The Auditing Roundtable
 Winter 2010 Meeting, Exposition, and Training  
“Incorporating Risk Management into EHSS Auditing” will be held in Phoenix January 11-13, 2010.

Laws, regulations, and standards keep changing, as to business goals, capabilities of IT, communications methods, and stakeholder expectations.  EHSS auditors fulfill a critical role in maintaining compliance with EHSS laws, regulations, and standards.  This meeting will focus on how EHSS auditors can help identify, evaluate, and help organizations manage risk in uncertain times.    Presentations will also focus on risk transfer and management, moving beyond compliance into risk management, auditing risk, and using risk-based approaches to managing audits and conducting auditing programs.  Regulations designed to reduce risk (including Homeland Security and Process Safety) and Business Continuity Planning will also be discussed.

Mr. Lawrence Heim of Elm is currently scheduled to speak on Merging Risk Management, EHS and Auditing Concepts.

The meeting will also continue with standard features, including industry sector break-outs, topical interest groups, and ample time to mix and mingle with EHSS auditing and management professionals.

The AR is also offering training courses on Basic Auditing Skills, Environmental Auditing, and Health & Safety Auditing.  Developed by request of membership, these courses offer the opportunity to brush up on basics, or to achieve greater proficiency.  These courses qualify for Continuing Professional Development credit for CPEAs, and applicants will find them to be a good resource in preparation for the Certified Professional Environmental Auditor (CPEA) exams offered by the Board of Environmental, Health & Safety Auditor Certifications.

For more information, click here.

Under current SEC regulations, companies are required to disclose material information or information that an investor should posses in order to decide whether to buy a company’s stock.  But these companies do not routinely include climate-related risks in their filings, nor is the information consistent when it is provided at all.

The California Public Employees Retirement System, which manages $202 billion of assets, and the California State Teachers’ Retirement System, which manages $130 billion of assets, are among 20 investors and groups that petitioned the U.S. Securities and Exchange Commission to issue guidance telling companies to include risks related to climate change in their quarterly and annual filings.

“The SEC should strengthen and enforce its current requirements so investors’ decisions fully account for climate change’s financial effects,” Calpers Chief Executive Anne Stausboll said in a statement.

The initiative hopes to make the most out of the Obama administration’s renewed emphasis on environmental protection, climate change rhetoric and plans to propose an emissions reduction target at the December climate change conference in Copenhagen.

SEC Commissioner Elisse Walter, one of five members who makes decisions on federal securities rules, has said she believes that climate change is a very serious issue and this is the time for the SEC to issue so-called ‘interpretive guidance’ on this topic.

“This (petition) will be taken seriously and be one more piece of influence on the commission, to perhaps get bit more instructive on considering these issues,” said David Martin, a former SEC director of corporation finance — the division in charge of overseeing corporate disclosures. Martin is now in private practice at law firm Covington & Burling.

The U.S. Environmental Protection Agency today issued a final rule to help reduce water pollution from construction sites. The rule takes effect in February 2010 and will be phased in over four years. 
This is the first time that EPA has imposed national monitoring requirements and enforceable numeric limitations on construction site stormwater discharges

The final rule requires construction site owners and operators that disturb one or more acres to use best management practices to ensure that soil disturbed during construction activity does not pollute nearby water bodies.

In addition, owners and operators of sites that impact 10 or more acres of land at one time will be required to monitor discharges and ensure they comply with specific limits on discharges to minimize the impact on nearby water bodies.

Today, EPA announced a final regulation that amends certain requirements for facilities subject to the Oil Spill Prevention, Control and Countermeasure (SPCC) rule.  The amendments clarify regulatory requirements, tailor requirements to particular industry sectors, and streamline certain requirements for a facility owner or operator subject to the rule.

This rulemaking marks the completion of the SPCC action, which was proposed on October 15, 2007, finalized on December 5, 2008, and for which the agency requested public comments again on February 3, 2009.

In general, this final rule retains most of the December 5, 2008 provisions, with 3 major differences.  EPA has eliminated the exemptions for:

• certain produced water containers;
• the alternative criteria for oil production facilities to be eligible for self-certification of their SPCC plan; and
• the exclusion of oil production and farm facilities from the “loading rack” requirements.

The amendments do not remove any regulatory requirement for owners or operators of facilities in operation before August 16, 2002, to develop, implement and maintain an SPCC plan in accordance with the SPCC regulations then in effect.  Such facilities continue to be required to maintain their plans during the interim until the applicable date for revising and implementing their plans under the new amendments.

The effective date of this final rule is January 14, 2010.

See the official pre-publication version of this final rule here.

The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) today announced it is issuing $87,430,000 in proposed penalties to BP Products North America Inc. for the company’s failure to correct potential hazards faced by employees. The fine is the largest in OSHA’s history. The prior largest total penalty, $21 million, was issued in 2005, also against BP.

BP entered into a settlement agreement with OSHA in September 2005, under which the company agreed to corrective actions to eliminate potential hazards similar to those that caused the 2005 tragedy. Today’s announcement comes at the conclusion of a six-month inspection by OSHA, designed to evaluate the extent to which BP has complied with its obligations under the 2005 agreement and OSHA standards.

For noncompliance with the terms of the settlement agreement, the BP Texas City Refinery has been issued 270 “notifications of failure to abate” with fines totaling $56.7 million. Each notification represents a penalty of $7,000 times 30 days, the period that the conditions have remained unabated. OSHA also identified 439 new willful violations for failures to follow industry-accepted controls on the pressure relief safety systems and other process safety management violations with penalties totaling $30.7 million.

Today The Elm Consulting Group International, LLC announces a program that allows clients to process contracts, invoices and payments far more efficiently than in the past.

