Environmental Information: EPA Could Better Address Concerns About
Disseminating Sensitive Business Information (Chapter Report, 06/25/1999,
GAO/RCED-99-156).
Since the mid-1980s, the federal government and several states have
introduced public "right-to-know" initiatives on environmental issues.
These initiatives require industries to report on their use and
discharge of potentially harmful substances and require government
agencies to make this information available to the public. Companies,
however, have questioned the appropriateness of publicly disclosing
increasingly detailed facility-level information. Specifically, they are
concerned that their submissions contain "sensitive business
information" that, if released, could harm their competitiveness. This
concern is heightened because companies around the world are
increasingly hiring "competitive intelligence" professionals to collect
and analyze legally obtained information to glean insight into their
competitors' operations. This report (1) provides information on the
usefulness of publicly available information to competitive intelligence
professionals and (2) assesses EPA's efforts to address industry
concerns about providing the public with access to sensitive business
information.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-99-156
TITLE: Environmental Information: EPA Could Better Address
Concerns About Disseminating Sensitive Business
Information
DATE: 06/25/1999
SUBJECT: Reporting requirements
Environmental impact statements
Government information dissemination
Proprietary data
Economic espionage
Competition
Freedom of information
IDENTIFIER: EPA Toxic Release Inventory
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United States General Accounting Office GAO Report
to the Chairman and Ranking Minority Member, Subcommittee on VA,
HUD, and Independent Agencies, Committee on Appropriations, U. S.
Senate June 1999 ENVIRONMENTAL INFORMATION EPA Could
Better Address Concerns About Disseminating Sensitive Business
Information GAO/RCED-99-156 GAO United States General Accounting
Office Washington, D.C. 20548 Resources, Community, and Economic
Development Division B-281230 June 25, 1999 The Honorable
Christopher S. Bond Chairman The Honorable Barbara Mikulski
Ranking Minority Member Subcommittee on VA, HUD, and Independent
Agencies Committee on Appropriations United States Senate This
report discusses the usefulness of information reported to
environmental regulatory agencies in "competitive intelligence"
practices-the collection and analysis of legally obtained
information to gain insights into competitors' operations. The
report also assesses the Environmental Protection Agency's efforts
to address industries' concerns about providing the public access
to sensitive business information. We are sending copies of this
report to other Senate and House committees and subcommittees with
jurisdiction over environmental, commerce and business, and
information management issues. We will make copies available to
others upon request. If you or your staff have any questions,
please call me on (202) 512-6111. Major contributors to this
report are listed in appendix I. David G. Wood Associate Director,
Environmental Protection Issues Executive Summary Purpose
Since the mid-1980s, the federal government and several states
have implemented various environmental public "right-to-know"
initiatives. These initiatives require industries to report on
their use and discharge of potentially harmful substances and
require government agencies to make this information available to
the public. Although the Environmental Protection Agency (EPA)
asserts that right-to-know information has resulted in significant
benefits to public health and the environment, the industries
required to submit this information have questioned the
appropriateness of reporting and publicly disclosing increasingly
detailed facility-level information. Specifically, representatives
of various industries have expressed concerns that their
submissions contain "sensitive business information" that, if
released, would harm their competitiveness. This concern is
heightened because companies around the world have increasingly
employed "competitive intelligence" professionals who collect and
analyze legally obtained information to glean insights into the
operations of their employers' competitors. In light of this
concern, the Senate report accompanying the Veterans'
Administration, Housing and Urban Development, and Independent
Agencies' fiscal year 1998 appropriations bill and subsequent
discussions with Appropriations Committee staff directed GAO to
(1) provide information on the usefulness of publicly available
environmental information to competitive intelligence
professionals and (2) assess EPA's efforts to address industries'
concerns about providing the public with access to sensitive
business information. Background EPA and the states collect
information from industrial facilities to monitor compliance with
environmental laws and regulations, to measure the progress made
towards reducing pollution, and to provide information to the
public about hazardous materials in their communities. Over the
past decade, the Congress, the executive branch, and several
states have made this and other environmental information more
available to the public. In 1986, the Congress enacted the
Emergency Planning and Community Right-to-Know Act, which requires
industries to report to EPA information on toxic chemicals present
at and released from their facilities and requires EPA to make
this information publicly available. EPA has been considering
implementing additional initiatives to collect and disseminate
information. Under one of the more controversial of these, EPA is
considering requiring industries to report the amounts of toxic
chemicals entering a facility, transformed into products and
waste, and leaving the facility. A similar reporting requirement
has been in place in New Jersey and Massachusetts for several
years. Both the state and the proposed EPA programs are commonly
referred to as "materials accounting." Page 2
GAO/RCED-99-156 Sensitive Business Information Executive Summary
Due, in part, to the large volume of negative comments EPA
received in 1996 on its advance notice of proposed rulemaking on
materials accounting, the agency has delayed further regulatory
efforts and has no immediate plans to implement such a program.
