North American firms need to prepare for EU Reach chemical regulations

Wake up to Reach

17 April 2008 12:46  [Source: ICB]

A new survey shows that companies in North American lack awareness of Europe's new rules on chemicals and their safe use
Consultant's corner: Hans Schoolderman/PricewaterhouseCoopers

AS THE deadlines imposed by the Registration, Evaluation and Authorisation of Chemicals (Reach) legislation draw near, a PricewaterhouseCoopers (PwC) survey shows North American firms appear to lag far behind their European competitors in preparing to comply with the new law.

To gauge readiness and reaction to Reach, the global consultancy's International Survey Unit interviewed 241 senior executives across six industries in 29 countries.

Two in five companies were found to have limited awareness of the regulations and one in four executives believes Europe's complex chemicals legislation will have no impact on operations.

HOW READY IS YOUR COMPANY?

The PwC survey results show that despite a November 30, 2008, deadline for taking steps to comply, awareness of Reach is low, especially outside Europe and the industry.

Failure to meet the preregistration deadline will lead to a ban on exports to the EU and is a growing concern to EU-based companies.

European firms are the most aware of Reach, according to survey results, while North American companies appear to be behind by a considerable margin.

Large companies have greater awareness of Reach than smaller ones. Among industries, the chemical industry is most aware, followed by pharmaceuticals industrial manufacturing forest, paper and packaging retail and consumer and automotive.

This widespread lack of awareness raises concerns that North American companies may miss important Reach deadlines and, as a result, suffer significant business disruptions.

In contrast, companies first in line to meet the Reach preregistration deadlines gain competitive advantages because the law allows them to continue operating as usual and extends the timeline to register existing substances used in the European market.

There's no question Reach will have a major impact on businesses that use or produce chemical substances. Compliance is likely to be costly and burdensome because companies must register 30,000 existing chemicals during the next 11 years.

Reach is not just a compliance issue - it's a business issue. But many firms appear to view Reach as an environmental initiative rather than a regulation with enterprise-wide implications for supply chain management, sales, IT and financial and nonfinancial reporting.

Companies that operate outside the EU and export products into the EU need to assess their exposure to Reach. This also applies to those that operate within the EU and import materials from outside.

HOW SHOULD YOU PREPARE?

Reach dates back to 1998 and is here to stay. The monumental effort to enact the legislation and the European Commission's strong commitment "to protect the community's environment and to create common standards to protect consumers" means the law's provisions are unlikely to change.

As the June-November 2008 deadline period for starting the preregistration process looms, companies need to ask: is my company considering a strategic approach to Reach compliance? If not, should we be? The answer is yes - and the sooner companies develop a clearly defined strategic approach to Reach the better.

In addition to low awareness among North American survey respondents, most had not discussed the European law with customers or suppliers to determine the impact on their supply chains.

By comparison, half of European companies surveyed said they had initiated contact with suppliers concerning Reach.

This apparent lack of action to contact suppliers and engage in downstream discussions has the potential to negatively affect business.

The European Chemical Association (ECHA) estimates Reach will exclude 10-30% of the 30,000 listed substances.

Early communication with downstream companies and suppliers with businesses that may be adversely impacted by the exclusion of these substances is essential to maintain supply chains.

When asked about the risks posed by Reach compliance, most organizations said they haven't completed risk assessments on the impacts of Reach to their businesses.

Only 10% of respondents had completed a detailed risk assessment for Reach, with the remainder closely divided between those with some risk assessment and those with none.

Although many executives who participated in the survey were unaware of Reach and its implications, those who were aware of the legislation said there would be risks to implementing the law.

More than half (54%) cited the cost and time involved as the major risk, followed closely by supplier risk (49%). Only 14% of executives surveyed believed Reach would have a positive impact on their businesses. Most were undecided.

TIME IS RUNNING SHORT

Nine months remain for companies to create and implement a strategy for submitting preregistration data for the chemicals they produce or sell in Europe.

Manufacturers and importers must preregister substances that already exist on the EU market - called phase-in substances - if they want to benefit from transitional arrangements that allow registration at a later stage.

Companies that take action to preregister their phase-in substances with the ECHA may continue to manufacture or import substances without registering them.

The European Commission uses the catchphrase "no data, no market" to encourage firms to preregister their phase-in substances.

In other words, failure to preregister could lead to an abrupt loss of revenue and cash flow from noncompliant products. Preregistration is not time-consuming for the companies, but is crucial for using the Reach transition periods. Preregistration also enables registrants to share data with other registrants to avoid carrying out redundant tests. The preregistration period is limited and runs from June 1 through November 30.

Companies should also consider the potential for reputational damage if they do not adequately prepare to comply with Reach.

Delaying may save costs in the short term, but in the long term, companies will miss the boat. Today's consumers have little tolerance for chemicals that are a risk to human health and the environment.

It is, in fact, good practice and good governance for firms to be transparent to their customers regarding their products and the safe use of them. And be sure that there will be enforcement of the registration requirements.

The Reach legislation will impact every aspect of a company's operation, from its accounting function to the protection of trade secrets. Companies must also engage in discussions with their suppliers to safeguard their supply chains when developing a Reach compliance strategy.

The clock is ticking on Reach compliance and the deadlines are fast approaching. To catch their European competitors, North American companies must wake up.

By adopting a strategy that puts them first, rather than last in line to meet preregistration deadlines, North American companies can extend the timeline to register substances used in the European market.

SURVEY METHODOLOGY

The research for the 2007 Global Chemicals Survey was conducted by PricewaterhouseCooper's International Survey Unit from August 28, 2007, to December 11, 2007. Telephone interviews were conducted among senior executives representing the chemical market. In all, 241 interviews were completed across six industries worldwide.

Hans Schoolderman is director of sustainability & reach services for PricewaterhouseCoopers and has more than 17 years of experience in the industry. He has expertise in issues relating to Reach, including business impact assessment, consortia management and due diligence. He has executed a full Reach readiness assessment for a global chemical company that included examiningfive business units located around the world.

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