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Global Reporting Initiative's environmental reporting: A study of oil and gas companies
Ecological Indicators 32 (2013) 19–24
Contents lists available at SciVerse ScienceDirect
Ecological Indicators journal homepage: www.elsevier.com/locate/ecolind
Short communication
Global Reporting Initiative’s environmental reporting: A study of oil and gas companies Abdulsamad Alazzani ∗ , Wan Nordin Wan-Hussin Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Malaysia
a r t i c l e
i n f o
Article history: Received 16 October 2012 Received in revised form 17 February 2013 Accepted 19 February 2013 Keywords: Environmental reporting GRI Third-party assurance Oil and gas companies Case study
a b s t r a c t In this paper, we ask if the use of a voluntary standard assessment system for environmental reporting could help mitigate the damage caused by oil and gas companies to developing nations. What level of data reporting by these companies is needed to allow the assessment of environmental practices? To answer these questions, we evaluate the environmental practices of eight oil and gas companies against the Sustainability Reporting Guidelines issued in 2006 by the Global Reporting Initiative (GRI). Content analysis of their environmental reports 2009 indicates that they made reasonable efforts to disclose their environmental performance in accordance with the GRI Sustainability Reporting Guidelines. These guidelines appear to provide a robust and readily available tool for reporting comprehensive progress concerning all aspects of environmental activities. The voluntary adoption of the guidelines by a vast majority of the oil and gas companies increases transparency, credibility and comparability in sustainability reporting. In addition, five of the eight oil and gas companies disclosed that they had obtained third-party assurance of their sustainability reports. © 2013 Elsevier Ltd. All rights reserved.
1. Introduction Oil and gas are among the world’s most important resources. The oil and gas industry plays a critical role in driving the global economy, and the activities of oil and gas companies have many negative impacts on the environment, which are becoming increasingly significant due to the increased use and transport of oil and gas. Many environmental disasters associated with the activities of oil and gas companies also have material effects on the companies’ financial reports (The International Federation of Accountants, 2010). For example, a catastrophic oil spill in 2010, caused by an explosion at a BP drilling rig in the Gulf of Mexico, inflicted major damage to the ecosystem and had major financial implications for BP. The Exxon Valdez oil tanker that ran aground in Alaska’s Prince William Sound in 1989 caused a major environmental disaster with dire financial consequences. Due to the potential for environmental degradation, many stakeholders have started to pay close attention to the environmental implications of the activities of oil and gas companies. Many international organizations, governments, and lobby groups have cautioned companies to be more environmentally responsible, and to consider their impact on society and the environment.
∗ Corresponding author. Tel.: +60 174816299. E-mail address: abdulsamad [email protected] (A. Alazzani). 1470-160X/$ – see front matter © 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.ecolind.2013.02.019
In this paper, we ask if the use of a voluntary standard assessment system for environmental reporting could help mitigate the damage caused by oil and gas companies to developing nations. What level of data reporting by these companies is needed to allow the assessment of environmental practices? To answer these questions, we evaluate the environmental practices of several oil and gas companies against the Sustainability Reporting Guidelines issued in 2006 by the Global Reporting Initiative (GRI), also known as ‘G3’. The GRI was established as a voluntary co-operative initiative in late 1997 by the Coalition for Environmentally Responsible Economies. Its aim is to provide a standardized and generally accepted sustainability reporting framework. The first set of formal Sustainability Reporting Guidelines was published in June 2000. The GRI framework is globally recognized as the most widely used sustainability reporting tool; the performance indicators listed therein are used to measure and report an organization’s economic, environmental, and social performance, in what is also known as ‘triple bottom line’ or ‘People, Planet, Profit’ reporting (GRI, 2012). Recent research on GRI indicators is focused on non-financial corporate reporting in specific industries, such as the petrochemical industry (Samuel et al., 2013), the forest industry (Toppinen et al., 2012), mining (Kraut et al., 2012), and the five most polluting industries: pulp and paper, chemicals, oil and gas, metals and mining, and utilities (Clarkson et al., 2008). We reviewed the published literature, and then selected environmental and social reports published in 2009 by eight multinational oil and gas companies that operate in Yemen for detailed analysis. We assessed to what extent
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the companies followed the GRI Sustainability Reporting Guidelines. We chose the GRI indicators because they provide the most comprehensive reporting framework of principles, standard disclosures, indicators and reporting protocols, augmented by a series of sector-specific supplements and resource documents. The guidelines cover three dimensions: environment, economic, and social. We focused only on the environment dimension. We found that reasonable efforts were made to disclose environmental performance indicators, particularly those relating to the protection and restoration of habitats, greenhouse gas emissions, and significant spills. However, none of the companies disclosed information on the percentage of their products that are sold, or on the percentage of their packaging materials that are reclaimed by category. We conclude that the GRI Sustainability Reporting Guidelines provide a robust tool for reporting comprehensive progress concerning issues relating to environmental concerns raised by a multitude of stakeholders. The remainder of the paper is organized as follows: in Section 2, we review the relevant literature; in Section 3, we describe the companies selected for study; in Sections 4 and 5, we describe the method of analysis and discuss the results; and our conclusion is presented in Section 6.
