Identifying and Prioritizing EHS Risks

Rodney Canada

Vice-President, EHS&S

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One of the largest privately held companies in the United States Remaining family-owned since its inception in 1883 Over the company’s heritage of more than 125 years: Have built a diverse portfolio of businesses All have a leading position in the industries served Industries Served: Oral care and personal care Food and beverage Consumer products Industrial products Forestry management Building materials Huber is a global company with approximately 4,000 employees in more than 20 countries.

J.M. Huber Corporation

J.M. Huber 1883

Huber

Engineered Materials (1930)

Demica (2002)

3

CP Kelco - Global Reach

20 Sales Offices, 9 Manufacturing Sites, 10 Technical Support Centers 12 Customer Support Centers, 5 Centers of Excellence

AquaMAX™ γ-Polyglutamic Acid

CEKOL® Cellulose Gum

GENU® BETA Pectin

GENUVISCO® CG & GENUGEL® CG Carrageenan

KELCOGEL® CG Gellan Gum

KELTROL® CG Xanthan Gum

GENU® Pectin or

GENU® pHresh & GENU® Pectin

SIMPLESSE® Microparticulated Whey

Protein Concentrate

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YAZOO Yogurt Smoothies (Friesland Campina –Netherlands & UK)

- Protein stabilization and mouthfeel

- Pectin

WAKE Ready-to-Go Coffee Beverages (Melitta - Brazil)

- Neutral Protein Drink project

- Gellan Gum & Cellulose Gum

Matcha Milk Tea Drinks (Nongfu Spring – China)

- Tea powder suspension; viscosity; cream separation prevention

- Carrageenan

ORGANIC FUEL High Protein Milkshakes (Organic Valley - USA)

- High protein stability (replacement for carrageenan)

- Gellan Gum

Food/Beverage Segment: Delivering Value to Customers

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Natura Aerated Body Butter (Brazil)

- Light skin feel; food-inspired textures; “green” formulations

- Carrageenan & Xanthan Gum

Sinha Textiles (Bangladesh)

- Improved processing of yarn/fabric; better durability in sizing; environmental footprint reduction

- CMC (Carboxymethyl Cellulose)

REWE Toilet Bowl Cleaners (Beromin -Germany)

- Thickening; cling retention at low pH

- Xanthan Gum

Consumer & Industrial Products: Delivering Value to Customers

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Huber Principles

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• Are all EHS risks the same?

• How can you identify and prioritize EHS risks

• How can you establish a level playing field to discuss EHS Risks compared to financial risks, business growth opportunities, quality issues and all the other issues that come before CEO’s, CFO’s etc.

Objectives of Presentation

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Who in this room works for a company with the following policy type statements?

• Zero injuries is the only acceptable goal OR a goal of a zero injury rate

– How do you define “injury”?

• Our goal is to have a world class incident rate below 0.2 and be in top decile of our industry

– Does severity matter?

• There is nothing more valuable than a human life

– What is the value of a human life?

• We will not sacrifice safety for production

– How do you define how much safety is enough?

• We will maintain 100% compliance with all regulations

– Do you treat all regulations equally?

Questions

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• Occupational Safety Risks

– Exposures resulting in Fatalities

– Exposures resulting in Injuries (lost time, medical treatment, first aid)

– Illnesses

– Near Hits

– Safety Regulatory Compliance

• Environmental Compliance Risks

– NOV’s

– Unpermitted activities

– Exceeding permit limits

– Regulatory non compliance (SPCC, Hazardous waste etc.)

– Administrative / recordkeeping violations

Are All EHS Risks the Same?

• Process Safety Risks

─ Fire

─ Explosion

─ Toxic Gas Release

─ Regulatory Compliance (OSHA PSM, Seveso etc.)

• Sustainability Risks

− Natural resource / raw material availability and use

− Customer demands

− Greenhouse gases

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• The effort and resources applied to an EHS risk should be based on the scale of that risk (unless you have unlimited resources)

• A Risk Matrix is a powerful tool to define, understand and communicate relative risk

Risk Based Management

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JM Huber / CP Kelco Original Risk Matrix

Introduced throughout company in 2010 Balances EHS risks with monetary risks. Likelihood is logarithmic scale.

