3. ES&G Issues and How They Affect the Business Enterprise

It is widely understood, if only generally, that the system of legal and other controls that exists in the U.S. to control pollutant emissions and other environmental and safety impacts can impose costs on the affected business enterprise. In response to new requirements, the business generally must modify its operations in some way to reach and maintain compliance. It also is increasingly understood that EHS and broader ES&G/sustainability issues can affect businesses in ways and through mechanisms that are not regulatory in nature, and that these impacts can be both adverse and beneficial. This chapter describes how and why these impacts occur, what form they take, and what types of behaviors are indicated for a company that seeks to optimize its responses to ES&G issues. Developing and successfully implementing an optimized (if not optimal) response strategy is vital for firms to become more sustainable in the long term.

It can safely be said that in the absence of this system, much of what we know about how to reduce the adverse EHS impacts of commercial, industrial, and broader human activity would not exist. In recent years we have witnessed the emergence of sophisticated beyond-compliance corporate behavior. However, few informed observers would seriously dispute that the legal/regulatory control system now in place remains the foundation of our society’s approach to improving the quality of human health and the environment. Moreover, because this system functions to redress fundamental imbalances between the benefits and costs of commercial activity and who receives/bears them, it also helps create the conditions needed for business models and approaches that are truly sustainable in the long term.

With the first Earth Day in 1970, however, a powerful movement began to take shape. It resulted in a panoply of major laws governing pollutant emissions to air, water, and land. It also regulated, for the first time, the manufacture and usage of pesticides and other toxic chemicals. These early laws were followed in the mid-1970s and 1980s by new statutes controlling the management of hazardous wastes, mandating the cleanup of uncontrolled hazardous waste sites, establishing controls over drinking water quality, and requiring public disclosure of toxic pollutant emissions. These statutes empowered, for the first time, the federal government to establish new standards for a wide variety of activities (managing wastes, discharging pollutants, selling and using pesticides) that would apply uniformly across the country.

It is fair to say that we have come a long way in the span of 40 years. An array of major federal statutes and implementing regulations are in place, all of which have withstood legal challenge. And analogous state statutes and regulations have been enacted across the country. Accompanying the development of this legal foundation has been the accumulation of substantial case law, which, when viewed in its entirety, shows that the system that has evolved has repeatedly passed Constitutional muster. This system has been used to establish clear standards of environmental and safety behavior on the part of regulated entities, provide for enforcement of these standards, and impose penalties (including fines, required actions, and prison sentences) for noncompliance, particularly for willful and serious violations.

Today, the regulatory control framework envisioned in the major environmental statutes has been more or less fully completed. The regular, ongoing oversight and enforcement of these laws and implementing regulations have now been delegated to individual state governments in the vast majority of cases. This has resulted in the nationwide deployment of uniform, protective standards in a way that reflects each state’s characteristics and priorities, allowing for flexible, practical application at the local level. This framework has accomplished a great deal and is widely viewed as a success story. Evidence for this assertion is provided by the fact that situations in which a major environmental public health threat or uncontrolled pollutant release occurs are relatively rare and for that reason may be considered newsworthy. In parallel with these appropriate developments, the U.S. and other developed countries have witnessed a profound change in how individuals, organizations, and entire societies interact with the environment. It is now assumed and expected that organizations, particularly corporations, are in compliance with all relevant environmental and safety control regulations. It would be the rare individual who would assert that it is acceptable to pollute the environment or endanger one’s employees (or neighbors) rather than take reasonable steps to manage a material safely and dispose of it properly.

At the same time, it is worth mentioning that most of the major environmental and health and safety statutes were enacted at a different time in our history. The National Environmental Policy Act (NEPA), Clean Air Act (CAA), Clean Water Act (CWA), Safe Drinking Water Act (SDWA), Resource Conservation and Recovery Act (RCRA), Toxic Substances Control Act (TSCA), Occupational Safety and Health Act (OSHA), and Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) were all passed by the U.S. Congress in the 1970s.¹ The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), better known as “Superfund,” was enacted in 1980. A number of major amendments have been added to some of these statutes, particularly during the mid-1980s and early 1990s. But it is generally recognized that the statutes and amendments to existing statutes passed during this roughly ten-year period provide the foundation of environmental, health, and safety law in the U.S. Moreover, these statutes have been used as models for a number of other countries as they too enacted national legislation to address EHS issues.

It was within the social and political crucible of the 1960s that the modern environmental movement came into being and laid the foundation for the improved environmental quality and sustainability management assets that we have today. The conditions at that time enabled the formation of a general political consensus, which included Democrats and Republicans, political liberals and staunch conservatives, that the environment on which we all depend was under assault and that strong measures needed to be taken. The publication of Rachel Carson’s classic, Silent Spring, first brought public attention to the issue of pesticides in the environment, and the fact that no one had the authority at that time to limit their production, use, and misuse. Several catastrophic events (such as massive fish kills) and a continuing series of warning signs (such as the Cuyahoga River catching fire) served to elevate concerns among the public and elected officials. And the national political leadership at the time had already shown itself and the American people that it was capable of taking on difficult political issues.² Therefore, those who were committed to the issue of environmental protection were able to garner enough support from enough places to prevail. It probably helped their cause that at the time the specific sources of many major environmental problems were not well understood, nor were the initial costs of more benign practices.³

Today, of course, the political climate is very different. It is far more difficult to get any piece of legislation, let alone a major new environmental or health and safety protection statute, through the gauntlet of the entrenched interests represented in the U.S. Congress. Those of us who lament the repeated failures to enact even a rudimentary national greenhouse gas/energy policy bill by Congress can only dream of what it must have been like in the past. During those heady days, it was possible to think big and, with lots of work and coalition-building, enact a new statute to address a major unmet environmental policy need.

This attenuated discussion of recent history illustrates that the legal framework that protects the environment and worker health and safety, though in some ways incomplete and unwieldy, is the legacy of a rare time when “the planets aligned.” Despite the frustrations that many people feel about some of these laws (limits on authority, lack of flexibility), we are fortunate to have them. If they had never been created, considering our current social and political culture, it is not at all clear that we would now have the wherewithal to create something equal or better.

