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2009 Sustainability reports: Are Int. Oil Companies Green Washing on Workforce Welfare?

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The Institutionalisation team at The Lodt review the 2009 Sustainability Reports of three international oil companies with operations in Nigeria - Shell, Chevron and Eni - to determine if these reports demonstrate commitment to labour welfare or merely green-wash the issues

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2009 Sustainability reports: Are Int. Oil Companies Green Washing on Workforce Welfare?

  1. 1.   No.9 May, 2010     www.thelodt.net info@thelodt.net +2348023624647 P a g e   |   1   Corporate Governance Review We break off from our regular Master Class this week as we review the 2009 Sustainability Reports of three international oil companies with Nigerian operations. In view of the ongoing industrial crises in the industry, we consider if, from the reports, these companies transparently demonstrate commitment to welfare of their workforce or they are merely ‘green-washing.’ (Substantially as published in our Corporate Governance Page in The Guardian newspaper (Nigeria) Sunday May 9, 2010, page 17). CSR: ‘PEOPLE’ GAPS IN SUSTAINABILITY REPORTS OF INTERNATIONAL OIL COMPANIES It is season for Sustainability Reports and many transnational corporations have been releasing their reports in the last couple of months. Shell, Chevron and Eni – three international oil companies (IOCs) with Nigerian operations – also released their Reports within the last one week. There is an emerging comity on responsible and sustainable business practices with which global corporations feel most pressured to demonstrate conformance. The consensus is that corporate performance ought not to be measured by mere financial returns to owners alone, but also by the non-financial value resulting to a broader range of stakeholders, including the immediate community and wider environment. This has led to an increasing adoption of sustainability reporting alongside the traditional financial reporting. This approach has been tagged, variously, ‘triple balance sheet’ or ‘people, planet and profit’. In practice, companies do not yet publish a single, consolidated report to serve these different purposes, although experts are already talking about the need for ‘integrated reporting’. While financial reports continue to address the profit issue, separate Sustainability Reports are published to address the people and planet issues. A Sustainability Report therefore focuses on the company’s policies on environmental and social issues and the progress made by the company in their implementation, including the result of investments made thereby. Where a Sustainability Report captures economic information, it is usually about monetary outflow to non-shareholder stakeholders.
  2. 2.   No.9 May, 2010       www.thelodt.net info@thelodt.net +2348023624647 P a g e   |   2   Why Nigerians should be interested The Sustainability Reports of Shell, Chevron and Eni should interest Nigerians for a number of reasons. Nigeria hosts major operations of these companies. Although Shell operations in Nigeria have scaled down in recent years, Nigeria nonetheless represented 9% of its production in 2009. Eni also reports itself as having emerged as the leading IOC in Africa within the same period. The flip side even makes those operations more material from a sustainability point of view – revenues from Oil and Gas form about 80% of the country’s total income, and 95% of its foreign income. A perusal of the content of the Reports of these IOCs would therefore be ordinarily recommended to ascertain what promise the reporting process holds for influencing the most important sustainability matters arising from their local operations. In the particular case of this writer, the objective was to see how the report on the human resource practices of the IOCs might bear witness to the most important crisis facing the industry in Nigeria at the moment. Only one week before the release of the Reports, Oil workers in Nigeria were just being talked off a strike action which was intended to protest allegations of unethical labour practices by the outsource service providers of one of the IOCs, Shell. In the main, the dispute has been about what the workers call ‘casualisation’ but which in effect means that majority of the OIC’s workforce have been hired on a none- permanent basis and through small-time outsource service providers too. This is only emblematic of the general industry practice. Because many of these service providers employ a small number of workers, they are often exempted from many labour-related legislations in Nigeria – for example that relating to contributory pension scheme – and do not bear the pressure of conforming with sustainability best practices. Besides, as many of these outsource service providers rely on their IOC clients for an overwhelming proportion, sometimes the whole, of their businesses, they serve, in essence, as functional units of the IOCs, but without the same pressure for responsible conduct. And because an overwhelming proportion of the human resources requirements for the operation of the IOCs are also satisfied through this kind of arrangement, this practice begins to appear as verging on outsourcing irresponsibility. But how does the ‘people’ content of the Sustainability Reports address these issues?
