Operationalizing ESG: Trends and Challenges in PSM and ORM
Safety

Operationalizing ESG: Trends and Challenges in PSM and ORM

By and | November 28, 2022

Join Alex Studd, Sphera’s product marketing manager for operational risk management (ORM), and Scott Lehmann, Sphera’s vice president of product management, as they discuss the key takeaways from Sphera’s seventh annual Safety Report.

 

The following transcript was edited for style, length and clarity.

Alex Studd:

Welcome to the SpheraNOW ESG Podcast, a program focused on safety, sustainability and productivity topics. I’m Alex Studd, Sphera’s product marketing manager for operational risk management. Today we’re joined by Scott Lehmann, Sphera’s vice president of product management. Thank you for joining us on the podcast, Scott.

Scott Lehmann:

Thanks, Alex. Glad to be here.

Alex Studd:

Today we’re here to discuss the key takeaways from Sphera’s seventh annual Safety Report, where over 280 process safety management (PSM) professionals responded to a series of questions related to their industry and what they’re seeing in the marketplace.

So, to get us started, Scott, 69% of respondents stated that their experience of process safety is not in tune with their companies’ process safety goals. Can you elaborate a little bit more on what you believe is contributing to that gap between process safety reality and process safety intent?

Scott Lehmann:

Well, this is a question we’ve been asking in the survey for years, going back to 2016 when we first started the survey. And to a degree, there’s not really anything new here in terms of the result. It’s been pretty consistent year after year. But I think what we’ve seen is that when we dig a little bit deeper, we see that the top reasons given for that kind of disconnect has to do with limited resources and conflicting priorities. Which again, really isn’t a huge surprise because on one hand, in terms of limited resources, it’s kind of a fact of life.

We’re never going to have enough budget, time, resources or expertise to get everything done. And then we put that against the backdrop of different priorities in conflict with each other. For example, safety, productivity and production. And now we throw sustainability in the mix. And it was already a challenging balancing act to get right, but now it’s even harder than it was before.

Alex Studd:

Scott, the other thing I thought was interesting was aging facilities being highlighted in the survey. And I found this particularly interesting because as equipment ages, the regular and thorough maintenance becomes even more important. So, in my mind, the likelihood of potential consequences is simply higher over time because the assets are older. Which means that the same percentage of maintenance gaps that you mentioned that’s been consistent year over year has more potential consequences today, don’t you think?

Scott Lehmann:

Well, that’s a great point because even in pre-COVID times in the U.S. alone, more than 50% of the assets in the hydrocarbon industry were already past their design life. And so aging assets have higher levels of maintenance because as things break down over time, equipment needs to be replaced. And as you mentioned, potentially years of backlog start to add up.

And then when you add on top of that assets being really pushed to capacity, it just drives even more maintenance needs. So, this just exacerbates everything and puts the level up of what you need to do to balance safety, productivity and sustainability.

Alex Studd:

Our report also shows that 33% of organizations aren’t fully aware of their assets’ exposure to a major accident hazard. That seems concerning to me, Scott. Can you explain why this might be?

Scott Lehmann:

Well, it’s always been difficult to connect the dots between disparate systems, data and business processes in a way that can create a mental map in the minds of the supervisors or the plant managers of how all that risk comes together. And I think one of the interesting things related to that from the survey is that the number one factor stated of what causes risk to increase on assets is a loss of experienced personnel. So, brain drain.

I think 62% of the respondents called this out. And if we look at what’s been going on in hazardous industries with the great crew change over the last decade or so, and then you add this newer phenomenon of the “Great Resignation,” it’s almost a perfect storm in terms of the loss of experience.

And when organizations lose all that expertise, experience and knowledge, this isn’t just something that you build up over the course of a few years. This is decades of expertise and experience of how plants are run and how they’re maintained. And it’s not an easy thing to replace.

Alex Studd:

It’s interesting, Scott, because this kind of touches on my point earlier about aging infrastructure where businesses can no longer get away with the same visibility gaps that they may have had in the past. And in this case, we’re talking about, with this turnover, the consequence of maybe moving on to less experienced employees.

That puts all the more pressure on organizations to ensure they’re enforcing their standards and policies. And so as this workforce gets younger, it doesn’t seem that businesses have that same level of expertise, that same level of knowledge. And so, you really need to ensure that those protocols are in place to make sure that they meet all the safety standards.

Scott Lehmann:

Well, in many ways, this is one of the leading drivers right now of why organizations are trying to embed best practices in digital systems. With all of that knowledge leaving the organization through retirement, we need to make sure that before it’s gone, we can standardize those best practices, those policies and those procedures that help to provide that ability to connect the dots between the systems and the data.

