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 3
1. Introduction to EHS Auditing 4
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 Inherent Risk Likelihood 1 st LOD Residual Risk 2 nd LOD Residual Risk Impact
EH&S Audit • Where do they fit? • 2 nd line of defense – Subject matter experts – Review activities for effectiveness • 3 rd line of defense – Independent and objective – Assessment of effectiveness of risk responses – Assess 2 nd 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 10
EH&S Risk Management • 2 nd Line of defense: Policies, procedures, management systems, – Bring expertise for plans, permits, etc – Set up management systems – Monitor progress • 3 rd Line of defense – Environmental compliance – Health & Safety programs assessment 11
2. Non-Financial Reporting 12
“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) 13
Avenues for Non-Financial Reporting Can be disclosed • Publicly Disclosed • To Specific Parties 14
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) 15
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 16
GRI: Major Subject Areas 1) General & Governance 2) Economic 3) Environmental 4) Social issues About Your Company, and the “Triple Bottom Line” Reporting 17
GRI Reporting Parameters: 3. Environmental • Materials used • Energy consumption: inside & outside the organization • 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 34 Environmental parameters 18
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) Over 50 parameters for Social issues 19
“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 20
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? 21
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 22
Sustainability Accounting Standards Board (SASB) 23
SASB Standards: Criteria • Relevant • Useful • Applicable • Cost-effective • Comparable • Complete Audits? Stay tuned! • Directional • Verifiable 24
Example of Industry Categories Within Sectors Financial Sector: Industry Categories Commercial Banks Mortgage Finance Consumer Finance Investment Banking Security & & Brokerage Commodity Exchanges Asset Management Insurance & Custody Activities 25
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 26
Non-Financial Reporting: Specific Entities • Customers • Trade Associations • Sector Alliances • Business Partners • Investment Groups 27
NFR: Customers • 2006: launched Sustainability program; 15 questions in four focus areas – Energy & Climate “Do this, or you’re not – Material Efficiency on our shelves.” – 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 28
Walmart Sustainability: Product Categories 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 29
Non-Financial Reporting: Observations & Suggestions 30
Categories of Enterprise Risk: Today’s Business Reality Operations Compliance Reporting Traditional In-House Statutory Financial Regulatory AND…. Supply Chain Contractual Non-Financial Joint Ventures & Industry standard Collaborators Company Contracted/ Gig commitment workers Value Chain 31
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) NFR is evolving FAST!! 32
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? You’ll probably find some significant gaps 33
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? If you haven’t fully considered NFR yet, you should 35
For More Information EHS Audit Center Web Page Douglas Hileman Douglas Hileman Consulting LLC www.douglashileman.com doug@douglashileman.com djhileman@gmail.com 36
uestions ???
Recommend
More recommend