Returning the focus to what we have rather than what might have been, there are a few important facts to take away from the foregoing discussion. One is that we have a mature and, at a general level, well-functioning legal and regulatory system to define key environmental, health, and safety issues.⁴ Another is that given the political realities, it is unlikely that the current system will change markedly in the foreseeable future. Although it is true that some new chemicals and products, for example, may face more stringent controls, it is unlikely that we will see any wholesale changes to the overall approach to their regulation in the U.S. The flip side of this type of “stability,” if you will, is that some of the inefficiencies, gaps, and seemingly nonsensical outcomes that arise with the current system are likely to be with us for the long term. Some of us in the environmental/EHS profession believe that we are overdue for a “stem to stern” review of our environmental and health and safety legislative and regulatory system, with the goal of filling gaps and increasing both effectiveness and efficiency. With the current state of our political culture, however, it is highly unlikely that this type of review and/or overhaul will occur anytime soon.

Along with the markedly different legal environment than the one that existed prior to 1970, a parallel and in some ways equally important change has taken place within our society. It concerns the expectations of individuals. Today, nearly everyone wants a healthy environment and feels some obligation to do his or her part to contribute toward this goal. It is generally expected that organizations will conduct their affairs in a way that does not impose undue burdens on the environment or expose their people or neighbors to hazardous conditions. At a bare minimum, companies are expected to comply with all pertinent environmental and health and safety regulations and conditions. This marks a sea change in public (and corporate) attitudes toward EHS in the span of less than two generations. It may be difficult to imagine today, but in the 1970s, the leaders of more than a few newly regulated companies openly challenged the government’s ability to force them to control the untreated (and often highly hazardous) wastes that they were venting to the air or pumping into rivers, lakes, or oceans. These early challenges came in a number of different forms. At the corporate level, most of the fights occurred in the courtroom, as corporations and their trade association representatives challenged the constitutionality of most of the major statutes, or at least some of their major provisions. At a more tactical level, during their initial site visits, more than a few federal and state inspectors were welcomed at the plant gate or facility entrance by an unsmiling man brandishing a shotgun.⁵ In terms of what might be considered socially acceptable attitudes, we have come a long way in a relatively short time.

At the time when most of our major environmental statutes (and OSHA) were enacted, the existing knowledge base concerning the environmental and human health effects of chemicals and other substances was quite limited. Also, the effectiveness and costs of different pollutant emission controls and alternative waste management methods, as applied on a broad scale, were largely unknown. The potential of forward-looking and integrated approaches such as pollution prevention was largely unexplored, if not undefined, during this period. Similarly, both data and depth of understanding of how natural systems work and how they are influenced by human activities, including pollution and overexploitation, were extremely limited. It is not an exaggeration to say that in the early days, the people writing the laws and, later, those who drafted the implementing regulations were literally inventing new approaches as they went along. There was little to nothing to base decisions on, beyond whatever engineering, economic, and technical studies might have been commissioned to support a particular effort, and the all-too-common “best engineering judgment.”

As the new environmental and occupational safety and health laws were implemented, an interesting thing happened. Many new processes, operating practices, and capabilities were developed that enabled many organizations to greatly reduce their pollutant generation and emission and accident rates, often more rapidly and easily than had been predicted. Indeed, as the collective expertise within our society grew, many members of the regulated community discovered that they could cost-effectively reduce their negative effects on human health and the environment beyond what was strictly required by statute, regulation, or discharge permit. These successes also gave rise to the concept of “pollution prevention,” which means eliminating pollution at its source rather than relying on downstream treatment or disposal. This approach is strongly preferred by regulators and leading companies, and in fact has been U.S. national policy for more than 20 years.⁶ Similarly, in the field of occupational health and safety, the concept of “behavior-based” safety has been widely embraced since the mid-1990s.

Today, the regulatory, policy, and technical expertise resident within many of our public sector institutions is highly developed. So is the published literature in the fields of environmental/health and safety law, public policy, pollution control engineering, risk assessment, environmental/natural resource economics, and many others. Experience has shown which types of approaches are effective and can be deployed at reasonable cost and which are not or cannot. In 1970 there was little private sector environmental expertise, but today there is a well-developed multibillion-dollar EHS services industry (actually, a set of industries). Its members employ hundreds of thousands of consultants, engineers, scientists, and other professionals who deliver a wide array of products and services in the fields of environment, health and safety, and related fields on an ongoing basis. The mechanics of managing wastes, controlling pollutant emissions, and limiting unsafe workplace exposures and other EHS “basics” remain ongoing challenges in some operating environments. But increasingly the focus is on rethinking and redesigning business processes to make them safer and more environmentally benign, rather than focusing on end-of-pipe (point of discharge) pollution control.

It is important to celebrate the successes that environmental, health, and safety protection efforts have achieved in improving the quality of our air and water; reducing exposure to toxic chemicals; protecting high-value ecosystems and habitats; and eliminating deaths, injuries, and illness on the job. Some important residual, high-profile environmental issues still exist (such as fish kills, waste impoundment failures, stream/habitat destruction from mountaintop mining). But we no longer have healthy people killed by massive air pollution episodes, lakes devoid of plant and animal life, rivers that catch fire and burn, or routine residential exposure to high concentrations of acutely toxic and/or carcinogenic substances. And although industrial accidents, injuries, and even deaths continue to occur, particularly in some occupations, on the whole, American workplaces are far safer and more conducive to continued good health than they were a generation or two ago.

With all that has been accomplished, you might think that our society has surmounted its greatest environmental problems. That supposition would, unfortunately, be incorrect. In a sense, we have tackled the most obvious and most easily addressed problems first. If large, fixed facilities are discharging pollutants into the air or water, or are burying toxic wastes out on the “back 40,” it is sensible to prohibit or tightly regulate these practices if they pose significant risks to human health and environmental quality. Indeed, this was exactly the approach taken in our initial efforts to improve the condition of the environment. We went after the major pollution sources that were in plain sight and that generally were under the direct control of an entity (such as a corporation, hospital, or local government) that could be identified and compelled to make the desired changes. These efforts were hugely successful. Total annual loadings of the highest-priority pollutants (as defined in statutes) have declined substantially, even as our population and economy have continued to expand. Moreover, these improvements have been made in ways that, contrary to the dire predictions made along the way, did not bankrupt our society or, indeed, very many (if any) companies. The plain truth is that the vast majority of environmental and health and safety laws have yielded tangible environmental quality, human health, and economic benefits. The value of these, despite the seemingly eternal complaints of their detractors, greatly exceeds their cost. This issue is discussed further in the following sidebar.

What we are left with now is, increasingly, the “tough stuff”—problems that are of significant magnitude but are difficult to resolve.