So, for example, when an operator has a wrench in his or her hand, and they’re about to open a vessel in the plant, they can understand how their work may impact the state of the plant, and how the state of the plant may impact their work to make the best, optimized decision possible.

 

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Alex Studd:

Scott, another thing I wanted to chat with you about was when we asked whether organizations manage their process safety proactively or as a compliance obligation, 42% report that their process safety is managed really only as a compliance obligation within their company. And it seems to me that organizations are going to have to become more proactive over time. Scott, can you dive into why now it’s so important to manage process safety proactively?

Scott Lehmann:

Well, it’s always been important, but I think now the impact of the consequences is bigger. It’s not just that there’s a 24-hour news cycle, and there’d be an immediate financial impact if things go wrong. It’s that we’re also in this ESG age. And the long-term impacts also include potential impacts to financing and investment and stakeholder perception. And things are much more precarious, I think, for organizations who get things wrong.

As a result, we’re seeing the majority of organizations who really are looking to get better, become more proactive, as you mentioned before, by trying to connect those dots between the disparate data and systems. They’re looking at better integration between systems so they can understand what their risk exposure is in real-time operations, and not kind of on a once-a-month or once-a-quarter process of handcrafting dashboards and PowerPoint displays.

Alex Studd:

Yeah, and kind of on top of that too, in this new era of ESG, it would seem like compliance obligations are only going to become more stringent in the coming years. So, the disclosure regulations, they’re coming, especially driven by the EU. And I think it’s a fair question to ask, will businesses be agile enough to meet these changes?

Scott Lehmann:

Well, they won’t have much of a choice either way, I mean, it’s coming. The direction of travel is towards more regulatory burden, for better or for worse. And what they’ve got to be working on is how can we automate this reporting against our regulatory obligations?

It’s really not cost effective to be doing quarterly fire drills, trying to manually pull all this information out and craft it together every quarter. And so I think the key thing here is, yes, we’re going to have to automate. We’re going to have to invest. But the upside here is that there are opportunities for improvement here.

For example, if we look at reduction of methane emissions in the hydrocarbon industry, there’s obviously an environmental issue here. A lot of this is caused by fugitive emissions. There’s obviously a worker safety issue here. And there’s also a financial issue in terms of lost product.

The EPA estimates that the average value of lost product caused by equipment leaks is $730,000 per year, per facility. And so in some ways this is kind of a win-win-win for organizations in this particular space. And I think there’s plenty of other opportunities like that where the environmental, the social and the governance will all align with the bottom line here as well.

Alex Studd:

So, it seems like in many ways what you’re speaking to is, “hey, when you’re taking care of your facility or you’re taking care of your employees, or you’re increasing productivity but not at the expense of safety, you’re kind of getting the ESG for free.”

Scott Lehmann:

Exactly.

Alex Studd:

Something I also wanted to chat about is most survey respondents agreed that technology solutions offer promise, or have the potential to offer promise, but at the same time, the rate of adoption suggests that these organizations are very slow to adapt these potential [solutions]. In fact, only 11% of the survey respondents stated that they currently take full advantage of the technology solutions that are available to them. So, my question for you, Scott, is why are companies so slow to adopt these technological solutions?

Scott Lehmann:

Well, change is hard. We’ve all heard Peter Drucker’s famous saying about culture eating strategy for breakfast. I mean, it really is that proverbial elephant in the room. And so along those lines, if we kind of look at technology adoption, especially in larger companies, we can see plenty of examples of decentralized, un-orchestrated proof of concepts of new technologies that kind of lead nowhere — major inefficiencies, redundant work, poor alignment, poor knowledge.

And they end up in what some people call POC purgatory. And then on the flip side, we also have a lot of centrally driven initiatives that have little to no input from the people who they impact the most. And you get poor levels of acceptance and adoption and very little realization of value.

I think the key thing here is that leadership really has to help drive that shift in mentality. They’ve got to roll up their sleeves, they’ve got to be first into the fray to drive and demonstrate how this transformation is going to bring tangible value and deliver the “What’s in it for me?” for their workforce from top to bottom, and importantly, from bottom to top.

For example, at that middle management, oftentimes there’s resistance at that level. Some people call it “the concrete middle” because there’s concerns over, “How is this going to change my role, my responsibilities, my career options? Is it going to eliminate my job?”

And then you’ve got the challenge of frontline adoption where it may impact the most amount of people. Does it help them? Does it make their life more difficult? We see it with customers saying, “Oh, we have to reduce the number of clicks.” Makes perfect sense. So really getting that alignment of your people from top to bottom, and bottom to top is critical because [the benefit of technology] has to be tangible, and people need to hear it, see it, touch it and benefit from it firsthand.

Alex Studd:

That’s interesting, Scott. Do you believe that a younger workforce, the younger people who may be coming into the space who have less experience, will be more receptive to these technologies? Or perhaps, will corporate be more receptive to these technologies?