Among other things, industries have raised concerns that materials
accounting reporting would reveal sensitive information about
their business operations that could be used by others to gain an
unfair competitive advantage. These concerns were most prevalent
in the chemical manufacturing sector. Under the Freedom of
Information Act, federal agencies generally must make their
records (including material obtained by an agency) available to
the public upon request. This requirement does not apply to, among
other things, records constituting trade secrets or confidential
business information. EPA has established general procedures for
considering claims of confidentiality under the act, as well as
procedures for each of its relevant programs to take into account
any specific information disclosure or protection provisions in
the program's authorizing statute. Certain program regulations
also contain provisions governing the disclosure of data. Results
in Brief Competitive intelligence professionals, industry
representatives, and environmental officials expressed a range of
views on the usefulness of publicly available environmental
information provided by businesses. For example, industry
representatives told GAO that environmental information reported
by businesses-such as air and water permits or materials
accounting information-often contains valuable details about their
operations. In contrast, most intelligence professionals said
that, while such information is useful for some of their purposes,
it is rarely sufficient for reliable analyses when used alone. New
Jersey and Massachusetts environmental officials also questioned
the value of this information for competitive intelligence
purposes and noted that businesses made very few claims of
confidentiality in their states when submitting even the
controversial materials accounting information. Despite the wide
range of views on the value of environmental information for
competitive intelligence purposes, competitive intelligence
professionals generally agreed that multiple types and sources of
information are needed to develop comprehensive and reliable
analyses of competitors' business operations. Industry officials
also acknowledged that they could do a better job of protecting
their sensitive business information while still complying with
reporting requirements. Page 3
GAO/RCED-99-156 Sensitive Business Information Executive Summary
EPA has made a number of efforts to address industries' concerns
about the collection and the dissemination of sensitive business
information. For example, during EPA's recent consideration of
materials accounting reporting, the agency made several attempts
to better understand and address industries' concerns. However,
many of the industry officials that GAO contacted continue to have
concerns about EPA's lack of consistent policies and practices for
collecting and disseminating sensitive business information. In
addition, GAO, industry trade groups, and most recently EPA itself
have raised concerns about the absence of consistent, high-level
agency attention to information management activities. In response
to these concerns, EPA will soon consolidate many of these
activities in a new Information Office. However, it remains
unclear how the new office will address issues related to
collecting and disseminating sensitive business information. GAO
is recommending that this new office play a central role in
ensuring that these issues are adequately addressed. Principal
Findings Usefulness of Competitive intelligence
professionals and industry representatives Environmental
Information expressed a range of views on the usefulness of
publicly available to Competitive Intelligence environmental
information reported by businesses. Although they Professionals
Can Vary generally agreed that environmental information
provides only one piece of a "puzzle," they disagreed on the
significance of that piece. Industry representatives-including
some with competitive intelligence responsibilities-told GAO that
environmental information reveals valuable details about business
operations. These industry representatives told GAO that their
specialized knowledge of industrial processes and technology made
this information more valuable to them than it might be for
intelligence professionals who are consultants and might work in a
number of fields and have less specialized knowledge. For example,
industry representatives said that they used details found in
publicly available environmental documents-such as equipment
specifications, operating rates, process descriptions, and volumes
of raw materials-to determine competitors' production costs and
help make their own firm's pricing strategy more competitive.
These intelligence professionals said that information obtained
through other sources usually lacked sufficient precision for
similar analyses of competitors' costs. Page 4
GAO/RCED-99-156 Sensitive Business Information Executive Summary
In contrast, other intelligence professionals-often contractors
who might sell their services to a number of firms in a variety of
sectors-told GAO that while environmental information is useful
for some of their intelligence objectives, it is rarely sufficient
for reliable analyses of competitors' business operations.
Furthermore, these intelligence professionals told GAO that, in
the absence of this information, they could obtain equivalent
information from other sources. According to these intelligence
professionals, environmental information usually provides a
starting point for more comprehensive research, including
interviews with knowledgeable industry sources, such as a
competitor's suppliers, distributors, customers, and, if possible,
employees. Many competitive intelligence professionals emphasized
that information obtained through interviews is more important
than that obtained from other sources because people with direct
knowledge of a competitor are the most reliable and current
sources of information. This view is bolstered by a 1998 survey
conducted by security specialists that concluded that the greatest
risk of losing proprietary information comes from persons with a
trusted relationship with a company, such as employees,
consultants, and business partners.1 Some industry officials that
GAO contacted acknowledged that they could do a better job in
training their employees to protect sensitive business
information. New Jersey and Massachusetts regulatory officials and
environmental advocacy groups also questioned the usefulness of
environmental information to intelligence professionals. These
officials pointed out that very few firms in their states request
confidentiality on information they submit under the states'
materials accounting programs-even though these states rarely
challenge these requests. In fact, fewer than 2 percent of the
facilities in New Jersey and Massachusetts have made
confidentiality claims on the materials accounting information
they have reported to their states. Industry representatives
offered several explanations for the small number of
confidentiality claims they have made. These representatives told
GAO that some companies lack adequate procedures for determining
whether the information they submit contains sensitive business
information. In other cases, the company may review submissions
but decide not to make confidentiality claims because the size and
the complexity of the facility effectively "mask" potentially
sensitive information. 1ASIS Trends in Intellectual Property Loss
Survey Report, Richard J. Heffernan and Dan Swartwood, and the
American Society for Industrial Security Safeguarding Proprietary
Information Standing Committee, 1998. Page 5
GAO/RCED-99-156 Sensitive Business Information Executive Summary
EPA Could Improve Its Despite its efforts to address
industries' concerns about the collection and Efforts to Address
the dissemination of sensitive business information, EPA could do
a better Industries' Concerns job in addressing these long-
standing issues. To its credit, the agency has expanded its
outreach efforts to stakeholders in the past several years. For
example in 1997, EPA established a Toxic Data Reporting Committee
under its National Advisory Council for Environmental Policy and
Technology. The Committee was established to solicit stakeholders'
input on ways to improve the reporting of data on toxic substances
and has representatives from a cross section of industry.
