Monthly Archives: January 2010

The World Economic Forum in Davos Releases Global Risk Report 2010

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 for companies to try to address the risks reviewed in the report.  A few points brought forward by GRN/WEC include:

Typically, risk is considered in terms of “impact and likelihood” based on internal consensus, often involving very little external or expert input [emphasis added].  Corporate risk assessments rarely consider a time frame beyond two to three years, or explicitly examine the long-term volatility introduced by risks to strategies with a five to 10 year execution horizon. Decision-making is further skewed by necessary focus on the reporting of short-term results and known or recent risks affecting the current period.

Further, research shows that relatively few companies effectively apply tools, such as scenario analysis, or effectively integrate risk data into long-term strategic planning.

…. institutions and governments collaborate to:

  • Take a long-term approach to global risk identification, analysis, tracking and mitigation
  • Use frameworks that reflect risk interconnections rather than silo approaches
  • Address the need for more robust data on key risks and trends to be collected and shared in a coordinated manner
  • Conduct cost-benefit analysis on risk solutions to improve fund allocation and better understand the long-term benefits of investment choices
  • Track emerging risks and educate leaders and the public about real, rather than perceived threats
  • Communicate clearly and consistently about the nature of threats and about strategies to manage and mitigate them
  • Understand the influence of behavioural aspects of risk perception

Our experience with various client HSE risk frameworks mirrors a number of GRN’s points.  Among our common observations:

  • HSE risk assessments frequently rely solely on internal senior management views.  Unfortunately, these views are not always consistent with operational reality in the field or trends outside the company.  To generate truly valuable information,  a risk assessment process should include senior management perspectives that are benchmarked against middle management directions, operations in the field and external emerging pressures.
  • Traditional financial and cost/benefit analyses do not adequately evaluate risk reduction benefits.  We find there are two primary reasons for this.  First, the complete array of relevant costs and benefits are not typically captured.   Second, the traditional view of short-term financial benefits tends to conspire with the internal “behavioural aspects of risk perception” to drive investment away from HSE risk assessment/management needs.  These findings lead to Elm’s development of our HSE risk reduction financial metric Return on Investment of Loss Avoidance (ROIa©).  Read more here.

The Global Risks report is produced by WEF’s Global Risk Network – a partnership of Citigroup, Marsh & McLennan Companies (MMC), Swiss Re, the Wharton School Risk Center and Zurich Financial Services.

NGOs Win Court Battle Against Ex-Im Bank, OPIC on Project Financing

According to EnvironmentalLeader.com,

San Francisco’s federal court settled a lawsuit in which environmental groups and four U.S. cities accused the Export-Import Bank of the United States, the country’s official export-credit agency, and the Overseas Private Investment Corp., of financing energy projects overseas without considering impacts on global warming, Santa Monica Daily Press reports.

Friends of the Earth, Greenpeace, Boulder, Colorado. and the California cities of Arcata, Oakland and Santa Monica, filed the lawsuit in 2002, claiming that “the two agencies provided more than $32 billion in financing and loan guarantees for fossil fuel projects over 10 years without studying their impact on global warming or the environment as required by the National Environmental Policy Act,” FoxReno.com reports. The cities claimed they would feel the environmental impacts of overseas projects.

The two agencies have agreed to provide a combined $500 million in financing for renewable energy projects and take into account GHG emissions associated with projects each company supports.

Under the settlement, Ex-Im agreed to develop a greenhouse gas policy and start considering CO2 emissions when evaluating fossil fuel projects for investment.

OPIC agreed to reduce the GHG emissions associated with projects it supports by 20 percent over the next 10 years.

The Santa Monica Daily Press, also covering the court decision, clarified

The projects at the center of the lawsuit included a coal-fired power plant in China; a pipeline from Chad to Cameroon; and oil and natural gas projects in Russia, Mexico, Venezuela and Indonesia. Many of the projects are well under way or already completed and provided oil to the U.S.

SEC Votes to Require Public Disclosure of Financial Risk of Climate Change

The Securities and Exchange Commission (SEC) today voted to require public companies to disclose the financial risks they face related to climate change.

In her opening remarks, SEC Chairman Mary Shapiro emphasized that

we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics.

The Commission is also not considering amending well-defined rules concerning public company reporting obligations, nor redefining long-standing interpretations of materiality.

The vote requires that the SEC develop and issue an “interpretive release” – guidance that can help public companies in determining what does and does not need to be disclosed under existing rules.

Specifically, the SEC’s interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:

  • Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
  • Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

Although the Commission ultimately voted in favor of the mandate, The NYT reported that Commissioner Kathleen L. Casey said it made little sense to issue such guidance “at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux.”

The SEC’s interpretive release will be posted on the SEC Web site as soon as possible.

Once the guidance is available, companies will need to review and evaluate the current risk assessment and reporting framework to determine if it is robust enough to comply with the new SEC action.  With our substantial experience with EHS risk assessment and management that extends well beyond basic regulatory compliance, Elm is uniquely suited to assist companies with this.  Please feel free to contact us to discuss further.

Elm Adds New Affiliate to Sustainability Service Team

Today, Elm announced that Audrey Bamberger has joined Elm as an affiliate to our Sustainability Services team.

“We are very pleased to have Audrey join Elm’s affiliate program and Sustainability team,” said Lawrence Heim, Director of Elm.  “I worked with Audrey as part of a workgroup at the Global Environmental Management Initiative (GEMI) and know first hand her professionalism and technical expertise.  She adds yet another dimension of experience to the resources available to our clients.”

Audrey is currently the founder of Bamberger Consulting Services, LLC dba Pathways to Sustainability. For 15 years prior to starting her own company, Audrey worked in the Strategic Environmental Initiatives group at Anheuser-Busch, helping to initiate and transform environmental programs and addressing issues such as greenhouse gases, performance tracking and reporting, environmental information systems, voluntary program engagement, Environmental, Health and Safety (EHS) management systems and environmental impacts in the supply/value chain. Being responsible for the company’s EHS report, she assumed a key role in transforming the report into a Corporate Social Responsibility (CSR) report, expanding its reach and incorporating environmental sustainability initiatives. Audrey also served as the company’s “go to” person on issues concerning climate change, carbon and greenhouse gases.

As a long-term leader and team builder within GEMI, Audrey has contributed to many of the organization’s publications and tools, led multiple working groups and served on the Board of Directors.

Prior to her work in sustainability, Audrey spent 10 years in the computer science field, as a project manager and information systems developer. Audrey was raised in St. Clair Shores, Michigan and holds a master’s degree in Environmental Management and Policy from Rensselaer Polytechnic Institute (RPI) in Troy, New York and a bachelor’s degree in Computer Science from Wayne State University in Detroit, Michigan. Audrey resides in St. Louis, Missouri.

SEC to Consider Corporate Disclosure on Climate Risk

The Securities and Exchange Commission will hold an Open Meeting on January 27, 2010 at 10:00 a.m.  At the meeting, the SEC will consider two agenda items, the second of which is a recommendation to publish an interpretive release to provide guidance to public companies regarding the Commission’s current disclosure requirements concerning matters relating to climate change.

See the official announcement here.

More New of the Same Old

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 this enforcement.  With the capital cost at stake, investing a small amount in a program review may generate a significant return in the event of NSR enforcement.