2. Literature review Concern about environmental protection is growing all over the world, as a direct result of environmental disasters that have had negative impacts on ecosystems and health (Madsen, 2009). Environmental disasters affect the cash flow of companies responsible for them (Klassen and McLaughlin, 1996; Porter and van der Linde, 1995; Blanco et al., 2009), and have serious impacts on companies’ reputations (Karpoff et al., 2005). The stock market also reacts adversely to environmental disasters. For example, CapelleBlancard and Laguna (2010) documented declines in the market value of petrochemical companies around the world soon after chemical disasters. In Korea, companies that do not comply with national environmental laws and regulations have experienced a big decline in their market valuation (Dasgupta et al., 2006). Following the BP oil spill disaster in 2010, shares in the company dropped in value by more than 50%, and the share price became highly volatile (Fodor and Stowe, 2012). Under such circumstances, many companies have started to disclose their environmental and social risks, especially if they consider them to be ‘material’. In addition, accounting for and reporting environmental activities has become increasingly significant to the multiple stakeholders involved in a company, because how a company’s environmental performance affects its financial health is of increasing concern to investors, creditors, governments and the public (UNCTAD, 2000). The demand from environmentally aware consumers, environmental groups, employees and socially responsible investors for environmental sustainability has prompted accounting and auditing professionals to play a vital role by conducting environmental auditing (Dixon et al., 2004). According to the 2008 KPMG Survey of Corporate Responsibility Reporting, 40% of Fortune Global 250 companies have sought assurance of their sustainability reports (KPMG, 2008). This voluntary demand for independent verification of sustainability reports helps to enhance the credibility of reports for stakeholders (Simnett et al., 2009; Perego and Kolk, 2012). The AA1000 Assurance Standard, which was developed by AccountAbility, provides important guidelines for assurors of corporate sustainability reports and forms a key element of the assurance process. Companies also benefit from the assurance exercise when they use it to help them implement improvements in internal information and reporting systems, resulting in better management of social and environmental performance (Viehöver et al., 2010).
Samuel et al. (2013) provided insight into sustainable production indicators used by petrochemical companies in Malaysia to quantify the sustainability of the industry’s operations. Utilizing the five-tier framework developed by the Lowell Centre for Sustainable Production, and indicators identified in version G3.1 of the GRI guidelines, an analysis of indicators used by the petrochemical sector was carried out. The G3.1, issued in 2011, includes expanded guidance for reporting on human rights, local community impacts, and gender. The findings indicate that, for the petrochemical sector in Malaysia, most of the indicators monitored and measured fall within Levels 1, 2 and 3, which are related to compliance, performance and environmental impacts, respectively. Interviews suggested that there is a shift towards also including indicators that fall within Level 4 and relate to supply chain and life-cycle issues. Toppinen et al. (2012) used GRI indicators of corporate responsibility (CR) practices and reporting to categorize 66 forest industry companies into three strategic groups: (1) proactive companies that recognize the importance of CR-related issues in their overall business operations; (2) defensive companies that are characterized by the perception that CR-related practices (including reporting) are not worthy of investment; and (3) ‘stuck in the middle’ companies that are intermediate in their perception of the importance of CR practices. The results from hierarchical cluster analysis show that 18% of the major companies in forest industry are proactive, 58% are defensive, and 24% are ‘stuck in the middle’. CR practices were associated with business diversity, number of employees, sales, and production volume. However, Toppinen et al. (2012) found no strategic group-level differences in terms of the location of headquarters or financial performance. Kraut et al. (2012) focused on the mining industry to examine sustainability disclosure within an industry that utilizes and impacts water resources substantially. A content analysis of disclosures relating to water was conducted on a sample of 22 company sustainability reports for 2010, to determine how the companies used version G3 of the GRI reporting guidelines. The results indicate that disclosures are often incomplete, and lack differentiation across application levels. Clarkson et al. (2008), using the GRI guidelines published in 2002, documented that half the companies they sampled in the five most polluting industries disclosed environmental performance indicators relating to waste generation and/or management (recycling, re-use, reducing, treatment and disposal). However, only 4% disclosed the environmental impacts of their products and services. 3. Companies selected We selected companies for this study based on the following criteria: (1) they are within the oil and gas industry; (2) they have operations in many countries, including developing countries, and in particular in Yemen; and (3) they have made a formal commitment to consider the environment. The selected companies were: CHEVRON, NEXEN, OMV, OSL, OXY, PETRONAS, SK ENERGY and TOTAL, as briefly profiled below. 3.1. CHEVRON CHEVRON is an American multinational energy corporation with headquarters in San Ramon, California, United States. It is active in more than 180 countries, and is engaged in every aspect of the oil, gas, and geothermal energy industry, including exploration and production; refining, marketing and transport; manufacturing and sales of chemicals; and power generation. CHEVRON is one of the world’s six ‘super major’ oil companies. CHEVRON has been ranked as one of America’s five largest corporations by Fortune 500.
