Riskstream Corporate Sustainability Framework
by Rob Smith
Sustainability is the commitment of a corporation to the principle of sustainable operations including the design and implementation of sustainable practices and policies
throughout the organization. It extends beyond economics to social responsibility, environmental management, emergency response, innovation, performance, risk and employee health
and well being. By addressing these issue in a responsible manner, shareholders will be rewarded with a more sustainable and stable investment.
Implementing corporate sustainability begins with a clear understanding of what corporate sustainability is and what it is not.
For details contact Fraser Exploration Ltd. or Riskstream.
What Corporate Sustainability is NOT:
It is not a commitment to recycling and energy efficiency.
It is not a program for staff to volunteer or donate to charities.
It is not completing all the regulatory filings as required.
It is not doing environmental assessments when required.
It is not having a safety meeting on a well site and posting the emergency numbers.
It is not about counting the number of days without an accident.
It is not about ensuring diversity in your workforce
And it's not about meeting with aboriginal groups once a year.
These things are just the tip of the sustainability iceberg and by themselves will not help a company be 'sustainable'. Sustainability is far more.
The following is a set of
guidelines for the implementation of sustainability in a corporation.
Accepting the Concept of Sustainability at the Board Level
This one is tough. Boards are short term thinkers by nature. They are compensated by improving the near term performance of the organization. Some companies have even collapsed
under the weight of short term gains at the expense of long term performance. Sustainability is by its very nature a long run strategy. Implementing a comprehensive
sustainability framework in a large organization can take many years before it begins to yield returns and can cost millions of dollars each year to implement. A short
sighted board who is looking for their stock options to appreciate in the near term can sometimes have difficulties in seeing the end game of sustainability. But buying into the concept of sustainability can yield
immense benefits including access to markets, preferential treatment, reduction of barriers and improved access to capital and lower capital costs. Being a sustainable company also
helps lower the risk profile of the organization warranting a higher stock value when compared to comparable companies.
The good news is that many company's are currently doing some of the elements of sustainability but without a comprehensive sustainability program to bring it all together. But by bringing
it 'all together', the cost of sustainability programs are more efficient, the returns are more predictable and the benfits become easier to articulate to a global audience.
To get the ball rolling, the board of directors has to sign and agree to a comprehensive sustainability commitment. To do this they need to believe in the value of
sustainability.
Step 1: Get Board Buy-in
Hold a 'no holds barred' sustainability workshop with the board to battle through the concept of what is sustainability and why it is needed. The goal is to have the board produce
the reasons why sustainability is wanted and why they accept the cost of the program. If you can't get this agreement, then the organization needs to contemplate if they even want to do
sustainability. Secondly a workshop gives the board the chance to work through concepts which may be foreign to their sensibilities and gain a clear path between the concepts of
sustainability and the benefits that accrue to the shareholders. Let's face facts. Boards are often comprised of older men that have very little understanding or appreciation of
concepts like social responsibility, mobile technology, culture and renewable energy. In fact many sustainability concepts are going to run counter to conservative business
principles. These difference need to be worked through so that a complete buy in to sustainability by the board is achieved. The output will be a statement on corporate
sustainability from the board, a clear message on sustainability by the CEO and the inclusion of sustainability goals a part of executive compensation.
Some things to look out for:
If the board refuses the concept of sustainability then they need to agree if some of the concepts are valid or if they want to abandon sustainability completely and accept the resulting
risk profile and its associated costs.
Watch to ensure the board can accept the concept that they need sustainability and why their current operations don't meet sustainability guidelines. We have met numerous board
members that flat out refuse to believe in concepts like global warming, energy efficiency or that the organization even pollutes the environment. Sustainability will only work
if the board and the shareholder believe and support it. Without their support, the rest of the organization will not adhere to the prinicples of sustainability.
Step 2: Define the Corporate Sustainability Vision and Strategy
Once you have successfully obtained buy-in to the concept of sustainability. The board and company executives need to define the sustainability vision and strategy for each major
area of sustainability. This should included vision statements, strategic goals, timelines for each goal and key sustainability performance indicators to measure success.
Outputs should include a vision and strategy for at least these areas:
Environmental stewardship - including environment, health and safety (EHS) and emergency disaster planning.
Renewable energy and conservation
Employee hiring and retention
Stability of supply and access to markets
Innovation and technology
Social responsibility
Culture and heritage
Stakeholder engagement including aboriginal relations
Compliance
Code of conduct
Executive compensation
Step 3: Bring Together Sustainability Feed Systems into a Single Sustainability Reporting Mechanism
For any sustainability program to succeed, there must be a way for the organization to manage and measure all of the various components of sustainability. Needless to say, one
system is rarely able to supply every piece of the sustainability puzzle. Instead various disparate systems are often mined to provide a comprehensive view of sustainability
performance such as:
Enterprise Resource Planning (ERP) systems provide financial reporting
ETRM systems provide trading and risk management positions
Planning and Project Management systems provide detailed project information
Geographic information systems provide mapping of impact zones
Operational systems provide active information and measurements from field systems
Maintenance and Asset systems provide equipment inventories and maintenance status
Websites provide public communication for sustainability
Joint interest and land systems
And this is where sustainability systems start to get a bit fuzzy in almost every organization. Sophisticated organizations use business process management software (BPM) to
capture sustainability processes and policies or document management and collaboration systems to execute regulatory reporting. In fact the key in sustainability is to consolidate
sustainability information into a single reporting system and that is not an easy task. There is simply no single system that provides all the necessary components of
sustainability. But for sustainability to succeed, data from the field to the executive office needs to be consolidated and analyzed. We have had success doing this utilizing BPM
software in conjunction with document management systems while leaning on customized mobile apps for field reporting all to receive a comprehensive sustainability report in real
time.
