Voluntary environmental audits: are you minimising your risk?

Environment eBulletin - 28 February 2013

Summary

Corporations looking to improve their environmental compliance or assess their environmental liabilities after a property acquisition often undertake some form of environmental audit on a voluntary basis. With environmental compliance being a key focus for many corporations in 2013, it is timely to note what opportunities exist to minimise risk of prosecution for environmental offences if a voluntary environment audit uncovers unfavourable findings.

In many Australian states and territories, corporations can invoke a legal process to provide some comfort when embarking on a voluntary environmental audit process. As breaches of environmental law or an environmental licence can expose corporations, and potentially directors and environment managers, to both civil and criminal liability, it is important to be aware of the protections that exist and seek strategic legal advice prior to commencing a voluntary audit.

This eBulletin reviews the different approaches to voluntary environmental audits across Australia. It is relevant to those who want to understand the status of their corporation's environmental compliance or have recently acquired a property.

 

 

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What is a voluntary environmental audit?

An environmental audit is a “systematic, documented verification process of objectively obtaining and evaluating evidence to determine whether specified environmental activities, events, conditions, management systems or information about these matters, conform with audit criteria…” (Australian Standard AS/NZ ISO 14010 / 1995).

An environmental audit will typically assess whether an activity being undertaken is causing environmental harm; whether there is or are likely to be contraventions of legislation, licence conditions, codes of practice or policies.

From the compliance perspective, the goal of an environmental audit is usually to determine whether improvements can be made to organisational processes. Unlike mandatory environmental audits, where a regulator compels a corporation to undertake an audit, a voluntary environmental audit is instigated by a corporation on its own initiative.

In the context of an acquisition, undertaking a voluntary audit has two key attractions: 

  • it provides a legal mechanism by which a new property owner can implement a 'house-keeping' programme with reduced risks of prosecution for historic non-compliance; and 
  • it may assist in the formation of the indemnities sought prior to acquisition by stipulating a process by which indemnities will be managed after the new owner takes possession.

Critically, a post-acquisition voluntary audit can provide the impetus to proactively identify environmental issues within time limits imposed by the indemnities and enable the rebuttal of inaccurate warranties and representations given by the seller during the sale process.

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How are the results of voluntary environmental audits protected by legislation in each of the states and territories?

In each Australian state and territory - except Victoria and Western Australia - it is possible to voluntarily embark on an environmental audit process under which a corporation can minimise the risk of prosecution should non-compliance be identified.

The legal processes facilitate a method of uncovering and addressing environmental non-compliance issues with reduced risk of prosecutorial activity. The level of protection offered and the formalities that a corporation must comply with vary in each jurisdiction. The main method by which the various states and territories seek to encourage voluntary audits is by making the results of a voluntary audit inadmissible as evidence against the corporation in any prosecution for an environmental offence. In some cases, the protection also extends to the supporting documents, monitoring or sampling work prepared for the audit. Legal professional privilege may also apply in each jurisdiction, depending on the circumstances.

The table below sets out the regime in each state and territory.

Voluntary Environmental Audit Table

 

What your business needs to know

To maximise the protection available when conducting a voluntary environmental audit, a corporation should, prior to conducting an audit: 

  • engage a lawyer to provide advice on what protection is available to the corporation when conducting a voluntary environmental audit; 
  • consider a strategy for engagement of environmental consultants to undertake and prepare the voluntary audit report, particularly in circumstances where legal privilege may apply; and 
  • if the audit will be undertaken in the ACT, South Australia, Tasmania or Queensland, prepare and submit an application to the relevant regulatory authority for approval.

 

Remember…

Despite these legal protections, if a voluntary environmental audit does uncover environmental harm or non-compliance, there may still be obligations to notify relevant regulators. For detailed advice on audit protection and reporting requirements, please contact our team.

Author/s 
Geraldine Cini, Lawyer and Dru Marsh, Lawyer

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