Here are a few examples of the types of major EHS issues that continue to defy adequate resolution:

• Reducing greenhouse gas (GHG) emissions and limiting (or adapting to) global climate change

• Ensuring adequate water supply and quality

• Understanding and limiting the effects of endocrine-disrupting chemicals

• Appropriately controlling exposure to low/no-threshold effect compounds and mixtures

• Preventing the spread of invasive species

• Reducing line and area sources of pollution (such as roads and farm fields)

Adequately addressing these challenges and, at a more personal level, doing what we can within our own spheres of influence will require better understanding of what the environmental/sustainability issue is, how performance can be improved, and what the practical and financial consequences of action (or inaction) are at personal, organizational, and societal levels.

These issues, among others, are difficult to resolve for one or more of the following reasons:

• Many sources of small impact. Many remaining major pollution sources are diffuse and scattered across the country rather than centralized in one location (such as a power or chemical plant). It is fundamentally more difficult to control thousands (or millions) of pollutant sources than a few dozen or hundred.

• Large installed infrastructure and (potentially) stranded costs. Some issues are intimately associated with the life and work styles we have chosen and with the commercial and industrial infrastructure we have developed as a society over the past century. The most prominent example is our near-total reliance on petroleum to power our personal mobility (generally by driving a car, often alone). Most of us, myself included, must, from a practical standpoint, drive a motor vehicle to get where we need or want to go on a regular basis. These vehicles are powered by gasoline or diesel fuel that we can obtain readily from any of thousands of gas stations across the country. Replacing this hydrocarbon-based fuel source with something more environmentally benign (hydrogen, electricity) will take substantial time and vast amounts of capital. Moreover, the suburban sprawl that continued more or less unabated for the latter half of the 20th century has significantly exacerbated our dependence on motorized personal transportation. Although some people dream of freeing ourselves from the automobile, the plain truth is that, with the exception of some urban dwellers, it will not happen soon—if ever.

• Behavior of individuals. In a similar vein, many important pollution and waste sources result from the individual choices we all make every day (personal automobile use, for example) or periodically (such as what products to buy, or where to live and in how large a dwelling). Such decisions are well beyond the traditional purview of government and, for that matter, most cultural institutions.

• Transboundary. Some environmental problems span national and other political boundaries (such as climate change). This means that finding and reaching agreement on solutions can be intrinsically difficult and time-consuming, even if there is general agreement about the source of the problem and what needs to be done.

• Obsolete, limited authority. Despite the profound impacts of the major EHS statutes briefly described here, any new environmental improvement efforts that rely on legal controls are limited by the boundaries and approaches established by our major environmental statutes. With only a few exceptions, these laws are all at least 20 years old.

• Gridlock. Recent years and events have only served to highlight some of the profound philosophical differences that exist within our political, government, and corporate institutions. The ongoing debate over climate change is only the most obvious area in which it can be difficult within our society to reach a general consensus on the nature, causes, desired improvements, and indicated approaches for resolving important environmental or other sustainability issues.

These factors are well known within the environmental policy arena. In some cases they have been overcome with concerted efforts on the part of a number of stakeholders. Examples include the Montreal Protocol process, which resulted in the coordinated international phase-out of many ozone-depleting compounds. To some degree, the Kyoto protocol is another example. After several years following its signature by 84 nations, it was ratified by enough signatory countries to go into effect in 2005.⁷

More generally, however, it is not entirely clear that our existing statutory and institutional structure and tools will be adequate to address these challenges. This suggests that substantial improvements or even extensive retooling will be necessary at some point. A number of observers have advocated a move toward “next-generation environmental regulation” as a means by which this might be done, or at least initiated. Ira Feldman is a prominent voice and thought leader in this area. He believes that as our legislative and regulatory system evolves, it will be informed by sustainability principles rather than be driven by the risk management focus underlying our existing legal and regulatory structure:

Any future “stem to stern” review will almost certainly be based on an appreciation of sustainability concepts and principles. In addition, there are ideas now in play that were not even part of the discussion as of the mid-1990s. These include 1) sector-specific approaches; 2) the concept of industrial ecology; 3) appreciating the nature and importance of ecosystem services and using them as part of the basis for regulatory structure and policy; and 4) shifting to more of a materials management, rather than a waste/residuals, focus. While it is unlikely that we will see any major changes in the near term due to the current political climate, at some point we will be ready to make the needed enhancements. The pendulum shift will happen, just as it always does. (Feldman, 2011)

Whether it happens quickly or, more likely, over a more extended period, our societal approach to defining mandates addressing ES&G issues will evolve. In the interim, business leaders should understand that EHS and broader ES&G laws, regulations, and expectations are firmly rooted legally, culturally, and institutionally across our country. There is ample room for streamlining, consolidation, and general improvement in how these controls are deployed. But they continue to serve an important role and are unlikely to be eliminated, regardless of recent ill-considered and largely uninformed public statements made by certain interest groups, politicians, and candidates for public office. Indeed, as explored further in a moment, leaders within most well-run companies actively support appropriate regulations. It would be unwise to assume that the business community generally would support any broad efforts to repeal or undermine our major EHS statutes and programs. Our best companies have simply invested too much time, effort, and money and have reaped too many benefits to retreat to our previous, unsustainable practices, regardless of short-term economic or political conditions.

Some regulations have been promulgated that may seem to defy common sense and may even reject the preferred course of action on an agency’s part, but they have been crafted to reflect specific (usually well-intentioned) Congressional mandates. This often occurs following a successful court challenge to a regulation by representatives of industry, public interest groups, and/or other stakeholders, or in response to threats of litigation during regulatory deliberations. In addition, court decisions and opinions in some cases comprise part of the law when they address issues that have not been fully articulated in statutes and regulations; this is known as “case law.”⁸ An additional area of law is based on English common law, which is the basis of many civil actions (“torts”). Common law establishes a general duty on everyone to avoid doing harm to others, either willfully or through negligence or inaction. Finally, treaties between the U.S. and other nations (once ratified by the U.S. Senate) carry the force of law and may impose additional requirements on entities and individuals that would not exist otherwise.

National programs such as our major EHS statutes and implementing regulations are often delegated in large part to state government agencies. Typically, this occurs after a particular state has enacted legislation that parallels or is more stringent than the corresponding federal requirements and has demonstrated that it has sufficient authority and capacity to enforce the federal (and its own) requirements. Incentive to take on these programs is provided through federal grants and technical assistance. As noted earlier, virtually all major federal environmental regulatory programs are now fully delegated (or nearly so) to the states.

