CSR trends, challenges and opportunities in the energy sector November 13, 2013 Foro Regional LAS OPORTUNIDADES DE LA RESPONSABILIDAD SOCIAL EMPRESARIAL –RSE- EN EL SECTOR ENERGIA RENOVABLE Y ELECTRICIDAD EN AMERICA CENTRAL
Michael Oxman
What is BSR? We act as an honest broker between business and society, combining our industry experience, sustainability expertise, and global reach to help companies create coherent strategies that leverage their core competencies and institutional capacity. Any industry, any issue, any location‌
Industry Experience
Sustainability Expertise
Global Reach
300 15 companies
We work with some of the largest corporations in the world across 11 industry practices.
partnerships
We lead a wide range of partnerships and collaborative initiatives to create industry-wide solutions.
50
We work all over the world, with eight offices and competency in more than 15 languages and dialects.
countries
2
Agenda
• Recap of Selected CSR Trends
• Trends in CSR and the Energy Sector • Industry Response to Trends
3
Recap of Selected CSR Trends
4
1. Increasing Evidence of CSR Financial Value Research shows positive correlation between CSR and financial returns
Research Findings
• 2001 Research: 53% of studies showed positive relationship, 43% neutral or mixed, and 4% negative (95 studies) • 2008 Research: 63% of studies reviewed showed positive relationship, 22% neutral or mixed, and 15% showed negative relationship (159 studies) • 2011 Study: Investment of $1 in 1993 grew to $22 at “high sustainability” firms, but only $15 at “low sustainability” firms • 2011 study; analyzed financial performance of 180 “high” and “low” sustainability firms from 1993 to 2010 Sources: People and Profits? Search for a Link between A Company's Social and Financial Performance, 2001; Valuing Business Sustainability, A Systematic Review, NBS, 2008; The Impact of a Culture of Corporate Sustainability on Corporate Behavior and Performance, Harvard Business School, 2011
5
2. Business “enabling� institutions require CSR lenses From investors to governments and throughout corporate value chain, CSR performance and transparency is considered with other business issues.
Investors
Regulators
Customers
Investors, raters, and data service providers are asking companies to manage and report ESG topics to incorporate into investment analysis. Other examples include IFC Performance Standards and Equator Principles.
Governments and regulatory bodies throughout the world are increasingly encouraging or requiring CSR/ sustainability reporting.
Customers are requiring their supply chain partners to manage, report, and end consumers are comparing sustainability performance at the product level.
Examples: Examples:
Examples:
Bloomberg in particular has seen enormous growth in use of the ESG data on its website 6
3. Stock exchanges seek CSR transparency Emerging and developed markets prioritizing ESG disclosure. • As of April 2013, 1,800 firms listed on the LSE were required to disclose GHG data, due to a new UK government regulation
• The EC adopted in April 2013 a report or explain proposal requiring large European companies to disclose ESG information. • The SEC adopted a rule mandating companies to publicly disclose their use of conflict minerals including gold and tin on a new form. • SASB – emerging 10-K standards on sustainability disclosure • India’s Securities Exchange Board of India (SEBI) mandated in August 2012 listed companies to submit business responsibility reports. • The Sao Paulo stock exchange, BM&F BOVESPA, recommended that as of January 2012 all listed companies adopt the report or explain principle. 7
4. CSR reporting has more than doubled CSR reporting is increasingly common and underpinned by specific guidelines (e.g. GRI) and external participation (advisory panels, assurance).
Source: KPMG International CSR Reporting Survey, 2011
8
5. Corporate performance driven by formal standards CSR extends well beyond philanthropy to business performance. Kazakhstan Local Procurement Targets
ILO Declaration on Fundamental Principles and Rights at Work
Equator Principles IFC Performance Standards v1.0
Extractives Industry Transparency Initiative
OECD Guidelines on Multinational Enterprises
Indonesia Local Content Regulation ISO 26000
UN Global Compact
1990
Australian Carbon Pricing Scheme
2010
1980
2000 IFC Environmental and Social Safeguard Policies and its Disclosure Policy Black Economic Empowerment in South Africa
IFC Performance Standards v2.0
ICMM Principles ISO 14001 Global Reporting Initiative G3
What’s next?
UN Guiding Principles on Human Rights SEC Ruling on Conflict Minerals and Sec. 1504 UK Anti-Bribery Law
US Foreign Corrupt Practices Act (FCPA) Voluntary Principles on Security & Human Rights
Environment
Scope 3 GHG Protocol – Climate Reporting
UN CEO Water Mandate
OHSAS 18001
Argentina Import Regulations
Social / Human Rights
Economic
California Transparency Act
International Cyanide Management Code
Inclusive
9
Energy Industry CSR Trends
10
Energy Industry CSR and the Bottom Line • Social License Traditionally Thought of Only In Reputational Terms • CSR Today Extends to Four Major Impact Areas in the Energy Industry • Environmental and Social Issues “Cross Over” in CSR Domain
Social License Issues • Human rights • Indigenous peoples • Corruption/bribery • Community unrest • Security • Labor/working conditions • Labor migration • Road safety
Social License Issues • Climate and energy • Material toxicity and chemicals • Water (scarcity, efficiency, and treatment) • Waste management • Land use and biodiversity • Raw material use • Noise, dust and related emissions
Reputational Impacts Potential Impacts • • • • •
Improved/Reduced Financial Returns. Access to (and/or Cost of) Capital (e.g. Equator Banks). Partner of Choice and/or greater community acceptance. Employee Recruitment and Retention. Green-washing Perceptions without business integration.
Examples • “Oil companies, or their contractors, called for security force protection in the face of protests from youths, taking no steps to ensure that such protection was provided in a non-abusive way and making no protests when violations occurred.” (Human Rights Watch) • “The program is an innovative health communications campaign that harnesses the influence of African leaders and celebrities to increase the usage of malaria control tools — mosquito nets, diagnostic tests and effective medicines — to prevent tens of thousands of unnecessary deaths each year. 12
Regulatory & Standards Impacts Potential Impacts • Greater investment in human resources and CSR expertise. • Integration into compliance, HSE, and other key functions. • Corporate government affairs influence in achieving. appropriate balance between “carrot” and “stick” incentives. • Improved risk mitigation decisions and response. • Danger of compliance for sake of compliance.
Examples • • • • • •
Local content regulations Permitting and engagement requirements UN Guiding Principles on Human Rights SEC Ruling on Conflict Minerals UK Anti-Bribery Law Indonesia CSR Law 13
Operational Impacts Operational and social license issues often lead to project delays, disruption, mobilization constraints, and community tensions.
Potential Impacts • Blockades, physical disruption (inside and outside fence-line) may occur. • Protests heighten security risk. • Recruitment and retention challenges.
Examples • Experts warn that the biggest challenges facing oil and gas is finding the right people with the right skills to fill vacant positions. However, companies are finding it difficult to attract young professionals despite the industry's reputation for high starting salaries. Young professionals report the industry's soiled reputation following the Macondo oil spill in 2010 curbed their enthusiasm for the fast-track professional development they'd be sure to receive if they'd accept a position within the industry.(Rigzone, April 2012) • Rioting at the oilfield erupted involving more than 400 people and triggering large-scale departure of foreign workers. Construction slowed down as a result of the riots and got back on schedule only few months later. A local investigation pointed to unequal remuneration and treatment toward local workers as alleged root causes. 14
Financial Impacts Social license risks and impacts are increasingly quantifiable - improving alignment with management systems & commercial objectives • Rio Tinto in Sub-Saharan Africa estimated Expected Value of sustainability investments at more than $318 MM. • Newmont Mining in Ghana – land acquisition six months ahead of schedule, decrease in grievances, reduction in spending on security. • Shell Philippines (offshore project) - $6 MM in community consultation costs resulted in $50-$72 MM in savings through accelerated construction schedule. 15
Financial and Reputation Impacts…(continued) Financial value and social license impacts not limited to oil/gas and mining and social / legal license increasingly overlap : • • • • • •
Amid Protests, Solar Companies Plan Desert Projects (New York Times, 2008) Solar Energy on Public Lands Faces More Opposition (Cooler Planet, 2009) California Ground Zero for Solar Battles (Environmental Leader, 2009) Green Battle Rages in Desert (Wall Street Journal, 2010) Steering committee opposes solar project (Daily Independent, 2010) Newberry Springs Solar Proposal Draws Opposition (Mojave Desert Blog 2010)
• The Chilean Supreme Court order consultation (ILO 169) - examples include the geothermal project in the Taparacá and the wind farm project in Chilóe.30 • Natural gas developments in US, Poland, Romania delayed or banned over concerns regarding hydraulic fracturing. • Social and legal license increasingly overlap requiring proof of “no harm” and delivery of local benefits; e.g. hydraulic fracturing. • Project acceptance by communities - BSR work with Shell Wind Energy demonstrated importance of providing benefits, concerns over siting, and revenue distribution.
16
Energy Industry Response to Trends
17
Responses to Expectations & Value Proposition • CSR has become more about business priorities and less about philanthropy • Engagement is increasingly the norm with advocacy becoming less credible • Topics covered under CSR umbrella are generally predictable and are identified and managed through more formalized and increasingly systematic approaches. Systematic Approaches Materiality and Impacts (includes engagement)
Management Strategy, Policies and Systems Execution, Monitoring, & Accountability
Transparency, Reporting and Disclosure
CSR Topics
•Climate •Water •Safety & Environment •Social License to Operate •Community Relations & Development •Human Rights •Public Policy •Employment & Procurement
Responses to Expectations & Value Proposition: Management Systems for Social License and Community Engagement Achieve local sustainable performance through corporate- and field-level activities integrating environmental and social performance issues .
1
2
Issue Identification & Alignment
Formalized Impact Assessments
3
4
Strategy Development & Management Planning
Implementation and Monitoring
Stakeholder / Community Engagement Do No Harm • • • • • •
Water access / quality Resettlement Human rights In-migration Livelihoods Community health and safety
Examples
Value Creation • Local Content and Business Development • Strategic Community Investment • Capacity Building
ExxonMobil’s Environmental and Socioeconomic Management Process Shell’s Venture Support Integrators
19
Responses to Expectations & Value Proposition: Avoiding “Fatigue” through Strategic Community Relations True partnerships are selective & build on other stakeholder approaches Acknowledge • Be Aware of Stakeholders and their Agendas
Monitor • Actively Monitor stakeholders including media scans, internet searches
Message
Engage
• Include in corporate or asset communications, large-scale meetings
• Participate in two way dialogues focused on mutual learning, solutions, and commitments.
Collaborate 6%
Stakeholder relations requires transparency and openness to maintain credibility
Engage 24%
• Often involves formal agreements covering governance and accountability
Acknowledge 9%
Monitor 25%
Message 36%
Partner / Collaborate
Prioritization is required to ensure overall effectiveness
20
Opportunities for Ongoing Improvement Many companies have developed advanced approaches to managing nontechnical and social risk, but most still have room to align sustainability efforts with commercial activities. • Opportunities areas include:
• Coordination across departments and with contractors • Better consistency during handoffs and project lifecycle (e.g. construction demobilization, closure) • Earlier consideration of social impacts and issue management during due diligence
• Factoring CSR issues into cost, scheduling, and budgeting • Expand focus from “downside” risk management to include “upside” benefits (which ultimately provides commercial benefits through shared value)
21