The vote was 237 to 170. Yesterday, the US House of Representative passed an auto bailout plan that will provide $14 billion to keep GM and Chrysler from going into bankruptcy, at least for now. Many policy makers and politicians talk of an auto industry restructuring as the best solution, and an
immediate infusion of cash is only prolonging ultimate collapse. I begin this blog with the auto bailout not because it is timely news, but because the auto industry, the big 3, and their network of thousands of suppliers, is one of the oldest industries in America. The auto industry has, next to big oil and chemical (which have enabled the 20th and 21st century growth of the auto industry), a legacy of environmental liabilities that lay beneath the corporate mansions that have brought us an industrialized world through mechanization, modern machines and assembly lines.A Tale of Three Knights
The auto industry was front and center in the industrial revolution of the past century, enabling economic prosperity, job growth and resulting in numerous societal benefits as a result. We can not argue that the industrial revolution and its triage of knights, auto, oil and chemical, have not led to some incredible quality of life advancements across the past 100 years. In fact these industries have seeded new advancements in materials science, chemistry, environmental science, energy storage and propulsion technologies and even health sciences. But a century of growth and advancement has not come without a social and environmental cost either.
Environmental liabilities in the form of Brownfield’s, hazardous waste sites, chemical spills, landfills, or contaminated earth with uncharacterized chemicals and materials are the post-industrialization scars that remain to be healed. In some cases environmental liabilities were created deliberately, illegally and many of those companies and the individuals that created those ills, have been prosecuted, fined and sent to prison. In other cases (and in most cases), environmental damages were the result of our modern machines and industrialized culture, growing at a fast clip, and in the absence of corporate-and-government policies and rules that establish requirements on pollution. In addition, advancements in science and technology and greater understanding of the transport and impact of chemicals in the environment and on human health has influenced an entire generation of environmental scientists and new rulemaking on what level of chemical accumulation in our
land, water and air is acceptable for human and ecologic health. These advancements, for example, now let us measure chemical attenuation at very low levels, over time, and at specific sites to determine if remediation technologies are having an impact on cleaning up the soil.The three knights, auto, oil and chemical, have been cleaning up their environmental liabilities through rigorous corporate site remediation programs for decades. And, our knights have made incredible progress. We now have a cleaner and less polluted earth due to the combined efforts of hundreds of multinational and domestic corporations that diligently characterize environmental contamination at their facilities, develop site cleanup plans, and engage with numerous stakeholders from the communities in which they operate, government, academia and environmental engineering to cleanup, redevelop and improve contaminated properties.
But with all the progress industry has made, there remains much more to do. There are thousands of sites on the national Superfund registry and thousands more that need to be assessed, characterized and put on a path of remediation. And, there are still sites being discovered. Take for example the early 2008 discovery of a WWII munitions site in Florida that left a Florida neighborhood wondering how their homes were ever built there. Or the 2007 discovery that vapor intrusion was affecting a Victor, NY neighborhood and trichloroethane and trichloroethene being the prominent chemicals involved. By the way, the US government, through research conducted by the Department of Energy, Department of Defense and NASA has, like industry, created enormous environmental liabilities that are in the process of being cleaned up or are, in some cases, awaiting action. What lies beneath government land is just as ugly, if not uglier than what lies beneath land owned by some of the world’s most prominent brand names.
For many domestic and multinational corporations the number one exposure they have with regard to financial risk is their environmental liabilities and legacy. Automotive, oil and gas, chemical electric utility, railroad, and other industrial machining and manufacturing companies are highly at risk to potential erosion of shareholder value or even their ability to obtain credit due to their environmental liability profile.
