Gauging Green: The Vital Questions of an Environmental Risk Assessment

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For years, businesses have been told that they must become green, but not how to do it. To promote growth and maximize profits, companies must proactively evaluate every aspect of their operations and ask the vital questions.

What are your environmental issues? Is government reporting required? Do you generate a waste stream? Is your neighbor contaminating your property? Is enterprise risk management right for you? Are you ISO certified? Are you impacted by SOX? Most importantly, how can you profit?

An environmental risk assessment will answer all of these questions.

In this day and age, every organization needs an effective environmental management strategy For some, this is already a mature, developed set of principles that play a role in all aspects of the enterprise. For others, the strategy will be a more loosely defined or ad-hoc set of procedures based upon due diligence.

Regardless of scope, however, every organization must ensure that their strategy is constantly is updated and reevaluated as the areas of environmental law, regulation and social responsibility continue to expand. At a minimum, it must be an evolving strategy based upon doing better today than yesterday and doing better tomorrow than today.

The foundation for achieving this simple goal comes down knowing the organization's exposures and liabilities. And there is only one way to be certain there is a proper level of understanding of all these complex and interconnected operations: by performing an effective environmental risk assessment.

When conducted comprehensively an environmental risk assessment incorporates team-based strategies to gather environmental intelligence from key employees, including risk managers, financial, legal and accounting. Once this information has been centralized, the assessment should center around four basic areas that will provide an environmental baseline to identify the environmental issues impacting a company: incoming supply chain, internal operations, outgoing shipments and local externalities.

The goal is to understand all the major questions surrounding all these strategic business components. If an organization can answer each of these comprehensively, it has conducted an effective environmental risk assessment. If it cannot, it runs the possibility of remaining exposed to liability from all sides.

There are many examples that illustrate potential environmental pitfalls. The risk manager that learns from these scenarios can avoid making the same mistakes in the future.

#1. What's coming in your front door?

This includes raw materials, supplies, business vendors, sales people, tenants, students, etc. What is your strategy if a vendor has an environmental loss that impedes their ability to deliver goods and services? Clients and vendors can create both direct and indirect environmental liabilities. It is critical to know with whom you are doing business.

Example A: While constructing a new sports stadium at a university, a contractor ruptured two abandoned, 10,000-gallon, underground storage tanks full of gasoline and diesel fuel. Since a private company donated the land to the university and the contractor did not have pollution insurance, the university was charged $200,000 for the environmental cleanup.

Example B: A transportation company was hired to long haul a liquid solvent used in making detergents and paints. When the truck carrying the shipment veered off the road and tumbled into the river below, the tank ruptured, leaking its contents. Neighboring towns were evacuated as 80,000 people fled the cloud of toxic vapor that settled over the area. Hundreds of gallons of chemical solvents traveled downstream polluting a nearby lake and destroying countless fish and vegetation. Claims costs were $3 million. In the end, poor vehicle maintenance was determined to be the cause of the accident. …