BA 850
Sustainability-Driven Innovation

 

Regulatory and Public Influences

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Morning in America

It's a lovely Wednesday morning in February. The sun is shining and birds are happily singing about 900 miles south of your current locale. But, you have hot coffee. You arrive at your office at about 8:30 a.m., and promptly at 8:45 a.m. every morning, between 150 and 600 pages of indecipherable legal text citing indecipherable legal text from years past metaphorically lands on your desk, and the desk of every single organization and person in the United States. Every single workday of every year.

Welcome to the Federal Register, "The Daily Journal of the United States Government."

While the word "journal" may conjure thoughts of sitting lakeside somewhere in an Adirondack chair and drawing ferns in your Moleskine, this is very different. This journal contains new rules, proposed rules, required notices, and other information with which your organization has to comply with in one way or another. These new rules and requirements can be literally decades in the making, or may arrive with no notice.

The fog of the regulations with roots in this document is literally so thick that the government many times does not agree with itself. Consider that a service of many environmental consultants is to literally take your organization's regulatory question, write a brief, submit it to a group of state or federal regulators, and ask for a formal ruling. If there are seven regulators on the panel, you could conceivably have seven different interpretations of the regulation, each of which could have wildly different implications for your organization. Perhaps this is an inflation. You may only receive four different interpretations with four wildly different implications for your organization.

While "E pluribus unum" may have appeared on the dollars you handed the barista that morning, the morning delivery of the Federal Register should bear "Ignorantia juris non excusat"– "ignorance of the law excuses no one."

Regulatory Influence and Legal Risk

The influence of regulations is not uniquely American. In fact, we may be beginning to see the creation of de facto global regulations due to the multinational nature of so many corporations. In essence, multinationals seek to unify systems and internal environmental reporting across international sites, as well as being able to sell products internationally, and they do so many times through the application of the more stringent regulations across all sites internationally. This, in turn, exerts downward pressure through the supply chains the company uses in each country as they similarly require suppliers to meet their standards. We are beginning to see this exercised with the application of European REACH chemical regulations being applied worldwide, as well as the very practical step of a unified chemical labeling and pictographic standard (the "Globally Harmonized System of Classification and Labeling of Chemicals" (GHS)).

Interestingly, in many cases, it has not necessarily been global accords or other international agreements which have led to this dissemination of regulations across the world, but it has been the multinational corporations and the desire for efficient international trade.

The influence of environmental regulations on the organization varies depending on the organization, as a small bakery will be subject to a fraction of the regulations borne by a chemical plant or a metal plating operation due to the complexity, volumes, materials, and chemicals used in their operations. As we will examine further in a moment, those regulations have very direct and indirect costs on the organizations, and becoming more sustainable is an excellent way to reduce regulatory influence–and risk–in the organization.

Below are a few examples of regulatory influences and how they can affect an organization:

Regulations and Risks
Domain Example regulation Influences and risks for the organization
Local Sound ordinances Hours of operation; specification of equipment used; facility soundproofing measures; expansion plans and siting
State Vermont Stream Alteration Rule§27-102 Siting of any structure within the regulated areas; potential for restrictions on agricultural and silviculturial activities; additional reporting requirements and record keeping; need to notify the state in the event of moving or shifting; additional permitting required
Federal EPA Resource Conservation and Recovery Act (RCRA) Hazardous Waste Regulations Organizations are responsible for materials from "cradle to grave," meaning the generator of the waste is permanently liable for the environmental damages of a waste, even after disposal; additional transit restrictions; extensive recordkeeping requirements; additional handling, labeling and transit requirements
Location/ Habitat Restrictions on land use near waterways officially designated as of "exceptional value" Certain types of operations may not be able to establish within a certain radius of these locations; regular audits; more stringent recordkeeping and reporting requirements
Materials (in use) OSHA Globally Harmonized System of Classification and Labeling of Chemicals (GHS) Labeling on all bulk and use containers; regular training requirements; recordkeeping requirements
Wastes EPA Waste Generator Accumulation Regulations Inspection and handling requirements; requirements for container and closure types; establishment of designated or satellite waste accumulation areas; added air emission standards; additional recordkeeping and reporting; requirement to prove removal/disposal within specific time windows

Public Influence and Reputational Risk

Protester with bullhorn in Nike store
Protest in Nike Store in support of strike at Dongguan Yue Yuen Shoes Factory, a supplier to many athletic brands.

In addition to the influence of required environmental regulations under which an organization operates, there is a significant component of risk to an organization's reputation. Reputational risk, stemming from poor environmental performance being brought to the public eye, is not to be underestimated. A notable case we will examine in the next lesson is that of the public's influence on the Nike approach to worker rights, and we will spend significant time in this course examining stakeholder engagement as a tool for innovation. I'd like to lay a bit of a framework for thought here, and we will be taking a far deeper look in the area of public influence throughout the semester.

