CSR REPORT SHELL

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Resit CSR report 2015

Mr. Galema 15/05/2015

Table of Content

Chapter 1 CSR issues ............................................................................................................ 3

1.1 Stakeholders analysis ............................................................................................................... 3 1.1.1 Definition ............................................................................................................................. 3 1.1.2 Explanation .......................................................................................................................... 3

1.2 Sustainability ............................................................................................................................ 4 1.2.1 Definition ............................................................................................................................. 4 1.2.2 Explanation .......................................................................................................................... 4

1.3 Codes developed by OECD ...................................................................................................... 4 1.3.1 Definition ............................................................................................................................. 4 1.3.2 Explanation .......................................................................................................................... 5

1.4 People Planet Profit .................................................................................................................. 7 1.4.1 Definition ............................................................................................................................. 7 1.4.2. Explanation ......................................................................................................................... 7

Chapter 2 Background of Shell ............................................................................................ 8

Chapter 3 Models .................................................................................................................. 9 3.1 Rhine land model .......................................................................................................................... 9 3.2 Anglo-saxon model ....................................................................................................................... 9 3.3 Nordic model ................................................................................................................................. 9 3.4 Choice of a model .......................................................................................................................... 9

Reference list ........................................................................................................................... 11

Introduction

In this report, Royal Dutch Shell plcs practice on corporate social responsibility will be explored. This will be done according to four accountability issues in the first chapter. The first issue that will be discussed is the stakeholder analysis. Secondly, Shells sustainability practices will be expored. After that, the Organisation for Economic Co-operation and Developmend (OECD) Guidelines for Multinational Enterprises (MNEs) will be explored where after it will be discussed weather or not Shell complies with these guidelines. In the fourth issue in the first chapter, Elkingtons (1994) three pillars of sustainability (people, profit & planet) are described. Also in this part it will be explained how Shell deals with this triple bottom line (3BL or TBL).

The second chapter describes the company as a whole and the number people Shell employs, the sales they have, and the markets in which they operate. Furthermore, international exposure of the company is elaborated upon.

After this is done, the Rhineland, Anglo-Saxon and Nordic/Scandinavian models will be explained where after the most applicable model is chosen for Royal Dutch Shell plc.

Chapter 1 CSR issues 1.1 Stakeholders analysis 1.1.1 Definition A stakeholder can be described as a person with interest in how a business operates or the influence the business has. There are different kind of stakeholders. Some stakeholders are internal involved in a business, an example of this is the government. For a business it is important to know their stakeholders and the needs and expectations they have. When this is identified a business is able to act responsible to their stakeholders in order to keep them involved in the business (Balancing stakeholders needs, p. 1, n.d.). A stakeholder analysis is a tool to identify the key stakeholders within certain project and activities. Furthermore, it helps to identify the operations of the stakeholders and the developments between stakeholders and the project teams. The reason for doing this is analysis is to ensure an efficient outcome for the project or future changes. Stakeholders can be categorized in two categories. The first one is called the primary stakeholders. These people are directly involved in a business and directly affected by the operations of a business. The second category is called the secondary stakeholders. These stakeholders are indirectly involved and affected by a business. However, they are interested in the performance of the company and can indirectly influence the decisions made by Shell (Stakeholders analysis, n.d.). 1.1.2 Explanation The stakeholders analysis will be described dividing the stakeholders in the two categories as mentioned in the previous paragraph. First, the primary stakeholders. The first primary stakeholders of Shell are their shareholders. The shareholders provide part of the companys profit to run the business. In exchange, the shareholders receive dividend. The shareholders are directly involved, because they choose the board of directors and a strategy for the company. The shareholders are directly affected, because the earned profit decides the dividend they will receive. The second stakeholders are the employees of Shell. The efficiency of the employees have a positive effect on the business performance. Therefore, the employees of Shell are influenced by their conditions and way of working. The final primary stakeholder of Shell are their Suppliers. Shell influences the suppliers, because they want their supplier to work according certain values. If suppliers do not work according to these values, Shell does not want to work with them. The second category is the secondary stakeholders. The first secondary stakeholders are the customers. Shell understands that without customers the company would not be able to operate. Therefore responds the company to changes in the needs of their customers. Shell has set global expectations to fulfil the needs of their customers. The second secondary stakeholders are the local communities. Local communities, especially the ones close to oil refineries, are concerned about the safety. With the help of different plans, Shell wants to overcome their fears and create trust. Furthermore, Shell is providing other plans and activities to help people and communities. The other secondary stakeholders are the government, other oil companies and the media (Balancing stakeholders needs, p. 3 & 4, n.d.).