“In recent years, many companies have undergone internal business process reviews that included streamlining their procurement and payment systems,” said Robert Bray, Managing Director of Elm.  “As a result, several clients asked us if we could align our contracting and invoicing systems with their streamlined processes.  And we have.”

Effective immediately, Elm is able to accept corporate P-card payments for invoices.  For many companies, P-card use significantly reduces the administrative effort required to approve and process bills.

The U.S. Environmental Protection Agency Administrator Lisa P. Jackson announced that the agency is stepping up its efforts on Clean Water Act enforcement.

The plan announced outlines how the agency will strengthen the way it addresses the water pollution challenges of this century.  These challenges include pollution caused by numerous, dispersed sources, such as concentrated animal feeding operations, sewer overflows, contaminated water that flows from industrial facilities, construction sites, and runoff from urban streets.

The goals of the plan are to target enforcement to the most significant pollution problems, improve transparency and accountability by providing the public with access to better data on the water quality in their communities, and strengthen enforcement performance at the state and federal levels.

Elements of the plan include the following:

• Develop more comprehensive approaches to ensure enforcement is targeted to the most serious violations and the most significant sources of pollution.
• Work with states to ensure greater consistency throughout the country with respect to compliance and water quality.  Ensure that states are issuing protective permits and taking enforcement to achieve compliance and remove economic incentives to violate the law.
• Use 21^st century information technology to collect, analyze and use information in new, more efficient ways and to make that information readily accessible to the public.

More information on the plan: http://www.epa.gov/compliance/civil/cwa/cwaenfplan.html

Identifying and correcting potential compliance issues ahead of EPA’s actions would likely prove a wise use of resources given the current enforcement/penalty trends.

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 in using forestry for carbon management.

While “inaccurate projections” may not impact the issuance of credits, the sequestration calculations/projects have a significant impact on the upfront project support and financing.

It is reasonable to foresee that a failure of forestry to deliver on its projections will have a severely negative impact on the perception of forestry projects as a financially successful and viable carbon risk management tool.

As with any business investment, financial analyses are based on projections about what an investment will deliver in terms relevant to the investment.  In the case of forestry projects, calculations are completed to determine the amount of carbon that is projected to be absorbed and therefore generate the amount of credits/offsets.  These offsets create a financial return in terms of both cost avoidance and potentially revenue.  Financial analyses may be completed for different carbon management options and an investment is made in accordance with the option judged to be the “best” as defined by the criteria applied by the investor.

So what happens if the projections are inaccurate?  Sure, some offsets will likely be delivered by the project.  But will the investment deliver the anticipated return?  Will a shortfall trigger the need for pollution control investments and/or non-compliance penalties?

There continues to be a critical need to reduce risk in forestry-based carbon management investment.  As we have discussed before, it is advisable to take a deep dive into to uptake calculation methodologies, delivery milestones and scenario planning in advance of such investments.

The Elm Consulting Group International, LLC was a sponsor for the 2nd Atlanta International Environmental Trade Mission.

The Trade Mission was presented in partnership with the Quebec Government Office, Consulate General of Canada, and other members of Atlanta’s Consular Corps and concludes this week.

The Mission brought together state and local governments, metro area companies and organizations and 14 international companies, including representatives from Canada, Germany and Uganda, who specialize in green products and services worldwide.  The Mission’s goal is to facilitate international commerce and investment by working with the various Atlanta-based consulates, bi-national organizations and chambers of commerce to identify overseas companies and match them with the appropriate Atlanta-based entities.
  The Trade Mission spans five days, October 5th through October 9th and included presentations and meetings on sustainability and clean technology products, services and initiatives.

Mayor Shirley Franklin delivered the keynote address, who was also presented with the first “World Chamber of Commerce Visionary Award for International Environmental Stewardship”.   Other distinguished speakers at the Mission included:

−   Consul General, Stephen Brereton, Consulate General of Canada

−   Québec Government Delegate, Ginette Chenard

−   Consul General Reda Mansour, State of Israel and Dean of the Consular Corp of Georgia

−   Lutz H. Görgens, Ph.D., Consul General of the Federal Republic of Germany

−   Kristian Wolf, President and CEO, German American Chamber of Commerce of the Southern United States, Inc.

−   The Honorable Lisa Borders, City Council President, City of Atlanta

−   Jorge Fernandez, VP Global Commerce, Metro Atlanta Chamber

−   Peggy McCormick, President, Atlanta Development Authority and Metro Atlanta Chamber

Lawrence Heim, Director at Elm, also delivered a welcoming address.   Heim encouraged those businesses expanding into the US market for the first time to conduct a thorough analysis of the environmental business risks associated with American regulatory requirements and financial liabilities.

Companies who are not familiar with the environmental risks and legal constraints of the US must gain a detailed understanding of these issues in advance of setting business goals and expectations.  Some examples of my discussions with other Mission participants include

−   regulatory requirements for fluorescent bulb disposal (in the context of new lighting technology)

−   potential state or federal permitting implications for manufacturing process changes that result in process efficiency increases from adopting new sustainable technologies

−   long-tail off-site waste disposal liabilities

−   environmental risk assessment and loss control options available in the US.

A recent AON study on EU Risk Managers’ perception of environmental risk illustrated a general view in the EU on the part of risk management professionals that environmental risk is not significant.

Elm’s goal in participating in the Mission is to help EU-based participants realize that environmental business risk assessment/management in the US is more complex and critical than they may initially realize.

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 either the limitations of insurance coverage or the technical aspects of operations/environmental matters.

Environmental risk assessment processes, such as those used by Elm, are valuable in communicating to Risk Management leaders/departments in their terms, rather than technical EHS jargon.  This can lead to effective integration of risk management and EHS functions and risk reduction.  More information on environmental risk assessments can be found here, here and here.