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Table 1 Disclosures of the Global Reporting Initiative (GRI) G3 environmental performance indicators. GRI indicators EN1 Materials used by weight or volume EN2 Percentage of materials used that are recycled input materials EN3 Direct energy consumption by primary energy source EN4 Indirect energy consumption by primary source EN5 Energy saved due to conservation and efficiency improvements EN6 Initiatives to provide energy-efficient or renewable energy-based products and services, and reductions in energy requirements as a result of these initiatives EN7 Initiatives to reduce indirect energy consumption and reductions achieved EN8 Total water withdrawal by source EN9 Water sources significantly affected by withdrawal of water EN10 Percentage and total volume of water recycled and reused EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas EN12 Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas EN13 Habitats protected or restored EN14 Strategies, current actions, and future plans for managing impacts on biodiversity EN15 Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk EN16 Total direct and indirect greenhouse gas emissions by weight EN17 Other relevant indirect greenhouse gas emissions by weight EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved EN19 Emissions of ozone-depleting substances by weight EN20 NOx, SOx, and other significant air emissions by type and weight EN21 Total water discharge by quality and destination EN22 Total weight of waste by type and disposal method EN23 Total number and volume of significant spills EN24 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally EN25 Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation EN27 Percentage of products sold and their packaging materials that are reclaimed by category EN28 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations EN29 Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce EN30 Total environmental protection expenditures and investments by type Total environment items disclosed
CHEVRON
NEXEN
OMV
OSL
OXY
PETRONAS
SK
TOTAL
0 0
0 0
0 1
0 0
0 0
0 0
1 0
0 0
1
0
1
0
1
1
1
1
1
0
0
0
1
1
1
1
1
0
1
0
1
1
1
1
1
0
1
0
1
1
1
1
1
0
0
0
0
1
1
1
1 1
1 0
1 0
0 0
0 0
1 0
1 1
1 1
1
0
0
0
0
0
0
1
1
0
1
1
1
1
1
0
1
0
1
0
1
0
1
1
1 1
1 1
0 0
1 0
1 1
1 1
1 1
1 1
1
0
0
0
0
0
1
0
1
1
1
0
1
1
0
1
1
0
0
0
0
1
0
0
1
1
1
0
1
1
1
1
1
0
0
0
0
0
1
1
1
0
1
0
1
1
1
1
1
0
1
0
0
0
1
1
1
0
1
0
1
1
1
0
1 1
1 0
1 1
0 0
1 0
1 0
1 1
1 0
1
0
0
0
0
0
1
0
1
0
1
0
0
1
1
1
1
0
0
0
0
0
0
0
1
1
1
0
1
0
1
0
1
0
1
0
1
0
0
0
1
0
1
0
0
0
1
0
28
7
18
2
14
16
24
18
22
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Table 2 Independent assurance on the sustainability report. Company name
CHEVRON
NEXEN
OMV
OSL
OXY
PETRONAS
SK
TOTAL
Does the company engage external assurance? (yes/no)
Yes
Yes
Yes
No
No
No
Yes
Yes
3.2. NEXEN
4. Method of analysis
NEXEN is a global energy company based in Calgary, Canada. It focuses on growth strategies in three areas: oil sands, conventional exploration and development, and unconventional gas.
Published environmental information was collected from the companies’ 2009 sustainability reports (SR) or corporate social responsibility (CSR) reports. The main tool used for analyzing the published data was content analysis, which is a “technique for making inferences by objectively and systematically identifying specified characteristics of messages” (Holsti, 1969). We considered environmental practice and reporting as a single construct, in which companies perform environmental activities and disclose such activities in their SR/CSR reports. We detected the presence (1) or absence (0) of certain words and concepts in texts covering environmental practices and activities in corporate disclosures within SR/CSR. The disclosure of related information was thus assumed to reflect the environmental activities adopted by the company. Our evaluation of the eight chosen companies’ environmental reports against the GRI guidelines is summarized in Table 1. The GRI guidelines provide clear definitions for each indicator, which make it easy and accurate to assess the companies’ environmental performance. Thus, our research can be replicated by other researchers. Furthermore, coding was simplified because some companies provided an index that was cross-referenced with the GRI indicators (see Appendix A). Some companies clearly stated that they followed the GRI guidelines, or that they used other guidelines, such as the International Petroleum Industry Environmental Conservation Association/American Petroleum Institute Oil and Gas Industry Guidance on Voluntary Sustainability Reporting (2005). For example, NEXEN’s sustainability report states on page 48 “This report has been prepared using the Global Reporting Initiative’s (GRI) G3 Sustainability Reporting Guidelines”. TOTAL’s sustainability report states: “In preparing our Environment and Society Report, we refer primarily to the International Petroleum Industry Environmental Conservation Association (IPIECA)/American Petroleum Institute (API) guidance, which is specific to the oil industry. To see a comparison with the Global Reporting Initiative (GRI), go to www.TOTAL.com.” In addition, we conducted further content analysis to explore variation in CSR practices in countries with varying levels of stakeholder engagement, and we identified companies that voluntarily purchased assurance services for their SR/CSR reports from independent third-party service providers. The approach used to evaluate reports and the results of analysis are discussed in more detail in Section 5.
3.3. OMV OMV is Austria’s largest oil-producing, refining and gas station operating company. It has important activities in other Central European countries. It is Austria’s largest listed industrial company (in terms of turnover), and one of the largest integrated oil and gas groups in Central Europe. 3.4. OSL Oil Search Limited (OSL) is an Australian oil and gas exploration and development company that has been operating since 1929. It operates in diverse environments, ranging from the tropical rainforests of Papua New Guinea to the dry deserts of the Middle East, as well as offshore in several countries. 3.5. OXY Occidental Petroleum Corporation (OXY) is an international oil and gas exploration and production company, and its OXYChem subsidiary is a major North American chemical manufacturer. It is a California-based oil and gas exploration and production company with operations in the United States, the Middle East, North Africa, and South America. 3.6. PETRONAS PETRONAS is the national oil and gas company of Malaysia and is wholly owned by the Government of Malaysia. Together with its subsidiaries and associated companies, PETRONAS, a Fortune Global 500 company, has fully integrated oil and gas operations in a broad spectrum of the oil and gas value-chain. Its business activities include the exploration, development and production of crude oil and natural gas, the liquefaction, sale and transportation of LNG, the processing and transmission of natural gas and the sale of natural gas products, the refining and marketing of petroleum products, the manufacture and sale of petrochemical products, the trading of crude oil, petroleum products and petrochemical products, and shipping and logistics relating to LNG, crude oil and petroleum products. 3.7. SK ENERGY SK ENERGY is the third largest conglomerate (Chaebol) in South Korea. The SK Group is composed of 92 subsidiary and affiliate companies that share the SK brand and culture. Its business is mainly in the chemical, petroleum and energy industries. 3.8. TOTAL TOTAL is one of the world’s major oil and gas groups, based in France. Its activities include exploration and production of oil and natural gas, refining and marketing, and power generation.
