Recent events have demonstrated with brutal clarity that corporate social responsibility and profits really do go hand in hand. In these remarks for Royal Dutch Shell’s annual reception in London, Peter Voser, the company’s Chief Executive Officer, describes how Shell is balancing the two in an era of public scepticism. Shell has used its profits to maintain massive investment through the recession, securing jobs in the UK and beyond and laying the foundations for tomorrow’s energy supplies.
As part of this Shell is raising its production of natural gas. It generates between 50% and 70% less CO2 than coal when burned to generate electricity,and is thus critical to helping the UK meet its CO2 reduction targets. Peter also describes some of the ways in which Shell is opening itself up to closer public scrutiny, for example through its membership of the Extractive Industries Transparency Initiative that aims to increase revenue transparency across borders.
Profits and Corporate Social Responsibility – Remarks to the Shell Annual Reception 2011
My lords, ladies and gentleman, good evening.
I was interested to learn a few days ago that today marks the 40th anniversary of Decimal Day, when prices across the UK switched over to the new currency.
Out went silver florins, shillings, six pence, and half crowns. A new pound was worth 100 new pence, or 240 old pence.
Although the changeover was relatively smooth, when inflation skyrocketed to 24% four years later, many fingers of blame were pointed at the so-called "new money".
A popular claim but, of course, wrong.
Just as it is wrong but popular to claim that big companies are only interested in profit.
Which is not to suggest that we are not interested in profits. We are. But we realise that responsible behaviour and profitability go hand in hand.
CSR and profits
Recent events have illustrated that proposition with brutal clarity: the financial crisis, the deepest recession in decades, and the Macondo tragedy in the Gulf of Mexico, these events have ushered in an era of profound public scepticism and disillusionment with the business sector.
What are the implications for CSR?
One is that the actions of all major businesses are now in a harsh and unforgiving spotlight.
And we are being judged on our actions, on our transparency, and on our willingness to work with governments and communities for the public good.
Public trust and confidence: safety
For Shell that means, above all, being judged on our commitment to safety and our ability to conduct our day-to-day operations flawlessly.
Safety must be –and is – at the heart of everything we do.
We can talk about explanations and causes of the Macondo well blow-out. The reality is that the picture has changed for the deep-water industry as a whole, including Shell. There will be increased regulation, and more public scrutiny.
To put it simply, our industry needs to rebuild trust with the communities we work in.
We have completed an initial review of the US Presidential Commission report into Macondo, and we agree with the majority of the findings.
We support the Commission's recommendation to introduce risk-based standards specific to the relevant activities, similar to the "safety case" approach in the North Sea that we implement in close cooperation with the Department of Energy and Climate Change and other companies.
In fact, we use the North Sea "safety case" as our approach worldwide.
So we’re trying hard, as a company and with regulators and industry partners, to manage the risks that are always present when working in challenging conditions and harsh environments.
Shell as an engine of growth
Profound public scepticism carries a second major implication: we must work harder to explain why a healthy and profitable business sector is critical to a healthy society.
So you will forgive me if I spend the next few minutes doing exactly that.
As economic conditions deteriorated three years ago, we at Shell stuck to our long-term strategy, resisting calls for more share buy-backs in late 2008 to preserve a strong balance sheet for the tough end of the business cycle.
As a result, throughout the recession Shell has maintained its dividend payments – some $10 billion annually – as well as heavy investment and expenditure in the UK and beyond. For example, we spent some 3 billion pounds with more than 4,500 suppliers in the UK last year.
In fact, the oil and gas industry continues to support some 440,000 jobs in the UK, a very high proportion of which are well-paid and highly skilled.
There’s also an optimistic story to be told about the future. The resources remaining in the North Sea add up to a trillion pound opportunity for the UK. And the country’s new oil and gas projects are expected to create some 15,000 jobs over the next five years.
Towards a secure and sustainable energy supply
Just now we’re receiving a sharp reminder as to why delivering new energy supplies is so important, as the oil price has swiftly returned to the $100 mark, as a result of demand growth.
Thanks to Shell’s healthy balance sheet, we can now invest some $25-27 billion every year until 2014, including around $1 billion in R&D, the most of any international oil company.
In other words, today’s profits are tomorrow’s energy supplies.
This heavy investment will also be critical to tackling greenhouse gas emissions, globally and here in the UK.
At Shell, we believe that the country should take the quickest, cheapest and most pragmatic path to CO2 emissions reductions.
In the power sector, that means expanding the presence of natural gas.
