5 Steps for Environmental Compliance Due Diligence

A common motif across the regulatory landscape is the term “due diligence.” And for good reason: due diligence is a key element when it comes to meeting your business obligations under various laws and directives. 

Due diligence for environmental compliance

But what exactly is due diligence? According to the Oxford dictionary due diligence is defined as “reasonable steps taken by a person in order to satisfy a requirement, typically a legal requirement”. In the context of environmental compliance, this means investigating “yourself” to ensure you are meeting your environmental compliance obligations. 

While this may seem counter productive at first, the better your due diligence, the lower your risk of financial distress and market non-access, which can ultimately affect a company’s longevity. It prepares you for audits and provides transparency so that the compulsory information is reported and accessible. 

Due diligence is vital to successfully navigate the growing number of rules and regulations that exist and will enter the market. Not only can it help you avoid legal consequences and improve operational efficiency, it can also help manage any reputational risk a mistake might incur. For businesses who want uninterrupted entry into target markets, it’s imperative to get in front of compliance fast and early. 

Who does due diligence apply to?

Due diligence applies to a wide variety of industries and goods, including medical devices, children’s products and electronics. If you’re past the startup stage and working in a company with established products and markets, it’s likely that you already have a compliance program in place that includes a basic due diligence plan. But in the case you aren’t, here’s a handy overview to getting started:

1) Getting started: how to set up a due diligence program to tackle your environmental compliance goals

There are several levels to these compliance programs and due diligence efforts. Though your company must decide what level of risk they are willing to engage in, a key component of compliance success will hinge on a well-rounded due diligence aspect.

Getting started: understanding which regulations apply to you

The first step in any due diligence strategy is to understand the compliance matter and your products. This includes:

1. Knowing which regulations or directives apply to you
2. Which of your products these regulations and directives apply to
3. All the key players involved in the compliance effort (from regulating bodies to enforcement agencies to even members of your own team)

This is often the phase where it’s good to bring onboard a compliance advisor, either internal or external, if you don’t have one already. While you might be tempted to handle compliance internally, perhaps to save costs or maintain control over the process, utilizing a professional offers distinct advantages.

Environmental compliance is a very broad topic and there are numerous regulations and directives out there on many diverse levels. The scope of these rules vary, and it’s crucial to understand exactly what standards you need to operate within. Compliance experts possess specialized knowledge and expertise in navigating complex regulatory landscapes, and their expertise will help you effectively identify what parts of your product are in scope for any given regulation. Understanding what obligations you have for importing, manufacturing, reporting, labeling and notifications are key points that can make or break a compliance status.

2) Collecting the necessary documents

The next step is to collect all necessary documents relevant to the compliance event(s) identified in step one. If you’re doing this for the first time, this may be a daunting task, but the more you perform these responsibilities, the easier and quicker they will get. These documents may consist of publicly available information, a database of information, or private information gained from somewhere up your supply chain. 

To be effective, you will need to ensure your data in your bill of materials is organized and accurate. Be able to identify your own parts, where they were purchased, who made them and what the original part numbers were. Upon purchasing, you may have also been offered documentation on those parts as well, so it’s critical to have a tremendously disciplined purchasing history as well as an extremely well-organized part library. Having this level of traceability in your supply chain allows for you to know where to look and who to contact when it comes to finding compliance information. It can save you weeks’ worth of work and headaches just to identify a single part’s history. 

When you start with publicly available information, it can help narrow down the harder outreach efforts later and lead to higher levels of success. Once you have exhausted the first round of public information, you will need to reach out to the necessary parties to contain the remaining information needed. It’s imperative to ensure you have the correct information if you want to be able to reach out to the right contact in the appropriate department for the answers you need. It’s also important that you are clear in your communication requests and that the supplier understands what information you are looking for. The better you do in step one, the easier this communication will be.

Once all your information is collected, it will need to be analyzed and reviewed to ensure it’s acceptable and up to date. Every company will approach compliance in a unique way, and when reviewing the information you collect you will find there are many different ways to format and organize it. Although there are industry standards for reporting compliance information, they aren’t mandatory. In fact, more common than the IPC 1752A standard, are company declarations or certificates of compliance or non-compliance. This is typically a blanket statement from a company that covers all products. There are also product level declarations as well that will list out parts and the information related to them. Some companies may even release test reports from third party laboratories that show the presence or absence of specific substances. Other companies may also rely on material standards or material grades to provide the information requested. The best form of information given is in the form of a full material declaration. 

