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oil and gas sector, as part of its Global Initiative on Natural Gas
Flaring Reduction (GGFR). However, a 2004 report by GGFR found
that ˜only a few oil-producing countries have significantly reduced
associated gas flaring and venting volumes, and in most jurisdictions
flaring and venting volumes continue to rise with increased oil
production.™ While the World Bank was keen on promoting volun-
tary initiatives on gas flaring, the report conceded that ˜regulation
can and should play an important role in achieving reductions in
flaring and venting volumes in developing countries™ (World Bank
2004, 1“2).
In the case of gas flaring, a crucial constraint of voluntary initia-
tives is the regulatory environment of the commercial gas markets. To
use an extreme example, Nigeria is believed to lose between US$500
million and US$2.5 billion per year as a result of lost revenues from gas
flaring. Oil companies have invested billions of dollars in new gas
facilities in Nigeria over recent years, partly as a result of tax incen-
tives provided by the government, but a significant part of the
associated gas continues to be flared. A report on gas flaring in
Nigeria identified ˜inappropriate pricing, lack of gas sector policy,
and lack of infrastructure for transmission and distribution™ as the key
problems preventing the commercial use of associated gas (reported
in World Bank 2004, 24). In other words, the government failed to
provide the necessary conditions for creating an efficient natural gas
market. Oil companies are unable to create a functioning market for
natural gas without the appropriate regulatory environment such as
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˜open access rules™ to the gas network, which in turn can create
market competition.
To sum up, the above discussion suggests that there are significant
constraints to voluntary initiatives in the absence of a conducive
regulatory environment. This does not imply that we should trust
governments to deliver environmental improvements more effec-
tively than companies. Indeed, companies may prove to be more
effective and creative in delivering actual environmental improve-
ments than policy makers. But the available evidence suggests that
regulation or even the threat of regulation on issues such as oil spill
compensation and the use of double-hull ships was undoubtedly the
key stimulus for oil companies to improve their environmental record
from the 1970s onwards. Many ˜voluntary™ environmental initiatives
in the oil and gas sector might not have happened without govern-
ment pressures on the oil companies.