In the EHS arena, major programs have typically begun in the form of federal legislation crafted in response to a perceived problem or important issue. That is, the creation of most major EHS laws, particularly in the early years, has been reactive in nature. Some major statutes were passed without lengthy debate and in the absence of detailed supporting studies or analyses. In all cases, however, statutes are a product of the give and take of the political and legislative processes. Consequently, some statutory provisions have been difficult to implement; created inconsistencies and conflicts; or provided incomplete coverage across industries, pollutant sources, or other important dimensions. As discussed here, the responsible agencies are bound to implement these statutes as they are written, and generally face significant constraints on their ability to creatively interpret legislative intent. The result of this process is an overall EHS regulatory system that is perfect from no one’s perspective, but is acceptable to most people. One might say it more closely resembles a patchwork quilt (with a number of large and small holes) than a tightly woven blanket.

In addition, and by design, there are some very important limitations to the regulatory powers provided to federal agencies such as the EPA. With few exceptions, environmental laws provide authority to limit potentially harmful emissions or waste management practices. But they do not extend agency jurisdiction into such crucial decisions as the selection of materials, technology, operating practices, or other portions of the core business enterprise. Indeed, regulated industry has zealously (and generally successfully) defended itself against regulatory agency intrusions into, for example, its management of in-process materials, even though such management may seem indistinguishable from waste management activities.⁹ Accordingly, the EPA and other federal and state regulators generally are not empowered to compel, for example, the use of energy-efficient manufacturing equipment, recycled-content raw materials, or stewardship of land or other natural resource holdings. Although some such authority does exist within other designated public resource management agencies (such as the U.S. Bureau of Land Management, the U.S. Forest Service, and state-level analogs), it is limited in scope (to public lands) and often must be explicitly balanced with many other considerations (often local/regional economic growth, jobs, recreational use). Some important exceptions exist at the state level, particularly with the use of toxic materials, and at the international level (as discussed later). But as a general matter, environmental regulations are limited in scope to what residues (materials other than products) emerge from production processes and how they are managed, rather than what is produced and through what means.

The major EHS statutes contain articles (titles and subtitles) that address particular concerns and that direct a specific federal agency or agencies to develop detailed regulations that establish specific requirements, limits, procedures, and the like. Typically, environmental issues are referred to the U.S. Environmental Protection Agency (EPA), and health and safety issues are delegated to the Occupational Safety and Health Administration (OSHA) within the Department of Labor. That said, other entities such as the Department of Transportation (DOT), Nuclear Regulatory Commission (NRC), U.S. Army Corps of Engineers (COE), U.S. Fish and Wildlife Service, National Oceanic and Atmospheric Administration (NOAA), Council on Environmental Quality (CEQ), and other federal departments and agencies also have regulatory or advisory responsibilities with respect to certain EHS issues. The EPA, however, has primary responsibility for most environmental programs and has by far the most involvement in regulating potential impacts on the environment.

The EPA typically develops policies and regulations at its headquarters locations and provides permitting, oversight, enforcement, and technical assistance through a network of ten regional offices located across the U.S. Regional offices carry out these functions directly in states within their respective regions that have not been authorized to carry out a particular regulatory program. They also serve as a source of information and guidance to analogous state government agencies in authorized states. In many cases, these decentralized portions of the EHS regulatory structure establish (generally through permits) the specific operating conditions that will apply to a particular facility.

In addition, many state governments have developed their own programs to address pressing environmental issues in the absence of federal action. These include state-level statutes and regulations addressing oil and petroleum products, recycling, toxic materials use, air and water pollution control (including greenhouse gas emissions), hazardous waste, and other issues. Companies or company facilities located in such states are, obviously, obliged to conform to any additional requirements imposed by these state laws.

In sum, the legal landscape faced by any large company with U.S. operations will include pervasive federal EHS requirements, specific conditions stipulated by regional and/or state government officials (such as permit limits), and, in some cases, additional and perhaps profound state and/or local requirements.

Companies affected by EHS regulatory requirements are obliged to develop an understanding of the specific provisions that apply to their operations and to take whatever actions are needed to ensure compliance. In the event of noncompliance, either from lack of understanding or otherwise, the EPA and other regulatory agencies may use administrative orders to compel compliance, or may seek a civil action (through the U.S. Department of Justice). The responsible agency also may seek to have a recalcitrant company suspended or debarred, which means that the affected firm may be prohibited from contracting with the federal government. For some enterprises, such a sanction might mean very little. For others, it could pose an existential threat, and not just because the federal government is the nation’s largest purchaser of goods and services. Another noteworthy feature of several major environmental statutes is that they allow individual citizens and citizens’ groups to file lawsuits to compel compliance. This has directly resulted in extensive litigation focused on accelerating development of new rules, imposing more stringent standards, and otherwise adding more “teeth” to the regulatory control system. The role of major environmental advocacy groups in this regard is discussed further in Chapter 4.

Finally, it is important to understand that our major environmental statutes give regulators only limited discretion to implement regulatory requirements in ways that are not strictly uniform across all companies and facilities within a particular industry or sector. For this reason, the several dozen voluntary programs that the EPA has launched so far offer regulatory relief in a tightly constrained manner. But they typically offer public recognition, information sharing, and other benefits as well. Ira Feldman, who played a key role in formulating the EPA’s audit policy and in creating some of its early voluntary programs while serving in the EPA’s Office of Environmental Compliance and Enforcement, explains:

Regulators have discretion in only three areas: 1) permitting, 2) inspections, and 3) enforcement. For this reason, all of EPA’s (and OSHA’s) corporate excellence programs address one or more of these three dimensions. Examples include expedited permit reviews, fewer/lower-priority inspections, and less intensive enforcement. (Feldman, 2011)

• Criminal liability can be sought against organizations and individuals who misrepresent the facts or knowingly or negligently violate the law. Note that “knowing” of a violation does not necessarily mean that the person charged knows the requirements of the applicable law, but rather that he or she knows the relevant facts. In other words, ignorance of the law is an ineffective defense. Importantly, over time the focus of many enforcement actions has shifted from the company level to those in the management chain ultimately responsible for the firm’s conduct (senior corporate officials). This shift has been supported by the courts.¹¹ In fact, a substantial number of senior corporate officials have received prison sentences for particularly egregious violations committed by their companies during the past decade or so.

