Government regulations increasingly require it.............................
Corporations now operate in a more complicated regulatory environment. In
the U.S., the Sarbanes-Oxley Act was passed in the wake of the Enron collapse
and other corporate scandals. Under Sarbanes-Oxley (SOX), environmental
liabilities and risks are valuated, reported, and financially disclosed. CEOs or
CFOs who fail to abide by Sarbanes-Oxley face severe penalties: up to $5 mil-
lion in fines and/or up to 20 years in prison for willful certification of any
statement not complying with the law.
The U.S. Securities & Exchange Commission is showing an interest in environ-
mental enforcement. The SEC and independent financial auditors scrutinize
environmental financial reporting like never before.
In the European Union, the new REACH guidelines (Registration, Evaluation,
and Authorisation of Chemicals) makes the industry responsible for assess-
ing and managing the risks posed by chemicals and providing appropriate
safety information to users. All manufacturers and importers of chemicals
must identify and manage risks linked to the substances they manufacture
and market and document their actions with a registration dossier, which
must be submitted to the European Chemicals Agency. (See Chapter 12 for
more information on REACH.)
But why just be reactive to regulations? Government regulation is often a
reaction to public pressure. Companies that practice effective sustainability
can anticipate these challenges ahead of time. The trick is to be ahead of the
curve — and that’s what every business wants, right?
Sustainability helps you manage risk ..............................................
Sustainability is a form of advanced risk management. One 2005 report by
UBS Equity Research concluded that “Social risk is business risk; business
risk translates into financial risk.”
Corporations are waking up to the fact that costs are not as easily external-
ized as we used to think; selling products with associated health risks may
translate into paying the costs for those health risks at some point in the
future. The litigation that pummeled tobacco and asbestos companies in the
U.S. may be a precursor of what other companies may face in the future.
Nothing like a few multibillion dollar verdicts to change people’s thinking.
More areas of potential big litigation loom on the horizon: Climate change,
pollution, junk food, ozone depletion. The state of California sued six of the
world’s largest auto makers, saying that greenhouse gas emissions from their
vehicles caused billions of dollars in damages.
254 Part IV: Managing the Flow of Information
