CSR trends, challenges and

opportunities in the energy sector

Foro Regional

LAS OPORTUNIDADES DE LA RESPONSABILIDAD SOCIAL

EMPRESARIAL –RSE- EN EL SECTOR ENERGIA RENOVABLE Y

ELECTRICIDAD EN AMERICA CENTRAL

November 13,

2013

Michael Oxman

What is BSR?

2

We act as an honest broker between business and society, combining our industry

experience, sustainability expertise, and global reach to help companies create

coherent strategies that leverage their core competencies and institutional capacity.

Industry

Experience

Global

Reach

Any industry, any issue, any location…

We work with some of the largest

corporations in the world across 11

industry practices.

50 We work all over the world, with eight

offices and competency in more than

15 languages and dialects.countries

300companies

15 We lead a wide range of partnerships

and collaborative initiatives to create

industry-wide solutions.Sustainability

Expertise

partnerships

3

Agenda

• Recap of Selected CSR Trends

• Trends in CSR and the Energy Sector

• Industry Response to Trends

4

Recap of Selected CSR Trends

1. Increasing Evidence of CSR Financial Value

5

Research

Findings

• 2001 Research: 53% of studies showed positive relationship, 43% neutral or mixed,

and 4% negative (95 studies)

• 2008 Research: 63% of studies reviewed showed positive relationship, 22% neutral or

mixed, and 15% showed negative relationship (159 studies)

• 2011 Study: Investment of $1 in 1993 grew to $22 at “high sustainability” firms, but

only $15 at “low sustainability” firms

• 2011 study; analyzed financial performance of 180 “high” and “low” sustainability firms

from 1993 to 2010Sources: People and Profits? Search for a Link between A Company's Social and Financial Performance, 2001; Valuing Business Sustainability, A

Systematic Review, NBS, 2008; The Impact of a Culture of Corporate Sustainability on Corporate Behavior and Performance, Harvard Business School,

2011

Research shows positive correlation between CSR and financial returns

6

Investors Regulators

Investors, raters, and data

service providers are asking

companies to manage and

report ESG topics to incorporate

into investment analysis.

Other examples include IFC

Performance Standards and

Equator Principles.

Examples:

Governments and regulatory

bodies throughout the world

are increasingly encouraging or

requiring CSR/ sustainability

reporting.

Examples:

Customers

Customers are requiring their

supply chain partners to

manage, report, and end

consumers are comparing

sustainability performance at the

product level.

Examples:

2. Business “enabling” institutions require CSR lenses

From investors to governments and throughout corporate value

chain, CSR performance and transparency is considered with

other business issues.

Bloomberg in particular has seen enormous

growth in use of the ESG data on its website

3. Stock exchanges seek CSR transparency

7

Emerging and developed markets prioritizing ESG disclosure.

• As of April 2013, 1,800 firms listed on the LSE were required to

disclose GHG data, due to a new UK government regulation

• India’s Securities Exchange Board of India (SEBI) mandated in

August 2012 listed companies to submit business responsibility

reports.

• The EC adopted in April 2013 a report or explain proposal requiring

large European companies to disclose ESG information.

• The SEC adopted a rule mandating companies to publicly disclose

their use of conflict minerals including gold and tin on a new form.

• SASB – emerging 10-K standards on sustainability disclosure

• The Sao Paulo stock exchange, BM&F BOVESPA,

recommended that as of January 2012 all listed companies

adopt the report or explain principle.

4. CSR reporting has more than doubled

8Source: KPMG International CSR Reporting Survey, 2011

CSR reporting is increasingly common and

underpinned by specific guidelines (e.g. GRI) and

external participation (advisory panels, assurance).

5. Corporate performance driven by formal standards

9EconomicSocial / Human RightsEnvironment

1980

1990

2000

2010

IFC Performance

Standards v1.0

IFC Environmental and

Social Safeguard

Policies and its

Disclosure Policy

IFC Performance Standards

v2.0

UN Guiding Principles on

Human Rights

UN Global Compact

Equator PrinciplesILO Declaration on

Fundamental

Principles and

Rights at Work

ICMM Principles

SEC Ruling on Conflict

Minerals and Sec. 1504

US Foreign Corrupt

Practices Act (FCPA)

Scope 3 GHG Protocol

– Climate Reporting

Voluntary Principles

on Security & Human

Rights

UK Anti-Bribery Law

California Transparency Act

What’s

next?