• Civil liability. More commonly, civil penalties may be sought and obtained for violations of EHS laws and regulations. As a general matter, the government will seek injunctive relief—an order that the affected firm stop violating the law/regulation and/or take the required actions to become compliant. In addition, monetary penalties are usually sought based on two factors: the gravity of the violation and the economic benefit obtained by the company from noncompliance. Gravity is evaluated according to the seriousness of the consequences of the noncompliance (for example, contaminating a town’s water supply is more serious than failing to submit a required report on time) and how much the observed behavior differs from the required behavior. The economic benefit component is defined as being equal to or exceeding the financial value of the lack of compliance or delayed compliance. Base penalties include both components and can be adjusted based on other factors, such as the willfulness of the violation, the degree of cooperation received from the violator (or lack thereof), and the violator’s compliance history. Certain statutes (including the Clean Water Act and CERCLA) allow the EPA to act to address pollution that damages or endangers public health or the environment. The EPA can either bring a civil action or, in the case of CERCLA, abate the hazard itself and then seek recovery of damages from the responsible party.

• Financial liability. Civil penalties for violating most major environmental laws range from $10,000 to $50,000 per violation per day. Obviously, continued violations and/or noncompliance at multiple facilities can result in substantial fines. Although multimillion-dollar fines are not an everyday occurrence, they are levied in some cases. Moreover, if natural resources are damaged (such as the imminent hazard situation just described), the costs of abatement and restoration can easily run into the millions of dollars. In many cases, monetary fines may be reduced if the violator agrees to undertake one or more supplemental environmental projects (SEPs). SEPs typically are negotiated during enforcement actions. They may result in substantial reduction of fines for projects that are found to be beneficial to the environment and/or the public, innovative, focus on pollution prevention, and other factors.

Clearly, the existence of this framework of legal sanctions and the knowledge that it can and will be applied to companies that fail to comply with EHS requirements means that ongoing vigilance is required of all regulated firms. Indeed, EHS personnel spend much of their time ensuring that the systems and practices that they have deployed to maintain regulatory compliance are working properly. Maintaining compliance is the baseline level of performance that should be expected of any company, and it certainly is a prerequisite for any firm that wants to pursue organizational sustainability.

More recently, legislative requirements have been enacted in Europe and elsewhere that require the phaseout of certain materials. The European Union (EU) issued the Restriction of Hazardous Substances (RoHS) directive in 2003, and it took effect in 2006. This directive places severe restrictions on the use of six hazardous materials¹⁶ in the manufacture of electronic and electrical equipment. It is closely linked to the Waste Electrical and Electronic Equipment (WEEE) directive, which sets collection, recycling, and recovery targets for electrical goods and places responsibility for meeting them on the product manufacturer. These directives apply to any business that sells applicable electronic products, subassemblies, or components directly in EU countries, or that sells to resellers, distributors, or integrators that in turn sell products within EU countries. The EU also has put in place a far more sweeping environmental directive aimed at reducing risks from chemical use more generally—the Registration, Evaluation, and Authorization of Chemicals (REACH) regulation. REACH places responsibility for the safety of chemicals on manufacturers. It also seeks to develop a more extensive body of public knowledge on the more than 100,000 chemicals currently in use in European markets. Producers and importers of more than small quantities of chemicals will be required to register these substances and provide information to a new pan-European chemicals management agency. This agency has the authority to restrict chemical use in cases in which such use is found to pose a danger (European Commission, 2006).

Finally, some high-profile initiatives have begun to better understand and manage the EHS aspects of the supply chain for a variety of goods, particularly consumer products. None of these is more prominent or potentially far-reaching than the Sustainable Sourcing project sponsored by Walmart. The company uses its market power to drive behavioral change in hundreds (if not thousands) of consumer goods manufacturers and other suppliers. Walmart asks all of its more than 100,000 suppliers to complete a 15-question sustainability assessment. The company also formed a consortium to build a database with life cycle analysis results for a variety of products. Finally, Walmart developed and provides product-level information to its customers.¹⁷ More generally, the field of life cycle analysis and the inclusion of upstream EHS considerations in evaluating the sustainability of products and services have gained substantial momentum during the past few years. As discussed in Chapter 6, sophisticated ES&G investors commonly use life cycle perspectives. Also, a growing number of multinational companies are evaluating the contributions of their supply chains to their overall EHS and social impact. These developments have been accompanied by increasing activity in the public sector (such as by the EPA) as well as the nongovernmental organization (NGO) community focused on product life cycle tools and information.

Other examples may be found in somewhat unexpected places, as described in the following sidebar.

More specifically, a recent large, global survey conducted on behalf of the National Geographic Society (Globescan, 2009) yielded some interesting findings about prevailing attitudes and behaviors among U.S. consumers:

• A substantial majority of American respondents disagreed with the statement that “Environmentally friendly products do not work well.” (55 percent disagreed or disagreed strongly, and 14 percent agreed or agreed strongly.)

• Slightly more than half indicated a willingness to pay more for an energy-saving product if it saved money over the long term.

• Twice as many agreed that they are currently trying very hard to reduce their negative impact on the environment as disagreed (42 percent versus 19 percent).

• Twenty-one percent agreed or strongly agreed that “Companies and industries are currently working very hard to make sure that we have a clean environment in my country,” and 36 percent disagreed or strongly disagreed.

• A majority (61 percent) agreed or strongly agreed that American society will need to consume far less to improve the environment for future generations, and only 12 percent disagreed or strongly disagreed.

• Members of media and marketing firms are viewed skeptically. Thirty-eight percent of U.S. respondents agreed or strongly agreed that these organizations encourage environmentally irresponsible consumption, and only 24 percent disagreed or strongly disagreed.

These findings suggest that both risk and opportunity exist for firms in evaluating the EHS and broader sustainability aspects of their products and services. On one hand, there appear to be growing expectations that companies will take appropriate steps to reduce the EHS footprints of their operations (and products). Moreover, consumers appear to have some level of interest in having access to more sustainably produced goods and services. At the same time, there is a high level of wariness and even skepticism about green/sustainability marketing and claims. There also is a continuing unwillingness to either accept compromises in product quality or function or to pay substantially higher prices for perceived sustainability performance advantages.

