Standard & Poor’s ERM Analysis Expected to Raise Profile of Corporate Risk

Standard & Poor’s (S&P) has released its long-awaited direction on how it will incorporate Enterprise Risk Management (ERM) into its business analysis and reporting. This development is going to impact all kinds of businesses, so they’re going to take it slow: S&P isn’t expected to include ERM into its ratings until Q3 2009. Still, companies should consider reviewing their GRC strategies — or consider developing one.

S&P regards ERM, as:

• An approach to assure the firm is attending to all risks;
• A set of expectations among management, shareholders and boards of directors regarding which risks the firm will and will not take;
• A set of methods for avoiding risk exposure that would be outside of the organization’s tolerance;
• A method to shift focus from “cost/benefit” to “risk/reward;”
• A way to help fulfill a fundamental responsibility of a company’s board and senior management;
• A toolkit for trimming excess risks and a system for intelligently selecting which risks need trimming; and
• A language for communicating the firm’s efforts to maintain a manageable risk profile.

S&P is expected to assure the market that companies aren’t expected to eliminate all risks. But it’s prudent to show that the enterprise’s risks are known and well managed. That’s another reason why an integrated software platform that helps managers monitor and manage risk across the enterprise is a C-suite imperative right now.

Add comment May 21st, 2008

ECHA, US Commerce Department Officials Remind Companies about REACH Registration

Geert Dancet, executive director of European Chemicals Agency (ECHA), is wrapping up a U.S. tour this week. He is here to raise awareness among U.S. exporters to the European Union (EU) about the REACH pre-registration period, which begins June 1 and runs through December 1.

Dancet is here to emphasize to manufacturers the importance of compliance with REACH, the EU law requiring companies to prove that chemicals that are sold and produced in the EU are safe to use or handle. It is designed to collect information on chemical substances (on their own, in mixtures and in articles) used in any of the European Union jurisdictions. Data will be used to evaluate chemicals’ environmental and human health effects; how they can be used safely; and whether a substance considered by regulators as dangerous can be replaced with a safer substance.

During the pre-registration period, companies are required to report to EHCA substances that are manufactured in, or imported to the EU in annual quantities of 1 metric ton or more per company.

The U.S. Department of Commerce recently signaled plans to help small and medium-sized companies understand what they need to know about REACH and make executives aware of the time frame for REACH compliance.

“Our objective is to make sure small- and medium-sized exporters can stay in the market,” said Rosemary Gallant, a Commerce representative. That is appropriate, since the EU is a market where many U.S. businesses have a significant customer base, partnerships or supply chain relationships. Not meeting REACH requirements opens exposure to significant business risks, including lack of continued access to the EU market.

Companies affected by REACH are advised to check now with EU suppliers. It is imperative that they ensure that substances they depend on will be pre-registered and subsequently registered by suppliers or further up the supply chain.

Companies also need to ensure that their EU-based importers are taking REACH compliance seriously and are acting accordingly. They are likely to need considerable support from their US suppliers. If a company has a question regarding its REACH-affected supply chain continuity, managers may need to consider identifying alternative sources for materials needed for manufacturing.

While some chemical companies outside of Europe have expressed concern about the potential impact of REACH mandates, it’s likely that their desire to continue doing business in EU jurisdictions will eventually assure compliance with the law. The good news is that some companies see REACH compliance as an opportunity to demonstrate how their products are consumer-friendly and their manufacturing practices represent best practices for environmental stewardship.

Even though there is no existing U.S. mandate that is similar to REACH, many companies are proactively responding to increasing demands for Corporate Sustainability Reporting to investors, NGOs and community organizations. Right now, companies’ CSR disclosures typically include information regarding greenhouse gas emissions, worker health and safety management and fair labor practices. However, REACH could prompt responsible companies to expand their CSR reporting to promote the fact that their use of chemicals meets rigid third-party standards that are deemed safe for consumers.

This is another example of the shift among businesses to use socially-responsible and environmentally-friendly practices as a competitive differentiator.

ESS is making the transition to address REACH more efficient with a roadmap and powerful software tools that help streamline REACH compliance. In addition, we are working on further enhancements to our software solutions to improve companies’ ability to execute efficient REACH compliance. Our upcoming enterprise software release includes new tools that provide the ability to export chemical substance information directly from ESS’ chemical inventory database into IUCLID 5, the international database for efficient REACH registration. This will reduce complexities of REACH compliance and make it easier for our customers to leverage existing information to address emerging REACH requirements.

