The Importance of Internal Audits Reply

Environmental, Health and Safety (EH&S) auditing is about reducing risks. EH&S auditing, whether driven by external factors or internal, is an independent, objective review of activity designed to add value to an organization’s operations. Auditing brings a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, operational controls, and processes. Completing proactive EH&S audits can ensure the effectiveness and efficiency of operations, the reliability and integrity of operational information, and the safeguarding of assets and compliance with laws, regulations, and contracts…all of which have a direct relationship to the organizations financial performance.

For example, EH&S efficiencies and the organization’s public image can have a substantial impact from a direct and indirect cost standpoint. A proactive EH&S audit program can drive improved efficiencies which will reduce direct costs (e.g. using less material to create a product) and improve indirect costs (create more in a shorter period of time – energy savings). An EH&S audit program ensures regulatory obligations are being sustained, which, in turn, prevents a negative public image. In addition, an EH&S audit program provides recommendations for improvement in those areas where opportunities or deficiencies are identified.

The intent of EH&S auditing is to provide objective data that assures top management that internal controls are effective and working as intended. An EH&S audit program directly supports risk management by providing an organization with data and the ability to control and make decisions to prevent financial loss and reduce an organization’s EH&S risks.

Sustainability Reporting – “Focal Point USA” Reply

The Amsterdam-based Global Reporting Initiative (GRI) has initiated a drive to get more US-based companies to use their reporting guidelines when publishing sustainability reports.  This drive was initiated on February 1st and is dubbed, “Focal Point USA.”  Of the Standards & Poor (S&P) 500 companies, 230 filed sustainability or other non-financial reports in 2010.  Only 97 of these reports used the GRI “G3” reporting guidelines. 

GRI offers 79 suggested results for companies to report on.  Some are called “core” results and others are “additional” (suggested).  All of these results are lagging indicators – the moment they are measured the results are in the past. 

Many companies are beginning to see the need to look at “leading indicators.”  These indicators are used to drive performance of the sustainability program itself into the future.  Leading indicators come from a number of performance frameworks used around the world.  The most widely used performance frameworks are EFQM (Europe), and Baldrige (US).  Australia, India, China, Japan, and Brazil also have similar frameworks.  CAPACCIO has posted a white paper on leading indicators to provide you with more information. 

Companies really need to use both leading and lagging indicators to have a sustainability that will be around for the long term. It is interesting that many US firms use leading indicators in corporate business performance assessments but do not mention them in their sustainability reports.  The sustainability/corporate responsibility professionals are getting interested in leading indicators to associate their programs with other corporate performance programs.

Performance programs refer to the lagging indicators (results) as “merely the outcome of performance.”  Good performance, as measured by the leading indicators, should lead to better results in the future.

Now that ISO 26000 (social responsibility standard) recognizes the EFQM performance standard, GRI will need to reconsider its insistence on sticking with the lagging indicator-only stance.  Maybe they will hear this message in the Focal Point USA effort. 

Related Papers: “Using Leading Indicators to Drive Sustainability Performance” http://www.capaccio.com/sustainability

LINKS:

Focal Point USA:  http://www.globalreporting.org/AboutGRI/WhoWeAre/FocalPoints/FocalPointUnitedStatesLandingPage.htm

GRI:  http://www.globalreporting.org/Home

S&P 500: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

EFQM: http://www.efqm.org/en/

Baldrige: http://www.nist.gov/baldrige/

New Stewardship Action Council Reply

There is a new association in the sustainability space. It is called the Stewardship Action Council (SAC). It is competing with the Corporate Responsibility Officers Association (CROA) and the GreenBiz Executive Network. SAC has an interesting mix of companies, state organizations, non-governmental organizations and universities. Participating members must set improvement goals and report progress against the goals. This looks similar to the now defunct Performance Track Program (US Environmental Protection Agency).

It is interesting to note that Level 3 members must have an environmental management system in place and it must be verified by a third party. These members must have independent audits conducted every three years and self assessments in interim years. These companies must also have no criminal violations in the past three years and no more than three notices of violation in any three-year period.

