Now that many companies have adopted corporate responsibility policies and management systems, questions are being asked about the extent to which these policies lead to tangible changes in social and environmental performance at site level.
The best companies provide detailed information in their corporate responsibility reports on many aspects of environmental performance. However, because of inconsistencies in reported information and the general lack of site-level reporting, it remains difficult for investors and other stakeholders to assess whether policy is indeed being translated into good practice.
In late 2003, Insight Investment (the investment arm of HBOS) and the London School of Economics established a collaborative research project to examine these issues. The research focused on the oil and gas sector, as these companies have been at the forefront of discussions on corporate responsibility and reporting.
The Standards Challenge
The first stage of the research reviewed the corporate responsibility policies of firms in the oil and gas sector, focusing specifically on U.K.-listed oil and gas companies. Among the leaders -- BP, BG, Shell -- corporate policies on social and environmental issues are comparatively well developed. However, even among the leaders, it is not clear how these top-level policies apply to site operations. For example, companies do not publicly state what standards (for example, on ambient air quality) they aim to meet. It also appears that site managers have considerable discretion in how corporate policies are interpreted and implemented.
Across the oil and gas sector, data on site-level performance, where available, is not provided in a common, consistent format by different firms. This lack of consistency makes it virtually impossible to compare and contrast performance, be it from company to company, from site to site, or over time.
Inconsistent Registries
In some countries, the absence of corporate reporting on site-specific performance is compensated for by the publication of Pollutant Release and Transfer Registers by government. These registers provide site-level emissions data in a standardized format for industrial facilities and other significant sources of emissions.
The registers that have been established -- most notably the U.S. Toxics Release Inventory and the EU European Polluting Emissions Register (EPER) -- are often not entirely compatible. Common problems include inconsistencies in the reported data, data not being available for all years, the general absence of data on incidents or breaches of compliance, and the limited links with related data such as ambient air quality or health.
Despite these limitations, the data that are made available through these pollution registers clearly have value. Using data from the U.S. and European Union, we found significant variations in the emissions of some key pollutants from the 250 oil refineries in the EU and the U.S. For example, dirty refineries emit at least five times as much pollution as cleaner refineries, and refineries in the EU emit, on average, more than twice as much as refineries in the U.S.
At the local level, the research revealed strong correlations between higher levels of emissions from refineries and lower levels of income, employment and population density in the districts in which the refineries are located. Although some environmental non-governmental organizations might be tempted to say that this proves that companies adopt lower standards in poorer areas -- a key aspect of the debate on environmental justice -- it is important to emphasize that these findings do not reveal anything about the factors that might lead to these correlations. For example, variations in regulatory requirements or differences in the age of refineries may be significant influences on the emissions from different facilities.
Consistency in Reporting, Please
Our research indicates that there is substantial scope for industrial companies (not just those in the oil and gas sector) to focus more on corporate responsibility performance. That is, in addition to top level policy commitments, companies should consider adopting more specific policies on site environmental performance.
Companies should also ensure that these policies are implemented consistently across the business, and should publish clear, consistent and comprehensive reports on performance, including on emissions and outcomes at the site level. It is relevant to note that a number of companies already produce site-specific or country-specific reports (for example, BP and Shell in the oil and gas sector, and Anglo American in the mining sector).
While these recommendations are relatively uncontroversial, more complex questions emerge on the issue of site-specific performance. Should companies necessarily adopt the same standards wherever they operate? If not, should they only comply with local laws?
What should companies do if these laws fail to provide adequate protection for local communities? Should companies then comply with certain minimum standards, such as United Nations or World Health Organization ambient quality standards? What should a company do when it contributes to, but is not the sole cause of, a breach of those minimum standards?
Public Policy and Credibility
One of the key findings of the research is that many stakeholders do not see corporate disclosures (both corporate reports and emissions data) as credible. This lack of credibility is a barrier to effective stakeholder engagement. The research has indicated that pollutant release and transfer registers can play an important role in enabling stakeholders -- at least those with the capacity to access and process the data -- to make more informed judgments about corporate performance.
Potentially, this gives these stakeholders greater ability to encourage improvements in corporate environmental performance by allowing them to compare company performance and to put pressure on regulators to take action to reduce emissions.
From a company perspective, these registers can be of benefit by providing a single trusted source of environmental information. For those registers that include data on emissions from sources such as transport, companies should benefit by having their emissions placed in the context of total emissions within a region. This is of importance as it is frequently the case that industrial sources are just one of the contributors to local air quality impacts.
What Should Government Do?
In order to deliver these benefits, there is a need for national pollution registers to be made more compatible, and to include more company-specific information, such as ISO14001 certification, and local environmental data, such as ambient air quality and public health data.
In order to address the issues around site-specific reporting, an ideal starting point would be for the U.S. and the EU (possibly in conjunction with the Organization for Economic Co-operation and Development) to encourage those firms with headquarters or stock market listings within these countries to report site-specific data in a common format for all of their sites around the world.
However, the reality is that governments would be unlikely to take such a step without some indication that companies would be comfortable with this. Initially it may be possible for industry -- not just the oil and gas sector but also other major industrial sectors -- to sign up to a voluntary "EPER plus", where standard emissions and other relevant data are reported by all facilities, with oversight provided by governments or an independent third party.
This vision of a voluntary EPER is certainly not beyond the bounds of possibility. As an example of what could be achieved, the International Petroleum Industry Environmental Conservation Association has just released its report: "Oil and Gas Industry Guidance on Voluntary Sustainability Reporting", which presents a series of standardized reporting indicators for the industry, which are expected to be released later in the summer. It is likely that all of IPIECA's members (which include most of the major oil and gas companies) will report against these indicators. This is a valuable first step in moves towards better and more consistent environmental reporting.
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Andy Gouldson is deputy director of the Center for Environmental Policy and Governance at the London School of Economics. Rory Sullivan is director of investor responsibility at Insight Investment.
This article has been reprinted courtesy of Ethical Corporation. It was first published on Aug. 3, 2005.
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