Certified Environmental Audits: A Proposal CHARLES LEVENSTEIN and ELLEN EISEN GUEST EDITORIAL ra_ag?just as Love Canal focused public attention on the T r hazards of toxic waste, the tragedy in Bhopal finally 9 2 ~~drew attention to the public health consequences of chronic mismanagement of environmental hazards. In the wake of this disaster, much thought has been devoted to ways of preventing the recurrence of such industrial accidents. The problem, however, is extremely wide in scope and defies a unique, definitive solution. On the one hand, the environmental safety and health risk factors in any large chemical facility are complicated to evaluate. On the other hand, the international dimension of the problem complicates the situation further by raising issues of national sovereignty, appropriate health and safety standards, and methods of uniform enforcement. The strategy we propose is limited and attempts to circumvent many of the international issues by focusing on the control of the environmental behavior of U.S. multinational chemical companies that have production, storage and/or distribution facilities abroad. We propose the development of an independent and certified environmental auditing system in which compulsory audits would be required of all foreign facilities of any U.S. chemical company that raises domestic funds for any purpose. RATIONALE A very important prerequisite to the workability of any environmental auditing system is the incentive for compliance. We believe that it is in the political and economic interests of the U.S. government, U.S. multinationals, and the U.S. public to prevent major industrial accidents from occurring anywhere in the world. Operationally, however, environmental audits of U.S. multinationals will have to coincide with fairly narrowly defined corporate interests if we are to expect widespread compliance. This compliance incentive might well be achieved through domestic lenders or investors. People who are actually providing funds to U.S. multi- 303 Palgrave Macmillan is collaborating with JSTOR to digitize, preserve, and extend access to Journal of Public Health Policy www.jstor.org
304 JOURNAL OF PUBLIC HEALTH POLICY * AUTUMN I987 nationals would be expected to have a financial interest in the prevention of a major industrial accident. Domestic banks, just as the World Bank, should want to protectheir investments. This means that stockholders, banks, insurance companies, and financial intermediaries will all have a vested interest in the environmental behavior of the corporations with whom they do business. We propose tying a compulsory environmental audit system to the raising of domestic funds, looking to the funders as both the technical trigger as well as the source of the pressure for compliance. It is commonly said that insurance companies are making it more and more difficult for multinationals to get adequate coverage for foreign chemical facilities. Bhopal occurred at the end of a three-year slump for the insurance industry, and it was predicted that the incident would accelerate the trend to look more closely at the types of risk insurance companies ought to cover, how much of the risk they were willing to cover, and the cost of that coverage. This would have implied that environmental audits of potential clients' foreign facilities would also be in the best interests of insurers. A recent article in the New York Times, however, suggests that the slump in the insurance industry was not due to the occurrence of a few low-probability high-cost events, but rather was tied to the decline of high domestic interest rates. This suggests that we may not be able to look to the insurance company's fear of liability as the strongest impetus for a voluntary environmental audit system. In fact, it is the absence of this impetus that has persuaded us to propose a compulsory rather than a voluntary system. Although compulsory, it must be stressed that it's in the best interest of corporate lenders, as well as corporations themselves, to go along. Unidentified, unmeasured and uncontrolled risk discourages investment. AUDITS Normal maintenance of any business system requires a minimum of trust: even within the limits of "caveat emptor," buyers and sellers of goods and services have to share some common understanding of the economic enterprise. Where such an understanding is lacking, commerce suffers and economic development lags. Advanced capitalist economies have requirements well beyond this minimum; the role of government in such situations goes beyond requiring that contracts be honored. In the United States, for instance, independent financial audits by certified public accountants are required for most businesses, and access to organized
LEVENSTEIN & EISEN * ENVIRONMENTAL AUDITS 305 capital markets is limited to firms submitting such audits to the Securities Exchange Commission. Disclosure of the corporation's financial status is protection not only for particular investors, but also for the capital market as a whole. Since the early part of this century, the American Institute for Certified Public Accounts has administered a national test for accountants which is given in each state. A uniform national grading system is employed, but accountants are certified on a state by state basis. The mushrooming of the field has occurred since the mid-i930s when the Securities Exchange Commission began to require audited statements from public corporations. Certified public accountants are authorized to attest to such statements. Privately-held firms and not-for-profit enterprises also use CPAs, however, because of bank lending and insurance carrier requirements for similarly attested audits. The Federal government may also require certification of financial statements of institutions receiving grants, tax relief or federal contracts. Of course, such a system is not foolproof. Firms mislead the public sometimes, CPAs are sometimes careless and fail to detect errors of omission and commission-but an altogether corrupt system simply would not work to the advantage of the substantial financial interests involved. Monitoring of corporate finances, certification of independent auditors, and government disclosure requirements work sufficiently well to permit widespread participation in organized capital markets. This model begs for extension to environmental health and safety concerns, particularly where the long arm of U.S. multinational business deserves attention. ENVIRONMENTAL AUDITS The concept of environmental audits is not a new one. The Environmental Protection Agency has been interested in such a system for years. EPA defines an environmental audit as a systematic, documented, periodic, and objective review by regulated entities of facility operations and practices related to meeting environmental requirements (i). Operationally, EPA expects an environmental audit to: verify compliance with existing U.S. laws; evaluate the effectiveness of the environmental management system within the corporation; and assess risks from both regulated and unregulated materials and practices. However, the EPA's conception of an environmental audit system is fundamentally different from the one we have in mind here in three respects. In the first place, EPA generally views environmental audits as a means to promote voluntary compliance
