The Risks and Challenges of Accrediting EHS and Sustainability PerformanceOct 6th, 2015 | By Lawrence B. Cahill | Category: Featured Articles
In the past few decades or so there has been a revolution in third-party programs and standards certifying, recognizing, or accrediting companies’ environmental, health and safety and sustainability performance. This has included numerous International Organization for Standardization (ISO) standards and guidelines such as those for Environmental Management (ISO14000), Occupational Health and Safety (ISO45001), and Social Responsibility (ISO26000). Coincidentally, a number of similar recognition programs have been initiated by organizations such as the U.S. Environmental Protection Agency (EPA), the U.S. Occupational Safety and Health Administration (OSHA), and Dow Jones.
The basic intent of all of these certification and recognition programs is to demonstrate to shareholders and other interested stakeholders that companies are managing their businesses in a socially responsible way. And this is a good thing. However, there have been some issues, especially with the recognition programs, that have affected their credibility and, hence, the credibility of the accreditations. This article discusses three of those recognition programs, one of which was terminated due to credibility issues, one of which has been subject to recent criticism stemming from an internal audit, and one of which has had three notable, and formally recognized, companies experience significant environmental catastrophes.
The U.S. EPA Performance Track Program
On June 26, 2000, EPA announced the launch of the National Environmental Performance Track (“Performance Track”) program, which was a public-private partnership that encouraged continuous environmental improvement through environmental management systems, community outreach, and measurable results. The program identified “stars” among the regulated community and these facilities received certain benefits (e.g., fast track permitting) as a result of their outstanding environmental performance. Companies submitted applications to EPA, which were reviewed by the Agency and approved when it was determined that the company met the requirements. There was very limited on-site, follow-up verification of the veracity of the applications by the Agency.
After nine years, Performance Track was terminated by EPA on May 14, 2009. This cancellation of the program was one of the very first initiatives under the first Obama administration. At the time of termination, the program had a membership base of 547 facilities in 49 states and Puerto Rico. A major part of the rationale for the elimination of the program was that the “star” participants were still experiencing significant non-compliance issues. That is, there didn’t appear to be a solid correlation between participation and regulatory performance.
According to the Philadelphia Inquirer at the time:
EPA’s decision [to terminate] comes three months after an Inquirer investigation found that Performance Track lauded companies with suspect environmental records, spent millions on recruiting and publicity, and failed to confirm members’ environmental pledges independently. The program became so desperate for new members, The Inquirer found, that it turned to gift shops and post offices to pad its numbers.[i]
Moreover, a 2007 report issued by the EPA Inspector General cast doubt on the accomplishments of the program. Its analysis found only two of 30 sample members it surveyed met all of their environmental commitments under the program. The program lacked performance standards to measure progress and didn’t offer a strategic plan to connect activities to its goals, according to the report.[ii]
The OSHA Voluntary Protection (“Star”) Program
As stated by OSHA on its website, the “Voluntary Protection Program (VPP) is designed to promote effective worksite-based safety and health. In the VPP, management, labor, and OSHA establish cooperative relationships at workplaces that have implemented a comprehensive safety and health management system. Approval into VPP is OSHA’s official recognition of the outstanding efforts of employers and employees who have achieved exemplary occupational safety and health. VPP sets performance-based criteria for a managed safety and health system, invites sites to apply, and then assesses applicants against these criteria. OSHA’s verification includes an application review and a rigorous onsite evaluation by a team of OSHA safety and health experts.”[iii] Star sites receive follow-up verification on-site visits every 3-5 years. OSHA formally announced the VPP and approved the first site in 1982. As of June 30, 2015, there were over 2,200 sites in the federal and state VPP programs.
In 2013, the Department of Labor’s Office of Inspector General (OIG) found substantial issues with the VPP Star Program. According to the OIG report[iv] OSHA did not have sufficient controls to ensure VPP worksites maintained exemplary occupational safety and health systems: “Thirteen percent of participants had injury and illness rates above industry averages or were cited with violations of safety and health standards, but most of these participants were allowed to remain in the program. Moreover, OSHA policy allowed participants with injury and illness rates above industry averages to potentially remain in the program for up to 6 years, raising serious questions as to whether the companies were fully protecting their workers. The OIG made recommendations to the Assistant Secretary for Occupational Safety and Health covering policies, controls, and oversight so OSHA can better ensure only VPP participants with exemplary safety and health systems remain in the program.”
