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Managing environmental risks in the oil sands

Long-term planning can help companies minimize their environmental footprint and reduce risks

The oil sands of northern Alberta are undergoing a period of tremendous growth. Nearly $100 billion will be spent in the coming decades to build plants, refineries and a social infrastructure sitting on top of an oilfield containing almost 175 billion barrels — a reserve that is second only to Saudi Arabia's in size. But with rapid growth comes the need to consider the impacts to the environment and local communities. Some oil sands companies are leading the way with innovative approaches that build  Corporate Responsibility & Sustainability solutions into their long-term planning.

Environmental considerations have emerged as a key strategic issue facing companies developing the oil sands. "What they are grappling with is how to incorporate environmental protection into their traditional planning and decision-making processes," says Jamie Ross, who works in Deloitte's Western Canadian   Corporate Responsibility & Sustainability practice. "The key is to factor in the cost of water, transport and treatment into capital projects, so that you make the right decision at the outset, rather than having to do major upgrades to your project later." Increased efficiency not only reduces environmental impact, says Ross. "It also offers competitive advantage, as access to resources and costs of production are key challenges associated with oil sands development."

"Governance around these issues is critical to ensure that accountability is placed with the right people in the company. Ideally, there is accountability at all levels, from the board to the front line."
— Jamie Ross

The environmental challenges in the oil sands fall into four areas: water use and contamination, land use and reclamation, waste generation and emissions from the processing plants, including greenhouse gases. With the current rate of expansion, there is also a need to consider the combined impacts or cumulative effects arising from these activities. All these issues can add up to a "mountain" of environmental and social considerations for oil sands companies — even before they drill a hole or put a shovel into the ground, says Henry Stoch, another Corporate Responsibility & Sustainability practitioner. The challenge, says Stoch, is "to prioritize these obligations, and then develop a tactical plan to minimize your environmental footprint."

Companies need a strategy to minimize their environmental footprint
Some of the leading oil sands players are taking a proactive approach to managing environmental risks and minimizing their environmental footprint. The key is developing a long-term plan to reduce the impact of their projects. Valerie Chort, partner and national leader of the Corporate Responsibility & Sustainability practice, says companies eager to improve their environmental practices should focus on two critical areas.

First, they need to create a strategic blueprint around environmental and sustainability issues. This blueprint must be informed by, and aligned with, the organization's business objectives. Second, they have to implement that blueprint by developing the tactical plans and management systems to carry the program through to completion. But before they can develop that strategic blueprint, companies must conduct a thorough risk assessment to understand their risk profile, and integrate these risks into the company's enterprise risk framework.

Conversely, if a company has already implemented a plan for managing environmental, health and safety risks, then it needs to turn its attention to the management system. What do the key performance indicators reveal? Is the company moving steadily toward its environmental mitigation and sustainability objectives, or do those objectives require re-evaluation? Is the program sufficiently staffed to meet its mandate? If a company has released a sustainability report, then it's already well on its way; the next step might be to seek  independent verification of the environmental and sustainability measures in the report.

One of the major hurdles facing oil sands companies is determining how to integrate these plans throughout the corporation — particularly if they have global operations. "The key is to provide a framework under which local sites or business units can align their environmental activities, and understand what they need to do on the ground," says Ross. Whether at the national or multinational level, companies should develop an integrated approach to managing environmental, health, safety and sustainability issues. Securing management support is an important success factor. "Governance around these issues is critical to ensure that accountability is placed with the right people in the company," says Ross. "Ideally, there is accountability at all levels, from the board to the front line." This ensures these issues get the necessary attention and resources, and that they are addressed as part of day-to-day operations.

Environmentally aware firms will have the ultimate advantage
Companies that demonstrate an environmental awareness by investing in research and development to reduce environmental damage stand to benefit over the long term. By reducing contamination or greenhouse gas emissions, companies will become more competitive over time because their operating costs will ultimately be lower, notes Stoch. "Innovative, long-term thinking is critical, because there is massive pressure for expansion," says Stoch. "Our role is to help make sense of environmental mitigation options within the realm of growth."

In terms of securing new oil sands leases, a competitive advantage will accrue to companies that reduce their environmental footprint at the planning stage. "Because this is a resource-intensive model of energy production, a competitive advantage can be gained by operators who are thinking about the long-term issues, such as land, water and energy use, as well as greenhouse gas emissions," says Chort. "Oil sands companies that want to establish themselves as responsible environmental stewards need to lead with proactive management and integration of environmental and sustainability issues."