Profile: Shell – from finite fossil fuels to sustainable development

It’s been a busy year for the Royal Dutch/Shell Group, the world’s second biggest oil company. While others in the industry embarked on mergers (Exxon with Mobil, BP with Amoco), Shell pursued an independent growth strategy. After strict cost cuts and help from the oil price, net income bounced back to exceed £8.5 billion last year (in 1998 it was just £350 million on global sales of near £140 billion).

In April, the Group published its third annual sustainable development report, accounting for the full range of global social, environmental and economic impacts. This included a record $93 million of social investment in community projects. Then in June, the new Shell Foundation was launched “to support efforts worldwide to advance the goal of sustainable development”.

On the face of it, Shell’s commitment to the goal of sustainable development is ambitious, to put it mildly, for a company almost wholly dependent on the exploitation of finite fossil fuels. In fact, what Shell has done is to acknowledge the implications of saying, as many companies do, “we are part of society”. This is because, ultimately, human life on this globe can only be sustainable when a new balance is struck between the economic, social and environmental impacts of huge companies like Shell, themselves driven by the demands of the world’s population for continued economic and social development.

On the environmental side, Shell already expects a shift towards fuels with lower carbon concentrations – from coal to oil, then gas. The Group is now investing in renewables, such as solar, wind and biomass, and predicts that in the industrialised OECD counties, they might contribute around 20% of energy by 2020. But on the economic and social sides, the acute poverty of much of the world’s population will not be overcome without significant increases in energy for heat, power and mobility.

So whichever way you look at it, companies like Shell are central to the equation. Critical to that is their willingness to be open and accountable, to measure their broader impacts, and then to change the way they do business, so helping the world get that ‘triple bottom line’ balance right. Which takes us to sustainable development reporting.

The Shell Report 2000

People, Planet and Profits is the third report since Shell rewrote its Business Principles – and is widely seen as a leading example of this new form of corporate reporting (see http://www.shell.com/shellreport). It intersperses financial performance models and data tables with case studies and individual statements from across its global operations. The structure and tone of the report in themselves convey two principal themes which underpin much of its content.

First is Shell’s evident commitment to a business strategy that generates profits while also contributing to the well-being of the planet and its people. The report’s incorporation of HSE and social performance indicators alongside traditional financial data offers a well-balanced overview of the Group’s impact. For the 1999 year, HSE and social targets are reported as having largely been met, with Shell announcing its best ever safety performance. Other highlights were Shell’s participation in the development of the Global Sullivan Principles and a reduction of greenhouse gas emissions by 10% from 1990 levels. Attached to the announcement of a Group-level improvement in environmental projections, however, is the caveat of increased spills.

This admission highlights the second emphasis of the report – a commitment to transparency. Not only did the report undergo verification by external auditors, but it also seeks to substantiate Shell’s recent advertising campaign, ‘ Listening and Responding ‘, by putting the question “How do we stand?” to its various audiences. Put up for public scrutiny are a range of issues, from child labour in Brazil, community tensions in Nigeria and investment in Iran to the Athabasca oil sands and the Californian fuel cell partnership.

Social investment programme

Just one part of this report to society covers the formal community contribution programme. In 1999, Shell companies contributed $93 million to social investment projects around the world. Shell UK, for example, places over 1,500 students a year with small and medium sized companies through the Shell Technology Enterprise Programme (STEP). Shell LiveWIRE advises over 25,000 young people a year about setting themselves up in business. The Shell Education Service has provided materials and workshops to assist teachers for over 40 years, with a recent focus on sustainability and sustainable energy. Perhaps Shell’s best known initiative in the UK has been the Shell Better Britain Campaign (see http://www.shell-betterbritain.org). Running now for 30 years, the Campaign encourages action by local people to improve the quality of life in their community in an environmentally sustainable manner. Over 25,000 groups are part of the Campaign’s network.

Shell is seeking to translate many of the same priorities to its global operations. Shell’s long-term approach to its social investment programme is exemplified by its activities in South Africa, where it has had a commercial presence for a century or more. Its efforts have focused principally on job creation, education, human rights and the environment. Shell recognised, for example, that the imbalance of technical ability during the apartheid era was a major barrier against the country’s future development and consequently launched the Centre for the Advancement of Science and Mathematics Education (CASME) in KwaZulu-Natal in 1985. CASME has spawned a series of further initiatives, targeted most recently on teacher leadership.

