GEMI Survey EHS Metrics and Processes January 2003

GEMI Survey EHS Metrics and Processes January 2003 Carl Wirdak Occidental Petroleum Corporation

Outline • Survey Recap • EHS Metrics • Metrics Process and Practice EHS Metrics & Processes 2

Survey Overview • Survey addresses the management of environment, health or safety (EHS) metrics and metrics processes that apply to a company’s business activities • Survey response rate ~60% – 21 companies responded to the survey – Not all companies completed all questions • Broad industry coverage • Thank you to all participants! EHS Metrics & Processes 3

Metrics Overview • Over 475 EHS metrics listed (about 23 per company) • Heavily weighted to environmental • Balance among internal measures EHS Metrics & Processes 4

Metrics Usage • Metrics used most often to assess organizational performance – “Are we doing what we set out to do? ” • Influencing key stakeholders (external) is important EHS Metrics & Processes 5

Topical Coverage • Focus is on the basics • Communicating environmental performance to external audience is key • More balanced message to internal audiences EHS Metrics & Processes 6

Leading / Lagging Indicators Most firms rely on lagging indicators for EHS metrics EHS Metrics & Processes 7

Quantitative Targets • Widespread use of quantitative targets • Nine GEMI companies have numeric targets on all internal EHS metrics EHS Metrics & Processes 8

Normalization • Almost all firms use normalized metrics • Greater use in communication of EHS metrics to external audiences • Man-hours, production units and revenue are the most common bases EHS Metrics & Processes 9

Update Frequency Internal EHS metrics updated more frequently than those reported externally EHS Metrics & Processes 10

Overview of Metrics Processes • Most companies do not have a problem with management support of the EHS metrics program • Most companies have documented their procedures for metrics practices • Few have calculated the costs associated with developing, collecting and reporting on EHS metrics, but… • Most expect to spend about the same as last year EHS Metrics & Processes 11

New Metrics - Practical Considerations d t an rt po Im re t n ta de si r po on Im C ot N ry Ve What steps do companies perform when developing new EHS metrics? Compare new metrics with existing or developing standards 62% 38% 0% Account for off-shore facility considerations / applicability 58% 42% 0% Involve key business unit, operational and line managers 52% 33% 14% Define internal measurement techniques and performance goals 48% 52% 0% Define reporting levels and responsibilities 48% 43% 10% Identify external benchmarks 29% 67% 5% Conduct pilot testing to confirm / validate data measurement 29% 52% 19% Conduct a cost / benefit analysis for rationalizing new metric 19% 57% 24% Perform a formalized stakeholder needs evaluation 19% 52% 29% 5% 55% 40% Incorporate into personnel evaluations and compensation systems EHS Metrics & Processes 12

New Metrics – “Value-Added” Factors d t an rt po Im re t n ta de si r po on Im C ot N ry Ve Top 10 “value-added” factors companies consider when assessing an EHS metric Can be used to demonstrate progress towards goals and objectives 76% 24% 0% Can be used to motivate a desired behavior or change 71% 29% 0% Easy to measure / data collection is at a reasonable cost 71% 29% 0% Can be clearly stated / is easily understood by management 67% 33% 0% Shows strengths and weaknesses of business or EHS processes 48% 43% 10% Reflects risk associated with operational / EHS activities 48% 43% 10% Has strong linkage to strategy and objectives 43% 52% 5% Can be benchmarked 33% 62% 5% Potential for improving company’s financial return 29% 62% 10% Shows tie between EHS, operational, and management performance 29% 62% 10% EHS Metrics & Processes 13