Each step is an order of magnitude increase

Severity defined by outcomes Dollars used for non EHS items Based on Huber principles, EHS items equate to higher dollar values than societal definitions

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JM Huber / CP Kelco Original Risk Matrix

Green – Acceptable Yellow – Tolerable Red – Unacceptable Risk score (intersection of Likelihood and Severity) defines expectation of number of independent layers of protection After communication and training with senior leadership on down, the risk matrix has been culturally accepted as a common language for evaluating/comparing projects without having to talk “dollars” Risk is never “Zero”

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JM Huber / CP Kelco Original Risk Matrix

Matrix used to drive priority for projects, activity and capital spending Logrhythmic Risk Units are assigned to track progress Creates focus on the high impact EHS issues (issues that can kill people or create significant non compliance) Does not ignore lower energy repeat injury events (low energy recordable injuries such as cuts, slip and falls, ergonomics are in the red or unacceptable and require action) Creates a common risk language used by all functions of the company

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CP Kelco Revised Risk Matrix

The process is continually improving Due to increasing risks regarding food safety, the Risk Matrix was updated in 2012 to specifically highlight food safety/quality risks How the risk matrix is used has not changed

Likelihood of Cause Rating

JM Huber Risk Matrix

Modified for CPKelco QMS and Food Safety Management

Description of Likelihood Frequency Likelihood Revised: GQMS, December 12, 2012

PSM and

Occupational Safety

QMS and Food Safety

Management System Magnitude

Multiple/Year Frequently (multiple/month) 1 2 3 4 5 6 7

Once/year Common (one/month) 0 1 2 3 4 5 6

Once/10 years Likely (Once/year) -1 0 1 2 3 4 5

Once/100 Years Rare (Once/2 years) -2 -1 0 1 2 3 4

Once/1,000 Years Nearly Impossible (Once/5

years) -3 -2 -1 0 1 2 3

Once/10,000 Years -4 -3 -2 -1 0 1 2

Once/100,000 Years -5 -4 -3 -2 -1 0 1

Once/1,000,000 Years -6 -5 -4 -3 -2 -1 0

LIKELIHOOD

1 2 3 4 5 6

SEVERITY

Description of Consequence Severity Magnitude

P People

Onsite First Aid Recordable

Lost Time or

Hospitalization Permanent Single Fatality Multiple Fatality

Offsite Noticeable Impact, Public Complaint

Regional Adverse

Publicity

National News

Attention Injury Single Fatality

Customers-Internal or External

Internal

Nonconformance

External

Nonconformance -

Customer

Complaints Non

Critical Parameters

(Packaging,

Labeling, Product

Performance)

Multiple Customer

Complaints or

Single Product

Adulteration Event

Multiple customer

product returns;

Business

Interruption &

Backorders, Loss

of a Minor

Customer

Loss of Major

Account or

Several

Customers

Legal Action for

Loss of

Business

R Regulatory

Emissions of Regulated Pollutants 10 tons 100 tons 1000 tons 10,000 tons 100,00 tons 1,000,000 tons

Environmental

Small, contained

Release Permit Exceedance

Notice of Violation

(NOV) Prosecution Imprisonment

Product Regulatory

cGMP Critical

Violation Internal

Audit

Regulatory

Inspection (FDA

483 and Warning

Letter), EPA /

REACH Violations

– Potential Fines

Product Returns;

Loss of

Opportunities in

Domestic &

International

Markets

Non-food safety

Product

Recall/Withdrawal

/Recovery and

Listing on FDA

Web Site; Failure

to Renew License

For Culture

(APHIS) /

Potential Loss of

Business / Fines

Food Safety

Product Recall;

Failure to adhere

to FSMA -

Removal from

FDA registry –

Inability to

produce or ship

into USA

Legal Action for

Loss of

Business

License

$ System

Impact

Loss of Assets

< $10K $10k - $100k $100k - $1M $1M - $10M $10M - $100M >$100M

Equipment Damage

Unscheduled Downtime

Cost of Poor Quality

Fines

Environmental Damage

Environmental Cleanup

Loss of customer

Loss of business

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Illustration of level of process safety risk that is acceptable to CP Kelco

• Lifetime risk of being killed in a car accident is 1 in 108 (0.92%). *

– Assume average lifetime = 75 years.

– Therefore, expect one auto fatality once every 8,152 life years (i.e. 75/0.0092).

• CP Kelco has approximately 2000 employees = 2000 life years every year.

• Statistics would predict that one employee will likely be killed in a car accident approximately every four years.

• CP Kelco’s tolerable process safety risk level (Risk Level 1) in our plants is one fatality / 10,000 years OR one process safety related loss of greater than $10 million per 10,000 years.

For comparison, other Risk Level expected outcomes:

Risk Level 2 – statistical expectation of one fatality (or >$10 million loss) every 1000 years.

Risk level 3 – statistical expectation of one fatality (or >$10 million loss) every 100 years.

What Level of Risk is Acceptable?

* Source: National Safety Council, 2013 Injury Facts

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With a tool to quantify risks, you now need a systematic process to identify EHS risks

• The JM Huber / CP Kelco EHS management system defines a systematic six (6) step process

– Step 1: Document site background to identify features that may increase or decrease risk or severity (past disposal practices, nearby receptors (i.e. waterways, schools etc.), highways/railroads etc.