Similarly, when EPA published its advance notice of proposed
rulemaking on materials accounting in 1996, the agency made a
special effort to obtain industries' views on how EPA could
address their concerns about collecting and disseminating
sensitive business information. Nonetheless, industry
representatives have maintained that EPA lacks consistent, high-
level attention to their concerns about sensitive business
information. For example, a November 1998 study prepared for the
Chemical Manufacturers Association concluded that EPA has "a
labyrinth of widely different policies for the protection of
sensitive business information."2 Among other things, the report
recommended that EPA reconsider its policy decisions and legal
interpretations that, it claimed, have unnecessarily restricted
the ability of its members to make claims of confidentiality. The
report also recommended that the Congress replace various
confidentiality provisions with a uniform statute that would
increase industries' ability to claim confidentiality. In response
to numerous concerns about its overall information management
policies and procedures, in 1998, EPA's Administrator announced
plans for the creation of a new program office for information
policy and management. In EPA's December 1998 report on options
for the structure and functions of the new Information Office, a
brief reference is made to the possibility of addressing sensitive
business information issues in the future, but the report does not
elaborate on how, or if, the office will address them.3 EPA
officials responsible for organizing the new Information Office
told GAO that the office would likely address these issues and
their relationship to broader information policy and management
issues. However, EPA has not yet determined how it should do so.
2Protection of Sensitive Business Information at the Environmental
Protection Agency, Ropes & Gray, Nov. 20, 1998. 3Final Report:
Structural and Functional Options for EPA's New Information
Office, Comprehensive Information Management Task Force and the
Information Working Group, EPA, Dec. 1, 1998. Page 6
GAO/RCED-99-156 Sensitive Business Information Executive Summary
Recommendation To help ensure that the long-standing concerns
about collecting and disseminating sensitive business information
are addressed in a consistent, comprehensive manner, GAO
recommends that the Administrator, EPA, direct the Program Manager
of the newly established Information Office to develop an action
plan that details how the office will address issues surrounding
sensitive business information. A central feature of this plan
should address how EPA will balance its need for collecting and
disseminating potentially sensitive business information with
industries' concerns about such activities. To help ensure that
EPA fully considers the concerns of all interested parties, this
action plan should be developed with extensive and representative
involvement by stakeholders. Agency Comments GAO provided a
draft of this report to EPA for comment and held discussions with
officials from the Office of Information Transition and
Organizational Planning. The agency generally agreed with the
information presented in the report, concurred with GAO's
recommendation, and stated that GAO had taken a fair approach to
discussing this challenging issue. EPA offered several technical
comments and clarifications, which GAO incorporated throughout the
report as appropriate. Page 7
GAO/RCED-99-156 Sensitive Business Information Contents Executive
Summary
2 Chapter 1
10 Introduction EPA's Programs to Collect and
Disseminate Information 10 Industries'
Concerns About the Disclosure of Sensitive Business
11 Information Related GAO Products
12 Objectives, Scope, and Methodology
13 Chapter 2
15 The Usefulness of Some Competitive Intelligence
Professionals Use Environmental 15 Information
Extensively Environmental Some Competitive
Intelligence Professionals See Little Value in 16
Information to Environmental Information Competitive
Industry Could Better Protect Its Sensitive Business Information
19 Intelligence Professionals Can Vary Chapter 3
20 EPA Could Improve EPA's Efforts to Address Industries'
Concerns 20 EPA's Efforts Have
Not Addressed Industries' Concerns to Their 21 Its
Efforts to Address Satisfaction Industry Concerns
EPA's New Information Office Is Positioned to Address
23 Long-Standing Problems Conclusions
24 Recommendation
25 Agency Comments
25 Appendix Appendix I: GAO Contacts and Staff
Acknowledgments 26 Figure
Figure 2.1: The Types and the Sources of Information Used by
17 Intelligence Professionals Abbreviations ASIS American
Society for Industrial Security EPA Environmental
Protection Agency FBI Federal Bureau of Intelligence Page
8 GAO/RCED-99-156 Sensitive Business
Information Page 9 GAO/RCED-99-156 Sensitive Business
Information Chapter 1 Introduction Since the mid-1980s, the
Environmental Protection Agency (EPA) has initiated a number of
actions to make information on the sources and the levels of
pollution widely available to the public. Although EPA allows
submitters of information to request claims of confidentiality if
the public release of the information would adversely affect their
businesses, many in industry believe that EPA collects and
disseminates too much sensitive business information. In recent
years, these concerns have heightened with the growing use of
"competitive intelligence" practices-the gathering and analyzing
of legally obtained information on one's competitors to gain
insights into their business operations- by companies around the
globe. EPA's Programs to Through the Freedom of Information Act
and the information disclosure Collect and provisions of
environmental statutes, the public has access to much of the
information EPA generates and collects. EPA has promulgated both
Disseminate agencywide and program-specific regulations
governing the submission Information and the disclosure
of information. A business may request that EPA treat certain
submitted data as confidential and withhold it from public
disclosure, which the agency will do if it determines, among other
things, that disclosing the information is likely to substantially
harm the competitive position of that business. Provisions in
environmental statutes impose program-specific restrictions on the
types of data that may receive confidential treatment or must be
publicly disclosed. EPA and the states collect information from
industrial facilities to monitor compliance with environmental
laws and regulations, to measure the progress made towards
reducing pollution, and to provide information to the public on
hazardous materials in their communities. For example, under the
Clean Water Act, EPA must make certain discharge data publicly
available. One of the most significant sources of publicly
available environmental information is the Toxic Release
Inventory, established under the Emergency Planning and Community
Right-to-Know Act of 1986. Businesses must submit to EPA
information on toxic chemicals present at, and released from,
their facilities. The act requires EPA to make this information
publicly available through computer telecommunications as well as
other means and authorizes businesses to claim only specific
chemical identities as confidential. EPA has expanded the
inventory several times to include additional types of businesses
and chemicals. According to EPA, since the reporting of releases
of toxic chemicals under the Toxic Release Inventory began in
1988, the total releases of chemicals listed on the inventory has
been reduced nearly 43 percent. The agency has Page 10
GAO/RCED-99-156 Sensitive Business Information Chapter 1
Introduction considered also requiring businesses to report the
amounts of specific toxic chemicals that enter the facility, are
used within it, and leave either as products, by-products, or
waste. This is referred to as "materials accounting," and EPA
asserts that reporting and disseminating such data would provide a
more detailed and comprehensive picture to the public about
environmental conditions and toxic chemicals at facilities located
near their communities. Due, in part, to the large volume of
negative comments EPA received in 1996 when it announced its
consideration of a nationwide materials accounting program in an
advance notice of proposed rulemaking, the agency has delayed
further regulatory efforts and has no immediate plans to implement
such a program. However, Massachusetts and New Jersey currently
require the reporting of materials accounting data. Industries'
Concerns Although representatives within industry acknowledge
that there are About the Disclosure benefits to publicly
disseminating some of the information they submit to EPA, some
have raised concerns that the disclosure of some of this of
Sensitive Business information will adversely affect their
businesses' competitiveness. These Information
concerns have heightened in recent years as EPA has increased the
type and the amount of information it collects and disseminates
and domestic and foreign competitors have increased their use of
"competitive intelligence" methods. Some industry representatives
maintain that domestic firms are at a competitive disadvantage
because U.S. firms are often required to disclose more detailed
information than their foreign counterparts.4 Competitive
intelligence is the process of gathering and analyzing information
on one's competitors to gain insights into their business
operations. Unlike economic espionage, competitive intelligence
relies on legal methods to collect data. Companies use competitive
intelligence to answer questions about such things as their
competitors' production costs, timelines for new product
introductions, market share, manufacturing processes and capacity,
and expansion plans. Competitive intelligence professionals answer
these questions by piecing together information using multiple
data collection methods and information sources ranging from
literature searches to interviews with the competitors' employees.