  3. 3.   No.9 May, 2010       www.thelodt.net info@thelodt.net +2348023624647 P a g e   |   3   Shell – ‘A+’ with a lot of qualification Royal Dutch Shell Plc’s 2009 Sustainability Report (Shell Report) parades all the trappings of a best practice report. It obtains an A+ rating in the application level of the Global Reporting Initiative (GRI) framework (otherwise known as the G3). It also carries the blue GRI confirmation logo for that rating. An A+ rating suggests that Shell is an advanced reporter which has also obtained external assurance for its report. Shell’s external assurance providers think Shell’s reporting process for the 2009 Report demonstrates “leadership by producing a balanced and comprehensive sustainability report.” Presumably, as an advanced reporter, Shell would have, among other things, reported on all core Performance Indicators in the G3 or provided reasons for any omission in that regard. Besides, Shell would have reported on relevant details of its stakeholder engagement methods. But how are these borne out by the ‘people’ report of Shell? A core Performance Indicator in the G3 is that a Report should capture “[t]otal workforce by employment type, employment contract, and region” (see Indicator LA1 of G3). While the Shell Report describes Shell as “employing 101,000 people” globally, it does not stipulate the number of the non- employee hands in its workforce. Yet, the devil crawls out of the woodworks. 95% of the fatalities recorded in Shell’s operations in 2009 are those of contractors as against 5% for its employees. No separate figures are recorded for injuries to those two categories of the workforce. But if nothing, the fatality figure reveals one of two things – either that Shell has overly relied on the use of contract workers in its operations or it does not ensure the same safety standards for its employees and contractors – or both. Neither shows Shell’s human resource practices in good light. Outsourcing of services is standard business practice, agreed. But companies must continue to take responsibility for ethical practices along their supply chain. Yet, as figures in the Shell Report demonstrate, contractor services go beyond supply chain matters. While the word ‘contractor(s)’ is used in conjunction with the words ‘employee(s)’ and ‘staff’ 10 times in the report, it is only used in conjunction with ‘supplier(s) 6 times. In our view, this shows that even in Shell, contractor issues are considered more as human resource issues than mere supply chain affairs. On the whole, the Shell Report does not help us in understanding what Shell’s policies are in regard to key welfare and safety issues of an overwhelming majority of the hands in its workforce. In fact, it does not carry GRI content index, as is required, to assist us measure
  4. 4.   No.9 May, 2010       www.thelodt.net info@thelodt.net +2348023624647 P a g e   |   4   conformance with the entire G3 framework. Eni – somewhat transparent, yet little help Eni 2009 Sustainability Report (Eni Report) parades a B+ GRI rating. PriceWaterhouseCoope rs provided a limited assurance in support of its G3 compliance. In our assessment however, the Eni Report demonstrates more transparency in conforming with its B+ requirements than does the Shell Report in regard to its A+ rating. But how substantially does it comply with the LA1 requirements of G3? The Report uses the term ‘workforce’ in a way to suggest both employees and contractors collectively, which appears to us to be the intendment of LA1. In fact, the special section on ‘contractors safety’ admits that contractors “represent a constantly increasing work force at the oil and gas exploration, development and production sites.” Nonetheless, in disclosing information on its workforce, the Report resorts to the use of the term “employees.” The information (see page 67) shows employees by type of contracts – permanent and temporary. Graphic information on pages 63-65 captures only employee segmentation by professional category, gender, age and/or geographical areas. No figures on “workforce type by employment type, employment contract” in the LA1 sense appear in the Report. Thus we are unable to ascertain the number of contractors relative to employees (permanent or temporary) in the workforce of Eni. Because of the lack of transparency in regard to distinction between contractors and employees, charts showing increase in health, safety and environment (HSE) spend, training hours and other personnel- related statistics do not disclose improvement in Eni’s responsibility to the generality of its workforce. Fatality-related information such as decrease in “company motor vehicle incidents” can also not be applied to the entire workforce. This, besides the all- too-well-known, though usually unreported, heavy reliance on contractor-model to workforce recruitment in the industry, may explain the wide disparity between fatalities and injuries to contractors and employees. For Eni, contractor fatality is 75% of all workforce fatalities in 2009. Chevron and supply chain efforts Although the Chevron 2009 Sustainability Report (Chevron Report) does not parade any rating on its conformance with a global reporting standard, it does the most to demonstrate the efforts of a company to address labour issues in its supply chain. In fact, the Report only secured limited assurance for its HSE aspects. Nonetheless, in preparing the Report, Chevron claims to “continue to be informed” by reporting frameworks like G3 and another industry-based reporting framework. In view of the foregoing, The Chevron Report only partially complies with Indicator LA1 of G3. Thus,
  5. 5.   No.9 May, 2010       www.thelodt.net info@thelodt.net +2348023624647 P a g e   |   5   there is no information on the number of employees relative to contractors in Chevron’s workforce. However, Chevron appears to take its responsibility for labour-related issues in its supply chain so seriously that, according to the Report, “[t]hrough Chevron’s shared commitment of resources (time, money and knowledge) by our employees and the company, our partners and contractors saw that they weren’t on their own for safety and environmental performance. We demonstrated that we wanted their employees to be as safe as our own employees.”(see page 5). Amongst the reported initiatives taken to assure, say HSE standards conformance in Chevron’s supply chain is its Contractor Health, Environment and Safety Management (CHESM) process, through which it works “with suppliers to increase accountability and continually improve their performance in these areas.” As a result, the Report records a reduction in the “Total Recordable Incident Rate” of Chevron contractors by 38 percent between 2005 and 2009. Chevron’s can hardly be regarded as a roaring success though, regarding contractor fatality. The 2009 fatality figure is 9 made up of 100% contractors. This figure is worse than the 5 for 2008 – also all contractors. When it is considered that the figure for 2005 is 4, taken 2 apiece by employees and contractors, Chevron will be seen to have maintained a zero fatality for employees for 2 years now, while the fate of contractors has been worse-off. Lessons for Nigeria; Lessons for all There are a number of lessons in all these for Nigerian stakeholders of multi-national corporations. Firstly, local campaigners for responsible behaviour by these corporations need to adopt new tools of engagement beyond traditional call-outs. One such tool is engagement at the level of sustainability reporting. Though voluntary, this reporting method matters to global corporations. Shell published its first Sustainability Report two years after its image took a dip following allegations of collusion in the execution of environmental activists in Nigeria. Engaging corporations at this level requires development of new competencies which may not be available locally at the moment. For example, in order to obtain assurance providers for its 2009 Report, Shell engaged professionals from as far afield as India and Brazil, markets which, from Shell’s 2009 Annual (financial) Report, do not contribute as much as Nigeria to that IOC’s operations. Besides the reporting companies themselves, GRI and other emerging providers of frameworks for sustainability reporting should also be continually engaged with a view to procuring reflection of new insights in their respective frameworks and standards.
  6. 6.   No.9 May, 2010       www.thelodt.net info@thelodt.net +2348023624647 P a g e   |   6   For example, GRI may need to establish special supplemental indicators for the Oil & Gas industry (separate from Metal & Mining). Although there are already Oil & Gas industry based standards, a special G3 supplement for the industry will be necessary in view of the increasing acceptability of G3 as a global standard. As a suggestion, the sustainability implications of the contractor-model for recruiting a workforce in the Oil & Gas industry need addressing. Human resources information of certain categories of outsource service providers should be consolidated to that of their IOC clients for the purpose of sustainability reporting. These categories should include companies whose businesses with IOCs represent an overwhelming percentage of their turnover or whose size means that they would easily escape national labour-related laws and global best practices. In essence, the IOC clients should begin to take responsibility for the labour practices of these service providers and report on them. Chevron would seem to be demonstrating some leadership in this respect, although it is contestable if treating it as a supply chain matter rather than human resources matter adequately addresses the issue. Furthermore, G3 needs to define terms like ‘workforce,’ ‘worker,’ ‘employee,’ ‘temporary’ and ‘permanent’ employee, ‘staff’ and ‘contractors’ to avoid selective application of these terms which have been known to facilitate inconsistency and lack of transparent reporting.     Corporate Governance Review is a newsletter of the Institutionalisation team at The Lodt Law Offices Email: info@thelodt.net Website: www.thelodt.net Editor: Deji Toye  

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