Extractives Industry

Transparency

Initiative

Black Economic

Empowerment in

South Africa

Argentina Import

Regulations

Kazakhstan Local

Procurement Targets

Australian Carbon

Pricing SchemeUN CEO Water

Mandate

ISO 14001

OHSAS 18001

ISO 26000

Indonesia Local

Content Regulation

Global Reporting

Initiative G3

OECD Guidelines on

Multinational

Enterprises

International Cyanide

Management Code

Inclusive

CSR extends well beyond philanthropy to business performance.

10

Energy Industry CSR Trends

Energy Industry CSR and the Bottom Line

• Social License Traditionally Thought of Only In Reputational Terms

• CSR Today Extends to Four Major Impact Areas in the Energy Industry

• Environmental and Social Issues “Cross Over” in CSR Domain

Social License Issues

• Human rights

• Indigenous peoples

• Corruption/bribery

• Community unrest

• Security

• Labor/working conditions

• Labor migration

• Road safety

Social License Issues

• Climate and energy

• Material toxicity and chemicals

• Water (scarcity, efficiency, and treatment)

• Waste management

• Land use and biodiversity

• Raw material use

• Noise, dust and related emissions

Reputational Impacts

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Potential Impacts

• Improved/Reduced Financial Returns.

• Access to (and/or Cost of) Capital (e.g. Equator Banks).

• Partner of Choice and/or greater community acceptance.

• Employee Recruitment and Retention.

• Green-washing Perceptions without business integration.

• “Oil companies, or their contractors, called for security force protection in the face of

protests from youths, taking no steps to ensure that such protection was provided in a

non-abusive way and making no protests when violations occurred.” (Human Rights

Watch)

• “The program is an innovative health communications campaign that harnesses the

influence of African leaders and celebrities to increase the usage of malaria control

tools — mosquito nets, diagnostic tests and effective medicines — to prevent tens of

thousands of unnecessary deaths each year.

Examples

Regulatory & Standards Impacts

• Local content regulations

• Permitting and engagement requirements

• UN Guiding Principles on Human Rights

• SEC Ruling on Conflict Minerals

• UK Anti-Bribery Law

• Indonesia CSR Law

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Potential Impacts• Greater investment in human resources and CSR expertise.

• Integration into compliance, HSE, and other key functions.

• Corporate government affairs influence in achieving.

appropriate balance between “carrot” and “stick” incentives.

• Improved risk mitigation decisions and response.

• Danger of compliance for sake of compliance.

Examples

Operational Impacts

Examples• Experts warn that the biggest challenges facing oil and gas is finding the right people with

the right skills to fill vacant positions. However, companies are finding it difficult to attract

young professionals despite the industry's reputation for high starting salaries. Young

professionals report the industry's soiled reputation following the Macondo oil spill in

2010 curbed their enthusiasm for the fast-track professional development they'd be sure to

receive if they'd accept a position within the industry.(Rigzone, April 2012)

• Rioting at the oilfield erupted involving more than 400 people and triggering large-scale

departure of foreign workers. Construction slowed down as a result of the riots and got

back on schedule only few months later. A local investigation pointed to unequal

remuneration and treatment toward local workers as alleged root causes.

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Potential Impacts• Blockades, physical disruption (inside and outside fence-line)

may occur.

• Protests heighten security risk.

• Recruitment and retention challenges.

Operational and social license issues often lead to project delays,

disruption, mobilization constraints, and community tensions.

Financial Impacts

15

Social license risks and impacts are increasingly quantifiable - improving

alignment with management systems & commercial objectives

• Rio Tinto in Sub-Saharan Africa

estimated Expected Value of

sustainability investments at

more than $318 MM.

• Newmont Mining in Ghana –

land acquisition six months

ahead of schedule, decrease in

grievances, reduction in

spending on security.