Although no specific information is available on the economic
losses incurred by U.S. firms due to legal competitive
intelligence activities, the Federal Bureau of Intelligence's
(FBI) National Counterintelligence Center 4Because of the vast
array of environmental reporting requirements around the world, we
did not evaluate the accuracy of this claim. Page 11
GAO/RCED-99-156 Sensitive Business Information Chapter 1
Introduction reported that U.S. firms may have lost over $250
billion in 1996 through those activities and illegal espionage
practices.5 The Chemical Manufacturers Association has been
especially critical of EPA's information collection and
dissemination programs and has sponsored several studies that
examined the link between the disclosure of sensitive business
information and the environmental reporting requirements.6 The
Association maintains that EPA's policy decisions and legal
interpretations unnecessarily limit industries' ability to claim
information as confidential. Many industry officials have
expressed strong objections to EPA's materials accounting
proposal, in part because much of the information (e.g., raw
material stocks and usage rates) that might be reported under such
a program would make it very easy for competitors to gain
important knowledge about their business operations. These
concerns are particularly strong within the chemical-manufacturing
sector. Related GAO Products In recent years, GAO has issued
several reports on EPA's information collection, dissemination,
and management activities. In a 1998 report on EPA's information
collection and dissemination activities, we concluded that
although EPA had projects underway to help address information
gaps related to facilities' toxic chemical releases, the agency
had not developed policies, procedures, and standards to govern
various aspects of its public dissemination efforts.7 To help
ensure that EPA provides the public with information that is
accurate, complete, and relevant, we recommended that it expand
its guidance on information resources management by developing
agencywide policies and procedures for program offices involved in
designing, developing, and implementing information dissemination
projects. Such guidance and standards should address obtaining
stakeholders' input in the projects' design and development,
testing to correct data errors, and communicating contextual
information on the data's uses and limitations. EPA agreed with
our recommendation. 5The Center relied on statistics derived from
a survey conducted by the American Society of Industrial Security,
a trade association that represents professionals in the field of
corporate security. 6The Association represents the chemical
industry on legislative, regulatory, and legal matters at the
international, national, and state levels. 7Environmental
Information: Agencywide Policies and Procedures Are Needed for
EPA's Information Dissemination (GAO/RCED-98-245, Sept. 24, 1998).
Page 12 GAO/RCED-99-156
Sensitive Business Information Chapter 1 Introduction In 1997, we
reported on the status of federal and state efforts to require
industries' reporting of detailed materials accounting
information.8 The report summarized various studies on materials
accounting programs in New Jersey and Massachusetts and on
stakeholders' views on the implications of a potential federal
program. Several studies focused on the benefits associated with
materials accounting programs while others emphasized their
drawbacks-including the potential that disclosure of reported
information could reveal industrial trade secrets. Objectives,
Scope, This report responds to the Senate report accompanying
the VA, HUD, and and Methodology independent agencies'
fiscal year 1998 appropriations bill and subsequent discussions
with Appropriations Committee staff. We were asked by Committee
staff to (1) provide information on the usefulness of publicly
available environmental information to competitive intelligence
professionals and (2) assess EPA's efforts to address industries'
concerns about providing the public access to sensitive business
information. To determine how competitive intelligence
professionals use information provided by EPA and the states, we
interviewed individuals at 13 firms. Some of these individuals
were consultants who performed competitive intelligence on a full-
time basis while others were industry employees who did this work
as part of their job. We selected individuals and firms based on
their experience in preparing analyses on the chemical-
manufacturing sector. The individuals and firms were judgmentally
selected to reflect a range of views. The selected sample is not
necessarily representative nor can the views we obtained be
projected to the universe of competitive intelligence
professionals. To ensure that our sample contained a wide range of
views and appropriate experience, we asked the Society of
Competitive Intelligence Professionals and industry trade groups,
such as the Chemical Manufacturers Association, to recommend
competitive intelligence professionals and firms that met our
criteria.9 In addition to interviewing competitive intelligence
professionals, we reviewed journal articles and studies on
competitive intelligence and attended competitive intelligence
training workshops. Because industries have particular concerns
about EPA's consideration of a materials accounting program, we
interviewed state environmental and industry officials in
Massachusetts and New Jersey to obtain their perspectives on
sensitive business 8Toxic Substances: Few States Have Considered
Reporting Requirements for Chemical Use Data (GAO/RCED-97-154,
June 6, 1997). 9The Society is an organization of individual
competitive intelligence professionals from around the world. Page
13 GAO/RCED-99-156
Sensitive Business Information Chapter 1 Introduction information
matters related to their states' materials accounting programs.
The firms contacted in these states were judgmentally selected,
and the views we obtained are not necessarily representative. We
selected the firms from a larger universe of those that have
historically made claims of confidentiality and from
recommendations from industry and environmental groups at the
national and state levels. Our work focused solely on the
information collection and analysis methods of legal competitive
intelligence rather than on economic espionage or illegal uses of
such information, such as by terrorist groups. We also interviewed
officials in the FBI's National Security Division and the American
Society for Industrial Security to obtain their perspectives on
the potential losses of U.S. businesses due to competitive
intelligence activities and the steps that companies can take to
better protect their sensitive business information. To assess
EPA's efforts to address industries' concerns about the
implications of providing public access to sensitive business
information, we interviewed EPA officials involved in information
collection and dissemination policies, company and trade
association representatives from industries that submit
information to EPA, and representatives of national environmental
and public interest groups. We also reviewed relevant statutes and
EPA's policies and procedures on collecting, protecting, and
disseminating industry information and for obtaining stakeholders'
input. EPA commented on a draft of this report, and, where
appropriate, we incorporated its comments in the final report. Our
review was conducted from June 1998 through April 1999 in
accordance with generally accepted government auditing standards.
Page 14 GAO/RCED-99-156 Sensitive
Business Information Chapter 2 The Usefulness of Environmental
Information to Competitive Intelligence Professionals Can Vary The
competitive intelligence professionals and industry
representatives that we contacted expressed a range of views on
the usefulness of publicly available information businesses report
to environmental agencies. Most of the competitive intelligence
professionals and industry representatives agreed on the basic
framework for how competitive intelligence is conducted. In
particular, they described competitive intelligence as a jigsaw
puzzle or mosaic because their analyses are pieced together from
numerous types of information gathered and selected from a wide
array of sources. Although they generally agreed that information
obtained from environmental agencies provides only one piece of
the "puzzle," they disagreed on the significance of that piece.
Industry representatives-including some with competitive
intelligence responsibilities-stated that the information reported
by businesses often contains valuable details about their
competitors while other competitive intelligence professionals
said that such information is neither sufficient or even necessary
for their analyses. Because examples were provided to us that
supported a range of views, it is apparent that the value of this
information for competitive intelligence purposes varies from case
to case. Regardless of their views on the usefulness of this
information, industry officials acknowledged that they could do a
better job in protecting their sensitive business information
while still complying with EPA's and states' reporting
requirements. Some Competitive Industry representatives-
including some with competitive intelligence Intelligence
responsibilities-told us that they use information reported to
environmental agencies to uncover valuable details about their
Professionals Use competitors. Although they acknowledged that
this information may not Environmental be useful for
gaining insights into operations at some facilities, these
industry representatives said that the information reported to
Information environmental agencies is among the most
valuable type of information Extensively available to
them and that their work is becoming easier as more of this
information is publicly disseminated. Accordingly, they carefully
review their competitors' environmental records, such as air and
water permits and, in Massachusetts and New Jersey, materials
accounting data. They said that these records disclose such useful
pieces of information as equipment specifications, operating
rates, process descriptions, amounts of raw materials, and other
details. The industry representatives who emphasized the
importance of environmental information often cited materials
accounting data as among the most valuable type of such
information. They said that the details Page 15
GAO/RCED-99-156 Sensitive Business Information Chapter 2 The
Usefulness of Environmental Information to Competitive
Intelligence Professionals Can Vary found in materials accounting
data are not available from other environmental documents. They
told us that data on the quantity of chemicals used and processed
at a facility can reveal precise information about a competitor's
production levels, operational efficiencies, and production costs.
They frequently mentioned that the identity and the efficiency of
catalysts-ingredients used to control reactions in chemical
manufacturing processes-is information found only in materials
accounting data. Representatives of the chemical manufacturing
industry also told us that the precision of materials accounting
data enables them to make reliable estimates of competitors'
production costs, the primary basis of competition in their
markets, and that these estimates are used to develop more
effective pricing and marketing strategies. These intelligence
professionals said that information obtained through other sources
usually lacked sufficient precision for similar analyses of
competitors' costs. Industry representatives who perform
competitive profiling for their firms described themselves as
experts with specialized knowledge of chemical processes and
technology. They said that this expertise makes environmental
information more valuable to them than it would be to intelligence
professionals who work in a number of fields and have less in-
depth knowledge in any one field. One intelligence professional
told us that his specialized knowledge of chemical manufacturing
technology enables him to pick out process-specific insights from
a facility's environmental documents even when that information is
combined with information about other unrelated processes. Some
Competitive In contrast, other competitive intelligence
professionals we spoke to said Intelligence that they use
environmental information for some of their analyses but generally
rely on a much broader range of information sources. In
Professionals See addition, these intelligence professionals
said that when they do use Little Value in environmental
information, they regard it as a starting point for more
comprehensive research. For example, a representative of an
intelligence Environmental consulting firm told us that
only once in his experience did he obtain an Information
answer to a research question simply by conducting a search of
environmental information. More commonly, these firms collect as
much environmental and other information on targeted businesses as
possible and then sift through the records for useful pieces of
information that might suggest further areas of more in-depth
research. For example, an environmental permit could contain the
name and telephone number of a plant manager who could then be
contacted for additional information. Page 16
GAO/RCED-99-156 Sensitive Business Information Chapter 2 The
Usefulness of Environmental Information to Competitive
Intelligence Professionals Can Vary Figure 2.1 shows how different
types and sources of information are combined to glean insights on
competitors' business operations. Figure 2.1: The Types and the
Sources of Information Used by Intelligence Professionals
Publications
Industry experts Help wanted ads Directories
Trade associations Researchers Periodicals
Trade literature
Stock analysts Consultants Newspapers Competitive
Analysis Government filings Securities and Food
and Drug
Company associates Exchange Commission Administration
Suppliers Unions Environmental Protection Court
cases
Distributors Other competitors Agency
Uniform Commercial
Customers Occupational Safety Code and Health
Administration The
competitor Press releases Interviews with In-house
newsletters company employees Trade shows
Speeches Web sites Some of the intelligence professionals we spoke
to said that materials accounting data may contain useful
information but that the information contained in environmental
documents can generally be obtained through other sources. For
this reason, one intelligence professional told us that profiling
is no easier in the two states that require materials accounting
than it is in states without such programs. A report prepared for
the Chemical Manufacturers Association-often cited by industry as
evidence that materials accounting programs threaten their
competitiveness-acknowledges that an initial analysis using
materials Page 17 GAO/RCED-99-
156 Sensitive Business Information Chapter 2 The Usefulness of
Environmental Information to Competitive Intelligence
Professionals Can Vary accounting information in combination with
other publicly available environmental information "does not
constitute a high-confidence, decision-grade profile." Instead,
the report concludes that such an analysis provides "a highly
useful core of understanding around which an interested outside
party can build a more comprehensive investigation." When we spoke
with the authors of the report, they confirmed that materials
accounting data does not substantially affect the ease of their
work. Many competitive intelligence professionals said that their
most important information comes from personal contacts rather
than from publicly available environmental information. They use
interviews to confirm and expand on information obtained from
publicly available environmental records and other sources. They
said that people with direct knowledge of a competitor-such as the
competitor's suppliers, distributors, customers, and employees-are
the most reliable and current sources of information.