1.2 Sustainability 1.2.1 Definition Sustainability are conditions that are made to provide humans and nature to exist in harmony and these conditions will provide the same for future generations. Sustainability is social, economic and other requirements that are needed to fulfil the mentioned above. The requirements will protect water, resources and materials to provide good conditions for the present and future generations (what is sustainability, n.d.). 1.2.2 Explanation Shell is concerned about its environment as well and sees the need of being sustainable. Shell is not only doing it for the environment, but also for their customers. Customers are nowadays more concerned about the environment and want to buy sustainable product. The maintain their customers, Shell is adapting to their needs. To explain the sustainable activities of Shell, the global unsustainable energy problems have to be explained first. The amount of CO2 emissions needs to be reduced. The CO2 emissions affect the climate system negatively. Furthermore, the demand of energy is increasing rapidly. The first sustainable measure Shell does is providing gas, which is the cleanest burning fuel fossil. Gas will be used as a back-up on solar and wind energy. To help reducing the amount of CO2 emissions Shell with a technology innovation called CCS. However, it is not certain if this technology will operate efficiency and will be able to actually reduce the CO2 emissions in the air. Shell is trying this out in their first CCs project that will start this year in Alberta, Canada. Furthermore, Shell is creating biofuels that change the waste of a plant into low carbon energy. This measure will reduce the amount of CO2 as well. Finally, Shell is investing lots of money into research and development projects which will have outcomes to change their procedures and become more sustainable (sustainability report, p. 8, 2014). 1.3 Codes developed by OECD 1.3.1 Definition The Organisation for Economic Co-operation and Development (OECD) is an international organisation established in 1961 with the aim stimulating economic progress and world trade. 34 countries highly developed countries are members of the OECD, raising a budget of EUR 357 million. The OECD core values state that they are objective, open, bold, pioneering, and ethical.

Nowadays, the focus of the organisation is on helping governments around the world to:

Restore confidence in markets and the institutions that make them function, Re-establish healthy public finances as a basis for future sustainable economic growth, Forster and support new sources of growth through innovation, environmentally

friendly green growth strategies and the development of emerging economies, Ensure that people of all ages can develop the skills to work productively and

satisfyingly in the jobs of tomorrow (oecd.org, 2015).

In order to do this, the OECD specifies several topics in which they operate, one these is corporate governance. For this topic, the organisation publicised the guidelines for Multinational Enterprises (MNEs). In the first part of this report, guidelines are elaborated on, in the second part, the implementation procedures are explained. These guidelines in the first part are on general topics, but also on

Disclosure of information, Human rights, Employment and industrial relations, Environment, Combating bribery, bribe solicitation and extortion, Consumer interests, Science and technology, Competition, Taxation (Oecd, 2011).

1.3.2 Explanation The elaborate website of Shell shows that the corporation pays attention to public relations and strives to provide transparency on their business values. The How we do business page is an example of this. The tab Business integrity says that Shell applies their core values of honesty, integrity and respect for people trough their code of conduct (Shell.com, 2015). In addition, Shell was one of the first corporations to share their beliefs when they published their General Business Principles in 1976 (Shell.com, 2015).

Figure 1: Shell Core Values, Business Principles (Shell International Limited, 2014).

How employees should apply these business principles is stated in their code of conduct. Furthermore, there is a code of ethics designed for executive directors and senior financial officers of the Shell group. In addition, Shell regularly publicises reports on sustainability, anti-corruption, responsible chemistry and the like. The compliance section in their business principles state that Shell complies with all applicable laws and regulations of the countries in which they operate. In addition, the 2014 sustainability report states that Shell supports the OECD Guidelines. However, the Organisation for the Economic Co-operation and

Development does not make laws, but provide guidelines. It is much disputed weather Shell does comply with these guidelines.

Eldis, an organisation funded by the UK Department for International Development (DFID), Swedish International Development Cooperation Agency (Sida), the Norwegian Agency for Development Cooperation (Norad) and the Swiss Agency for Development and Cooperation (SDC) shares content from many development organisations. Broken Promises; How Shells non-compliance with the OECD Guidelines harms people and the environment. Is the title of a report by Friends of the Earth, the UKs most influential national environmental campaigning organisation, calling for changes to company law to make UK companies more accountable for the social and environmental impacts of their operations. This report gives several cases of non-compliance of OECD guidelines by Shell. An example is below.