Affordability matters because the UK will have to spend somewhere in the region of 110 billion pounds on new electricity generating capacity over the next decade – the equivalent of ten Channel Tunnels that have to be delivered on time, on budget and working.
There’s another powerful attraction of natural gas: it’s the perfect partner for intermittent sources of renewable energy – when the wind drops, gas can be readily powered up to meet demand in the grid.
So you can see why we at Shell are investing hundreds of millions upgrading the country’s gas infrastructure.
CCS and biofuels
In addition, we continue to invest in two technologies with potential for significant reductions in greenhouse gas emissions: carbon capture and storage (CCS) and biofuels.
And we’re delighted now to be involved in two potential CCS projects in the UK – one coal-based and one gas-based. The UK has shown excellent leadership in supporting these major demonstration projects. This will be significant for UK emissions reductions and a great opportunity for UK business to get its nose ahead in a major new global industry.
As regards biofuels, we consider them the only low carbon transport fuel that can be scaled up fast enough to help tackle carbon emissions from transport in the next 20 years.
But we all know that some biofuels are more sustainable than others. That’s why we are spending a significant share of our R&D money on non-food based biomass. And why we are working with a globally connected network of universities, including three in the UK.
Our proposed joint venture with Cosan, Brazil’s largest biofuels producer, will produce ethanol from Brazilian sugarcane, which can reduce fuel-related emissions by between 70% and 90% compared to standard petrol.
Of course, the deployment of low-carbon energy technologies would benefit from a price on CO2 – not just in Europe, but in North America and elsewhere. So we will continue to advocate that.
However, as I’ve explained, at Shell we’re not going to wait until all the policies we advocate are in place – we’ll just go ahead and do what we can do now to reduce emissions.
Supporting local communities
A word on our work with local communities.
I am not pretending our track record is perfect. We have much to learn and much to improve on.
But I also think it’s fair to say that in many developing countries, we contribute to economic development through social investment, education and skills development, local sourcing, as well as, of course, jobs.
To illustrate the point, in many developing countries more than 90% of our workforce are nationals of that country.
These are not just manual jobs but management and company leadership positions.
By the end of last year, in more than 35% of the countries we operate in, local nationals held more than half of the senior management jobs – and we want to increase that.
I’d like to also mention the important work of the Shell Foundation, an independent charity funded by Shell, which is in the vanguard of enterprise-based solutions to sustainable growth in the developing world, in areas such as sustainable transport, growing small enterprises in Africa, reducing indoor air pollution and promoting ethical trade.
As I indicated at the beginning, we live in a “show me” world. Companies like Shell are increasingly in the spotlight.
Civil society expects even more transparency from us.
And we at Shell – and our subsidiaries and joint ventures – must not be shy to open up to scrutiny.
We’re trying to respond in very practical ways. Let me give you some examples:
We are part of the Extractive Industries Transparency Initiative, a coalition of NGOs, companies and governments that seeks to promote revenue transparency in our industry.
And we are working with the UN Special Representative on Human Rights, Professor Ruggie, who is trying to clarify the role of governments and companies with regard to human rights practices.
In Nigeria, the Shell Petroleum Development Company of Nigeria (SPDC), took a significant step at the end of last year by making their Environmental, Social and Health Impact Assessments available on a public website – for everyone to see.
And they went a step further. Last month they also launched an external oil spills website. There, anybody who’s interested can access the details of oil spills, joint investigations with communities and regulators, as well as the clean-up and remediation efforts.
We believe the SPDC spills website is an unparalleled example of corporate and industry transparency to respond to stakeholders and build trust.
It took tremendous efforts and discussions with government stakeholders to make this possible.
And we will continue to take these sorts of initiatives wherever we can.
Ladies and gentlemen,
I mentioned Decimal Day earlier.
In a wonderfully British act of defiance, the Kings Head Pub in North London continued to run its till in old money for about 30 years.
The landlord took payment and handed over change in shillings and the other coins, although they had no legal value.
I apologise to our debtors, but accepting worthless money is not the right approach for Shell.
To stay in business over the long haul, a global company like Shell must generate real money with real value.
At the same time, we must be a responsible corporate citizen in the many different countries and communities that we operate in.
When it comes to extending or revoking our license to operate, they have the last word.
And that’s a good point to end.
There’s much more to be said about the relationship between energy companies and society, so please approach my Shell colleagues or myself tonight if you’d like to continue the conversation, or offer an idea.
Thank you very much for your attention.