Category Archives: HSE

Added Heat Causes Conflict Minerals Reaction

We admit that the majority of articles about conflict minerals are not particularly exciting reading – including our own.

A recent exchange in the Forbes blog is different.  While we take no position on the facts or opinions presented by either party, we do find this repartee far more interesting reading than we are accustomed to seeing on the topic.

Read the first piece here, the initial response here and the third installment here.  Will there be more?  We can only guess.

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EHS Journal Article on Sustainability, Financial Valuation

Recently, Elm posted a piece discussing comments from Kevin Parker, the CEO of Deutsche Asset Management, an investment firm with three-fourths of US$1 trillion under management.

We expanded that original post for EHS Journal, who just published it.  The expanded version dives deeper into trends in the past decade supporting Parker’s assessment of why capital markets are bullish on carbon-intensive investment opportunities even in light of this era of sustainability.

View the article in its entirety here.

An Inconvenient Reality For Environmental/Sustainability Professionals?

For years, those of us in the environmental/sustainability profession have sought credible ways and metrics for quantifying the economic value of our efforts, activities and programs.  A myriad of studies completed dating back to the late 1980s attempt to demonstrate “environmental value”.  Most of these studies have shown rather tenuous linkages or used meaningless metrics.

Interestingly, most of these studies link to equity markets – i.e., stock prices.  Maybe because stock prices grab headlines, are tied to compensation or are the target to which Boards and senior executive generally manage.

The problem is that environmental/sustainability matters don’t fit into this model, either because they tend not to be financially material, or they don’t develop economic certainty within the “current quarter” myopia of corporate management, financial markets and analysts.

A recent article on the topic was published in The International News.  The article includes an interview with Kevin Parker, CEO of Deutsche Asset Management (DeAM) on the subject of how capital markets currently view environmental/sustainability risks.  DeAM manages over US$775 billion in assets.

With simplicity, clarity and unquestionable credibility from the financial market viewpoint, Parker made key points in the article and interview:

  • Bond markets are poised to punish polluting companies in the aftermath of the Macondo oil spill and Fukushima nuclear crisis.
  • “The process of re-pricing carbon and environmental risk has begun, because these two events were catastrophic.”
  • By contrast, shorter-term equity and commodity markets have continued to chase high-carbon opportunities, including voracious emerging market demand for coal.
  • But investors in longer-term debt including bonds will increasingly avoid unsustainable companies … an inexorable trend that will push up their borrowing costs.
  • “What this boils down to be risk in capital markets, and capital markets know how to price risk once they understand it.”

Pension investment managers realized this years ago since they emphasize stability and a long-term investment horizon.

But there seems to be far less recognition of this by environmental/sustainability practitioners, as the amount of studies, white papers and pseudo-financial metrics is mounting, with continued emphasis on the equities side of capital markets.  Perhaps the driving forces for this are general economic pressures facing companies are pushing staff to find ways to justify their existence and cost, consultants are trying to come up with that elusive short-term ROI metric for the cost of their services to clients and much of the HSE/sustainability media are vying for limited attention on the part of their readership.

Given Parker’s comments – and 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.

In limited circumstances, financial value of environmental/sustainability initiatives can manifest in material and short-term impacts.  Those instances give practitioners hope of riding those coattails.  But generally, the reality is a little inconvenient.

US State Department Issues Conflict Minerals Traceability Statement

Last Friday, the US State Department issued its statement on conflict minerals supply chain traceability.  Section 1502 of the Dodd-Frank Act requires that the State Department – in parallel with the SEC – provide guidance on due diligence activities to companies.

The Department stated that

… it is critical that companies begin now to perform meaningful due diligence with respect to conflict minerals. To this end, companies should begin immediately to structure their supply chain relationships in a responsible and productive manner to encourage legitimate, conflict-free trade, including conflict-free minerals sourced from the DRC and the Great Lakes region. Doing so will facilitate useful disclosures under Section 1502, as well as effective responses to any discovery of benefit to armed groups.

The Department specifically endorses the guidance issued by the Organization for Economic Cooperation and Development (OECD) and encourages companies to draw upon this guidance as they establish their due diligence practices. We encourage companies, whether or not they are subject to the Section 1502 disclosure requirement, that are within the supply chain of these minerals to exercise due diligence based on the OECD guidance and framework as a means of responding to requests from subject suppliers and customers.

Companies should no longer be in a “wait and see” mode.  Basic planning, assessment and program development can – and should – begin now.

If nothing more, companies should evaluate whether the OECD Guidance is the appropriate reference point.  As we pointed out in an earlier post, that guidance contains a number of pitfalls and auditor impairments that may deter its use by many companies.

Revision to SICMAP℠ Tool for Conflict Minerals, OECD Incorporates California Supply Chain Law

The Elm Consulting Group International LLC has released a new revision to the Self Implemented Conflict Minerals Audit Preparation Tool.  The update, Revision 1.33, incorporates

  • Minor changes in response to feedback obtained from the late June EICC Extractives Supply Chain Workshop VI in Washington DC;
  • Further clarifications on the OECD framework, its relationship to SICMAP℠  and SEC auditor standards; and
  • Related elements of California Transparency in Supply Chains Act of 2010.