Add comment May 20th, 2008

More Companies Finding Benefits from Reducing GHG Emissions

Forward thinking companies are gaining a competitive advantage and expanded profits by leading the way in addressing climate change.

According to a recent report from Goldman Sachs, companies that are leaders in environment; and good governance policies have outperformed Morgan Stanley Capital International World Index by 25 percent. Seventy-two percent of the companies outperformed industry peers.

That’s why I was intrigued by a new report, The Economic Case for Climate Action. It maintains that companies that implement climate-protection programs can enhance their financial performance by cutting energy and materials costs in industrial processes, facilities design and management and fleet management. They can enhance core business value through sector performance leadership and first-mover advantage, gain easier access to capital, improve corporate governance, strengthen their ability to drive innovation and improve government relations. Doing this helps companies retain competitive advantage, enhance their reputation and brand equity and increase their ability to capture market share and differentiate their products. Such programs increase companies’ abilities to attract and retain the best talent; increase employee productivity and health; improve communication, creativity and morale in the workplace and achieve better stakeholder relations.

The report provided examples of companies that are using proactive climate change measures to gain a business advantage. For example:

• DuPont pledged in 1999 to reduce its greenhouse gas emissions 65 percent below its 1990 levels by 2010 and obtain 10 percent of its energy and 25 percent of its feedstocks from renewables. The company made this announcement in the name of increasing shareholder value and delivered on that promise, when, during the same period, the value of DuPont stock increased 340 percent as the company reduced global emissions 67 percent for a savings, to date, of $3 billion.
• ST Microelectronics pledged to become carbon neutral (zero net CO2 emissions) by 2010 with a forty-fold increase in production. Figuring out how to do this drove the company’s innovation, taking it from the twelfth-largest microchip manufacturer in the world to the sixth. ST gained market share, won awards, and believes it will have saved almost a billion dollars by the time it meets its goal.
• Wal-Mart the world’s largest retailer; pledged to reduce energy use at its stores by 30 percent over three years; become carbon neutral; become 100 percent powered by renewable energy; double the efficiency of its vehicle fleet; build hybrid-electric long-haul trucks and sell millions of compact fluorescent light bulbs.

These companies realize that cutting carbon emissions and other greenhouse gases is a winning strategy. Using energy more efficiently not only reduces carbon emissions, and reduces risk and costs.

Add comment May 16th, 2008

Smart Technology Helps Make Buildings More Sustainable

As buildings get smarter and the devices in them can communicate with networks, we will be better able to collect and interpret EHS data and meet sustainability objectives. Some buildings, like the Louvre Museum in Paris and the Sears Tower in Chicago, are already smart, and their networks enable energy efficiency and reduce pressure on the grid. In addition, they enable consistent monitoring and collection of data to minimize risk.

It seems to me that smart buildings should be part of a sustainability strategy that proposes to get ahead of incidents, not just respond to them. One of the providers of networked controls for these buildings, Echelon, a technology company, works closely with Duke Energy, one of our clients. Duke Energy’s “Utility of the Future and Save-a-Watt programs are integral to our vision of embracing the latest and most reliable networking technologies to bring about a new age in electricity delivery, distribution and management — one that is driven by knowledgeable consumers, customer-service and energy efficiency.” Those words come directly from CEO Jim Rogers at an Echelon event yesterday.

Echelon, which is celebrating its 20th anniversary this week, was founded by one of the co-founders of Apple, Mike Markkula. Here’s how he describes his vision: “Twenty years ago I founded Echelon with the simple idea that if tiny computers could be embedded all around us, monitoring and sensing their local environment and communicating that information with others of their kind, we could transform industries. We saw a world of smart buildings, factories, homes and utility networks that used our technology to run more efficiently; lower costs; and improve quality, productivity and comfort. It took a tremendous amount of invention and innovation to bring that idea to reality – a reality that has exceeded my imagination. Today there are devices around the world networked with our technology, bringing intelligence to the infrastructure all around us and driving change across these industries and more.”

So when Echelon built its corporate headquarters in San Jose during the California energy crisis a few years ago, it “ate its own dog food,” integrating its LONWorks open source embedded network technologies into the building at an incremental cost of about $3 per foot. Now its systems can make energy use plummet by 30 percent within three minutes, which is a good way to respond to the threat of rolling blackouts. The Bay Area in California is often subject to such blackouts during heat waves, as are most Southwest cities.

