Corporate Social Responsibility (Csr) Report On Royal Dutch Shell Plc

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Table of Contents

Executive summary3

Theoretical perspectives on CSR3

CSR in the oil and gas industry4

CSR practices in Royal Dutch Shell6

Human rights6

Safety7

Case examples7

Working with communities8

Community development9

Climate change9

Critical analysis of CSR in Royal Dutch Shell9

Bibliography11

Executive Summary

Corporate social responsibility is incorporating social responsibility into a company business model to act in the best interest of its stakeholders. Companies have to consider the needs of the community and act correspondingly. It is a way of internalizing externalities, which enables companies to produce value for stakeholders. CSR is viewed as a strategic decision, though it is not a precondition for business success. This is because consumers are willing to pay higher prices for products offered by socially responsible companies.

The oil and gas industry has a high need for CSR because of the negative effects of its business operations. Such risks as oil spills, fires, and other environmental issues expose the industry to legal liability and negative perceptions by the public and regulators. The industry has to give back in order to mitigate the costs connected with pollution, health problems and dislocation.

Royal Dutch Shell is one of the main oil companies in the world with operations in many countries. In its sustainability reports the company lays a focus on human rights, a high level of governance and standards, safety measures, and community involvement. The company utilizes these strategies in order to ensure that it adheres to regulations and protects stakeholders, as well as the environment from harm.

The commitment to these strategies is low for Shell, especially in developing countries. This is because of a low level of governance and accountability in developing countries. The company should increase its investment in economic development in developing countries, as well as opportunities for economic growth, such as enterprise development.

Theoretical Perspectives on CSR

Corporate social responsibility is one of the main aspects of business that has recently received massive attention. Companies in the USA and other countries have an increased desire to become green. Such companies as Toyota, Ford, and Dell among others have taken it upon themselves to improve their environmental consciousness. For example, Toyota has buildings in the USA, which the U.S. Green Buildings Council has gold certified. Dell allows customers to purchase carbon offsets with the purchase of a new computer (Lyon and Maxwell, 2008, p. 1). Some concerns arise about these strategies inspired by public relations. However, employees, regulators and other stakeholders have embraced them as a way of internalizing externalities emanating from the company’s operations.

Objectives, values, and functions enable a business to create value for the society and improve social welfare. It is directly linked to the power that an organization has in the society. Some opposition to the practice of CSR in companies has been witnessed with the view that it results in the diversion of business attention. D’ Vogue suggests in the CSR Quest (2012) that CSR is not a precondition or success of a business, but a corporate strategy dimension. This increased social responsibility does not necessarily increase success. The risks of CSR are similar to those emanating from any other business strategy. Companies taking social responsibility are motivated by such factors as innovation, customer satisfaction, or financial performance, as opposed to brand success (CSR Quest, 2012).

The stakeholder theory of organizations postulates that a business has a broad set of responsibilities before all its stakeholders, which include clients, shareholders, the public, and business associates. According to the theory, any individual affected by the operations of a business, or that, who can affect the operations of a business, is a stakeholder that the business has to consider making its decisions. CSR is aimed at achieving the objectives of the firm for the purpose of the satisfaction of stakeholders (CSR Quest, 2012). In this case, the public should get their needs considered by the business through social responsibility initiatives conducted by the company.

Different factors drive firms to be engaged in CSR, most of which are market forces on the demand and supply side of the firm. Considering the demand side, consumers have become environmentally conscious. They are interested in the purchase of environmentally friendly products, such as organic foods or low-carbon fuels. Vertical product differentiation is used as a strategy for capturing consumer heterogeneity in their willingness to pay for improved environmental attributes. In this setting, firms have the incentive to improve their environmental consciousness and quality in order to reduce price competition with rivals. This indicates that firms with high competition will have increased CSR (Lyon & Maxwell, 2008, p. 5). The issue of green investors is also crucial for CSR in companies. Investors allocate their wealth in the form of investments in socially responsible organizations, savings, and donations to charity organizations. Some investors make their social donations by investing in socially responsible firms. Therefore, firms can increase their investment by engaging in CSR. The investment in CSR drives value for firms enabling their shares to fetch more than they can do without CSR.

The labor market also increases the uptake of CSR because employees want to feel good about their company and working responsibilities. Therefore, companies make environmental commitments that are in line with the environmental values of employees. This acts as an appropriate strategy for attracting the best employees to the company. Employees are willing to accept lower salaries to work for socially conscious companies. This means that an investment in CSR is essential for enabling firms to attract the best employees to the job.

Supply-side forces also influence CSR activities of companies. These forces include the need to increase resource use efficiency and reduce costs and pollution. Business costs can be reduced by preventing the waste of human resources, logistics, and other business functions. Regulations, meant to reduce pollution and wastage, cost firms fewer resources than they expect. Firms can collude to reduce the production of environmentally inefficient products. Such collusion can increase their prices and the demand for green products. Prices and profits of firms will also increase.

CSR in the Oil and Gas Industry

Companies involved in the exploration and extraction of oil and natural gas are exposed to such risks as oil spills, liability risks, environmental risks, as well as safety and health concerns about employees and the community, where they operate. The long-term success of oil companies depends on their management of the said risks. The risks in the oil industry are multiplied by the complexity and specialization of the process used in extracting, transporting and processing oil resources. Therefore, the public feels ambivalent about oil companies and their operations (Spence, 2011, p. 59). This is because oil is a significant driver of economic

growth and development in many economies. However, health and environmental risks concerned with the industry result in mixed reactions of oil companies.

The costs imposed by the oil industry are connected with community injuries, pollution, and oil spills among others. The industry also imposes second-order costs, such as conflict and dislocation. This phenomenon has resulted in the oil curse, which depicts that the oil industry brings about more harm than social welfare benefits for the community. These costs predispose the oil sector to strict regulation and control in order to reduce harm and provide the redress for the harm caused by it. Laws and regulations are set by governments and such transnational organizations as the OECD. Laws require oil companies to meet stringent requirements for permitting and licensing oil projects. The government also controls pollution levels in order to ensure reduced social harm (Spence, 2011, p. 60). However, communities consider the likelihood of accidents. Therefore, the industry is expected to offer self-regulation in order to guard against the risks, to which it exposes the society. Mere compliance with the laws is not sufficient to win the approval of the society for their operations. Oil companies are expected to do more than other industries in terms of CSR. Expectations of an increased CSR of oil companies come from the society, as well as from the business leaders’ intrinsic motivation to do the right thing.

Increased transparency and globalization have increased the need for businesses to act socially (Spence, 2011, p. 61). This is because investors, customers and other stakeholders can learn about the activities of the business in distant markets easily through the Internet. Local communities and NGOs put oil companies to task in order to have them amend their environmentally poor strategies and ensure that their operations are in line with the needs of the community. These communities are keen on the laws and require oil companies to follow them in their operations in order to ensure that the benefits from the oil sector are retained by the local communities, who bear the greatest damage caused by their activities.

The oil industry has been the center of debates in relation to CSR because of the poor state of some oil producing countries. Oil companies collaborate with domestic companies in extraction of oil thus sharing responsibility or any damages emanating from the operations. However, the exit of these companies from oil extraction countries may leave the environment heavily polluted. Local communities and NGOs lay the cost of pollution on oil multinational corporations in the form of legal action. This also results in reputational risks for the company, because the non-compliance with the laws may result from the activities of domestic partners.

All oil firms had had codes of conduct for their commitment to the development of communities, environmental responsibility, and to hiring and paying for labor by the end of the 1990s. Such codes varied among companies, but they were weak in such important areas as monitoring, enforcement and disclosure. Despite their weaknesses, they were appealing due to their voluntary nature. The main stakeholders were ready to boycott the activities of oil companies on the ground because of social and environmental ills, which they cause. CSR was also used for public image enhancement because of public relations disasters emanating from their operations. CSR also became an important platform for consultations between oil companies and civil society. The issues of openness and engagement became appealing to donors and governments, making them important for businesses (Watts, 2005, p. 399).

