Companies Serious About How They Impact Environment

I’ve been asked to write a chapter on environmental issues as part of a book on corporate governance and ethics, so I’ve been thinking a lot lately about what constitutes real corporate social responsibility. I can remember when corporations first embraced the concept, but it really involved philanthropic efforts, like supporting schools and donating to charitable organizations. The first corporation I can remember that took an environmental issue as a mark of corporate social responsibility was the ice cream maker, Ben and Jerry’s, when they decided to raise money to save the rain forest by naming one of its flavors “Rain Forest Crunch” and donating a percentage of the profits to charity.

Fast forward about thirty years, and the environmental questions have grown beyond a small, image-oriented part of the enterprise and into a position front and center — the boardroom. Now corporate governance involves more and more the question of “how does our company and its industry impact the environment?” Following that audit (because that’s what it is, and we help companies do those audits) comes the strategic question: “how do we create a sustainable business model that does not deplete resources faster than it creates them?” With these questions, “corporate social responsibility” becomes a big piece of all corporate ethics policies, and is at the heart of every company’s governance.

Add comment July 13th, 2007

Overseas Companies Looking for Health & Safety Solutions

I’m back in Asia, having meetings during the past week with customers and potential customers in the Philippines. I have found that companies that are not ready to tackle environmental problems are quite interested in health and safety solutions, especially software that is integrated with emergency management modules. Most executives had no idea that EH&S solutions existed that were part of a single platform devoted to Prevention, Mitigation, and Performance, appearing on their portals as unified data. The emergency management piece, which is part of our Mitigation offering, drew particular attention.

One of the most pressing issues around emergency management is the coordination of communications, and we were told repeatedly about needs in this area. I’m glad we’ve got something good to offer.

This is a long way from compliance, which is where we started building our software. We are now into the larger areas of operational risk, as part of governance, risk and compliance. When I look back, I have seen that our horizon has been expanding over the past ten or twelve years.

We are just following the lead of our customers who have begun to see their needs from a more strategic perspective. This week I learned from an article in the New York Times that many large corporations are now including a CSO (Chief Sustainability Officer) in the executive suite. The compliance officer reports to the CSO. I predict that this move from Compliance to Sustainability will be a fast-growing trend.

1 comment July 5th, 2007

Business Is Taking the Lead in Worldwide Sustainability Movement

It’s just as Bruce Piasecki predicted in his book World, Inc: large corporations are taking a leadership role in creating sustainable environments. How far this has gone was demonstrated to me today in an Environmental Leader story about Tokyo Electric Power Company (TEPCO), which is buying emissions reductions from a Biomass Clean Development Mechanism Project in Chile being sold by Arauco, the largest forestry company in Latin America. CantorCO2e, a subsidiary of Cantor Fitzgerald, is facilitating the transaction and most of the information about it is on CantorCO2e’s website. Cantor, which many remember as the company that lost many of its partners and staff in the 9/11 tragedy, has developed a special subsidiary to deal in environmental solutions.

Apparently, Arauco will create energy through the burning of Sustainable Biomass (wood waste) which will then be dispatched to the Chilean electricity grid, thereby reducing CO2 and methane emissions equivalent to 500,000 tons of carbon dioxide, using the latest and cleanest technology available. Much of the biomass will come from Arauco’s own pine plantations and none of it is taken from native forest. These emission reductions will be sold to Tokyo Electric Power Company, one of the largest power suppliers in Japan.

Why this is noteworthy? First, because it shows a partnership that is global in nature and dedicated to a sustainable solution. Second, because the facilitator is a subsidiary of a company that has long been known to broker and trade in corporate debt, providing liquidity to major global corporations. Market mechanisms are being used to further environmental objectives. So this is not a feel-good initiative, but one with sound economic underpinnings.

Add comment June 26th, 2007

Newmont Mining Sets New Standard for Forward-Thinking EH&S Policies

Newmont Mining is a Denver-based gold exploration company that’s listed on the S&P 500. I was searching online for interesting EH&S statistics and information, and when I typed EH&S into Google, Newmont came up on the first page of search results! That’s huge for a mining company.

