Category Archives: EHS

New Advanced Auditor Training Program for HSE/CSR Auditors

Elm Sustainability Partners and Elm Consulting Group International have launched a new training module for senior-level and experienced health, safety, environmental and social auditors seeking to improve their auditing skills and get updates on timely topics related to non-financial auditing and technology.

It is also relevant to those buying HSE/CSR audit services who are looking to improve the quality of audits they receive.  After this course, buyers can identify specific areas of audit practice improvements to request of their providers.  Alternatively, these buyers may wish to require their external HSE/CSR auditor to complete this training themselves.

A partial list of what is covered includes detailed review and practicum concerning:

  • auditor independence standards and managing impairment threats
  • audit criteria requirements
  • audit and evidence limitations
  • evidence hierarchy, weighting and corroboration
  • fraud, forgery and tampering – including new concerns brought about by technology
  • interviewing skills including fraud examination and FBI techniques
  • discussions of US Department of Justice Criminal Division Evaluation of Compliance Program criteria (2017), the June 1, 2017 US Public Company Accounting Oversight Board (“PCAOB”) auditor reporting standard on Critical Audit Matters and EU Non-financial reporting rule
  • audit QA/QC considerations

Each participant will take a pre-test to establish a knowledge baseline and identify specific areas for improvements.  Exercises are administered throughout and a post-test will conclude the session demonstrating the advanced competencies gained.  HSE/CSR regulatory and other technical topics will not be covered as this is not a regulatory update session.

Elm Principals are BEAC Certified Professional Environmental/Health/Safety Auditors (CPEA), have served on the Board of Directors of The Auditing Roundtable (recently merged into the Institute of Internal Auditors (IIA)) and BEAC, and have trained thousands of internal and external HSE auditors over the past three decades.

Contact us to learn how you and your team can take advantage of this unique program.

New Social Auditor Certification in the Works

We have been vocal in our concerns and criticisms concerning social/CSR auditing.  And we have ourselves been criticized for that. Fair enough.

The Association for Professional Social Compliance Auditors (APSCA) has released for public comment its draft Code of Conduct and Auditor Competency Standards – available here.

We support APSCA and its work towards improving the entire “ecosystem” of CSR auditing.  Anyone with a dog in this hunt should click on the link above and submit comments.  APSCA is keen to obtain input from as wide a range of stakeholders as possible to help become as credible as possible.  Given the breath of subject matter that is being demanded of CSR auditors by buyers of their services, there is a great deal of overlap in APSCA’s draft into environmental health, safety, transportation and other technical areas.

You Are What Your Suppliers Do: Supplier Actions Make Headlines, Break Business

With companies facing increasing pressure for the actions of every part of their supply chain, demand for – and reliance on – supplier/corporate social responsibility (CSR) audits conducted by third parties has grown rapidly.

Shirts, Phones, Rocks and Shrimp

But there is concern about the quality, reliability and credibility of these audits.

CSR Auditing and Toilet Paper

Is Social Auditing Really Auditing?

Harvard Professor Identifies Factors for Meaningful CSR and Supply Chain Audits

You Don’t Know What Your Suppliers Are Hiding

Companies rely on their CSR audit firm to utilize qualified auditors, employ adequate QA/QC processes and expend adequate time to conduct a reasonable audit. Yet there are no generally-accepted professional CSR audit practitioner standards. Moreover, due to cost pressures, lowest cost audit providers are frequently selected that may not have appropriate auditing skills or training – the largest CSR audit firms conduct tens of thousands of these audits each year. Increasing audit time and costs to improve quality or credibility is typically not realistic – the business model is inherently high-volume, low margin.

Are these audits effective at findings supplier actions that create risks for you? Can a company gain confidence in their CSR audits without adding costs? Is a change in auditors necessary?

Improve Credibility for Disclosures, Media and Customers

Changing audit firms is not necessary, nor is another layer of auditing. Instead, a formalized auditor training program can be a low cost yet effective solution.

The Elm Consulting Group International is expanding our well-proven auditor training program to companies who use CSR/supply chain auditors. The intent of this program is for brands to provide detailed communication and training to their current CSR/supply chain auditors about the company’s requirements for auditor competence, audit quality and processes in order to enhance the credibility of audit information.