Brands are the persona–the soul–of an organization, from the smallest non-profit to the largest corporation. Consider the years and billions of dollars spent annually to create and build brands that would otherwise sell commoditized goods, be they carbonated brown sugar water or printed T-shirts. The brands are what create the tremendous sales, continuous PR, and command a price premium in the market... as well as attracting investment. Despite their tremendous value, brands are extremely fluid and fickle, and it does not take catastrophic damage to a reputation to put the organization in peril. The damage to the reputation of a brand need be just enough to cause customers to consider other brands... after that door is opened with loyal customers, the market does the rest. The brand loses its gloss... it becomes less attractive, maybe people think twice about how they would be perceived as an owner of the product. In time the brand–and sales–erode.

The easiest way to think of reputational risk to the brand is what I call "The Jilted Lover Effect." When a customer has a very personal involvement with your brand and strongly associates with the persona and there has been a significant transgression of those brand values, "The Jilted Lover Effect" dictates that those who once loved your brand the most will become your most vehement, vocal, and lasting critics. Imagine if Patagonia were found to be dumping toxic byproducts behind their plant... this would cause a very immediate backlash, beginning first in its (formerly) most passionate fans.

Primary and Secondary Damage to Reputation

While many of us may first think of protests as pictured above when thinking of "environment" and "public influence," it is necessary to look beyond the more limited and episodic risks and into the far more invasive secondary damages.

Types of Reputational Damage

Primary or episodic damage

A protest inside or just outside your flagship location

Pamphlet postings on windshields at your event

Negative blogs and opinion pieces

Public stunts, performances, and videos

Most anything involving bullhorns, signs, or crowds of people
Secondary damage Decreased passion and dedication among most loyal customers

 

Decreased usage of your products to avoid stigma of negative associations

Decreased partnership opportunities

Decreased positive PR and media opportunities

Decreased organic search engine rank for positive stories

Increased consideration of competitive products and services by customers

Word of mouth mentions distracted by negative issue at hand

Increased retailer discounting in some goods to move stagnant inventory, potentially reinforcing the damaging effect to brand equity

Sustainability's Role in Reducing Regulatory and Reputational Risk

Throughout this course, you will be asked to carefully consider the linguistics, metaphor, and frames that we use in both description and messaging. This is not an empty exercise. We do this in order to underscore that words not only have tremendous underlying meaning, but also so that we may more succinctly package our responses, messages, and arguments. A significant goal is for us to understand our philosophies on sustainability, how it fits within the organization, and how to create significant value from sustainability-driven innovation.

Allow us to take a moment to examine the word "footprint" as it is used in sustainability to describe the collection of impacts a person or organization makes on the world around it. It really is a passive, somewhat delicate word. Think of the places where one might encounter footprints... in sand, on grass, in snow, in freshly vacuumed carpet... in all cases, the footprint is temporary and easily remedied (if "remedy" is needed at all).

footprints in sand
via Nadar

So, if "footprints" are of minimal impact, then "reducing our footprint" sounds to be of even lesser concern, akin to someone mentioning they are 'working to limit how many times they blink daily.' Blinking is not widely perceived to be a problem to start with, let alone something to be reduced.

So, we must be cognizant in our messages, frames and arguments that some terms may work to trivialize sustainability and our need to reduce impact and risk (note: two very non-passive words).

When it comes to sustainability's role in reducing regulatory and reputational risk, consider that sustainability works to reduce the exposure of the organization subject to risk. An organization can't be fined by the EPA or state regulators for hazardous waste it doesn't have; it can't be devastated by a public campaign against environmental abuses in which it does not partake. Every movement the organization makes TOWARD sustainability is similarly a movement AWAY FROM legal, regulatory, and reputational risk. We must be clear that sustainability not only represents a very tangible opportunity for innovation and growth, but that it is part of a core business imperative to reduce risk to the organization. Some organizations place special emphasis on this role of sustainability, and structure sustainability as a function of the Legal department.

So, as we hear discussions of reducing an organization's "environmental footprint" or "carbon footprint," we should consider the frame we set and the message we convey using those terms... no matter how prevalent they may be. Let us consider sustainability as playing a far more directed, serious, and essential role in an organization, and that role is one of reducing the risk profile of the organization. Much as in the clinical setting, we seek to use every available means to strategically reduce our risk profile... be it through process innovation, reporting and goal setting, transparency, supply chain auditing, stakeholder engagement, reduction of hazardous materials, or otherwise.

Five word summary - Minimizing risk to the organization