CSR Practices in Royal Dutch Shell

Human Rights

The company considers the upholding of human rights in its operations through requiring employees to act in certain ways meant to ensure that the rights of the community and employees are included in the code of conduct. In 2011, the company drew some codes of conduct to be followed by suppliers, who are significant stakeholders of the company, in order to ensure that they respect human rights in their operations. The central principles of writing up requirements are due diligence and access to remedies for social problems. The guiding principles concerning human rights and business operations formulated by the UN are key aspects ensuring that the business considers the welfare of employees, as well as the community in its operations (Shell, 2012).

The organization has reviewed its practices and processes in a bid to incorporate human rights principles into them and to provide external stakeholders with an effective way of expressing their grievances about the operations of the company. Examples of projects aimed at improving reporting include community grievance pilot projects, which are based on the principles stated by the UN. The company has implemented these grievances projects in limited locations as a way of ensuring that community grievances mechanisms put in place are effective for the purpose of providing the required framework for the business to exist together with different stakeholders. Another important aspect is determining the best way to ensure safety in business facilities for employees and contractors working for the company. This also focuses on human rights and ensuring the security of communities, where the company operates. In order to enable their implementation in the entire company, the principles have to be incorporated into all security contracts of the firm (Shell, 2012).

Governance and adherence to standards

All contractors and employees have to work in accordance with the guidelines set by the company for environment, health, safety, security, and social performance (HSSE&SP). This control framework defines standards for accountability at all levels of operation. The compliance with the guidelines is monitored through comprehensive assurance processes. People running business operations have the responsibility of ensuring that the operations are run responsibly. This is achieved through working with communities, partners, and nongovernmental organizations. This aids in understanding and addressing the impact of organization’s processes and activities on the community. HSSE &SP specialists within the company work in all facilities with business leaders to improve the sustainability and performance of the organization. Priorities and standards set for sustainable development help in shaping business activities and managing sustainability performance. The CEO and the executive committee are in charge of ensuring accountability for sustainable development strategies. The leadership of the HSSE &SP executive board assesses the management of sustainability performance in the entire organization (Shell, 2012).

The committee in charge of corporate and social responsibility within Royal Dutch Shell reviews set policies and performance with respect to the general business principles of the company, the code of conduct, the HSSP&SE standards, as well as the issues of public concern in relation to the company’s operations. Members of the committee are also required to visit

facilities in order to familiarize themselves with concerns of the public in the area. The external review committee is also involved in the evaluation of the sustainability report in order to analyze views on the approaches applied for ensuring sustainability (Shell, 2012).

Safety

Another significant aspect of Royal Dutch Shell’s CSR activities is the assurance of safety standards in the operations of the company in all facilities. Safety is a critical aspect of the responsible conduct of business ensuring the production of energy responsibly. The operations of the company are developed with the aim of preventing incidents that are harmful for employees, contractors, or communities. The operations and activities are also aimed at reducing a negative impact on the environment. Plans are prepared to deal with incidents, if they occur and endanger workers, communities or the environment.

Safety is core for the operations of the company, because it ensures responsibility in its operations. The goal of the company is to have zero accidents that harm stakeholders or facilities and zero fatalities in the operations of the company. Although the company may not guarantee that accidents and incidents will not occur, it has to ensure that swift actions will be taken in response to such occurrences. This minimizes a negative impact of an incident and enables the organization to learn in order to improve its safety and performance in the future (Shell, 2012).

Safety is managed through rigorous processes that embed a safety culture in the daily work and operations of facilities. All operations have to follow the set standards put in place covering different areas vital for the operations, such as an environment, health, security, safety, and social performance. The company has set standards for determining operational controls required in order to ensure safety in regard with such aspects as deep-water wells in order to prevent the risk of accidents. The Shell Company, joint ventures companies operated by Shell and contractors have to operate in line with these standards and commitment of the company, as well as local laws and the terms of approvals and permits.

The deployment of adequate safety standards is essential for enabling the company to respond to incidences and reduce the likelihood of long-term negative effects on people and the environment. The prevention of incidents is core for ensuring the safety of communities living close to the facilities. The prevention of risks involves a twofold approach that begins with the identification and assessment of risks and taking necessary steps to reduce or eliminate the risks. The staff is always prepared to respond to accidents, when they occur, and should take recovery measures to ensure that an impact of an incident is minimized. Such emergency response actions to incidents as oil spills and fires are core for the company’s preparedness to reduce a negative impact of such incidents on the safety of the environment, the facilities, and stakeholders. Local emergency response crews are involved in collaboration with the company’s staff in order to improve the efficiency of their responses.