Professionals with competitive intelligence consulting firms told
us that they frequently call these sources to gather information
and commented that company employees and business partners often
are eager to talk about their work to someone who shows interest.
The competitive intelligence professionals who said that
environmental information is not a critical source for competitive
profiling tended to work as consultants for, rather than employees
within, companies. Environmental officials in New Jersey and
Massachusetts and environmental advocacy groups who agreed with
this view pointed to the small number of claims of confidentiality
that had been made in these states on materials accounting data-
even though the states rarely challenge these claims-as evidence
that environmental information is not as sensitive as claimed by
some in industry. In fact, fewer than two percent of the
facilities in New Jersey and Massachusetts made confidentiality
claims in 1996.10 According to state environmental officials,
these numbers have varied very little from year to year. Industry
representatives from New Jersey and Massachusetts offered several
explanations for the small number of confidentiality claims made
on materials accounting data and said that this does not
necessarily indicate that the information is not useful for
competitive profiling. For example, some companies decide not to
make confidentiality claims 10In their comments on a draft of this
report, EPA officials speculated that state restrictions on
claiming confidentiality on information that can readily be
obtained from other sources-such as reverse engineering or
chemical analyses of waste streams-may have been a contributing
factor to the small number of claims of confidentiality. Page 18
GAO/RCED-99-156 Sensitive Business Information Chapter 2 The
Usefulness of Environmental Information to Competitive
Intelligence Professionals Can Vary because the size and the
complexity of their facilities make it difficult for competitors
to glean important insights from reported information. In
addition, some representatives said that facilities in New Jersey
and Massachusetts are not representative of facilities nationwide
in terms of the sensitivity of their materials accounting
information. Industry Could Better Nonetheless, some industry
representatives also acknowledged that Protect Its Sensitive
companies often fail to make confidentiality claims and/or take
other information security measures because many of the firms'
employees Business Information responsible for submitting
information lack awareness of how environmental information can be
used for competitive profiling. As a result, some sensitive
business information could be submitted without attendant claims
of confidentiality. In addition, some employees report more
detailed information than required by environmental regulatory
agencies. For example, instead of submitting simple box diagrams
of their firm's processes, employees, who are unaware of the
sensitivity of the information, might submit detailed schematics
of the facility. This lack of awareness is not limited to
submitting environmental information to regulatory agencies. For
example, industry representatives acknowledged that they do not
always train their employees to safeguard sensitive information
when dealing with competitors at trade shows or responding to
"cold" inquiries over the telephone. In fact, a 1998 survey of
U.S. companies conducted by the American Society for Industrial
Security (ASIS) concluded that the greatest risk to proprietary
information comes from employees and other persons with a trusted
relationship with a company, such as consultants and business
partners.11 Representatives of the Society told us that employees
often unknowingly reveal sensitive information over the telephone
to competitive intelligence professionals. Some industry
representatives said that their companies have taken steps to
educate their employees on ways to better safeguard sensitive
business information. For example, some firms train employees to
report only the minimum amount and type of information required by
environmental regulatory agencies. Because competitors are not
always as careful about protecting sensitive business information,
one representative acknowledged that environmental reporting
requirements could work to his company's advantage. If safeguards
are in place, they can minimize risks to a company's
competitiveness while providing insights into the business
operations of a less careful competitor. 11ASIS Trends in
Intellectual Property Loss Survey Report. Page 19
GAO/RCED-99-156 Sensitive Business Information Chapter 3 EPA Could
Improve Its Efforts to Address Industry Concerns Although EPA has
made several efforts to address industry's concerns about the
collection and the dissemination of potentially sensitive business
data, many of the industry representatives we spoke with believe
that these efforts have been inadequate. They believe that EPA's
interpretation of certain statutes has been inconsistent and tends
to overemphasize the collection and the dissemination of
information while underemphasizing the provisions to protect
sensitive business data. In response to the number and variety of
information management problems that have been raised by GAO and
others, EPA recently announced plans for establishing a new
Information Office. While EPA acknowledges that this office would
be well-suited to address, among other things, the long-standing
concerns about the collection and the dissemination of sensitive
business information, the agency has not yet determined how to do
so. EPA's Efforts to EPA has a number of initiatives
underway to help solicit and address Address Industries'
industries' and other stakeholders' concerns about the collection
and the dissemination of information. Some of these initiatives
are Concerns program-specific while others cut
across program lines. The initiatives range from formal federal
advisory councils to more informal "open-door" meetings. Although
the issue of sensitive business information is relevant to, and
has been raised in, several of these outreach efforts, EPA has not
yet established a forum specifically to address this issue.
