Tag Archives: risk profile

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.

In Tampa, a Mining Company Shutdown Highlights Business Interruption Risk from Environmental Issues

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 that do business with Mosaic would be out at minimum of $80 million in combined annual revenue, and about 400 of their employees would lose their jobs, in addition to the 221 Mosaic workers who would be laid off …

“If Mosaic is prohibited from further mining, it will mean that Bul-Hed Corporation would cease to exist sometime in the near future,” Ronnie Hedrick, president, said in a court filing.

Mosaic has estimated it would lose $250 million to $300 million in operating earnings in a worst-case scenario.  In its fiscal year ended May 31, Mosaic had earnings of $1.75 billion before interest, taxes, depreciation and amortization on net sales of $6.76 billion.

Business Interruption Planning

The company’s most recent 10-Q (Item 1A – Risk Factors), filed April 1, 2010, did  disclose this potential risk:

Expansion of our operations also is predicated upon securing the necessary environmental or other permits or approvals. Over the next several years, we and our subsidiaries will be continuing our efforts to obtain permits in support of our anticipated Florida mining operations at certain of our properties. In Florida, local community participation has become an important factor in the permitting process for mining companies, and various local counties and other parties in Florida have in the past and continue to file lawsuits challenging the issuance of some of the permits we require. In fiscal 2009 environmental groups for the first time filed a lawsuit in federal court against the U.S. Army Corps of Engineers with respect to its issuance of a federal wetlands permit and similar lawsuits could be brought in the future. A denial of, or delay in issuing, these permits or the issuance of permits with cost-prohibitive conditions could prevent us from mining at these properties and thereby have a material adverse effect on our business, financial condition or results of operations.

Even so, how should the company – and its business partners – respond to such a risk?  And did business partners understand, assess and plan for such a contingency?  In many discussions we have had with clients about potential shut downs, it is common for companies to plan production volume shifts across other operating locations to make up for the lost volume and continue operating.  In Mosaic’s case, however, the article states:

Although Mosaic has four other mines in Florida, their output would not offset the impact of a shutdown at South Fort Meade, the company said.

Even where a company has the physical capacity at other locations to make up for lost production at one plant, environmental restrictions may not allow timely production increases at others.  Wastewater and air permits typically contain conditions limiting production.  These limits can take various forms:

  • Direct limits.  For example, plant operating hours or volume; emissions limits for production equipment or material use; wastewater flow or contaminant concentration limits.
  • Indirect restrictions.  For example, fuel use or emissions limits on supporting equipment such as generators or boilers; wastewater treatment capacity/retention time for adequate treatment.

Suppliers, contractors and vendors may attempt to recover losses from Mosaic through the contractual obligations in place between the parties.  However, in this case, Mosaic has notified at least some of their business partners that this is a “force majeure” event – an extraordinary circumstance beyond their control – which releases Mosiac from contractual obligations.

Has your company evaluated/assessed the myriad business continuity risks associated with environmental matters in your supply chain?  And what contingency plans do you have in place to protect yourself?

Elm Completes Field Trial of iPad in EHS Audit

Elm has completed its initial field trail of the iPad for EHS auditing.

Lawrence Heim of Elm’s Georgia office:

In our week-long test of the iPad in an actual client audit setting, we used many of the features available in our selected data collection application.  There were other relevant features that we did not use this time, but expect to in the future.  To sum it up, the iPad and our selected application performed flawlessly.

  • Data capture – over 50 pages of handwritten notes in this case – was efficient and error-free.
  • We were able to create charts, tables and diagrams, as well as use a “highlighter pen” feature.
  • The user-defined data tagging function worked extremely well to quickly identify matters needing further information or clarification.  That feature also allowed quick, easy access to – and certainty in locating – findings in the notes.  Data tags clearly indicated finding summary information for further convenience.
  • Exporting the notes was rapid and seamless.  The resulting file can be viewed/emailed to the client in PDF form as well as other formats if needed.

I believe that our use of the iPad created a time efficiency of between 15% – 20% on this particular field trial.  I anticipate that we will see even greater savings as we become more experienced in using the available features the device and app offer.  Any company seriously seeking ways to improve on-site audit efficiency and reducing errors/omissions should evaluate the iPad.

As a result of this successful trial, Elm will be adopting iPad use more broadly across the company before the end of 2010.

If you are interested in having us demonstrate the iPad’s power in an upcoming EHS audit at one of your sites, please contact us.

WalMart’s Hot Air

Yesterday, the world’s largest retailer and its cadre of sustainability advisors released the 61-page Walmart Supplier GHG Innovation Program: Guidance Document.