And then I went to the website and saw the company’s sustainability initiative,
which it calls “Beyond the Mine.” This initiative is probably responsible for Newmont’s “Google juice” in EH&S searches. As part of this initiative, the company has instituted a three person board-level committee on health and safety, which is part of its corporate governance structure. The purpose of this committee is to advise and oversee management on environmental health and safety issues. The committee has the power to “investigate any activity of the Corporation and its subsidiaries relating to environmental, health or safety matters. The Committee has been, and shall be, granted unrestricted access to all information and all employees have been, and shall be, directed to cooperate as requested by members of the Committee. The Committee has the authority to retain, at the Corporation’s expense, persons having special competencies (including, without limitation, legal or other consultants and experts) to assist the Committee in fulfilling its responsibilities.”

This strikes me as a very forward-thinking policy for a company that does business globally, as Newmont does. And if you read further into it, the policy is designed to help them attract and retain workers, as well as exhibit corporate social responsibility.

I’m glad to see Newmont going in this direction.

Add comment June 22nd, 2007

Court Rules Feds Liable For Pollution At Its Own Projects

Usually when a toxic spill occurs, regulators can issue fines or take legal action to force companies to clean up emissions. Yesterday the U.S. Supreme Court turned the tables on the government by ruling that the government can be liable for a portion of costs incurred when contractors clean up toxic spills while doing work for federal agencies.

The court decided that the federal government is liable for costs incurred when Atlantic Research Corp., a Virginia-based government contractor, proactively cleaned up a site in Camden, Arkansas where rocket propellant had leaked from the worksite into the soil and groundwater. The company had been hired to retrofit rocket motors.

This is a case where a private entity chose to act based on its own commitment to environmental stewardship instead of waiting on government sanctions.

In short, the court’s decision says that the government is subject to its own environmental laws. The Bush administration opposed sharing the cleanup costs, arguing that Atlantic had no standing to sue because the federal regulators had not cited the company for any violations of federal law. It was a move widely seen as an attempt by government officials to avoid financial liability for pollution that happens during federally-sponsored projects.

The government is widely regarded as one of the nation’s leading polluters. The court’s unanimous decision is expected to impact several other federally-sponsored projects where the government’s position previously discouraged companies from removing contaminants. It is estimated that thousands of sites nationwide that are contaminated with hazardous materials could be cleaned up as a result of the decision. Waiting for regulators to initiate enforcement actions could mean years of delays. That’s why the court’s decision is so important, because now companies can proceed with clean up actions without waiting for prior federal approval.

In this case, the company was willing to act while regulators chose not to act. As I have previously noted more and more companies are taking proactive steps to show they have solid environmental stewardship practices, in accordance with their corporate governance commitments. Companies now want to avoid the perception that they pollute without regard to sustainability.

Now it’s the private sector that is moving to address sustainability issues, while the government is slow to respond. That is a trend that bodes well for the future.

Add comment June 14th, 2007

Corporate Sustainability Initiatives Can Change The World

I have just finished reading Bruce Piasecki’s excellent book, World, Inc., in which he points out that corporate leaders can change the world through their sustainability initiatives, and may be the only ones who can do so. Bruce has been a consultant to Fortune 100 companies for more than twenty years, and he has seen a big shift in their attitudes toward sustainability. So have I. Corporations are now taking leadership on sustainability instead of merely complying with government regulations. And sustainability is part of larger governance, risk and compliance (GRC) boardroom-directed initiatives. Suddenly, there is a business case for corporate social responsibility. It’s a must-have program, not a frill.

This, Bruce says, is part of a new, socially responsible capitalism that he sees in companies like HP and Suncor, among others. After all, EHS issues don’t exist in a vacuum — they never have –and now sustainability is seen as necessary for recruiting and keeping top talent, for attracting and retaining institutional investment, and for participating in a global business environment that seeks to establish high standards for development. Younger workers do not want to work for companies they can’t be proud of. And pension funds are divesting their portfolios of polluters. Ultimately, money talks.

