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effective CSR provision may depend on effective government.


Financial institutions

Financial institutions are important for the oil and gas sector. They
provide finance and insurance, including political risk insurance.
54 Beyond Corporate Social Responsibility
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They can affect the company as investors/shareholders. In addition,
financial institutions can play a quasi-regulatory role “ this includes
stock exchanges, which establish rules and reporting mechanisms to
be followed by listed companies, and the World Bank, which has
established various principles that must be followed in projects
involving the bank™s funding. Furthermore, the global financial
oil market has grown significantly over the last decade, with the
growth of financial derivates (financial instruments derived from
the physical ownership of oil, such as ˜futures™) and electronic
trading; indeed, it has been estimated that the paper value of the
financial oil market is ten to twenty times bigger than the actual 80
million barrels of daily physical production of crude oil (James
2006).
Financial institutions have a self-interest in promoting CSR in
order to protect their reputations as responsible lenders, as well as
helping companies to maintain operations in host countries through
creating a more conducive business environment and eliminating
risks. Furthermore, there has been a growth of socially responsible
investments, which gives institutional investors the leverage to push
companies towards certain types of behaviour. In 2006, it was
estimated that over ‚¬1,000 billion of European investments could
be broadly classified as socially responsible investments (an increase
from ‚¬336 billion in 2003), investments that integrate social, envi-
ronmental or ethical concerns into investment policies in some
form (European Social Investment Forum 2006). Therefore, finan-
cial institutions could potentially play a significant role in the
introduction and improvement of CSR policies among oil
companies.
Non-governmental organisations have often called on banks,
the World Bank and export credit agencies to become more socially
active and to influence social and environmental practices in the oil
and gas sector (Catholic Relief Services 2003; Global Witness 2004).
Indeed, international banks and international organisations have
The context of CSR 55
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come to agree that they need to introduce social and environmental
standards relating to the provision of financial services. As a senior
World Bank staff member said to the author: ˜the onus is on in the
next few years how we will lend,™ adding that ˜the world is moving
towards systems of shared governance.™
However, the social and environmental oversight role of financial
institutions may be hampered because the social and environmental
performance of companies is a secondary goal for them. The primary
goal is to earn an economic return, and social and environmental
criteria could lead to sub-optimal economic outcomes. The financial
institution rarely makes ˜the tradeoff between these goals very
explicit™, while the recipient of funds is primarily accountable for
the economic success or failure of the project (Scholtens 2006).
Therefore, a single institution has only limited potential for affecting
social and environmental behaviour when acting on its own.
The social and environmental role of the World Bank and the
IMF is further limited because oil-producing countries are less
dependent on the financial assistance of international institutions
and Western donors than other developing economies. It is no
coincidence that oil-producing countries such as Nigeria, Angola
or Venezuela managed to defy the IMF and the World Bank in
different ways for a long time. For instance, the oil boom radically
improved the bargaining power of Equatorial Guinea, and President
Obiang was able to resist calls by the IMF for major macro-
economic reforms as a result and to limit the World Bank™s involve-
ment in the country (Frynas 2004). As demonstrated in Chapter 6,
the World Bank™s most far-reaching attempt to maximise the pos-
itive social benefits from the oil and gas sector “ the revenue
management system in Chad “ failed because the World Bank lost
leverage once oil revenues started flowing to the government of
Chad. Even if the World Bank refuses to support a particular
project, oil companies and their partners can usually fund projects
from alternative sources.
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Box 3.1: Equator Principles
The so-called ˜Equator Principles™ were launched in June 2003 by ten
leading international banks from seven countries. The International
Finance Corporation (IFC, an arm of the World Bank) played a key
role in establishing this initiative, and the Equator Principles were based
on World Bank and IFC environmental and social policies and guide-
lines. Over fifty financial institutions had adopted the principles as of
August 2007.
The Equator Principles provide a voluntary set of guidelines for
managing social and environmental issues related to project financing
with project capital costs over US$10 million. The participating banks
commit to using the World Bank/IFC™s environmental and social screen-
ing process, which categorises projects as A, B, or C (high, medium or
low environmental or social risk). For Category A and B projects, the
borrower is requested to provide a detailed Social and Environmental
Assessment, modelled on existing IFC criteria. In addition, Category A
and some Category B projects may require, among other things, an
˜action plan™, consultation with local stakeholders and a monitoring
and reporting procedure.
Further information, see the Equator Principles website at www.
equator-principles.com.



Therefore, it is unlikely that a single financial institution can
change the social and environmental practices of a specific oil com-
pany. Rather, it is hoped that financial institutions can affect the
norms and practices within a whole sector. It is hoped, not least
among World Bank staff, that the Equator Principles “ the key CSR
initiative in the financial sector (see Box 3.1) “ will have a systemic
impact by changing social and environmental norms within the
oil and gas industry. As one World Bank staff member stated, the
Equator Principles were ˜trying to mainstream sustainability concepts
amongst clients, especially local firms™. In other words, while the
government may remain the most powerful stakeholder, financial
institutions are more likely to generate isomorphic pressures with
regard to social and environmental policies (compare Chapter 2).
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Contractors