Our formalized training for existing CSR auditors builds their client’s confidence in the quality of the work provided. The program is not intended to provide training on specific audit topics such as child labor or worker rights. Instead, the focus is on proven audit techniques such as:

  • Understanding and applying professional skepticism
  • Interviewing and active listening
  • Identifying and responding to non-verbal cues within multi-cultural contexts
  • Evidence sampling methodologies
  • Using information from different sources
  • Verification and recomputation techniques
  • Judging audit evidence quality and limitations
  • Fraud detection
  • Using working papers and audit protocols
  • Writing effective and complete audit findings
  • Audit quality expectations, requirements and processes
  • Maintaining auditor independence, including auditor rotation

Our Qualifications as The Leader in Auditor Training

Our HSE auditor training experience began in the 1980s and we have successfully trained hundreds of external and internal auditors. Elm Principals hold auditor certifications from the US Board of Environmental, Health and Safety Auditor Certification (BEAC, now wholly merged into the Institute of Internal Auditors) and UK Institute of Environmental Management & Assessment, are approved trainers for the IIA EHS auditor certification program and are subject to annual continuing education requirements ourselves. Further, Elm Principals have served in various Board positions in The Auditing Roundtable (merged into the IIA in 2016) and BEAC, including the current BEAC Chair.  More information about our internal audit quality and auditor competence standards is available here.

Give us a call at 678-200-3424 or contact us via email to discuss how we can help you increase confidence in your CSR audits.

CSR Auditing and Toilet Paper

In the 1990s I worked for a large paper company and one of the products we made was a name brand toilet paper. As TP goes, this was nice stuff – 2 ply, thick and soft. We marveled that the product didn’t sell well in markets dominated by products that were thin, had holes and fell apart too easily. It baffled us that so many people didn’t care about what ends up on their hands.

Today there is a surprising demand for third party environmental/safety/social/supply chain audits that are equivalent to cheap TP – thin, single “ply” (i.e., one dimensional) and full of holes.   Yet even in the midst of so much reliance on audits, very few buyers of these audit services seem to be concerned. Its not only us that sees this – a fascinating article published earlier this week called out Amazon, The Children’s Place, Gap, Hanes, J-Crew, JC Penny, Kohl’s, Macy’s, Nike, Pink, Polo, Target, Walmart and Zara for “ineffective … CSR monitoring, corporate codes of conduct and industry ‘social audits’ … in protecting the rights, health and safety of millions of workers in global supply chains.”  This, after a decade of CSR audits, is the author’s conclusion.

The article goes on to discuss related failures and inconsistencies in certifications and audit scopes. Our own experiences support this – all too frequently we have seen companies pursuing various certifications solely in order to have a certificate to frame and hang in their lobby. One unfortunately memorable experience came a week after a client had completed their ISO14001 recertification audit. The ISO auditor passed the site with flying colors and was highly complimentary of their program. However, our compliance audit found – with little effort – criminal environmental violations that resulted in the site environmental manager losing his job and one of the few instances where self-disclosure to EPA was warranted without question. This isn’t necessarily a problem with the standards themselves – the problem rests completely with the auditors responsible for assessing the sites.

This criticism shouldn’t be a surprise to anyone who is familiar with current CSR audits and auditors. Certainly there are excellent and conscientious practitioners in the field, but the pricing model of these audits tends to support minimalism all the way around. In a recent article on this topic, we stated our belief that the pricing of CSR audits is directly in response to severe operating cost pressures placed on the manufacturers by the brands. But that circles back to consumer buying preferences as we pointed out six years ago. If attributes other than price and product performance were truly key buying criteria, then the entire economic ecosystem (eco-ecosystem??) would be different.

We do not offer typical CSR/supplier audits because we flatly refuse to compromise our professionalism in order to be cost competitive in this market. Our respect for clients and concern for the risks they face exceeds our desire to compete for revenue from these services in the current market. But, as evidenced by what the article states is an $80B year CSR industry, many people are okay with using cheap toilet paper and don’t seem to care what will end up on their hands.