This whole process is not only intensive, it requires a great deal of expertise to effectively manage. Ensure the following areas are covered:
Operational and financial risk management including assessment, audit, controls and systems
Finance systems
Environmental disaster planning and response systems
Environmental impact assessment, monitoring and systems
Renewable energy and green measurement systems
Regulatory compliance systems
Step 4: Develop a Comprehensive Communications Infrastructure and Plan
Having a communications strategy and systems is an important part of any sustainability program. This is especially critical on two fronts. First in the event of an emergency, a
robust communications infrastructure and plan is critical to manage the event and communicate to stakeholders. Secondly in order to achieve the benefits of sustainability, the
corporation will need to effectively communicate its successes to the public, specifically markets and shareholders. The most critical elements of sustainability that need to be
planning into any communication strategy and systems include:
Emergency response systems and information
Whistleblower reporting systems and policies
Community engagement, feedback mechanisms and policies
Auditable sustainability reporting
Sustainability feedback methods
Step 5: Confirm Sustainable Materiality
Materiality is a reporting requirement but also has a very real purpose. Operational risk management is a constant process of not just identifying risks but determining how
important they are and if they are worth mitigating. This valuation process is a standard part of risk management. In sustainability, the same methodology applies to components
to help evaluate which ones are most important to the organization. The output is to evaluate all of the sustainability elements and prioritize them by their level of
materiality to the organization to produce a materiality statement. Examples of sustainable elements include:
economic performance
carbon footprint
spills and releases
responsible development
water mgmt
air quality
land use and access
aboriginal relations
health and safety
innovation
tailing mgmt
access to markets
renewable energy
employee attraction and retention
human rights
ethics
biodiversity
climate change
governance
sustainable supply chain
security
waste mgmt
Step 6: Define Corporate Governance Policies and Mechanisms
Corporate governance provides stakeholders with a method of measuring a corporations commitment to sustainability. Outputs will include:
Ethics policy
Code of conduct
Whistleblower options, policy and systems
Privacy controls
Public operating policies
Regulatory and compliance requirements
Anti-competitive policy
Etc.
Step 7: Define the Corporation Social Responsibility Policy
Defining a social policy is relatively easy. However showing actions that implement that policy are far more difficult. Outputs from this step include policy, events and actions
that demonstrate the organizations commitment to the concept of corporate social responsibility. Examples of social policy include:
Aboriginal groups
Community Investment and donations
International operations
Human rights policies
Step 8: Report on Economics
This is usually the easiest thing for most organization to achieve because most ERP systems are already doing this. However, reporting on sustainability benefits according to
standards is a bit more complex. Also corporations need to break the habit of 'hiding' information since transparency will also be a measure of corporate sustainability.
Some outputs of this step other than regular comprehensive financial reporting are:
A comprehensive and fair executive compensation policy that rewards performance.
A clear signed commitment to honesty and transparency
A performance review of current performance to targets and past performance
A clearly defined corporate strategy that identifies the level of risk that will be targeted and the expected return as well as clear timelines.
Clear financial statements with full disclosure
A discussion of future opportunities that will be pursued and why
Step 9: Sustainability Performance
In sustainability, performance measurement and reporting is an important part of measuring a companies sustainable trajectory. Key performance indicators provide a measure against
which the performance of the organization can be compared. There are literally thousands of measures of sustainability but the output of this step should include:
A clear definition of the performance measurement process
KPI's that are used for measurement and how they have been obtained
Measures of all elements of sustainability including environmental, human rights, community investment, risk, etc.
Statistical measurement assumptions
Easy to understand performance measures, variance to targets and variance to historical performance.
Comprehensive reporting of corporate performance
Step 10: The Implementation of Enterprise Wide Risk Management
Risk management covers a large number of areas including:
Market Prices
Government policy
Catastrophic failure
EHS incidents
Supply disruption
Market disruption
Project failure
Etc.
Most organization have risk management practices, policies and systems for some areas like finance, trading and insurance. However the output from this step in addition to policies
and controls on the above areas, should also expand the scope of risk to include:
Health and Safety Risks
Environmental Risk
Social Risk (including the organizations online presence)
Emergency Disaster Planning
Systems Risk
For each of these areas, a comprehensive risk audit should be performed including the identification of threats and mitigation for each risk type.
For more information on energy risk, contact Fraser Exploration. For global risk, contact Riskstream.
Step 11: Develop Clear Human Resources Policies, Controls and Reporting
The single most expensive operating expense for most organizations is its human resources. The investment in human capital is critical as it is these resources that will make
the organization succeed or fail. The problem is that HR expenses can easily escalate out of control. Output from this step should include clear HR policies related to
sustainability including:
Safety, Health and Wellness Policies and Systems
Hiring and Retention Policies
Labor and Management relations policies
Diversity commitments
OHS reporting and controls
Equality and fairness of pay policy and measurement
Training programs
Sustainability as a Goal
The goal of sustainability is to ensure that the organization will continue to operate profitably in the future thereby adding to capitalization value. The greatest risk that investors face is that their investment in the
organization will fail. Understanding, accepting and committing to sustainability will bring value to the organization and will ensure that it will continue in the future.
For more information on sustainability, contact Fraser Exploration.
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