Ukraine is considering a proposal to mandate an eco-audit for businesses, including individual entrepreneurs

On Wednesday, May 10, the Ecological Committee of the Verkhovna Rada will consider draft law No. 6349 on amendments to the legislation on environmental audit.

On the one hand, the document proposes several positive innovations. It establishes a clear list of requirements for the content of the environmental audit report and the mandatory issuance of a statement on the eco-audit to managers and owners of enterprises where a mandatory eco-audit is conducted. On the other hand, the grounds for required environmental audits are expanding, including for some individual entrepreneurs, which may lead to increased pressure on businesses and the emergence of corruption risks. This is due to the following provisions:

1) the possibility of conducting a mandatory environmental audit based on a court decision on violations of environmental legislation is concerning. Since there is no specificity in this item, it is evident that any violations identified by the State Environmental Inspectorate during the inspection, regardless of their severity or nature, may become the basis for conducting a mandatory eco-audit. Moreover, the feasibility of conducting an eco-audit in cases where compliance with environmental legislation requirements for activities has already been established by a court decision, etc., seems dubious. 

2) the limitation of the possibility of choosing an environmental auditor. During mandatory eco-audits, the performer (environmental auditor) is selected by the customer, who is an interested government body or local self-government body. At the same time, it is proposed to allocate three working days before concluding a contract between the customer and the performer to inform the head or owner of the enterprise where the eco-audit is planned to be carried out about this information. During this time, the director or owner of the enterprise must approve the selected environmental auditor or provide the customer with information about the potential personal interest of the eco-audit performer in its results. However, the draft law does not specify how information about the personal interest of the environmental auditor should be subsequently taken into account by the customer: whether the presentation of such information is a mandatory basis for changing the eco-auditor, whether such information can be rejected by the customer as unfounded/unproven, and within what period the customer should consider such information and report on the decision made. Thus, there is a risk of possible abuse by eco-audit customers, which in practice may negate the ability of the head/owner of the enterprise to exercise their right to reject the eco-audit performer.

3) expanding the grounds for mandatory environmental audits. Thus, the draft law proposes to include in the list of objects of increased danger where mandatory environmental audits are currently conducted, objects and types of activities for which an environmental impact assessment (EIA) procedure must be carried out, as well as individual entrepreneurs (in particular, whose activities fall under the requirement for conducting an EIA). Among other things, an environmental audit will be mandatory in the event of the liquidation or termination of the operation of enterprises, institutions, or organizations, their structural subdivisions, or the termination of entrepreneurial activities of individual entrepreneurs whose activities fall under the requirement for conducting an EIA. Firstly, it is not entirely clear how the interested executive authorities or local self-government bodies will identify economic entities that terminate their entrepreneurial activities or are in the process of liquidation to comply with the requirement for mandatory environmental audits. Today, about 2 million individual entrepreneurs are operating in Ukraine, and more than 20 thousand are closed monthly. Secondly, mandatory eco-audits during the liquidation of enterprises or their structural subdivisions contradict the current procedure for legal entity liquidation. The implementation of such a provision may potentially lead to an increased risk of abuse of power by state registrars in exercising their authority during the liquidation procedure of enterprises, in terms of the requirement to provide an environmental audit report, or the emergence of yet another regulator, without whose conclusions the completion of the liquidation/termination of economic entity activities will be delayed and complicated. Moreover, given that the draft law proposes to make it mandatory to include in the environmental audit report recommendations on measures that need to be taken to eliminate identified discrepancies (if any), this provision carries obvious corruption risks.

“For example, in Estonia, since 2000, companies with high environmental risk have been subject to mandatory environmental auditing. However, since 2005, the country has introduced the EMAS system and voluntary environmental auditing. In other countries, government authorities actively encourage companies to implement EMAS. In France, where non-financial reporting and its audit are mandatory, companies that have joined EMAS do not need to undergo an audit of environmental data in their annual reports. In Poland, companies participating in EMAS are exempt from paying excise taxes on coal and gas, from mandatory energy audits, and planned environmental control measures are carried out no more than once every 3 years. In Ukraine, the proposed punitive approach, including the publication of mandatory environmental audit results on the resources of government agencies and auditors, on the contrary, refers to the Soviet system of re-education through public condemnation. If we strive for the EU, we should also implement similar approaches to work,” says Olga Boiko, Coordinator of the Committee on Industrial Ecology and Sustainable Development of the European Business Association.

Thus, the European Business Association does not support the draft law №6349 in its current version and requests that it be revised following European practices. 

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