A few key things you should do to help prevent continuing CSR audit failures:

  • Ensure the audit scope matches the auditor(s)’ backgrounds.  For example, after Raina Plaza, CSR auditors have been increasingly asked to provide information on structural engineering and local electrical code compliance.  These matters require specific technical knowledge beyond that of a typical CSR auditor.
  • Explore the auditor(s) professional qualifications. Do they hold a relevant third-party certification?  How much continuing education do they require on an annual basis?  What fraud detection training have they had?  What are the audit firm process for ensuring independence of the individual auditors, not just the firm as a whole?  Auditors should consider themselves professionals and hold themselves accountable to appropriate standards for qualifications.  If they don’t, that speaks volumes about their attitude toward their work.
  • Test the auditor(s) technical knowledge beyond their checklist.  Does the auditor understand the applicable requirements beyond what is written in the audit checklist or protocol?  There are few times when reality matches the criteria on paper.  You want a professional who is prepared to apply knowledge and expertise objectively and pragmatically, not just check boxes on paper or a screen.
  • Find out how much time the auditor(s) spend onsite, and on each audit activity.  Generally speaking, one day (or less) total on-site is too little for any credible audit scope.  The auditor should reasonably balance their time between document reviews, interviews and visual observations.  If you don’t feel there is adequate time spent or balance in the activities, make your auditor change their practices.
  • Observe – or get feedback on – the auditors’ bedside manner.  An auditor’s attitude and non-verbal cues have a significant impact on the amount and quality of information they are able to gather from the audited entity, and how that entity responds to the audit and corrective actions.  Interviews conducted by the auditor should be non-threatening.  Using active listening techniques without sounding condescending or like a robot is an art form not easily mastered.
  • Look at audit report findings and the cited evidence.  Are findings based solely on interviews?  While this can be acceptable in some settings/situations, information from interviews should be corroborated with another type of audit evidence such as documentation, recomputation or direct visual observations.  If findings are not based on objective and repeatable evidence, make your auditor change their practices.  Issues based on interviews alone should be brought forward in a mechanism outside the audit report as those don’t meet the requirement for a formal finding.
  • Determine how audit reports are peer reviewed – or are they peer reviewed at all?  Does the review require the auditors’ original notes so the reviewer can confirm that the audit evidence supports the findings?  All audit reports should go through a formal internal quality check.
  • Don’t get swayed by broad company or program certifications such as ISO.  While these certifications can be an indicator of internal process formalization, understanding the reality of auditor performance in your specific need is far more important.
  • When considering an auditor, call client references and discuss their experiences, both positive and negative.  Obviously, references are specifically selected to present a positive image.  Expressly ask the reference to offer comments about matters or situations that are not so positive.

The Best Sustainability Seminar in 20 Years – National Association of Manufacturers (NAM) Leading Edge Executive Forum

Yesterday I attended one of NAM’s new Leading Edge series of forums. The session was held in Chicago on the topic of generating real economic value from sustainability.  In 20 years of working in the sustainability space, this was by far the best meeting on the topic I have attended. There have been good ones in the past, certainly. But those typically include folks (ahem, usually consultants) trying to sell the idea of artificially bulking up financial benefits of sustainability initiatives by using soft numbers and intangibles in the ROI.

That is exactly the kind of fluff that destroys the business credibility of sustainability – which we have written about and commented on to the SEC as well. In stark contrast to fluff, BS and soft value, the NAM panelists spoke to how they quantify the real dollars from their various sustainability initiatives.  And I do mean real.  No attempts at assigning a value to reputational damage or brand image, no estiamated avoided contingent risks.  These were business initiatives that, oh by the way, also happen to fall within the scope of sustainability.

Yesterday’s gathering was set up in conversation style rather than a typical presentation, which allowed each speaker to discuss their approach to, or obstacles encountered in, a moderated topic. Speaking were representatives from Ecolab, Microsoft, Pfizer, BASF, Smithfield Foods, ArcelorMittal and Alcoa, with a wrap up from Subaru of Indiana.

One point that stood out came from Subaru, who showed the sustainability timeline for their manufacturing plant in Indiana, which began in 1994.   Back then, they developed a business case for a particular project based on real dollars that was successful.  By doing so, they set the foundation for future sustainability initiatives that probably would not have seen the light of day if the business foundation set in 1994 was unsound.

I’m not sure if NAM will repeat the session, but if they do we highly recommend attending.  If you would like to convince them to hold it again, please send us a note and we will forward it to the NAM program manager.

Is Social Auditing Really Auditing?

We are a rather vocal proponent of auditor qualifications and set a high bar for ourselves and others who call themselves auditors. Non-CPA auditors are “regulated” differently than CPAs and in some cases, less stringently. Auditor certifications are available for non-CPAs specific to areas of practice. These certifications vary greatly in terms of validity, rigor and length of time they have been established. In our case health, safety and environmental (HSE) auditor certification is applicable.