Examples of formal advisory forums that EPA uses to solicit
industry views include several committees within the National
Advisory Council for Environmental Policy and Technology. The
Council was founded in 1988 to provide a forum for public counsel
and advice to EPA's Administrator by taking advantage of the
respective knowledge and insights of business and industry,
government, academia, labor, environmental advocacy organizations,
community groups, and others involved in environmental management.
The Council has had a number of committees that have addressed
program-specific or agencywide information management issues. For
example, in 1997, the Council established the Toxics Data
Reporting Committee to address information-reporting issues
related to EPA's Toxic Release Inventory. These issues have ranged
from fairly narrow topics, such as revising reporting forms, to
broader ones, such as ways for EPA to improve its presentation of
inventory data to the public. In 1996, the Council established the
Information Impacts Committee to provide advice and
recommendations on EPA's current and proposed Page 20
GAO/RCED-99-156 Sensitive Business Information Chapter 3 EPA Could
Improve Its Efforts to Address Industry Concerns processes for
managing its information resources. In 1998, this Committee was
reorganized and renamed the Environmental Information and Public
Access Committee, and it will continue to provide advice on EPA's
information management initiatives. EPA has several other formal
and informal mechanisms to solicit industries' input on its
information collection and dissemination initiatives. For example,
when the agency first announced that it was considering
establishing a nationwide materials accounting program, it
presented its plans in an advance notice of proposed rulemaking
wherein, among other things, EPA invited comment on six questions
that specifically addressed concerns about confidential business
information. For example, EPA asked which of the proposed data
elements were of greatest concern and how the proposed initiative
could be modified to address these concerns while still preserving
public access to relevant data on chemical use. EPA also asked
whether there were any cases in New Jersey or Massachusetts where
public access to materials accounting data had adversely affected
businesses. In addition to the advance notice's request for public
input, EPA held numerous public meetings and published a series of
issue papers that sought industries' participation in crafting a
materials accounting program that would address their concerns.
Finally, EPA and several industry officials told us that they meet
periodically to discuss their continuing concerns about the
collection and the dissemination of sensitive business
information. EPA's Efforts Have Despite its outreach
efforts, EPA has not fully addressed many of Not Addressed
industries' long-standing concerns about collecting and
disseminating sensitive business information. A common theme among
those critical of Industries' Concerns the agency's efforts is
that EPA conducts its increasingly important, to Their
Satisfaction complex, and controversial information management
activities in an inconsistent manner that lacks adequate attention
from senior-level managers. For example, a 1998 report prepared
for the Chemical Manufacturers Association concluded that EPA has
"a labyrinth of widely different policies for the protection of
sensitive business information" that "frustrate confidentiality
claims for information that can be of high value for competitive
intelligence."12 Because the Association acknowledges that at
least some of this inconsistency results from different statutory
12Protection of Sensitive Business Information at the
Environmental Protection Agency, Ropes & Gray, Nov. 20, 1998. Page
21 GAO/RCED-99-156 Sensitive
Business Information Chapter 3 EPA Could Improve Its Efforts to
Address Industry Concerns requirements concerning the collection,
the protection, and the dissemination of business information, it
favors a uniform statute that would make it easier for its members
to assert confidentiality claims based on the "mosaic" argument.
However, the Association maintains that much of this inconsistency
results from EPA's policy decisions and legal interpretations that
unnecessarily limit industry's ability to claim data as
confidential. For example, the Association maintains that such
terms as emissions data and effluent data "have been stretched by
EPA's interpretation to include a wide range of industrial process
information that exceeds the normal meaning of these terms."
Furthermore, an overlybroad interpretation by one EPA office
adversely affects industry's ability to make claims of
confidentiality, even in other offices with a narrower
interpretation, because, once information has been disseminated,
it can no longer be claimed as confidential. Accordingly, the
Association recommends that EPA engage in a broad-based,
heightened level of scrutiny of its policies on public disclosure
and confidentiality. Representatives from other industries also
expressed dissatisfaction with EPA's responsiveness to their
concerns about the collection and the dissemination of sensitive
business information. For example, officials from the Chemical
Specialties Manufacturers Association told us that EPA's Office of
Prevention, Pesticides, and Toxic Substances is increasingly
pushing a "right-to-know" agenda and is making it increasingly
difficult to justify claims of confidentiality.13 These officials
said that when they raised a number of substantive concerns about
a proposal they believed would result in increased disclosure of
sensitive business information, EPA only responded to minor
technical issues raised by the Association and ignored their more
substantive concerns. An official from the American Petroleum
Institute told us that EPA is generally not very responsive to
their concerns and declined to include them as participants in the
advisory Toxic Data Reporting Committee even though the petroleum
industry has unique concerns that would not be raised by other
industries' representatives. When we asked the representatives of
various industries if their concerns about the collection and the
dissemination of sensitive business information could be addressed
through administrative and/or legislative remedies, some
respondents indicated they were generally satisfied with 13The
Association represents companies engaged in the manufacture, the
formulation, the distribution, and the sale of chemical specialty
products for household, institutional, and industrial use. Page 22
GAO/RCED-99-156 Sensitive Business Information Chapter 3 EPA Could
Improve Its Efforts to Address Industry Concerns the existing
provisions of EPA and the states concerning confidential business
information provisions. Others recommended a few minor revisions,
such as reporting information in ranges rather than in precise
numbers. However, a few officials acknowledged that even though
they believed such remedies could address their concerns, they did
not want to inform EPA about them for fear that this information
would only make it more likely that the agency would pursue a
materials accounting program. Regardless of their views on the
adequacy of these provisions, nearly all industry officials we
spoke to questioned the benefits of, and remained opposed to, a
materials accounting program. Accordingly, many believed that if
such a program were to even slightly increase the possibility of
releasing sensitive business information to their competitors,
this risk would be unacceptable. EPA's New Similar,
and broader, concerns about EPA's inconsistent management of
Information Office Is information have also been raised by us
and others in the past. In September 1998, we reported that
industry believed that individual EPA Positioned to Address
offices were given too much authority in making decisions about
Long-Standing information dissemination projects and
had not adequately collaborated with them to identify and resolve
concerns prior to disseminating the Problems
information. We also found that, while EPA had a general policy
statement on public access to its information, the agency lacked
specific procedures and standards to help ensure that its
dissemination activities were carried out in accordance with that
statement. Accordingly, we recommended that EPA develop agencywide
procedures and standards that would, among other things, address
stakeholders' involvement in the design and the development of
projects in the various program offices. EPA's National Advisory
Council for Environmental Policy and Technology raised similar
concerns and made several recommendations to the Administrator on
ways to address some of the agency's long-standing information
management problems. In a January 1998 report, the Council
concluded that EPA did not provide sufficient senior-level
management attention to information management issues and did not
have an ongoing, formal forum to involve stakeholders.
