Environmental Compliance — Being ‘Green’ Reduces Red Ink

IN RECENT years, a significant increase in the emphasis placed on “environmentally friendly” business practices has occurred throughout the nation. Caused in part by a national trend toward “eco-friendly” processes that seems to include all segments of society, this trend is likely to continue and even accelerate in the coming years. For printers, this raises a real challenge.

In the face of this shift in the national mood regarding the environment, which actually started back in the ’60s, how should fiscally responsible printing company management respond? How is the trade-off between being a responsible steward of investor resources and being a responsible user of environmental resources resolved?

This question can’t be answered in just one article, but I believe that there are a number of factors that can be considered here, which will help managers and owners address this difficult question. This debate has a number of aspects, some of which are obvious, some of which may not be. Some of these are financial, or at least have financial implications. Some of them belong more properly in a discussion on “business ethics.” But all are important, and all of them interact.

Obviously, we start from a simple, but very important, precept. Printers, like other businesses and individuals, need to comply with existing governmental rules and regulations that relate to environmental issues, or anything else for that matter. It is completely appropriate for printers to work to educate, and even to influence, governmental rule-writers.

Education and Influence

A good example is the recent successful educational campaign conducted by PIA of Southern California, which involved providing insight to regional air quality regulators who were considering implementing rules that would have been catastrophic for printers in that area. But once rules are enacted, it no longer becomes optional for ethical businesses to comply. Essentially, as I was taught many years ago, ethical behavior must start by not violating the law. That’s pretty basic, it seems to me. And, in today’s society, that includes administrative decrees, rules and regulations, whether we like it or not.

But is that enough? Is it appropriate for any business to conduct itself in socially irresponsible ways, simply because those behaviors are not illegal? And, how should financial impacts be added to the mix in making these decisions? We believe there are a number of issues to consider here. These include the following, at a minimum:

• What are the costs of complying with rules vs. the costs of non-compliance?

• Are there secondary benefits to compliance that can realistically reduce or even eliminate some compliance costs?

• Are there marketing opportunities in voluntarily implementing “sustainable methods?”

In terms of the costs of compliance, these are often difficult to identify. The reason is that often a “cost” of complying is directly offset, at least in part, by a benefit. An example of this is the “cost” of a waste-paper baler system to help a printer better manage recyclable waste, which is then sold to a re-processor. Is the baler, in this case, a cost or an investment? Clearly, it is an investment, with its own revenue stream. So, this is a good example of how the emphasis on “sustainable” policies actually is providing financial benefits to printers. If it were not for the growth and acceptance of recycled paper, this opportunity to recapture costs, which was previously treated as simply waste, would not exist.

One interesting aspect of this type of benefit, however, is that it may be overlooked, or at the very least underestimated, because of the way revenue from recycling is accounted. Many firms simply use these amounts to reduce paper costs, rather than accounting for them separately as recycling income. This can distort what is really happening and can confuse decision-makers. There is an old saying that it is hard to manage, or to fully understand, anything that you don’t measure and account for. So correctly accounting for the benefits, as well as the costs, of recycling and other “eco-friendly” activities is important.

There is no question, however, that the costs of compliance are significant. Frequently, these are costs related to increased overhead as a result of record-keeping requirements or reporting. Too often the activities that generate these costs are seen as separate from the operation of the company, rather than a part of the operation. When seen as organic to the business, opportunities will arise for turning costs into benefits. For instance, the record-keeping requirements related to VOCs can provide improved information related to usage rates and enable management to reduce costs, as well as pollution.

Other opportunities for improving costs, while becoming more eco-friendly, may be found by simply asking your suppliers to provide such alternatives. In many cases, printing industry suppliers have developed environmentally conscious products that not only help printers to reduce their impact on the environment, but can also lead to cost reductions or improved operations. Identifying and evaluating these alternatives, however, may require a different approach to purchasing.