In the US, the Board of Environmental Auditor Certification (BEAC) was established in 1997 as a joint venture between the Institue of Internal Auditors (IIA) and The Auditing Roundtable. Earlier this year, BEAC and The Auditing Roundtable were wholly merged into IIA. Elm Principals obtained BEAC certification the year it was established and have maintained the annual continuing educational requirements to hold the certification continuously since then. Three of our Principals have for the past 10 years held – or currently hold – leadership positions on the Boards of The Auditing Roundtable and BEAC.  In the UK, the Institute of Environmental Management & Assessment (IEMA) offers auditor and practitioner certifications. One Elm Principal holds an IEMA certification as well.

The Independent Private Sector Audit (IPSA) requirements finalized under Dodd Frank Section 1502 for conflict minerals reports added more professional qualifications for IPSA practitioners. Elm responded by adding a stand alone page on our website describing our audit quality practices.  We haven’t seen other firms provide the same level of clarity, specificity and visibility on this matter.  From our beginning, we sought to ensure our qualifications, expertise and professionalism were unparalleled.

During the past 10 years, a new type of audit emerged – the social or corporate responsibility audit. Most of these audits are commissioned by large companies to be conducted of their suppliers to ensure that they are conforming to social responsibility standards. We have found over the years, the perceived value of these audits has reduced dramatically and price is far and away the primary auditor selection criteria. Of course, with reduced pricing comes reduced scoping and level of effort.

And here is the mic drop.

It isn’t unusual to see social auditor qualifications indicating something like 2,000 audits conducted over 10 years. At first, that sounds very impressive. But do some math – on average, that is 200 audits/year or 16.7/month. Assuming a full time US standard work year (2,080 hours) and 75% utilization, that comes to a little over 7.5 hours/audit average.

In comparison, Elm Principals average close to 30 years of experience each, and have conducted between 500 – 600 audits each. In comparison to the 2,000 social audits, we seem to be slackers. But again, doing math on conservative numbers (25 years and 500 audits), we average of 20 audits/year or 1.7/month. Again, assuming a full time US standard work year and 75% utilization, that comes to 78 hours/audit average.

These are just averages and different matters factor into real numbers for both social audits as well as ours (our average is more like 55 – 60 hours/audit). But clearly there is an order of magnitude difference between our HSE audits and social audits.

Are we inefficient or milking billable hours?  We hardly think so.  First off, our business model is different – we don’t run on billable hours, which relieves the pressure most firms have for project volume.  Our audits are far deeper and more complex than a typical supplier social audit – almost always requiring two to five auditors and a week on-site. We spend significant time delving into documentation, spreadsheets, permits and regulations at the federal, state/provincial and local levels. Our data sampling rate is generally far higher than the minimum statistically meaningful level. We carefully evaluate and confirm operating and production levels, including technical operating parameters for pollution control equipment. Most of our audits also include assessing performance of on-site contractors.  We even show up on site at 3 a.m. to observe third shift operations. And we cover the full breadth of environmental, health, safety and – when the client requests – sustainability indicators.

This is not to say that all social auditors are poor auditors or unqualified. We have observed some in the field and have been impressed.  There are also instances where limited audits/site visits are reasonable in the social auditing context.  But with social auditors expanding into other areas of supply chain and operations, the social audit approach and qualifications are not universally appropriate even though the price they offer may be attractive.  You may want to think carefully about your needs and expectations, as well as the numbers on CVs and ask yourself if the auditor is actually impressive or overworked and under-scoped.

Sustainability is Stupid

Please read the entire article before sending me nasty notes. At the end of this piece, you may actually agree with me.

It’s a pretty inflammatory statement.

But I mean it. Just not in the way you may think.

Stupid Is As Stupid Does.  It is probably worth starting with the background on which my perspective is based. I have about thirty years professional experience cycling through the relevant environmental buzzwords of the times: environmental compliance in the mid-80s, environmental management and value in the 90s, environmental risk and sustainability after the turn of the century, and now corporate responsibility and supply chain sustainability for this decade.

