Materiality, ESG and Process Safety Management Maturity.

Starting with materiality and ESG

Materiality is an accounting principle that refers to the impact of an omission or misstatement of information in a company’s financial statements on the user of those statements [1]. In other words, materiality refers to issues that are likely to affect an investor’s decision-making and can be financial or non-financial, positive, or negative. Factors that may affect sustainability from an investor’s perspective by impacting on profitability, growth, and risk.

It makes sense then that materiality can differ enormously by activity and from company to company but will likely include environmental, social and governance (ESG) issues. The UK and EU are leading the way with the introduction of climate-risk and ESG reporting requirements [2]. The UK Government’s roadmap towards mandatory climate-related disclosures [3] presents a strategy to help ensure that relevant information on climate-related risks and opportunities is available across the investment chain, with reporting requirements aligned to TCFD recommendations on governance, strategy, risk management, and metrics and targets. But other factors may also impact a company’s long-term prospects and value. They include wider ESG related matters that are increasingly material for issuers and so should be disclosed. Such is the case for the chemical industries.

Responsible Care® and process safety

As the UK’s second largest manufacturing sector, behind machinery and transport equipment, the chemical industry (including pharmaceuticals) accounted for over £54 billion of exports and £30.7 billion of value added to the UK economy in 2021 [4]. Even so, it has its challenges. According to the World Economic Forum [5], emissions exceed those from the building and transport sectors and represent more than 30% of global greenhouse gas (GHG) emissions.

As a hard to abate energy and CO2 intensive yet essential sector, it is not hard to understand why sustainability and ESG related issues have remained high on the agenda for chemical manufacturing and chemical using businesses. They continue to tackle environmental concerns and sustainability, in part through process optimisation, transitioning to renewable energy, and by adopting innovative technologies, and most businesses have made great strides in recent years. For example, the EEA reported a 58% reduction in CO2 emissions from the EU chemical industries from 1990 to 2017 [5].

Responsible Care is the framework which allows the chemical industries to contribute to the sustainable development agenda and most of the United Nations Sustainable Development Goals (SDGs) [6]. It has been in place for over 35 years and is a global voluntary initiative to drive continuous improvement in safe chemicals management and achieve excellence in environmental, health, safety, and security performance.

The UK Chemical Industries Association (CIA) has established eleven key principles that serve to implement Responsible Care at UK site level, in accordance with the ICCA’s Global Charter [7]. The guiding principles cover:

  • Policy
  • Leadership and Management Systems
  • Experience Sharing
  • Process Safety
  • Performance Indicators
  • Chemicals Management
  • Resource Efficiency
  • Employee Management
  • Stakeholder Engagement
  • Working with Regulators
  • Security

Process safety is a key element, requiring signatories to take account of relevant best practice guidance to assess and manage the risks associated with their operations.

Similarly, the Chemical Business Association is also committed to Responsible Care requiring member companies to provide performance data on key aspects of their health, safety, security and environmental performance [8].

Materiality and process safety

Consistent with the principles of Responsible Care, materiality assessments in the hazardous process industries will identify process safety as a significant issue. This is because major accidents although rare – they seldom happen in a person’s lifetime – can have catastrophic consequences for people, the environment, and the businesses concerned.

However, reporting on this for the benefit of investors is challenging. Perhaps because performance measurement at site level requires site and systems specific indicators, whereas reporting on material risk necessarily calls for more generic measures [9], and past performance in relation to incidents is no guarantee of future success.

This is where the concept of a maturity model can be helpful.

Process safety (material risk) management and maturity

Maturity models are frequently used to show how capable organisations are of sustaining continuous improvement, without reporting on the detail. By defining maturity levels (OpenPSM® uses five levels from Initial to Optimising), mapped to recognised and relevant good practice guidance, they can be used to show how well management processes compare with accepted good practice (the current state) for the benefit of the leadership team. Based on stated aims and objectives they can also highlight where the organisation would like to be (the desired future state). Understanding of the gap between current and future states will help direct improvement activities and establish measurement metrics to monitor progress towards the desired state.

The generic nature of the maturity levels allows them to be applied to assessments across all areas of activity essential for good process safety performance e.g., compliance, workforce engagement, organisational competence management, hazard identification and risk assessment, asset integrity management, management of change, etc.

If you would like to know how OpenPSM® can help in understanding the current state of your process safety management processes, then contact us today.

[1] What is materiality in accounting information? — AccountingTools

[2] What ESG reporting frameworks exist today? | ICAEW

[3] FINAL TCFD_ROADMAP.pdf (publishing.service.gov.uk)

[4] United Kingdom – cefic.org

[5] How to build a more climate-friendly chemical industry | World Economic Forum (weforum.org)

[6] Responsible Care – International Council of Chemical Associations (ICCA) (icca-chem.org)

[7] CIA > Policy areas > Health & Safety > Responsible Care®

[8] Responsible Care – Chemical Business Association

[9] GRI – GRI Standards English Language (globalreporting.org)