Many of the expectations expressed through industry codes of conduct, supply chain obligations, and consumer demand have the practical effect of becoming de facto business requirements. In the case of a number of the industry codes, adopting these programs and complying with their provisions is a condition of membership in the sponsoring trade associations. Similarly, many major companies are inserting various product composition, energy efficiency, labor practice, disclosure, and other requirements into their standard vendor/supplier contracts. This means that conformance to the customer company’s sustainability requirements is a required condition for a continuing business relationship. Increasingly, larger customer-facing corporations are moving aggressively down this path, which will have the effect of propagating demands for more sustainable practices much more rapidly and widely than would be the case otherwise. Finally, American consumers en masse are not yet demanding improved sustainability performance from companies in any formal way. Nor are they demonstrating a widespread willingness to “vote with their wallets” on this issue. However, it seems clear that public attention to the issue is growing. Firms that can deliver appealing, cost-effective goods and services with an improved set of environmental and/or social attributes may find significant opportunities to capture new customers, revenues, and profits. In contrast, firms that are inattentive to sustainability issues as a major concern of their customers may be taking unnecessary risks with their brand value, pricing power, and revenue streams.

The point here is not to debate whether the imposition of compliance and other costs through sustainability requirements and expectations is reasonable, fair, or justified on its merits. My view is that with few exceptions, those issues have already been settled in the affirmative. Rather, the purpose here is to illustrate that EHS management and other sustainability program costs can be substantial, should be understood by those in decision-making roles within companies, and must be managed actively by those charged with overseeing and deploying corporate sustainability programs. The following discussion follows some conventions developed and articulated by one of my former colleagues, Paul Bailey, and his project team in an influential guidance document issued by the EPA in the mid-1990s (USEPA, 1995). The terms and organizational structure used in this document in many ways parallel similar industry-developed works (GEMI, 1994). These concepts have stood the test of time. To my knowledge, they have not been superseded or displaced by any alternative conceptual framework(s) in the many years since they were developed.

In the first category are conventional costs. These include the following:

• Capital expenditures. Compliance with our major pollution control and waste management regulations and, to some extent, health and safety regulations often requires the installation of new pieces of equipment to capture, segregate, treat, and/or store pollutants or wastes. Prior to regulation, facilities typically discharged these materials into the air or water, or piled them on or buried them under the land surface. Depending on its type, configuration, and scale, designing, procuring, installing, and testing this pollution control/safety equipment can cost tens of millions of dollars at a particular location. In some situations the need for such equipment cannot feasibly be avoided. But because many industrial processes invariably generate emissions, waste, and other nonproduct outputs, the focus today is on designing production processes and delivery systems with one or more of the following attributes:

• They incorporate material and energy efficiencies.

• They minimize the use of problematic (expensive-to-manage) materials.

• They recover waste or spent materials, reagents, supplies, equipment, and other production byproducts (such as waste heat).

When successfully and artfully applied, these steps yield required pollution control/safety equipment that is smaller in scale, less complex and energy/labor-intensive, safer, and less costly than it would be otherwise. Ideally, and in more than a few cases, thoughtful design and engineering may result in pollutant emission and/or waste generation rates that are below the applicable regulatory standards. In such cases, the company can not only avoid official scrutiny from one important type of stakeholder, but, as described in a moment, avoid a panoply of other costs.

• Operating costs. Whether or not a company is required to make substantial capital outlays for pollution control equipment or other assets, developing and maintaining effective ES&G management systems and programs requires ongoing effort and some level of investment. Operating costs can arise from a number of sources. These can range from replacing pollutant filtration media or filters, to energy and, often, water required to operate pollution control equipment, to compliance and system audits, to the firm’s professional EHS staff. The magnitude of these costs and the complexity of the management challenge involved in carrying out all appropriate activities in an optimal, cost-effective manner vary widely. Nonetheless, it is fair to say that neither is trivial in most companies of significant size, even if they are not active in resource-intensive industries. This category includes materials, labor, supplies, utilities, and depreciation for structures and equipment.

A second and important but widely underrecognized general category of ongoing regular, or episodic, costs are potentially hidden costs. These are associated with activities that are difficult to link to a particular product line or business. Typically, these costs are accumulated in overhead accounts, where they are difficult to find, properly assign, manage, and reduce. Potentially hidden costs take several different forms:

• Upfront costs are expenses incurred prior to the operation of a new process or system. They include such tasks as siting, designing pollution control equipment, evaluating environmentally preferable alternatives, preparing bid specifications, qualifying suppliers, and evaluating bids. These costs may be allocated to overhead and research and development or be embedded in the installed cost of new fixed assets.

• Regulatory and voluntary program costs. Whether required by legal mandate or performed voluntarily, many EHS management activities require staff time and other resources. The list of such potential costs is long and includes such compliance items as notification, monitoring/testing, studies and/or modeling, site remediation, record-keeping, training, inspections, labeling, medical surveillance, emergency preparedness, EHS insurance, financial assurance (to cover hazardous waste management activities), and storm water management. Voluntary activities may include community outreach, auditing, public disclosure, habitat/wetland delineation and protection, landscaping, recycling, and research and development.

• Back-end costs. At the end of their productive life, pollution control and other EHS-related structures and equipment generally must be shut down or closed and dismantled. Depending on the activities taking place in and around these assets, the closure process may be regulated and may need to be conducted in a specific manner. For example, on-site laboratories, landfills, chemical storage tanks, and other production and storage units may be subject to specific requirements. A panoply of specific closure (and even post-closure care) requirements apply to on-site waste management units. During their working lives, the costs of managing such units at the end of their useful lives are prospective. With the notable exception of formal closure and post-closure care requirements in the waste management arena, such back-end costs may not be explicitly considered or factored into ongoing management decision making.

In an entirely different but nonetheless important category are contingent costs. These are costs associated with activities that are highly uncertain as to how extensive they may be, whether they will be required, and, if so, when. Such contingent costs depend on an unexpected and undesirable event or outcome occurring. This then requires a response from the affected company, either to comply with a regulatory or legal directive or to voluntarily take responsibility for its actions. Examples include fines and penalties for noncompliance episodes, site remediation, cleanup of spills or other unplanned releases, legal expenses, damage to natural resources, and injuries to workers and/or people in surrounding communities.

One final category in the EPA framework is worthy of mention—image and relationship costs. These are discussed next.

Clearly, any rational corporate decision-making process regarding EHS and broader sustainability initiatives and programs should consider the costs of the various alternatives to pursuing the firm’s sustainability vision and goals. It is important in doing so to understand and evaluate current and prospective costs from all the perspectives outlined here, even in the absence of perfect or complete information. Many less-than-optimal decisions have been made over the years by well-meaning companies that have not adequately considered some of the hidden and/or contingent costs of both the status quo and potential options for improving their EHS posture and performance. Those involved in sustainability efforts in a corporate setting should therefore work to ensure that all the appropriate perspectives (and all the people with the required expertise) are involved in the evaluation and decision-making process.

