One of the most challenging new paradigms for the international petroleum industry is sustainable development.
Indeed, when I spoke at the Offshore Technology Conference in Houston last May, I wondered whether I might not be torn limb from limb. The fact that I am still intact may say something for Texan civility, but I think it says just as much about the way in which the oil industry is having to acclimatize itself to the rapidly evolving sustainability agenda.
Is 'Big Oil' sustainable?
Speaking in the home town of the former Amoco Corp., I suspected that many of those at the conference were uneasily aware that the old order was changing. But it was far from clear how many were actively trying to think in sustainability terms beyond the narrowest-often personal-definitions.
At SustainAbility Ltd., we have focused a good deal of effort on the oil sector over the years. Indeed, we have just completed a major review of environmental and social reporting activities in the oil industry.
Working for the United Nations Environment Program (UNEP), we conducted an original mapping of current and planned disclosure against a set of commonly used environmental indicators at 50 leading international oil companies. The companies chosen were all integrated petroleum firms, with the exception of four additional companies we considered to be on the leading edge of environmental performance disclosure: Saga Petroleum AS, Statoil AS, Sunoco Inc., and Suncor Inc.
The study involved firms with operations around the world, taking in countries as diverse as Russia and Venezuela. In analyzing the results, we identified six key drivers of greater disclosure requirements:
- The need for companies to satisfy communities' and individuals' right to know about actions that directly affect their health, safety, and local environment.
- The drive to improve company performance in the social and environmental arena through the process of measuring and publicly reporting on progress.
- The pressure to demonstrate corporate accountability for a company's social and environmental effects by public reporting.
- The demand for new ways of aggregating emissions levels and resource use across companies, particularly post-Kyoto in the area of greenhouse gas emissions.
- The understandable desire to communicate any contributions toward the sustainability agenda-by measuring and reporting not only impacts but also various forms of value added.
- And the ultimate requirement to add shareholder value by demonstrating a superior ability to manage financial, environmental, and social performance and effects and to communicate this competitive edge to financial analysts.
Underlying all of this work is the evolving business concept of the triple bottom line (TBL), a phrase SustainAbility coined in the mid-1990s. The business case and implications are explored in a book called Cannibals With Forks: The Triple Bottom Line of 21st Century Capitalism.
The triple bottom line
When we find ourselves working with oil companies like BP Amoco PLC, Norsk Hydro AS, or Royal Dutch/Shell, we stress one basic message: The sustainability agenda, long understood as an attempt to harmonize the traditional financial bottom line with emerging thinking about the environmental bottom line, is turning out to be much more complicated than some early business enthusiasts imagined.
Increasingly, we must think in terms of a TBL, focusing on economic prosperity, environmental quality, and-the element business had tended to overlook-social justice. To refuse the challenge implied by the TBL is to risk extinction.
These are not simply issues for major transnational corporations; increasingly, they will be forced to pass the pressure on down their supply chains to smaller suppliers and contractors. These changes flow from a profound reshaping of society's expectations and, as a result, of the local and global markets business serves.
With its dependence on seven closely linked revolutions (see Fig. 1), the sustainable capitalism transition will be one of the most complex our species has ever had to negotiate. As we move into the third millennium, we are embarking on a global cultural revolution. Business, much more than governments or nongovernmental organizations (NGOs), will be in the driver's seat. Paradoxically, this will not make the transition any easier for businesspersons. For many, it will prove gruelling, if not impossible.
Below, I will discuss briefly each of these seven building transitions.
Revolution 1 will be driven by competition, largely through markets.
For the foreseeable future, business will operate in markets that are more open to competition, both domestic and international, than at any other time in living memory. The resulting economic earthquakes will transform our world.
When an earthquake hits a city built on sandy or wet soils, the ground can become thixotropic: in effect, it turns to jelly. Entire buildings can disappear into the resulting quicksands.
In the emerging world order, entire markets will also go thixotropic, swallowing entire companies, even industries. Learning to spot the market conditions and factors that can trigger this process will be a key to future business survival, let alone success.
In this extraordinary environment, growing numbers of companies are already finding themselves challenged by customers and the financial markets about aspects of their TBL commitments and performance. And, although we will undoubtedly see continuing cycles based on wider economic, social, and political trends, this pressure can only grow over the long term. As a result, business will shift to a new approach, using TBL thinking and accounting to build the business case for action and investment.
Revolution 2 is being driven by the worldwide shift in human and societal values.
Most businesspersons-indeed, most people-take values as a given, if they think about them at all. Yet our values are the products of the most powerful programming that each of us has ever been exposed to. When they change, as they seem to do with every succeeding generation, entire societies can go thixotropic. Companies that have felt themselves standing on solid ground for decades suddenly find that the world as they knew it is being turned upside down, inside out.
Remember Corazon Aquino's peaceful revolution in the Philippines? Or the extraordinary changes in Eastern Europe in 1989? Recall the experiences of Shell during the Brent spar and Nigerian controversies, with the giant oil company later announcing that it would in the future consult NGOs on such issues as the environment and human rights before deciding on development options? Think, too, of Texaco Inc. The US oil company paid $176 million in an out-of-court settlement, in the hope that it would bury the controversy about its poor record in integrating ethnic minorities.
Revolution 3, transparency-already under way-is being fuelled by growing international transparency and will accelerate. As a result, business will find its thinking, priorities, commitments, and activities under increasingly intense scrutiny worldwide. Some forms of disclosure will be voluntary, but others will evolve with little direct involvement from most companies.