Scott Lehmann:

I think for generations who have technology literally surgically attached to their hands, the lack of digital technology in some of these industries is a turnoff to the younger generations because they expect the use of technologies for systems. They expect data to be connected, for decisions to be data-driven and for mobile apps to give them real-time insight. It’s outside of the norm to be using paper forms in triplicate.

I do believe we’re at that tipping point from a technological perspective. Especially in hazardous industries where the technology is good, organizations are receptive and the external drivers—compliance, ESG, economic conditions, supply chain impacts, political drivers—are there.

Alex Studd:

Let me ask you this, and this might be a little bit controversial, but do you think there’s a danger in people becoming too reliant on technology?

Scott Lehmann:

Oh, absolutely. We have a tendency to want something and want more and more and more of it. And I think one of the challenges you have, especially in industrial operations, is you don’t want to take the human out of the equation.

There’s always a challenge here. So, for example, I was at a lunch at the Global Congress on Process Safety a few years ago, and during one of the conversations with a senior process safety engineer for a global chemical company, he was telling me a story about how some of the young engineers can be too dependent on sensor data and what that data tells them.

He said, “It’s an input, but let me take you out to the field.” And so he took an engineer out to that particular piece of equipment to get eyes on it. And there were just certain things visibly, whether it’s visible corrosion, whether it’s just the condition, how that thing is sitting, where it’s in relation to other things. It’s good for decision support, but there’s a reason that, for example, pilots today still do a pre-flight walk around. Technology is great, but we should be careful about trying to automate everything. [We should] really think about it—especially in industrial operations—as very powerful decision support.

Alex Studd:

That’s a really good example about the aircraft pilot. Really thinking about where technology can help support, or aid the individual, as opposed to expecting technology to manage or take full responsibility.

Scott Lehmann:

Exactly. We see this tension between wanting to automate everything, and we also need to trust our supervisors to make the right decisions. And software is only so smart.

Alex Studd:

So, Scott, we introduced a new question this year, and it was whether respondents saw a direct connection between ESG and PSM, process safety management. Eighty-seven percent of respondents saw a link. What do you think of that?

Scott Lehmann:

Well, 87% is a big number. And when you stand back and think about this objectively, it actually does make a lot of sense, because traditionally we’ve always been concerned about at least the governance aspect in our risk studies. So, whether it’s process hazard analysis, or HAZOPs, we’ve always thought about this. So, I think there is a very natural connection between process safety management and ESG. And it’s probably less of a shift and more of a recognition that actually, PSM is part of ESG.

Alex Studd:

I was anticipating a lot of people to see the alignment to governance. I think I was surprised how many people identified the connection between the E, environmental. Do you want to comment on that?

Scott Lehmann:

Well, it’s interesting as well, because in some ways we’ve always considered harm to the environment in our risk studies, along with harm to people, harm to asset and harm to reputation. And so I think that, while we’ve always considered it, I do think that there’s room to grow here, or room to consider more.

So, for example, if you think of the last several years, maybe going back 10 years, where more robust risk assessments could have made a difference in terms of accounting for some of the more long-term environmental scenarios. The end result might have been very different in a good way. An example is Fukushima, which really was this cascade of industrial, regulatory and engineering failures.

There was a tsunami, and it led to this situation where critical infrastructure—meaning the backup generators that were required if the plant started to shut down to keep cooling the plant in the event of that main power loss—were built in harm’s way. They were under sea level, and they flooded.

And then in Houston during Hurricane Harvey, there was record flooding and there was an organic peroxides plant that had been built on a flood plain. Harvey disabled the refrigeration system, and that led these organic peroxides to start decomposing and self-igniting.

By learning from some of these situations and starting to incorporate some long-term environmental thinking into our consequences, we would actually improve the level of our risk assessments by designing and planning for these industrial assets that we have.

Alex Studd:

So, when people talk about, “Hey, this is a once-in-a-500-year possibility.” That could be tomorrow.

Scott Lehmann:

Or next week. Exactly. I think this is where ESG is helping to drive us in that direction to not just think, “Well, we’re a once-in-a-thousand-years flood, or once-in-a-thousand-years event that this could happen.” No. We need to put this into our assessments today because these things could happen next week.

Alex Studd:

Well, this has been a very thought-provoking conversation, Scott. Thank you again for joining us today on the SpheraNOW ESG Podcast. And certainly, if this discussion piqued your interest, be sure to check out the full safety survey report available on Sphera.com.

Scott Lehmann:

Thanks, Alex, it was great speaking with you today as well.

 

Safety Report Cover 2
ReportSafety Report 2022
The focus on environmental, social and governance (ESG) performance has elevated the role of effective process safety management (PSM) and operational risk management (ORM).

 

 

 

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