For years, those of us in the environmental/sustainability profession have sought credible ways and metrics for quantifying the economic value of our efforts, activities and programs. A myriad of studies completed dating back to the late 1980s attempt to demonstrate “environmental value”. Most of these studies have shown rather tenuous linkages or used meaningless metrics. Interestingly, most of these studies link to equity markets – i.e., stock prices. Maybe because stock prices grab headlines, are tied to compensation or are the target to which Boards and senior executive generally manage. The problem is that environmental/sustainability matters don’t fit into this model, either because they tend not to be financially material, or they don’t develop economic certainty within the “current quarter” myopia of corporate management, financial markets and analysts. A recent article on the topic was published in The International News. The article includes an interview with Kevin Parker, CEO of Deutsche Asset Management (DeAM) on the subject of how capital markets currently view environmental/sustainability risks. DeAM manages over US$775 billion in assets. With simplicity, clarity and unquestionable credibility from the financial market viewpoint, Parker made key points in the article and interview: Bond markets are poised to punish polluting companies
Read more →In Tampa Bay, an all-to-real demonstration is playing out of the trickle-down economic impact of a company operation being shut down for environmental reasons. The Tampa Bay Business Journal reported this story. The Mosaic Co. is a publicly-traded company with over $6billion in annual revenue reported last fiscal year. Mosaic mines phosphate ore. The company has been mining in Polk County since 1995 and recently filed for an expansion of operations to access reserves in Hardee County. These ore reserves represent about 10 years of active mining operations. The Sierra Club, along with other NGOs challenged the issuance of a federal permit that would allow Mosaic to expand, alleging that the expanded operations would cause environmental damage to the headwaters of the Peace River and other streams that drain into the Charlotte Harbor estuary. On July 30, in response to the challenge U.S. District Judge Henry Lee Adams Jr. in Jacksonville issued a preliminary injunction against the expansion, saying the Army Corps had failed to adequately explore alternative plans that would cause less environmental damage to the area. The article reports that, if the Mosaic expansion does not move forward, the economic impact would be dramatic. At least 18 companies
Read more →Environmental Leader has reported that the Hungarian government sold 2 million previously used CERs, the market became tepid. Then when prices fell from more than 12 euro per credit to less than one euro, trading was suspended on two exchanges, Bluenext and Nord Pool. The NYT provided more details of the transaction, stating The credits appear to be part of massive blocks of CERs awarded to Eastern European states and Russia after the collapse of Soviet-era industry. This created a loophole used by Hungary to reintroduce used CERs back into the market… Carbon traders said countries like Hungary were exploiting the loophole to earn more money from the carbon trading system than they could by selling the credits that they had previously earned under the Kyoto system… The traders said at least one other E.U. member state had acted similarly earlier this year. The EU said they were “surprised and concerned” about the situation. BusinessWeek quoted others who expressed more urgency about the matter: “The supply and demand dynamics have been changed,” said Paul Kelly, chief executive officer of JPMorgan’s EcoSecurities unit. While the scope of the problem has yet to be determined, buyers are “questioning the authenticity” of what
Read more →The Global Risk Network (GRN), an initiative under the World Economic Forum (WEF), released its Global Risk Report 2010 today. The report is produced annually in conjunction with the WEF Conference in Davos and 2010 is the fifth year of the report. This year, the report emphasizes the “interconnectivity” of global matters and the long-term view needed to identify and reduce major risks. The report sets the stage by noting that the increase in interconnections among risks means a higher level of systemic risk than ever before. Thus, there is a greater need for an integrated and more systemic approach to risk management and response by the public and private sectors alike. In a contrast to previous years, today’s report underscored that a long-term view is critical to predicting major exposures. Previous Global Risk Reports have not been as careful to clarify the timeline of the discussed exposures. The report comments that: the biggest risks facing the world today may be from slow failures or creeping risks. Because these failures and risks emerge over a long period of time, their potentially enormous impact and long-term implications can be vastly underestimated. Further, the 2010 document seeks to provide more pragmatic guidance
Read more →EPA announced two more major Clean Air Act enforcement settlements today that stemmed from the Agency’s long-standing industry New Source Review (NSR) enforcement initiatives. Saint-Gobain Containers, Inc. of Muncie, Ind. agreed to install pollution control equipment at an estimated cost of $112 million to reduce emissions of NOx, SO2, and PM by approximately 6,000 tons each year. The settlement covers 15 plants in 13 states. This is the federal government’s first nationwide Clean Air Act settlement with a glass manufacturer that covers all of a company’s plants. In addition, as part of the settlement, Saint-Gobain has agreed to pay a $2.25 million civil penalty. Lafarge North America, Inc., based in Herndon, Va., and two of its subsidiaries agreed to install and implement control technologies at an expected cost of up to $170 million to reduce emissions of NOx by more than 9,000 tons each year and SO2 by more than 26,000 tons per year at their cement plants. In addition, as part of the settlement, Lafarge has agreed to pay a $5 million civil penalty. Companies potentially on EPA’s NSR radar screen should review their environmental audit programs to evaluate how critically the programs evaluate plant changes that could trigger
