GUEST COLUMN — Managing environmental risk

A national survey on environmental management practices conducted by KPMG Environmental Services in 1996 indicated that while many respondents in the natural resources sector routinely publish environmental performance reports, the sector lags behind others in terms of environmental management systems (EMS) development.

Some resource companies take a reactive approach to environmental risk — they deal with it when it becomes a problem. However, this approach may become less acceptable in the mining industry if, as seems likely, regulatory agencies and courts begin to recognize and use EMS standards such as the International Organization for Standardization (ISO) 14001 as a benchmark for their enforcement efforts. There is increasing speculation that ISO 14001 may ultimately be accepted by cash-strapped governments as the “industry standard” for management of environmental risk.

Canadian companies are actively seeking mining concessions in foreign countries. Foreign regulators charged with issuing mining concessions are being actively lobbied by environmental groups to recognize the risks involved, and to begin emphasizing conformance with environmental standards.

International organizations such as the World Bank are also being pressured to use standardizations such as ISO 14001 as a benchmark in financial decisions.

Business leaders are realizing that proactive conformance with environmental regulations is cost-effective relative to costs associated with litigation and environmental clean-up. A number of recent high-profile examples clearly demonstrate how environmental risk in the mining industry can lead to significant problems for both companies and their executives, and that strict liability may also be enforced in foreign countries. Responsible individuals may be held personally liable for fines and penalties imposed by the government.

“Liability chill” and negative publicity surrounding environmental incidents may also cause stakeholders such as bankers, insurers and other benefactors to withdraw support. Failure to properly manage such risks and public perception may impair market performance and jeopardize a business’s access to financial support or insurance coverage. It may also damage corporate relationships with regulatory authorities and communities, as well as make it more difficult to “site” operations and retain seasoned managers and board members. These kinds of stresses can threaten the ongoing viability of a business.

In an effort to prevent future liability problems, executives should take steps to demonstrate that their company took reasonable care in managing environmental risk. Executives and their companies should be able to answer yes to the following questions:

* Did the board establish a pollution prevention system (ie. an EMS)?; * Was there regular supervision and inspection of the system?; * Did directors caution those they controlled regarding risk management?; and * Was there an improvement in business methods?

While several environmental management standards have been developed internationally to address these questions, ISO 14001 has been endorsed by more than 50 nations, including Canada.

Environmental activists are using the internet to communicate and lobby for globalization of environmental protection standards. Despite difficult economic circumstances, public opinion polls in Canada continue to indicate that environmental quality and leadership remain top concerns. Neither cost pressures nor resource constraints nor the argument that environmental responsibility costs jobs will lessen public outrage, calm third party benefactors or provide a legal backstop for an offence that results from neglect.

Leading organizations are pursuing a risk management strategy and investing significant resources to understand the gaps between existing risk management practices and those required to conform with recognized environmental management standards such as ISO 14001. While conformance with recognized standards is likely to improve an organization’s risk management capabilities and reduce its exposure to environmental liability, it is also widely expected to have positive impacts on business relationships with third parties.

— the author is a senior manager with KPMG’s environmental risk management practice, and a specialist in environmental management system design and auditing.