Major oil companies have always used some subcontractors, but ˜out-
sourcing™ has become even more prevalent over the last two decades.
Contractors not only supply crucial equipment such as drilling rigs or
pipelines, they also provide oil companies with IT systems and speci-
alised equipment, carry out seismic surveys and drilling operations
on their behalf, construct and maintain oil infrastructure and so on.
Indeed, some contractors are themselves large multinational compa-
nies such as Halliburton, Schlumberger and Aker (see Table 3.2).
One could even say that the main function of Shell or Exxon is
often to negotiate oil concessions with the host government and to
provide a ˜co-ordination mechanism™ for the exploration and produc-
tion activities that are carried out on its behalf by a large army of
contractors. Indeed, companies such as Shell or Exxon may even
outsource technical project management.
In terms of oil exploration and production activities, local com-
munities often have more interactions with contractors than the oil
company itself, thus contractors have a self-interest in improved
relationships with those communities. Therefore, it is surprising
that almost nothing has been written on the social and environ-
mental obligations of contractors in the oil and gas sector. One
explanation for this lack of interest may be that the current discus-
sions on CSR focus on global supply chains and assume that the large
multinational firms are responsible for the behaviour of the suppliers/
contractors with whom they do business (Acona 2004; Barrientos and
Smith 2007; MacDonald 2007; Newell and Wheeler 2006). This can
help to explain why contractors are rarely in the media spotlight and
tend to face fewer stakeholder pressures for implementing social and
environmental improvements.
There is much support for the argument that multinational firms
wield a lot of power over their suppliers of products and services, and
their suppliers may adopt CSR just to continue a business relationship
table 3.2: The world™s largest oil and gas service multinational companies, by foreign assets, 2005 (in US$ million)

Rank Company Home country Foreign assets Total assets Foreign sales Total sales Number of employees
1 11,272.0 17,746.0 10,436.0 14,309.0 60,000
Schlumberger United States
2 6,562.4 15,048.0 15,339.0 21,007.0 106,000
Halliburton United States
3 5,159.0 8,131.2 6,297.5 9,172.6 37,000
Aker Norway
4 4,587.9 8,580.3 2,724.0 4,333.2 25,100
Weatherford International United States
5 4,437.0 10,457.2 2,244.0 2,891.7 9,600
Transocean United States
6 3,208.1 4,346.4 1,067.3 1,382.1 5,600
Noble Corporation United States
7 2,950.9 4,086.5 1,766.9 2,033.3 12,200
Pride International United States
8 2,754.6 6,193.9 1,583.7 2,263.5 5,700
Globalsantafe Corporation United States
9 1,755.3 7,230.4 1,169.5 3,459.9 22,599
Nabors Industries United States
10 1,603.6 3,614.1 620.1 1,046.9 3,700
Ensco International United States
Source: United Nations Conference on Trade and Development 2007, 118.
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with the multinational company. Indeed, CSR initiatives such as
codes of conduct are often imposed on a supplier by its customer “
the multinational firm. None the less, it has also been shown that
those externally imposed CSR initiatives such as ethical codes of
conduct are often not effectively implemented by the supplier of even
the more socially responsible multinational firms, especially if the
volume of business is relatively small between the supplier and the
client multinational firm (Barrientos and Smith 2007). Furthermore,
suppliers are often less concerned with their external reputation, as
they are smaller in size and depend less on brands and marketing to
end-consumers. As a result of these limitations, in the most extreme
case of China, it has been reported that as many as ˜95% of export
oriented [supplier] factories in China [are] said to falsify records used
in monitoring labour standards™ (Blowfield 2007). Suppliers/contrac-
tors thus continue to exert an important influence on the social and
environmental practices that are actually applied in their operations,
independently of their clients™ social and environmental policies.
In addition to hiring contractors to provide commercial products
and services, oil companies may also hire contractors to implement
CSR-related initiatives, including social and environmental consul-
tants (e.g., for devising CSR schemes), environmental remedy firms
(e.g., for cleaning up oil spills), development specialists (e.g., for
executing local community development projects) and so on. The
author has encountered a number of instances where an oil company
regarded as ˜less responsible™ was able to execute a better CSR ini-
tiative than the ˜more responsible™ company thanks to hiring better
contractors and vice versa. Therefore, the choice of contractors can
significantly influence the quality of a company™s CSR initiatives.


Non-governmental organisations

A non-governmental organisation (NGO) may be simply defined as a
not-for-profit pressure group (Thompson-Feraru 1974), a definition
60 Beyond Corporate Social Responsibility
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that covers the many human rights, environmental or local commun-
ity groups that target oil companies. The key characteristic of NGOs
is that they are independent of government and herein lies their
strength. While governments must perform many functions, an
NGO can often concentrate on a single issue to the exclusion of all
others, therefore, ˜NGOs can apply their resources™ in a way ˜that is
more focused than the attention and resources that state representa-
tives may be able to devote to the same issues™. Furthermore, in taking
up principle-based issues, NGOs can claim legitimacy and affect
public opinion at both the domestic and international levels (Clark
1995).
NGOs have campaigned on oil-related issues (especially marine
pollution) since at least the 1920s, when groups such as the National
Coast Anti-Pollution League in the USA and the Royal Society for
the Protection of Birds (RSPB) in the UK lobbied for oil pollution
legislation. NGOs are, of course, very diverse and can range from
a large multinational organisation like Greenpeace, with affiliate
groups in dozens of countries, to a small group of concerned local
citizens in a village. From the mid-1990s, a significant number of
internationally operating NGOs campaigned on issues related to
the oil and gas industry, which included a diverse range of groups
such as Greenpeace, Friends of the Earth, Catholic Relief Services,
Global Witness, BUND and many others. A number of NGOs have
dedicated all or most of their work to domestic oil and gas sector
activities, including a number of groups based in developing econo-
mies such as MOSOP in Nigeria or Kazakhstan Revenue Watch, but
their influence has usually been local and limited compared with the
larger international NGOs such as Greenpeace.
While the impact of NGOs is difficult to quantify and the NGOs
have a self-interest in exaggerating their own impact, there is evi-
dence that NGOs can impact policy, especially if they enter issue-
specific alliances (Warleigh 2000). Notable examples of successful
NGO campaigns in the oil and gas sector included Greenpeace™s

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