Case Examples

Examples of situations, when emergency response teams responded to accidents effectively, can be highlighted to show the effectiveness of safety and prevention measures. In 2011, oil leaks occurred at the Bonga field in Nigeria during loading a tanker. Emergency response teams managed to stop the leak quickly. The spilled oil was dispersed and evaporated

quickly using vessels and aircrafts, which ensured that no harm was caused to the environment. Another incident occurred in Singapore, when a refinery owned by Shell caught fire. Company’s employees had to work with local emergency responders inputting off the fire. The exercise was successful because the fire caused minimal harm to people, the environment, and the facility (Shell, 2012). These cases were later used as learning tools in order to improve the work of emergency response units during such incidents in the future.

Working with Communities

The company operates in an industry with a high level of uncertainty because of the possibility of negative effects emanating from the company’s operations. Royal Dutch Shell aims at influencing communities by having a positive effect on them. This is achieved by working with them in the creation of jobs, business opportunities, and community development programs. This is collectively known as social performance. The company has global standards and requirements for working with communities that are affected by the operations of the company. The guidelines provide a framework, within which the company works with communities in order to reduce a negative impact on them. These practices include working for preserving the traditional environment and the way of life of indigenous communities (Shell, 2012). In light of this, the company has adequate guidelines for avoiding the involuntary resettlement of people.

The main aspect of social responsibility before communities is ensuring that all projects and facilities have a social performance plan for assessing and minimizing the negative impact of the company’s operations on the community, which is significantly involved in the implementation of new projects or the expansion of existing ones. Involving the community enables the company to make inclusive decisions that foster mutually beneficial agreements n line with the expectations and needs of the community (Shell, 2012). This approach improves decision-making and responsiveness of projects to the needs of the community.

Staff members are equipped and trained in dealing with local communities in order to foster good working relationships. Skill building of staff members includes such aspects as continued training to offer practical guidance and tools for employees. Specialists also have an exchange program that enables sharing ideas in order to learn from each other. Community meetings are an essential aspect of the planning process and community involvement. Advisory panels and meetings consist of local representatives. They are used for discussing and sharing business plans in order to ensure responsiveness to local needs. Examples of collaboration with local communities include decommissioning the Brent platforms in the North Sea, as well as the water-recycling plan of the gas project in Canada at Groundbirch (Shell, 2012).

Community involvement also consists of sharing benefits between the company and the community. The company uses products and services produced in low-income countries, where it has business facilities. Company spending in 2011 consisted $12 billion on goods and services from local companies in low-income countries. The benefits of job creation emanating from the operations of the company reach local communities, which gain employment opportunities from the company. In 2011, over 90% of employees working for Shell’s foreign operations were nationals (Shell, 2012). The company also employs local contractors for some of its non-core activities and aids local suppliers in bidding for projects and tenders. Helping local suppliers in competing for contracts involves offering training for local suppliers based on the company’s global contract and tendering management process. The company also creates opportunities for

global and local suppliers to meet in order to create new opportunities. An example of such platform in 2011 was the sponsored joint Nigeria-China suppliers’ forum. The event was held in Nigeria, but the company also held similar events in Mexico, China, and India (Shell, 2012).

Community Development

Royal Dutch Shell invests in community programs that enable it to use expertise in business and project management to affect communities positively. This involves investment in social projects aimed at improving the welfare of communities. Some of them involve road safety, ensuring reliable access to energy, and investing in local enterprises. Initiatives geared towards road safety are implemented in order to reduce road accidents. Other programs initiated by Shell include the Shell livewire program, which offers business tips and advices to entrepreneurs encouraging the development of domestic enterprises. The organization in collaboration with the global alliance for clean cook stoves increases access to safe and clean ways of cooking in developing countries. The company pledged a donation of $6 million for three years to projects initiated by the global alliance (Shell, 2012).

