Moving Forward toward Environmental Excellence: Corporate Environmental Audits,Disclosure,and Stakeholder Empowerment

The author wishes to gratefully acknowledge the assistance of the many reviewers who provided suggestions to strengthen this article: Joan Bertin, Ken Geiser, Sarah Gibson, Robert Ginsburg, Kathy Grandfield, Richard Grossman, Jim Hecker, Erin Heskett, Ann Kelly, Richard Miller, David Monsma, Carole Ojeda-Kimbrough, David Ronald, Robert Shavelson, Barbara Warren, and Liz Wessel. While the strengths of this article owe a great deal to these people, its shortcomings are solely the responsibility of the author. In addition, thanks are extended to Charles Levenstein and Mary Lee Dunn for publishing this article on an unusually short lead time.

For one good article on the problems with such audit privilege, see Ronald David , “The Case Against An Environmental Audit Privilege,” Chemical Waste Litigation Reporter, January 1995, p. 167.

51 FR 25004, July 9, 1986; 59 FR 38455, July 28,1994.

The ISO standards are expected to be adopted voluntarily by many companies worldwide; unfortunately, however, the standards are being adopted in a process that lacks substantial input of environmental groups and which is dominated by corporate representatives. Thus, it is perhaps not surprising that the existing drafts do not provide for independent external audits, nor substantial public accountability, in the auditing process.

In United States v. Chevron USA, Inc., the Chevron corporation was required by a court to disclose its 1987 internal environmental audit and other documents to the EPA in a civil enforcement action. The company argued that the documents were privileged since a corporate attorney was involved in their preparation. But the magistrate rejected this argument, and ordered the documents to be turned over to EPA: It is not enough to assert the attorney-client privilege merely because an attorney was present or was one of the parties to whom the communication was made. The communication must be between the client and the attorney in his or her capacity as an attorney rather than as, for example, a business advisor. Additionally, the communcation's primary purpose must be to gain or provide legal assistance. 1989 U.S. Dist. Lexis 12267 (oct. 16, 1989) cited in Alex Karlin S. , “Coinducting a Legal Checkup of an Environmental Audit Program,” Los Angeles Lawyer, June 1994, 15 at 17.

• The information must be of a type in which the flow would be curtailed if discovery was allowed.

US EPA, Restatement of Policies Related to Environmental Auditing, July 1994, at 4.

U.S. Department of Justice, Factors in Decisions on Criminal Prosecutions for Environmental Violators in the Context of Significant Voluntary Compliance or Disclosure by the Violator (July 1, 1991).

EPA decided to limit mandated audits to where Congress has required them, and in cases of enforcement settlements, where a thorough review of a firm's activities might help to achieve more uniform compliance.

Ronald Id. at 168–169.

There are few reported cases in which government has utilized information contained in a voluntarily conducted audit in a civil or criminal penalty action. A survey of all 50 states completed in July 1994 found only one civil case and two criminal cases, nationwide, in which voluntary audits were used by prosecutors. In the two criminal cases, action was taken because the firm was slow to act on information contained in the audit, suggesting knowing and unlawful disregard for the law. Ronald, Id. at 168.

US EPA, Restatement, Id. at 9.

Ronald Id. at 168, 171.

For instance, in late 1994, an agreement was reached in principle with Unocal in Contra Costa County, CA, which went even further than the R-P agreement. The agreement allowed both for a one-time external audit conducted by an expert selected and supervised by residents, and for community resident participation in the firm's annual internal auditing processes.

The limited exception to closed-door judicial scrutiny under the Hatfield bill would be for access “under seal” by criminal prosecutors, and then only for the limited purposes of seeing whether the audit was of a type covered by the bill. A criminal prosecution is an exceptional circumstance; most so-called audit documents would never be reviewable by government or private parties at all.

A positive record might be defined according to some concrete and predictable criteria, for instance, no criminal convictions or no contest pleas on environmental or safety issues within the preceding five years, and no administrative or judicial enforcement proceedings resulting in fines within the last two years.

“Pollution prevention” may be defined as activities which avoid the use of toxic substances or the creation of waste or emissions, through changes in production technologies, management practices, operation and maintenance activities, or materials or product substitutions. Pollution prevention does not include recycling, energy recovery, waste treatment, or end-of-the-pipe treatment methods.

“Inherent safety” refers to activities which can avoid a chemical accident or chemical release, without reliance upon safety devices such as containment or emissions treatment or capture systems. Examples of inherent safety include closed-loop production and consumption of highly hazardous materials (that is, minimizing storage levels), and substitution of less hazardous substances and processes. See Ashford Nicholas , “The Encouragement of Technological Change for Preventing Chemical Accidents: Moving Firms from Secondary Prevention and Mitigation to Primary Prevention,” Center for Technology, Policy and Industrial Development, Massachusetts Institute of Technology, July 1993.

The European auditing program (EMAS) also utilizes independent verifiers, but unfortunately under the EMAS approach, the verifier is selected by the firm. Thus, there will be an inevitable market incentive under the European program to avoid verifiers who have found fault with existing audits. By contrast, we propose government or lottery selection of verifiers to avoid this pitfall.

This approach builds from a direction that EPA is already heading in its compliance programs. For example, in December 1994, USEPA Region I announced that it had assessed a reduced fine on the Polaroid Corporation after the company voluntarily disclosed a violation of the Toxic Substances Control Act. Polaroid's auditing program discovered that it was manufacturing and using a new chemical in one of its instant film products, but had failed to file pre-manufacture notification requirements with the EPA as required under the Toxic Substances Control Act. While the company would have been subject to a penalty of $160,000, the penalty was reduced to $80,000 on account of their self-reporting. Further, the company agreed as part of the settlement to perform a compliance audit on another 100 chemicals that are in use by the firm, and to pay a stipulated penalty of 20 percent of the usual penalties for any further violations uncovered. USEPA Region I, Press Release.

This segregation of documents would not be conclusive proof of whether something is “evaluative” and therefore inadmissible, but would rather ensure convenient and efficient transactions regarding audit documents. Rather, if a firm attempted to hide “facts” in an “evaluative” part of the document, the issue could be fully briefed and a judge decide on its admissibility.

“Notification received pursuant to this subsection or information obtained by the exploitation of such notification shall not be used against any such person in any criminal case, except a prosecution for perjury or giving a false statement. CERCLA sec. 103 (b), 42 U.S.C. 9603(b).”