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 →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
Read more →More information is available showing vastly different perspectives on the use of corporate EHS/CSR reports. But there are opportunities to close this gap. On one hand, the Asset Management Working Group of the U.N. Environment Programme’s Finance Initiative (UNEP FI) reported that (There is a) very real risk that (the advisor) will be sued for negligence on the grounds that they failed to discharge their professional duty of care to the client by failing to raise and take into account ESG [environmental, social and governance] considerations UNEP FI is a partnership between the United Nations and more than 180 financial institutions with over $2 trillion under management. According to a Reuters report out of London, Paul Watchman, one of the report’s authors said that “money managers have a legal responsibility to raise environmental, social and governance (ESG) issues when tendering investment and advising clients”. Yet a study earlier this year of the UK banking sector concluded that financial analysts exhibited “ ‘cynicism to complete dismissal’ of all voluntary narrative reporting including social and environmental reports.” One of the study’s authors, Richard Slack (a Reader in Accounting at the Newcastle Business School at Northumbria University) continued: Social and environmental reporting was universally
Read more →Elm has developed an innovative valuation methodology that leverages EHS and risk management concepts with economic analyses. Our Return on Investment of Loss Avoidance (ROIa)© demonstrates financial return of EHS risk reduction investments in terms of both reasonable anticipated loss and the cost of generating new profits needed to recover associated profits. ROIa utilizes existing financial data along with frequency and severity data obtained through EHS risk assessment processes, then benchmarks that exposure information against varying sets of cost data that are most relevant to client organizations. This produces ROI information for EHS management costs in the context of internally-credible values, risk management and revenue/profit generation benchmarks. See our April 2009 presentation on ROIa at http://www.slideshare.net/lmheim/roia-presentation
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