Lawrence M. Heim, CPEA, is leading the firm’s conflict minerals services and SICMAP℠ development:

In our discussions with various companies and workshop attendees, we obtained feedback on a few minor changes and clarifications to improve the tool.  In addition, we decided to incorporate the new California law as there are many similarities between those mandates and the conflict minerals requirements.

The video introduction and overview of SICMAP℠ can be viewed here.

Voluntary Environmental Management Standard Turns Into Third Party Whistleblower

It is not uncommon for EHS auditors to be asked (or ask themselves) “If you find a noncompliance during your audit, do you report it to the regulators?”

The answer depends on the company and audit program, but a recent news item caught our attention due to a variation on the theme.

We have no information other than what is publicly available here, but it appears that an organization managing a voluntary electronic waste management certification program found alleged significant non-conformities at a specific company seeking certification.  As a result, the organization declined to issue its certification to that company.

So far, so good, but the story doesn’t end there…

In its declination letter to the company, the organization states:

Further, there is substantial reason to believe that such exports may violate Public Act 095-0959 (Electronic Products Recycling and Reuse Act, recycler requirements) of the State of Illinois, the Federal CRT Rule, (40 CFR Parts 9, 260, 261, 271; Cathode Ray Tubes; Final Rule) as well as the waste importation laws of Hong Kong/China. Further, while it is not our policy to disclose the results of certifying body audits, we can state that the audit only further substantiated all of our concerns.

In an apparent contradiction to the “policy” referred to in the above statement, the organization’s cc’d “Selected news media”, the Illinois State Environmental Protection Agency and the US Environmental Protection Agency Enforcement on its letter, which can be seen below the signature block.

It is certainly possible that the company themselves had made prior disclosure to the regulators on this issue.  But this event may cause companies pursuing voluntary programs/certifications to carefully consider how the company and auditor will manage regulatory non-compliances that are found or alleged in the course of related audit activities.

UPDATE:  Reports today indicate that the company is taking legal action against the certifying organization stating that the allegations on which the organization based its decision – as well as its disclosure to the press and regulators – are false.

Elm Launches Groundbreaking Low Cost Conflict Minerals Audit Preparation Tool

The Elm Consulting Group International LLC today announces a groundbreaking cost effective tool to support companies preparing for conflict minerals traceability audits or customer inquiries.

The delay in SEC’s final rule triggered many questions from companies about planning and pre-audit preparation.  This led us to a solution that is valuable in almost any foreseeable final regulation scope/content and companies planning responses to customer inquiries – yet significantly reduces costs during this period of uncertainty.

Elm’s Self-Implemented Conflict Minerals Audit Preparation© (SICMAP℠) is conceptually similar to a self-audit checklist.  SICMAP℠ is a spreadsheet tool that maximizes the use of internal company staff for cost reduction and implementation flexibility to develop and review conflict minerals programs in advance of third party auditing.

SICMAP℠ focuses on basic program elements equally relevant to companies responding to customer inquiries/procurement requirements and those working to comply with the upcoming SEC regulations on conflict minerals.   Successive and more complex tasks – for both program development and audit preparation – are identified based on initial SICMAP℠ findings, lessons learned from working through the SICMAP℠ process, and the final regulatory requirements once they are known.  The final rule, when published, will clarify the level of detail for some of the efforts.

Screenshots (which can be enlarged by clicking on them) show some of the features and functionality in SICMAP℠ include:

  • “At a glance” color-coding indicates progress/status of both program development and audit preparation
  • Live links to reference materials on the internet
  • Summaries of language from the U.S. legislation (which will not be changed by SEC’s final regulations)
  • Step-by-step pragmatic guidance on specific program elements
  • Highlights of emerging international initiatives in comparison/contrast to SEC audit standards

Sample Page Showing Detailed Guidance

Topics covered in an intuitive and pragmatic way include:

  • Initial scoping
  • Reasonable assurance and representative sampling concepts reflecting SEC auditor standards
  • Information management systems
  • Internal controls
  • Supply chain mapping
  • Communications planning and content
  • Scrap materials – special definitions and challenges in traceability efforts
  • Considerations in selecting an auditor and preparing for the site visit

Summary Tracking Page With Color Coding. This image shows covered topic tabs along the bottom.

The tool is based on Elm’s experience as one of four firms worldwide that have completed conflict minerals traceability independent audits. Elm’s tantalum traceability audits in 2010 resulted in the first ever “Conflict-Free Smelter” designation*, covering sites in the US and Japan.

We continue to recommend that companies move forward with planning activities, but defer third party audits until planning is substantially complete and the SEC regulations are final.  As with almost any new management program, a formal third party audit should be the last step of the implementation process – not the first.

SICMAP℠ will be commercially available beginning June 6, but feel free to contact us beforehand with questions.

* Issued by the industry association sponsoring the audits.  The Conflict Free Smelter (CFS) program is emerging as the leading conflict minerals third party certification program for smelters by the electronics industry.