The themes of Bruce’s book are the very same themes I hear as I encounter clients and partners and other EHS decision makers both in the US and internationally. I’m looking forward to speaking at his conference in June.

Add comment May 31st, 2007

Corporate Execs Are Promoting Investments in EHS Software

So what enterprise-wide investments is your organization making to help your people execute your strategic initiatives in environmental stewardship, regulatory compliance, health & safety, sustainability, and GHG emissions management?

This has traditionally been a difficult issue for corporate decision makers. I recently had a discussion with a corporate vice president for marketing who was reluctant to promote their investments in EHS software… One of their concerns was always that this might be perceived in the public eye as having done something wrong and buying software to fix it.

But I said I think the tide is turning, and the U.S. Climate Action Partnership program participants and our global deals with Caterpillar, Duke Energy, Alcoa, and BP (all USCAP members) are indicators of a shift in the way these organizations view these kinds of investments.

They now want to project leadership in this area. In fact, we have been told that the CEO of Koppers is using his investment in our solution (including Essential Performance Manager™) to show his commitment and leadership in social responsibility.

I like to think of our clients as early adopters, at the beginning of an overall rapid growth spurt in the market for our enterprise software platform when the mainstream jumps on board.

Fear is turning into leadership.

It will be exciting and fulfilling when our customers are the ones pushing to get the press releases out the door!!

Add comment May 25th, 2007

Going Beyond Regulatory Compliance

Environmental compliance suddenly has become a hot topic, especially as businesses try to better manage their operational risks. Compliance risk has emerged as a subset of governance, risk and compliance, with a definition all its own: the risk of impairment to the organization’s business model, reputation and financial condition from failure to meet laws and regulations, internal standards and policies, and expectations of key stakeholders such as customers, employees and society as a whole.

This definition, put forward last year by Price Waterhouse Coopers, means that you can damage your business with behavior that can be legally defensible, yet not socially acceptable. The global executives surveyed by PWC agreed that compliance with government and exchange mandated rules is less important in avoiding risk to reputation than internal codes of practice.
Yes, one has to adhere to the law, but that’s not enough. The task of protecting stakeholders, including the environment as a whole, is much more onerous than just what the law requires. And that’s because the regulations are always a little behind when something becomes unacceptable to society.

Thus, what is thought of as sharp practice by informed customers today can become the subject of regulation tomorrow. Businesses that want to be regarded as socially responsible need to go further than existing mandates to establish their own internal codes and practices, and to develop a culture of compliance that comes out of attitude and desire rather than solely out of regulation. Following existing rules is not enough. Modern enterprises also must develop a sense of stewardship.

The compliance department alone cannot resolve the inherent conflict of interest between the desire for profit in an organization and its duty to wider stakeholders including the community in which it lives. Both outside regulations and internal rules are meaningless if there is a culture of noncompliance in an organization.

Developing a culture of compliance means using a sense of stewardship to look ahead, and make organizational changes from within BEFORE the outside rules change. Make them out of a desire to put the long term well-being of the larger society first, rather than only because the regulators say so. Interestingly, many of our customers seem to be doing this —— implementing EH&S policies that are ahead of those government mandates. They would rather be viewed as trend setters than reactors.

3 comments May 14th, 2007

Security is a Major Concern for Energy Company CEOs in Asia

I have just come home from a month-long road trip to Australia and Asia. While I was traveling in Southeast Asia, I found a common issue was dominating the minds of responsible individuals and leaders in these organizations: Terrorists in Thailand, the Philippines and Indonesia have been targeting oil and gas industry assets more frequently in those countries. So are the Tamil rebels in Sri Lanka. Once again, I am struck by the serendipity of our product development. Before I took the trip, I was glad we included a real time emergency response component in Essential Suite, but I never predicted how it might be most effectively used.

Now I know first-hand that not only do these organizations need to minimize operational risk, but much more critically, they have to deal with the risk of terrorist activities shutting down their facilities and with the potential for massive environmental exposure
from successful attacks. Security has become the biggest issue for them, and a real time emergency response is a real requirement for EH&S and Crisis Management systems all over Asia.