• Market/customer access. As discussed earlier, continuing access to certain geographic markets or customer types may be adversely affected by the absence of a particular EHS management practice (such as ISO 14001 certification), one or more product attributes (such as the presence of prohibited substance(s) or material(s) sourced from a controversial location), or company participation in a particular activity (use of animal testing, for example). In any event, loss of access to either existing or potential new customers has direct and deleterious impacts on an affected company’s revenue stream in the present, the future, or both. These impacts can potentially be significant.

• Competitive dynamics. Increasingly, customers, suppliers, consumers, and other stakeholders are becoming aware of and attentive to which companies appear to be taking a responsible and effective stance with regard to ES&G issues and which are not. These emerging expectations may shift the competitive balance of power in some industries. Companies that may not have been thought of as best-in-class can show that they are in firm control of their sustainability issues and, therefore, worthy of respect. Others may have enjoyed a stronger position due to size, geographic reach, technology, customer relationships, or other factors, but have been slow to adapt to changing expectations in the ES&G arena. As expectations for sustainable business behavior expand further, the latter firms may increasingly find their position in the industry “pecking order” eroding in favor of the former firms.

• Time to market/flexibility. Experience over the past couple of decades has shown that companies taking a more progressive and sophisticated approach to managing ES&G issues often reap significant advantages relative to their competitors. This is true because their behavior confers a certain level of trust that simply is absent in the stakeholder relationships of companies that have not taken such approaches. Such firms may, for example, find that they can successfully site and build new facilities or expand existing ones more quickly than competitors that do not possess the same level of public trust. Similar considerations may apply to obtaining approvals for permit modifications (needed in some cases to substantially alter production processes/schedules) and other production/operating practices that are subject to public oversight. This topic is explored in greater depth in Chapter 4.

• Pricing power. In similar fashion, firms enjoying a high level of trust and perceived integrity from their customers have a greater ability to raise prices when indicated (such as to protect margins as input commodity prices increase) and to hold the line on prices during economic contractions or in response to growing competitive pressure. Corporate America is now very much focused on the value of brands. Building and protecting one’s brand(s) is widely viewed as an important means of building a company that will be stable and successful (sustainable) over the long term. Moreover, strong brands have particular value in commanding higher prices for one’s offerings relative to otherwise similar goods and services. This is a primary reason why Tide laundry detergent, Colgate toothpaste, Levi’s jeans, and a vast array of other products sell at a price premium in comparison with store brands or generic competitors.¹⁸ Increasingly, corporate sustainability posture and the specific ES&G attributes of individual products and product lines are being used to bolster company brands. This attracts new customers, builds loyalty among existing customers, and creates distinctions in the customer’s mind that can be used to command higher prices. The recent upsurge in advertising focusing on the “green” attributes of a variety of products and services suggests that this trend will only increase in the years ahead.

Importantly, however, the forthcoming availability of far more information on the supply chain EHS attributes of many consumer products (described earlier) will help customers (both businesses and consumers) understand which firms and products have more favorable ES&G characteristics and which do not. This shift toward more of a fact-based dialog on sustainability characteristics will favor firms with the performance to back up their claims and market image and will work to the disadvantage of companies that seek to build their brands primarily through advertising and public relations. That is, substance will trump image.

Treating your people right is not a sign of weakness or a luxury. It is a vital component of any sensible path toward the long-term success and sustainability of any organization. Behaving in a contrary fashion at the least virtually ensures that the firm (and its collective assets) will not achieve the throughput, efficiency, quality, innovation, or productivity of which it is capable. And this behavior inevitably will generate inferior financial returns over time.

People can vote with their feet. In a society with as much professional and social mobility as the U.S., it may not be difficult under normal economic conditions for a company’s most valued employees to find employment alternatives if they are dissatisfied, for any reason, with their employer. Moreover, the next generation has been raised during an era in which (contrary to my own life experience) it is widely accepted that corporations have an obligation to operate in a responsible manner. Companies that offer a solid ES&G posture and evidence of strong performance may be much more attractive to graduating students and others entering or reentering the workforce than those that do not. Young people tend to be idealistic. I’ve encountered very few who would prefer to accept a job with a company that has proven to be recalcitrant in meeting its obligations rather than a similar job with a recognized leader in labor practices, environmental management, or sustainability. As companies increasingly compete on the basis of ideas and the quality of their people, it will become ever more important for them to be able to attract and retain the best talent on the basis of, among other factors, their ES&G posture and performance.

As described in subsequent chapters of this book, taking the appropriate steps to understand and actively manage the company’s ES&G issues will enable the firm to enhance the perspectives and skills of key employees across a number of important business functions, thereby helping them develop two important attributes:

• Greater insight and effectiveness in responding to today’s challenges

• An improved ability to recognize future developments, think expansively and creatively about how they might affect the firm, and define and execute appropriate responses

What is less visible and could accurately be described as the “tip of the iceberg” is the full impact of the changes in the global climate that will almost certainly unfold during the coming decades. These changes are already beginning to exert documented and often severe impacts. As temperature changes continue, we can expect to experience a substantial increase in sea level; regional and global shifts in agricultural productivity (and, hence, future production), water availability, and, eventually, human populations; and changes in weather patterns, among many other impacts. By and large, corporations are just now beginning to consider the implications of these scenarios and how they will both adapt to the physical changes occurring in their host countries and communities and succeed in a carbon-constrained economy. Company executives and managers would be well-advised to devote some attention and resources to examining these issues, if they have not done so already.

Among others, the following types of business risks appear to be prominent, given recent events and current trends.

The implication is that leaders and managers in companies with any significant fixed asset base should be attentive to growing expectations for improved ES&G performance. They should not be surprised if and as these expectations become mandates. In particular, the issue that is front and center in this regard is climate change and the possibility that we will be transitioning to a carbon-constrained economy in the foreseeable future. The current political situation in the U.S. makes the enactment of a climate change law unlikely during the next few years. But corporate executives would be unwise to believe (much less stake a company’s future on) that establishing a market price for greenhouse gas emissions is either inappropriate or anything less than inevitable. The simple truth is that the issue is too important and the need for substantial, uniform, nationwide public policy too great and urgent for delays in taking action to continue for much longer. Many business leaders are positioning their firms for a world in which careful management of greenhouse gas emissions and their principal source, fossil fuel consumption, is essential for success. It is worth noting that the leaders of many companies in energy-intensive businesses such as electric power production, cement manufacturing, and metals production are among them. They have provided examples that many others would be wise to follow.