Community projects targeting local communities are developed with the help of local communities, governments, and development agencies in order to enable them to thrive beyond the financial support provided by the company. Communities are involved in these projects by determining the projects, which they require, and sharing the responsibility of developing and implementing them. A clear example of this collaboration is the Salym operation in Russia, in which Shell has a 50% interest (Shell, 2012). A panel consisting of representatives from the government, the local community, and business circles decided that funds should be used to improve healthcare, education, and infrastructure. The panel developed projects in line with these needs, which included the provision of medical supplies and equipment for the local hospital, making schools accessible to handicapped children through special installations, and building new schools (Shell, 2012).

Climate Change

Climate change is a significant aspect of CSR because of the negative effect that the oil and gas sector has on the environment through the emission of greenhouse gases. The level of greenhouse gas emissions should be reduced in order to reduce serious effects of climate change. The company is involved in producing low-carbon fuels and developing technologies for capturing carbon dioxide. The company also strives to achieve social responsibility through improved energy efficiency in its operations. Carbon dioxide-related operations are also overseen through a well-established governance structure (Shell, 2012). Despite these measures being touted as social responsibility, they are strategically implemented in order to improve the company’s future profitability, since the world population becomes conscious about climate change. The consumption of products and services, which are not sensitive to this need, will decline, thus, there will be a need for companies to place themselves strategically by producing environmentally sensitive products.

Critical Analysis of CSR in Royal Dutch Shell

The company has taken significant steps to give back to communities through offering jobs, training through development programs, and other community initiatives. These strategies

are essential for improving the relationship between the company and the local community. Providing funding for infrastructure projects of needy communities is an adequate strategy meant to enable that communities benefit from the profitability of the company. Providing them with improved healthcare facilities, school and other programs enables the improvement of social welfare. The positive side of CSR is that it increases the legitimacy of the business reducing cases of conflict between the company and local communities.

Despite the fact that the company has a high level of CSR aimed at ensuring environmental and community well-being, the evidence on the ground show a different picture. Shell has been in the forefront ensuring environmental protection from its operations in the USA and Europe. However, its operations in developing countries have not had a similar level of commitment. The company has major operations in the Niger Delta region, where the rate of accidents and environmental damage is very high. In this region, the company has more than two thousand oil spills, which it has never cleaned (Donovan, 2012). The low level of governance and legal power in developing countries has resulted in negligence on the part of the company. Developing countries also have low levels of governance integrity and follow-up. This reduces the ability of local laws and institutions to put the company to task for the environmental damage caused. The company takes advantage of the low level of attention in developing countries and avoids the cost of cleaning oil spills and dealing with other aspects of social responsibility, such as following local laws and regulations.

CSR is motivated by the benefits it derives from the business, as opposed to the benefits for the community. This means that the most likely investment in CSR is that, which offers the highest benefit to the company. Any business has to respect all stakeholders, including those, over which it has power, such as suppliers and employees. Commitments should be codified and funded adequately, while their application should be consistent and well-managed. Only few companies show a high level of commitment to CSR and their stakeholders. Thus, there is a need for stringent regulations of firm’s activities at both national and international levels. It is clear that Shell is only committed to projects connected with safety and accident prevention, because they directly influence profitability and efficiency of the company’s operations. Other strategies, such as the production of bio-fuels and low-carbon fuels, are pursued because of the need to attract green investment and environmentally conscious customers. The integrity in the organization may be fostered in order to improve operational efficiency of the utilization of resources and accuracy of reporting in order to protect investments in the company. The social motivation for the company to undertake CSR activities is low and leads to the company failing to commit fully to programs and initiatives.

Despite having the core motive of making profits and delivering products to the community, having a high level of commitment to CSR can be beneficial for the company in the long run. It will enable the company to improve its relationship with the community. The company should focus on increasing investments in community projects, such as infrastructure development. These will improve the perception of the company by people. Another important aspect that the company should consider in its CSR is economic growth and development. The company should offer opportunities for economic growth, such as enterprise development and funding other projects that improve social welfare, such as rural electrification. The company should also involve itself in funding other projects for alleviating hunger or disasters, such as irrigation projects.

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