March 01, 2016
Environmental Compliance Reporting: The Global Challenge
by Michelle Carvell
Originally a European phenomenon, environmental compliance reporting has now become a global responsibility. Manufacturers and businesses across the world are risking fines and reputational damage through non-compliance with waste legislation. This article explains how direct selling companies can best navigate these choppy legislative waters.
In the European Union (EU), legislation concerning resource preservation and reuse is mature and robustly enforced. Since the early 1990s, European countries have been implementing regulations established to encourage the recycling, recovery and reuse of packaging waste.
Across Europe, the responsibilities of manufacturers and businesses, with regards to waste compliance, are clearly defined. But in many areas of the world the manufacturer’s responsibility is less consistently enforced.
Indeed, awareness of the concept underpinning the EU’s waste compliance legislation, referred to as Extended Producer Responsibility (EPR), isn’t widespread outside of Europe. To make matters more complex, there is no single global standard for waste reporting. Even in the EU, each country has implemented legislation in its own way. This brings a huge level of complexity to the process and places a heavy compliance burden on multinational companies.
The potential knowledge gap places those U.S. direct selling businesses that distribute products in the EU at risk of fines and reputational damage as a result of non-compliance with legislation with which they are unfamiliar.
Extended Producer Responsibility (EPR) Explained
As a legislative concept, EPR requires companies to report on the amount of packaging, electronic and battery waste associated with any products sold and distributed. Companies also may be required to take environmental considerations into account when designing their products.
As EPR applies to product packaging across the entire lifecycle, manufacturers are required to consider the recyclability of packaging and the use of recycled materials in the manufacturing and sales process. In Europe, the legislation concerns the company “placing the packaged product on the market,” which could mean you as the manufacturer, or your distributors or partners.
In addition to the amount of products placed on the market, this complex reporting process also requires a detailed specification of all product packaging, batteries and electronics produced by manufacturers. This can require companies, particularly direct selling organizations, to report on potentially thousands of products.
However, the reach of EPR does not just stop with packaging. In the EU, the first electronics and batteries directives were passed in 2003 and 2006. These have seen recent revisions to their original mandate to increase targets and to bring more products under the legislative scope. By 2018, all electronic items must be reported.
Every Country Is Different
The biggest challenge for manufacturers is that, even in the EU, EPR obligations vary widely country to country. Many direct sales organizations are under pressure to meet strict legislative requirements on environmental reporting not only in the EU but many other countries, including Canada, Japan and Australia. This makes the environmental compliance process a highly complex undertaking. It is important to ensure accuracy throughout the process because inaccurate reporting can be costly.
Indeed, ensuring all data is submitted on time during worldwide EPR reporting cycles, which range from monthly to annual requirements, is crucial to avoid over- or under-payment of fees and to reduce the risk of penalties. Both rigorous data analysis and record keeping are essential to safeguard the smooth navigation of environmental compliance reporting.
The Devil Is in the Detail
The detailed data that a direct sales business must report varies, depending on where you have “legal entities” and your global distribution structure. In some countries the reporting is simple material tonnages (for example, the total plastic, paper or metal used); in others you may have to provide details about all the packaging components in a packaging bill of materials (BOM).
Additionally, in some countries you may be required to report product origin or to declare which step of the waste lifecycle they are at. For example, are you a packer-filler, brand-holder, retailer or “all of the above”?
Likewise, you may even find that items in your product range are excluded in some markets but included in others. Some compliance systems also have incentive programs. These either reward the use of recycled materials or provide discounted fees if you are promoting your products’ packaging recyclability.
An Evolving Concept
Waste legislation is constantly changing, as countries update their regulations on a frequent basis. This can vary from a simple fee tariff change to the introduction of new reporting categories or the addition of new items to the scope of the reporting process.
A few countries recently have made significant updates to their reporting requirements. For example, Austria has introduced a series of changes designed to share packaging waste costs across the supply chain. If Austria is one of your markets, you may now need to focus resources to analyze your exposure to the updated regulations, and to ensure compliance.
Easing the Burden
The global waste compliance process is a tricky undertaking but there are a number of ways in which it can be eased. The first step in determining your compliance reporting obligations is to get advice on what these may be within each of your markets. Different businesses across the world have different entry points, some with thresholds in place which can be based on volumes sold or weight of product placed on the market.
The business model followed by direct selling companies could expose your sales partners to be classified as the end retailer, liable to meet compliance costs, especially in countries such as the UK, where a “shared obligation” model exists. Unless properly addressed, this could mean that all of your partners in a multi-level retail model could find themselves having to collect data and report to national environmental agencies.
Meanwhile, outside of the UK, the obligation typically lies with the first importer into the market. Depending on the distribution structure of your company, this could mean products are directly shipped to the end partner from both within the country or abroad. This adds a level of intricacy which it is unlikely any of your partners would have access to, making the task of reporting very difficult for them to complete.
A second recommendation would be to ensure that you have access to your packaging, electronics and battery bills of materials. This means collecting and maintaining the low-level details about your products so that you have a clear understanding of how the product and its contents are shipped. This normally would be available in your internal manufacturing and/or sales databases.
Key pieces of information you’ll need to collate would include weights, materials and quantities about each piece of packaging. This level of detail needs to be maintained as a number of reports in the EU require information based on each individual packaging component. Thinking about the battery requirements, weights, quantities and chemistry are some of the most important data points which are needed. However, some schemes do have more specific requirements, such as a need to declare whether the battery is embedded or not in the product concerned.
Managing the Process
Compliance reporting is an expensive area requiring regulatory knowledge and systems expertise. The most significant option in managing compliance is to outsource it to professionals. This could involve using a specialist company to undertake analysis of sales, packaging and electronics data to compile the reports required to ensure compliance. Interpreting this sort of data on a daily basis means compliance experts can spot data gaps and anomalies and ensure greater accuracy for your company.
Global EPR legislation is robustly enforced and can hold significant penalties for companies which fall foul of the reporting regulations. Larger penalties are levied against those companies that fail to register their potential obligations, as this is viewed as anti-competitive and a form of tax avoidance. These fines can build up into five-figure sums and, occasionally, go even higher. Non-compliance is an expensive business option.
Michelle Carvell is Director Client Services at cloud-based environmental software specialists Lorax Compliance in the United Kingdom.