A full material declaration (also called an FMD) will list out all substances used in formulation of a given part with concentrations. This allows you to identify any substances for any regulation or directive, current or in the future, because you will not have to recontact after a rule or regulation updates. Accepting all these formats will allow you a greater chance of success in your due diligence efforts, but there are key things to identify in order for these formats to be acceptable. Acceptance criteria may vary from rule to rule, but in general a good document will check several boxes regardless of the demands. The document should always be clear in regard to:

• What company it’s from
• What product(s) it covers
• For declarations: clear legal references to the most recent regulations and directives covered
• A clear compliance status
• A date
• Name & title of contact
• Signature
• Secure format that doesn’t allow for changes

The strongest compliance documents will leave little room for doubt and demonstrate their own due diligence in strong and clear messaging that holds legal weight and responsibility. Variations of this list may exist and some documents may not check all the boxes, but you will need to determine what level of hazard the document poses and if that’s satisfactory. You should have good software to organize these documents so that they are easy to connect to the related parts. A record of your acceptance criteria should be kept as well. For documents you do not wish to accept, it may be worth it to also document those as “rejected” with reasons so that they are not mistakenly accepted later by other team members. This information can also help you start to identify suppliers that you may decide are not trustworthy and should be phased out of your vendor list. This kind of information can be included in some technical files for compliance but can also be used for non-compliance audits as well.

3) Performing a gap analysis on the data you have

The third step is the need to perform a gap analysis. Ideally, you will have every document you ever need in the correct format and up to date when it comes to doing your due diligence. The reality is that that almost never happens. Identifying what’s missing from your data allows you to put a plan in place for what you will do for those pieces, regardless of whether or not the information wasn’t available, wasn’t from a trusted source, or wasn’t acceptable for some other reason. 

The best practice is to perform material chemistry reviews on these undocumented parts, usually with the help of a chemist or other expert with this specialized knowledge. Looking at the rules you collected in step one, start looking at the substances in those rules and determine their applicability to your part. For example, you wouldn’t find phthalates (a plastic softener) in a stainless-steel frame. By narrowing down the applicable substances, you can start to form risk profiles to determine compliance statuses. You can then take your high-risk parts and have them chemically tested in a third-party lab for final determination of substance content. While chemical testing is a concrete way to know what’s in your product, it can be very expensive and time consuming, so narrowing down which high-risk parts need it can help you save both time and money.

4) Make it easy to update and maintain your due diligence process

The next step is to ensure all of this documentation is organized and kept up to date. When done right, due diligence efforts can result in hundreds or thousands of documents and responses to keep track of. Ensuring these are associated with the right part and kept up to date is crucial to ensure all that effort isn’t wasted. It will also make it easier to apply singular company wide product declarations to multiple parts if applicable without reengaging the supplier again. It will also help determine the need for recontacting after updates (for example, if you have a full material disclosure) and exactly who to contact for the update if needed, based on your previous efforts.

5) Establish regular, scheduled due diligence reviews

The last step is to build an ongoing plan to periodically conduct checks on your compliance due diligence. This will allow you to more effectively identify and address issues in your compliance practices before they become bigger problems. Compliance is a matter where, even if everything is okay today, it may not be tomorrow. It’s important to plan for the worst-case scenario. Thus, it’s vital to keep track of your due diligence efforts, along with details of the documents possessed. If the worst does come to pass, these will assist as evidence to the regulatory body that every effort was made to guarantee compliance. Environmental compliance is not stagnant and there are updates frequently, often multiple times per year (REACH alone is updated twice a year). Having a documented plan in place for how you plan to monitor those updates and manage all the documents associated with a product when an update is applicable is one of the things a regulatory body will look for during investigations, whether that is pre-compliance reviews or a noncompliance violation event.

Because due diligence is a common theme amongst regulations, it’s your strongest tool in navigating compliance. While bare minimum efforts may have gotten you by yesterday, they are inefficient and could open you up to ramifications tomorrow. Building better due diligence programs solidifies the foundations of compliance efforts and makes facing new rules and regulations easier down the road. It’s important to find a tool that can help in all aspects of your due diligence program and allow for management and updates of those living documents. It saves you time and money in the long run and demonstrates to authorities that your company has made great efforts to ensure product safety. Even in the event of non-compliance violations, a good demonstration can aid in your defense and reduce the penalties faced, while a bare bones effort can be met with harsher consequences. 

In summary

Establishing a robust due diligence program for environmental compliance is essential for businesses aiming to navigate regulatory complexities and uphold product safety standards. By understanding applicable regulations, collecting necessary documentation, performing thorough analyses, and conducting regular reviews, you can mitigate risks and ensure compliance–or at least have the evidence of best efforts to comply.