Managing Environmental Justice Risks

By Whitehead, Roy, Jr.; Merritt, Richard O. | The CPA Journal, August 1999 | Go to article overview

Managing Environmental Justice Risks


Whitehead, Roy, Jr., Merritt, Richard O., The CPA Journal


Balancing economic benefits and environmental threats

Companies must constantly monitor changes in environmental law and the business risks associated with them. Astute executives, controllers, auditors, investors, and management accountants must be able to identify potential hidden environmental costs resulting from compliance with environmental regulations.

Few contemporary cows are more sacred than environmentalism and its underlying values. Legitimate policy controversies are generally portrayed as battles between victimized citizens and corporate polluters. In this context, who could fail to side with the environmentalists? Such a simplification, however, often represents a false and misleading dichotomy. It may actually operate to direct beneficial social and economic resources away from those the regulations were intended to benefit. It is reasonable to assume that the type of community most likely to accept a new factory would be a town where people most need the jobs or tax benefits the facility would provide.

Environmental Justice

The Environmental Protection Agency (EPA) defines environmental justice as "fair treatment for people of all races, cultures, and incomes, regarding the development of environmental laws, regulations, and policies." Since the early 1990s, there has been a steady increase in the incidence of claims that minority and low income populations bear a disproportionate amount of the negative health and environmental effects caused by pollution. This is referred to as environmental racism: the intentional siting of hazardous waste facilities in predominantly minority and low income areas.

The President, the EPA, and the courts have expanded the definition of environmental justice to include not only the evils of intentional discrimination, but also unintended "disparate impact" discrimination. Disparate impact discrimination flows from practices that are not intended to discriminate, but may have an unintended, but discriminatory, disparate effect on a particular group. For example, an employer may have a policy that it will only hire the relatives of current employees. There may be well-intentioned reasons for the policy, such as knowledge of the company and presumed loyalty. If, however, all the current employees are white, the policy will have a discriminatory disparate impact on qualified blacks, who can never be employed.

On February 11, 1994, President Clinton moved environmental justice to the forefront of the national agenda when he issued Executive Order 12898, which broadly provides that "all communities and persons across this nation should live in a safe and healthful environment." The order further requires each department of the cabinet to make environmental justice a part of its mission.

New Developments

In the past, it was generally accepted that Federal or state permitting agencies served as gatekeepers to which private individuals or groups must administratively submit their opposition to siting permits. These agencies could then exercise discretion when dealing with such challenges. However, several recent significant developments, in the form of a court of appeals decision, an EPA policy statement, and a controversial EPA decision in the Louisiana Shimtech case, have the potential to open the floodgates for additional private actions in environmental permitting for plant sites. The obvious result would be a dramatic increase in the legal and contingent economic costs associated with the siting of industrial facilities. Companies and their advisors and consultants need to be aware of the potential business risks.

The Chester Case

The first critical question is whether private individuals or environmental activists have an implied cause of action in Federal court to challenge the permitting and permit renewal process without first exhausting available remedies through state or Federal agencies. …

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