Food and Drinks Federation Newsletter Dec 2017: Legal Compliance
The extent of laws requiring compliance management for food and drink sector companies will clearly vary, but as a rule of thumb and to open up the extent of this issue, one would typically expect there to be around ten separate laws for a food and drink sector company in the waste category alone. Moreover, when the full extent of compliance management requirements for each individual law are defined and then aggregated, it is quickly apparent that environmental law compliance management is by no means a straightforward task. Throw in to the mix the variability in the timing of new laws being released and/or amended (despite the common commencement dates of April and October), and that devolution presents particular challenges for organisations with cross-border facilities, and the size and complexity of the task quickly becomes more apparent. That’s before we arrive at April 2019 and the UK exit from the European Union.
Demonstrating compliance with environmental law is a fundamental requirement for all organisations, regardless of size, sector or location. Whilst most have a good understanding of the need to comply with environmental law, it is not uncommon for less familiarity to exist with the consequences non-compliant activities, or how this can evolve to become a material factor in an organisation achieving its strategic business objectives. This is particularly relevant in the food and drink sector where many organisations are characterised by significant supply chain interest in environmental performance.
Environmental regulators have a range of sanctions at their disposal which can be used in combination and in increasing scale depending on the nature of the offence committed. However, one reason organisations have not always managed environmental law as a strategic business issue relates to the perceived impact the sanction can have on their business.
Taking fines as an example, as most organisations will be aware the landscape has changed significantly in recent years; principally since the introduction in July 2014 of the “Sentencing Council: Environmental Offences, Definitive Guideline”. This guideline has undoubtedly raised the profile of environmental law compliance management to a strategic issue for many organisations, in no small part due to the range of fines that can be applied (£450,000 to £3,000,000 at the higher end and potentially unlimited in the most significant of cases).
What is also particularly worthwhile of note in the guideline is the way in which fines are calculated. Whilst the size of the organisation (turnover) and harm to the environment are both indicators used to determine the fine range, so is the concept of “culpability” and it is important for organisations to remain familiar with how this term is applied.
In determining culpability, both the “Reckless” and “Negligent” categories have the following descriptions which are used to determine the scale of culpability and hence overall fine size; “failure by [an] organisation to put in place and to enforce such systems as could reasonably be expected in all the circumstances to avoid commission of the offence”.
This is a key issue to be familiar with as organisations continually face difficult and conflicting investment, expenditure and resource allocation decisions, coupled with environmental risk management investment sometimes viewed as a lower priority.
Food and drink sector companies are often disproportionately affected by supply chain performance requirements. Much of this is driven by the larger players including supermarkets, who are committed to working with their supply chain to manage environmental performance improvement. Whilst a significant driver for these initiatives is the larger players working to improve environmental performance in the life cycle of their products and services (which is typically much greater than that of their physical sites), covering issues such as carbon, resources, water, waste and biodiversity, environmental law compliance is typically also a core requirement.
Most organisations will be familiar with the requirement to address environmental performance in pre-qualification questionnaires and other business development correspondence. However, this scrutiny can often extend to the day to day relationship post contract award, including formal environmental frameworks with performance requirements that need to be achieved and then maintained.
What this means is that a breach of environmental law may influence the relationship with a key customer. As it is not uncommon for food and drink companies to have a significant proportion of products contracted to just a few customers, environmental law compliance management can quickly become a material issue affecting strategic business objectives. It is also common for the non-compliant activities of smaller organisations to be publicised in the media with referenced to their larger or more well-known customers or suppliers, for enhanced effect. As such, there should be a clear understanding of the relationship between environmental law compliance management and business development within all key levels and departments within the organisational structure.
Whilst managing compliance with environmental law can appear quite a daunting exercise, it can and often is manged effectively within food and drink sector organisations. Central to effective management is considered to be a recognition at a senior management level of its ability, if not properly managed, to become a material issue which can undermine existing and planned stakeholder relationships. Once this is understood, the provision of resources can be provided to ensure environmental law compliance management is embedded into the organisational structure and culture, and effectively managed.
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