Sustainability Success: How Are You Meeting the Challenge?

The petroleum industry is facing growing challenges as global demand is increasing; supply is tightening and expectations are expanding. The petroleum industry has always attracted innovative, pragmatic problem-solvers. In considering these, possibly competing, challenges as an industry, we are better able to ensure the sustainability of our businesses and of our planet.

Sustainability Challenges

The waning supply of oil and gas is pushing technological innovation. Research and development are necessary now, more than ever. Examples include improved well stimulation to increase recovery rates and extend production life of conventional fields.

Waning supply is also pushing exploration and production in technologically difficult regions, such as deeper offshore drilling near the Arctic, and politically difficult regions, such as the Middle East and West Africa.

Globalization is broadening the interconnectedness of the petroleum industry. It is expanding competition, increasingly from state- owned petroleum companies. The current global economic instability is affecting capital markets. Further, the globalization of information has extended public expectations and the “social license to operate” beyond regulatory requirements. A recent example is the international attention to the 1600 duck deaths on Syncrude’s tailings pond in the Albertan oil sands. This has stirred the environmental consciousness of people the world over. Such widespread public scrutiny is forcing greater accountability and sustainability into our current business practices.

Given all of these challenges – is there such a thing as sustainability in the petroleum industry? How can operators and energy suppliers meet these challenges and succeed? These are the questions of our time.

Defining a Corporation’s Responsibilities

There are four main approaches to define a corporation’s responsibilities:1

The classic shareholder approach – is the view that the social responsibility of business is to increase its profits.2 This approach considers the most successful businesses as those that are the most profitable. Even pollution prevention is considered in cost-benefit terms.

The stakeholder approach – is the view that an organization is responsible to other stakeholders, besides its shareholders. It must balance the interests of all stakeholders who can affect or be affected by the organization’s actions. Stakeholders include shareholders, employees, regulators, auditors, non- governmental organizations, adjacent communities, media and society, and the environment more broadly. This is a common approach, especially in the oil and gas industry. Some petroleum companies, such as Suncor, Cenovus and Penn West, have vice- presidents of stakeholder relations. A stakeholder approach is an intuitively understandable method for a company to identify its “audiences,” their concerns, and the means of managing to those concerns.3

The philanthropic approach – is the view that organizations must contribute to the well-being of communities through the donations of money, time and other resources. An example is Telus’s initiative, “Give where you live.”

The societal approach – is the view that organizations are responsible to society as a whole of which they are an integral part. An example is the Grameen Bank, which provides microfinance loans to the rural poor in developing countries, thus supporting grass-roots community development as the core of its business plan.

Sustainability Solutions

Sustainability and corporate social responsibility are particularly important concepts. They mean something to everyone, but not always the same thing to everybody. While these are particularly contested concepts, let’s define “sustainability” as not only the sustainability of our resources and our planet, but also the sustainability of business itself.

One way that companies can consider sustainability and social responsibility is by focusing on the triple bottom line, which is an expanded baseline for measuring financial, social and environmental performance. It’s also referred to as “People, Planet and Profit.”

By measuring and managing all three (people, planet and profit), companies harmonize their efforts in order to be economically viable, environmentally sound and socially responsible to their employees and the communities in which they operate. The triple bottom line, corporate social responsibility and sustainability are often thought of as hierarchical.4 Your profits, people and the planet are the pillars that hold up your corporate structure – to support your corporation’s social responsibilities and sustainability more broadly.

Success with the Triple Bottom Line

There are many rating organizations that rank corporations’ sustainability efforts, including Corporate Knights and United Nation’s Global Reporting Initiative (GRI). The purpose of such metrics is to evaluate companies’ performances relative to others. Such metrics are also used in decision-making – both internally in terms of capital allocation and externally by potential investors, employees and customers in terms of allocating their investments and themselves.

This year, Statoil was considered to be the most sustainable company according to Corporate Knights ranking of the 100 Most Sustainable Corporations. Companies were rated according to Key Performance Indicators (KPIs) that consider people, profits and the planet. 5 They even combine these by using ratios, such as sales (profit) to CO2 emissions (planet).

Statoil’s ascent to “Most Sustainable” was due to its improvements in its diverse board (people), its water productivity (planet), and contributions to Norwegian taxes and economic prosperity (profit). Indeed, in 2010, 40 per cent of the board of directors were women; the overall percentage of women in the company was 37 per cent, and 25 per cent of managers in Statoil were women, rising to 34 per cent for those under the age of 45.

In summary, companies have a responsibility to act in the public interest. And, yes, you can profit from doing so. From the start of Corporate Knights’ rankings in 2005, the Global 100 Most Sustainable Corporations have achieved a total return of 55 per cent, outperforming the benchmark (the MSCI All Country World Index) by more than 16 per cent to December 31, 2010.

How to Proceed?

Within your company, talk to your board and management team about what sustainability looks like for you, your employees, communities and environment. Have a look at these ranking systems. Use them as a toolbox for your own company. Adopt those “people, profit and planet” measures that ensure the sustainability of your business and our planet. Be proactive and get ahead in addressing these challenges.

(Endnotes)

1 Subhabrata Bobby Banerjee. 2001. “Managerial perceptions of corporate environmentalism: Interpretations from industry and strategic implications for organizations”, Journal of Management Studies, 38(4): 489-513.
2 Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,”
New York Times Magazine, September 13, 1970 : 32-33.
3 Katherine N. Lemon, John H. Roberts, Priya Raghubir, and Russell S. Winer.
A Stakeholder-Based Approach: Measuring the Effects of Corporate Social Responsibility. Conference Board of Canada, Director Notes, April 2011.
4 Muel Kaptein and Johan Wempe. 2001. The Balanced Company: A Theory of Corporate Integrity. Oxford: Oxford University Press.
5 For a detailed discussion of the rankings and the associated methodology see http://www.global100.org/methodology/overview.html
6 Corporate Knights Global 100 Most Sustainable Corporations announced in Davos, Jan 29, 2011, Media Release.