Now, many firms don’t want you to know that, and I suppose one cannot blame them, particularly during a time of financial uncertainty like we are in now. So, no corporate names will be mentioned here. However, if you look at the 10-K SEC filings for 30 companies and build into that analysis a cross section of auto, chemical, oil and gas, electric utilities and other manufacturers you will discover that the environmental reserves for these 30 companies total more than $8 billion. And, on average, these 30 companies spend in excess of $1.5 billion per year to manage their
environmental liabilities. It is not uncommon for individual companies comprising the three knights, auto, oil and chemical to spend in excess of $200 or $300 million per year on environmental liabilities and have an environmental reserve exceeding $1 billion. According to USEPA’s 2008 Superfund National Accomplishments Summary “EPA secured private party commitments of nearly $1.9 billion in Fiscal Year 2008 to fund cleanup work. Of this amount, potentially responsible parties agreed to conduct $1.575 billion in future response work, and to reimburse EPA for $232 million in past costs.” Site remediation is big business, and it is growing. In addition, existing and new accounting rules from the Financial Accounting Standards Board (FASB) and the U.S. Securities and Exchange Commission (SEC) now require publicly traded companies to disclose their environmental liabilities and estimating the financial costs for those liabilities by what is estimable and probable. As if companies don’t have enough to think about during a financial crisis, management of environmental liabilities, accounting for those liabilities and ensuring there is money to pay for the cleanup of those liabilities is a business enterprise unto itself. So much so that some oil and chemical companies have spun off entirely separate businesses that are billion dollar enterprises that cleanup their environmental contamination.Healing our Wounds: Stop Doing Stupid Things on Purpose
So, let’s revisit the auto bailout for a moment. In this time of credit and financial crisis, corporate America is hurting. Product is not being sold, jobs are being cut, and some companies are near collapse which could result in a cascading affect on their suppliers and throughout the economy. It is logical that jobs and economic prosperity is the #1 issue among the new administration, policy makers and most Americans. However, let’s not forget what lies beneath the surface of this financial turmoil. A century of environmental scars pose considerable human health and environmental risk to the current and future generation. If our industrial leaders that brought us jobs, economic prosperity and quality of life go under; who pays for their legacy buried beneath our feet?
For better or for worse, we are intrinsically linked to these companies more that we think. It is actually in our best interest to see them revive and survive this financial crisis, reinvent themselves, and continue to cleanup their environmental liabilities. Otherwise hundreds if not thousands of remediation sites, representing billions of dollars will fall into the fiscal responsibility of government and ultimately, taxpayers. So do we pay now, or do we pay later?
This brings me to my final thought on this December morning. As the new administration takes office this January I encourage them and others that influence politics and governing, to make economic stimulus and environmental stimulus one in the same. We can no longer afford to be shortsighted when it comes to creating jobs and economic growth. As one corporate remediation leader once put it to me, “…we [industry and government] need to stop doing stupid things on purpose”. As a society we know too much. We have right the skills, technology and I believe political will to create a better world that ties economic
growth with environmental concerns. We must now leverage this financial crisis as an opportunity to avoid unintended consequences, by encouraging economic stimulus that incorporates clean technologies, incentives for environmental restoration and remediation, Brownfield redevelopment and the construction and redevelopment of critical infrastructure that both improves the environment and improves human health and economic prosperity.So as we weigh economic stimulus packages, like the auto bailout, with jobs and “business as usual” let us also weigh in “what lies beneath” within the context of those decisions. We have to stop doing stupid things on purpose. Let us consider the following options for moving economic stimulus and environmental stimulus plans forward simultaneously:
Greater advocacy for corporate site remediation is needed at all levels of government and within our communities. More awareness to the different and common challenges faced by industry is needed at all levels of government if we are to truly move beyond blame and toward a more economically vibrant and environmentally sound America. In many ways industry needs to come together toward this cause, and make their unique and common needs known. The complexity of site remediation and managing environmental liabilities is known by just a select few. But the impact environmental liabilities have on our urban landscape, the health of our children and environment, affects millions. Industry and government much work together to share ideas on how they remove institutional barriers to cleaning up contaminated properties and develop new models for working together.
More education and research and development for environmental engineering and site remediation will be needed to help America cleanup and rebuild a modern and more vibrant industrial infrastructure. Technology can take us only so far. In recent years the amount of emphasis on environmental engineering programs with a focus on remediation technology innovations has waned. Corporations have made investments in new remedial technologies and educating future practitioners of environmental remediation, however their investment has been constrained. There is a need for more government investment in R&D and remedial remedies to enable government and industry to collaborate on the cleanup of contaminated properties more effectively and efficiently. Working together, industry and government can educate the workforce of the future, deploy a green collar workforce and rebuild a new industrial complex that is cleaner and more efficient than what we are working with today.
The inclusion of sustainability principles into government and corporate efforts to clean up contaminated properties, and in the design of new infrastructure, facilities and products will be required for creating a stronger America. We cannot address contaminated properties without forethought toward why they were created in the first place. We can minimize, or completely eliminate, the creation of future contaminated properties by incorporating elements of sustainable design, operation and use into our modern industrial complex. This is needed in all facets of government and industry. To get us there any future infrastructure and economic stimulus packages need to fully consider the environmental implications of those packages, today and into the future.
The scars of our industrial past can be healed. Poking and prodding these scars for decades on end only leaves wounds unhealed. A holistic approach toward tying economic and environmental stimulus together can be an option for economic growth and environmental protection that reduces the risk of unintended consequences and maximize the hope and promise that is cresting upon America in the form of a new administration.
Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com
Want to get real about the future of energy, natural resources and capitalism, go to www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.
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