GEMI Survey EHS / SR Governance – A Snapshot

1. GEMI SurveyEHS / SR Governance – A Snapshot October 2003 Carl Wirdak Occidental Petroleum Corporation

2. Outline • Survey Recap • Framework for EHS / SR governance • Factors that influence EHS and SR • Role of the Board of Directors • Accountability systems • Performance assessment and feedback processes • Next steps for the GEMI Governance work group EHS Governance Benchmarking – October 2003

3. Survey Overview • Scope of EHS / SR Governance covered by survey was broadly defined • Survey response rate was just above 50% • Not all companies completed all questions • But there was good coverage across the sectors represented in GEMI • Thank you to all participants! EHS Governance Benchmarking – October 2003

4. EHS / SR Governance – What is covered? • Almost all companies include the following: • Conventional EHS performance • EHS costs (ongoing and liabilities) • EHS risk management • Legal compliance • Employee behavior / ethics • Internal and public EHS communication EHS Governance Benchmarking – October 2003

5. Governance – What is on the fence? A sizable fraction of companies do not consider or only partially include the following topics: • EHS value-added • Social Responsibility performance • Supply and distribution chain relationships • Stakeholder engagement • New product development • Product de-selection EHS Governance Benchmarking – October 2003

6. What frames company actions? • Documents that frame EHS governance for companies include: • EHS policy • Code of Conduct • Compliance with law policy • Ethics policy • Company values & principles EHS Governance Benchmarking – October 2003

7. Code of Conduct • Every company maintains a code of conduct • The code applies to all employees, not just top management • The code always covers environment and health & safety • Does the code of conduct address social responsibility? EHS Governance Benchmarking – October 2003

8. What shapes EHS and SR expectations? EHS Governance Benchmarking – October 2003

9. Trends in EHS and SR expectations EHS Governance Benchmarking – October 2003

10. What goals are being pursued? Current goals(identified by more than 50% of respondents) • Minimize waste, discharge & emissions • Reduce natural resources and raw materials usage • Manage EHS risk • Manage emerging EHS issues • Reach out to communities • Engage stakeholders • Participate in voluntary initiatives EHS Governance Benchmarking – October 2003

11. What goals may be pursued? 2008 goals(identified by more than 50% of respondents) All those on prior slide, plus: • Manage indirect or extended impacts • Maximize use of renewable energy • Maximize use of renewable raw materials • Conserve land • Protect biodiversity • Build EHS value into products and processes • Focus on the bottom of the economic pyramid • Enhance social structure in developing regions EHS Governance Benchmarking – October 2003

12. Who considers EHS and SR matters? EHS Governance Benchmarking – October 2003

13. EHS / SR consideration by the Board Year that BOD began addressing EHS / SR • Most companies have just one committee that deals with EHS & SR matters • Typical size is 3 or 4 members • Most members are outside directors • Committees meet 2 to 4 times per year EHS Governance Benchmarking – October 2003

14. BOD involvement in setting expectations No company has its Board involved in drafting language for goals EHS Governance Benchmarking – October 2003

15. Information sources for the BOD Number of responses How are BODs informed about emerging issues and/or the company’s activities, including its EHS or SR profile, its performance, etc.? EHS Governance Benchmarking – October 2003

16. What is on the BOD agenda? EHS Governance Benchmarking – October 2003

17. Reporting EHS and SR to the BOD • Chief EHS / SR officer reports to the BOD Others include: • CEO • General Counsel • Typically, the format is a presentation that covers • company performance • positions on issues Frequency of reporting to BOD EHS Governance Benchmarking – October 2003

18. Organizational background Organizational Model • In 70% of companies, EHS and SR does not report to one person • In ~50% of companies, EHS or SR functional area reports to an Executive V.P. or a Senior V.P. Others include: • CEO • COO / President • General Counsel Number of responses EHS Governance Benchmarking – October 2003

19. EHS / SR performance targets EHS Governance Benchmarking – October 2003

20. Who is accountable for performance? EHS SR Accountability rests with line management and staff EHS Governance Benchmarking – October 2003

21. Is compensation linked to EHS / SR? EHS SR Line management and EHS / SR staff have strong links EHS Governance Benchmarking – October 2003

22. EHS / SR Assurance & Sarbanes-Oxley • For EHS (blue dots), compliance assurance mechanisms are mature, but… the link to Sarbanes-Oxley process certification is not complete • For SR (red dots), there are no assurance mechanisms in place Yes Sarbanes Oxley link No No Yes Assurance Mechanism No. of companies = 21 EHS Governance Benchmarking – October 2003

23. Where do companies audit? EHS Governance Benchmarking – October 2003

24. What do companies audit? EHS Governance Benchmarking – October 2003

25. EHS / SR Governance “Wish List” • Consistent definition of what is in SR • An organized management system for SR • Increased attention at the BOD level • More routine reports to BOD • Greater dialog with the BOD during presentations • External verification of audit process and results • Formal process to obtain stakeholder input EHS Governance Benchmarking – October 2003

26. Closing Comments • Questions / comments / discussion • For further information contact GEMI Governance work group co-chairs: • Robert Accarino (Abbott) • David Lowy (Altria) EHS Governance Benchmarking – October 2003