Implementing a Long-Term Safety Risk Management

02/28/2014

"Climate risk is certainly something we valuate every year. Because of the technologies and the sectors we serve, we think that our opportunity outweighs our risk." -Gretchen Hancock, General Electric (Planning for a Sustainable Future, p15)

As advocates for improving business sustainability VelocityEHS will be hosting a three-part blog series reflecting on some of the key takeaways identified in the NAEM report, "Planning for a Sustainable Future." As part one of the series, this post will explore the business case to be made for implementing long-term risk management strategies to improve overall resiliency.

In the report, a number of major areas of risk for companies were highlighted:

• Climate change
• Legacy issues such as aging infrastructure and old equipment
• Future recommendations for effective risk management

Climate Change

Climate change risks pertaining to water were emphasized, counter intuitively ranging from water scarcity to sea level rise. A report from the Natural Resources Defense Council has projected sea levels to rise by over 1 meter by 2100. Researchers have calculated that this would directly result in losses of up to $360B (USD) in real estate damage alone or 0.35% GDP of costal US states (The Cost of Climate Change, p5). This potential risk could drastically impact primarily site and facility-level operations.

The United States Environmental Protection Agency (EPA), furthermore, shared research by the National Oceanic and Atmospheric Administration (NOAA) in 2013 that water levels had risen between 1960 and 2012. The map indicates a rise of nearly 20 centimeters in some coastal states. NAEM research makes the connection between the observed rise in water levels with the strengthening of storm surges. Hurricane Sandy, which struck the Northeast U.S. coastline in 2012 is estimated to have cost U.S. businesses over $70 billion in property damages and economic loss due to business interruption.

Corporate leaders and sector experts interviewed for the report expressed that it is often difficult to make a case for long-term risk management and operational sustainability strategies. Crises such as Hurricane Sandy, however, which result in such significant ‘loss’ in every sense of the word, have the power to spur action. Joseph Fiksel of the Center for Resilience at The Ohio State University stated, “I think we are going to see external forces are going to drive the conversations... We won’t be able to stay complacent for very long” (Planning for a Sustainable Future, p8). Whether the event is experienced directly or is observed, business planning following catastrophic events becomes less about whether to spend on EHS and Sustainability or not, but whether to allocate business resources to preventative actions such as construction of sea walls or to root cause preventative actions such as Greenhouse Gas (GHG) Emissions reduction programs.

Legacy Issues

Respondents noted the same theory to be true for other key emerging risks referred to as legacy issues. Posing a significant environmental risk, infrastructure and equipment are constantly cycling through stages of compliance as they age. Examples which continue to make appearances in North American and global news include decaying pipelines and underground fuel storage tanks.

Looking to Canada’s oil capital, Alberta’s Ministry of Environment and Sustainable Resource Development started creating a database of underground storage tanks in the late 1980s. All tanks must now be registered and are monitored for ongoing compliance by the Petroleum Tank Management Association of Alberta. The Ministry cautions businesses, “It can be many times more costly to clean up contamination from a leaking tank than to upgrade or replace it.” The United States EPA similarly regulates compliance with federal and state Underground Storage Tank (UST) requirements to ensure that the nearly 600,000 USTs storing petroleum and other hazardous materials across the U.S. are, “properly equipped, monitored and maintained to avoid costly contamination of the environment.” The recommendation: be proactive. The cost of retrofitting tanks to meet current requirements is estimated to be a fraction of the average cumulative cost of clean-up and replacement/repair in the event of a leak.

Recommendations for Effective Risk Management

Why companies should invest in the development and implementation of effective risk management strategies to improve their business resiliency is clear. The question then is how does an organization identify areas of risk before they become a crippling reality?

NAEM’s report respondents and participants in the recent Planning for a Sustainability Future webinar recommended the following:

• Businesses should start by conducting comprehensive risk assessments;
• For sites that are evaluated and deemed not at immediate risk, respondents recommend embedding identified best EHS practices and mitigation measures into corporate processes and future site developments;
• Assessment reports must include a cost analysis comparing the cost of upgrading or retrofitting to meet or exceed current requirements, to the cost of an event or instance of non-compliance;
• Five year plans are revised annually, allowing only for incremental change. Creating a 10 year plan establishes a reasonable window for creating more systemic change;
• Choosing an EHS and Sustainability software system that enables users to systematically assess risk aspects and mitigating actions over time, track compliance requirements, monitor internal and regulatory performance metrics, and conduct preventative audits and inspections to produce actionable data.

NAEM defines resiliency as, “The development of a business organism that is responsive, interdependent and ultimately, adaptive” (Planning for a Sustainable Future, p5). By taking action now to manage long-term risks, businesses will be better equipped to adapt to often uncertain circumstances preventing catastrophic environmental impacts and business disruption.

As a longtime member of the National Association for Environmental Management (NAEM) community, VelocityEHS continually supports research and development of environment, health and safety (EHS) trends. VelocityEHS had the honor to sponsor this latest report from NAEM.

What steps is your company taking to manage and reduce long-term risks? Comment below and start the conversation.