306 JOURNAL OF PUBLIC HEALTH POLICY * AUTUMN I987 with existing U.S. environmental laws (both EPA and OSHA). Second, the EPA policy is limited to audits of domestic plants. And, third, the EPA's environmental audit policy is predominantly an in-house audit system. That is, companies are encouraged to develop internal environmental management systems and to audit themselves (z). More recently the Bhopal disaster was the catalyst for the development of an environmental auditing system by the World Bank (3). The World Bank EA system is a formalization of their existing guidelines for the control of hazardous installations in developing countries (4). The stated objective is the protection of the health and safety of persons in the workplace and persons outside the plant boundary, as well as the protection of the environment. The World Bank system is in many ways different from the EPA system. First of all, the World Bank requires compulsory environmental audits for companies that request loans from the World Bank for projects involving chemical hazards. Another difference is that the World Bank environmental audit system is directed exclusively toward avoiding environmental damage from major industrial accidents, whereas the EPA program is more generally concerned with promoting safe on-going environmental practices. Another key distinction is that the World Bank system addresses workplace hazards as well as threats to the general community. The environmental audit system we are proposing is more similar to the World Bank than the EPA model. First, it would be a compulsory system; any U.S. corporation with chemical facilities abroad which is raising funds in the U.S. for any purpose would be required to file an EA. (The raising of the funds need not be explicitly tied in to the design and development of a foreign facility in order to trigger an environmental audit.) Second, we propose that these compulsory environmental audits be filed with some U.S. agency, i.e., the Securities Exchange Commission or EPA. Third, we recommend that there be public disclosure of the reports, both domestically as well as to the local governments and communities of the site of the foreign facility. Fourth, when we talk about environmental audits of the U.S. multinationals, what we are talking about are audits of the foreign facilities. We propose that these foreign facilities be held to the same enviromental standards as domestic facilities, i.e., Occupational Safety and Health Administration and EPA regulations. And finally, like the World Bank system, the focus of our EA system would be broader than the potential for catastrophe. The system would also be directed toward the prevention of the chronic exposure of workers
LEVENSTEIN & EISEN * ENVIRONMENTAL AUDITS 307 and the community to toxic hazards. Unfortunately, more lives have been and will continue to be lost as a result of long-term exposure to asbestos during "normal" industrial operations than were lost in Bhopal. What might be the components included in an audit? Of course, the details should be the subject of political, economic and scientific debate and determination, but some items to include are: - for toxic chemicals (broadly defined) at the site: mass inputs, maximum storage volumes, mass of specific chemicals discharged to various media, mass of chemicals disposed (types of disposal) or treated (type). - list all chemicals to which workers at the plant are exposed. - describe plausible chemical accidents, consequences, probability assessment. - describe accident prevention measures in place. - describe additional accident prevention plans deemed necessary. - describe additional waste reduction measures, or pollution control for wastes that cannot be reduced, needed to reach U.S. standards where applicable (5). Is it adequate to limit such an audit to publicly held corporations? If the Cargill Corporation were a chemical company it would still escape our proposed regulation, since this company with $3z billion in grain sales in I985 and operations in thirty foreign countries is privately held. We recognize this as a limitation of our proposal, but note that the wide acceptance of financial auditing began with a narrow requirement. Eventually, we expect that certified environmental audits of chemical company foreign operations would gain wider use and acceptance -or additional hooks on which to hang the requirement. Should this approach be used domestically, as well as abroad? Realisitic observers of OSHA and EPA understand that these agencies will never have sufficient inspection forces to ensure that U.S. industry maintains adequate environmental controls. While our focus has been on issues raised about the foreign activities of U.S. chemical companies, we recognize the importance of developing domestic internal auditing systems such as safety stewards, which in turn can be monitored by government regulatory agencies. BOARD CERTIFICATION The EA system should be modeled on the system of certified public accounting. As in the case with CPAs, the audits should be conducted by a team of independent, board-certified, professionally trained experts
308 JOURNAL OF PUBLIC HEALTH POLICY * AUTUMN I987 in environmental management. A U.S. organization, such as the American Public Health Association, the American Industrial Hygiene Association, or the Environmental Protection Agency, should take the initiative and might be responsible for developing the certification system. Individuals already trained in industrial hygiene, environmental engineering, and safety and occupational health would be required to take further limited training specifically geared to the auditing of large chemical production and processing facilities. What is plain from the rash of "normal" accidents now occurring in our increasingly complex technological environment is that the professional and scientific community must take the initiative in insuring the wider public, both in the United States and abroad, that the application of advanced technology can be accomplished responsibly with deep concern for the public health and well being. Acknowledgments: This editorial is based on a paper presented at the Annual Meeting of the American Association for the Advancement of Science, Philadelphia, May 30, I986, in a session entitled, "Public Health Implications of the Bhopal Disaster." We would like to thank Anthony Cortese, Kathy Stevens, Dom Tuminaro, David Wegman, Henry Cole, and Nicholas Freudenberg for their helpful comments. REFERENCES i. U.S. Environmental Protection Agency, "Environmental Auditing Policy Statement," Federal Register 5 I (i 986): 25004-I0. z. Fleckenstein, L., "Federal Government Initiatives in Environmental Auditing, " Chemical Engineering Progress, October I9 8 6: I 7-19. 3. For a full discussion of World Bank audits, see Batstone, R. J., "Experience in the Application of Hazard Assessment on World Bank Projects," World Bank (mimeo), I985. 4. "European Community Directive, i98z, on the Major Accident Hazards of Certain Industrial Activities, 8 z/5 oi/eec," Official Journal of the European Community, June I 9 8, L z 3 o. 5. We are indebted to Dr. Henry Cole, Research Director, National Campaign Against Toxic Hazards, for these suggestions.