In 1994 I was fortunate to obtain a pre-print copy of Michael Porter’s and Claas van der Linde’s seminal work Toward a New Conception of the Environment-Competitiveness Relationship, (Journal of Economic Perspectives (1995), Vol. 9, No. 4, pp. 97-118). The work was essentially reproduced in Green and Competitive: Ending the Stalemate (Harvard Business Review, September – October 1995). As cliché as this sounds, the article truly changed my career as I began seeking economic-environmental linkages with projects, clients and as in-house environmental staff at a Fortune 150 manufacturer.

I have read hundreds of research papers, articles, studies and analyses that, in a nutshell, attempted to link environmental or social responsibility performance to economic gains of some type. Others tied “intangibles” to financial benefits, defining/creating value, and valuing risk reduction. I have pored over texts on traditional cost reduction, cost accounting, marketing, strategy, etc., even completing executive education on these topics.

And yes, much of this has been put into practice (or at least attempted). I have been through a couple McKinsey exercises and a misguided and inappropriate implementation of Economic Value Added (EVA)1. I helped develop internal environmental performance metrics and reporting and attempted to create in-house sustainability initiatives. I served as a team member for sustainability and LCA tool development in GEMI, AIChE and on the US SubTAG to ISO for the Environmental Performance Evaluation standard.  For clients, I have developed and reviewed sustainability criteria, performance metrics and calculated the economic benefits; developed environmental risk assessment and valuation criteria leveraging traditional risk management/insurance models; and quantified the value of environmental risk avoidance investments/activities.

You get the idea.  My point is that I am fairly competent on the subject, if not a relative old-timer with an appropriately receding (or altogether non-existent) hairline. I don’t claim know every aspect of sustainability, but can speak credibly to the issue.

What’s Stupid About Sustainability?  Really, it isn’t sustainability that is stupid – it’s how sustainability is “sold” to business, including:

  • The lack of a consistent, reasonable and/or actionable definition
  • The flood of (mis)information, articles and studies about sustainability that are highly divergent in approach and results –  due in part to the lack of a consistent, reasonable and/or actionable definition
  • The inherent bias of sustainability media and practitioners that identify inappropriate or inconclusive linkages between economic value/financial returns to sustainability practices.
  • Ignoring customer perceptions of performance tradeoffs for sustainable products

Consistent Inconsistency.  About the only thing everyone can agree on about the word “sustainability” is that in its English form, it has six syllables. There are even disagreements about capitalization – should the “S” be capitalized to signify some importance of the word or not?

Readers can likely offer at least three different definitions of the word. I have no intention of listing various definitions here – it isn’t necessary. If you think about it, sustainability is not about doing more, it’s about doing less – spending less, wasting less, reducing resource use. Probably not everyone will agree on that either, but that is really the point – how can a company take on an initiative that can’t even be defined? And even if there is internal agreement, not all stakeholders will concur.

Buried Alive.  How do you go about establishing a definition from which to work? One answer is look to sustainability subject matter experts, studies, articles and white papers. This sounds straightforward (if not tedious), but the amount of available information is completely overwhelming, only increasing confusion. Just for fun, I did a simple test by doing an Internet search on the word “sustainability” and a few other very popular corporate buzzwords. The results speak for themselves.

sustainability table* Search conducted April 9, 2015

Think about this for a moment – some of the most popular (and ridiculed) Buzzword Bingo lingo rank significantly lower than sustainability in terms of Google results. I was actually surprised by this.

Clearly, this isn’t the answer.

Stupid Money.  As sustainability professionals, our knowledge creates biases that can turn into obstacles – forcing a sustainability solution where one may not exist, or may not be appropriate. This is where many sustainability professionals go wrong – and get stupid.   A major myth stemming from the sustainability bias is that sustainability performance is financially material. We wrote back in 2011 –

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 thought is still on point2. More interesting, however, is the thought we expressed that sustainability value is more appropriately viewed in the context of bonds rather than equities (long term versus short term). Today, that is proving true as demonstrated by the global growth of clean energy financing through bonds which according to Bloomberg New Energy Finance, rose 16% last year to a record $310 billion, boosted by commitments to sustainability investments from Deutsche Bank, Citigroup, Barclays, Bank of American, Credit Agricole, Goldman Sachs and BlackRock.

As we said in 2011, “Given … the lackluster historical success of valuation of environmental/sustainability matters in the context of stock prices – perhaps it is time to redirect our efforts at finding relevant and credible metrics.”

Are Customers Stupid?  About twenty years ago I wrote a thought piece on sustainability and circulated it to a small group of colleagues. My basic premise was that sustainable products are a luxury for those able to afford the price differential or willing to accept certain trade-offs. For example, alternative fuel vehicles cost more than comparable gasoline powered cars, so alternative fuel vehicles were not likely to be economically successful in low-income populations. On the flip side, those able to pay more for the sustainability attributes of alternative fuel vehicles had to accept trade-offs in vehicle size, performance and selection.

This premise remains valid today, although the situation has improved. We now have more options for electric/hybrid vehicles and prices have come down for many makes/models, so trade-offs have been reduced in this instance. But other sustainable products still cost more, and the perception of performance trade offs still exists.

Four years ago, we wrote about a study undertaken by professors of marketing at William & Mary, Ohio State and the University of Texas. The study results were presented in The Sustainability Liability: Potential Negative Effects of Ethicality on Product Preference. Briefly, the authors’ study demonstrated that customers frequently feel that improving ethical aspects of a product reduces the ability of the product to fully perform its expected function. In addition, the authors demonstrated the impact of bias on the part of customers when they are being observed (such as in a survey scenario) versus when they aren’t observed (or don’t know it). Connect the dots – customers being observed as part of new product research aren’t likely to show their true concerns about sustainable products and may not buy them when they are available 3.

Going back to automobiles, Tesla has done a good job of battling perceptions of driving performance (such as creating an Insane driving mode that rivals traditional supercars in 0-60 times) and range limits. Few other companies or products seem to have attacked the trade-off perceptions in a similar manner.

To sum it up, you need to understand your customers’ key buying criteria, and how their perceptions of sustainability impact their decisions.

Don’t be Stupid.  Approach internal decision makers in their terms and you keep their attention with a higher likelihood of success. Or ignore that and emphasize ill-defined, unproven or irrelevant pie-in-the-sky sustainability concepts and see where that gets you.

To begin, you need to understand the company, how it operates and why it exists. Act as though you are the VP of Operations, Marketing, Communications, Supply Chain, Product Development and HR. Pretend you are working on a case study at Harvard Business School. Learn as much as you can, such as:

  • What does the company make or offer? What need does it fill? Why does that need exist in the first place?
  • What are key internal words, phrases, programs and initiatives?
  • What are the manufacturing processes involved?
  • What is the manufacturing capacity and efficiency?
  • How does the company make money?
  • What are the most critical aspects of revenue generation and profitability?
  • What are the direct and indirect cost drivers with the biggest impact?
  • Why are certain suppliers used? What are your company’s key buying criteria?
  • Why do customers buy from your company? What are your customers’ key buying criteria?
  • What is important in a new product? How is the market analyzed and demand predicted?
  • Who are the most important audiences for the company’s external communications?
  • Why do employees work at the company? What is important to them?
  • What are the different relevant compensation programs, metrics and triggers?

After learning “the business” you can then put on your other hat and identify where sustainability initiatives may make sense. Where you  find a potential project, your pitch should be about the relevant business benefits using the appropriate business words. The word “relevant” is emphasized.  Unless specifically prompted by management, don’t use the word sustainability until near the end of any conversation: “Oh, and we also get to highlight this as a sustainability success, too.”

What? Why de-emphasize the sustainability aspects? Your audience is likely to be focused on traditional drivers/metrics of the company’s financial performance. Capital is limited, revenues need to increase, costs need to decrease, the stock price is too low and competitors are gaining market share. Cynical management only needs one reason to pull the plug and divert attention/funding away from the sustainability initiative.  Remember your audience and what your ultimate goal is.

Conclusion.  I don’t actually believe sustainability is stupid – quite the contrary.  But I do think that the concept is too frequently portrayed in a stupid manner in publications, by service providers and around corporate conference room tables. Being smart about it is easy as long as you can temporarily disconnect your sustainability expertise/bias and focus on your company’s business fundamentals.

Of course there are exceptions to this; numerous companies have embedded sustainability into their corporate culture and don’t operate as I described. The wide-ranging definition of sustainability also creates a broad (perhaps overly broad) set of examples.  All of these will be waved under my nose as examples of how wrong I am. Yes, it is right that I am wrong in those instances, but those companies are very much in the minority. As sustainability professionals, we need to create opportunities for that silent majority so they can reap the real rewards of sustainability.

We just have to be smart about doing that.

________________

1 EVA is intended to evaluate capital expenditure opportunities, but in this instance, each staff member had to demonstrate our own personal economic value added by applying the methodology to our everyday activities. That is why I call it inappropriate and misguided.

2 In contrast, perhaps the best examples we have seen that in our view comes the closest in realistically linking sustainability and equities valuation are (a) the April 17, 2015 letter from Ceres to the SEC on climate disclosure. Technically, the letter is about disclosure of climate risk as material information to investors, discussing the matter in terms of asset risk, materiality of future pricing/demand scenarios and long-term capital expenditure plans/assumptions for oil and gas companies; and (b) a recent study from Harvard Business School Corporate Sustainability: First Evidence on Materiality.  This paper isn’t necessarily easy to understand, but the authors performed a number of tests to validate their findings.  One possible weakness is that the authors relied on materiality guidance and data from the Sustainability Accounting Standards Board (SASB) for determining what sustainability matters are considered material, rather than independently confirming that assumption, or developing their own materiality benchmarks. We are not aware if SASB guidance and methodologies have been independently validated.

3 We recently brought these concepts forward to a major consumer products company who was looking to develop a marketing campaign based on sustainability attributes of a new product. After evaluating the matter further, the company put that campaign on hold.

Cyber Attack on Iron Furnace Controls Causes Physical Damage to Plant

A few years ago, we wrote about how the growth of cyber attacks should be considered when companies assess environmental risk of their operations.  As highlighted in that article, rogue code was discovered before harm was done.

But an iron foundry in Germany was not so lucky.  As reported in this  WSJ article,

The plant’s control systems were breached which “resulted in an incident where a furnace could not be shut down in the regular way and the furnace was in an undefined condition which resulted in massive damage to the whole system,”

This situation should cause concern to anyone responsible for HSE and sustainability matters.  Malicious control of production operations can result in all sorts of nightmare scenarios, especially where the manufacturing operation involves the use of chemicals.  In the most minor case, environmental permit violations and media coverage are probable.  The worst scenario could involve the intentional weaponization of manufacturing by hacking operational controls and intentionally creating another Bhopal or Chernobyl.

We continue to recommend that companies consider these issues when conducting environmental risk assessments of their operations.

Environmental Risk and Sustainability in World Economic Forum’s Global Risk Report 2014

The World Economic Forum (WEF) has published its Ninth Global Risks Report.  We look forward to this report every year.  This year, a number of items caught our attention related to environmental management, sustainability, human rights and risk assessment methodologies.

  • Environmental management.  Man-made environmental catastrophes did not make the Top 10 risks, but it was noted.  In the Global Risk Landscape (Figure 1.1), man-made environmental catastrophes was rated slightly lower than average impact with slightly than higher likelihood.  At the same time, it was included in the Interconnections Map (Figure 1.4).  The map not only shows the perceived connectivity of the risks, but also weighted the strength of the identified linkages.  We find it interesting that man-made environmental catastrophes have:
    • Medium strength connectivity to climate change;
    • Medium strength connectivity to water crises; and
    • Weak connectivity to biodiversity loss and ecosystem collapse.
  • Sustainability.  WEF is working on a sustainability-adjusted Global Competitiveness Index (CGI) that “captures the extent to which prosperity is being generated in a sustainable way, taking into account environmental stewardship and social sustainability.” (Box 1.6). 
  • Human rights.  The Report does not list human rights or labor conditions at all.  There are weak implications in the report’s discussions of income inequalities, urban poor living conditions and social instability.
  • Risk assessment and management.  Risk management practitioners, including those in the EHS/sustainability realm, may find the discussions on risk assessment methodologies (Parts 2.5 and 3) particularly insightful.  Among the more important points is the potential for cognitive bias in the risk assessment process.  Box 2.5 presents a number of risk management solutions, with which EHS and sustainability professionals should already be familiar.

Our Pick for the Super Bowl 2014 Ad Winners

Ok, we admit it – this post will be completely gratuitous and self serving.

You may have heard about the Super Bowl ad give-away contest sponsored by a well-known small business accounting software company.  CNN recently posted a story on it.

We thought it would be fun to give it a try, so we posted our entry.

Your vote and support would be greatly appreciated.  And we promise to post pictures from the Big Game if you help get us there.