As humans get smarter about integrating devices and platforms, we can mitigate the effects of climate change. I admire Mike Markkula.

Add comment May 16th, 2008

Mobile Technology Adds Speed, Efficiency to EHS Applications

ESS is currently building an enhanced mobile framework using the latest Microsoft technology and tools. Joseph Jordan, ESS’ director of Mobile Architecture, is heading up this project for us. This framework will be used to build new and enhanced workflow, data collection, data transfer, and data distribution capabilities.

What are the benefits of utilizing mobile solutions for enterprise EHS management and sustainability? For one, using mobile devices makes data collection and monitoring of critical information faster and easier. This technology also makes workers more productive by giving them the ability to respond to all types of business challenges in real time.

The new framework and architecture we are developing gives organizations real-time access to critical data and information, streamlining compliance activities and improving data integrity. Mobile technology has always made it easier for organizations to collect data from the plant or site level so it can be quickly uploaded into their EHS software databases for analysis and communicated throughout the organization. These new mobile development tools now also make preventative and predictive information including metrics, KPIs and business intelligence reports accessible to the operator’s via mobile “push” technologies to help them better manage their areas of responsibility which were previously only available through the desktop. That’s one big reason why we are excited about our plans to add these new mobile capabilities to our EHS and Crisis Management solutions for air, water, hazardous waste, fugitive emissions, chemical inventory management, auditing, incident management and industrial hygiene. You’ll see more about this in the near future.

ESS has been delivering handheld and mobile solutions for over 10 years, beginning with our Waste Management bar code and waste tracking handhelds and Jordan Systems chemical inventory mobile tools. So this technology isn’t new to us. What’s new and better is the higher quality of information available to the users as well as real time and wireless data transfer, improving oversight and decision making while freeing up more time for other important duties.

Another benefit of this new and advanced architecture platform is that it will also enable our customers to standardize on common handheld devices across the entire spectrum of integrated modules within our integrated sustainability platform. In addition to reducing the aggregate cost of hardware for mobile capability this will also result in:

• Easier and more intuitive data entry
• Enhanced data integrity and automation of compliance processes
• Improved productivity. Simpler data collection effort
• Improved field documentation of incident investigations
• Faster identification and implementation of corrective actions by site personnel

These new enhancements will speed up process management and data collection, improve accuracy for all EHS functions and help ensure regulatory compliance, production uptime and injury free workplaces.

Here’s an anecdote that shows the benefits of a mobile device. Mind you, this isn’t even a crisis — just a normal day to day activity in the life of an operator:

A manager of a waste storage facility is currently offsite, but would like to check the status of the overnight preparations for a waste shipment scheduled to take place later that morning:

The Mobile Approach: The manager is offsite and receives an alert on his PDA or smart phone, enabled with mobile technology. With an icon click, information appears on the screen indicating that there may be a problem with a hazardous waste shipment that is incorrectly labeled. The manager makes a quick call to the plant to inquire about the project status and clear up the issue with the overnight supervisor. Upon the manager’s arrival at the facility, waste drums are promptly re-labeled, loaded and ready for shipment.

Typical Desktop Approach: The same manager, without the benefit of mobile technology, drives to the facility, unaware that a problem exists. The manager logs onto a desktop computer, enters the appropriate application, which requires another login and password; uses a navigation tree to drill down to the report menu; uses a pull-down menu to choose the affected facility; and finally clicks the icon to run the report. That’s when the problem is identified.

Because many compliance activities occur away from the desktop, handheld functionality is a critical link in the compliance automation chain. Thanks to innovators like Joseph Jordan and other members of our development and product management team, you’ll see these mobile technology solutions in our offering in the near future.

Add comment May 9th, 2008

CIOs Joining Front Lines of Corporate Greenhouse Gas Management

Corporations have recently enlisted new participants to support their greenhouse gas management programs: Chief Information Officers (CIO). That point was reinforced in a recently-published article in CIO Magazine.

CIOs are now on the front lines of corporate climate change programs. That’s because manual spreadsheet accounting and disparate legacy systems are not able to support organizations’ need for accurate, verifiable carbon data for compliance under market based compliance schemes that are being considered in the U.S. and several other jurisdictions, as well as growing disclosure demands from investors, community stakeholders and activists. In order to meet those new standards, organizations will need to implement information management tools that support efficient and accurate reporting and analysis in order to address changes in greenhouse gas (GHG) management that are just around the corner. CIOs will play a central role in that process.