This chapter has articulated, at a general level, some of the many ways in which ES&G issues can affect companies’ business prospects, organizational strength, revenues, cash flows, and earnings potential. It also has illustrated how such impacts will become more likely to occur and grow in magnitude in the years ahead. The next chapter examines the source of many of the growing expectations for more sustainable corporate behavior. It describes the major stakeholders that have an interest in corporate ES&G management behavior and performance and their primary concerns.

Endnotes

1. Technically, some of these laws took the form of major amendments to previously enacted laws, most of which had been shown to have little effect. In some cases, these preexisting statutes were renamed to more fully capture their expanded intent and scope.

2. For example, just a few years earlier, momentous civil rights legislation in the form of the Civil Rights Act and Voting Rights Act had been enacted.

3. Indeed, in some of the major statutes, the implementing agency (EPA) was explicitly prohibited from considering costs when deciding what to regulate or how stringent to make the associated controls.

4. With that said, the system has some widely recognized problems, among them numerous organizational “silos”; substantial, even excessive bureaucracy; and, in recent years, serious budget constraints. All of these factors limit the effectiveness and efficiency of our public sector institutions charged with protecting human health and the environment.

5. Such challenges fell away within a few years. In relatively short order, the major statutes and the authority applied by EPA, OSHA, and other newly created agencies to impose and enforce regulations were upheld by the courts. And to address the occasional recalcitrant site owner or manager, inspectors and other regulatory agency personnel were helped by law enforcement personnel (such as federal marshals) as required. Such assistance is rarely required today.

6. As explicitly stated in the Pollution Prevention Act of 1990 (PL 101-508) at Sec. 6602(b), “Policy.—The congress hereby declares it the national policy of the United States that pollution should be prevented or reduced at the source whenever feasible...”

7. Although it did not produce the ultimate outcome that it was designed to accomplish, Kyoto did motivate governments and industries in many countries around the world to focus on and reduce their greenhouse gas emissions. The treaty and its terms will officially expire at the end of 2012. The post-Kyoto regime has yet to be defined.

8. Conversely, when and where a statute addressing a particular issue is in place, there is no opportunity for case law to supersede it. This principle is known as “displacement” or “preemption.”

9. Historically, the “line” between waste and in-process materials established by the EPA has been that materials that are inherently “waste-like,” that are used in a manner constituting disposal, or that are burned for energy recovery are considered (and regulated as) wastes. Indeed, these distinctions have been retained in a relatively recent rule designed to promote greater recycling and recovery of hazardous secondary materials (73 FR 211:64667–64716. 30 October 2008).

10. The Resource Conservation and Recovery Act (RCRA) of 1976 and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), enacted in 1980, as amended provided new and sweeping authority for the EPA to regulate the management of solid and hazardous wastes and compel the cleanup of contaminated waste sites posing a threat to human health and the environment.

11. Indeed, the discussion within many companies in the 1990s in response to these enforcement trends was who was to become the “designated defendant” if an environmental enforcement action were to be taken.

12. ISO remains quite active, publishing more than 1,000 new or revised standards every year. See www.iso.org/iso/iso_catalogue.htm for further information.

13. ISO published the widely used ISO 9000 series of standards addressing quality in 1987. The ISO 9001 standard for quality management systems has been revised three times since, most recently in 2008.

14. ISO 14001 and EMS are described in depth in Chapter 5.

15. I had the interesting experience of performing ISO 14001 registration audits at a company responding to this mandate. I observed that the process helped them better understand their operations and control potential risks and costs. Existing staff people needed to assume some new roles and expand their existing knowledge. But they found that the new system was not unduly complex or burdensome, even in a firm with no dedicated environmental staff and 46 employees, the vast majority of which were hourly assembly line workers.

16. Specifically, the heavy metals lead, cadmium, mercury, and hexavalent chromium, and the organic flame retardants polybrominated biphenyls and polybrominated diphenyl ether.

17. See http://walmartstores.com/sustainability/9292.aspx for further information.

18. With that said, I recognize that many very strong brands enjoy the reputation that they have precisely because they are discernibly better in terms of customer-relevant attributes than competing offerings.

19. Brazil, Russia, India, and China, which now collectively account for a major share of global economic output, growth, and exports.

20. The Millennium Ecosystem Assessment (MEA) is a multilateral research effort sponsored by the United Nations focused on characterizing the condition of the world’s natural systems. According to the MEA, rapidly growing demands for food, freshwater, timber, fiber, and fuel have resulted in a substantial and largely irreversible loss in the diversity of life on Earth. In addition, MEA researchers found that approximately 60 percent (15 out of 24) of the ecosystem services it examined are being degraded or used unsustainably, including freshwater, capture fisheries, air and water purification, and the regulation of regional and local climate, natural hazards, and pests. See www.maweb.org/en/Condition.aspx for details.

21. Such dramatic price swings also can be exacerbated by the pernicious effects of speculators and traders, thereby undermining one of the great benefits of our established commodity markets: relative price stability.

22. Conflict, particularly the armed conflict and focus on (arguably, obsession with) security in the U.S. that have ensued since 9/11, has yielded a veritable bonanza for weapons producers, security and military services contractors, manufacturers and suppliers of goods used in bulk by the armed services (such as uniforms and motor vehicles), and a variety of other businesses.

23. Those who may be skeptical of the motives of regulators seeking to establish or tighten EHS regulations should understand that the designated agencies are required by statute to periodically reexamine the effectiveness of previously established standards at defined intervals. As discussed earlier in this chapter, if the agency fails to do so, it is virtually certain that it will be sued by an environmental advocacy organization, which will seek a court-imposed mandate compelling action.

24. Under the provisions of most of our major environmental statutes and perhaps contrary to popular belief, regulators do not have the authority to establish pollutant emission controls by fiat or whim. Controls must instead be based on technology that has proven to be effective and that is economically achievable (specific terms and definitions vary by statute). That said, the test for economic viability generally is based on the best-performing plants in each regulated industry or sector, which may use different technologies or methods than other, particularly older, plants. Because newer technology is nearly always more efficient and less polluting than older technology, tighter emission controls may put older plants at a significant disadvantage in terms of the difficulty and cost of attaining compliance.