Creating Economic Value Through EHS&S Systems

Many companies believe that management of environmental health, safety, and security (EHS&S) is a necessary cost of doing business. At a minimum, companies incur costs of compliance with laws and regulations. Further, under the traditional “risk management” paradigm, companies typically invest in improved EHS&S systems in order to reduce their financial risks to an acceptable level. However, a different paradigm has emerged over the last decade that treats EHS&S in a more strategic manner – as a potential resource for value creation.

Industrial Ecology in Action: Granulated blast furnace slag at the Salzgitter steelworks moving to Holcim’s ALSEN cement plant in Germany.

Today, leading companies are discovering that they can generate enterprise value through voluntary initiatives in areas such as clean technology R&D, product stewardship, industrial ecology, and public-private partnerships. At a minimum, these initiatives demonstrate corporate citizenship and improve the company’s “right to operate.” Moreover, through EHS&S excellence, businesses can compete effectively by raising profits while reducing the cost of capital, i.e., doing more with less.

The value creation perspective is based on a fundamental financial metric called “enterprise value added” (EVA), also known as economic value added or shareholder value added. EVA is defined as the difference between after tax net operating profit and the weighted average cost of capital. EHS&S efforts have been shown to contribute in many ways to a business’s EVA; examples include:

• Increasing resource efficiency by reducing a company’s environmental “footprint” can result in the reduction of both capital and operating costs;
• Designing environmentally sensitive products can result in product differentiation, enhanced market acceptance, and increased revenues;
• Increasing employee safety and eliminating process hazards can result in improved productivity and throughput; and
• EHS&S management practice improvements are correlated with reduced liability and risk, resulting in a lower capital charge.

Battelle’s Life Cycle Management group focuses on helping clients in a variety of industries pursue value-based EHS&S opportunities. Recently Battelle completed a $4 million sustainability study of the global cement industry, sponsored by the World Business Council for Sustainable Development. The study recommended a number of change initiatives that showed how the industry could shift from a traditional, resource-intensive, profit-maximizing business model to a more eco-efficient, socially responsible, value-maximizing model. For example, the cement industry is already demonstrating industrial ecology by converting industrial wastes to feedstocks (center photo). In addition, the study developed several enabling tools for business decision making, technical innovation, and stakeholder outreach.

For information on Battelle’s Life Cycle Management capabilities contact Dr. Joseph Fiksel at (614) 424-5730, fiksel@battelle.org. For information about the cement industry study visit www.wbcsdcement.org.