OVERVIEW

This paper will compare and draw on examples of environmental responsibility best practices and lessons learned from the experiences of two multinational petroleum/energy companies—Shell and Chevron. These two enormous companies certainly know how to paint a picture of environmental responsibility for the public, but while they are doing some authentic good and voluntary things in the name of corporate responsibility and sustainability, they are by no means perfect models of good corporate citizens. Nonetheless, there are some things that we can learn from Chevron and Shell on environmental responsibility—as a result of both things they have done well and things gone wrong. In summary, they are as follows:

1. Start internally by integrating your goals with your core values and management processes.
2. Understand responsibilities in relation to your acquired companies.
3. Understand responsibilities in relation to your joint ventures, subsidiaries and partnerships.
4. Conduct impact assessments and develop life-cycle plans before beginning operations.
5. Realize that even simple and inexpensive changes can have huge positive impacts.
6. Work in partnerships.
7. Prevention first, but if that fails, then fess up, pay up, and learn to prevent in the future.
8. When quantitatively measuring progress and setting goals, put the numbers in context.

BEST PRACTICES IN DETAIL

1. Start internally by integrating your goals with your core values and management processes.
Starting with internal reform is important not only for employee buy-in and ensuring there is substantive support for your PR campaign, but more importantly because it is key to succeeding in your corporate responsibility endeavors. By ingraining your environmental responsibility goals into your corporate values, codes of conducts and management processes, you ensure that it won’t just get tossed overboard during tough times and that everyone has a stake in seeing these goals—in addition to financial goals—are achieved. Both Chevron and Shell have done this to some extent, namely by establishing such values in their “Business Conduct and Ethics Code” and “General Business Principles,” and by creating executive-level positions such as Shell’s Director of Sustainable Development and Corporate Affairs who reports to its CEO. Shell, though, has gone at least one step further by including sustainable development in its performance appraisal scorecard to determine bonuses. Achieving sustainability goals accounts for 20% of an employee’s overall score. As other companies replicate this strategy, however, they should carefully consider how it might be modified to best fit its corporate culture. For instance, whether success in sustainability should be adjusted for country difficulty (i.e. Nigeria vs. Norway) or whether the bonuses of employees hired to focus exclusively on sustainability should be 100% dependent on achieving these goals. However the details shake out, though, this strategy of using employee financial incentives seems to be among the best ways for companies to achieve their goals.

2. Understand your responsibilities in relation to your acquired companies.
This is one lesson Chevron is very familiar with, but does not seem to have understood well enough when it purchased Texaco in 2001. While some of these inherited problems such as MTBE (a gasoline additive) water contamination issues in New York certainly fall under the responsibility of Chevron, the responsible party in its outstanding lawsuit in Ecuador is more nebulous.

Texaco began operations in Ecuador in the late 1960s in partnership with Petroecuador, the country’s government-owned oil company. Texaco held a 37.5% share and, Petroecuador, a 62.5% share. They began producing oil together in the early 1970s, in forested areas inhabited by local tribes. Through most of the 1970s, Ecuador was under military rule. By the time Texaco left the country in 1992, both parties realized that cleanup was necessary. So, Texaco and Petroecuador reached an agreement, which required Texaco to spend $40 million on cleanup of well sites and waste pits, and absolved the company of all future liability. In 1993, though, a lawsuit was filed against Texaco by the country’s affected indigenous populations. Today, potential damages stand at $27 billion, making it the largest environmental lawsuit in world history. Chevron does not dispute that environmental damage exists. It does, however, argue that the problem is Petroecuador’s responsibility. Meanwhile, the plaintiffs argue that they did not release Texaco of any liability when their government signed the 1992 agreement. While Petroecuador has a poor environmental record and is responsible for at least 800 oil spills since 1990, Chevron is alone in pointing fingers at the state-run oil company. Of course, considering that the country recently defaulted on its foreign debt and is facing a dismal economic situation at home, the villagers must figure they have a better chance at getting a big, rich oil company to pay up than their own government, regardless of who ought to be responsible. Certainly Texaco cannot be held liable for any post-1992 pollution. However, if cleaning up its share of the mess is actually costing more than anticipated, then perhaps there is some lingering responsibility for Chevron. If I were advising Chevron, I would propose the following:

• Have an independent party such as WRI, WWF or the World Bank evaluate the total cost of cleanup required and divide it according to the 37.5/62.5 shares;
• Subtract form Chevron’s share the $40 million (adjusted for inflation) it has already spent on cleanup;
• Chevron pays whatever the difference is, and Ecuador contributes its share; and
• If Ecuador needs help to meet its share of responsibility, then it will seek help from international organizations.

Still, in light of this case, Chevron and other oil companies will likely be much more cautious in acquiring companies with these outstanding issues as well as in making business decisions when faced with these issues. This example also calls into question how business ought to be conducted in/with countries with poor governance in the future.

3. Understand your responsibilities in relation to your joint ventures, subsidiaries and partnerships.
Similar to the example above, companies should always be aware of and fully understand their responsibilities in relation to all kinds of companies with whom they do business, including joint ventures, subsidiaries and partnerships. For instance, Shell faced Clean Air Act Violations in the early 2000s as a result of its business with Motiva Enterprises LLC (a joint venture with Shell), Equilon Enterprises (a Shell subsidiary), and Deer Park Refining Limited (in partnership with Shell). As a result, these companies, with Shell, have agreed to invest $400 million over eight years to reduce emissions.

