Evaluating Corporate Environmental Performance - PowerPoint PPT Presentation

1 / 34
About This Presentation
Title:

Evaluating Corporate Environmental Performance

Description:

... unless mandated; cruelty-free practices only. Animal Treatment ... EPA public records. OSHA records. LexisNexis searches. Other NGO and Trade Association data ... – PowerPoint PPT presentation

Number of Views:124
Avg rating:3.0/5.0
Slides: 35
Provided by: vdoc
Category:

less

Transcript and Presenter's Notes

Title: Evaluating Corporate Environmental Performance


1
Evaluating Corporate Environmental Performance
UCLA ENV 188A Business and the Environment
  • Professor Magali Delmas

2
Environmental Screening Indicators
  • Inclusion or exclusion of corporate securities in
    investment portfolios based on environmental
    criteria.
  • Physical indicators material and energy input
    and output from production process or product use
  • Management indicators concerned with efforts of
    environmental management within a firm
  • Impact indicators relate to physical output data
    (on emissions for instance) to potential
    environmental impacts (global warming potential)

3
2. Contributor measures or management indicators
  • Measure the internal workings of the organization
  • such as management systems
  • Environmental investment
  • money invested in technology change
  • Training
  • number of sites with employees trained in
    environmental health and safety
  • Management commitment
  • number of times a year plant managers address
    environmental issues with staff
  • Employee awareness
  • percentage of employees aware of environmental
    issues, tracked by survey
  • Systems
  • existence of a management plan for each
    underground storage site

4
Reporting and Transparency
  • Based on voluntary information
  • Example of indicators
  • Environmental or sustainability report
  • Global Reporting Initiative guidelines
  • Management commitment
  • Information availability on the web
  • Goals and improvement targets
  • Performance numbers
  • Third party verification
  • Similar indicators are used by SRI companies as
    SAM, KLD Environmental reports are the main data
    source for SRI companies

5
(No Transcript)
6
Comparing rankings
7
KLD Environmental Strengths and Concerns
  • Beneficial Products Services
  • Pollution Prevention
  • Recycling
  • Alternative Fuels
  • Communications (added in 1996)
  • Property, Plant, and Equipment (through 1995)
  • Other Strength
  • Total Number of Environment Strengths
  • Hazardous Waste
  • Regulatory Problems
  • Ozone Depleting Chemicals
  • Substantial Emissions
  • Agricultural Chemicals
  • Climate Change (added in 1999)
  • Other Concern
  • Total Number of Environment Concerns

8
KLD 2002
Env Concerns
Env Strength
9
KLD 1991-2002
10
EcoValue21 Quantifying Eco-Value
EcoVALUE 21 analyzes 60 key variables using
over 20 data sources
  • Historical Contingent Liabilities
  • Superfund
  • State and hazardous waste sites
  • RCRA
  • Toxic torts
  • Financial Risk Efficiency Capacity
  • Balance sheet strength
  • Insurance cover adequacy
  • Managerial Efficiency Capacity
  • Strategic corporate governance
  • capability
  • Environmental management
  • systems strength
  • Environmental audit/accounting
  • capacity
  • Supply chain management
  • Training capacity and intensity
  • Generic environmental management protocols
  • Relationships with stakeholders
  • Industry-specific protocols
  • Operating Risk Exposure
  • Toxic emissions
  • Product risk liabilities
  • Hazardous waste disposal
  • Waste discharges
  • Supply chain management risk

EcoVALUE 21 RATING
  • Eco-Efficiency and Sustainability Risk
  • Energy intensity and efficiency
  • Raw materials natural efficiency and
    intensity
  • Product life-cycle durability/ recyclability
  • Exposure to shifts in consumer values
  • Strategic Profit Opportunities
  • ability to profit from
  • environmentally-driven industry
  • and market trends

11
SAM- Environment
12
SAM- Economic
13
SAM- Social
14
SAM
  • Diversifying Information Sources
  • For each company, the input sources of
    information for the Corporate Sustainability
    Assessment consist of the responses to the
    Corporate Sustainability Assessment
    Questionnaire, submitted documentation, policies
    and reports, publicly available information and
    analyst's direct contact with companies.
  • Verification
  • To ensure quality and objectivity an external
    audit and internal quality assurance procedures,
    such as crosschecking of information sources are
    used to monitor and maintain the accuracy of the
    input data, assessment procedures and results.

15
Sierra Club Mutual Funds
  • Method
  • 3 levels of scrutiny
  • Sub-advisor identifies companies based on
    finances
  • Forward Management incorporates environmental and
    social analysis and submits companies to Sierra
    Club
  • Sierra club provides opinions on environmental
    policies, giving final approval of a companys
    compliance
  • Combines Forward Management investment and
    knowledge and Sierra Clubs reputation

16
Criteria
17
ICValue Mission Purpose
  • To provide capital-market managers with analyses
    of equities, bonds and bond insurance that show
    regional and community-level risks and benefits
    from business operations in environmentally
    sensitive regions across North America.
  • Formed to provide independent, science-based
    research on the environmental performance of
    companies for conservation-minded investors.