– Step 2 : Evaluate the chemical inventory of the site focusing on large volume or highly toxic chemicals. Evaluate/Define any chemical incompatibilities

– Step 3: Evaluate the products and wastes transported to/from the site (transportation and loading/unloading risks)

– Step 4: Hazard Identification – checklist of common energy and chemical risks

– Step 5: Evaluation of other potential EHS risk categories (19 categories)

– Step 6: Pull it all together. Compilation of all identified risks, supported by risk ranked scenarios (unmitigated risk) and identification of layers of protection or controls implemented (mitigated risks).

• Risk Units are assigned to provide a mechanism of tracking progress.

• Risk Units are also order of magnitude (i.e. Risk 5 = 1,000,000 risk units, Risk 4 = 100,000, Risk 3 = 1,000 etc.) so reducing a high risk item has more benefit in metrics than a lower risk. Drives priority setting

• From this risk identification and scenario development process, any identified risk with a mitigated risk of “2” (first level of unacceptable) or higher must have an action plan developed to lower risk

• Output of this process is called “Table 6”

Identifying Risks

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In capital plan, we have $5 Million available. Three (3) projects are being considered:

– Process Safety – a PHA revealed a previously unrecognized risk at a plant. In a power outage, alcohol could back flow into a tank causing an overflow if high level alarm did not function. Tank is in a classified area so low risk of ignition sources being present. Cost to correct, $5 Million. Potential severity – single fatality, likelihood once/100 years – Risk Rank “3”

– Quality – have discovered metal particles in food product. Need to add magnets and metal detection devices. Cost to correct, $5 Million. Risk of product contamination/recall, average cost of $18 Million, likelihood once/year – Risk Rank “4”

– Productivity Improvement – Engineering has developed a project to improve productivity. Cost of $5 Million, will generate annual EBITDA of $900,000. Magnitude of $900,000, likelihood, once per year – Risk Rank (based on value) – “3”

• If down to the last $5 Million in our capital plan, we would choose the quality project due to the higher risk rank

• If another $5 Million became available, we would choose the Process Safety project over the productivity project. Although the same risk rank, the process safety project has a higher severity/magnitude.

Using Risk Matrix-Competing Priorities Example–Capital Spending

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• Capital Planning

– Existing equipment/facilities must have plans to get any existing level “2” or higher risk to at least a “1” – tolerable

– Any new project must document in the capital request/approval process how the project will be implemented with a risk level of “0” – acceptable (must define the basis of safety and compliance in the capital request)

• Defines “Independent Layers of Protection” Required

– Safety devices, systems and people fail or make mistakes. For higher risks, want more independent layers of protection to lower probability of the incident

• Incident Investigation

– Safety Incidents or near hits that have have a high energy component (high actual or potential severity) or significant permit/regulatory exceedances or failures require a more detailed/robust investigation than lower energy or severity incidents

• EHS Programs / Initiatives

– Repeat occupational safety incidents raise risk scores of that exposure, driving/demanding action

• Used to compare/communicate EHS risks alongside other types of business risk to senior management / board of directors (foreign exchange risk, intellectual property risk, raw material availability risk etc.)

Other Ways Risk Rank is Used

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A learning process

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Global Risk is never static, it constantly changes • An incident occurs identifying a previously unrecognized risk or weakness in the management system

• A detailed evaluation such as a PHA uncovers previously unidentified risk

• A new regulation is passed lowering limits or imposing new requirements

New risk is constantly being added while at the same time, actions are reducing other risks Goal is to keep the risk profile trend continually coming down

Example waterfall graph of how we communicate progress on managing EHS risks. RED = new risks identified, LIGHT GREEN, risks addressed/reduced Scale on left is “risk units”

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Un

acce

pta

ble

Ris

k U

nit

s

Actual Risks Quantified/Addressed Risks

Risks present, not clearly identified or

Start of focused risk quantification

Program begins and quantified risks begin being systematically addressed

Ongoing PHA’s (additional risk quantification) and simultaneous risk reduction projects

Goal to close gap of actual to known unacceptable risks and drive to acceptable risk levels Initial Risk Identification

Processes

Implementation of a systematic risk based management process – Benefits

2008 2009 2010 2011 2012 2013 2014

Continual actual risk reduction

2006 2007 2005

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• While “Zero” is the ultimate goal, risk will never be zero

• Implementing a process that identifies, prioritizes and requires action based on risk reduces the opportunities (likelihood) for injuries and non compliance

• Focusing action using a risk based approach puts resources on the most important issues

• The Risk Matrix approach (for JM Huber / CP Kelco) has created a culture/language where EHS risks can be discussed/evaluated with Senior Management without the focus always being on dollars or “we have to do it”

• All functions of a company can (and should) use the risk matrix

Conclusions

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Thank You!

Questions