New Metrics – “Value-Added” Factors d t an rt po Im re t n ta de si r po on Im C ot N ry Ve Less popular factors companies consider when assessing the “value-added” by an EHS metric Required anyway for legal / regulatory reporting 29% 48% 24% Ability to improve the "balance" with the existing set of metrics 24% 52% 24% Value as a prediction of future trends 24% 48% 29% Incorporated in existing or developing standards (e. g. , GRI) 24% 43% 33% Can show economic value-added across the value/supply chain 24% 38% To track record of resolving stakeholder requirements or issues 14% 67% 19% Can be normalized on a meaningful basis 10% 67% 24% Concern that data can be artificially "manipulated“ to hide true performance 10% 57% 33% EHS Metrics & Processes 14

Data Sources Common • Regulatory reports • Audit results / findings • Computerized MIS • • • Uncommon Monitoring / measuring equipment Management systems reviews Inventory and production records External reports and studies Interviews / discussions • Quality management systems • Financial and accounting systems EHS Metrics & Processes 15

Data Capture & Validation Capture Essentially a manual process 0% Some automation but more of a manual process 10% A combination of electronic and manual processes 40% More electronic and automated than manual 40% Fully integrated and on-line MIS process 10% Validation Via audit programs 71% Formal internal data checking processes 71% Searches of regulatory agency or 3 rd-party databases 38% Via an independent, 3 rd-party consultant 10% No validation practices implemented EHS Metrics & Processes 5% 16

Metrics Reporting and Analysis • EHS metrics are reported to management in a variety of ways • Fewer than half (~40%) of the survey respondents reported use of a “Balanced Scorecard” approach to managing overall business goals, but all companies that use it include EHS metrics in the mix EHS Metrics & Processes 17

Performance Evaluation Im po Co n rta nt sid No t Im ere d po rta nt Against defined performance goals and objectives 67% 24% 10% Determine effectiveness of EHS management systems 57% 38% 5% To better manage business costs / risks 57% 33% 10% Business unit / division / facility performance ranking 40% 20% To support initiatives for performance improvement 38% 57% 5% Individual manager's job performance 24% 48% 29% Evaluating resource (budget and staffing) needs 14% 76% 10% 5% 45% 50% To determine economic valueadded of EHS activities EHS Metrics & Processes 18

EHS Performance Feedback • EHS metrics are used by all companies as a tool to improve company performance • When a metric indicates sub-par performance, >80% of companies do further analysis • Further analysis leads to performance improvement about 67% of the time EHS Metrics & Processes 19

Continuous Improvement of Metrics What factors do companies consider when assessing how to improve EHS metrics? Importance High Mid Low Ability to improve company performance 86% 10% 5% 0% 0% Quality, consistency or accuracy of metric 57% 33% 10% 0% 0% Linkage with corporate objectives 52% 33% 10% 0% 5% Relevance to management needs 29% 57% 5% 0% 10% Relevance to stakeholders 29% 33% 5% 5% Timeliness of information reported 24% 38% 24% 14% 0% Ease of interpretation 14% 48% 29% 10% 0% 5% 24% 33% 19% Promotes cooperation between business units or departments EHS Metrics & Processes 20

Metrics Turnover Number of companies 20 Dropped 15 Added 10 5 0 0 -10 11 -20 21 -30 31 -40 Annual turnover percentage EHS Metrics & Processes 41 -50 21

Conclusions • There are many different metrics in use • Differences exist between metrics that are used internally and those that are communicated externally • EHS metrics are linked to the business • The use of lagging indicators far outweighs the use of leading indicators • Applying quantitative targets to metrics is common practice • Generally, metrics processes are sophisticated and mature • Companies continue to search for better metrics • Questions /comments? EHS Metrics & Processes 22

Future Benchmarking Study Ideas • Development of goals and their relation to the metrics • The use of cost accounting practices (ABC, TCA) within EHS and how it relates in the various business aspects, operations, product development, etc • The use of the Balanced Scorecard for EHS and how it is aligned with the business's use of the scorecard • International regulatory tracking & influence • Climate change approaches • Audit process and management • Management systems implementation • How, by whom and when companies conduct independent verifications of their metrics systems • A study on GRI reporting, such as to what extent are member companies complying EHS Metrics & Processes 23