Environmental Compliance Audits: Five Tips To Protect Your Company - Environmental Law - Fix Bdsthanhhoavn

Environmental Compliance Audits: Five Tips To Protect Your Company – Environmental Law

With growing attention on Environmental, Social and Governance
initiatives and escalating penalties for non-compliance with
environmental laws,1 it is all the more important for
companies to ensure compliance with environmental regulatory
requirements. One way your company can satisfy stakeholders while
appropriately managing risks of potential enforcement is to conduct
a regular Environmental Compliance Audit
(“ECA“.) In this article we discuss the
key features of ECAs and their rising importance in managing your
company’s environmental compliance and risk.

1. What are ECAs and why are they important?

ECAs assess compliance with environmental legal
requirements.2 This differs from other environmental
assessments such as Phase I and Phase II studies, which are
generally more focused on evaluating the presence of contamination
above regulatory standards (and which are typically conducted for
pre-purchase due diligence or for the purposes of applying for
regulatory instruments). ECAs can also include occupational health
and safety (“OHS“) aspects as well. OHS
audits focus on assessing compliance with applicable health and
safety legislation and identifying risks to health and safety
inside the workplace.

ECAs are internal evaluations carried out by qualified employees
or third party consultants, with the goal of identifying compliance
gaps, weaknesses in management systems and liability risk
exposure.3 The findings and recommendations from ECAs
are documented in an internal written report (the “ECA
Report
“.)

The importance of ECAs is quite simple: it is far more
advantageous for companies to identify and remedy compliance gaps
themselves than it is for such gaps to first be identified as a
consequence of an incident, or by regulators, which can lead to
penalties and other enforcement measures. Moreover, in the event of
a prosecution or other enforcement action, an ECA Report can be
used to support a due diligence defence, or during sentencing to
demonstrate the company’s attention to environmental risks and
good faith efforts to ensure environmental compliance.

2. Are ECAs obligatory or voluntary?

Generally speaking, ECAs are not required by law. That is, there
is currently no law in Canada that requires companies to conduct
ECAs against all applicable environmental laws.
However, there are a number of regulations that require audits to
be conducted on certain aspects of specific industrial
activities.4

ECAs may also be a requirement of a company’s environmental
management system. Where this is the case, they are often scheduled
every few years so that management and shareholders have an
understanding of regulatory compliance risks, and to provide an
opportunity for the company to remedy any compliance gaps.

3. What standards should be used in an ECA?

Companies can choose between a range of standards to assess the
results of their ECAs, and to guide the implementation of
recommendations. Adhering to a particular set of standards can
assist companies with measuring their level of compliance and the
rate at which they are addressing compliance gaps, year over year.
Standards can also help in determining how to prioritize the order
in which any compliance gaps (and associated risks) identified in
the ECA Report should be remedied.

The most commonly used standards in Canada are CSA Z773-17 and
ISO 14001 (the latter of which is an international standard that
sets out requirements for environmental management systems).
Companies can also develop their own internal standards depending
on their capacity and the purposes of their ECA.

4. What should you do with the ECA findings?

As discussed above, the results of an ECA will be contained in
an ECA Report, which will include the auditor’s findings and
recommendations. Once a company receives an ECA Report, it should
decide how to remedy any compliance gaps and action any
recommendations, and the order in which this will be done.

ECA Reports will often differentiate between instances of
non-compliance with strict regulatory requirements (which may
attract enforcement actions by regulators) and non-compliance with
best practices (which may not attract enforcement actions). ECA
Reports may also differentiate between instances of clear
non-compliance, and instances of potential non-compliance which
require further assessment and/or monitoring. Ultimately, companies
will want to prioritize all findings and recommendations in the ECA
Report in order to determine which items will be actioned, how they
will be actioned, and when.

5. How do lawyers assist with ECAs?

As a general rule, it is prudent to have an environmental lawyer
oversee an ECA at all stages: from planning and scoping, to
conducting the ECA and producing the draft ECA Report, to following
up on the results of the ECA and determining action items and
priorities. Involving a lawyer from the outset of the ECA process
will help your company scope the ECA to ensure compliance with
up-to-date laws, but also to ensure that the ECA is cost effective
by only covering those regulatory requirements applicable in the
circumstances.

Regardless of whether the ECA Report is for internal or external
purposes, having a lawyer oversee the ECA also allows your company
to benefit from legal privilege. For example, the legal advice
received in respect of the findings of the ECA would not have to be
disclosed in the future, as long as such privilege is properly
protected.

Next steps

In today’s market, companies with industrial facilities are
expected to be conducting ECAs. Companies that do not regularly
conduct ECAs have fewer opportunities to catch instances of
non-compliance and are therefore far more exposed to the risk of
stakeholder scrutiny and regulatory enforcement than companies who
conduct ECAs regularly.

Footnotes

1. See, for example, the following notable fines issued
for environmental offences within the last five years: $3.5 million issued to Prairie Mines &
Royalty ULC in 2017, $3.5 million issued to Irving Pulp & Paper
Limited in 2018, $2.7 million issued to Husky Oil Operations
Limited in 2019, $196.5 million issued to Volkswagen
Aktiengesellschaft in 2020, and $60 million issued to Teck Coal limited in
2021.

2. The scope of ECAs can be broad enough to include all
environmental legal requirements applicable to a company or
facility.

3. In certain circumstances, ECAs can be ordered by
and/or carried out by government agencies. However, the focus of
this article is on ECAs that are undertaken
voluntarily.

4. See, for example, the Reduction in the Release of
Volatile Organic Compounds Regulations (Petroleum Sector)
(SOR/2020-231), s. 42-44; the Benzene in Gasoline Regulations
(SOR/97-493), s. 22; the Benzene in Gasoline Regulations
(SOR/97-493), s. 26; and the Renewable Fuels Regulations
(SOR/2010-189), s. 28.

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

Tags: #Environmental #Compliance #Audits #Tips #Protect #Company #Environmental #Law

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