What is the use of a house if you haven’t got a tolerable planet to put it on? ― Henry David Thoreau

What is the purpose of compliance regulation?

To protect the environment, governments worldwide have developed laws, regulations, standards, and other measures to address the many direct and indirect effects humans have on it. These are referred to as environmental compliance or environmental regulatory compliance, and their aim is to protect not only environmental health but also human and animal health. These regulations have numerous targets, including chemicals, buildings and products, and they affect many different industries such as medical, children’s products, and electronics.

The most common target of environmental compliance tends to be chemical substances that have been shown to be toxic to human and environmental health. 

By focusing on these substances, regulations can limit exposure to people and the environment, including restricting their release into air, water, and soil, as well as their use in manufacturing various items and products. As a result, products become safer for people to interact with, as well as safer for the environment they typically end up in, whether accidentally left outdoors or deliberately placed in landfills or waste management systems.

What makes environmental compliance so complex?

Environmental compliance frameworks are intricate in nature because of the number of organizations they touch from start to finish. There’s the government or agency that publishes them, the bodies responsible for enforcing them, and the individuals or businesses that must comply with them. Environmental compliance regulations are unique in that despite being geographically bound, they affect organizations around the world with their requirements.

Here are some examples of this complexity:

• The Stockholm Convention’s persistent organic pollutants treaty is an example of an international level of environmental compliance that covers multiple countries and nations. 
• The European Union has several regulations and directives, such as REACH and RoHS, that covers 27 countries, yet leaves the enforcement and implementation up to the individual member states. 
• The United States has federal levels of regulation, like TSCA, but also has state level requirements such as California Proposition 65. 

And that’s just the start. Some of the federal regulations also get enforced down to local levels or rely on independent post market monitoring companies and individuals to ensure compliance. 

In response to the growing number of compliance regulations, plus combined pressure from consumers and leadership alike, companies are beginning to implement internal measures to meet compliance goals. Some distributors and realtors are even looking to go beyond the bare minimum in order to maximize their partnership opportunities, market access, and consumer loyalty. 

Who does environmental compliance apply to?

Because of the wide range of companies affected by compliance obligations across many industries, there are a lot of players involved. The most common roles impacted by these rules and regulations are manufacturers, importers, downstream users, consumers and waste management entities. Manufacturers and importers are often the most directly affected and often hold the most duties to ensure the products they produce and bring into the country apply to the rules set out in those countries. Downstream users often have the responsibilities to ensure they are selecting compliant products as well, either in their professional services or in further designing products. Consumers themselves also have the opportunity to practice environmental consciousness by choosing to select products that demonstrate environmental practices.

The growing importance of compliance in business

Now more than ever, consumers are adding in environmental factors when considering where to place their business. A 2020 McKinsey US survey found “more than 60 percent of respondents say they’d pay more for a product with sustainable packaging.” Highly praised products and companies are those with environmental protections and programs in place. There are often reporting sites or publicly available information about companies that violate various rules and regulations. This information can tarnish a company’s reputation and result in a loss of public trust. Environmental negligence can be even more impactful on publicly traded companies as ethical investing rises in predominance. 

Environmentally-friendly products aren’t just a legal obligation anymore. To consumers and shareholders, they’re a moral one. And leadership is hearing the message. A 2023 Thomas Reuters report on the state of corporate ESG found that 71% of c-suite leadership feel “investing in ESG remains a top corporate priority.”

The cost of noncompliance: financial, social

The reality is that noncompliance is becoming more and more difficult to ignore. And the penalties for it are multiplying. 

Fines of thousands to millions

Each regulation typically has fines associated with each violation that are often per day the violation occurs. The range of these fees can be anywhere from thousands of dollars upwards to millions of dollars. This doesn’t include the fees that may accumulate from lawsuits that may result from these non-compliance events. One violation event can result in investigations into entire product catalogs, which can be an additional cost and exponentially increase the cost of non-compliance. This could multiply the dollar amounts associated with fines as well as result in company shutdowns, product recalls, licenses revocation, complete product redesigns as well as remediation actions for human and environmental impactions. Continued patterns of non-compliance can also be reasons for regulators to increase restrictions, applications & violation fees on entire industries. These consequences can lead to major headlines and back to condemnation in the public eye and influence investors.

Loss of business partnerships

For all its popularity, though, meeting ESG and environmental compliance standards is still a major hurdle for many. To manage this problem, many companies are creating internal compliance guidelines that they expect their suppliers or manufacturers to also adhere to. In other words, businesses are holding their partners accountable in an attempt to foster greater compliance and minimize risk. 

For suppliers and manufacturers though, this means get with the program or else. Failure to comply may end up with some companies getting blacklisted from opportunities as businesses struggle to protect their image and products from an expensive–and publicly embarrassing-fate.

With the growing demands for environmental responsibility, remaining ignorant is a luxury no one can afford.

Key challenges

The regulatory landscape is changing at a more rapid pace now than ever seen before. The earliest regulations, pre-1970s, were often aimed at governments rather than industries. Between 1970 and 1980, often referred to as the environmental decade, mandates began to emerge for agencies to prioritize environmental concerns and implement regulations targeting pollution across various domains including water, air, soil, and toxic substances. Notable among these was the United States’ Toxic Substances Control Act (TSCA) of 1976.

Major regulations emerge in the 21st century

However, the environmental regulations struggled due to a lack of funding that led to unenforced rules, unclear requirements, and a lack of data and scientific knowledge. It wasn’t until the twenty-first century that real compliance reform and a general restart of environmental policy took place. Major regulations and directives such as the Restrictions of Hazardous substances (RoHS) and the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) came into effect in 2002 and 2007, respectively. The overhaul of TSCA also happened in 2016. As studies revealed the nature of chemical substances' effect on human and environmental health, the rules and regulations started to update more frequently.

Unclear regulation policies create more challenges

These updates added additional substances as well as changed the scope and the compliance targets. New players were now being held responsible, previous industry standards were needing to change, new rules came into effect and general frameworks were shifting. This has sparked a new era of environmental laws that are evolving quicker in response to new underlying concepts and principles of human and environmental health impact. However, these updates and changes are not always clear, and policy makers and organizations have often faced backlash for new regulations. Oftentimes the backlash has been so strong it’s sent policy makers back to the drawing board or forced them to publish additional guidelines. Some of these rulings have even gone to court to have judges produce clarifying rulings and statements on what compliance looks like. From confusing regulations with multiple updates per year, to yearly changes to directives and major shifts in scopes, it can be hard for companies to keep up and keep the right rules on their radars and in their environmental programs.

The growing expectation of “due diligence” from businesses

Aside from a shifting compliance landscape, there are other challenges for product compliance in various industries. A common theme among compliance responsibilities is due diligence, or requiring companies to be responsible for the knowledge of what is in their own products including parts that they themselves did not manufacture. Because of the complex framework of a product lifecycle and the players involved, material content in products can be a difficult thing to know. More and more companies are needing to rely on supply chain communication to fulfill these regulatory obligations. However, the exchange of information isn’t always clear or forthcoming, despite the publication of industry reporting standards, such as the IPC 1752A, which describe what that information is and how to format it. 

Each piece of communication also needs to be reviewed to determine what the communication is and if it is relevant to the questions asked in the first place. Oftentimes, suppliers won’t even have the information available, whether because it’s not known or it’s confidential. While more and more companies are embracing or requiring full material disclosures, instead of temporary statements, to help aid in compliance tasks and streamline communications, companies find themselves managers of the material content of all their products and become overwhelmed with how to deal with that as well.

Regardless of the status of material content knowledge a company has, there are still more hurdles. There are hundreds of rules and regulations out there, at various levels. Businesses must be aware of them to know they exist, but a major problem facing industries is the lack of centralized information and resources. Policies are published and announced via government channels, but without knowledge of these channels, companies will remain ignorant to the information. And even if one manages to hear about the regulation, reading the language can be tedious as it’s filled with lots of legal statements. 

While the European Chemical Agency (ECHA) has done a great job with publishing guidance documents surrounding regulations and directives that fall under its umbrella on a centralized platform, it’s not a standard practice to have information hubs for these regulations. Frequently, companies find out about regulations after they are found to be in violation of them, because a majority of the rules favor inaction to be a default compliance statement in itself. It would take a staggering amount of time to research every policy out there and determine if it applied to any given company and to monitor them all for changes, and individuals who do this typically require advanced degrees in environmental science or environmental policy. It’s costly and time consuming for companies to manage environmental compliance, but due to the risks, it’s mandatory.

How can companies tackle the tangled regulatory landscape?

Because environmental compliance is mandatory, companies are now searching for solutions on how to approach these rules and regulations. There are many different strategies that companies develop in order to cope, but there are key components that successful tactics share that don’t rely on blind luck or oversight. A comparison of several regulations will reveal lots of overlapping ideas. Previous patterns show that once a larger country implements a system, smaller countries will also adopt that system with variations. By starting with the larger rules and regulations in more prominent countries, you will find yourself meeting compliance obligations of other countries as well, although you should still make an effort to be aware of market requirements. Large companies will often hire a dedicated compliance expert or even teams of experts that consist of lawyers and scientists. 

Collecting data at the start of the design phase

Another key piece of dealing with environmental compliance is knowing the value in information. Oftentimes, companies find compliance much easier to deal with when they have been collecting and managing data from the beginning of a design phase rather than at the end. While environmental compliance is often an afterthought of design, it can be relatively costly to redesign a product because of non-compliant parts. Cross referencing part compliance as design phases happen can alleviate some of the burden, but only if evidence of that compliance is also managed in an efficient way. Compiling technical documentation by digging through system folders is the modern-day equivalent to digging through filing cabinets for a single sheet of paper. Many document archive programs exist now, creating easier-to-search libraries of information, but that’s only one piece of the puzzle. Stagnant libraries can lead to even more hazardous problems when dealing with compliance. It’s important to monitor regulations for changes and updates to ensure the parts you are using remain compliant or can be identified when changes render it non-compliant. Companies must figure out how to organize living documents and cope with the pressures of changing regulations.

Improving data collection methods

Of course, in order to manage the information, you also need an efficient way of collecting it. As mentioned before, a major challenge in due diligence requirements is communication in the supply chain. Managing suppliers and their contacts can be a major undertaking when that list is in the thousands. You must monitor who you have spoken to, when, if they replied, and how they replied. Documents and responses must be reviewed and scrutinized before being filed away into the compliance information for your parts. This can take months of dedicated work in some cases. While larger companies may be able to afford dedicated positions for this type of work, it’s not feasible for everyone to do. And while there are companies out there that offer services to do this for you, it’s not guaranteed to provide you with 100% of the information you need.

Building evidence-based risk strategies

For the parts where no information is provided, companies have to start working on evidence-based risk strategies. They need to have access to industry knowledge about material chemistry as well as industrial chemical knowledge about the restricted substances. This kind of knowledge is extremely specialized and hard to come by, as not every company has history with the products they use, access to chemists, regulatory experts to provide advice on how to address gaps in compliance, or even environmental lawyers for legal advice.

The last resort: chemical testing 

Chemical testing is usually the final frontier of compliance programs. Chemical testing labs can use various methods to detect substance content, that vary from non-destructive screens to destructive quantifications. However, this kind of testing can be extremely expensive both in terms of cost of testing and in the amount of product needed to be destroyed for testing. Between this and the time required for testing to take place, chemical testing is usually only completed on certain high-risk materials, which are identified during those risk analyses. These risk profiles and decisions are critical for compliance programs, so it’s important that companies have access to someone familiar with both the rules and the material science.

In summary

If one thing is clear, environmental compliance will continue to grow and become more prevalent to all industries. While policy makers may or may not learn from previous mistakes and burdens, there’s no guarantee that the information will become any less confusing or widely available. Companies will need to continue to adapt to the changing landscape and additional hurdles presented to avoid major negative consequences that can affect long term viability. Companies that successfully navigate these issues will inevitably be those with the most robust compliance programs that cover knowledge bases, record keeping, living data and have flexibility. The sooner a company makes environmental compliance a priority, the easier it will be to address the new challenges that compliance evolution will bring and avoid the staggering cost of non-compliance events.

How can Z2Data help?

Z2Data’s end-to-end software solution empowers companies to effectively manage the design, supply chain, and sustainability of their products. Built upon the most comprehensive component database in the industry, Z2Data's solution gives teams the critical data they need to stay–and remain–compliant with existing regulations like REACH and RoHS as well as new emerging rules and regulations. With Z2Data, teams can easily see which parts are compliant, which aren't, and which ones need attention first–saving teams time and effort in their compliance processes.

Want to see how Z2Data can help you find and manage your compliance goals? Schedule a demo with our product experts to learn more.