Accordingly, the Council recommended that EPA establish (1) a new
organization with the appropriate authority and sole
responsibility for managing agency information and (2) an on-
going, broad-based information "Users' Group" to provide regular
constructive advice, feedback from stakeholders' constituencies,
and reactions to proposed actions and initiatives. Page 23
GAO/RCED-99-156 Sensitive Business Information Chapter 3 EPA Could
Improve Its Efforts to Address Industry Concerns In response to
the number of concerns raised within and outside EPA about its
information management, on August 11, 1998, the Administrator
announced an initiative to "redesign our internal management
structure to better meet the information integration needs of the
21st century."14 To begin this process, EPA established a senior-
level task force to develop options on how to "fundamentally
realign information management and policy at EPA." The task force
was instructed that these options must include a single, senior
official in charge of information management and policy. The task
force was also instructed to develop a plan for involving both
internal and external stakeholders. As envisioned in the December
1998 final report by the task force, the new Information Office's
program manager will be vested with strong authority to help
ensure the office's goals are attainable.15 These authorities
would include policy setting, supported by a small policy staff.
The new office will also have an external liaison staff to serve
as a first point of contact "for persons and organizations that
have a problem, issue, or need with EPA's data and information
services and programs." The final report also noted that, while
not a preeminent concern, industry representatives continued to
have concerns about protecting sensitive business information.
However, the report only listed this issue as "one to be
considered for future phasing in." After considering the task
force's recommendations, on December 9, 1998, the Administrator
announced her decision regarding the structural framework for the
new office. As recommended by the task force, the office will be
lead by a senior-level manager and will, among other things, have
responsibility for policy and for liaison with stakeholders. No
mention was made of the issue of the collection and the
dissemination of sensitive business information. In our
discussions with EPA officials responsible for organizing the new
office, we were told that while sensitive business information
issues would likely be addressed in the context of broader
information policy and management issues, EPA has not decided
precisely how the office should do so. Conclusions Recently,
EPA has made a number of efforts to solicit stakeholders'
involvement in identifying information management concerns and has
undertaken a number of initiatives to address some long-standing
14Memorandum on "Comprehensive Information Management," EPA's
Administrator and Deputy Administrator, Aug. 11, 1998. 15Final
Report: Structural and Functinal Options for EPA's New Information
Office, Comprehensive Information Management Task Force and the
Information Working Group, EPA, Dec. 1, 1998. Page 24
GAO/RCED-99-156 Sensitive Business Information Chapter 3 EPA Could
Improve Its Efforts to Address Industry Concerns problems. Among
these efforts, most significant is the recent creation of an
Information Office that will be headed up by a senior-level
manager who has been charged with addressing information policy
issues, improving agencywide consistency of information policy and
management, and obtaining stakeholders' involvement in the
decision-making process. Although EPA acknowledges the importance
of addressing industry's concerns about the collection and the
dissemination of sensitive business information, no defined plans
have been developed by EPA that detail how the new Information
Office should proceed in doing so. Given the long-standing
controversy over this issue, we believe EPA needs to ensure that
the Information Office works with industries and other
stakeholders to address these matters. Recommendation To help
ensure that the long-standing concerns about the collection and
the dissemination of sensitive business information are addressed
in a consistent, comprehensive manner, we recommend that the
Administrator, EPA, direct the Program Manager of the new
Information Office to develop an action plan that details how the
office will address the issues surrounding sensitive business
information. A central feature of this plan should address how EPA
will balance its need to collect and disseminate potentially
sensitive business information with industries' concerns about
such activities. To ensure that EPA fully considers the concerns
of all interested parties, this action plan should be developed
with extensive and representative involvement by stakeholders.
Agency Comments We provided a draft of this report to EPA for
comment and held discussions with officials from the Office of
Information Transition and Organizational Planning. The agency
concurred with our recommendation and offered several technical
comments and clarifications, which we incorporated as appropriate.
Page 25 GAO/RCED-99-156
Sensitive Business Information Appendix I GAO Contacts and Staff
Acknowledgments GAO Contacts Gregory A. Kosarin, (202) 512-
6526 Edward A. Kratzer, (202) 512-6553 Acknowledgments In
addition to those named above, Alice L. London, Joseph Cook, and
Richard P. Johnson made key contributions to this report. (160446)
Page 26 GAO/RCED-99-156 Sensitive
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