Earlier this week, the Tamil Tigers bombed two fuel facilities in Colombo, forcing the partial shutdown of the airport as major carriers decided only to fly there in daylight or not at all.

Here’s the story from Reuters Net Alert:

This security issue is a big concern of both local and multinational oil and gas companies and energy companies operating in Southeast Asia. I heard it repeatedly from CIOs and EH&S executives on this trip.

1 comment May 3rd, 2007

Rasmussen Relates Corporate Social Responsibility to GRC

Michael Rasmussen is an analyst I follow, because he seems to have the most similar view on GRC to my own. I especially like the following letter in which he relates corporate social responsibility to GRC and how the merging of all these corporate initiatives produces fear of change. At ESS, we like to embrace change, although we, too, know how difficult it can be for our growing company.

“The acronym GRC (governance, risk, and compliance) is causing quite a stir…. organizations are changing the way they focus on and manage governance, risk, and compliance. This is causing insecurity in some and ambition in others. Risk managers and compliance officers are both in a state of confusion - do we embrace GRC and lead this charge for our organization? Or do we fight against this change?

I have been on three continents already this year and have had numerous conversations spanning vertical industries - the truth is organizations are strongly evaluating the silos of risk and compliance management of the past and looking at what they need for the future. There is discussion as well as debate on what the individual terms ‘governance,’ ‘risk,’ and ‘compliance’ mean as well as what they mean together as ‘GRC.’ Further, many are considering the role of corporate social responsibility and how it aligns with GRC.

The corporate secretary is the aggregation point for a holistic view of GRC. It is the Corporate Secretary’s role to consolidate corporate performance, compliance, and risk information that gets communicated to the board and goes into the financial statements and reports. Consider the fact that this past year, Corporate Secretary magazine added the tagline “The Governance, Risk and Compliance Monthly.”

Risk management. Risk management has been buried in discrete silos often focused on financial and treasury risk, or was a function looking at project risk. Now many organizations, across industries, are trying to define and understand what Enterprise Risk Management (ERM) is all about. Rating agencies, like Standards and Poor, are using ERM as a factor in rating corporations. When companies begin to explore ERM, they quickly see that it is expansive and includes the world of operational risk as well as legal, regulatory, and compliance risk - thus converging the world on GRC.

Compliance management. Compliance has often been managed across many silos focused on different issues. HR might be focused on employment/labor compliance issues, such as harassment and discrimination, manufacturing might focus on product quality and safety compliance, while legal is focused on things like ethics and U.S. Sentencing Commission Organizational Sentencing Practices. The trend is for organizations to establish a Chief Compliance Officer, but often this role is quickly getting involved in risk management. The move toward principle-based regulation is further converging the worlds of risk and compliance. Several organizations I have visited this past three months have recently moved compliance under ERM - either reporting parallel to operational risk or as a function of operational risk itself.

Internal audit. Audit is one of the most challenging roles to define around GRC. A purist/idealist perspective states that audit has an important role, but it is one of risk and control review - to validate that the organization is managed according to its regulatory requirements and corporate policies. Audit does not have a role in day-to-day management of risk and compliance.

Information technology. The IT department is getting heavily involved in GRC in two areas. There are parts of risk and compliance that affect IT directly - where IT has to manage its own risk and implement controls within the IT environment, and where IT can be used to drive sustainability, consistency, efficiency, and transparency across business GRC functions that are not focused on IT risk and control.

Security. Within both corporate/physical security as well as IT, there are increased regulations as well as risk to the organization that are driving this function to be part of the discussion on enterprise GRC strategies.

The list does not stop there - you have others such as investigations, fraud, legal, lines of business and reputation issues that involve public relations and marketing, as well as the increasing awareness of corporate social responsibility.

However, many risk and compliance professionals feel threatened by this change and are entrenched at seeing that their job does not change. My perspective - change is afoot. Individuals involved in risk and compliance can step forward and be the leaders of this initiative in their organization or they can sit back and let another role lead it, and they will have to fall in line.”

Add comment April 25th, 2007