Addressing Risks in a Changing World EHS Auditing: Addressing - - PowerPoint PPT Presentation

EHS Auditing: Addressing Risks in a Changing World

EHS Auditing: Addressing Risks in a Changing World

Douglas Hileman, CRMA, CPEA Douglas Hileman Consulting LLC Douglas Anderson, CIA, CRMA Managing Director of CAE Services, IIA

Agenda

1) Introduction to EHS Auditing

– Role in Organization – Focus of Activities

2) Non-Financial Reporting:

– Avenues – Frameworks – Risks & Opportunities

3) Concluding Remarks

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• 1. Introduction to EHS Auditing

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Strategy – Objectives - Risk

• Strategy – Highest margin for existing

product line

• Objective – Reduce margin erosion in

periods of increasing costs

• Risk – Loss of sales with price increases
• Risk Response – Add price escalators to

sales agreements

Structure for Managing Risk

Risk Response: Mitigate

Impact Likelihood Inherent Risk Residual Risk Residual Risk 1st LOD 2nd LOD

EH&S Audit

• Where do they fit?
• 2nd line of defense

– Subject matter experts – Review activities for effectiveness

• 3rd line of defense

– Independent and objective – Assessment of effectiveness of risk responses – Assess 2nd line of defense

• U. S. EH&S Regulatory

Requirements

Environmental Protection Agency (EPA)

− Air, water, hazardous materials, waste, contaminated sites

Occupational Safety & Health Administration (OSHA)

− Workplace safety, contractor safety, whistleblower protection

Traditional EH&S Risks

• Compliance

– Fines and penalties – Citizen suit provisions – Many compliance records are public record

• Operations

– Limits on operations, ability to expand – Injunctive relief

• Financial Reporting

– Reserves for contingent environmental liabilities

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EH&S Risk Management

• 2nd Line of defense: Policies, procedures,

management systems,

– Bring expertise for plans, permits, etc – Set up management systems – Monitor progress

• 3rd Line of defense

– Environmental compliance – Health & Safety programs assessment

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• 2. Non-Financial Reporting

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“Non-Financial Reporting”

Anything reported externally that is not included in financial statements For purposes of this webinar, includes:

• Environmental
• Health and safety
• Corporate responsibility
• Social issues
• Economic (beyond financial)

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Avenues for Non-Financial Reporting

Can be disclosed

• Publicly Disclosed
• To Specific Parties

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Publicly-Disclosed Reports

Frameworks and Reporting Mechanisms:

− Sustainability – often using the Global Reporting Initiative framework (GRI) − CDP (“Carbon Disclosure Project”) − Sustainability Accounting Standards Board (SASB)

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Global Reporting Initiative (GRI)

• Voluntary
• A framework – not performance requirements or

expectations

• Some parameters “required” – others optional
• Vary by industry sector
• Used by investors, analysts, competitors,

prospective employees, etc.

• Assurance not required – may be negative
• Used by 7,500 organizations

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GRI: Major Subject Areas

1) General & Governance 2) Economic 3) Environmental 4) Social issues

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About Your Company, and the “Triple Bottom Line” Reporting

GRI Reporting Parameters:

• 3. Environmental
• Materials used
• Energy consumption: inside & outside the
• rganization
• GHG emissions: generated or purchased
• Reduction in energy use
• Water use and withdrawal by source
• Proximity of sites to ecologically sensitive areas
• Water discharge, by receiving water
• Products & packaging reclaimed, by type
• Impact of transporting products
• Suppliers screened and actions taken
• Grievance process

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34 Environmental parameters

GRI Reporting Parameters:

• 4. Social
• Labor practices & decent work (8 parameters)

[includes employee safety]

• Training & education (8 parameters)
• Human rights (12 parameters)
• Society (5 parameters)
• Public policy (6 parameters)
• Product & service labeling (9 parameters)

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Over 50 parameters for Social issues

“Carbon Disclosure Project” (CDP)

• Originated as “Carbon Disclosure Project” in 2000
• Voluntary reporting of greenhouse gas (GHG)

emissions, including those:

– Generated directly by organization – Purchased – Outside the entity – Analysis

• Assurance schemes for GHG emissions
• Expanded to include water reporting in 2010

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CDP Water Reporting: Sample Questions

• Do you request your suppliers to report on their

water use, risks and/or management?