Historically, Shell’s highly decentralised management culture has been very much part of its approach to social investment, with local companies taking their own decisions about locally appropriate projects. While local decision-making remains an important aspect, the Group is seeking to apply a consistent structured set of social investment principles to produce more socially and environmentally sustainable solutions for communities. In addition, as the programmes of the Shell Foundation show, the aim is to tackle head-on the key global issues intrinsic to being an oil and energy multinational.

Shell Foundation

The new Shell Foundation is an integral part of this commitment to social investment (see http://www.shellfoundation.org). Launched in June, it is a registered charity with a mix of independent and company trustees, funded by the holding companies of the Royal Dutch/Shell Group. The aim is not to detract from the support local Shell companies offer to particular causes. Instead, as Shell’s chairman, Sir Mark Moody-Stuart, states: “through the Shell Foundation we will now bring our resources and expertise as an international energy group to help address global issues where we have a particular role to play”. As such, the Foundation will also allow for the expertise and experience of the Group’s own employees to be drawn on where appropriate.

The focus of the Foundation’s activities is aimed at social and environmental challenges that relate specifically to energy access and use. The Sustainable Energy Programme, its first strand of work, will devote $20 million over the first three years to support projects that encourage cleaner energy use or that address issues of poverty in developing countries through the provision of sustainable energy. Twenty such projects have already been earmarked for the Programme’s launch portfolio with an initial outlay of $7 million. Amongst these is an initiative to tackle the problem of poor air quality in large urban centres in Latin America, a UK project to educate primary school children, parents and teachers about the benefits of energy saving, and a biogas project in rural China to reduce forest depletion (from traditional wood-burning) and increase income generation, by the introduction of energy from pig-waste to heat homes and greenhouses for cash-crops.

The second strand of work recognises the potential issues from accelerating globalisation. The Sustainable Communities programme supports projects aimed at building the social and economic capacity of marginalised communities around the world. The importance of youth enterprise to economic development will be a third strand to the Foundation’s activities. This will develop Shell’s existing work with young people setting up in business through their LiveWIRE programme.

Management

In any company, the complexities both of aligning social investment with business goals and of embracing the overarching and inevitably imprecise concept of sustainable development would be challenging enough. Shell also has to contend with the ‘twin-headed’ Anglo-Dutch parentage. To manage all this, the joint Committee of Managing Directors has appointed a Sustainable Development Council to drive the transition from traditional business practices to the new approach. An example of the practical approach being taken is the ‘Sustainable Development Management Framework’, for use in key decision-making. Another key set of tools are practical primers for business managers – often working in very challenging environments – on subjects such as human rights, child labour and bribery and corruption.

Chaired by Group Managing Director Harry Roels, the Council comprises senior business executives from the five core businesses (Exploration and Production, Oil Products, Chemicals, Gas and Power, and Renewables). In parallel, the Environment Council and the Social Investment Committee, both also chaired by Harry Roels, address those specialist topics.

The work at corporate centre is staffed by the 15 strong Sustainable Development Group, led by the Vice President for Sustainable Development, Tom Delfgaauw. The Social Investment Unit, headed by Tim Hollins, is part of this group, as is the Shell Report team. In addition to worldwide co-ordination, Tim’s unit is also responsible for UK social investment, with Susan Saloom newly appointed as UK Social Investment Manager. This organised structure belies a very decentralised approach, where local operations retain considerable autonomy to choose social investment projects that meet local needs.

Challenges ahead

In theory, adopting a strong thematic approach, as exemplified by the Shell Foundation’s commitment to sustainable development, should make things easier. In practice it forces the question ‘are we really achieving our objectives?’ So for Shell, the challenge ahead is about professionalism – issues such as sharing ideas around the Group, adopting best practice, evaluating results, reporting success and failures, involving the local businesses in decision-making and encouraging them to include social impact in their planning. Underpinning all this is the challenge to make social partnerships sustainable without engendering dependency.

Until now, external critics have seen Shell as part of the problem – threatening the environment or failing to consult with local communities. By admitting the problems, Shell is now asking to be seen as part of the solution. At the dawn of this new millennium, the very future of life as we know it today could turn on how successfully the company and its partners in society work though what that means in practice.