5. Results and discussion In our assessment of the eight oil and gas companies’ environmental reports against the GRI indicators, their reported environmental performance was scored between 2 and 28 (out of a maximum score of 30). The highest level of environmental performance was reported by CHEVRON; the lowest by OSL. One possible reason for OSL getting a low score is because the firm published social and economic report in 2009, sidelining environmental disclosure. However in 2010, OSL has included environmental information in its sustainability report. The remaining companies scored between 7 and 24. To gain a better understanding, we looked at the environmental activities that were most and least commonly practiced by the companies. We found that the following three environmentally responsible practices were
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implemented by all but one of the sampled companies: EN13, Habitats protected or restored; EN18, Initiatives to reduce greenhouse gas emissions and reductions achieved; and EN23, Total number and volume of significant spills. By contrast, we found that no companies disclosed information about: EN27, Percentage of products sold and their packaging materials that are reclaimed by category, possibly because this requirement is not applicable to them. We explored variation in the CSR practices of the sampled companies in relation to countries with varying levels of stakeholder engagement, and found that companies showed more commitment to environmental issues, through policy and practice, in the countries where stakeholder engagement and involvement are more pronounced. We provided some examples from the companies’ CSR reports below. NEXEN reports that “NEXEN operates in some jurisdictions, such as Alberta, BC, Norway and the UK, where greenhouse gases are regulated and compliance requirements are clear through at least 2012”, and “We continue to build our understanding of biodiversity impacts by contributing to industry and multi-stakeholder initiatives. These include the Canadian Boreal Initiative, the Oil Sands Leadership Initiative and IPIECA’s biodiversity working group. NEXEN provides funding for the Alberta Biodiversity Monitoring Institute, which collects valuable monitoring data on more than 2000 species and habitats in the province. In the UK, we continue to support the SERPENT research partnership in the North Sea, which uses remote operated vehicles to assess the impact of oil-producing platforms on marine life”. TOTAL reports: “We are exploring all options to help spur the commercial deployment of the most efficient and sustainable options. We are already considering using carbon capture and storage in our oil sands projects in Canada, at LNG plants and in sour gas developments such as Bangkok in Thailand and Ichthys in Australia”. In a section on helping local contractors develop their capabilities, TOTAL mentions that it embarked on programs to bring more local contractors up to international standards in terms of quality, safety and working conditions in Nigeria, Angola, and Indonesia. However, although the TOTAL LNG project in Yemen is the biggest industrial project the country has ever seen, representing an investment of $4.5 billion, CSR activities carried out in Yemen are limited to hiring and training Yemenis to run the LNG project. OXY’s CSR report gives more attention to CSR programs in the US than to those in other countries where it operates such as Yemen. Similarly, SK ENERGY’s CSR report does not indicate any CSR programs in Yemen. The report does indicate that SK ENERGY was involved in stakeholder communication through “meeting with civic groups, participation in local community activities, social contribution activities, participation in public policy via business groups (Korea Petroleum Association, Korea Petrochemical Industry Association, Korea Fair Competition Federation)”. Five of the eight oil and gas companies disclosed that they had obtained third-party assurance of their CSR report, thus providing added value (Table 2). The remaining companies, OSL, OXY and PETRONAS may not have used third-party assurors.
6. Conclusion Content analysis of the environmental reports of the eight oil and gas companies we selected indicates that they made reasonable efforts to disclose their environmental performance in accordance with the GRI Sustainability Reporting Guidelines. These guidelines appear to provide a robust and readily available tool
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for reporting comprehensive progress concerning all aspects of environmental activities. The voluntary adoption of the guidelines by a vast majority of the oil and gas companies increases transparency, credibility and comparability in sustainability reporting. Governments and professional bodies should support the adoption of these international reporting standards, and third-party assurance adds value or credibility to the reports of those companies that have adopted it. Our research is limited in that we adopted a case study approach, examining the reports of only a few companies; therefore, our conclusions may not be representative of the general group or population. In addition, during scoring, environment indicators can be fallible and may be some errors can occur by scoring activity that should not be scored, or omitting activity that should be scored. Future researchers could expand this study by evaluating more companies to make the results more generally applicable. Acknowledgments We thank the Al-Saeed Foundation for Science and Culture, Yemen Republic, for financial support, and the anonymous reviewers for providing valuable comments and suggestions that improved the quality of the paper. Appendix A. An example of how NEXEN cross-referenced the Sustainability Report (SR) with the Global Reporting Initiative Sustainability Reporting Guidelines. NEXEN
GRI indicator
Document/location
Page #
Environmental disclosure
EN8 Total water withdrawal by source EN13 Habitats protected or restored EN16 Total direct and indirect greenhouse gas emissions
SR
16
SR
34
SR
19–21
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Samuel, V.B., Agamuthu, P., Hashim, M., 2013. Indicators for assessment of sustainable production: a case study of the petrochemical industry in Malaysia. Ecol. Indic. 24, 392–402. Simnett, R., Nugent, M., Huggins, A.L., 2009. Developing an international assurance standard on greenhouse gas statements. Acc. Horiz. 23 (4), 347–363. The International Federation of Accountants, 2010. The consideration of environmental matters in the audit of financial statements. Retrieved www.ifac.org/download/b007-2010-iaasb-handbook-iaps-1010.pdf (electronic version). Toppinen, A., Li, N., Tuppura, A., Xiong, Y., 2012. Corporate responsibility and strategic groups in the forest-based industry: exploratory analysis based on the Global Reporting Initiative (GRI) Framework. Corporate Social Responsibility and Environmental Management. UNCTAD, United Nations Conference on Trade and Development, 2000. World investment directory, foreign direct investment, and corporate debt. Volume VII. In: Asia and the Pacific. United Nations, New York. Viehöver, M.G., Türk, V., Vaseghi, S., 2010. CSR assurance in practice: measuring and auditing sustainability. In: Pohl, M., Tolhurst, N. (Eds.), Responsible Business. How to Manage A CSR Strategy Successfully. Wiley, Chichester.