4. Conduct impact assessments and develop life-cycle plans before beginning operations.
Before beginning operations on new projects or making modifications to existing ones, Shell requires an “integrated environmental impact assessment” to be conducted to look for “potential positive and negative impacts over the project’s life.” Chevron says that they also do something similar, but in more generic language that doesn’t specifically require a test, but that looks to reduce their environmental footprint. At the same time, Chevron highlights some good examples on this topic, even in countries where it certainly wouldn’t be required. Take Bangladesh, for example, where Chevron conducted a survey of the country’s Lawachara National Park before exploring for potential natural gas reserves and beginning production. The purpose of the survey, according to Chevron, was to learn “how not to adversely affect the natural wildlife and vegetation around the area.” This turned out to be a great example of success in impact assessment and planning, as corroborated by the International Union of Conservation of Nature and Natural Resources, whose pre- and post-activity surveys found “no significant impact on the flora and fauna of the forest.”

5. Realize that even simple and inexpensive changes can have huge positive impacts.
Sometimes it is even easier and cheaper than a company may think to do the right, or responsible, thing—and they may even save money in doing so. Chevron illustrates an excellent example of this larger point. To decrease the amount of oil required to power each of their tankers, they realized that they didn’t necessarily need to spend millions or billions of dollars on new research and development initiatives. Instead, they instituted a propeller painting and polishing initiative to reduce the resistance across the propeller blades. This had a tremendous impact—reducing the oil required to power their tankers by about 24 barrels per operating day (1,008 gallons), which adds up to thousands of barrels of oil per year.

6. Work in partnerships.
Nonprofit organizations and governments have valuable expertise and resources to contribute to a company’s corporate responsibility goals, particularly since they work in the areas of public goods, market failures and the social welfare of the people they serve. Likewise, businesses have a lot they can contribute to the efficiencies and operations of nonprofits and governments. Increasingly, this is being realized by both parties. One of the most successful partnerships in the energy industry is a partnership between the U.S. Department of Energy, the European Union, Norway, and eight of the world’s leading energy companies, including both Shell and Chevron. The initiative is known as the CO2 Capture Project, and according to its Web site, it is “undertaking research and developing technologies to help make CO2 capture and geological storage a practical reality for reducing global CO2 emissions and tackling climate change.” Chevron and Shell also participate in a number of other partnerships, including:

• EMBARQ and Shell are working on sustainable transport solutions for the developing world;
• The Renewable Energy Coalition is working with Chevron in the Philippines;
• The Living Earth Foundation and Shell are discussing oil exploration in Beaufort Sea, Alaska; and
• Angolan fisherman and Chevron are protecting endangered sea turtles.

7. Prevention first, but if that fails, then fess up, pay up, and learn to prevent in the future.
Particularly when it comes to oil spills for these enormous energy companies, obviously the best thing that could happen would be for the spill not to happen in the first place. However, given that mistakes do happen, there are three things that a company should do to address the problem: (1) take responsibility for it and report it to the proper authorities, (2) pay for a full cleanup of the spill, and (3) take away lessons learned to prevent the same thing from happening in the future. This last step may entail, for example, purchasing only double-hulled barges, ensuring each boat has a “tug escort,” better enforcing the company’s alcohol abuse policy, and ensuring crews get sufficient sleep and time off. Even Shell, known to be one of the more environmentally responsible firms, has faced problems with not taking responsibility for oil spills. The most well-known example goes all the way back to 1999 when a Shell oil tanker collided with a German ship in an Argentinan estuary. The spill effected more than 17 million people and 30 kilometers of the riverside, which was considered a biosphere reserve by UNESCO. Finally, ten years later, Shell offered $9.5 million in a settlement with the town to account for the damages.

8. When quantitatively measuring progress and setting goals, put the numbers in context.
When reading reports from corporations, particularly ones as large as the energy giants, seeing that they have decreased their total greenhouse gas emissions means little if the company, for instance, has laid off a quarter of its workforce and significantly cut its operations. What would be more meaningful is to understand a company’s change in emissions per unit of production. For example, Chevron notes that it has reduced its emissions from flaring and venting from 14.6 million to 13.6 million metric tons. Assuming ceteris paribus, this is a good thing, but the reader doesn’t know this unless Chevron either goes into a little more narrative detail or puts this number into context by adding a meaningful denominator to its measurement. Shell, too, is culpable in presenting its figures as well as its goals out of context in some cases. For instance, it is good that Shell has set a goal to decrease its greenhouse gas emissions, and especially that it has attached a figure, or target, to that goal. However, again, it fails to convey the goal in context, stating it will work to see its total emissions are 5% lower in 2010 than they were in 1990. In fact, according to TreeHugger—a major media outlet that reports on sustainability issues—though Shell has “shown steady improvement over the past few years, [its] emissions are still huge and, when scaled to production, is one of the worst (emissions per barrel of oil equivalent).”