The ROI of Social Responsibility: Driving Sustainability in the Oil & Gas Sector

Abstract

Abstract Social Responsibility historically has been viewed as corporate philanthropy. Today, Social Responsibility (SR) can be viewed as the platform for a sustainable business. Having evolved beyond philanthropy, SR provides a framework to view the business and address how we manage our economic, social, and environmental impacts throughout the Value Chain, including relationships in all key spheres of influence: the workplace, marketplace, supply chain, community and the public policy realm1. Performance trends in oil and gas demonstrate that social and environmental performance contributes to long-term value creation. There is a "top line" component in value creation, which has to do not only with brand premiums and reputation capital, but new products, time to market and even access to markets - a company's social license to operate. Furthermore, there is a "bottom-line" capital efficiency component to social and environmental performance -- accelerating through the oil and gas Value Chain at lower cost; reducing cost of capital; monetizing carbon risks / opportunities and reducing risk through improved asset reliability, incident prevention and management system integration. More and more, SR aspects are being considered in project financing in the capital markets (look at the World Bank – International Finance Corporation guidance and the Equator Principles – a benchmark for the financial industry to manage social and environmental issues in project financing). Environment, social and governance performance is highly regarded by analysts and socially responsible investors (SRI) as a key indicator of the overall quality of management in assessing the risk of investing in a company. In the marketplace, companies in every sector are facing the "perfect storm" of rising energy prices, societal and customer expectations to "go green", and global regulation driving inventory and monetization of the "environmental footprint". An Oil and Gas company's future competitive advantage will be determined in part by its ability to seize opportunities and manage risks associated with growing social and environmental performance expectations of customers, shareholders and stakeholders. SPE paper 127193-PP, "ROI of Social Responsibility in Oil and Gas Sector" chronicles a meta-analysis of social responsibility in the oil and gas sector to provide a business case framework for assessing SR strategy, organizational capabilities and key performance indicators that drive long-term value creation. As this paper is written 2009 November, a formal benchmark survey of oil and gas operators, Analyst Firms and NGOs is under way. The benchmark will focus on documenting SR best practices in Oil and Gas; defining what SR leaders do differently; Defining the optimal business model for SR in an O&G company; Evaluating SR functions in E&P versus integrated majors and key measures of value creation. Survey results to be reported during the SPE International Conference on Health, Safety and Environment in Oil and Gas Exploration and Production held in Rio de Janeiro, Brazil, 12–14 April 2010. The results will also be shared with the IPIECA Social Responsibility Working Group, having embarked on an update of its 2005 IPIECA/API Oil and Gas Industry Guidance on Sustainability Reporting.