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Written by Garth Watson
on October 14, 2021

In this series, the three co-founders of Libryo (the legal and other requirements data company), will be briefly sharing their stories and perspectives, on the convergence of EHS and ESG. We’ll also be delving deeper into certain strands, most particularly the rise of ESG disclosures regulations and how it relates to EHS regulation.

Here’s Garth Watson’s quick take.

 

Why is it that we can buy, use and consume things for far less than they cost to produce? 

This question is at the heart of my journey into environmental law and EHS (environmental health and safety) compliance. 

Imagine the community downstream of the factory, suffering waterborne diseases because of the factory’s pollution. The factory did not factor the cost of maintaining a clean river (in terms of regulation or best practice) into its production costs and left the river and the community to pick up the tab instead. The factory also didn’t invest appropriately in health and safety compliance and systems and so the workers paid the price through personal injury. That’s the economic concept of an externality, which is a cost or benefit for a third party who did not agree to it. Externalities mean the widgets which the factory produces can be consumed relatively inexpensively by you and me because others (workers or future generations) or the environment are subsidising the cost. This kind of thing is widespread and tragically, happens in many different ways globally. 

 

Helping companies who want to be better, to be better through EHS compliance knowledge

I am a lawyer by profession. However I felt that the starting point was to provide a technology based solution. Because law is written in a complicated ways, and published and maintained in  haphazard manners, and because best practice isn’t always contained in the laws of a given jurisdiction, for a company to know what the law or what best practice requires of them is cost prohibitive, and therefore, often done badly or not at all. This means that companies cannot even cross the start line of doing the right thing. 

Helping companies who want to be better through the application of cutting edge technology to give uncomplicated access to relevant EHS legal and other requirements data has been Libryo’s major focus.

 

But what if companies, in order to compete, need to continue to externalise the costs of production?

That is a phenomenal question, and one I’m sure you were asking! Being “above board” is a concept Peter Flynn and I often discussed in the early days of this journey. We liked the concept because it had a double meaning. It meant that companies were operating justly (and not externalising production costs to the environment and at the expense of the health and safety of their workforce - think EHS). It also spoke about stakeholders, those above the board of directors, namely shareholders, and increasingly customers, communities and society at large.

We had always wanted to empower EHS managers to make the case for sound management of the environment and health and safety of employees at board. 

Around 2015, which was also the year I met Malcolm Gray and moved to Oxford, I did a deep dive into the world of ESG, which is the acronym used by the finance world for environment, social and corporate governance. EHS, of course, is a large part of ESG as E, is “environment” in both EHS and EHS, and health and safety is a significant portion of the S “social” of ESG. Being a lawyer, and not part of the finance industry at the time, I was delighted to learn about the breaking wave of ESG. See for example the review by the Smith School of Oxford University of existing ESG research. It shows that well managed ESG factors by companies actually leads to financial outperformance. Externalising costs, it turns out, is actually not good for business, or to put it into playground parlance, cheaters never prosper.

 

The marriage of EHS and ESG 

In 2015, this perspective was not mainstream at all but it was clear that a global wave of ESG was breaking. With a few exceptions EHS and the mission of the EHS manager was not seen as something to be talked about or celebrated at board level, let alone to be desired by investors. In the short 6 years since then, a lot has changed and important stakeholders from society at large to pension funds, and money managers to ETF providers now understand it. 

I’m excited because we are starting to see the legal and other requirements data we’ve been producing at Libryo to help sound companies with sound environmental and health and safety management being desired by those in the finance world that are convinced that sound management of EHS, (which again is a major subset of ESG) does lead to prosperity without negative environmental and social externalities. This is supported by the ESG disclosures regulations such as SFDR (which we’ll cover separately). I think it’s one of the most positive trends in existence in our day, and it is vitally important in order to see a just and sustainable world.

 

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