July 23, 2004

EPA, DEC Expand Roles of Environmental Management Systems

New York Law Journal

Environmental management systems, though nominally voluntary, are playing an increasing role in the administration and enforcement of environmental laws. In the past three months, three different agencies have released statements that amplify the importance of environmental management systems to companies and their lawyers.

The agencies are the U.S. Environmental Protection Agency (EPA), the New York State Department of Environmental Conservation, and the U.S. Sentencing Commission. This column describes the agencies' recent actions and their context.

The New York State Department of Environmental Conservation defines an environmental management system as "a set of management processes, procedures and auditable performance objectives that allows a facility to continuously analyze, control, and reduce the environmental impact of its activities, products, and services by utilizing pollution prevention measures, performing beyond minimum compliance levels, or integrating sustainable business practices." EPA says that an environmental management system "is a set of processes and practices that enable an organization to reduce its environmental impacts and increase its operating efficiency. An environmental management system helps an organization systematically manage its environmental 'footprint' — — the environmental impact associated with its activities, products and services."

EPA Policy

On May 15, 2002, then-EPA Administrator Christine Todd Whitman signed the agency's position statement on environmental management systems. She declared that the EPA "will encourage wide spread use of EMS [environmental management systems] across a range of organizations and settings, with particular emphasis on adoption of systems to achieve improved environmental performance and compliance, pollution prevention through source reduction, and continual improvement." The statement also encouraged the use of recognized environmental management frameworks, such as the ISO 14001 standard, as a basis for designing and implementing systems.

One of the several EPA actions furthering this position was the issuance on June 12, 2003 by John Peter Suarez, then head of EPA's Office of Enforcement and Compliance Assurance, of "Guidance on the Use of Environmental Management Systems in Enforcement Settlements as Injunctive Relief and Supplemental Environmental Projects." Suarez announced what where EPA determines that "the root cause" of a defendant's violations "is the absence of a systematic approach to identifying, understanding, and managing the regulated entity's compliance with applicable environmental requirements, the appropriate injunctive relief should include an environmental management system with a compliance focus."

In other words, while environmental management systems are ordinarily voluntary, they can be imposed upon certain violators. Additionally, "where EPA discovers that a company has identified and corrected violations through the implementation of an EMS [environmental management system], EPA may consider the implementation of that EMS, along with other case-specific facts, as an example of the defendant's/respondent's good faith efforts to comply." This, in turn, can lead to a reduced penalty.

On April 12, 2004, EPA published "EPA's Strategy for Determining the Role of Environmental Management Systems in Regulatory Programs." It addressed the question of whether - and, if so, how - it may be appropriate to consider environmental management systems in the context of EPA's regulatory structure. EPA reaffirmed that it has no intention of mandating the use of environmental management systems in rules and permits, but it also made clear that incentives to adopt management systems are appropriate. These incentives can be "regulatory alternatives, options, or benefits." To determine the role that environmental management system should play, EPA announced six questions that the EPA is most interested in testing:

1. Can environmental management systems, in tandem with performance standards, achieve better or more efficient regulatory/permitting environmental results than prescriptive operational controls?

2. Can the multimedia analysis that is the hallmark of an environmental management systems support cross-media tradeoffs that achieve higher overall environmental performance and pollution prevention?

3. Under what conditions could regulators rely on management systems in permits and rules to redirect regulatory oversight from lower to higher priority areas?

4. Can system elements improve performance and efficiency by substituting for overlapping administrative and information-gathering requirements in rules and permits?

5. Does incorporating an environmental management system into a permit yield better public involvement procedures and environmental results than traditional permit models?

6. Can the regulated facilities use their environmental management systems to enhance the environmental performance of third parties such as supplies, customers, or environmental quality trading partners?

For each of these questions, the strategy sets forth a number of regulatory situations that might provide answers. One example given for an experiment that tests question three above concerns a hypothetical facility with a strong compliance record that agrees to a permit provision that requires an environmental management system. The permit allows the facility to make certain operational changes and provide notice to EPA simultaneously, rather than submitting those changes to EPA and waiting for the agency to act. The permittee assumes the risk that EPA might find that the changes do not conform to regulatory requirements, but based on its environmental management system and compliance history, EPA concludes that this risk is very small.

The overall message of the strategy is that regulated entities are encouraged to come forward with ways that environmental management systems can help answer these questions, and if the entities do so, they might find they receive greater flexibility or other benefits from EPA or the states.

Sentencing Guidelines

On May 19, 2004, the U.S. Sentencing Commission published in the Federal Register a notice that it had submitted to Congress a set of amendments to the sentencing guidelines that federal judges use in imposing sentences on organizations that have been convicted of crimes. These amendments respond to ยง805(a)(2)(5) of the Sarbanes-Oxley Act, which directed the commission to review and amend, as appropriate, the guidelines and related policy statements to ensure that the organizational sentencing guidelines are sufficient to deter and punish organizational criminal misconduct.

