6-16. Major Compliance Violations Caused by Mistakes in Outsourcing Chemical Substance Management

Chemical substance management is a core area of a company's EHS (Environmental, Health, and Safety) framework. Inadequate management can lead to legal violations and major accidents, severely damaging a company's social credibility. While many companies outsource these tasks to cut costs and secure expertise, significant compliance violations due to a lack of proper oversight are an ongoing problem. This article explains the typical risks and preventive measures.

1. The Structure of Risks in Outsourcing

Tasks like the procurement, storage, and disposal of chemical substances require specialized knowledge, leading many companies to outsource them to external vendors. However, if a contract is signed without thoroughly auditing the vendor's actual practices, improper handling or incomplete record-keeping can occur, and the company itself may be held legally liable. Failures related to the Waste Management Act, Chemical Substances Control Law (CSCL), and the PRTR system carry a risk of fines and operational shutdowns.

2. Real-World Failure Cases

In one case, a company that outsourced waste disposal was held accountable for its oversight after the vendor was caught illegally dumping waste and faced administrative penalties. In another example, a company that fully entrusted the creation of Safety Data Sheets (SDS) to an external party received a cease-and-desist order from regulatory authorities due to incorrect information, forcing a temporary halt in product shipments. These are typical failures caused by the mindset of "it's safe because we outsourced it."

3. Impact on Companies

Compliance violations resulting from outsourcing mistakes can lead to direct losses like fines and operational shutdowns, in addition to severely damaging trust with investors, business partners, and the local community. Because chemical substances are directly linked to environmental pollution and health hazards, the social backlash can be strong, and the impact on brand value and ESG ratings is immense. It can also lead to business risks such as contract cancellations and a drop in stock prices.

4. Practical Steps for Prevention

To mitigate outsourcing risks, companies should take the following actions:

• Thoroughly check the vendor's compliance status and history of violations during the selection process.

• Include clear responsibilities and audit rights in the contract and conduct regular on-site audits.

• Do not leave crucial data, such as SDS and PRTR reports, solely to external parties; establish an internal review system.

• Internalize high-risk tasks and appropriately limit the scope of outsourcing.

Conclusion

While outsourcing chemical substance management is a means of increasing efficiency, a lack of oversight can lead to significant compliance violations. Companies must always remember that they bear the ultimate responsibility, even while maintaining a trusting relationship with their vendors. Strengthening audits and oversight is crucial to balancing legal compliance with sustained growth in corporate value.