At the company level, Waste Management initiated an enterprise risk management (ERM) committee several years ago. The ERM process begins with identification of the company’s programs and processes related to risk management and the individuals responsible for them through use of a risk assessment conducted by Internal Audit. The risk assessment identifies perceived risks to the company, with follow-up interviews with members of senior management to determine any gaps between their and their direct reports’ responses.
Members of the Senior Leadership Team (SLT) and other senior managers are interviewed on strategic risks to Waste Management’s ability to execute against its business strategy, as well as the more long-term risk landscape (up to 10 years). Risk focuses in 2015-2016 are:
The ERM deliberations and, more broadly, SLT and Board assessment of strategic risks are informed by ongoing risk assessments undertaken by key corporate departments, based on data from field staff, technical and research review, and information gleaned from the company’s network of business and multistakeholder contacts, described in the Stakeholder Engagement section of the Community Appendix. In the past two years, Waste Management has transitioned from relying on its Risk Management Department to formally assess risk to making risk identification and strategic management a core leadership obligation across corporate and operational units. Key areas of assessment include:
Technology: Waste Management’s Corporate Venturing department provides risk mitigation regarding new technologies that would affect the company’s business model. The Senior Leadership Team is updated quarterly formally and on an ad hoc basis in between. The SLT sets priority areas. The Board of Directors is briefed at least once a year, with an emphasis on identification and strategic planning regarding technologies potentially disruptive to the company’s business model.
Legislative/regulatory risk and opportunity: Corporate Public Affairs and Area Government Affairs report biweekly and confer monthly on key legislative and regulatory developments affecting Waste Management’s business. In an annual strategic planning meeting, in-depth discussion of priority issues helps identify strategic legislative and regulatory risks and opportunities that we plan to address. A central Public Policy team is charged with managing risk on priority issues affecting the company entity-wide. Public Affairs and Area Government Affairs staff survey risks and opportunities in terms of likelihood, severity and financial impact, and specific risk management goals are set and tracked through the company’s formal performance management system. Key risks addressed in 2014-2015 included the economics of recycling, potential emergence of disruptive technologies or materials management frameworks, federal and state climate change programs benefiting or challenging Waste Management service offerings, and barriers and incentives to Waste Management’s attempts to transition its fleet from diesel fuel. In 2015, the Board of Directors was briefed on benchmarking undertaken on the potential cost of carbon and the prominent pricing models employed by government and prominent companies throughout North America, with the sensitivity of design and rate alternatives assessed.
Operational risk: Continual assessment of potential risk associated with current technologies and structures is provided by engineering and environmental management specialists. For a detailed account of this system, read a discussion of Environmental Management Processes and Systems in the Operations Appendix. Waste Management is a founder and current Research Council member of the Environmental Research and Education Foundation, which focuses on sustainability performance, environmental stewardship and higher process knowledge within the environmental service industry. In 2015, we undertook best-practice, third-party benchmarking and have committed to communicating our resulting programmatic goals and progress to the Board periodically.
Reputation and reporting accuracy: As a service organization, Waste Management relies upon its reputation for reliable service, compliance, safety and sustainable innovation. Managers receive daily clips reporting the reputational footprint of Waste Management and our competitors. These insights are supplemented by field staff focused on gauging reputation and accurate representation of the company in all major markets. Communications on sustainability topics are coordinated centrally with a cross-functional team also charged with sustainability disclosure (including Communications, Public Affairs, National Accounts and Waste Management Sustainability Services), including response to RFPs and supply chain sustainability questionnaires with consistency and accuracy. Trends identified in customer and stakeholder questions and feedback are then inputted into the risk management process.
New acquisitions evaluation for environment, health, safety and social indicators: Waste Management’s acquisitions are almost exclusively in North America, and our risk assessment procedures reflect our ability to rely upon the rigor of national environment, safety and human rights law. Most acquisitions are subsumed into existing Waste Management operations and management and become fully subject to Waste Management standards and policies, including our Code of Conduct and its monitoring. Employees of acquired companies are on-boarded as new Waste Management employees, subject to our mandatory enforcement of immigration laws and company background checks and drug screening. In the less frequent event of a stock acquisition, we look closely at the seller’s employment, labor, safety and working conditions (including working hours, overtime, benefits, compensation), both in terms of meeting Waste Management’s standards and practices and in terms of potential liabilities for past practices. The Legal and Human Resources department are active members of the due diligence team. With regard to safety metrics, Waste Management senior staff are active in engaging with ANSI Z245 standards for our industry. ANSI Z245 standards are voluntary, but many — including those that are the basis for Waste Management policy and procedures — have been adopted into federal OSHA regulations.
Waste Management Recycling: Waste Management has invested in the assets to meet customer demand for recycling and waste reduction, with costs of processing and recovery through commodity sales as part of our economic model. As a result, our exposure to commodity prices has created a risk that can impact revenues by hundreds of millions of dollars. Waste Management Recycling is acting to mitigate the commodity risk through sales practices and contract terms. The recycling export team moves material to customers in China, India, South America, and North America in an effort to diversify the price risk and ensure that markets remain in balance. With prolonged low commodity prices since 2012, we prioritized increased transparency and cost sharing in our contract language to ensure movement of material, utilize market pricing on inbound material, and mitigate our commodity risk. Customers will be more likely to pay processing fees for recycling their material with the remaining split by both parties. These new terms may limit some upside benefits, but the risk mitigation protects Waste Management from the risk of volatile commodity prices. This more transparent pricing policy strengthens our ability to withstand sustained down markets in commodities and retain core recycling capacity.
Municipal Contracts: Waste Management’s Finance department conducts ongoing, in-depth audits on large contracts annually. A separate audit team manages SOX Contract 7 compliance on all new contracts with over $1 million in annual revenue. We have contract compliance teams in franchise markets who proactively audit all contractual requirements, reporting, fee payments, billing, etc. Our Public Sector Services department employs a financial model going through multiple levels of approval up to the Senior Leadership Team. That model includes risk characterization factors such as market conditions, regulatory risks, etc.
We report on the physical and financial risks and opportunities arising from climate change in our annual submission to CDP (formerly the Carbon Disclosure Project). Our CDP disclosure can be found at www.cdp.net and in our Annual Report. The key risks and opportunities are summarized below. Periodically, the Board is briefed on potential regulatory and market responses to climate change that may have near- or longer-term impact on our finances or the value of services we provide.
Waste Management has participated in CDP’s assessment of corporate emissions and policies since 2004, and we review questions asked by NGOs, rating agencies like DJSI and Vigeo, and customer supply chain sustainability surveys to continually improve our responsiveness. Some of our significant investors discuss with us the ways in which we are evaluating our carbon footprint and the market opportunities for our low-carbon products and services. The majority of institutional investors inquire about negative impacts from various forms of regulation and legislation addressing GHG emissions, and they are looking at potential impacts to earnings.
Two members of our senior management team — the Senior Vice President of Corporate Affairs and Chief Legal Officer and the Vice President of Disposal Operations Support — oversee the work of our Carbon Footprint Team. These management members report on various issues relating to climate change to our Board of Directors at least twice a year. The Board, in turn, provides them with strategic advice for the business.