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Contents lists available at SciVerse ScienceDirect
Ecological Indicators journal homepage: www.elsevier.com/locate/ecolind
Short communication
Global Reporting Initiative’s environmental reporting: A study of oil and gas companies Abdulsamad Alazzani ∗ , Wan Nordin Wan-Hussin Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Malaysia
a r t i c l e
i n f o
Article history: Received 16 October 2012 Received in revised form 17 February 2013 Accepted 19 February 2013 Keywords: Environmental reporting GRI Third-party assurance Oil and gas companies Case study
a b s t r a c t In this paper, we ask if the use of a voluntary standard assessment system for environmental reporting could help mitigate the damage caused by oil and gas companies to developing nations. What level of data reporting by these companies is needed to allow the assessment of environmental practices? To answer these questions, we evaluate the environmental practices of eight oil and gas companies against the Sustainability Reporting Guidelines issued in 2006 by the Global Reporting Initiative (GRI). Content analysis of their environmental reports 2009 indicates that they made reasonable efforts to disclose their environmental performance in accordance with the GRI Sustainability Reporting Guidelines. These guidelines appear to provide a robust and readily available tool for reporting comprehensive progress concerning all aspects of environmental activities. The voluntary adoption of the guidelines by a vast majority of the oil and gas companies increases transparency, credibility and comparability in sustainability reporting. In addition, five of the eight oil and gas companies disclosed that they had obtained third-party assurance of their sustainability reports. © 2013 Elsevier Ltd. All rights reserved.
1. Introduction Oil and gas are among the world’s most important resources. The oil and gas industry plays a critical role in driving the global economy, and the activities of oil and gas companies have many negative impacts on the environment, which are becoming increasingly significant due to the increased use and transport of oil and gas. Many environmental disasters associated with the activities of oil and gas companies also have material effects on the companies’ financial reports (The International Federation of Accountants, 2010). For example, a catastrophic oil spill in 2010, caused by an explosion at a BP drilling rig in the Gulf of Mexico, inflicted major damage to the ecosystem and had major financial implications for BP. The Exxon Valdez oil tanker that ran aground in Alaska’s Prince William Sound in 1989 caused a major environmental disaster with dire financial consequences. Due to the potential for environmental degradation, many stakeholders have started to pay close attention to the environmental implications of the activities of oil and gas companies. Many international organizations, governments, and lobby groups have cautioned companies to be more environmentally responsible, and to consider their impact on society and the environment.
∗ Corresponding author. Tel.: +60 174816299. E-mail address: abdulsamad [email protected] (A. Alazzani). 1470-160X/$ – see front matter © 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.ecolind.2013.02.019
In this paper, we ask if the use of a voluntary standard assessment system for environmental reporting could help mitigate the damage caused by oil and gas companies to developing nations. What level of data reporting by these companies is needed to allow the assessment of environmental practices? To answer these questions, we evaluate the environmental practices of several oil and gas companies against the Sustainability Reporting Guidelines issued in 2006 by the Global Reporting Initiative (GRI), also known as ‘G3’. The GRI was established as a voluntary co-operative initiative in late 1997 by the Coalition for Environmentally Responsible Economies. Its aim is to provide a standardized and generally accepted sustainability reporting framework. The first set of formal Sustainability Reporting Guidelines was published in June 2000. The GRI framework is globally recognized as the most widely used sustainability reporting tool; the performance indicators listed therein are used to measure and report an organization’s economic, environmental, and social performance, in what is also known as ‘triple bottom line’ or ‘People, Planet, Profit’ reporting (GRI, 2012). Recent research on GRI indicators is focused on non-financial corporate reporting in specific industries, such as the petrochemical industry (Samuel et al., 2013), the forest industry (Toppinen et al., 2012), mining (Kraut et al., 2012), and the five most polluting industries: pulp and paper, chemicals, oil and gas, metals and mining, and utilities (Clarkson et al., 2008). We reviewed the published literature, and then selected environmental and social reports published in 2009 by eight multinational oil and gas companies that operate in Yemen for detailed analysis. We assessed to what extent
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the companies followed the GRI Sustainability Reporting Guidelines. We chose the GRI indicators because they provide the most comprehensive reporting framework of principles, standard disclosures, indicators and reporting protocols, augmented by a series of sector-specific supplements and resource documents. The guidelines cover three dimensions: environment, economic, and social. We focused only on the environment dimension. We found that reasonable efforts were made to disclose environmental performance indicators, particularly those relating to the protection and restoration of habitats, greenhouse gas emissions, and significant spills. However, none of the companies disclosed information on the percentage of their products that are sold, or on the percentage of their packaging materials that are reclaimed by category. We conclude that the GRI Sustainability Reporting Guidelines provide a robust tool for reporting comprehensive progress concerning issues relating to environmental concerns raised by a multitude of stakeholders. The remainder of the paper is organized as follows: in Section 2, we review the relevant literature; in Section 3, we describe the companies selected for study; in Sections 4 and 5, we describe the method of analysis and discuss the results; and our conclusion is presented in Section 6.
2. Literature review Concern about environmental protection is growing all over the world, as a direct result of environmental disasters that have had negative impacts on ecosystems and health (Madsen, 2009). Environmental disasters affect the cash flow of companies responsible for them (Klassen and McLaughlin, 1996; Porter and van der Linde, 1995; Blanco et al., 2009), and have serious impacts on companies’ reputations (Karpoff et al., 2005). The stock market also reacts adversely to environmental disasters. For example, CapelleBlancard and Laguna (2010) documented declines in the market value of petrochemical companies around the world soon after chemical disasters. In Korea, companies that do not comply with national environmental laws and regulations have experienced a big decline in their market valuation (Dasgupta et al., 2006). Following the BP oil spill disaster in 2010, shares in the company dropped in value by more than 50%, and the share price became highly volatile (Fodor and Stowe, 2012). Under such circumstances, many companies have started to disclose their environmental and social risks, especially if they consider them to be ‘material’. In addition, accounting for and reporting environmental activities has become increasingly significant to the multiple stakeholders involved in a company, because how a company’s environmental performance affects its financial health is of increasing concern to investors, creditors, governments and the public (UNCTAD, 2000). The demand from environmentally aware consumers, environmental groups, employees and socially responsible investors for environmental sustainability has prompted accounting and auditing professionals to play a vital role by conducting environmental auditing (Dixon et al., 2004). According to the 2008 KPMG Survey of Corporate Responsibility Reporting, 40% of Fortune Global 250 companies have sought assurance of their sustainability reports (KPMG, 2008). This voluntary demand for independent verification of sustainability reports helps to enhance the credibility of reports for stakeholders (Simnett et al., 2009; Perego and Kolk, 2012). The AA1000 Assurance Standard, which was developed by AccountAbility, provides important guidelines for assurors of corporate sustainability reports and forms a key element of the assurance process. Companies also benefit from the assurance exercise when they use it to help them implement improvements in internal information and reporting systems, resulting in better management of social and environmental performance (Viehöver et al., 2010).
Samuel et al. (2013) provided insight into sustainable production indicators used by petrochemical companies in Malaysia to quantify the sustainability of the industry’s operations. Utilizing the five-tier framework developed by the Lowell Centre for Sustainable Production, and indicators identified in version G3.1 of the GRI guidelines, an analysis of indicators used by the petrochemical sector was carried out. The G3.1, issued in 2011, includes expanded guidance for reporting on human rights, local community impacts, and gender. The findings indicate that, for the petrochemical sector in Malaysia, most of the indicators monitored and measured fall within Levels 1, 2 and 3, which are related to compliance, performance and environmental impacts, respectively. Interviews suggested that there is a shift towards also including indicators that fall within Level 4 and relate to supply chain and life-cycle issues. Toppinen et al. (2012) used GRI indicators of corporate responsibility (CR) practices and reporting to categorize 66 forest industry companies into three strategic groups: (1) proactive companies that recognize the importance of CR-related issues in their overall business operations; (2) defensive companies that are characterized by the perception that CR-related practices (including reporting) are not worthy of investment; and (3) ‘stuck in the middle’ companies that are intermediate in their perception of the importance of CR practices. The results from hierarchical cluster analysis show that 18% of the major companies in forest industry are proactive, 58% are defensive, and 24% are ‘stuck in the middle’. CR practices were associated with business diversity, number of employees, sales, and production volume. However, Toppinen et al. (2012) found no strategic group-level differences in terms of the location of headquarters or financial performance. Kraut et al. (2012) focused on the mining industry to examine sustainability disclosure within an industry that utilizes and impacts water resources substantially. A content analysis of disclosures relating to water was conducted on a sample of 22 company sustainability reports for 2010, to determine how the companies used version G3 of the GRI reporting guidelines. The results indicate that disclosures are often incomplete, and lack differentiation across application levels. Clarkson et al. (2008), using the GRI guidelines published in 2002, documented that half the companies they sampled in the five most polluting industries disclosed environmental performance indicators relating to waste generation and/or management (recycling, re-use, reducing, treatment and disposal). However, only 4% disclosed the environmental impacts of their products and services. 3. Companies selected We selected companies for this study based on the following criteria: (1) they are within the oil and gas industry; (2) they have operations in many countries, including developing countries, and in particular in Yemen; and (3) they have made a formal commitment to consider the environment. The selected companies were: CHEVRON, NEXEN, OMV, OSL, OXY, PETRONAS, SK ENERGY and TOTAL, as briefly profiled below. 3.1. CHEVRON CHEVRON is an American multinational energy corporation with headquarters in San Ramon, California, United States. It is active in more than 180 countries, and is engaged in every aspect of the oil, gas, and geothermal energy industry, including exploration and production; refining, marketing and transport; manufacturing and sales of chemicals; and power generation. CHEVRON is one of the world’s six ‘super major’ oil companies. CHEVRON has been ranked as one of America’s five largest corporations by Fortune 500.
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Table 1 Disclosures of the Global Reporting Initiative (GRI) G3 environmental performance indicators. GRI indicators EN1 Materials used by weight or volume EN2 Percentage of materials used that are recycled input materials EN3 Direct energy consumption by primary energy source EN4 Indirect energy consumption by primary source EN5 Energy saved due to conservation and efficiency improvements EN6 Initiatives to provide energy-efficient or renewable energy-based products and services, and reductions in energy requirements as a result of these initiatives EN7 Initiatives to reduce indirect energy consumption and reductions achieved EN8 Total water withdrawal by source EN9 Water sources significantly affected by withdrawal of water EN10 Percentage and total volume of water recycled and reused EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas EN12 Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas EN13 Habitats protected or restored EN14 Strategies, current actions, and future plans for managing impacts on biodiversity EN15 Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk EN16 Total direct and indirect greenhouse gas emissions by weight EN17 Other relevant indirect greenhouse gas emissions by weight EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved EN19 Emissions of ozone-depleting substances by weight EN20 NOx, SOx, and other significant air emissions by type and weight EN21 Total water discharge by quality and destination EN22 Total weight of waste by type and disposal method EN23 Total number and volume of significant spills EN24 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally EN25 Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation EN27 Percentage of products sold and their packaging materials that are reclaimed by category EN28 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations EN29 Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce EN30 Total environmental protection expenditures and investments by type Total environment items disclosed
CHEVRON
NEXEN
OMV
OSL
OXY
PETRONAS
SK
TOTAL
0 0
0 0
0 1
0 0
0 0
0 0
1 0
0 0
1
0
1
0
1
1
1
1
1
0
0
0
1
1
1
1
1
0
1
0
1
1
1
1
1
0
1
0
1
1
1
1
1
0
0
0
0
1
1
1
1 1
1 0
1 0
0 0
0 0
1 0
1 1
1 1
1
0
0
0
0
0
0
1
1
0
1
1
1
1
1
0
1
0
1
0
1
0
1
1
1 1
1 1
0 0
1 0
1 1
1 1
1 1
1 1
1
0
0
0
0
0
1
0
1
1
1
0
1
1
0
1
1
0
0
0
0
1
0
0
1
1
1
0
1
1
1
1
1
0
0
0
0
0
1
1
1
0
1
0
1
1
1
1
1
0
1
0
0
0
1
1
1
0
1
0
1
1
1
0
1 1
1 0
1 1
0 0
1 0
1 0
1 1
1 0
1
0
0
0
0
0
1
0
1
0
1
0
0
1
1
1
1
0
0
0
0
0
0
0
1
1
1
0
1
0
1
0
1
0
1
0
1
0
0
0
1
0
1
0
0
0
1
0
28
7
18
2
14
16
24
18
22
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Table 2 Independent assurance on the sustainability report. Company name
CHEVRON
NEXEN
OMV
OSL
OXY
PETRONAS
SK
TOTAL
Does the company engage external assurance? (yes/no)
Yes
Yes
Yes
No
No
No
Yes
Yes
3.2. NEXEN
4. Method of analysis
NEXEN is a global energy company based in Calgary, Canada. It focuses on growth strategies in three areas: oil sands, conventional exploration and development, and unconventional gas.
Published environmental information was collected from the companies’ 2009 sustainability reports (SR) or corporate social responsibility (CSR) reports. The main tool used for analyzing the published data was content analysis, which is a “technique for making inferences by objectively and systematically identifying specified characteristics of messages” (Holsti, 1969). We considered environmental practice and reporting as a single construct, in which companies perform environmental activities and disclose such activities in their SR/CSR reports. We detected the presence (1) or absence (0) of certain words and concepts in texts covering environmental practices and activities in corporate disclosures within SR/CSR. The disclosure of related information was thus assumed to reflect the environmental activities adopted by the company. Our evaluation of the eight chosen companies’ environmental reports against the GRI guidelines is summarized in Table 1. The GRI guidelines provide clear definitions for each indicator, which make it easy and accurate to assess the companies’ environmental performance. Thus, our research can be replicated by other researchers. Furthermore, coding was simplified because some companies provided an index that was cross-referenced with the GRI indicators (see Appendix A). Some companies clearly stated that they followed the GRI guidelines, or that they used other guidelines, such as the International Petroleum Industry Environmental Conservation Association/American Petroleum Institute Oil and Gas Industry Guidance on Voluntary Sustainability Reporting (2005). For example, NEXEN’s sustainability report states on page 48 “This report has been prepared using the Global Reporting Initiative’s (GRI) G3 Sustainability Reporting Guidelines”. TOTAL’s sustainability report states: “In preparing our Environment and Society Report, we refer primarily to the International Petroleum Industry Environmental Conservation Association (IPIECA)/American Petroleum Institute (API) guidance, which is specific to the oil industry. To see a comparison with the Global Reporting Initiative (GRI), go to www.TOTAL.com.” In addition, we conducted further content analysis to explore variation in CSR practices in countries with varying levels of stakeholder engagement, and we identified companies that voluntarily purchased assurance services for their SR/CSR reports from independent third-party service providers. The approach used to evaluate reports and the results of analysis are discussed in more detail in Section 5.
3.3. OMV OMV is Austria’s largest oil-producing, refining and gas station operating company. It has important activities in other Central European countries. It is Austria’s largest listed industrial company (in terms of turnover), and one of the largest integrated oil and gas groups in Central Europe. 3.4. OSL Oil Search Limited (OSL) is an Australian oil and gas exploration and development company that has been operating since 1929. It operates in diverse environments, ranging from the tropical rainforests of Papua New Guinea to the dry deserts of the Middle East, as well as offshore in several countries. 3.5. OXY Occidental Petroleum Corporation (OXY) is an international oil and gas exploration and production company, and its OXYChem subsidiary is a major North American chemical manufacturer. It is a California-based oil and gas exploration and production company with operations in the United States, the Middle East, North Africa, and South America. 3.6. PETRONAS PETRONAS is the national oil and gas company of Malaysia and is wholly owned by the Government of Malaysia. Together with its subsidiaries and associated companies, PETRONAS, a Fortune Global 500 company, has fully integrated oil and gas operations in a broad spectrum of the oil and gas value-chain. Its business activities include the exploration, development and production of crude oil and natural gas, the liquefaction, sale and transportation of LNG, the processing and transmission of natural gas and the sale of natural gas products, the refining and marketing of petroleum products, the manufacture and sale of petrochemical products, the trading of crude oil, petroleum products and petrochemical products, and shipping and logistics relating to LNG, crude oil and petroleum products. 3.7. SK ENERGY SK ENERGY is the third largest conglomerate (Chaebol) in South Korea. The SK Group is composed of 92 subsidiary and affiliate companies that share the SK brand and culture. Its business is mainly in the chemical, petroleum and energy industries. 3.8. TOTAL TOTAL is one of the world’s major oil and gas groups, based in France. Its activities include exploration and production of oil and natural gas, refining and marketing, and power generation.
