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Environmental Risk Advisor:
Industrial Codes

SIC Codes
Standard Industrial Classification (SIC) codes were established in 1937 to identify a firm’s primary business activity.  These codes were initially used by federal governmental branches such as the Department of Labor and Statistics, US Census Bureau, Internal Revenue Service and the Social Security Administration, so that they could easily measure, analyze and share data.

Initially, SIC codes were based on four digits, with the first two digits indicating the firm's major industrial sector and the third and fourth numbers representing a business sub-classification. With the advent of environmental regulations, SIC codes also became a metric for identifying business activities that included the manufacture, use and storage of hazardous materials. Given recent advances in manufacturing, coupled with the development of new technologies and changes in labor practices, the depth of information provided by a 4 digit SIC code, developed over 85 years ago, has become somewhat inadequate.

NAICS Codes
In 1997, SIC codes were replaced by the North American Industry Classification System (NAICS).  NAICS is used by US, Canadian and Mexican governments, as well as the Security and Exchange Commission, state and municipal regulators, insurance companies, financial institutions and many other organizations.  The longer six digit code allows for more flexibility and detail in assigning subsectors.  The first two digits of the NAICS code represent a specific business sector. Although similar to the old SIC codes, the additional detail provided by NAICS codes can be used to identify business activities that have a high probability of hazardous material use, generation or disposal.  Therefore, NAICS codes can be used to determine if a business is an “Environmentally Sensitive Industry.” 

The Small Business Administration (SBA) lists fifty-three NAICS codes that identify “environmentally sensitive” business activities.

SBA Standard Operating Procedure 50 10 5(G) Appendix 4
lists fifty-three NAICS codes that identify “environmentally sensitive” business activities for the U.S. Small Business Administration.  For any businesses falling into one of these 53 categories, the environmental due diligence must begin with a Phase I Environmental Site Assessment. 

Additionally, any business that sells, supplies or dispenses gasoline, or heating fuel is also considered "environmentally sensitive" and a Phase I is also required, even if the NAICS code for the business is not identified on the SBA Appendix 4 list.  When specifying NAICS codes, the codes should be those of the company occupying the subject property and prior occupants of the site, not those of the property owner or property manager.  Many banks also use the NAICS codes for non-SBA related identification, since these codes are a useful identifier of current and past property uses.

If you would like a laminated copy of ERI’s SBA Environmental Investigation Flowchart, which provides a list of Environmentally Sensitive NAICS Codes on the reverse side for quick reference, please contact us at (704) 548.9333.

About Environmental Risk Innovations
ERI is the nation’s largest environmental risk consulting firm, specializing in the management of environmental risk for commercial lenders.  ERI’s clients include small regional banks to large banks with national footprints.  ERI develops internal environmental risk policy for commercial lenders, provides third-party review of environmental assessment reports, and conducts Records Search with Risk Assessments (RSRAs)/“desktop reviews” on commercial properties.  ERI is not a traditional environmental consulting firm that performs Phase I or Phase II Environmental Site Assessments.  As a result, ERI’s recommendations represent a truly independent, third-party opinion that conforms to the client bank’s specific risk tolerance. 

For more information on ERI's environmental consulting expertise, please contact Karen Nelson at knelson@eRiskInnovations.com or 704.548.9333.

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