• Who has highest level of direct responsibility for

water within your organization and how frequently are they briefed?

• Is water management integrated into your business

strategy? If so, explain how.

• What are your company-wide targets (quantitative) or

goals (qualitative) related to water?

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SASB Background

• Mission: develop and disseminate sustainability

accounting standards that help public corporations disclose material, decision-useful information to investors

• Desire to see in mandatory SEC filings (Form 10-K)
• SASB has determined what is “material” for all

industry sectors, and has published reporting parameters (qualitative and quantitative)

• Not affiliated with FASB, GASB, IASB or any other

accounting standards boards

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Sustainability Accounting Standards Board (SASB)

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SASB Standards: Criteria

• Relevant
• Useful
• Applicable
• Cost-effective
• Comparable
• Complete
• Directional
• Verifiable

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Audits? Stay tuned!

Example of Industry Categories Within Sectors

Financial Sector: Industry Categories

Commercial Banks Mortgage Finance Consumer Finance Investment Banking & Brokerage Security & Commodity Exchanges Asset Management & Custody Activities Insurance

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SASB Reporting Category: Consumer Finance

• Financial Inclusion
• Customer Privacy and Data Security
• Transparent Info & Fair Advice for Customers
• Responsible Lending & Debt Prevention

– For customers with FICO scores above and below 640 (subprime):

1) Average customer debt 2) Average APR 3) Mean and median age of accounts 4) Average monthly full payment rate

– % of applications accepted for subprime applicants – Average annual fees per account for pre-paid transaction products

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Non-Financial Reporting: Specific Entities

• Customers
• Trade Associations
• Sector Alliances
• Business Partners
• Investment Groups

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NFR: Customers

• 2006: launched Sustainability program; 15

questions in four focus areas

– Energy & Climate – Material Efficiency – Nature & Resources – People and Community

• 2012: broadened to 100 major categories, with

category-specific questions

• Using broader forum: the Sustainability

Consortium (www.sustainabilityconsortium.org) to create product sustainability toolkits

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“Do this, or you’re not

• n our shelves.”

Walmart Sustainability: Product Categories

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Adhesive bandages Adhesive tapes Aerosol air fresheners Antifreeze Apples Automotive fuels Automotive oils Automotive tires Bananas Beans, lentils and peas Beef Beer Berries Bicycles Board games Books Bread

Non-Financial Reporting: Observations & Suggestions

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Categories of Enterprise Risk: Today’s Business Reality

Operations Compliance Reporting Traditional In-House Statutory Regulatory Financial AND…. Supply Chain Joint Ventures & Collaborators Contracted/ Gig workers Value Chain Contractual Industry standard Company commitment Non-Financial

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NFR: What can go wrong?

• Unaware of requirements
• Inconsistent or incorrect data reported
• Ineffective / inefficient resource allocation
• Competitive disadvantage re: investor analysis
• Shareholder action
• NGO analysis results in unwanted attention
• Loss of sales (failure to meet customer

requirement)

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NFR is evolving FAST!!

Questions to be Raised

• Is there an inventory of the organization’s NFR?
• What is tone at the top for NFR? How is this evident?
• Is there a single person or group responsible for NFR?
• Do they followed a defined, disciplined, and robust

process?

• Do they follow a recognized NFR frameworks? If not,

why not?

• Are independent & objective assessment functions

involved? If so, with what scope and resources?

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You’ll probably find some significant gaps

• 3. Concluding Remarks

Call to Action

• Is EH&S Auditing optimally positioned in the

company?

• Have you included EH&S risks in your risk

assessment?

– All aspects of EH&S risks?

• Does your organizational charter empower effort

across the important risks?

• Do you have the right skills deployed in the right

groups?

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If you haven’t fully considered NFR yet, you should

For More Information

Douglas Hileman Consulting LLC www.douglashileman.com doug@douglashileman.com djhileman@gmail.com

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Douglas Hileman EHS Audit Center Web Page

uestions ???