In many respects, the transparency revolution is now out of control. This process is being driven by the coming together of new value systems and radically different information technologies, from satellite television to the internet.
The collapse of many forms of traditional authority also means that a wide range of different stakeholders increasingly demand information on what business is going and planning to do. Increasingly, too, they are using that information to compare, benchmark, and rank the performance of competing companies.
Revolution 4-a focus on the complete life cycle-is being driven by and, in turn, is driving the transparency revolution.
Companies are being challenged about the TBL implications either of industrial or agricultural activities far back down the supply chain or of their products in transit, in use, and, increasingly, after their useful life has ended.
Here, we are seeing a shift from companies focusing on the acceptability of their products at the point of sale to a new emphasis on their performance from cradle to cradle-i.e., from the extraction of raw materials right through to recycling or disposal. Managing the life cycles of technologies and products as different as batteries, jumbo jets, and offshore oil platforms will be a key emerging focus of 21st-century business.
Revolution 5 will dramatically accelerate the rate at which new forms of partnership spring up between companies, and between companies and other organisations, including some leading campaigning groups. Organizations that once saw themselves as sworn enemies will increasingly flirt with and propose new forms of relationships with "opponents" seen to hold some of the keys to success in the new order.
As even groups like Greenpeace gear up for this new approach, we will see a further acceleration of the trends driving the third and fourth sustainability revolutions.
None of this means that we will see an end to friction or even outright conflict. Instead, campaigning groups will need to work out ways of simultaneously challenging and working with the same industry, or even the same company, they previously battled.
Time is short, we are told. Time is money. But, driven by the sustainability agenda, Revolution 6 will promote a profound shift in the way we understand and manage time.
As the latest news erupts through CNN and other television channels within seconds of the relevant events happening on the other side of the world, and as more than $1 trillion sluices around the world every working day, so business finds that current time is becoming ever "wider." This involves the opening out of the time dimension, with more and more happening every minute of every day.
By contrast, the sustainability agenda is pushing us in the other direction, towards "longer" time.
Given that most politicians and business leaders find it hard to think even 2 or 3 years ahead, the scale of the challenge is indicated by the fact that the emerging agenda requires thinking across decades, generations, and, in some instances, centuries. As time-based competition-building on the platform created by techniques like just-in-time inventory management-continues to accelerate the pace of overall competition, the need to build a longer time dimension into business thinking and planning will become ever more pressing.
The use of scenarios, or alternative visions of the future, is one way in which we can expand our time horizons and spur our creativity.
Ultimately, whatever the drivers, the TBL agenda is the responsibility of the corporate board. This is Revolution 7.
This change is being driven by each of the other revolutions and is also resulting in a totally new spin being put on the already energetic corporate governance debate. Now, instead of just focusing on issues like the pay packets of "fat cat" directors, new questions are being asked. For example: What is business for? Who should have a say in how companies are run? What is the appropriate balance between shareholders and other stakeholders? And what balance should be struck at the level of the triple bottom line?
The better the system of corporate governance, the greater the chance that we can build towards genuinely sustainable capitalism. To date, however, most TBL campaigners have not focused their activities at boards; nor, in most cases, do they have a detailed understanding of how boards and corporate governance systems work. This, nonetheless, constitutes the jousting-ground of tomorrow.
Once, the battle raged in the public domain between activist NGOs on the one side and corporations on the other. Governments held the ring. Today, by contrast, the battle lines have moved inside companies, inside organizations like the World Business Council for Sustainable Development (WBCSD), and inside many of those same NGOs.
Some companies want to engage across the sustainability agenda; others are, frankly, frightened out of their wits by the prospect. Some businesspersons believe that greater transparency and commitment to the TBL is now essential. But often they are having to fight dissenting colleagues every step of the way.
An organization like WBCSD may have started to address the social dimensions of sustainable development with major conferences last year in London and Amsterdam, but many of its corporate members remain unpersuaded, even hostile.
In the NGO world, some activists see the benefits of corporate engagement and of extending the agenda to include economic, social, and environmental factors; others view the prospect with dismay, fearing that the result will be that their single-issue approaches will consign them to oblivion.
But the overall trend-as illustrated by the extraordinarily positive reaction to the Global Reporting Initiative (GRI), launched by the Coalition for Environmentally Responsible Economies and a broad coalition of accountancy, business, consultancy, and NGO partners-is very much towards growing demands for greater accountability and transparency right across the TBL agenda.
It is no accident that Sustainable Asset Management, the Swiss investment fund, has taken a TBL approach in the questionnaire it sent out to some 2,000 major companies worldwide at the end of 1998. And the fact that they are doing this is partnership with Dow Jones has persuaded many of those companies that the financial world has at last begun to wake up to the sustainability agenda. If this is the case, the oil industry's embryonic TBL accounting and reporting initiatives will soon have to go into overdrive.
John Elkington is chairman and cofounder of SustainAbility Ltd., a London-based management consultancy dedicated to promoting sustainable development through corporate social and environmental responsibility around the "triple bottom line" concept. He is one of Europe's leading authorities on sustainable development and environmental strategies for business. Since 1974, he has performed consulting work for a wide range of national and international government and nongovernmental agencies and for a broad spectrum of corporate clients.
He is chairman of the Environment Foundation and a member of the EU Consultative Forum on Environment and Sustainable Development. He is coauthor of the Green Consumer Guide, and his latest book is titled, "Cannibals With Forks: The Triple Bottom Line of 21st Century Business." He has a BA in sociology and social psychology from the University of Essex and an master of philosophy in urban and regional planning from University College, London.