A positive force
THE WORLD Summit on Sustainable Development (WSSD) and the World Petroleum Congress (WPC) make the first week of September a significant one for the oil and gas industry.
The United Nations' WSSD (Johannesburg, 26 August to 4 September) will attempt to build on Agenda 21, a global plan of action for sustainable development, established at the 1992 Earth Summit in Rio de Janeiro. A central theme of the WPC (Rio, 1-5 September) is social responsibility. The two themes are inter-linked inasmuch as they make the overdue recognition that companies must take a long-term view of the impact of their activities on the communities and countries where they operate. One is really a subset of the other: social responsibility in an energy company involves recognising the need to behave in a way that promotes sustainable development.
To fail to do this is no longer an option. As the article on p4 argues, oil firms now have to be seen by a wider audience than their shareholders to be observing international standards. But, increasingly, they are not responding to the demands of environmental lobby groups and disgruntled public opinion.
Sustainable development and social responsibility are generating their own momentum as business principles. Companies can see greater prosperity for themselves if they take actions to strengthen and preserve the environments in which they operate.
Even the International Finance Corporation (IFC), the private-sector arm of the arch-capitalist World Bank, has set up its own "environment and social development group" as a separate department "in recognition of the growing importance of environmental and social development issues for IFC's business activities and the decision to make sustainability a core element of IFC's strategic direction".
A more ethical and sustainable approach to business attracts better employees, wins the support of potentially antagonistic communities, generates a drive towards efficiency that the company would not perhaps have otherwise embarked on, leads to a more innovative approach to strategy and product development and strengthens a company's brand and reputation. Achieving the latter in the highly competitive energy sector can give a company an edge over its rivals. It can also help a corporation become the partner of choice in developing resources.
But what does sustainable development mean and can it be implemented in a meaningful way? The term has wide-ranging meanings. It could, for example, involve an energy company channelling some of its profits back into unrelated areas of the local economy, such as farming projects. It could involve building energy infrastructure or contributing to social programmes, such as education. The most widely accepted definition, however, seems to be the Brundtland Commission's—meeting the needs of the present without compromising the ability of future generations to meet their own needs.
In energy, this creates a potential conflict. Energy development is fundamental to economic growth, which poor countries need in order to climb out of poverty, but is unsustainable in environmental terms if done in a reckless way. Improving energy efficiency and diversifying the energy mix, mainly through technology, to embrace less-polluting energy sources, are the basis for environmental sustainability. (The alternatives have a long way to go to become competitive, as our article on renewables points out. Indeed, Euan Baird, Schlumberger's chairman and CEO, in the interview starting on p8, says there is not much point in trying. Oil and gas are the best and most economic long-term solution to supplying rising energy demand at a low cost to the environment, he argues.)
Companies have started to carry out their vision of sustainable development. In China, Shell is helping develop gas reserves so that the country consumes less coal. It is also introducing modern and more ecologically acceptable technologies. BP holds up its Indonesian Tangguh LNG scheme as a model of its approach to sustainable development. The strands of the project include wealth generation for the local economy, protecting the region's delicate ecosystem, improving conservation measures, creating jobs, training and skills, and funding community development programmes.
Both Shell's broad example and BP's more local version are valid interpretations of sustainable development. Defining sustainable development requires common sense. It involves recognising the peculiar needs of a specific community or society and developing a symbiotic relationship with those needs. It involves the basic moral acceptance that part of the process of making profits is returning benefits to local people. Sustainable development should be about incorporating the separate strands of environment, society and economy, none of which can be treated in isolation. As corporations are increasingly acknowledging, it also involves tackling corruption, which chokes off economic and social progress and to which poor countries, which tend to have more fragile institutions, are often more susceptible.
It is significant that the WPC has embraced social responsibility.
Recent controversies, such as Brent Spar, have forced energy companies—exposed to fierce public scrutiny because of the polluting nature of their operations and products—to address environmental and social issues as a matter of course when embarking on energy developments. Not to do so would be detrimental to their brand (and even their share price). Not to do so invites hostility from local groups, which destabilises smooth operations. As ExxonMobil's Corporate citizen in a changing world document puts it: "We want to help develop prosperous, stable communities—not only because they're good places to do business, but also because we care about our neighbours and the places we call home."
Making a contribution
Even if it is tempting to be cynical about sugary corporate proclamations of altruism, the wisdom of making a positive contribution to communities and regions from which companies make money cannot be gainsaid. This is why oil firms have started publishing reports on their environmental and social standards. It is a question of credibility. And if developing countries want to attract outside investment to their energy sector, their corporations will also have to comply with these standards. Mistrust of corporate leaders can seldom have been greater in the wake of recent corporate scandals (apparently, only 16% of Americans believe what their business leaders tell them), reinforcing the need for companies in all sectors to make a positive commitment.
With careful planning, oil companies can make a positive contribution to developing economies. John Browne, BP's chief executive, says that to win the globalisation argument, companies must show that their presence, especially in poor countries "is a source of human progress". This involves showing "we contribute in limited, but crucial and practical ways to human rights and social development".
If that is one of the results of globalisation, then globalisation can be a positive force.