Read more →The New York Times published an article highlighting questions surrounding a major forest preservation project in Bolivia sponsored by American Electric Power, BP and PacifiCorp, known the Noel Kempff Climate Action Project. Greenpeace claims it found that from 1997 to 2009, the estimated reductions from the program had plummeted by 90 percent, to 5.8 million metric tons of carbon dioxide, down from 55 million tons. It also questioned the “additionality” of the program, which says that a specific forest area would not have been preserved without the program. What is striking about this matter is not the debate of the project’s effectiveness (given the on-going controversy surrounding the use of forestry in climate risk management). The surprise was a comment made by Glenn Hurowitz, a director of Avoided Deforestation Partners, a small nonprofit organization that claims to “advance the adoption of U.S. and international climate policies that include effective, transparent, and equitable market and non-market incentives to reduce tropical deforestation”: In the proposed climate legislation, you can’t get credit for conservation or any other type of offsets until you’ve delivered the offsets. So inaccurate projections would not affect the issuance of credits. This statement clearly demonstrates a critical business risk
Read more →According to Insurance Journal, Aon’s Global Risk Management Survey 2009 found that “environmental risk ranked lower as a concern in Europe than any other region – despite the introduction of the EU Environmental Liability Directive (ELD).” Dr. Simon Johnson, Aon’s environmental director for UK and EMEA, pointed out: The fact that environmental risk ranked 32nd as a concern in the survey is worrying because risk managers are seemingly lulled into a false sense of security, believing they have no exposure or their pollution strategies are under control. He added: Risk managers need to review the ELD and their operations in relation to their insurance programs as there will be gaps. US companies with European subsidiaries are becoming increasingly aware of their potential exposures and in turn we’ve seen a higher take up for environmental liability insurance. Johnson stated that environmental insurance should be viewed as”preparing for the low frequency, high severity event [to] cover all the risks, damages and losses that could occur.” On-going operational risk that are not “low frequency, high severity” may not be covered by insurance yet can still represent a significant financial exposure. The company retains such financial risks. Risk Managers may not be familiar with
Read more →As EHS audit programs have matured over the past 25 years, most companies that have established such programs have generally achieved the desired goal of reduced violations and financial penalties. But in the current economic climate, companies have been looking at all costs and their justifications. EHS audit activities are also under the microscope. The reduction in noncompliance costs over time – a good thing – can sometimes trigger questions from senior management about what value EHS auditing is creating NOW – a bad thing. Answering such questions adequately depends on the individual company, but the threat of future violations (which are more likely to occur without corporate compliance oversight/auditing/reporting activities) is a common thread. Elm took a look back at USEPA’s enforcement announcements thus far in 2009 to see if any notable trends could be identified. Our review was not exhaustive and was limited to publicly available information on federal EPA activities. But there is no question that EPA’s 2009 data clearly show aggressive enforcement involving many multi-million dollar settlements. This summary information may be useful to those EHS audit programs that use enforcement data as an economic risk/value factor in rationalizing the continuation of audit activities. - Oct.
Read more →A report released today by The Conference Board concluded that few companies link Enterprise Risk Management (ERM) data into corporate performance management/metrics. Enterprise risk management and performance management are two complimentary processes essential for the management of an organization. Both disciplines are designed to support organizations’ efforts in making decisions and meeting their goals–ERM through the identification and management of those risks that could affect business objectives, and performance management through the identification and measurement of the drivers needed to achieve results. Risk-adjusted performance metrics offer managers tools that strike the appropriate balance between meeting performance goals and achieving appropriate returns for the risks being taken. The application of risk-based performance management may also lead to incentives that are more aligned with an organization’s long-term success. These points raise interesting implications for those companies implementing sustainability and other EHS management programs. - How are EHS elements reflected in the ERM program? - Are existing EHS/sustainability performance metrics aligned with internal risk management standards and benchmarks? - Do financial measures of EHS/sustainability performance incorporate risk-adjusted factors that are obtained from the ERM framework? Elm’s Return on Investment of Loss Avoidance (ROIa)© is an innovative valuation methodology that links EHS/sustainability risk data
Read more →Last year, The Economist Intelligence Unit (EIU), the business research arm of the company that publishes The Economist magazine, published a survey about the concerns and trends for environmental risk management. The survey, sponsored by ACE, KMPG, SAP and Towers Perrin, was sent to 320 executives globally, half of which represented companies with greater than US$500million in annual revenue. All respondents had material involvement in risk management for their organizations. The results of the survey provided a number of insights into perceptions of environmental matters within the context of overall corporate risk management. A shortened list of the findings is reviewed below. Three key findings were: - Only one-third of those surveyed include environmental within their overall risk management strategy. The remaining two-thirds address environmental in an ad hoc fashion, outside of corporate risk management, or not at all. EIU commented: This piecemeal approach may enable companies to identify isolated problems, but without oversight it will be difficult for them to obtain an overall picture of the risks they face. - Three of the top four identified obstacles to effective environmental risk management illustrate this lack of an integrated approach and overall picture: Lack of certainty about impact of environmental
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