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The SEC Climate Rule: A Process Safety Analogy, Part 1
The proposed SEC climate-disclosure rule is important. If enacted it will require publicly-traded companies to provide the investment community with large amounts of information to do with their response to the climate crisis. It will also affect privately-held companies if the proposed Scope 3 requirements are not significantly modified. For those of us who have a process safety management background the proposed rule generates feelings of déja vu.
This post is the first in a short series in which we compare process safety with the SEC proposed rule. The material is taken from Appendix D of the draft of the book The SEC Climate Rule.
The material in this Appendix draws an analogy between the successful implementation of Process Safety Management (PSM) standards in the 1990s and the current SEC climate-disclosure rule. No analogy is perfect — there is always a point where comparison diverges. Nevertheless, the likeness between PSM and the SEC rule is close enough to warrant further discussion.
There is no need to understand the process industries in order to grasp the relevance of this analogy. The material in this Appendix is written for a general audience. The key word in the phrase Process Safety Management is ‘Management’, and management principles apply across a wide range of organizations, industries and technologies.
Bhopal Chemical Facility in 1985
In the 1980s the process industries (chemicals, oil refining, offshore oil and gas, and related businesses) suffered a series of catastrophic accidents that led to much loss of life. The worst of these events occurred in the Indian town of Bhopal in the year 1984. A leak from a pesticide plant led to the deaths of upwards of 16,000 people, with many more being seriously injured. There is reason to believe that the accident was not, in fact, an accident. There were indications that the event was triggered by malicious intent. Nevertheless, many of the safety systems at the facility were either disabled or they did not work. As if this incident were not bad enough, it was followed by a series of fires at chemical plants in various parts of the United States. The upshot was that there was a feeling that “something must be done”.
Recognizing the seriousness of the situation, executives from various chemical manufacturers voluntarily developed a Process Safety Management standard. Later on, in the early 1990s, Congress passed the Amendments to the Clean Air Act. This legislation called on OSHA and the EPA to develop process safety regulations. (OSHA is the Occupational Safety and Health Administration, and is concerned primarily with safety “inside the fence”. The Environmental Protection Agency focuses on protecting the public “outside the fence”.)
OSHA had no experience with this type of standard so they took the document prepared by the process industry executives, and adopted it with minor changes. Their rule became effective in the year 1992 as 29 CFR 1910.119. The rule has been successful in reducing the number of catastrophic events, largely because it was written by industry leaders who knew what needed to be done.
Fast forward 30 years, and we see that the SEC is in a similar situation to the one that OSHA faced in the early 1990s.
The climate crisis is becoming ever more serious. Once more, there is a feeling that “something must be done”.
Our response will require legislation and rule-making.
Both process safety and climate change are complex topics — there are no easy answers.
The above discussion leads to the first analogy between PSM and the SEC rule. It is important that business and industry take a leadership role, rather than passively resisting “yet more government bureaucracy”. Business leaders know what needs to be done to address the climate crisis, and to maintain profitability. In this regard, it is encouraging to see that the SEC proposed rule is based on guidance from the TCFD and the Greenhouse Gas Protocol.
As we have already noted, all analogies eventually break down. Areas where process safety and the SEC cannot be sensibly compared include the following.
Climate change applies to all people and to all organizations. There is nothing comparable to the inside/outside the fence division.
A national response is good, but will never be really effective until all nations participate. (So far, there are few signs that such cooperation is taking place.)