Among the pending amendments is an explication of the kind of compliance and ethics program that could lead to a lower sentence in the event of a conviction. The pending amendments do not explicitly deal with environmental management systems, but that is the sort of plan the guidelines appear to have in mind. The new amendments state that "[d]ue diligence and the promotion of an organizational culture that encourages ethical conduct and a commitment to compliance with the law" must include several requirements. Among them are:

• High-level personnel of the organization shall ensure that the organization has an effective compliance and ethics program.

• Specific individuals within the organization must be delegated day-to-day operational responsibility for the program.

• The organization must take reasonable steps to ensure that its program is followed.

An organization's failure to incorporate and follow applicable industry practice or the standards called for any applicable governmental regulation weighs against a finding of an effective compliance and ethics program.

DEC Policy

On April 5, 2004, the New York State Department of Environmental Conservation Commissioner Erin M. Crotty promulgated a policy, "Using EMSs [environmental management systems] and Other Environmental Performance Improvement Tools in Department Programs," to encourage the use of environmental management systems in regulatory and enforcement programs.

Commissioner Crotty gave three different department units specific responsibilities under the policy. First, the Pollution Prevention Unit was directed to develop an "Environmental Leadership Program," a voluntary program to recognize "organizations with a commitment to compliance, that have a demonstrated success in improving their performance and preventing pollution, and that commit to continually improve their environmental performance." The policy emphasis that the program "shall be open only to organizations that are able to document their improvements through the use of established performance measures and operate in an open and transparent manner."

Second, the Division of Environmental Enforcement was told to develop options for the use of environmental performance tools in the department's various enforcement programs.

Third, the Division of Operations was given the job of developing a pilot program to demonstrate the use of environmental management system at Department of Environmental Conservation-owned facilities.

For all three kinds of programs, Commissioner Crotty directed that Department of Environmental Conservation programs should focus on promoting management systems that, at a minimum, consider the following:

1. Views of stakeholders (such as facility neighbors and regulated companies)

2. Measurable improvements in performance (to make sure the environmental management systems is achieving its objectives)

3. Credibility (maximize the use of independent professionals to ensure that the systems, and the resulting information and measures, are credible)

4. Public disclosure and communication (critical information must be reported to the public in a manner that is accessible and easily understood)

5. Comprehensive approach (i.e., look at use of raw materials; processes, technology, and facilities employed to fabricate a product; the form in which the finished product is delivered and offered to purchaser; and conditions or terms under which end use occurs.)

6. Integrated approach (i.e., integrate the environmental management systems into the day-to-day operations of the organization, with the active involvement and support of high level management).

In adopting this policy, the department joins the environmental agencies of several other states. The states regularly communicate on environmental management system issues through EPA and through an Arizona-based organization called the Multi-State Working Group.


One of the hallmarks of environmental management systems is that they are voluntary (at least unless they are imposed as part of the resolution of an enforcement case). However, a number of incentives to adopt them have developed.

The sentencing commission's amended rules are an example of the most common incentive - penalty mitigation. Also providing such an incentive to adopt management systems are several EPA policies: "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations;" the "Small Business Compliance Policy"; and the policy on supplemental environmental projects.

A second incentive is public recognition. This is the hallmark of EPA's National Environmental Achievement Track and the Department of Environmental Conservation's proposed Environmental Leadership Program. These allow entities that develop exemplary environmental management systems or otherwise become leaders in achieving, and going beyond, environmental compliance to be publicly acknowledged.

A third incentive is economic. Proponents say environmental management systems often allow companies to operate more efficiently and at lower expense, largely by saving materials and energy, and reducing the cost involved in waste management.

Fourth, adherence to industry standards can be an important issue in a tort suit, and environmental management systems are developing into industry standards in some sectors.

On the flip side, failure to implement a system can lead to higher penalties. The Suarez memo states that "where an EMS [environmental management systems] was in place but violations occurred nonetheless as a result of a lack of management commitment to the process, an upward penalty adjustment to reflect the willfulness or negligence of the violation may be in order."


With each passing year, the reasons to adopt environmental management systems increase. Governments are giving greater incentives to those who have them, and are finding new ways to frown upon those who do not. The strong federal and state support for environmental management systems provide opportunities for those representing regulated entities to attempt to find creative solutions to a number of permitting and enforcement problems. The appendices to EPA's strategy document of April 12, 2004 are a good place to start in looking for examples.

Michael B. Gerrard is a partner with Arnold & Porter and is chair elect of the American Bar Association's Section of Environment, Energy and Resources.

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