18
CRITERIA7 criteria clusters
Environmental Management Cluster Supply Chain and
Life Cycle Impacts Cluster Balance of 3rd Party
Awards, Costs of Sanctions, and Transparency
Cluster The Conservation of Water and Watersheds
Cluster Nutrient Enrichment, Acid Gases and
Toxics Cluster Energy and Greenhouse Gas
Management Cluster Green Layer Productivity and
Biological Diversity Conservation Cluster Human
Health Impacts Cluster
8 enviro-technical and 7 enviro-management
criteria
http//www.icvalue.com/htdocs/products_metrics.php
http//www.icvalue.com/htdocs/products_clusters.p
hp
19
ICValues 15 Criteria
  • Adoption of environmental management system
  • Engagement of a company-wide environmentally
    sensitive Environment, Health and Safety Culture
  • Operational expectation that raw material and
    services Supply Chain assures environmental and
    resource use standards equivalent to company EHS
    standards
  • Consideration of Long-term, Life-Cycle
    Assessments of Products during Design,
    Production or Modification
  • Demonstration of significant Third-Party awards
    and recognitions for environmental protection,
    conservation or product innovation
  • Frequency and cost of environmental incidents or
    sanctions in relation to sector averages
  • Transparency in environmental management,
    evidenced in annual website reporting of Resource
    Use Intensity, Waste Disposal, Emissions, and
    Recycling Capacity
  • Water conservation and support of runoff or flood
    control, groundwater recharge and surface water
    planning
  • Minimizes unnecessary land conversion to high
    runoff-inducing land use or unstable land cover
    and related diminishment of ecosystem functioning
  • 10. Nutrient and toxics control
  • 11. Energy conservation support (reducing
    coal/oil/gas extraction and transport impacts)
  • 12. Air quality and climate management services,
    including improved visibility, reduced heat
    island effects, and greenhouse gas management
  • 13. Conservation of green layer production,
    facilitating agriculture, timber, biological
    energy fixation, and carbon storage
  • 14. Physical and biological diversity
    conservation support, including fish, wildlife,
    food chain and aesthetics
  • 15. Human health benefits and services through
    reduced ozone precursors, reduced PM 2.5 aerosol
    precursors, and associated mitigation of illness
    and mortality

20
Data Sources
  • Company Sustainability Reports and Website
  • Company Annual Report to shareholders
  • EPA public records
  • OSHA records
  • LexisNexis searches
  • Other NGO and Trade Association data
  • http//www.icvalue.com/htdocs/pub/pilotcase.pdf

21
Main Screening Challenges
  • Which indicators and variables should be included
    in the analysis?
  • Environmental impact (toxic releases, air,
    water)
  • Regulatory compliance (number of violations,
    fines)
  • Management practices and reporting (IS0 14001,
    environmental reporting)
  • Reliable and consistent data is limited
  • How do you assign weights to specific criteria?
  • Static versus dynamic comparisons
  • How do you select the screening cut?

22
Goal of evaluation
  • What is the goal of the evaluation?
  • Efficiency of the company (potential for cost
    savings)
  • Compliance (potential for penalties)
  • Toxicity (potential for liabilities)
  • Exposure of the company as compared to the
    industry (the big polluter will be more likely to
    be the target of environmental activists)
  • How do each of these potentially impact the
    bottom line

23
Does it pay to be green?
  • Opportunities to differentiate products
  • Bundle public good with private consumption
    benefit (Hayward Lumber, Patagonia)
  • Discovery of unexploited cost savings
  • (EMS)
  • Increase productivity
  • Recruit and retain high level employees with
    personal environmental convictions
  • Managing environmental risks
  • insurance policy to avoid sour community
    relations related costs shocks (Exxon)

24
What does the score mean?
  • Be clear on what the goal is
  • Comprehensiveness
  • Toxicity
  • Trends, improvements
  • Etc
  • The score needs to be easy to communicate to
    investors or stakeholders in general

25
Weights?
26
To weigh or not to weigh?
  • Not assigning weights is assigning weights.
  • Be clear on the percentages and what this means
    for the ranking overall
  • Model behind the ranking, how do the criteria
    relate to the bottom line?
  • Survey of importance of criteria
  • Transparency and replicability are required

27
How are firms distributed based on the ranking
  • Which part of the population is targeted for the
    ranking?

28
Environmental Management System
29
Issues with normalization
  • facilities
  • Average per facility, used to control for size
  • However, some facilities may produce more than
    others
  • May not vary much over time
  • Revenues
  • In order to control for differences in company
    size
  • Takes into account changes in demand per year
  • Profit
  • Does not control for difference in size
  • A measure of how dirty or clean are the profit
  • Same idea for stock price

30
Trends
  • Provides information on evolution over time
  • When to start?
  • How long should be the time period?
  • Make sure it will be comparable

31
Toward a good ranking system
  • Be transparent on the criteria used
  • Does the ranking reflect real environmental
    impact or just management practices?
  • Weigh highly criteria that the companies cannot
    easily manipulate
  • Be specific on the comparison group
  • Favor a dynamic approach did companies improve
    significantly?

32
Implications
  • Choices of metrics and weights matter
  • Current lack of transparency
  • Institutions creating these rankings may not have
    the incentives to disclose their methodology
  • Establish minimum mandatory reporting
    requirements
  • Educate firms on what to measure and what they
    are being measured on
  • Data verification is required

33
The challenge of alignment
  • In theory we can find win-win solutions
  • Information disclosure can help toward alignment
  • However, the design and implementation of such
    solutions is challenging, as the SRI example
    showed

34
Next Week LCA
  • Alpha Motors Case
  • What should Barns final recommendation be for
    material choice for the hood assembly?
  • Excel file on ENV 188 Website
Write a Comment
User Comments (0)
About PowerShow.com