Unique ESG Considerations for the Waste Industry
/Waste management operations are not immune from the increasing scrutiny of Environmental, Social, and Governance (ESG) performance, viewed today, more than ever before, as a critical factor for obtaining capital and talent. In January 2020, BlackRock’s CEO, Larry Fink, expressed that his investment firm is increasingly integrating ESG issues into their investment decisions. He stated, “A company’s ability to manage environmental, social and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth.” BlackRock’s voting guidelines have also changed in light of the emergence of ESG issues. Their policy now reads, “For companies in sectors that are significantly exposed to climate-related risk, we expect the whole board to demonstrate fluency in how climate risk affects the business and how management approaches assessing, adapting to, and mitigating that risk.”
Sustainability Leaders show higher returns and less risk.
In an effort to substantiate BlackRock’s position on the importance of ESG performance, NASDAQ reviewed the 2019 MSCI ESG rankings for the S&P 500 that consisted of 493 of the 505 companies who received rankings. They calculated a variety of performance metrics including price performance and volatility measures over the last five years evaluated as of the end of 2019. Using the seven potential MSCI ratings ranging from AAA to CCC, NASDAQ categorized companies as ‘Leaders’, ‘Laggards’ or ‘Neither’. NASDAQ then compared these three categories’ performances with that of the market. Their results found that over the last five years, companies considered as sustainability leaders under the MSCI framework exhibited both higher returns and less risk. Additionally, companies considered as sustainability laggards showed the opposite results.
The benefits of incorporating sustainability and ESG early and throughout an entire waste management project, such as the development of a new landfill, can have a big impact. Applying a sustainability aspect to a proposed landfill can result in cost reductions, increased profit, increased investor interests, and most importantly public acceptance during the siting phase.
SASB provides an industry-specific Waste Management Standard.
One of the leading ESG frameworks was created by the Sustainability Accounting Standards Board (SASB), formed in Oct. 2012, to develop standards which recognize and account for material, non- financial issues as part of corporate reporting. In 2018, SASB published sustainability accounting standards within a framework called the Sustainable Industry Classification system (SICS) to sort 77 industries within 11 sectors. This framework provides industry-based standards, including a Waste Management Standard, and focuses on providing decision useful information to investors. SASB has attempted to identify those sustainability topics that it believes may be material for all companies within each SICS industry.
GHG emissions from landfill gas is a key disclosure topic.
Within SASB’s Waste Management Standard, GHG emissions is a key disclosure topic since landfill gas is a significant anthropogenic contributor to global greenhouse gas (GHG) emissions because it contains highly potent methane. As a result, landfill gas is frequently required to be limited by regulators. The amount of landfill gas that is collected can be measured; however, the amount of landfill gas generated, and the amount emitted to the atmosphere as fugitive emissions must be estimated using prescribed calculation methodologies: Solid Waste Industry for Climate Solutions (SWICS) Protocol; and, the U.S. EPA Greenhouse Gas Reporting Program (GHGRP) rules.
Waste management facilities have complex ESG factors.
(Photo © Copyright Chris Andrews)
To highlight how unique ESG programs must be and how strategically ESG performance must be communicated to stakeholders, consider the paradox that arises when waste management facilities invest in waste-to-energy technologies. Companies that operate in the waste-to-energy segment of the waste management industry are able to lower lifecycle GHG emissions of waste through decreased future emissions from landfills and displaced energy generation. Efforts to reuse biogas to generate renewable energy and direct less gas to flares results in this paradox: As a site endeavors to maximize gas capture, the equation used to estimate fugitive emissions based on the amount of gas collected at the landfill results in increases to the estimation of fugitive emissions. This increased Scope 1 emissions from the operation of waste-to-energy facilities might be counterintuitive for stakeholders, including investors, and may appear as lack of progress toward an emissions reduction goal.
Fleet Fuel Management is another key topic for disclosure.
Since many companies in the Waste Management industry own and operate large vehicle fleets for waste collection and transfer, SASB identified Fleet Fuel Management as another key topic for disclosure. Fuel consumption by vehicle fleets is a significant industry expense, both in terms of operating costs and associated capital expenditures. Fossil fuel consumption can contribute to environmental impacts, including climate change and pollution. A cleaner-burning fleet may also be seen as more favorable by communities living near waste management facilities with heavy traffic.
KERAMIDA’s methodology for calculating fleet efficiency conforms to U.S. EPA’s SmartWay Truck Tool. SmartWay calculations use records compiled for tax credit and fee purposes. The tax documentation reflects fuel purchased in a year, including some insignificant amounts of fuel stored rather than used in a given year.
How can waste management facilities improve their ESG program?
ESG programs are as unique as their industry, sector and individual operators are. Key performance indicators – or “material” topics – for a semiconductor manufacturer are quite different from those of a waste management facility. Working with ESG experts who know how to design, monitor, measure, and report out from an ESG program can help waste management facilities maximize their potential for value creation. Facilities also need an experienced team who understands how to apply all of the continually evolving sector-specific standards and guidance to its unique situation of a waste management facility.
KERAMIDA’s sustainability experts can guide you through the strategic ESG management and reporting of these topics and others deemed material by SASB, including: Air Quality; Management of Leachate and Hazardous Waste; Labor Practices; Workforce Health and Safety; and, Recycling and Resource Recovery. We can also support your CDP disclosures and GRI reporting. Contact us or call (800) 508-8034 to speak with one of our experts today.
Contact:
Becky Twohey, Ph.D.
Vice President, ESG Strategy, Planning and Reporting
KERAMIDA Inc.
Contact Becky at btwohey@keramida.com
