Environmental Responsibility to the Board of Directors of BHP Billiton Australia - Essay Example

? ASSIGNMENT COVER SHEET Report to Environmental Responsibility to the Board of Directors of BHP Billiton Australia Executive Summary This report is in three parts. The first part discusses the academic requirements and concepts about need for corporate environmental responsibility. The second part examines the environmental reporting practices that have been carried out by BHP Billiton Australia. The final part of the paper discusses recommendations for improving sustainability and environmental responsibility in BHP Billiton. This report indicates that environmental responsibility has become an important subject in modern business. Businesses like BHP Billiton are required to comply with Australian laws relating to environmental responsibility, formulate and implement a strategy for environmental reporting and sustainable operations. This should be monitored and controlled on a regular basis. The board of directors has a primary obligation of ensuring that this is done. The report identifies that BHP Billiton has an active strategy for ensuring environmental responsibility. This is done through the Global Reporting Initiative (G3). This is monitored by the board of the company and given external assurance by KPMG. Additionally, the government environmental reporting guidelines are followed appropriately by the company. It shows promise of a commitment by the management of BHP Billiton to improve their environmental responsibility on an incremental basis. In order to improve environmental responsibility from the current position, BHP Billiton can consider segregating environmental matters and handling them with more focus. In addition, they can include significant elements of their operations in their reports. They can also use a futuristic approach in their reporting. Additionally, they will need to harmonise their environmental reporting standards around the world. PART I Academic Thinking in Corporate Environmental Responsibility in Australia Over the past two decades, adverse environmental impact has played an important role in political debates. This is because the world has accepted the fact that land and natural resources do not belong only to our generation but also a countless host of people yet to be born (Worthington, 2010: 471). As such, it is imperative on our generation to preserve the natural environment by using sustainable methods to exploit the available resources. The natural environment reflects humanity's impact on the environment and gives rise to an environmental footprint (Henriques, 2006: 121). As such, it is the obligation of corporate entities like BHP Billiton to address the issue of environmental degradation and ensure sustainable exploitation of natural resources (Boeger et al, 2008: 202). This can be done by identifying the relationship between the operation of BHP Billiton and the natural environment as well as the impact of our activities on the natural environment (Boeger et al, 2008: 202). Once this is known precisely, we can identify potential methods of reducing our impacts and find ways of ensuring sustainable operations. May et al (2007: 332) identify that there are five main elements that must be employed to ensure that we attain corporate environmental responsibility as a mining company. 1. Compliance: Mining companies like ours need to comply with relevant laws in the Australian Corporation Act, 2001 and the Australian Stock Exchange Listing Rules relating to environmental responsibility. 2. Openness: Need to be transparent in its operation by undertaking environmental reporting. This will show how much the company's operations are affecting the natural environment. This will give the impetus for environmental cuts. 3. Integration: Once the level of degradation from the mining company is identified, a strategy for cutting down on environmental degradation is formulated. Steps should be taken to ensure that all units of the organisation contribute to the strategy (Simpson, 2009: 85). 4. Collaboration: The management of the organisation will have to ensure that all stakeholder concerns are identified and included in their operations and quest to become environmentally responsible. 5. Sustainability: The strategy for cutting down environmental degradation should be monitored and improved where necessary. According to Polonsy and Zeffane, corporate environmental responsibility is necessary for four main reasons (2007). First of all, sustainable exploitation of resources enhances the image of an organisation. Secondly, there are rising insurance premiums for operations with regards to organisations with limited corporate environmental policies. This has an impact on the profitability and survival of businesses. Thirdly, there is increased community awareness of the environment as such; organisations are prone to lawsuits and major incidents. Finally, there are stiff penalties for disregard of environmental laws by the government. Top level management of organisations has two main obligations in environmental matters. First of all, the board of directors of organisations like mining companies have to ensure that there is a committee with oversight on environmental matters (Dale, 2010). Also, there is the need for environmental disclosure in annual reports (Cowan and Gadenne, 2005: 166). PART II Progress Made by BHP Billiton Australia in Corporate Environmental Responsibility There is evidence that BHP Billiton is carrying out a significant level of sustainability in its operations. There are two main annual environmental reports that are released each year to give an idea of what was done in the previous year to ensure environmental responsibility. They are the Energy Efficiency Opportunities report which is a statutory report laid by the company. This is mandatory and in sync with the requirements of the Australian Government Department of Resources, Energy and Tourism. There is also the voluntary sustainability report which is disclosed to show the effort made by the company in the previous year to promote environmental responsibility. This shows that the board is already interested in promoting transparency in its operations. It also shows a commitment to improve BHP Billiton's level of sustainability. Relative Analysis of BHP Billiton BHP Billiton is amongst the top four pacesetters in environmental responsibility in Australia. According to Environment Australia (2002) BHP Billiton worked hand-in-hand with Western Mining Corporation, Rio Tinto and Newmont Australia and relevant mining authorities in Australia to formulate the environmental responsibility standards that are in vogue in the country. Thus, it can be said that BHP Billiton is amongst the mining companies that are committed to strengthening their internal environmental responsibility capabilities as well as that of other Australian companies. The size and pioneering role of BHP Billiton in environmental responsibility makes it a role model for other smaller mining companies (Jenkins, 2005). Additionally, aside the condemnation that BHP Billiton went through over the Ok Tedi mine incident in the 1990s, it has gone great lengths to work on its environmental structures – this led to fewer law suits when compared with other companies (Blumenstky, 2007). Sustainability Structure and Report The BHP Billiton Sustainability Report (2011) gives a background on the effort that has been made by the company to promote environmental responsibility. The board of directors has a direct responsibility for the control of environmental risks and issues. This is done through two main committees, Risk and Audit Committee and the Sustainability Committee. These two committees are responsible for examining risks and issues in environmental matters. They then formulate an appropriate strategy and monitor it. The environmental responsibility system is a subset of the Sustainability Structure which includes three other units: Safety, Health and Social Responsibility. This ensures that sustainability is consolidated. This gives room for interrelated activities and services to be carried out in harmony. In the period reviewed under the 2011 Sustainability Report, it is apparent that the environmental unit of the company attained several positive results. First of all, there was a reduction in greenhouse emissions (6%). There was also a reduction in the reliance on carbon based energy (13%). Water recycling was increased by 10% whilst land rehabilitation was also increased by 10%. The sustainability system is run with the Global Reporting Initiative (G3) which gives consistent guidelines which aids comparison on a year-by-year basis and a company-to-company basis. Also, KPMG provides external assurance to evaluate the reporting system in place. Mandatory Requirements by Government The Energy Efficiency Opportunities (EEO) Report is based on the statutory requirements for companies like BHP Billiton to report their energy usage and resource exploitation. From the 2011 report, BHP Billiton was able to provide proper reports of its operations and its energy usage. Also, the previous energy saving quotas from 2006 and the achievements made over the years are captured in the report. This shows that there is a plan in place to ensure that BHP Billiton improves its environmental responsibility requirements. PART III Policy Recommendation for Adding Value to the Environmental Responsibility Although the board of directors of BHP Billiton have done extremely well in promoting environmental responsibility, there is some room for improvement. The recommendations below will provide guidelines for possible improvements: 1. There should be a higher degree of independence of the environmental responsibility unit of the sustainability structure of the company. This is because environmental matters are important in the company and there is the need for the board to give it special attention. 2. Some important elements of environmental responsibility are missing. Elements like chemical usage and their impacts on the environment are not disclosed. Also, processes used in mining and their impacts are not clearly disclosed in the reports. 3. The reports lack the futuristic touch necessary for such reports. This is because there is no attempt to report on the possible impacts of BHP Billiton's operations on future generations and flora and fauna. 4. Also, the Energy Efficiency Opportunities report seems to be based only on Australian operations. There are questions about the impact of the company's operation in different parts of the world where no such requirements exist. Therefore, it is imperative for BHP Billiton to disclose its operations in a consistent manner similar to what exists in the Australian operations. This will provide a holistic view of how responsible they are in environments around the world and not just in Australia. Conclusion Environmental responsibility has become a fundamental part of society and political debates. Mining companies are required by the society and government to remain responsible in their extraction of natural resources. The main values that guide the operations of mining companies are compliance to environmental law, openness and transparency, integration of mining strategy into their operations, collaboration with relevant stakeholders and the inclusion of sustainability in corporate philosophies. BHP Billiton has responded to its environmental responsibility requirement through an annual reporting system and the inclusion of environmental risk analysis in the board's function. BHP Billiton adheres to national environmental laws and has a voluntary environmental strategy, the Global Reporting Initiative. This report recommends that environmental responsibility at BHP Billiton should be secluded by the board from corporate social responsibility and given greater attention. Additionally, BHP Billiton should be more futuristic in its voluntary reporting and integrate the concerns about future generations in its metrics. Also, BHP Billiton's energy efficiency strategy should be extended to its international operations and not just focus on Australia. References Banerjee, S. B. (2010) Corporate Social Responsibility: The Good, The Bad and the Ugly Surrey: Edward Elgar Publishing. BHP Billiton EEO Public Report (2011) Energy Efficiency Opportunities [Online] Available at: http://www.bhpbilliton.com/home/aboutus/sustainability/reports/Documents/2011/2011BHPBillitonEEOPublicReport.pdf [Accessed: 14th May, 2012]. BHP Billiton Sustainability Report (2011) Our Future: Sustainability Report, 2011 [Online] Available at: http://www.bhpbilliton.com/home/aboutus/sustainability/reports/Documents/2011/BHPBillitonSustainabilityReport2011_Interactive.pdf [Accessed: 14th May, 2012] Blumentsky, G. (2007) “Mining Company involved in Environmental Disaster Now Addresses Sustainability Institute at University of Michigan” The Chronicle of Higher Education Money and Management.12 (7) Boeger, N., Murray, R. & Villiers, C. 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