EPA chief executive Cathy Wilkinson said fire water run-off could enter waterways if waste stockpiles caught fire.
The recycling company services 12 local councils across Melbourne and Victoria. It accepts cardboard, paper, aluminium and steel cans, plastic jars and bottles and glass.
The company’s Coolaroo plant receives thousands of tonnes of recycling material every week.
Low commodity prices have prompted concerns that some recycling companies may be stockpiling recycling material.
The recycling sector was plunged into crisis after China stopped accepting low grade recycling material from Australia.
A fire at SKM’s Coolaroo site burned for more than a week in 2017, sending toxic smoke over the city and forcing residents from their homes.
After the fire it was revealed that the company had been stockpiling about 250 tonnes of recyclable waste a day, mostly at sites in Laverton and Hallam.
The company then removed 30,000 tonnes of “fire-impacted waste”, the EPA said. Most of it was sent to landfill because it could no longer be recycled.
Another SKM recycling centre caught on fire in Geelong South in October last year.
That fire came after the Andrews government tipped in $37 million to reduce the amount of recyclable material sent to landfill.
Deakin University recycling expert Trevor Thornton said stockpiling remained a problem in Victoria.
Low commodity prices meant some businesses were holding onto recycling material “until it gets a bit of value back into it”, he said.
Dr Thornton said the EPA was limited in how many sites it could inspect.
“Until something happens the EPA can only get around to so many sites,” he said.
Benjamin is a state political reporter