Sustainability: Do You Have Your Seat at the Table?

April 3, 2012
To execute a sustainable business strategy, EHS needs a seat at the table.

For decades, companies have regarded environment, health and safety (EHS) management as a necessity to maintain their license to operate. More recently, many companies have started to incorporate sustainability at the core of their business, recognizing their responsibility to manage ecological, social and financial risks.

At a boardroom level, sustainability means controlling risk to ensure environmental and community accountability as well as business continuity. Sustainability gives EHS professionals an opportunity play a more critical role in shaping their company’s business strategy and to positively impact profits, reputation and operational practices.

While EHS management professionals are managing the day-to-day regulatory requirements and operational risks, they don’t always have a seat at the senior management table. Without that, companies miss the benefit of their expertise and knowledge being applied to reducing operational risks and making positive contributions to sustainability. In order for companies to execute their sustainability strategies, EHS must be a boardroom conversation, and EHS professionals must contribute the business case for going beyond compliance to proactive risk reduction.

Following these five steps will enable EHS professionals to create a business case for EHS risk reduction and to become a counselor for executives:

Paint a broad picture of operational risk and safety management that encompasses financial, social, environmental and reputation risks.

EHS professionals need to go beyond the compliance focus and provide a compelling business case for risk reduction. Don’t be afraid to recognize and publicize the financial and social benefits to proactively reducing operational risks. It is obvious that fewer injuries and environmental incidents translate into cost avoidance. But if all your board looks at is the number and cost of incidents, you are having the wrong conversation. As long as EHS is viewed as a compliance activity, it will be difficult to obtain anything beyond the minimum required resources.

There are many benefits to proactively reducing risks. For one, employees who feel that their management actually cares about keeping them safe and healthy are more productive. Another is that companies that have the reputation for being excellent corporate citizens benefit from a stronger brand and higher profits. EHS really can be used proactively as a competitive differentiator to attract and maintain talent and enhance a company’s reputation.

Because these benefits can be hard to quantify, it is essential to connect the dots for senior management between financial management, EHS management and governance, risk and compliance. Expand the conversation from regulatory compliance to the positive benefits of having a holistic approach to managing and reducing operational risks.

Move from a compliance-based approach to proactive EHS approach.

Companies have no choice but to meet regulatory requirements if they are to maintain their license to operate. However, aiming for minimum legal compliance results in lost opportunity.

EHS professionals easily can get tied up in managing incidents and closing gaps found through audits. Remember that incidents and audit findings mean that something was wrong. If you spend all your time on corrective action, you’ll never find time for preventive action.

Create a wedge – no matter how small – to spend time on improvement. Once you are able to shift your focus, even if only slightly, to proactive risk reduction, you will start an upward spiral of improvement. In other words, the time spent proactively reducing risks results in fewer incidents, which then frees up even more time for being proactive. This is good for the company, but also good for your job satisfaction because who wouldn’t rather spend time preventing bad things from happening instead of reacting to them? Remember, senior management also doesn’t want to talk only about what went wrong.

Conduct risk assessments to provide a comprehensive understanding of the operational risks and potential business impact.

Management wants to do the right thing, but it is not always obvious what that is. Often, there are so many conflicting priorities that it can be difficult to focus on the things that will reduce EHS risks the most. To create a compelling business case for more proactive EHS management, a good starting point is to identify and quantify all risks and their impact on the company.

Being scientists, EHS professionals often feel constrained by the sometimes-qualitative nature of risk assessment. Certainly, to the extent possible, EHS professionals need to attach numbers to their risk assessments. But where hard numbers are not available, good insight still can be obtained from a holistic study, identifying all EHS risks and assessing the current safety measures and controls.

It often is not obvious exactly how the company’s resources are being spent, which risks are at an unacceptable level and where is the best place to invest. Management often is shocked to find out that serious hazards do exist in its facilities, and that the facilities solely are relying on procedures and training to avoid the catastrophic incident. Simply providing a thorough analysis of all EHS risks to make the situation transparent to management is a big step towards getting more resources for EHS.

Starting such an assessment can be overwhelming when you consider all safety hazards, chemical agents and environmental aspects in your operation. But once you get started, you’ll find that you actually already have a lot of the information that you need. Why? Because those regulatory requirements have a basis in risk management. We may often feel that regulations are overly burdensome, but they were derived from studies of the impact of chemicals and hazardous operations on people and the environment. After creating your hazard register, conduct a more detailed analysis, starting with the ones with the highest inherent risk. Document all of the safety measures and controls that you already have in place to manage that risk. Using the hierarchy of controls concept, you can then determine the current level of risk based on the strength of those controls. And if this risk level still is unacceptable, prioritize it for risk reduction projects.

By standardizing your approach to evaluating the risk levels, you will be able to provide management with a holistic view of the current risk situation. By creating one risk assessment process with a shared hazard register, you will be better able to determine whether the programs you already have in place are sufficient to meet your sustainability objectives. You also will start to make the minimum requirements more transparent, and you probably will find that the company already is going beyond compliance in many areas.

Prioritize and align EHS risks and initiatives.

Risk assessments likely are to result in many recommendations for improvement. In fact, this list often is so overwhelming that analysis paralysis ensues. So, your next task after documenting the existing controls and determining the residual risk is to provide the executive team with a prioritized list of risk reduction projects with a clear justification that demonstrates how expenditures on safety improvements will achieve specific goals.

The comprehensive process of rating all EHS risks will make your request for resources more credible. You aren’t asking to spend all of the company’s profits on EHS. You are making a rational request for resources that will translate into higher profitability for the company.

Speak the language of business; expect to show a return on investment.

Talking in scientific terms instead of business terms is a common trap. To get the attention of the board, EHS professionals need to understand how to present their strategy in business terms – and demonstrate how risk reduction projects support the corporate goals in the short- and long-term. Help your senior executives ask the right questions. Instead of “How many incidents did we have last quarter?” how about “What are our highest operational risks and what are our plans to reduce them, and are any of them unacceptable given our stated objectives and goals?”

If your board has not stated their risk tolerance, ask for it. Explain the benefit of establishing EHS objectives in terms of risk instead of in terms of costs or number of incidents. With a risk tolerance, even if you can’t quantify the value of risk reduction projects in financial terms, you can quantify them by comparing the residual risk to the company’s risk tolerance.

When you ask for resources, be sure to have a very specific and clear request. When you finally get a seat at the table, you don’t want to lose the opportunity to make your case! Then, be prepared to track improvement and show the return on investment. Think beyond the common lagging indicators such as injury frequency rate. Plan to track leading indicators as well. Examples include number of proactive safety observations, number of risk reduction projects completed and timeliness of corrective action completion. For the board level, create a top-risk dashboard that summarizes all of the operational risks with their current risk level. And of course, be prepared to provide additional information on any risks that are above the company’s risk tolerance.

Help your executives sleep better at night because they know that they have a rigorous approach to managing and reducing operational risks. Give them high-value “good news stories” that they can use with their stakeholders to enhance the company’s reputation. Do your homework by creating a comprehensive risk management program with highest priority areas for improvement clearly defined. When you present your request for resources in the context of risk versus the company’s stated objectives, it will go a long way to getting EHS a seat at the table.

Mary Kilgo is a director at Sustainability Solution Management, SAP Labs LLC.

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