5. Results and discussion In our assessment of the eight oil and gas companies’ environmental reports against the GRI indicators, their reported environmental performance was scored between 2 and 28 (out of a maximum score of 30). The highest level of environmental performance was reported by CHEVRON; the lowest by OSL. One possible reason for OSL getting a low score is because the firm published social and economic report in 2009, sidelining environmental disclosure. However in 2010, OSL has included environmental information in its sustainability report. The remaining companies scored between 7 and 24. To gain a better understanding, we looked at the environmental activities that were most and least commonly practiced by the companies. We found that the following three environmentally responsible practices were
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implemented by all but one of the sampled companies: EN13, Habitats protected or restored; EN18, Initiatives to reduce greenhouse gas emissions and reductions achieved; and EN23, Total number and volume of significant spills. By contrast, we found that no companies disclosed information about: EN27, Percentage of products sold and their packaging materials that are reclaimed by category, possibly because this requirement is not applicable to them. We explored variation in the CSR practices of the sampled companies in relation to countries with varying levels of stakeholder engagement, and found that companies showed more commitment to environmental issues, through policy and practice, in the countries where stakeholder engagement and involvement are more pronounced. We provided some examples from the companies’ CSR reports below. NEXEN reports that “NEXEN operates in some jurisdictions, such as Alberta, BC, Norway and the UK, where greenhouse gases are regulated and compliance requirements are clear through at least 2012”, and “We continue to build our understanding of biodiversity impacts by contributing to industry and multi-stakeholder initiatives. These include the Canadian Boreal Initiative, the Oil Sands Leadership Initiative and IPIECA’s biodiversity working group. NEXEN provides funding for the Alberta Biodiversity Monitoring Institute, which collects valuable monitoring data on more than 2000 species and habitats in the province. In the UK, we continue to support the SERPENT research partnership in the North Sea, which uses remote operated vehicles to assess the impact of oil-producing platforms on marine life”. TOTAL reports: “We are exploring all options to help spur the commercial deployment of the most efficient and sustainable options. We are already considering using carbon capture and storage in our oil sands projects in Canada, at LNG plants and in sour gas developments such as Bangkok in Thailand and Ichthys in Australia”. In a section on helping local contractors develop their capabilities, TOTAL mentions that it embarked on programs to bring more local contractors up to international standards in terms of quality, safety and working conditions in Nigeria, Angola, and Indonesia. However, although the TOTAL LNG project in Yemen is the biggest industrial project the country has ever seen, representing an investment of $4.5 billion, CSR activities carried out in Yemen are limited to hiring and training Yemenis to run the LNG project. OXY’s CSR report gives more attention to CSR programs in the US than to those in other countries where it operates such as Yemen. Similarly, SK ENERGY’s CSR report does not indicate any CSR programs in Yemen. The report does indicate that SK ENERGY was involved in stakeholder communication through “meeting with civic groups, participation in local community activities, social contribution activities, participation in public policy via business groups (Korea Petroleum Association, Korea Petrochemical Industry Association, Korea Fair Competition Federation)”. Five of the eight oil and gas companies disclosed that they had obtained third-party assurance of their CSR report, thus providing added value (Table 2). The remaining companies, OSL, OXY and PETRONAS may not have used third-party assurors.
6. Conclusion Content analysis of the environmental reports of the eight oil and gas companies we selected indicates that they made reasonable efforts to disclose their environmental performance in accordance with the GRI Sustainability Reporting Guidelines. These guidelines appear to provide a robust and readily available tool
23
for reporting comprehensive progress concerning all aspects of environmental activities. The voluntary adoption of the guidelines by a vast majority of the oil and gas companies increases transparency, credibility and comparability in sustainability reporting. Governments and professional bodies should support the adoption of these international reporting standards, and third-party assurance adds value or credibility to the reports of those companies that have adopted it. Our research is limited in that we adopted a case study approach, examining the reports of only a few companies; therefore, our conclusions may not be representative of the general group or population. In addition, during scoring, environment indicators can be fallible and may be some errors can occur by scoring activity that should not be scored, or omitting activity that should be scored. Future researchers could expand this study by evaluating more companies to make the results more generally applicable. Acknowledgments We thank the Al-Saeed Foundation for Science and Culture, Yemen Republic, for financial support, and the anonymous reviewers for providing valuable comments and suggestions that improved the quality of the paper. Appendix A. An example of how NEXEN cross-referenced the Sustainability Report (SR) with the Global Reporting Initiative Sustainability Reporting Guidelines. NEXEN
GRI indicator
Document/location
Page #
Environmental disclosure
EN8 Total water withdrawal by source EN13 Habitats protected or restored EN16 Total direct and indirect greenhouse gas emissions
SR
16
SR
34
SR
19–21
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