|August 03, 2006|
BP, Suncor, and Shell Top Oil Sector Sustainability Rating
|Toronto, Canada (by www.socialfunds.com) - Oil and gas companies have been fueled by record profits and strong investment returns recently -- and are continuing to be exposed to social and environmental risks. |
These "above ground" issues, as they are called by some energy companies, are increasingly understood as having material impacts on financial performance by mainstream investors. So implementing best practice to address social and environmental issues is not merely an ethical statement by oil and gas companies to appeal to social investors, but also a financially savvy risk management strategy attractive to more conventional investors as well.
Toronto-based socially responsible investing (SRI) research firm Jantzi Research recently released a report entitled Oil and Gas in a Bull Market: The Shifting Sands of Responsibility that rates and ranks 23 oil and gas companies on their social and environmental performance. UK-based BP (ticker: BP) topped the list with a score of 6.8 (out of 10), with second through fourth places going to Canada-based Suncor Energy (SU--6.5), Nexen (NXY--6.3), and Petro-Canada (PCZ--6.1) respectively, and UK-based Shell (RD--6.0) rounding out the top five.
"It is interesting to note that the top performers are dominated by European and Canadian companies, while all eight of the U.S. companies evaluated for this report received below-average scores," states the report.
Chevron (CVX) ranks the highest of the US-based companies at the 12th position with a score of 4.3, followed by Burlington Resources (BR--4.2) in 13th, Marathon Oil (MRO--3.9) in 15th, and ExxonMobil (XOM--3.7) in 18th.
Using the best-of-sector approach it helped pioneer to identify social and environmental leaders in a sector, Jantzi rates companies in four categories: environment (30 percent), community and society (25 percent), human rights (25 percent), and health and safety (20 percent). Reflecting the significance and complexity of environmental issues, Jantzi breaks this category down into multiple layers of subcategories. For example, under the "impact and initiatives" subcategory, it looks at greenhouse gas (GHG) emissions, further breaking the down to GHG emissions record and GHG management systems.
Unsurprisingly, the overall leaders perform well in GHG emissions reductions. The report highlights the fact that BP set aggressive targets in the late 1990s (well before its competitors) to reduce GHG emissions to ten percent below its 1990 level by 2010, and achieved this target within three years, almost a decade ahead of schedule.
"In contrast, many US oil and gas companies are only in the beginning stages of acknowledging climate change as a corporate concern and business issue," states the report. "Only six of the US companies evaluated track or report their GHG emissions."
The report also pokes holes in the inflated rhetoric of companies whose primary product pollutes the environment not only under ordinary use but also in the exploration, extraction, and refining of it.
"Despite the claim by some oil and gas companies that they are 'sustainable,' along with their issuance of annual 'sustainability reports,' the reality is that oil and natural gas are, in every practical sense, finite resources," the report says. "For these reasons, investment in renewable (and sustainable) energy is one of the most important social and environmental initiatives a company can undertake and, consequently, a critical indicator used by Jantzi Research to evaluate environmental performance."
Jantzi separates companies into three levels of performance on renewables, with BP, Shell, and Suncor alone in the top level of those investing significantly in renewables and developing clear strategies. Unfortunately, a majority of the companies evaluated, including Burlington, Marathon, and ExxonMobil, demonstrate little or no investment in renewables, with no plans to do so in the future.
The report similarly exposes the harsh impact of oil exploitation on communities in developing countries and on human rights.
"While some projects in poor countries can have an overall positive impact, it is increasingly accepted that oil and gas development has had an overall negative impact in many developing countries," says the report.
On human rights, BP and Shell again stand out as top performers, while Chevron comes in sixth-to-last and ExxonMobil next-to-last. The report highlights oil companies' exposure to lawsuits under the Alien Tort Claims Act (ATCA), a 1789 US law used to redress corporate complicity in gross human rights violations such as forced labor and rape.
Predictably, low-ranking companies face ATCA cases--ExxonMobil for alleged complicity with the Indonesian military torturing residents of the Aceh province, and Chevron for alleged complicity with the Nigerian military shooting protestors on its offshore Parabe platform. However, even high-ranking companies are not immune from exposure to ATCA cases. Shell, too, was accused of complicity with human rights violations in Ogoniland, Nigeria in the early 1990s in an ATCA case.