ESS has just published a white paper entitled, “A CIO’s Guide to Global Climate Change,” which provides a detailed discussion of this issue. It’s now available for download from our web site.

The process of building a program for evaluating, monitoring and measuring GHG emissions should begin with the development of a carbon management strategy. Managing climate risk in the context of corporate objectives starts with understanding the company’s operations. Executives need to identify which practitioners or business units need to use the data and for what purpose. Answers to these questions will provide critical direction for best practices for collection, processing and reporting of GHG information.

It’s a very complicated process, and will likely affect most businesses — including many that previously have not been required to provide GHG emissions reporting.

So GHG management is coming out of the bailiwick of environmental managers, facility managers and even the risk managers. CIOs will soon inherit responsibility for a challenge that has real bottom-line implications. That will eventually require organizations to develop a comprehensive plan for GHG management, supported by an integrated software platform.

2 comments May 7th, 2008

Executive Ethics Book Incorporates Environmental Ethics Discussion

Last year, I was asked to write a manuscript for a new book on corporate ethics. My topic was how environmental issues had become part of corporate ethics and sustainability, an ethical imperative. The book, entitled Executive Ethics: Ethical Dilemmas and Challenges for the C-Suite, was published on April 10th and is now available on Amazon.com and in bookstores.

As recently as 2000, environmental stewardship was not a major priority among business and political thought leaders. In many cases standards for environmental practice were not much different from government-mandated emissions laws. Business leaders believed the primary environmental responsibility of the enterprise was to maintain compliance with standards adopted by federal and state governments, and to ensure that factory emissions did not threaten the health of workers and nearby residents, as an extension of their commitment to local corporate citizenship.

But since the dawn of the 21st century, there has been a rapid evolution among key business leaders who are moving critical benchmarks from regulatory compliance to real leadership, as they adjust to their customers’ increased consciousness of environmental sustainability, growing concern about greenhouse gas emissions and resultant effects on global warming and climate change.

These concerns are now being reflected both on the production floor and in the boardroom. Corporations are proving that they can successfully balance concerns for the environment with the traditional priorities of operating profitable enterprises.

Industry analysts are predicting that the next few years will be critical for manufacturers, retailers, financial services firms and others as they establish sustainability goals for their long term business roadmaps. This movement is driven by a commitment to corporate ethics as much as it is by pragmatism.

Companies that embrace sustainability are taking a long-term view of their effects on society. They are departing from traditional views of private property rights and ownership. Such firms don’t respond simply for regulatory purposes (such as mitigating the effects of air or water emissions on the surrounding community), but because of a desire to avoid the potential costs if the global environment is seriously threatened.

I was delighted and honored to be asked to write about this topic. I hope it sparks even more discussion about the importance of environmental ethics within the larger discussion of corporate ethics.

Add comment May 1st, 2008

U.S. Moves Closer to Establishing National GHG Registry

The federal government is now debating the best way to reduce greenhouse gas emissions, and with that debate comes the need for policymakers to find a way to collect the emissions data necessary to support efforts to address climate change.

We all know that you can’t manage something that you can’t measure. Without data, we can’t make or assess policies.

Last December, Congress passed the Consolidated Appropriations Act, which includes a provision to direct the U.S. Environmental Protection Agency (EPA) to require mandatory reporting of greenhouse gas emissions from everywhere in the economy. So that points to the development of a national greenhouse gas registry.

The emissions registry will be a database that will collect, verify and track data from both facilities and companies. U.S. corporations have long had voluntary GHG emissions reporting because they want to be in a position of leadership on sustainability initiatives. But a mandatory registry will serve two further purposes: It will support regulatory compliance tracking and public disclosure, which can be an effective tool to promote cooperation.

To be effective, a mandatory registry should do several things:

• Collect data at the facility level on a mandatory basis;
• Make that data transparent, consistent and verified in accordance with international standards;
• Collect emissions data even from facilities covered by a cap and trade program;
• Provide a common infrastructure for reporting from emission sources not covered by cap and trade program regulations, and from facilities before a cap and trade system becomes operational;
• Collect both indirect and direct emissions data and make that data available to the public.

Only from that specific data can the EPA compile a national database to find out whether we are achieving the U.S.’s climate control objectives.

Add comment May 1st, 2008