The Dow Jones Sustainability Indices
Launched in 1999, the Dow Jones Sustainability Indices (DJSI) “serve as benchmarks for investors who integrate sustainability considerations into their portfolios, and provide an effective engagement platform for companies who want to adopt sustainable best practices.”[v] It has become quite prestigious for any company to be listed on the DJSI indices.
The DJSI is based on an analysis of corporate economic, environmental, and social performance, the so-called “triple bottom line”, assessing issues such as corporate governance, risk management, branding, climate change mitigation, supply chain standards, and labor practices.Information comes from an annual questionnaire (the Corporate Sustainability Assessment), company documentation, a Media and Stakeholder Analysis (an examination of media coverage, stakeholder commentaries, and other publicly available sources), and personal contact with the companies
Recently there has been some criticism of the DJSI particularly due to the fact that three listed companies have experienced notable environmental disasters or scandals. The BP Deepwater Horizon incident occurred in April 2010; BP was a DJSI-listed company at the time and was de-listed the very next month. The Japanese tsunami occurred in March 2011 causing the closure of Tokyo Electric Power Company’s (TEPCO) nuclear power plant in Fukushima; TEPCO was a DJSI-listed company at the time and was de-listed within a month. Much more recently, in September 2015, Volkswagen was caught installing computer software in its diesel-engine vehicles that falsified diesel emissions data in order to pass applicable regulatory emission tests. Volkswagen was also a DJSI-listed company at the time and was de-listed the very next month.
As the charts below demonstrate, the stock prices for each of the three companies took substantial hits as a result of the catastrophes. Within two months of Deepwater Horizon, BP’s stock price had lost 55% of its value and has never really recovered. Four years after the Japanese tsunami in June of 2015, TEPCO’s stock price was still down 70%. And Volkswagen’s stock price lost 40% of its value within two weeks of the “clean diesel” scandal. One wonders how the DJSI might have performed should these three “recognized” companies have been kept on their respective lists.
Principally as a consequence of (1) the two earlier disasters, (2) the limitations of relying mostly on company self-reporting, and (3) a perceived over-reliance on the economic component of the triple bottom line, a survey conducted among sustainability experts found that only 48 percent considered the DJSI as “highly trusted.”[vi] Interesting…
Independent evaluations of companies’ social responsibility performance is a noble goal. It is very helpful to both individual and institutional investors who want to do the “right thing” with their earned capital. However, there are major risks and challenges in developing accurate performance measures and reliable data when evaluating companies. This is particularly true where the data are company-supplied and not independently verified.
Of course, there is also the risk that no matter how well a company is managed, unanticipated and unwanted events occur. In these cases, it’s more about how the company responds than anything else. Johnson & Johnson and the 1982 Tylenol contamination and recall is a case where the response was exemplary. Let’s hope companies will take their lead from that incident when future disasters occur, and they will occur.
About the Author
Lawrence B. Cahill, CPEA (Master Certification) has over 35 years of professional EHS experience with industry and consulting. He is the editor and principal author of the widely used text, Environmental, Health and Safety Audits, 9th Edition and its 2015 follow-up text EHS Audits: A Compendium of Thoughts and Trends, both published by Bernan Press. He has published over 70 articles and has been quoted in numerous publications including the New York Times and the Wall Street Journal. Mr. Cahill has worked in over 25 countries during his career. He holds a B.S. in Mechanical Engineering from Northeastern University where he was elected to Pi Tau Sigma, the International Mechanical Engineering Honor Society. He also holds an M.S. in Environmental Health Engineering from the McCormick School of Engineering and Applied Science of Northwestern University, and an MBA from the Wharton School of the University of Pennsylvania.
Photograph: Inside the News by Jenny W.
[i] “EPA plans to end disputed rewards Performance Track offered perks for pollution controls, but some members had poor records”, John Shiffman, John Sullivan, and Tom Avril, The Philadelphia Inquirer, March 15, 2009
[ii] EPA Office of Inspector General, “Performance Track Could Improve Program Design and Management to Ensure Value”, Report No. 2007-P-00013, March 29, 2007.
[iii] Occupational Safety and Health Administration, “All About VPP”, see www.osha.gov.
[iv] U.S. Department of Labor, Office of Inspector General, Voluntary Protection Program: Controls Are Not Sufficient to Ensure Only Worksites with Exemplary Safety And Health Systems Remain in the Program,December 16, 2013