48 (143) 2021

Green Transformation

Environmental compliance – a wake-up call to business!

By Dr Katarzyna Barańska, attorney at law, partner, head of Infrastructure & Environment Kochański & Partners
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Environmental risk management means that firms must ensure their operations comply with environmental legislation and requirements, as well as the with latest green trends in the industry.

EU policies place an increasing emphasis on firms taking account of non-financial aspects, in particular, environmental, social and governance (ESG) factors. Global efforts towards improving the environment via reduced CO2 emissions, reduced pollution and a circular economy are increasingly influencing the responsibilities of companies and their officers.

Environmental compliance within firms is all the more crucial, since sanctions against environmentally damaging actions are becoming increasingly harsh for not only business  (including suspension of activity, and payment of compensation), but also for company officers. Punitive measures include criminal liability of management board members and officers, the threat of fines and even imprisonment.

These factors place businesses increasingly in need of a legal and business service to manage and control environmental risks, and to build their competitive edge based on an ethical, ecological and socially responsible reputation.

Knowledge-based legal security of businesses

Faced with such challenges, firms need services that can build awareness of environmental law requirements, the latest legislative developments – the potential impact of these on business activity – and management responsibilities.

Firms are also increasingly choosing to carry out periodic legal reviews of actions taken by their internal departments. This double check allows them to monitor, on an ongoing basis, potential legal risks relating to criminal or administrative proceedings that may be instituted due to non-compliance.

This is particularly evident in manufacturing sectors, including industrial, chemical, automotive, paper and other sectors, where starting and running a business involves obtaining a number of environmental permits and managing significant volumes of waste.

Environmental compliance is also crucial in investment decision-making.

Environmental legal analyses are also key for firms intending to acquire new businesses and check them for environmental non-compliance, including any lack or invalidity of environmental permits, or emissions of pollutants above permitted levels.

When expanding your business and seeking financing

Environmental analyses may also have relevance when expanding an existing factory or investing in a new plant. Willingness to secure green financing may also turn out to be key in investment planning.

Investors increasingly take decisions to acquire firms or shares in firms based on non-financial, social and environmental aspects, in particular the degree of compliance with changing environmental regulations, responsible business conduct and social sensitivity. The level of awareness and long-term actions undertaken by officers in the area of business ethics, as well as risk management solutions adopted, in particular with respect to business reputation and avoiding of potential fraud, are also vital. Approaches integrating ESG factors into the analytical processes carried out prior to making an investment decision are becoming increasingly common.

Environmental compliance is therefore regarded as a central element of actions taken by officers within any business touched by ESG. Green finance, until recently a niche product, is now entering the mainstream, and becoming an important tool for banks and borrowers/issuers seeking to minimise the negative impact of human activity on the environment (green loans).

Ground contamination detected on firms’ properties, the need for soil remediation, and emissions in plants above permitted levels often make officers aware of the need for ongoing environmental risk management; these can trigger compliance action.

Consequences of non-compliance

Compliance means managing and controlling environmental risks to avoid administrative fines and criminal liability. It also means being able to prevent a significant part of one’s business operations from being suspended.

A halt in business activity, initiation of proceedings to extinguish permits held or blocked access to a new environmental permits may prevent further operations and expose businesses to multi-million losses, not to mention disqualification from tender procedures and problems with financing subsequent investments.

Failure to properly manage environmental risks can expose company officers to criminal liability, result in disqualification from holding public office, and can expose management board members to the risk of image loss.

Environmental compliance therefore presents an opportunity to build a safe, green and socially responsible business free from concerns of any fear of reputational damage or fines.

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