SAC has a “concept paper” that outlines the following goals:

• Create a sustainability standard that lays out the elements of and a path for achieving sustainable business practices

• Provide a mechanism to share company efforts to improve performance

• Create opportunity for collaborative efforts to address social and environmental issues that an organization cannot adequately address alone

• Provide a forum where different stakeholders can work together to accomplish common goals

There seems to be a decided focus on the environmental responsibility that is one of three responsibilities in a sustainability program. We’ll have to wait to see a glimpse of the sustainability standard that the members of this fledgling group are working on. With the recent release of ISO 26000 social responsibility standard, and the final voting on the ULE 880 (Sustainable Manufacturing Standard), we can look for some more choices in this very active area.

RELATED LINKS:

Stewardship Action Council:

http://www.stewardshipaction.org

Corporate Responsibility Officers Association:

http://www.croassociation.org

GreenBiz Executive Network: http://www.greenbiz.com/intelligence/

ExecutiveNetwork ISO 26000: http://www.iso.org/iso/iso_catalogue/management_standards/social_responsibility.htm

ULE 880:  http://www.ulenvironment.com/ulenvironment/eng/pages/offerings/services/organizational/ule880/

New ISO Handbook/CD Package Unveils ISO 14001 for Small- and Medium-sized Enterprises 2

As more companies begin to track environmental issues through the supply chain, there is a growing need to address environmental management at small- and medium-sized enterprises (SMEs).  The automotive industry required its supply chain to certify to ISO 14001, however, other industries are not quick to follow suit even though ISO 14001 certification now stands at nearly 250,000 companies in 2009 – an increase of 18% over the previous year. 

ISO has issued a handbook and CD designed in the form of a checklist to guide the SME in asking and answering a series of questions regarding the environmental activities of their organization.  The checklist is in 16 parts.  Each part covers a particular ISO 14001 requirement and begins with an explanation of the requirement as well as guidance on how to incorporate this guidance into an EMS that meets the needs of the organization and, perhaps, its customer.  The CD provides the convenience of electronic navigation through the requirements and enables responses to each question to be saved and then printed in pdf format.  This could provide evidence to the customer that there has been progress in implementing an EMS.

It is well known that companies have improved their operations and reduced the impact of their activities, processes, products, and services on the environment by using a systematic approach that seeks continual improvement. The benefits of addressing environmental issues, however,  not only cover protection of the environment, but are also linked to business performance and profitability while improving the company’s image, enhancing access to export markets, providing a common reference for communicating environmental issues with customers, regulators, the public and a host of other stakeholders.  So, what’s not to like!

SMEs are afraid of the cost associated with implementing an ISO 14001 program.  Even while there is an eventual payback associated with the efforts, there will be a considerable amount of up-front money.  They know that they will have to purchase the standard and make a lot of changes in how they operate.  Believing that one has to be certified in order to get credit for using ISO 14001 keeps many companies from considering this important standard.  They only need to certify if a customer requires certification.  Using a checklist could be of value even if the ultimate aim is not third-party certification of the standard.  To order this checklist, you can go to the ISO website:  http://www.iso.org/iso/publications_and_e-products/checklists.htm#PUB100268 

 Some companies are taking a more direct approach with the SMEs in their supply chain.  A consulting firm is hired to perform a gap assessment at each facility in the first tier.  The suppliers will realize that they are already doing many of the things that are required for an ISO 14001-conforming EMS.  It might be easier for them to use the recommendations for improvement to assemble a sound EMS.  In time, the SME will have a viable EMS in place.  At that time, they can decide to use ISO 14001 to check their own system for conformance.  The customer can have a “second party audit” performed to help the SME further improve its program.  All of this can be accomplished without ever seeking third party certification. 

There are a number of internet resources available to SMEs when their customer does not get directly involved as described above.  No matter what the motivation, SMEs can gain some significant recognition from their customers by paying attention to their EMS.