Too often, an attitude of “if it isn’t broken, don’t fix it” ends up leading to a belief that as long as what you are doing today works, you don’t need to consider alternatives. This attitude is strengthened by the situation that exists for most people who make these purchasing decisions, which is that there are not enough hours in the day to complete their tasks now, and the idea of adding another duty will not be well-received by them. But, this means that eco-friendly alternatives may not even be considered.

This can best be remedied when a company’s top management makes it a priority to identify such alternatives. This can be followed up by notifying suppliers and others that you wish to evaluate all of your production operations to identify alternative materials and methods that will reduce the impact you make on the environment, while maintaining or even improving financial results wherever possible. Even if you consider yourself already well-informed on these alternatives, you will be surprised at what you discover.

“Great Printers Project”

In 1994, the Environmental Defense Fund and a number of Midwestern states released the results of a study called the “Great Printers Project.” In this report, numerous recommendations are made for “…making pollution prevention a standard business practice in the printing industry and beyond, and improving environmental regulation of small business to make it more conducive to pollution prevention.” That report describes a particular printer in Minneapolis that achieved real savings as a result of adopting environmentally conscious business practices, including significant reductions in isopropyl alcohol, solvents and inks. The total savings cited in this report, for this 60-person printer, exceeded $23,000 per year (and, that was in 1994).

There are simply too many examples of companies benefiting from an “eco-friendly” business model for there to be any doubt any more. The benefits are real, they are measurable, and they are significant. But the question remains: Are there costs to these steps? Certainly there are. These costs include increased record-keeping, training costs, some potential increases in materials costs and others. But, a careful analysis of the costs and benefits can provide surprising results!

Clearly, there are also marketing opportunities that arise from managing a firm in an environmentally friendly manner. Many print consumers are taking steps to ensure that their suppliers are operating in ways that reduce negative environmental impact. There is a large and growing segment of the total print market that is looking for environmentally conscious providers. Companies such as Starbuck’s, Nordstrom’s, Microsoft and others have demonstrated their commitment to socially beneficial business practices.

We believe this trend is likely to continue, if not accelerate. Especially with firms with a strong retail orientation and high brand recognition, printing customers are likely to be opting for more environmentally conscious suppliers across the board, as their customers begin to press for change. This creates opportunities that eco-friendly printers will take advantage of. But, once again, how much will this benefit be, and how much will it cost to achieve it?

Print-buying decisions are the result of much more than environmental considerations. And, print customers rarely change suppliers solely because they feel it is a socially responsible act. So, it is very difficult to know to what extent new business, which seems to be derived from an eco-friendly business strategy, is really the result of those efforts, or whether the increased business is part of a bigger picture that involves other issues such as quality, price, customer service, etc., that play into the marketing mix.

Yet, such programs as certification by the Forest Stewardship Council do add to a printer’s reputation for acting socially responsible and will help to open doors at firms that adopt eco-friendly policies, such as those at Starbuck’s, Nordstrom’s, etc. But, opening a door is only a start, and being able to walk through that door still requires execution and delivery of a quality product.

This article began by posing the question: “How is the trade-off between being a responsible steward of investor resources and being a responsible user of environmental resources resolved?” There are no simple answers or quick fixes here, but the steps in the process should be clear. They include aggressively identifying eco-friendly alternatives, carefully considering their financial impacts, including the financial costs of failing to comply with current or future governmental regulations, and making sure that you measure both costs and benefits of eco-friendly decisions, including marketing benefits that come from becoming an “eco-friendly” supplier of print.

As a well-known and respected expert on environmental issues (and especially wetlands management), Kermit the Frog once observed: “It’s not easy being green.” But, we believe there can be significant benefits from adopting a “green initiative” for printers. The challenge continues to be how to identify, evaluate and measure them. It’s a challenge that can best be met by those who are willing to see the environmentally conscious movement as an opportunity—and not a threat. PI

About the Author
Gerry Michael, CPA, is president and co-founder of G.A. Michael & Co., a West Coast-based CPA and management consulting firm primarily serving the printing industry since 1984. His work with printing firm clients includes helping them develop and implement effective strategies. For more information, visit www.gamichael.com.