II (2) Enterprises should respect the human rights of those affected by their activities consistent with the host governments international obligations and commitments.

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Shells joint venture Motiva refinery in Port Arthur emits massive quantities of toxins known to damage the human cardiovascular and respiratory systems. 80 per cent of West Port Arthur residents suffer from heart conditions and respiratory problems, compared to 30 per cent of people who do not live near an oil refinery. (Friends of the Earth, 2006)

Another source that reports Shell violating the OECD Guidelines for Multinational Enterprises (MNEs) is SOMO; an independent, not-for-profit research and network organisation working on social, ecological and economic issues to sustainable development since 1973. SOMO.nl (2009) states that Shells Philippine subsidiary Pilipinas Shell Petroleum Corporation (PSPC) and two other oil companies operate an oil depot in Pandacan, a densely populated area of Manila. According to local residents and elected officials, the depot is a source of environmental hazards and is a safety risk for residents in the surrounding neighbourhoods.

To conclude this subject, Shell shows good intentions for corporate social responsibility and complies with all applicable laws and regulations of the countries in which they operate (Shell International Limited, 2014). Up for question is weather or not they also comply with all OECD guidelines.

Researcher Joseph Wilde, states on SOMO.nl (2009) that "Shell has again demonstrated in this case that it is naive to assume that companies will voluntarily place social and environmental interests above their own short-term economic interests. Reforms must be made to ensure that compliance with the OECD Guidelines is no longer optional",

On the other hand, Shell is a giant company active all over the world. This means that the management can genuinely intent to follow guidelines, but this is not always reality. In the recent history, there have been numerous reports on Shell not following guidelines. However, all cases where the OECD guidelines are applied correctly by Shell are regarded as business as usual. Therefore, Shell is considered aware of their environment and social responsibility and is putting much effort in enforcing the OECD guidelines for MNEs, but does not always succeed.

1.4 People Planet Profit 1.4.1 Definition People Planet Profit (three Ps) are the three pillars of sustainability as described by John Elkington (1994) in the California management review. More commonly known as the Triple Bottom Line (3BL or TBL), this accounting framework encompasses the social, environmental, and financial divisions of doing business. In this approach, Elkington went beyond traditional measures of profits, return on investment, and shareholder value to include environmental and social dimensions. Calculating the three Ps is what is more challenging. Naturally, profits can be measured in currency but people and planet values are disputed. Some propose monetizing all the dimensions of the TBL, while others prefer an index. One way or the other, governments, Non-Governmental-Organisations (NGOs), companies, and other stakeholders agree that sustainability is a very important matter that should be addressed.

1.4.2. Explanation In 1997, Shell was one of the first multinationals to produce a sustainability report. The title of this report was People Planet Profit and stayed the same till 2002, where the name was changed to the sustainability report. In the 1999 version, the introduction gives a clear overview of Shells commitment to sustainability.

We believe that our commitment to contribute to sustainable development holds the key to our long-term business success. The values that underpin sustainable development are embodied in our Business Principles that provide the foundation for everything we are and everything we do.

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We will evaluate the economic, environmental and social impact of our options and strive to get the balance right in our decisions. This will mean that some business decisions will be made differently and some may have different outcomes from the past. (Shell, 1999).

In the most recent sustainability report from 2014, Chief Executive Officer (CEO) Ben van Beurden states that Advanced economies will need to review their energy mix to ensure they make the best use of all options. and that sustainability at shell includes being a respected and valued member of society (Shell, 2014).

In their latest sustainability report, Shell states that they embed sustainability across all their projects in the world by conducting integrated assessment on the potential environmental, social, and health impacts. Also, they conduct specific risk assessment or specialist studies in areas that may affect the project, such as water, cultural heritage or security. The last point is that Shell is engaging with and assessing concerns from communities (Shell, 2014).

Overall, the view is that Shell is very aware of its social responsible and has been setting and has put in effort to comply with international law and guidelines. Also, as a public company, they deliver a great amount of information on sustainability and the People, Planet & Profits view to their shareholders. Therefore it is concluded that Shell is working hard to do business ethically and responsible while remaining profitable on the long-term.

