3 reasons for EHS transformation: The risks of non-compliance
Transforming a business’ EHS compliance program is no easy feat, so why should companies around the world even consider it?
There’s no point denying that making major changes to EHS compliance programs is a complex, costly, and challenging endeavor. But that doesn’t mean it’s not entirely worth the effort.
As we see greater numbers of regulatory requirements — as well as public scrutiny — the risks of non-compliance are increasing in number and significance, making the right time to embark on this type of transformation right now.
We’ve worked with EHS compliance transformation leader Anthony Wareham to deliver a series of webinars and an accompanying eBook to guide business leaders through the intricacies of undertaking such a journey, including examining the motivators behind it. In this article, we’ve collated these insights to give you a clear picture of three of the most influential risk drivers that can and should be behind an EHS compliance program transformation — financial, legal, and reputational risks.
1. Financial risks
Perhaps the most obvious — and often motivating — risk factor for companies to consider when looking at EHS compliance, is how non-compliance impacts the bottom line. The primary financial risk that companies tend to consider is the direct cost of fines, penalties, and pay-outs for damages.
When a criminal case is proven, fines can reach into the millions of dollars and include both court-ordered penalties (usually associated with a criminal conviction) and private claims (usually civil) for damages.
Large, highly publicized accidents that impact environment and human lives, caused by perceived or actual negligence on the part of a company, have historically impacted stock prices, share value, and public perception.
These impacts can be severe, as many partners throughout the value chain may subsequently require an ongoing demonstration of compliance from suppliers to do business with them, jeopardizing market position for those who can’t do so. There are many documented cases of companies ceasing to trade as a result of financial penalties imposed following an accident.
2. Legal risks
Direct legal action against a company, or individuals within it, have previously been more of an exception than the rule — only being used in the most serious and severe of circumstances. With more recent legislative changes, such as France’s transposition of the CSRD, this is likely to change. The legal consequences of non-compliance vary by country, but can be severe for both the company and the persons in control of activities.
In the UK, being found guilty of health and safety violations can mean imprisonment in the most serious cases, as well as disqualification from working as a company director for up to 15 years. HSE fines of up to £20,000 are common, and in cases of serious negligence they can be unlimited.
Other sanctions, such as prohibitions and enforcement notices, will prevent companies from doing business, with sanctions being made significantly higher for the most reckless behaviors, or for repeat offences.
3. Reputational risks
A company’s reputation can make or break it — and this is just as true when it comes to health and safety as it is in regards to sustainability or ethical trading practices. A poor reputation when it comes to employee wellbeing can result in disengaged workforces, diminished retention, difficulties recruiting, and public and official scrutiny — whether it’s boycotts or formal safety investigations.
Companies control the work environment and therefore need to make sure all work-related activities are conducted with the intention of doing no harm to employees or others who may be affected by those activities.
A good health and safety program goes beyond simply avoiding unpleasant outcomes to reinforce core values and build trust with employees, stakeholders, and the public. It instills a sense of security in the knowledge that the company has employee wellbeing as a core requirement because it demonstrates as much.
It’s often valuable to reflect on the companies’ mission statement and ask if employees would share the same view. Many companies publish mission statements that employees regard as empty phrases, meaning they don’t agree with or trust their employer. If trust is absent, then good safety practices are likely to be absent too — increasing the likelihood of a more adversarial relationship. This is bad for not only health and safety but other more general business requirements, such as quality and productivity.
Change may be hard, but it's better than the alternative
Evidently, there are many good reasons for businesses to reconsider whether their EHS compliance programs is really fulfilling its requirements. Not only can an insufficiently robust program mean the inability to prevent injury or death, but it can also have far-reaching financial, legal, and reputational implications.
Before the worst can happen, it’s important for businesses to take a serious, measured approach to reevaluating their EHS compliance programs and establish if it needs to be transformed.
Fortunately for those seeking to improve their EHS compliance program, we’ve partnered with health and safety veteran Anthony Wareham to bring clear guidance to this complex challenge.
Take a look at our related webinar recordings, articles, and eBook to learn more…