Elm has read through this document and provides a brief overview of what we think are several important points.  What follows is a combination of excerpts from the document combined with Elm comments.  Not all of these points are implementation “how-to’s”.  Some of our comments reflect potential problems that should be evaluated by suppliers who are impacted by Walmart’s supplier sustainability initiatives.

The program will initially focus on the following product categories:

Animal feed, apparel, candy, cheese, frozen food, fruit, grains, household detergents, meat, media, milk, motor oil, pharmaceuticals, produce, sanitary paper products, snacks, soap & shampoo, soft drinks & beverages, televisions, and vegetables.

GIVING CREDIT WHERE CREDIT IS DUE (TO WALMART)

In past articles, Elm discussed our view there is a true business risk – rather than competitive advantage – to first-mover adoption of GHG reduction programs.  We had anticipated that such risk would be rooted in regulatory requirements.  While that may still be a concern in the longer term, it appears now that the more significant risk relates to Walmart suppliers.  The retailer has specified that no credit will be given to reductions that are not directly related to Walmart’s GHG program, such as reductions required by law or reduction programs that began prior to 2010.

Further, to get a sense of how little the supplier appears to be in the overall process, take a look at the graphic on page 9.  Of the 6 steps in the Opportunities Identification, Prioritization, and Engagement Process, only one (Step 5 – Engage & Implement) includes the suppliers as an “actor” in the process.

Generally, for a project to count towards Walmart’s reduction goal, it can either be a carbon reduction for a product that Walmart sells or a reduction at a facility/process that supplies Walmart.

The reduction achieved must also be “additional” and beyond business as usual (BAU) in terms of emissions accounting. Specifically, the activity must:

1. Demonstrate that the initiative is truly additional, meaning that the action would not have otherwise happened without Walmart’s influence, and

2. That the initiative represents performance beyond BAU, indicating that the improvement is well beyond existing business trends and has the overall impact of emissions reductions within a product category.

Walmart is accounting for carbon reductions that occur by comparing a new product, or change to a facility, to a baseline. The baseline is determined by an assessment of the “business as usual” (BAU) case. BAU is defining what would have been the carbon emissions of a product or a facility if Walmart had not encouraged, introduced, or catalyzed the implementation of an innovation. It is important to note that the carbon reduction claims, rules for quantifying reductions, and monetization within this document are written under current regulatory standards in the U.S. If Federal or other laws change that effects the guidance prescribed in this document, they will be re-assessed at that time. This includes, but is not limited to: public reporting on carbon emissions regulated by the SEC, regulations set by FTC for marketing claims, carbon tax or cap and trade legislation or regulation by EPA, or carbon reporting by EPA.

MORE COOKS IN THE KITCHEN

As if manufacturing sites don’t already have enough folks wandering the production floor and telling them how to make product….

Generally speaking, Walmart can reduce product life cycle emissions by either influencing the development or design of the products them selves and/or by improving the facilities and processes used to make and transport products.

UNDER THE INFLUENCE

The document speaks in terms of Walmart’s “influence” on suppliers in order for GHG reductions to qualify.  The use of such a loose term may create potential conflicts in the future.

For a project to qualify, it must have happened because of Walmart’s influence, showing additionality. This does not exclude projects that were also influenced by other entities, programs, incentives, etc.

The Walmart Project Champion must be able to prove that the project would not have happened at the time it did without Walmart’s involvement. In this project, Walmart’s influence on the project is deemed as “additionality.” Additionality for products means that for a lower-carbon product:

  • Walmart directly influenced the development or redesign of the products, or
  • Walmart influenced the increased sales of the product.

Influencing the product directly means that Walmart engaged with a supplier to design or influence the design of a new product that is more carbon efficient. For instance, if Walmart encouraged a supplier to re-design laundry detergent to have a lighter-weight package than is currently offered, this would be influencing the redesign. If Walmart sought out a new detergent that was concentrated or eliminated specific raw materials that are more carbon intensive to extract, then this would also be an influence of the redesign.

And to further the point above about Walmart’s attempt to become involved at the production floor level:

For facilities and processes, additionality means that:

  • Walmart directly contributed to the improvement of a facility or process, or
  • Walmart influenced energy management.

GET A LIFE (CYCLE)

Product-based reductions require that a complete lifecycle analysis (LCA) be executed by either the supplier or as part of an industry effort. To claim a reduction, the LCA must be compared against a defined baseline of a reference product.   And of course that reference is selected by WalMart.

Reductions may be identified in any phase of a product’s life cycle. A product’s life cycle includes the following primary stages:

  • Raw material extraction
  • Manufacturing
  • Packaging
  • Distribution
  • Usage
  • Disposal

The WalMart Champion must identify a reference product against which to benchmark this product. The reference product may be another product that serves a similar function. As a reference product may vary significantly from the product in question in terms of technology, materials, or size, it is important to compare them on this basic level of function, also known as a “functional unit”. This is particularly crucial for products whose impacts greatly depend on how they are used at the consumer level.