• Shell Philippines (offshore

project) - $6 MM in community

consultation costs resulted in

$50-$72 MM in savings through

accelerated construction

schedule.

Financial and Reputation Impacts…(continued)

16

Financial value and social license impacts not limited to oil/gas and mining

and social / legal license increasingly overlap

:

• Amid Protests, Solar Companies Plan Desert Projects (New York Times, 2008)

• Solar Energy on Public Lands Faces More Opposition (Cooler Planet, 2009)

• California Ground Zero for Solar Battles (Environmental Leader, 2009)

• Green Battle Rages in Desert (Wall Street Journal, 2010)

• Steering committee opposes solar project (Daily Independent, 2010)

• Newberry Springs Solar Proposal Draws Opposition (Mojave Desert Blog 2010)

• The Chilean Supreme Court order consultation (ILO 169) - examples include the

geothermal project in the Taparacá and the wind farm project in Chilóe.30

• Natural gas developments in US, Poland, Romania delayed or banned over concerns

regarding hydraulic fracturing.

• Social and legal license increasingly overlap requiring proof of “no harm” and

delivery of local benefits; e.g. hydraulic fracturing.

• Project acceptance by communities - BSR work with Shell Wind Energy

demonstrated importance of providing benefits, concerns over siting, and revenue

distribution.

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Energy Industry Response to

Trends

Responses to Expectations & Value Proposition

• CSR has become more about business priorities and less about

philanthropy

• Engagement is increasingly the norm with advocacy becoming less

credible

• Topics covered under CSR umbrella are generally predictable and are

identified and managed through more formalized and increasingly

systematic approaches.

Materiality and Impacts (includes

engagement)

Management Strategy, Policies and

Systems

Execution, Monitoring, & Accountability

•Climate

•Water

•Safety & Environment

•Social License to Operate

•Community Relations & Development

•Human Rights

•Public Policy

•Employment & ProcurementTransparency, Reporting and

Disclosure

CSR TopicsSystematic Approaches

Responses to Expectations & Value Proposition:

Management Systems for Social License and Community Engagement

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Achieve local sustainable performance through corporate- and field-level

activities integrating environmental and social performance issues.

Examples

Stakeholder / Community Engagement

Do No Harm

• Water access / quality

• Resettlement

• Human rights

• In-migration

• Livelihoods

• Community health and safety

Issue

Identification &

Alignment

Formalized

Impact

Assessments

Strategy

Development &

Management

Planning

Implementation

and Monitoring

Value Creation

• Local Content and Business

Development

• Strategic Community

Investment

• Capacity Building

1 2 3 4

ExxonMobil’s Environmental and Socioeconomic Management Process

Shell’s Venture Support Integrators

Responses to Expectations & Value Proposition:

Avoiding “Fatigue” through Strategic Community Relations

20

Acknowledge Monitor Message Engage Partner /

Collaborate

• Be Aware of

Stakeholders

and their

Agendas

• Actively Monitor

stakeholders

including media

scans, internet

searches

• Include in

corporate or asset

communications,

large-scale

meetings

• Participate in two

way dialogues

focused on mutual

learning, solutions,

and commitments.

• Often involves

formal agreements

covering

governance and

accountability

Acknowledge9%

Monitor25%

Message36%

Engage24%

Collaborate6%

Stakeholder relations

requires transparency

and openness to

maintain credibility

Prioritization is required

to ensure overall

effectiveness

True partnerships are selective & build on other stakeholder approaches

Opportunities for Ongoing Improvement

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Many companies have developed advanced approaches to managing non-

technical and social risk, but most still have room to align sustainability

efforts with commercial activities.

•Coordination across departments and with contractors

•Better consistency during handoffs and project lifecycle (e.g. construction

demobilization, closure)

•Earlier consideration of social impacts and issue management during due

diligence

•Factoring CSR issues into cost, scheduling, and budgeting

•Expand focus from “downside” risk management to include “upside” benefits

(which ultimately provides commercial benefits through shared value)

• Opportunities areas include: