Greening the Company – Educating businesses on corporate criteria for sustainability.

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The introduction of smart environmental policies supports legal enforcement and encourages competitiveness for an increasing number of businesses. Gone are the days when heavy producers were the only businesses concerned with environmental rules. During a new age of corporate sustainability, recent changes in both the U.S. government and private corporate sectors have initiated a new era in which compliance with environmental legislation transitions from a guideline to a requirement for a good number of businesses. Many businesses and public entities are now expected to trace and monitor sustainability metrics to ensure legal compliance, even as organizations need to establish and execute strategies in the areas of governance, jobs and safety. Moreover, in order to stay competitive, many forward-thinking businesses are now adopting environmental policies, although this is not yet a legal requirement. The new corporate sustainability standards and recommendations to guide organizations on how to implement strategies, escape accountability and achieve the new green economy should be remembered by in-house lawyers.

Regulatory action and discussions are underway, while 2010 started without a comprehensive U.S. federal climate legislation or legally binding international agreement. Despite the failure last December of the United Nations Global Climate Change Conference in Denmark to include some binding laws for reducing greenhouse emissions (‘GHG’), nations will continue to work towards a global climate treaty. In the U.S., Senator John Kerry (D-Mass.) proposed a bi-partisan bill that could put the parties together and ultimately pass a replacement climate law.

In the meantime, businesses cannot afford to take a seat back and await definitive legislation in this area, as a replacement federal executive order, EPA regulations, SEC guidelines and personal sector initiatives have come into force that relate to a good type of company and public agencies. All organizations that are subject to these new regulations should take action to ensure compliance by integrating them into their planning.

Executive Ordinance 135144

On October 5, 2009, President Obama signed Executive Order 13514, titled Federal Leadership in Environmental, Energy, and Economic Efficiency. This Executive Order requires all federal agencies to store their GHG emissions, set targets to reduce their emissions by 2020 and develop an idea to achieve a good range of sustainability goals, such as increasing energy and water efficiency, reducing waste, reducing the use of fleet petroleum, supporting sustainable cities, creating and sustaining high performance.

A 30 percent reduction in fleet fuel usage and a 26 percent improvement in water quality by 2020 and a 50 percent waste recycling and diversion rate by 2015 are other environmental goals under the order. It is also necessary to enforce the 2030 net-zero-energy building requirement under the order. A senior sustainability officer responsible for compliance with the order must be named by each agency. The Chair of the Council on the Environment shall report to the President on the priorities and performance of the agency.

“As the most important consumer of energy within the U.S. economy, the federal can and will lead by example when it involves creating innovative ways to scale back greenhouse emission emissions, increase energy efficiency, conserve water, reduce waste, and use environmentally-responsible products and technologies,” President Obama said in a statement.

As global climate change legislation makes its way through Congress, saving taxpayers cash in the process, the Executive Order was designed to jumpstart a transition to a clean energy economy. The order would have a huge effect backed by the sheer scale of the Federal Government: it occupies nearly 500,000 buildings and operates almost 600,000 cars.

A green procurement policy requiring 95 percent of recent federal contracts and acquisitions to meet sustainability criteria that encourage environmentally friendly goods and technologies can be another main component of the Chief Order. This also carries loads of weight due to the immense purchasing power of the nation, which reaches a good $500 billion spent annually on goods and services. The Chief Order tasks the General Services Administration (“GSA”) with investigating the feasibility of monitoring GHG emissions from suppliers. Recommendations could include requiring manufacturers to register and report their attempts to scale back emissions with a voluntary GHG emissions registry. For “products manufactured using processes that minimize greenhouse emission emissions.” preferences or other incentives may be offered.

The Chief Order requires the GSA to ensure that 95% of the most recent contract actions, task orders and distribution orders for goods and services (excluding arms systems) are energy-efficient (ENERGY STAR® or FEMP-designated), water-efficient, bio-based, environmentally advantageous (EPEA Environmental Assessment Tool) for the procurement of electronic products and services

At the end of January 2010, the GSA reported that it had already drawn up energy service agreements with 18 companies to scale back its use by means of energy retail audit companies, clean energy tracking and usage. The GSA has also taken steps to make the federal fleet more effective with the purchase last year of thousands of new vehicles using $210 million in stimulus funds. Approximately 6,500 of the vehicles—a variety of hybrids, flex-fuel and four-cylinder—are allocated to U.S. mail, which operates the largest fleet of other fuel vehicles in the world. The GSA projected in 2008 that its acquisition of 15,000 power management software seats would save up to $750,000 annually.

Eventually, as a contract condition, all federal transactions would include the calculation of GHG emissions. The primary move, which is a component of Executive Order 13514, is to create a voluntary system for state contractors and vendors to report GHG emissions. The willingness of contractors (and subcontractors) to live and minimize their GHG emissions and supply energy-efficient goods and services will become a critical consideration for government contract winning.

SEC Global climate change advice Disclosures

On Groundhog Day, 2010, the U.S. Securities and Exchange Commission (‘SEC’) released Interpretive Release No. 33-9106 to provide guidance to public companies on the disclosure standards of the regulator regarding global climate change issues. The guidance, which immediately became successful, refers to all or any government companies.

The release did not establish new conditions for disclosure or change existing requirements for disclosure, but was released for clarification purposes. In particular, four areas that will trigger disclosure obligations under current SEC requirements are discussed in the guidance:

(1) Whether the effect of the planned or current global laws and regulations on climate change in the U.S. and other countries which have a significant impact on the economic situation or operations of the company;

(2) Whether the company would be impacted by international global climate change agreements or treaties;

(3) if a business is likely to face indirect opportunities or threats resulting from legal, technical, political and scientific developments in global climate change (such as changes in the company’s demand for goods/services, increased competition or harm to its reputation); and

(4) If an organization faces possible physical impacts on its industry from global climate change (such as disruption to operations caused by weather or supply interruptions, increased insurance, or water availability and quality).

The SEC guidance provides that, under the outline of Business (Item 101), Legal Proceedings (103), Management’s Discussion and Analysis (303), and Risk Factors (503(c)) parts of company reports under Regulation S-K, these global climate change disclosures may also be needed.

The SEC noted its concern that some businesses had already provided third parties with information on global climate change on a voluntary basis and wanted to ensure that similar disclosures were made in SEC filings, as would also be required under SEC regulations. Independent organizations such as the Climate Register and thus the Carbon Transparency Project maintain data on corporate global climate change, while the worldwide Monitoring Initiative’s foremost dominant reporting regulations are those of (GRI). The GRI, which was launched in 1997 with the intention of “enhancing the standard, rigor, and utility of sustainability reporting,” introduces requirements that would ultimately serve as the definition of widely agreed sustainability reporting standards. As of 2008, quite 1,000 companies from quite 60 countries registered with the GRI and were issuing corporate sustainability reports using its reporting system.

In its analysis of company filings, the SEC specifically stated in its comments on the guidelines that it would specialize in disclosures on global climate change. Public corporations are best advised to regard this guideline as binding as a practical matter; if they have not revealed climate threats in the past, they would have to start setting disclosure protocols as a guide for all potential applicable filings using these steps.

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