CSR trends, challenges and
opportunities in the energy sector
Foro Regional
LAS OPORTUNIDADES DE LA RESPONSABILIDAD SOCIAL
EMPRESARIAL –RSE- EN EL SECTOR ENERGIA RENOVABLE Y
ELECTRICIDAD EN AMERICA CENTRAL
November 13,
2013
Michael Oxman
What is BSR?
2
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.
Industry
Experience
Global
Reach
Any industry, any issue, any location…
We work with some of the largest
corporations in the world across 11
industry practices.
50 We work all over the world, with eight
offices and competency in more than
15 languages and dialects.countries
300companies
15 We lead a wide range of partnerships
and collaborative initiatives to create
industry-wide solutions.Sustainability
Expertise
partnerships
3
Agenda
• Recap of Selected CSR Trends
• Trends in CSR and the Energy Sector
• Industry Response to Trends
1. Increasing Evidence of CSR Financial Value
5
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 2010Sources: 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
Research shows positive correlation between CSR and financial returns
6
Investors Regulators
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.
Examples:
Governments and regulatory
bodies throughout the world
are increasingly encouraging or
requiring CSR/ sustainability
reporting.
Examples:
Customers
Customers are requiring their
supply chain partners to
manage, report, and end
consumers are comparing
sustainability performance at the
product level.
Examples:
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.
Bloomberg in particular has seen enormous
growth in use of the ESG data on its website
3. Stock exchanges seek CSR transparency
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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
• India’s Securities Exchange Board of India (SEBI) mandated in
August 2012 listed companies to submit business responsibility
reports.
• 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
• The Sao Paulo stock exchange, BM&F BOVESPA,
recommended that as of January 2012 all listed companies
adopt the report or explain principle.
4. CSR reporting has more than doubled
8Source: KPMG International CSR Reporting Survey, 2011
CSR reporting is increasingly common and
underpinned by specific guidelines (e.g. GRI) and
external participation (advisory panels, assurance).
5. Corporate performance driven by formal standards
9EconomicSocial / Human RightsEnvironment
1980
1990
2000
2010
IFC Performance
Standards v1.0
IFC Environmental and
Social Safeguard
Policies and its
Disclosure Policy
IFC Performance Standards
v2.0
UN Guiding Principles on
Human Rights
UN Global Compact
Equator PrinciplesILO Declaration on
Fundamental
Principles and
Rights at Work
ICMM Principles
SEC Ruling on Conflict
Minerals and Sec. 1504
US Foreign Corrupt
Practices Act (FCPA)
Scope 3 GHG Protocol
– Climate Reporting
Voluntary Principles
on Security & Human
Rights
UK Anti-Bribery Law
California Transparency Act
What’s
next?
Extractives Industry
Transparency
Initiative
Black Economic
Empowerment in
South Africa
Argentina Import
Regulations
Kazakhstan Local
Procurement Targets
Australian Carbon
Pricing SchemeUN CEO Water
Mandate
ISO 14001
OHSAS 18001
ISO 26000
Indonesia Local
Content Regulation
Global Reporting
Initiative G3
OECD Guidelines on
Multinational
Enterprises
International Cyanide
Management Code
Inclusive
CSR extends well beyond philanthropy to business performance.
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
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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.
• “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.
Examples
Regulatory & Standards Impacts
• 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
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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
Operational Impacts
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.
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Potential Impacts• Blockades, physical disruption (inside and outside fence-line)
may occur.
• Protests heighten security risk.
• Recruitment and retention challenges.
Operational and social license issues often lead to project delays,
disruption, mobilization constraints, and community tensions.
Financial Impacts
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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.
Financial and Reputation Impacts…(continued)
16
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.
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.
Materiality and Impacts (includes
engagement)
Management Strategy, Policies and
Systems
Execution, Monitoring, & Accountability
•Climate
•Water
•Safety & Environment
•Social License to Operate
•Community Relations & Development
•Human Rights
•Public Policy
•Employment & ProcurementTransparency, Reporting and
Disclosure
CSR TopicsSystematic Approaches
Responses to Expectations & Value Proposition:
Management Systems for Social License and Community Engagement
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Achieve local sustainable performance through corporate- and field-level
activities integrating environmental and social performance issues.
Examples
Stakeholder / Community Engagement
Do No Harm
• Water access / quality
• Resettlement
• Human rights
• In-migration
• Livelihoods
• Community health and safety
Issue
Identification &
Alignment
Formalized
Impact
Assessments
Strategy
Development &
Management
Planning
Implementation
and Monitoring
Value Creation
• Local Content and Business
Development
• Strategic Community
Investment
• Capacity Building
1 2 3 4
ExxonMobil’s Environmental and Socioeconomic Management Process
Shell’s Venture Support Integrators
Responses to Expectations & Value Proposition:
Avoiding “Fatigue” through Strategic Community Relations
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Acknowledge Monitor Message Engage Partner /
Collaborate
• Be Aware of
Stakeholders
and their
Agendas
• Actively Monitor
stakeholders
including media
scans, internet
searches
• Include in
corporate or asset
communications,
large-scale
meetings
• Participate in two
way dialogues
focused on mutual
learning, solutions,
and commitments.
• Often involves
formal agreements
covering
governance and
accountability
Acknowledge9%
Monitor25%
Message36%
Engage24%
Collaborate6%
Stakeholder relations
requires transparency
and openness to
maintain credibility
Prioritization is required
to ensure overall
effectiveness
True partnerships are selective & build on other stakeholder approaches
Opportunities for Ongoing Improvement
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Many companies have developed advanced approaches to managing non-
technical and social risk, but most still have room to align sustainability
efforts with commercial activities.
•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)
• Opportunities areas include: