Why don't the oil companies clean up their act?—the realities of environmental planning

Why Don’t the Oil Companies Clean Up Their Act?-the Realities of Environmental Planning Tarja Ke tola

Introduction Why doesn’t environmental planning in large oil companies lead to environmentally acceptable operations? Large oil companies usually mention environmental concerns in their general strategies, some draft scenarios or forecasts, and they all have environmental policies, environmental management systems and regular audits in place. Still their tankers spill oil, their oil rigs and refineries have disasters, and other environmental shocks occur regularly in their operations. The oil companies also try to dump their old oil platforms in the sea and draft other environmentally suspicious plans. Their exploration, production, refining and transportation operations put enormous stresses on the natural and cultivated environments. What is going wrong? A great deal has been written about strategic planning.’ In addition to the political and economic issues in strategic planning, a third issue has been pushing itself to the forefront during the past few years, the environmental issue. Without entering into the ecological and ethical side of this issue (which is discussed elsewhere),' the practical problems of strategic environmental planning alone have become topical for many companies. General strategic management theories and models could, in fact, be most useful in the development of the strategic environmental management of companies. This article examines how strategic environmental planning is conducted in two companies, Shell and Texaco. It highlights the problems of environmental Pergamon PII: SOO2P6301(97)00097-6

Long Range Planning, Vol. 31, No. 1, pp. 108 to 119,1998 Q 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0024-6301/98 $19.00+0.00

planning in practice. The objects of the study are the corporate levels of Shell and Texaco, their British divisions, Shell U.K. Ltd and Texaco Ltd, and their downstream operating units, Shell Haven, Shell Stanlow and Texaco Pembroke refineries. The material is based on interviews and discussions at each level, official and unofficial documents, and participant observation during the adoption of the environmental management systems based on the British Standard BS 7750 in Shell and Texaco from 1993-95. As a result of the empirical findings, it is argued in this article that sophisticated top-down strategic environmental planning, with the assistance of scenarios, does not necessarily lead to any better environmental performance than simple bottom-up environmental planning. In a top-down approach, the internal political games of a company have a chance to impede the implementation of an advanced enviromental policy on its way from the corporate level to the operating unit level. There is also a gap between the scenarios and policies. The missing piece is the vision a company should have of its role in the future world described in a scenario. The adoption of strategic environmental visioning would enable a company to derive its vision from the scenarios and utilize this vision to draft a meaningful environmental policy. In a bottom-up approach, it is possible for an operating unit to respond directly to the environmental pressures exerted on it by using the interest-groups’ views as a basis of its environmental planning. However, the lack of scenarios and company-wide visions available from the corporate level reduce the operating unit’s ability to plan for its long-term future and thus to make changes to its operations in advance, in order not to just react, but to anticipate the changes in society. In general, companies would need to enrich strategic environmental planning with strategic environmental visioning, both of which are essential parts of strategic environmental management. Companies could exploit strategic visioning theories3 to build themselves a strategic environmental visioning system on top of their strategic environmental planning system. The route from visions to plans goes through policies which link strategic visioning and planning. To activate this strategic environmental management process, strategic environmental leadership is needed. Nowadays scenarios often describe turbulent business environments where the visions companies could adopt can often be achieved only through radical changes. The cornerstone of strategic environmental leadership is radical environmental change management4 through the involvement of all people concerned, both the internal and external interestgroups of a company. To support the above arguments, the strategic planning processes of top-down Shell and bottom-up

Texaco are compared. First, strategic environmental planning is examined at Shell, then at Texaco in comparison with Shell, and finally, conclusions from the findings are drawn.

Strategic Environmental Shell

Planning

in

Global Scenarios Shell bases its long-term planning on scenarios’ which it defines as sets of stories of possible futures. The purpose of Shell’s global scenarios is to provide a background against which business strategies may be formulated and tested, by identifying trends and discontinuities which may be significant for Shell’s businesses in the future. The scenarios will not necessarily come true; the future reality may lie somewhere in between the scenarios, or take an entirely different direction but it can be expected to have elements of these scenarios. The scenarios challenge the existing “mental maps” that managers use to think about the world and how their businesses fit into it. As such Shell’s scenarios are meant to make its managers’ decisions more flexible, so that whatever the future turns out to be, the decisions will have been such as to enable Shell to reach its goals. A systematic use of scenarios as an integrated starting-point of the strategic planning process is supposed to guarantee that the managers’ own visions of the future will not dominate their decisions. This kind of use of scenarios could be criticized from three points of view. Firstly, if managers are prepared for all possible futures, their decisions are necessarily compromises, and, therefore, they miss a chance to make radical changes. Secondly, since sometimes the visions of individual managers are the driving force for a new successful role for the company, Shell wastes some of its creative human resources by discouraging individual visioning. Thirdly, in this way, Shell also deprives itself of a formation of a solid value basis, and, instead, becomes a chameleon. Conversely, one could argue that an oil company which uses only forecasts or accepts only one world view for the future is even more rigid in its planning. Shell usually drafts two scenarios. It claims to avoid normative judgements and to attempt to present many of the future challenges in a logical way. However, it is plain that one of the pair of scenarios developed at any time represents a non-growth, recessional future and the other one an evolutionary growth future. Companies usually prefer growth to recession. Therefore, it could be argued that companies, including Shell, would find the first of each scenarios less desirable and more difficult to deal with than the second one. (This argument gets further support later in this Long Range Planning Vol. 31

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article.) Shell’s scenarios analyse three areas: geopolitics, international economics and natural environment. The emphasis between these areas seems to vary in time between different scenario pairs. The scenarios created by Shell in 1989 were Global Mercantilism and Sustainable World.’ They paid special attention to the natural environment because those issues had just then become acute: e.g. the Exxon Valdez oil spill and the Chernobyl incident as external turning points and the serious oil pipe leakage at Shell Stanlow refinery internally. Global Mercantilism described an environmentally malignant, Sustainable World an environmentally benign future world. The environmental incidents of 1989 and the scenarios Global Mercantilism and Sustainable World drafted during that year prompted a thorough revision of the Shell Group’s Health, Safety and Environmental (HSE) policy completed in June 1991. This policy became the most advanced and radical in the oil industrya It advocated, for instance, environmental leadership, the ultimate elimination of emissions, effluents and waste as well as products which, when used in accordance with the enclosed advice, would not cause injury or undue effects on the environment. From the Group policy, revised divisional environmental policies for Shell U.K. Ltd and Shell U.K. Downstream Oil were developed during 1991. They also adopted the environmental leadership role and the development of products which would not cause injury or environmental damage, but more cautiously talked only about the progressive reduction of emissions. During 1991 the Shell Stanlow refinery drafted its first environmental policy. In all its shortness, it was more reminiscent of its grandparent’s radical policy with the ultimate elimination of emissions as a central goal than of its parents’ more moderate policy. However, the impact of the global scenarios did not go further than strategic planning as Stanlow’s policy did not affect its environmental targets (Stanlow actually talked about environmental objectives; however, they were not qualitative as objectives usually are but quantitative like targets). These continued to be based on earlier targets and often did not even reach the consent levels set by Her Majesty’s Inspectorate of Pollution (HMIP). The other Shell U.K. refinery, Shell Haven, did not have an environmental policy at all. Its environmental targets were also based on HMIP’s consent levels and frequently did not reach them. The scenario pair for 1992-2920, developed in 1992 was called Barricades and New Frontierss8 They concentrated more on geopolitics because of the recent breakdown of the Soviet Union. They described the consequences of political liberalisation and the resulting economic liberalisation. It seems that the focus of Shell’s future scenarios is based on events taking place at the time of the creation of these scenWhy Don’t the Oil Companies

Clean Up Their Act?

arios. Such an approach is not necessarily the best way of imaging expected futures. In the scenarios less favoured by the business world, Global Mercantilism from 1989 and Barricades from 1992, environmental issues would be either ignored or treated as a terrible nuisance by the businesses in their pursuit for economic goals. The decision-makers, whether politicians or business leaders, would not pay much attention to environmental issues in Global Mercantilism. In Barricades, on the other hand, the public concern and pressure from environmentalists would lead to stringent but uncoordinated environmental regulations-a future that companies fear. In the scenarios favoured by the business world, Sustainable World from 1989 and New Frontiers from 1992, the businesses would pay attention to environmental issues, but in different ways. In Sustainable World, the degradation of the environment would be considered the main challenge to be tackled by society, including businesses. The different parts of society would come together and respond to this challenge through international cooperation and management. For energy companies, like Shell, Sustainable World would also mean new values for fuels and the reconstruction of the energy industry. However, in New Frontiers, businesses would believe they could deal with the environmental side-issue through market forces and self-regulation. In conclusion, the environmental view of the Sustainable World was much more advanced than that of the New Frontiers. Shell thus backed out of the Sustainable World’s environmentally progressive scenario in favour of the New Frontiers’ traditional scenario. The former President of Royal Dutch Petroleum Company still advocated the progressive views up until his retirement in January 1992’ but had turned his coat by September 1992.l’ However, as the spokesman of the company, he simply expressed the current corporate view on both occasions because the new pair of scenarios appeared in the autumn of 1992. The more cautious view was then reflected in the public speeches of Shell’s present top management.” It seems that Sustainable World was considered by the management as an economically irresponsible scenario. It would have been an expensive future alternative. By reducing it to New Frontiers, Shell could influence decision-makers to be satisfied with lower environmental demands. Hence it can be argued that Shell’s scenarios are not objective analyses but serve a political goal.

Deriving Environmental Global Scenarios

Scenarios

from

While the 1989 scenarios influenced Shell’s environmental policies directly, the 1992 scenarios were utilized to create an environmental strategy for the

divisions and operating units which would then use the strategy to rewrite their policies. The still valid Group’s environmental (or HSE) policy was ignored in the development of the environmental strategies. Formally, this disregard was disguised in the explanation that the strategies would guide businesses on how to implement the Group policy-as if an environmental policy with straightforward goals needed any interpretation. It was admitted, however, that the aim was to advise on how to reconcile the goals of the environmental policy statement with financial goals. This obvious trade-off meant that the Group’s demanding environmental policy goals would be compromised for the sake of the economic goals. The environmental strategy development process” started immediately after the new global scenario pair was out in October 1992 and was completed by the end of 1993. At the first stage, environmental scenarios were derived from the new global scenarios. A team of experts in Shell International Petroleum Company (SIPC) drafted focused scenarios for the downstream sector, consistent with New Frontiers and Barricades. The resulting environmental scenarios were Global Greening and Green Islands, respectively. environmental standards In Global Greening, would rise steadily in all countries, although from different starting points and at different rates. In Green Islands environmental standards would rise rapidly in rich countries with strong environmental concerns, particularly early in the next century. In the poorer countries environmental standards would rise slowly and usually only after pollution had become acute. At the second stage, the expert team categorized countries into four archetypes on the basis of their degree of environmental concern: prime concern, active concern, developing concern and response to emergency. Sweden was given as an example of a present-day prime concern country, Singapore as an active concern country, South Korea as a developing concern country and India as a response-to-emergency country. (Diplomatically, Britain was left out of the examples; after some pushing, the Environmental Strategist admitted that many saw Britain as a developing concern country.)

Evaluating Environmental Strategy Options through Environmental Scenarios At the third stage of the environmental strategy development process, the environmental scenarios and the country archetypes were used to help the evaluation of various environmental strategy options. Starting from a theoretical point of view, the experts team identified four options: champion, lead, comply and evade. Champion’s requirements to adopt the highest environmental standards and promote the company as “environmentally green” were considered com-

mercially unrealistic for an energy company. The Evade option of ignoring environmental standards was rejected as contrary to Shell’s Statement of General Business Principles.13 For each of the remaining two options, two approaches for implementation were defined. Lead option could be implemented through Standard Bearer or Opportunistic Leader. Comply option’s two approaches were Continuous Improvement and Minimum Compliance. The basic characteristics of these strategies were: LEAD OPTION Standard Bearer: Opportunistic Leader:

COMPLY OPTION Continuous Improvement:

Minimum Compliance

Key environmental markers are applied uniformly and globally. Environmental markers are selected to give local commercial advantage.

Fully comply with legislation, continuously improve environmental performance whilst remaining commercially viable, and work with legislators to define economically and technically sound environmental standards. Meet legislated standards just in time.

The advantages and disadvantages of these strategy options were then mapped and evaluated. The advantages of the Standard Bearer strategy were that the company would be seen as a leader, technically justified levels of environmental markers would provide a good basis for adopting this strategy, and global levels would be easier to explain to the public and employees. The disadvantages of Standard Bearer included first of all the notion that the company would set itself up as an arbiter of environmental standards giving rise to technical, legal and political risks. Secondly, global standards might be high in relation to local standards required of the competitors, which might lead to higher (and possibly unrecoverable) costs than the competitors would encounter. Thirdly, this strategy would be impracticable for main products because of non-Shell product sourcing. The advantage of the Opportunistic Leader strategy would be that local marker levels could achieve a local commercial advantage. One of its disadvantages coincided with that of Standard Bearer: the company would set itself up as an arbiter of environmental standards-this time locally, and not globally as in Standard Bearer’s case. Another disadvantage of the Opportunistic Leader strategy was that promoting leadership in selected areas would expose relative weaknesses elsewhere. In addition, Leading might Long Range Planning Vol. 31

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raise Compliance standard level with the result that short-term gains might lead to higher long-term costs. And finally, this strategy would cause the need to manage spillover to other countries. One of the advantages of the Continuous Improvement strategy was that it would meet local regulatory standards and/or accepted international standards. This strategy would also define a consistent basis for local standards. And it might influence legislators to set technically, environmentally and economically sound standards. Furthermore, the strategy would set targets for continuous improvement of environmental performance whilst recognizing the need to remain commercially viable. The disadvantages of Continuous Improvement consisted of setting any standards in countries where none are required of competitors which might lead to costs that are not recoverable and of additional costs of Research & Development and active participation in the environmental debate. The advantage of the Minimum Compliance strategy was seen as avoiding the need to make judgements on environmental requirements. Its disadvantage was that non-participation in the environmental debate could lead to the imposition of unreasonable and costly standards. On the basis of the evaluations of the advantages and disadvantages of these strategies, the expert team rejected Opportunistic Leader as limited in scope and generally unviable and Minimum Compliance as inconsistent with Shell Group’s environmental policy. These eliminations left two alternative environmental strategies to choose from: Standard Bearer and Continuous Improvement. At the next stage, the financial consequences of the two remaining strategies were assessed. The cost of meeting environmental markers in both scenarios, Global Greening and Green Islands, by year 2010 was evaluated in the four archetype countries-prime concern, active concern, developing concern and response to emergency-for both environmental strategies. The details of the calculations were not available for the researcher. That is why only the results can be described here. In prime concern and active concern countries, the cost was calculated to be the same for the Standard Bearer strategy as for the Continuous Improvement strategy. However, in developing concern and response-to-emergency countries the cost of meeting environmental markers was considered to become manifold for Standard Bearer compared to Continuous Improvement. In the Global Greening scenario, the cost of maintaining high environmental standards in developing concern countries was twice as high in Standard Bearer as in Continuous Improvement, and in Green Islands five times higher. In response-to-emergency countries the differences were even greater as the implementation of the ConWhy Don’t the Oil Companies

Clean Up Their Act?

tinuous Improvement strategy would cost very little in the Global Greening scenario and nothing at all in the Green Islands scenario. The total capital costs from 1993-2010 that the Standard Bearer strategy would impose on Shell’s downstream business were evaluated to amount to U.S. $21 billion in the Global Greening scenario and to U.S.$29 billion in the Green Islands scenario. These costs in the case of the adoption of the Continuous Improvement strategy were evaluated to be U.S.$14 billion in the Global Greening scenario and U.S.$19 billion in the Green Islands scenario. In conclusion, the global standards advocated by Standard Bearer were calculated to cost potentially much more than the local legislated compliance limits advocated by Continuous Improvement. These results confirm the earlier argument of this article that companies, including Shell, would prefer the New Frontiers global scenario to the Barricades global scenario: the environmental scenario of Global Greening was derived from New Frontiers and would be cheaper than Green Islands which was derived from Barricades. As a result of the detailed analysis of the financial consequences of the two alternative strategy options, the Continuous Improvement strategy was chosen as the environmental strategy of Shell’s downstream businesses. According to the Environmental Strategist, the implementation of Continuous Improvement requires the following six actions of Shell companies: 1. To comply fully with existing legislation; 2. To pursue a strategy of continuous improvement for products and operations, whilst remaining commercially viable; 3. To implement environmental managment systems and to ensure that objectives are met; 4. To carry out research to improve the environmental performance of products and operations; 5. To work with governments to define cost-effective environmental goals; and debate. 6. To play a leading role in the environmental

The experts’ report and its conclusions were accepted by Shell’s senior management. They found the Continuous Improvement strategy consistent with Shell Group’s environmental policy. This strategy is now applied in all Shell Downstream operating companies. The expert team’s study seems logical and the eliminations down to the choice of two approaches justified. However, the critics may disagree with the last choice between Standard Bearer and Continuous Improvement. First, it might be maintained that the name of Standard Bearer was chosen to make it less attractive. Second, the figures of financial analyses may not always be as unambiguous as the report

assumes-and this assumption cannot be studied as the figures are confidential. Third, even if Continuous Improvement would be cheaper to implement than Standard Bearer, shortand medium-term economic considerations do not have to be the first priority in decision-making. Standard Bearer may produce long-term advantages that Continuous Improvement may not be able to offer. Fourth, oil companies spend billions on exploration and other speculations; environmental spending is a safe investment compared to them. Fifth, the priorities of the top management are all that matters: environment could become one of their first priorities. And finally, responsibility towards society and Planet Earth might be considered worth an extra few billion. The interpretation that the Continuous Improvement strategy is consistent with the Shell Group’s environmental policy should also be challenged. The policy says clearly that Shell companies aim to be among the leaders in environmental mattersalthough there is now a tendency to water the message down to mean to be among leaders in environmental debate as in the Continuous Improvement strategy. Therefore, Standard Bearer, as one of the Lead option approaches, would have been a more suitable choice, if compliance with the wording of the Group policy is attempted. The other clauses of the policy (e.g. the ultimate aim of eliminating emissions, effluents and waste materials) are also better suited to the Standard Bearer’s ideology. Continuous Improvement is a less demanding strategy than Standard Bearer and Shell Group’s environmental policy. Nevertheless, the fact that there are environmental scenarios available for Shell Downstream businesses and strategies created to deal with them, is a positive sign. Other oil companies do not have such sophisticated environmental scenario planning.

Implementing Strategy

the Chosen Environmental

The 1992 global scenarios, Barricades and New Frontiers, and their 1993 environmental scenario derivations, Global Greening and Green Islands, prompted changes to Shell’s divisional and operating units’ environmental policies but not to the corporate environmental policy. Surprisingly, the 1991 Shell Group policy remained the same as before while the policies of Shell U.K. Ltd, Shell U.K. Downstream Oil and Shell Stanlow changed. The environmental policy of Shell U.K. Ltd, 199314 and the policy of Shell U.K. Ltd Downstream Oil 199415 were drafted to meet the requirements of the Continuous Improvement strategy. As a result, these new divisional policies fail to comply with the Group policy. The environmental leadership position of Shell, its goal of the ultimate elimination of emissions

and products which would not cause environmental damage, were wiped off the agenda. There is a terminological problem in the implementation of the environmental strategy. Shell Group uses the concept “continuous improvement” in its environmental strategy for divisions (like in its environmental policy) while Shell U.K. Ltd uses the concept “continual improvement” in its policies. The difference is significant because “continuous” implies improvement in all areas, all the time and “continual” implies improvement in chosen areas, at chosen times. It seems that people at the corporate level are not so aware of the definitions as at the divisional level. Otherwise, they would not ask the divisions to continuously improve their environmental performance. The actions needed for the implementation of the Continuous Improvement strategy have been included in the environmental policy of Shell U.K. Ltd as a mixture of goals and means. The same goals and means can then be found in the environmental policy of Shell U.K. Downstream Oil which is, apart from a couple of words, the same as the policy of Shell U.K. Ltd. Of the actions needed to implement the Continuous only environmental manImprovement strategy, agement systems and the leading role in environmental debate are not mentioned in the policies of Shell U.K. Ltd and Shell U.K. Downstream Oil. The environmental management systems can be found in the environmental objectives for 1994-951” of Shell U.K. Downstream Oil, which have been partially derived from its policy. As for the leading role in environmental debate, it seems that Shell U.K. Ltd gladly leaves that role for its parent company, Shell Group, to perform. In conclusion, the action list for the implementation of the Continuous Improvement strategy has been reduced to five actions at the divisional level: 1. To comply

fully with existing legislation; a strategy of continuous improvement for products and operations, whilst remaining commercially viable; 3. To implement environmental managing systems to ensure that objectives are met; 4. To carry out research to improve the environmental performance of products and operations; 5. To work with governments to define cost-effective environmental goals.

2. To pursue

Shell Stanlow refinery drafted a new environmental policy17 at the end of 1994 and published it in January 19%. It is based on the environmental policy and objectives of Shell U.K. Downstream Oil. Therefore, it takes account of the same actions required by the Continuous Improvement strategy as its immediate parent company, except for research and work with governments which are considered outside its operaLong Range Planning Vol. 3 1

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ting sphere. The environmental objectives of Shell Stanlow for 199518 mention the implementation of an environmental management system. Otherwise these objectives are derived partially from the Stanlow policy and partially from its earlier objectives. Most of the qualitative environmental objectives (i.e. those that refer to emissions) break down to quantitative environmental targets which are set to continually improve the environmental performance of the site. Like its parent, Stanlow talks about continual improvement. Both Shell U.K. Downstream Oil and Shell Stanlow have closely followed the development of the British environmental management system standard BS 7750 during which the difference between “continuous” and “continual” was discussed in detail. The other Shell U.K. Ltd refinery, Shell Haven, does not have an environmental policy of its own. It relies on the environmental policy and objectives of its parent, Shell U.K. Downstream Oil. The environmental action plan of Shell Haven 1995*'has environmental objectives and targets, including objectives for the implementation of the environmental management system and continually improving emission targets. In conclusion, the action list for the implementation of the Continuous Improvement strategy has been reduced to three goals at the operating unit level: 2. To comply fully with existing legislation; 2. To pursue a strategy of continuous improvement for products and operations, whilst remaining commercially viable; 3. To implement environmental managing systems to ensure that objectives are met. Unfortunately, it has been very difficult for Shell Haven and Stanlow to implement even the first goal of the Continuous Improvement strategy in practice, i.e. to comply with environmental legislation: most of their environmental targets coincide with the consents set by HMIP and frequent failure to reach these targets leads them to breaking the law. In general, reduction in goals is to be expected since the action scope of the operating units is more limited than that of the divisions which, in turn operate on a smaller scale than the corporate level. Nevertheless, of the strategy goals dropped by the division, Shell U.K. Ltd, and the operating units, Shell Haven and Stanlow, leadership in environmental debate could have been possible for all of them within the scope of their activities. As explained before, the environmental strategy’s goal of leadership in environmental debate was a dilution of the goal of leadership in environmental issues expressed in the environmental (or HSE) policy of Shell Group. The impressive derivation of the operating units’ environmental targets from the corporate global scenarios (through divisional environWhy Don’t the Oil Companies

Clean Up Their Act?

mental scenarios and strategies as well as divisional and operating units’ policies and objectives) is dented by the exclusion of the corporate environmental policy from the derivation process. Some say that there has been an environmental war going on at Shell: some managers are green, others grey. The green ones managed to create a Sustainable World scenario, revise Group’s environmental policy accordingly and began to manipulate the division’s and operating units’ environmental policies at the turn of the decade. But then the grey ones took over, created the New Frontiers and Barricades scenarios, derived environmental scenarios and strategies from them, and are now making divisions and operating units rewrite their environmental policies, objectives and targets accordingly. The grey ones have not yet been able to solve the problem of the existence of a radical corporate environmental policy. They only try to dilute the policy’s progressive message in the personnel’s mind in order to match it with their own ideas. It is difficult for an outsider to say whether the war in Shell is over and the transfer of power permanent; and if so, why is it that the Group policy remains a sore reminder of an emerging but destroyed vision of a green energy company. One can only assume that it would be hard for Shell’s top management to start making environmentally malignant changes to the Group policy without inspiring another public outcry among its stakeholder groups and thus causing further damage to its image. An optimistic environmentalist would also hope-against all odds-that the green managers within Shell will not become completely extinct but will in time consolidate their strengths and make another attempt to turn Shell green. Figure 1 illustrates Shell’s two processes of attempting to turn scenarios into the environmental plans described above. The feedback links from performance to targets and objectives have been left out for the sake of simplicity

Strategic Texaco

Environmental

Planning

in

Texaco does not draft scenarios. The environmental policy of Texaco Inc. dates from 1988". In 1989 its British division, Texaco Ltd, drafted an environmental policy based on this corporate policy.” Texaco Ltd’s only oil refinery, Texaco Pembroke Plant, did not have an environmental policy at all until 1992. Until then its environmental targets coincided with the HMIP’s consent levels and had nothing to do with the environmental policies of its parent or grandparent. In 1992, Texaco Pembroke decided to adopt an environmental management system based on BS

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7750. This standard requires that an environmental policy should be drafted. Obediently, Pembroke drafted such a policy: the first version based on the requirements of the draft standard was published in 1992,22 and the final version, taking account of the revisions to the standard, was published in 1994.23 The environmental policy of Texaco Pembroke easily fulfils the modest goals of the environmental policies of its parent, Texaco Ltd, and grandparent, Texaco Inc. It makes full use of the core environmental performance strategy of BS 7750: continual improvement. (Originally, the standard’s strategy was called continuous improvement but after a long debate over the differences between the concepts “continuous” and “continual”, the name of the strategy was changed into continual improvement.) In addition, the Pembroke policy exceeds the requirements of the British standard in at least one area: it promises not only to recognize but also to take account of the concerns of interested parties in its environmental objectiveand target-setting. The whole approach to the implementation of the environmental management system was people-centred: all employees were given environmental training and cooperation with local interest-groups was upgraded by establishing another liaison group consisting of local people and local conservation and environmental groups in addition to the already existing liaison group of local authorities. In 1994, Texaco Ltd decided to follow the example of its child, Pembroke, and rewrite its environmental policy to comply with the requirements of BS 7750.24 Thus while Shell had a top-down approach to environmental change, Texaco began from the bottom and started to advance upwards. Texaco Inc. has notyet anyway-shown any signs of revising its 1988 environmental policy. In fact, the next step may be that Texaco Ltd will cooperate with other European divisions within the informal consortium, Texaco Europe, to create a common environmental policy for all Texaco’s European divisions. There may be a problem of a standard to be used then, as the non-British divisions probably would not accept BS 7750 but would rather adopt the European Union directive, Eco-Management and Audit Scheme (EMAS). However, Texaco Ltd and Pembroke Plant can switch to EMAS without too much extra work, if their pride allows. The main difference between BS 7750 and EMAS is in openness: EMAS requires companies to publish not only their environmental policies and objectives, like BS 7750, but also their environmental targets and the resulting performance figures. Texaco Pembroke already does all this. It sets continually improving environmental performance objectives partially derived from its environmental policy (and partially from earlier objectives) and environmental targets derived from the objectives, all Why Don’t the Oil Companies

Clean Up Their Act?

of which it makes public. At the end of each year it compares the objectives and targets to the materialized environmental performance and publishes the comparisons in an environmental report-which also shows the targets for the following year.25 Texaco Pembroke’s old 1980s environmental planning process, with only targets set and the new 1990s planning process from the policy through objectives and targets to performance, are illustrated in Fig. 2. The feedback links from performance to targets and objectives have been left out for the sake of simplicity. Here is another one of the differences between Shell and Texaco. In 1993 Shell U.K. Downstream Oil decided to create an environmental management system based on BS 7750 for its refineries and other operations and opted to follow the publication requirements of BS 7750 literally, by publishing only their environmental policies and objectives, and not their targets and resulting environmental performance figures. Shell’s secrecy is bound to cause ill feeling among its interest groups while the openness of Texaco invites its interest groups to cooperate with the refinery to reach the environmental targets set together. Texaco Pembroke Plant has so far easily met the HMIP consent levels-and its own, more demanding targets. Incredibly, with no scenarios at all, Texaco Pembroke has achieved an environmental performance level far superior to the environmental performance levels of Shell Haven and Stanlow which have had a sophisticated scenario planning system available. All the effort taken and human and financial resources spent on the development of the Continuous Improvement environmental strategy from global and environmental scenarios seems to have gone down the drain-at least in Britain-since the adoption of a standard-based environmental management system would have had the same effect on Shell Haven and Stanlow as this strategy. The Shell environmental strategy choice of 1993 appears to be almost identical with the continual improvement strategy decided by companies for BS 7750 in 1991. Is this a coincidence?

Conclusions

and Recommendations

It appears that Shell’s present top-down approach produces a communication gap between corporate environmental policy and operating unit environmental performance, preventing the expected performance from realizing. The company could potentially change its direction well in advance because of sophisticated scenario planning but the communication gap impedes change management. The problem lies in the incompatibility of the traditional environmental strategy derived from the scenarios and the radical corporate environmental

Texaco Ltd environmental DOliCV 1994

environmental

environmental

environmental objectives 1994 - 98

environmental performance 1989

environmental performance 1993

policy. This is due to the power struggle between the greys and the greens in Shell. The increasingly discontinuous business environment will accept neither the lagging environmental strategy of Shell U.K. Ltd nor the poor environmental performance of its operating units, Shell Haven and Stanlow. It looks as if the greys’ days are numbered. However, whichever group is in power, strategic leadership could be utilized to link Shell’s policies and strategies with plans and performance. After formulating an environmental strategy, the top management must make certain that it is fully implemented with the assistance of the organizational structure and culture and the allocation of human and financial resources, so that the environmental performances of the operating units will change accordingly. The new 1996 global scenarios could be taken advantage of in this way. There are internal reasons for the poor environmental performance of the Shell operating units: the

environmental performance 1994

environmental performance 1995

authoritarian top-down approach, the narrow business goals and strategies, the complicated organizational structure (which is now being changed), the stifling corporate culture as well as the lack of human and financial resources available to implement the policies, objectives and targets in the operating units. These issues are discussed further, elsewhere.26 In the bottom-up approach of Texaco, the operating unit’s environmental performance can be better than expected because of its rather advanced environmental policy and openness to external pressure. However, the Texaco Pembroke refinery can only react to change because of the lack of scenarios at the corporate level. This is a great weakness: although at present the environmental performance of Texaco Pembroke satisfies the requirements of its business environment, the refinery has no vision of the future world, and cannot therefore make long-term plans to increase its chances to survive and prosper in the 21st century. Long Range Planning Vol. 31

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Oil refineries in Britain-and generally in Europeare already in a difficult position because of the high operating costs compared to the rest of the world. The fact that gas is gradually replacing oil as a major energy form is getting the refineries into further difficulties when they try to justify their existence to their parent companies. It would be important for the oil refineries to have a vision of their possible future roles within their companies to be able to make the changes in time. This vision can either come from above (a top-down approach) or be developed by the refineries themselves (a bottom-up approach). In any case, they must find a new role in a world increasingly hostile to fossil fuel. There are many alternatives-from biomass refining to quite new areas of operations-but without strategic visioning such opportunities cannot be taken advantage of and the refineries may not be allowed to survive. A top-down approach aims at securing the fulfilment of the goals of high profits, growth, stability and survival at the corporate level. This approach is hazardous to the operating unit level. They are at the mercy of the corporate level. If they can show profit, the corporate level may help them to survive and increase their stability by assisting the units to find new, environmentally more acceptable products to be produced in an environmentally better way. If they cannot show profit, the corporate level exterminates them. The environmental performance of the operating unit does not have a direct effect on the corporate level decision. However, if the environmental performance is so poor that there are strong external pressures to make large human and financial investments, this usually leads to temporary decreased profits, which are not acceptable to the corporate level. Yet rigorous strategic environmental leadership could link strategic environmental visioning and planning so that operating units would not have to live on a razor’s edge but could concentrate on long-term planning to find their future role in the company and society. A bottom-up approach aims at securing the fulfilment of the goals of high profits, growth, stability and survival at the operating unit level. This approach is hazardous to the corporate level. They are at the mercy of the operating unit level. If the operating units cannot

regularly change the expenses caused by environmental investments into higher profits in the long run, the stability and survival of the whole corporation is at stake. Even when the environmental performance of the operating units is given priority over profits in the short term, there is no way of guaranteeing a good environmental performance in a long term because of the lack of strategic visioning. Society’s values change rapidly as a result of new information on the vulnerability of the ecosystem. Even with close contacts to the interest groups, an operating unit cannot have enough vision to prepare itself for radical changes. This is the greatest problem of a bottom-up approach in strategic environmental management. However, visioning at the operating unit level could solve the problem. The way forward for oil companies would be to 1. Create company-specific environmental 2. Communicate environmental visions 3. 4.

5.

6.

to internal and external stakeholders; Adopt rigorous strategic environmental leadership to link visioning and planning; Match strategic environmental management and other strategic management by (4 integrating environmental visions into general business goals and strategies, (b) developing an environmentally benign organizational culture, and sufficient human and financial (4 allocating resources to implement the environmental plans; Be transparent and discuss the company’s environmental plans and performance with all stakeholders-they may be able to contribute to successful planning and implementation; Be sensitive to the changing values of society.

Linking strategic environmental visioning and planning is essential for the long-term survival of companies and their operating units. Still, this is not enough. The environmental scenarios and visions companies create are very conservative. It looks as if companies do not dare to say aloud what revolutionary changes will actually be needed in order that they, our society and this planet can survive. Admittedly, it is a frightening thought.

References 1. T. Grundy and D. King, Using Strategic Planning to Drive Strategic Change, Long Range Planning, 25 (I), 100-108 (1992). R. Veliyath, Strategic Planning: Balancing Short-Run Performance and Longer-Term Prospects, Long Range Planning25 (3),88-97 (1992). “Second to the Right and Straight 2. T. Ketola, Where is Our Common Future?-Directions: on till Morning”, Sustainable Development4 (2), 84-98 (1996). 3. C. Coulson-Thomas, Strategic Vision or Strategic Con?: Rhetoric or Reality? Long Range Planning25 (1). 81-89 (1992). J. M. Stewart, Future State Visioning-A Powerful Leadership Process, Long Range Planning 26 (6), 89-98 (1993). K. Warren, Exploring Competitive Futures Using Cognitive Mapping, Long Range Planning28 (5), IO-21

(1995). Why Don’t the Oil Companies Clean Up Their Act?

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4. Adapted to strategic environmental leadership from: 6. Taylor, The New Strategic Leadership-Driving Change, Getting Results, Long Range Planning 28 (5) 71-81 (1995). 5. The review of the characteristics of Shell’s scenarios is based on discussions with the Corporate Environmental Strategist and the Divisional Planning Analyst in 1994-95. 6. A. Kahane, Global Scenarios for the Energy Industry: Challenge and Response, Shell SelectedPapers, Shell International Petroleum Company Limited, London (1991). A. Kahane, Scenarios for Energy: Sustainable World vs Global Mercantilism, Long Range Planning 25 (4), 36-46 (1992). 7. Royal Dutch/Shell, Policy Guidelines on Health, Safety and the Environment, The Steering Committee for Safety and Environmental Conservation, Royal Dutch/Shell Group, The Hague & London (1991). 8. Royal Dutch/Shell, Global Scenarios 7992-2000, Petroleum Company Limited, London (1992).

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9. L. 0. van Wachem, Challenges and Opportunities for the Petroleum Review, 10-13, Institute of Petroleum, London (1992).

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10. L. 0. van Wachem, The Three-Cornered Challenge - Energy, Environment The Cadman Memorial Lecture London 14 September 1992.

and Population,

11. a) M. A. van den Bergh, Challenges and Opportunities in a Changing World, She//Address Oil and Money Conference, London, 16 November 1992. b) C. A. J. Herkstroter, Challenges in Facing Global Change, She//Address, MIT’s Programme for Senior Executives, Shell Centre, London, 15 October 1992. c) C. A. J. Herkstroter, New Corporate Frontiers, She//Address, 23rd International Symposium of the St Gallen Foundation for International Studies, “Mobilising Corporate Energies”, 24-26 May 1993. d) C. A. J. Herkstroter, Fossil Fuel Energy-Today Money Conference, London, 25 October 1993.

and Tomorrow,

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Oil and

e) M. Moody-Stuart, Environmental Action-A Shared Responsibility, She//Address, “Building Global Partnerships”, the Second International Conference on Health, Safety and the Environment in Oil and Gas Exploration and Production, Jakarta, Indonesia, 25 January 1994. 12. The review of the environmental strategy development process is based on discussions with the Corporate Environmental Strategist and the Divisional Planning Analyst in 1994-95. 13. Royal Dutch/Shell, Statement of General Business Principles Royal Dutch/Shell Companies, The Hague & London (1990). 14. Shell U.K. Ltd, Policy on Environmental

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Protection Shell U.K. Limited, London (1993).

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18. Shell Stanlow, Stanlow Site Objectives: Environment Shell Stanlow Manufacturing Complex, Stanlow, Ellesmere Port (1995). 19. Shell Haven, Shell Haven le-Hope (1994). 20. Texaco Incorporated,

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22. Texaco Limited, BS 7750 Environmental Management Systems: Plant Environmental Policy, Environmental Objectives and Programmes, Texaco Limited Pembroke Plant, Pembroke (1992). 23. Texaco Limited, Pembroke P/ant Environmental Pembroke (1994). 24. Texaco Limited, Environmental

PolicyTexaco

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25. See Texaco Limited, Pembroke Plant and the Environment, Texaco Limited Pembroke Plant, Pembroke (1994). Texaco Limited, Pembroke P/ant-An Environmental Update, Texaco Limited Pembroke Plant, Pembroke (1995). 26. See T. Ketola, Ecological Eldorado: Eliminating Excess over Ecology, in R. Welford led.) Hijacking Environmentalism-Corporate Responses to Sustainable Development, pp. 99-136, Earthscan, London (1997).

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February 1998