For each product, the Champion must define and describe the methodology used to calculate the baseline and forecasted reduction potentials. The Champion may use a methodology that is best suited for the calculation, but documentation and an explanation is required. Suggested life cycle and corporate accounting methodologies include ISO 14040 and ISO 14064 standards, WRI/WBCSD ’s GH G Protocol Corporate and Product Life Cycle Reporting and Accounting Standards (currently in draft form), and British Standards Institution’s PAS2050 (see Part 5 for additional information).

ClearCarbon will quantify the difference between a “BAU” case and the impact of the project from a product improvement perspective solely. The difference between the two, or the delta, will be calculated at the initial submittal based on projected trends for five years or until December 31, 2015, whichever comes first.

BAU in this context would appear to include any existing GHG programs – or those that become regulatory requirements between 2010 and 2015 – and therefore become incorporated into the baseline, so no credit is given for those reductions.

SHOW ME DA MONEY

Walmart will not resell, retire, or trade carbon reduction claim s under this Program.  Additionally, the carbon reduction claims may not be “exclusive” to Walmart. It may be the case that Walmart will help a supplier, through this Program , to achieve a carbon reduction project that the supplier also wants to report publicly. In this case, both parties (Walmart and the supplier) may state a claim of reduction. Since the reduction is not being sold or traded there is no legal claim over the reduction that would make it exclusive to Walmart or to the supplier. The supplier may monetize (sell, trade, etc) carbon reductions at their discretion, though Walmart will not be involved in these transactions.

But per comments from CEO  from Mike Duke, the supplier should expect Walmart to demand that the economic benefit from monetization be reflected in the product pricing to Walmart.

GHG reductions that come from facility or process based projects require different financial value accounting than product GHG reductions. Quantifiable financial value to customers may include savings to the customer on energy or resource consumption during use of the product, resulting in lower energy bills and lower carbon emissions.

Financial value to the Walmart supplier might include the following:

  • Fuel or electricity savings at a factory or facility level translated into cost savings through industry averages (e.g., average price of kWh x total kWh saved), or
  • Material savings from reduced input purchases or a switch to cheaper materials/inputs.

In some instances either product or project based initiatives will result in a savings to the customer or a benefit to Walmart that are not financially measureable. In these cases, a qualitative description of the positive impact should be included in the worksheets. Benefits to suppliers and businesses may include:

  • Improved business conditions,
  • Public relations opportunities, or
  • Increased positive stakeholder engagement.

The document contains no recognition of or reference to the economic value of EHS risk reductions for WalMart or the supplier.  But beware about claims of financial benefits – as indicated above WalMart intends for those savings to be passed on to WalMart by the suppliers.  Suppliers may find benefits in claiming “savings to the customer or a benefit to Walmart that are not financially measureable.”

THE BIG HOLE

The guidance is written in a manner suggesting that all suppliers manufacture their products at their own facilities.  A massive gap seems to exist relative to contract manufacturing.  Fascinating, given the astounding number of products sold by Walmart that are manufactured in China on behalf of a Walmart supplier.  Perhaps the company has lost sight of the fact that overwhelming cost pressures they impose on their suppliers has driven much of the actual manufacturing off-shore to third party contractors over which the Walmart supplier has no direct operational control.  And what about the overall supply chain GHG impact of the consumer having to more than 1 of a particular item after the initial item breaks/fails prematurely due to poor quality (like my daughter’s new $1 calculator that broke after less than 24 hours after purchasing it at WalMart)? I wonder if the retailer will take responsibility for something like that.

ESH/IT

Doubtful that the acronym would make it past any corporate review, but the linkage between ESH risk and IT management is real.  There have been plenty of reports on energy consumption by IT hardware, e-waste disposal concerns and chemical/metals content of electronics.

But what has not seen much attention is the potential ESH risk posed from internet security breaches.

Internet security breaches?  A risk to environmental, health and safety?

There has been a tremendous growth in computer-based operational controls in manufacturing and process lines.  These computer systems can – and sometimes do – control activities such as chemical mixing, fuel flow, exhaust venting and pollution control equipment operation.  If these computer systems were to become controlled through unauthorized remote access (in other words, a hacker), a great deal of damage could result.

Here are a few scenarios that actually happened.

