It’s time to take sustainability and corporate responsibility more seriously, says Eduardo García, head of corporate responsibility at Repsol.
You need to put people first. That’s obvious,” says Eduardo García, Repsol’s corporate responsibility (CR) chief. “The websites of oil and gas companies all say people are the most important thing. But you have to prove you’re putting people first.”
Approaches to CR sometimes seem dazed and confused. Not everyone even calls it the same thing: corporate social responsibility, corporate citizenship, sustainable responsible business and other clumsy terms can make the subject feel like an afterthought. Overuse of “stakeholder”, “sustainability” and other weasel words erode meaning. But it doesn’t need to be vague and it certainly shouldn’t be an afterthought. In fact, the basic idea’s pretty simple, says García. “Corporate responsibility is everything that has to do with the correct behavior of a company. Correct behavior means not impacting people or the environment.”
The moral argument
There’s an irrefutable moral argument behind that statement; the converse – profiting at the expense of people or the environment – is, to a greater or lesser degree, exploitation. If the moral case is self-explanatory, there are powerful practical and financial incentives too. Twitter and Facebook have put paid to any notion that companies – especially in big, infrastructure-dependent industries – can muddle through on ethical, environmental or social matters; if something goes wrong, the world knows instantly and everything you do is under the microscope.
The costs of poor behaviour can mount up quickly too. What if a contractor’s employees aren’t getting paid on time? Resentment and stresses within the community soon build up. The argument that it’s the contractor’s problem and not the operator’s is a non-starter; the contractor hires the workers, but the operator hires the contractor, so it bears equal responsibility. In any case, ignoring the problem – and then having to marshal emergency community-relations teams into action and pay for extra security to cope with the fallout – is a much more costly strategy than just persuading the contractor to pay its debts.
The oil industry already involves plenty of technical risk: you can’t know for sure whether you’re going to hit oil or drill a dry well, for example. Why add avoidable, non-technical risk to that risk burden? Yet, too often, too little is being done. “Local communities are pushing back because the industry hasn’t been quick enough to fix the negative impacts its operations can cause,” says García. “Companies that align their priorities with those of society will be rewarded by markets. Those that fail to do so will incur more non-technical risks and will be less competitive. It’s a very easy prophecy to make.”
In the distant past, all that mattered was the economics of building a plant and shipping out the oil or gas. CR problems tended to be tackled as and when they arose – usually in a panic. Now, the word “project” means not just the economics dimension, but also measures that protect anyone connected with it and the environment. An accountant might like the look of the cheapest tender, but it probably won’t end up being the cheapest if the contractor has a reputation for late payment.
If the motives for behaving correctly can easily be listed, it is much less clear how to implement a robust, effective CR plan. One problem is that there are so many stakeholder groups with competing interests – such as employees, contractors, communities, trade unions, shareholders, banks and international organisations like the OECD or the EU. All have different opinions of what the company should be doing. Shareholders may be mainly concerned about CO2 emissions, but employees at a Bolivian gas-processing plant are more likely to be worried about job security or healthcare.
Many companies still handle CR in silos: individual business units may consider sustainability matters, but through the prism of their own agendas. Because silos don’t communicate with each other, decisions may please one group of stakeholders, but vex another. Repsol is dealing with this problem by setting up committees that replicate the structure of its stakeholders: committees to give them feedback from groups that think on a global scale, such as shareholders; country-level committees to analyse national problems that preoccupy, say, governments or regulators; and others that consider a project’s impacts at the site level and how they may affect workers or nearby communities. Crucially, these committees talk to each other, smashing the silo structure and generating compromises that are more likely to be amenable to different stakeholders.
Once it has understood the expectations of various stakeholder groups, the company creates an impact assessment. Where it spots risks, it defines a set of actions – which it calls a sustainability plan – to mitigate them. Regularly updated, the plans set binding targets and deadlines, and hold specific business groups accountable for implementation. Pay is directly linked to success.
Taking a systematic approach to mitigating non-technical risks generates quantifiable financial savings, Repsol says. After Katrina, the 2007 hurricane that devastated the US Gulf of Mexico coast, insurance company FM Global estimated that companies that hadn’t been prepared for the event had had to spend $208 for every dollar spent by companies that had been prepared. In other words, spending $1 on preparation saved $207 on emergency responses later.
But the end goal is cultural change, not risk mitigation, says García. Repsol now has a network of more than 200 “sustainability-educated decision-makers” with considerable influence in the company, says García. “They understand CR and its relationship with sustainability. They speak a common language.” This makes it increasingly natural for effective practices established in one country to spread to another – even if the second country’s government doesn’t require those practices to be implemented or perhaps doesn’t even know they exist.
This is enabling the company to set new precedents. In Bolivia and Peru, for instance, Repsol has created human-rights assessments similar to environmental ones. It checks the risk of the 30 human rights being infringed by proposed activities and identifies preventative measures. In parallel, it has set up mechanisms for employees to air grievances and for those grievances to be resolved.
Achievements such as these have helped push Repsol to the top of the Dow Jones Sustainability Indexes, which evaluate the sustainability performance of the largest 2,500 companies listed on the Dow Jones Global Total Stock Market Index. Now, Repsol wants to see that performance actually valued by financial markets. If such reward mechanisms are introduced, Repsol’s unusually aspirational-sounding mission statement – to be a global energy company seeking the wellbeing of people – could well sound like hard-nosed business thinking.
Case study: Colombia
So, you want to explore for oil and gas off the Colombian coast. But you don’t want to alienate the people that live there – by, for example, running roughshod over their fishing grounds. You want them to be happy with your presence and benefiting from it, not protesting, attacking your facilities or vetoing your operating licence. That much is obvious; but where do you start?
Repsol possesses exploration rights in offshore blocks off the northern tip of the Atlantic coast. Before it started thinking about which seismic vessel to contract, it started to get to know the communities its operations might affect. There are 18 of them in the region, forming part of the Wayuu, a polytheistic, non-Spanish-speaking people split into 23 different clans scattered along the Colombian and Venezuelan coasts.
Under the guidance of the national government, Repsol started by building up trust. With the help of Wayuunaiki-Spanish interpreters, it talked to community leaders directly – not through third-party mediators – and maintained contact continuously. It learned about – and respected – local cultural codes.
Lengthy consultations and numerous workshops produced mutually agreed resolutions on social and environmental actions that the company would take – for example, concerning how local fishermen would be compensated where their activities were affected by exploration operations. When project-related language got technical, Repsol produced illustrated leaflets and explanatory videos.
At the same time, it undertook consultations for stimulating the development of local services to assist directly with the project, in collaboration with business groups in the area and the communities – often juggling competing expectations of different clans. In addition, it created procedures for logging and addressing complaints, contributed to healthcare and created internships linked with local universities and technical colleges.
That process has made a partner, not an enemy, of the local communities – reducing, if not eliminating, numerous non-technical risks that might otherwise have delayed, interrupted or stopped the project. The next step? Overcome the technical risks, and find oil and gas.