Chapter 2 Background of Shell

Royal Dutch Shell plc, commonly known as Shell, was founded by the merger of Royal Dutch Petrolium and Shell Transport & Trading in 1907. Shell is an Anglo-Dutch multinational oil and gas company. Also, Shell is a dual-listed company, which means that the stock is listed on both Euronext and the London Stock Exchange (LSE). In more depth, in the last ten years the stock had a low of 16.93 in March 2009 and a high of 30.80 in July 2014 on the Amsterdam Exchange Index (AEX). In addition, they employ around 94,000 people in more than 70 countries and territories (Shell, 2015). Furthermore, Shell is headquartered in Amsterdam and has a registered office in London. Although the company is dual-listed, it has a single-trier executive Board of Directors led by CEO Ben van Beurden. Over the year 2014, revenues were 421,105 Million US Dollar, the third consecutive year of falling revenues. However, Shell is very solvent, as assets contribute to 353,116 Million US Dollar and debts are 45,540 US Dollar in total. As a result, the debt to asset ratio is 0.13, which indicates that the company is healthy for the future.

The objectives of the Shell group are to engage efficiently, responsibly and profitably in oil, oil products, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the worlds growing demand for energy (Shell, 2015). A visual representation of Shells business activities is below.

Figure 2: Business Overview (Shell, 2015)

In addition, Shell has four major business units. The first, Upstream International manages Shells Upstream activities outside the Americas. It explores for and recovers crude oil, natural gas and natural gas liquids, transports oil and gas, and operates the upstream and

midstream infrastructure necessary to deliver oil and gas to market. The second business unit is Upstream Americas and basically does the same as the first unit, but this time for the Americas. The third business unit is Downstream. In this unit, Shells refining and marketing activities for oil products and chemicals are managed. These activities are organised into globally managed classes of business. The Projects and Technology unit manages the delivery of Shells major projects and drives research and innovation to create technology solutions (reports.shell.com, 2015).

Chapter 3 Models 3.1 Rhine land model The company within the rhine land model is a work community where it is only possible to exist if there is a permanent value added. The value added, also called capital, comes from private investors and banks with both a high level of knowledge. There is only a small group of people involved in influencing the management to increase cash flow and changing the activities. This model is common used in Europe (Rhineland model vs.., 2011). 3.2 Anglo-saxon model In this model, the company creates capital by selling stocks on the stock market. The person is charge of the company is the CEO, which the shareholders have to trust when buying stocks. The earnings of the business can be increased by saving costs, mergers and acquisitions. This model is mostly used in the United States (Rhineland model vs, 2011). 3.3 Nordic model The Nordic model is different than the other two above mentioned model. This model describes a set of basic values. The model is based on the ethics of equal opportunities, social agreement and security for everyone. The model encourages social rights and that everyone needs to have equal access to social and health services, education and culture. The main goal of this model is to create opportunities for all human beings to participate in a social life and the decision making process within the society. The welfare is financed by the taxes, which are high in the Scandinavian region (about the Nordic, n.d.). 3.4 Choice of a model The model that is most applicable to Shell is the Anglo-saxon model. As mentioned in the description, in this model the capital is earned by shareholders. The existence of Shell is also due to shareholders that have bought their stocks. Furthermore, a CEO leads shell. However, the shareholders, employees, and more have an influence on the company. The company listens to the needs of others and adapt to it. This is the reason why Shell is a worldwide known and successful company. Looking at the other models, Shell does not have anything in common with them. As mentioned at the definition of the Rhine land model, Shell has not created capital via banks and private investors. Looking at the other model, the Nordic model, Shell does not have anything in common with this model either. The company creates core values and requirements their employees, suppliers, etc. have to meet. However, this is different than the values within the Nordic Model. Shall does not want to establish equality, they want to establish efficiency, sustainability and profit.

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Shell International Limited,. (2014). Shell Core Values, Business Principles. Retrieved from http://s03.static-shell.com/content/dam/shell-new/local/global-content- packages/corporate/sgbp-english-2014.pdf Somo.nl,. (2009). Shell violates OECD Guidelines in the Philippines SOMO. Retrieved 14 May 2015, from http://somo.nl/news-en/shell-violates-oecd-guidelines-in-the-philippines Stakeholders analysis. (n.d.). Retrieved from http://asq.org/service/body-of-knowledge/tools- stakeholder-analysis What is sustainability? (n.d.). Retrieved from http://www.epa.gov/sustainability/basicinfo.htm