  • During an IT security test, the “hacker” – a paid consultant in this case – found a way to control the fuel flow to a power generator.  The “hacker” ended up running the generator far beyond safety limits, causing it to overheat and start a fire.  Fortunately, this was done under controlled circumstances so no one was hurt, no collateral property damage was incurred and there were no environmental violations.  If such a situation were to happen during third shift in a remote area of the plant (where generators are commonly located because of the noise), the result would likely be far different.
  • A friend of ours in the IT security business recently told a story of an engagement his company was doing for a manufacturer.  During the project, they found some strange coding in the computer system that didn’t seem to make sense.  Our friend’s company brought this to the client’s attention, who determined that this code controlled critical pressure relief valving in the plant.  The code appeared to have been secretly embedded in software that had been developed by contractor hired by the plant but who was located in a country with ties to several terrorist organizations.

Information technology security certainly impacts more than credit cards and personal data theft.  Breaches in safeguards on process control systems can result in significant EHS events – whether intentional or accidental.

Well, There You Have It…

NYT reports that Washington has abandoned hope of issuing carbon legislation this year, including cap-and-trade.   The inaction is also dragging down regional/state programs as well, including the well-hyped RGGI trading program.  This shouldn’t come as a real surprise to anyone.

But it does continue to increase the business uncertainty surrounding emissions in the US.  Tune in again next year.  Or the year after….

How CFOs Should Support Risk Assessments

An Australian publication CFO World posted an insightful piece on how CFOs should support and participate in corporate risk assessment processes.

Events like the recent BP oil spill would surely be a wake up call for all CFOs that events perhaps seen as ‘external’ factors can no longer be considered from a do-nothing mindset.

As we have commented several times in the past, technical EHS staff sometimes inadvertently discount events.  The technical training and mindset of these folks tends to push them to focus on events with a significant probability.  Doing so generally ignores the potential impact of a low-probability event.

CFOs have a strong grounding in risk assessment, analysis. They can influence better risk assessment outcomes.

Teaming with a CFO perspective brings the “impact” element much more to the front of the process, forcing the technical viewpoints to broaden their review and consider matters in a different light.  The article also provides a good summary of key points for CFO involvement in a risk assessment process, which can form a solid basis for a model of cooperation in such activities.

Citibank Tries to Swim With the Sharks, But Gets Bitten

The New York Time published an interesting story about Citibank’s environmental reputation.  Apparently, Citibank Hong Kong ran a promotion giving a 15% discount to Citibank card holders for a shark’s fin dinner at Maxim’s Chinese Cuisine.

Oops.  While shark fin is considered a delicacy in the Orient – and most of the world’s commerce in shark fin takes place in or through Hong Kong, there is growing global concern about the legality and sustainability of harvesting the fins.

The promotion drew swift condemnation, with a lively discussion group created on Facebook and an e-mail campaign aimed at Citibank’s marketing manager.

Last week, Citibank Hong Kong withdrew the promotion, which was to have run until the end of the month, in response to feedback. ‘‘Citibank is committed to managing our business in a manner that benefits the society and the environment,’’ it said in a statement.

“A few years ago, there may have been no reaction to Citibank ads promoting shark fin soup,” Michael Skoletsky, executive director at Shark Savers in New York, said in an e-mail message. “Now, Citibank’s fast response shows that companies can’t fall behind an informed public on important environmental problems like shark fin soup.’’

“Absolutely Safe”

Those of us from the South know the old joke: What does a redneck say before he goes in a hospital?  Answer:  “Hey Bubba – watch this…”

Funny.  But what isn’t so funny is that Russia has actually launched a barge that is intended to be the foundation for a floating nuclear power plant.  And the head of the Russian nuclear regulatory agency has called the floating power plant “absolutely safe.”

They must have hired Neptune, Poseidon, Zeus, Jupiter – and their entire mythological posses – to participate in their risk assessment and control program.  That’s impressive.

Read the article from Reuters.

Perhaps senior level officials from Russia nuclear regulatory agency should come spend a summer in the south with Bubba and his friends.  So what does a Russian nuclear agency official say before he creates a nuclear disaster?  “Hey Comrade – its absolutely safe”.

NY State Pension Sues BP for Stock Price Drop Following Spill

Here is an interesting excerpt from a Reuters piece published yesterday:

New York state’s pension fund plans to sue BP Plc to recover losses from the drop in the company’s stock price following the worst oil spill in U.S. history, state Comptroller Thomas DiNapoli said on Wednesday.

DiNapoli said the fund owned more than 19 million shares when the Deepwater Horizon rig exploded in the Gulf of Mexico in April.

“BP misled investors about its safety procedures and its ability to respond to events like the ongoing oil spill and we’re going to hold it accountable,” said the Democratic comptroller, who will stand for election in November in the race for New York comptroller.

The Pension’s action – and it stated basis for the lawsuit – is dramatic evidence of the risk companies can face from shareholder activism in light of EHS matters.  It further supports what BusinessWeek reported last week about the likely increased in shareholder demands related to EHS management and disclosure.