Consumption of oil and gas

While some oil companies were successful in achieving envi-
ronmental improvements, their absolute impact on the industry™s
environmental footprint remains questionable. A 2005 report by
Henderson Global Investors “ Carbon 100 “ analysed the carbon
emissions of the 100 largest companies listed on the UK stock
exchange (the FTSE 100). The report found that the oil and gas
sector was responsible for 41 per cent of direct carbon emissions
among the FTSE 100 companies, followed by electricity (21 per cent)
and mining (13 per cent).
Henderson Global Investors did not concentrate exclusively on
direct carbon emissions generated by companies (e.g., emissions from
the running of an oil refinery), but also considered indirect emissions
generated by consumers (e.g., emissions from petrol used in cars).
These ˜indirect™ carbon emissions are much more significant in the oil
and gas sector than direct ones. In its 2003 Sustainability Report, BP
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admitted that ˜emissions from the products we sell are currently about
15 times higher than emissions from our operations™. BP estimated that
its products emitted 1,298 million tonnes of greenhouse gases, equiv-
alent to 5 per cent of the world™s total emissions from fossil-fuel
consumption. Equally, Shell stated in its 2003 Shell Report that
˜85% of the GHGs [greenhouse gases] from the oil we extract are
emitted when it is used in customers™ vehicles™ (reported in
Henderson Global Investors 2005, 12“13).
While other companies unfortunately did not provide equivalent
data, it is clear that the oil and gas industry™s ˜indirect™ impact on
climate change continues to be crucial, notwithstanding the compa-
nies™ achievement in meeting their own voluntary targets or their
participation in emissions trading schemes. However, while the 2005
Guidance on Voluntary Sustainability Reporting requires oil compa-
nies to report on their direct greenhouse gas emissions, it fails to
investigate the more significant ˜indirect™ impact.
The importance of ˜indirect™ impact raises deeper questions about
the social responsibility of companies for the use of the products they
sell. Prominent examples include the ˜indirect™ impact of fast food
restaurants on obesity, the ˜indirect™ impact of tobacco products on
citizens™ health or, in our case, the impact of oil and gas products on
climate change. We do not attempt to apportion the degree of
responsibility here but rather highlight the problematic nature of an
industry™s products. The report by Henderson Global Investors stated:
˜While carbon emissions from products should not be attributed to
companies in the same way as emissions associated with company
operations, the demand for these products is likely to be affected
by measures to curb climate change™ (Henderson Global Investors
2005, 12).
The importance of ˜indirect™ impact also raises questions about the
role that oil companies play in sustainable development. As Blowfield
and Murray (2008, 236) pointed out, ˜it is important not to conflate
notions of eco-efficiency with those of sustainable development.™ On
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the one hand, eco-efficiency has become a corporate goal for BP and
other oil companies. Oil companies can make their refineries and
production sites more eco-efficient by using less energy or generating
less waste. On the other hand, the harmful nature of oil products
contravenes the notion of sustainable development. The use of oil
products is simply unsustainable, if judged by the definition of sus-
tainable development as ˜meeting the needs of the present generation
without compromising the ability of future generations to meet their
own needs™ (World Commission on Environment and Development
1987). Ultimately, the only way of making oil companies ˜sustainable™
would be to shift away from the business of oil and gas altogether.
Some oil company executives recognised a long time ago that oil
might not always remain the core activity for oil companies. Jeroen
van der Veer, the CEO of Shell, stated over ten years ago that ˜We
work with a finite hydrocarbon resource and want to make sustain-
able development a reality. The foundation for that is world-class
performance of whatever we do™ (quoted in Frynas 2003a). In this
context, Shell™s and BP™s expansion into renewable energy in the late
1990s was potentially significant. In 1997, Shell International
Renewables (SIR) was created as a new core business alongside such
established businesses as oil products and chemicals, while BP created
a BP Alternative Energy segment in 2005 (BP Solar had existed since
1998). At the start of the twenty-first century, Shell and BP were
among the world™s four or five largest solar energy companies, in
addition to their expansion into hydrogen, biomass, geothermal
energy and wind energy (Frynas 2003a).
However, Shell and BP have since changed their strategy and have
scaled down their investments in renewable energy. CEO Jeroen van
der Veer recently had a change of heart on renewable energy and, by
2007, Shell had sold off most of its solar business (Macalister 2007).
John Browne™s successor as CEO of BP “ Tony Hayward “ also
suggested in late 2007 that BP will get back to basics, namely focusing
on the core activity of oil and gas production (Brower 2007). Indeed,
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Tony Hayward considered selling a part or all of BP™s renewable
energy unit in early 2008 (Macalister 2008). Even before Tony
Hayward succeeded John Browne in 2007, a leading petroleum mag-
azine commented:

While BP™s commitment to alternative energies is beyond doubt, there
is no suggestion that alternative-energy schemes will remain anything
other than peripheral to its main business of producing oil and gas
for decades especially because technology continues to increase
recoverable [oil and gas] reserves and open up new horizons to
development. (Nicholls 2007)

Shell and BP decided to reconsider their renewable energy business
for commercial reasons. The profits from the renewable energy busi-
ness were not as high as BP and Shell had previously hoped.
Furthermore, the expectations of future revenues from renewable
energy were also less optimistic than before. Shell™s CEO Jeroen van
der Veer specifically highlighted forecasts that even with technolog-
ical breakthroughs alternative energy sources would only be able to
provide about 30 per cent of global energy by the mid-twenty-first
century (Macalister 2007).
Ultimately, we cannot expect oil companies to invest in more
sustainable alternatives without government regulation and mone-
tary incentives. Indeed, Tony Hayward of BP has called on the
world™s governments to introduce regulations limiting the amount
of carbon dioxide that can be emitted each year and called for
subsidies towards the development of renewable energy technologies
(Hargreaves 2008). Companies are unlikely to achieve true sustain-
ability by voluntary measures.


