Does the ratcheting up of environmental standards mean a new era in green tape for SMEs? Darren Baguley reports. We've all heard of "red tape", but if the NSW Business Chamber (NSWBC) has anything to do with it, the term "green tape" is about to enter the lexicon. Just as red tape is a derisive term for excessive regulation and rigid conformity to rules that complicate decision-making processes, the NSWBC report released in August 2007, The challenge of green tape: Growth of environmental law and its impact on small and medium enterprises across Australia, posits that there is a danger environmental legislation will have the same effect on small business. The report acknowledges that big business is currently the focus of environmental regulation, but goes on to argue that "SMEs will increasingly be affected by the trend towards greater complexity in environmental laws at all levels of government. This will have the effect of making compliance a more costly and complex task, especially for those businesses that have not been keeping pace with the key environmental issues of energy efficiency, waste minimisation and pollution control." NSWBC CEO, Kevin MacDonald, says, "Twelve months ago we became increasingly concerned [about] the debate around climate change. SMEs are going to be hit by this as they often make the supply chains of large organisations. They need to be aware of what's going to happen and need to try and turn it around, and not just comply but make some money out of it. "What we found when we did workshops was that there was little or no awareness of the current legislation and regulation in place, what we're now calling green tape. We're not arguing against regulation or environmental legislation, we are just as much concerned about the environment. But we're saying if companies aren't fully aware of the debate, if they don't prepare themselves for what is going to happen, and if there is a complete explosion of green tape, it could become a nightmare. "SMEs are the least aware of what's going to happen, large companies have made their plans and already have internal sustainability and environmental officers. SMEs think that it's not going to affect their business, but it will through the supply chain." While both MacDonald and the report acknowledge that there are opportunities as well as costs for SMEs in potentially having to meet stricter environmental legislation, the focus is very much on making SMEs aware of the possible effects of a more stringent regulatory environment. "We've been talking about this since before Al Gore's visit," MacDonald says, "but what we found is that many SMEs are not even aware of current legislation and regulation, which has been increasing for a period of time, and the recommendations in the report are that we should be rational about this." Environmental consultant, Nicole Croker, says the report is an excellent overview and provides much needed information to SMEs. However, she notes that corporate sustainability pioneer and author of The Sustainability Advantage, Dr Bob Willard says that achieving compliance is the toughest part of the process of becoming a sustainable business. "The compliance stage is often the most costly and tedious and businesses get fed up with the whole process and don't want to move on to the next step. It puts them off wanting to do more because it's been such a pain," says Croker. "It is likely that environmental law will become more complex as we more fully understand our impact on the environment. We can see the trend towards more stringent regulations overseas, for example, in the EU with its Extended Producer Responsibility (EPR) and Waste Electrical and Electronic Equipment (WEEE) directives. "The key is to develop a model of educating businesses on environmental compliance, so that they do not see it as a burden and can quickly move on to benefit from the savings and opportunities of sustainable practices 'beyond compliance'. "We should not get bogged down on a debate about green tape as the complexity of environmental interactions will make any simplification of the process long and involved." One way to do this would be to actively identify ways to assist SMEs interpret and implement their environmental requirements on a local level, and promote information sharing between the five levels of environmental law: international, federal, state and local government, and Land and Environment Court case law. "The education process should include as its basis the importance of compliance in terms of risk reduction and the advantages of sustainable business practices," says Croker. "Models that are used to assist SMEs with other business matters should be examined to see if they can be used as the basis for the better understanding of environmental law." Nevertheless, at least one expert argues that the report is somewhat alarmist. University of Technology, Sydney, Faculty of Law, Director of Research, Karen Bubna-Litic, says, "All the states in Australia are looking at this regulation, they've got all these departments set up and it is somewhat of a concern to be labelling this green tape. The whole report is quite critical of regulations, but even just the label green tape is a little alarmist." Bubna-Litic also challenges a statement on page nine of the report that "any person" can bring civil proceedings to remedy or restrain a breach of the Protection of the Environment Operations (POEO) Act or, significantly, to restrain a breach of any other Act if it is causing or is likely to cause harm to the environment. Therefore, business must be aware of the risk of environmental prosecution, not only from regulators but from the general community, should they be deemed to be causing environmental harm." Alarmist response "I just find it alarmist," says Bubna-Litic. "The open standing provisions in the LEC [which this passage refers to] were introduced many years ago and [at the time] everyone screamed it would open the floodgates. But over the past 15 years since they've been introduced it hasn't been the case. We don't have huge numbers of actions being brought by individuals, and in the current version of the POEO Act, before any individual can bring an action they have to convince the court that the regulator has decided not to bring the action so they're the appropriate person to continue to bring the action." Bubna-Litic also challenges the report's proposition that environmental regulation and legislation is increasing. "I don't think they've made that case. International laws do not have implications on a day-to-day basis on SMEs, and for ones that are in markets such as the European Union, they would have done their research and accept it as a cost of doing business in that market. A lot of the laws in Australia have been consolidated, for example the NSW Protection of the Environment Operations Act 1997 has been consolidated from five acts to one with the intention of making it simpler. The Sustainovation consultancy's Managing Director Paul Hodgson takes a more philosophical approach. "It's always an issue, particularly for SMEs, because there is so much regulation, not just in the environmental area but in a whole range of areas, that you have to try and keep on top of. [SMEs] can't know everything so [they] have to rely on consultants and experts to help them out." Nevertheless, the experience of consultants such as Hodgson suggests that the NSWBC's concern about regulation may be outpaced by events as sustainability becomes a major social issue. "[The main driver for clients coming to us] is that they're being asked about sustainability by someone," says Hodgson. "They're hearing about it from customers, employees or from a bigger company pushing down the supply chain and asking about sustainability." Growing pressures This view is echoed by technology advisory company EP&T's Managing Director, Keith Gunaratne. "The debate has changed significantly. Four years ago if you spoke about the environmental debate you were labelled a greenie, a lefty, a bad guy; but now it's seen as smart and good to be environmentally friendly, and international companies are now saying that if we are to deal with you, you need to comply with this. "There's pressure from two sectors – government and the industry itself – and right now the industry pressure is greater because governments are still very concerned about regulating small businesses, or even the larger ones. Smaller businesses will be under pressure purely because they may be left out and, at some point of time when the majority shift to doing this, the regulation will kick in because many governments are very concerned about putting tough, hard regulations on SMEs for political reasons." One of the reasons for this is that, in some areas, the return on investment is still taking too long. For example, electricity is cheap by global standards; until that changes it will be politically unpalatable to regulate a small company. "If government really wants to do this it needs to look at doing things like subsidising companies for the gap between the expenditure and the ROI," says Gunaratne. One of the main drivers for EP&T's customers is that the CEO is seeing a business trend globally and wants to differentiate the company from its competitors, says Gunaratne. "If a CEO says the company needs to differentiate and needs to be better than others, being environmentally friendly is an inexpensive way of doing it." This tendency in business mirrors a shift in society's attitudes, acknowledges MacDonald. "Consumers are already choosing environmentally friendly products and some brands are suffering as a result. Generation X and Y are asking in interviews: 'Are you a green organisation?' 'Do you have a sustainability policy?' As a result of this, the skills shortage may put companies in jeopardy if they don't adapt. And for those businesses positioning themselves there's no doubt that trend is there and there is an opportunity to make money producing green services."