulatory Risks
The financial factors of core environmental compliance are upfront and ongoing– looking at the permits to operate, the human capital, control measures, consultants, and software. Regulators are now using stealth and remote audits to improve their efforts at ensuring compliance at facilities. However, they aren’t alone in their efforts. The fines and penalties applied when out of compliance no longer fall to just the regulators to keep a watchful eye and report. Citizen enforcement is also increasing. In Texas, a retired shrimper and environmental activist sued Formosa, resulting in a $50M settlement handed down by the judge after the Texas Commission on Environmental Quality (TCEQ) had already fined Formosa $121,875 for violations. Then, back on the federal regulation side, EHS could soon be required to disclose environmental, social, and governance (ESG)-related data, as required by the Securities and Exchange Commission (SEC). Investors have expressed interest in this information. However, with it a voluntary disclosure, there has been an inconsistent release of information. The move to more frequent reporting and an increase in scrutiny via audits and shareholder disclosure requirements make this an issue hitting the desk of every CEO, executive, and ultimately the environmental and safety teams. This will also have a trickle-down impact from the public markets to private companies as companies put downward pressure on their supply chain with savvy legislative operators commenting frequently during the talk about this downstream impact. The discussion after the session and in the halls afterwards made it clear this is a topic that is growing in importance week by week.
Costs of Compliance
One of the most significant challenges is overcoming the time constraints and staff demands of your environmental manager. The role of this manager is invaluable. They’re consistently spending their days dividing time identifying risks, working with operations staffing and junior team members, resolving environmental and safety issues with field/operations personnel, and generally putting out fires. With the average base salary at $86K and a fully loaded employee cost of 2X to 3X their base salary, the total payout for an environmental manager can range from $172 to -$258K per year. And with the number of routine tasks to keep your everyday operations running smoothly, you need to leverage these highly trained and educated EHS managers and have their time spent on high-value activities.
Further, when your EHS manager is spending their time mitigating the risks of environmental compliance, your brand reputation costs diminish. With public data a priority, any small oversight on compliance is under scrutiny. Your brand will not handle the discrepancy behind closed doors….
Embracing Technology Innovation to Decrease EHS Costs and Risk
Companies like Lehigh Hanson are taking their environmental efforts to new heights as they embrace and lead the way with technological innovation to improve their EHS efforts.
“Drones can capture data from hundreds of acres accurately, reliably, and quickly. By integrating drone imagery into the Mapistry platform, we’ve been able to significantly improve the ease and convenience of our recordkeeping and reporting obligations. Drone imagery helps ensure we are correct the first time,” adds Ben Calo, Land and Environmental Specialist from Lehigh Hanson.
US Concrete has found, by utilizing technology, they not only have saved roughly $48,000 a year in staff time alone, but in just the first full quarter of software use (Q4 2020), the MSA program had an inspection completion rate of 74%. As a result of those inspections, they created and completed 199 corrective actions. Then, from Q4 2020 to Q1 2021, there was a 30% increase in the number of inspections completed on time and a 45% increase in inspections completed overall. With the reduced costs and financial liability from improved inspections and access to a bigger picture, the leadership teams at each company also gained access in real time to the EHS data process. They now make informed decisions on how and where to mitigate risks and better ensure EHS compliance. While today’s risks continue to shift and a greater impact on future costs increases, avoiding unnecessary actions is possible. Proactive companies making informed, intelligent environmental & safety decisions can win.