Conclusion

This chapter has demonstrated that some companies have made pro-
gress on the environmental aspects of their operations. Environmental
reporting is improving, new technologies are developed and tangible
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improvements are made. BP™s achievement in reducing greenhouse gas
emissions encapsulates the creativity and capacity of oil companies to
deal with environmental issues. Judging by the evidence in this chap-
ter, CSR has potential for addressing environmental challenges.
However, we have also outlined the constraints to CSR initiatives.
The inadequacies of current environmental reporting undermine
efforts to transform the environmental practices of the global oil
and gas industry. As long as environmental reporting fails to address
actual impacts, the credibility of environmental initiatives will
remain limited. Furthermore, the impact of corporate environmen-
talism is likely to remain severely constrained as long as national oil
companies from developing nations fail to engage in environmental
improvements. A recent study on national oil companies (NOCs)
noted that ˜NOCs™ investments in countries with ongoing human
rights, sustainability, and environmental challenges have compli-
cated international efforts to create a more effective architecture to
address rights crises, conflict management over energy resources and
environmental stewardship™ (Chen 2007, 91).
But even if more NOCs such as Brazil™s Petrobras voluntarily engage
in environmental improvements, there are clear limitations to volun-
tarism. As this chapter demonstrates, many crucial environmental
issues continue to depend on regulatory guidance and government
action will be required to create the right incentives for companies to
invest resources in new technologies and environmental improve-
ments such as gas flaring reductions. The earlier example of BP™s carbon
trading scheme suggests that even CSR pioneers require regulatory
pressure to motivate them to innovate. Regulatory pressures are even
more important for motivating NOCs, since they are state-owned and
act as agents of governments.
More fundamentally, multinational oil companies face a conflict of
interest between commercial interests and environmental concerns.
On the one hand, oil and gas deposits are often located near or
inside ecologically vulnerable areas in developing economies.
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Commercial development carries high risks of environmental damage
in these areas, while the lack of commercial development of these
areas would mean less profit for oil companies. Not surprisingly, even
corporate leaders in ˜sustainability™ may decide that commercial inter-
ests are more important than ecological concerns. Examples include
the decision of Petrobras to drill for oil in the Yasuni National Park in
Ecuador (Chen 2007) and the construction of the BP“Statoil Baku“
Ceyhan pipeline through the catchment area for mineral springs in
Georgia (Centre for Civic Initiatives et al. 2005). All three compa-
nies “ Petrobras, BP and Statoil “ are considered world-wide ˜sustain-
ability™ leaders in the oil and gas sector, yet all three companies failed
to observe best environmental practices in these projects and disre-
garded concerns raised by environmentalists and the governments of
Ecuador and Georgia.
On the other hand, the consumption of the oil and gas products
sold by oil companies is inherently harmful to the environment as a
result of carbon emissions. The production and sales of these harmful
products remain the core activities for oil companies, and a shift by
the oil companies towards alternative energy sources is unlikely in the
near future. Indeed, the significance of Shell™s and BP™s investments
in renewable energy may have been overstated. As one NGO report
critically remarked in 2002: ˜While BP™s solar power activities occupy
nearly 20% of its communications, they account for just 0.17% of BP™s
total turnover™ (Muttitt and Marriott 2002, 46).
To sum up in a single sentence: CSR can help companies to
achieve greater eco-efficiency, but it cannot help them to achieve
sustainable development.
five


The development challenge




This chapter evaluates the potential of the current CSR agenda for
addressing international development challenges, by focusing on the
experience of the oil and gas sector. Both development agencies and
companies have in recent years made claims about the positive role
that CSR could play in contributing to international development

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