1.0 The Company and Its Products
Royal Dutch Shell PLC (Shell) is a public limited company, founded in 1907 as the Royal Dutch/Shell Group and registered in England and Wales with headquarters in The Hague, the Netherlands (Shell, 2014a, p. 9). After it was renamed in 2005, Shell became the single parent company of two publicly-traded subsidiaries: the Royal Dutch Petroleum Company (RDPC) and The “Shell” Transport and Trading Company (TSTTC) (later renamed as The Shell Transport and Trading Company Limited). RDPC handles upstream and downstream production activities, while TSTTC handles transportation and trading.
In the upstream segment, the brand Shell pectin is one of the largest independent oil-and-gas multinational companies in terms of market capitalization, operating cash flow, and production volume (Shell, 2014a, p. 9). In the downstream segment, it has strong retail positions in both major industrialized and developing countries. In Brazil, for instance, it is the leading biofuel producer and fuel retailer through its joint venture Raizen. As of 2014, Shell has at least 15,000 patents, both granted and pending applications, around the world.
Its upstream products include crude oil (CO), natural gas (NG), natural gas liquids (NGL), and bitumen (Shell, 2014a, p. 10). Its midstream infrastructure is involved in transporting upstream oil and gas products and their delivery to the market. Conversely, its downstream products consist of refined and crude oil products and chemicals. Its oil products include fuels, lubricants, bitumen, and liquefied petrol gas (LPG) for home, transport, and industrial use. Its chemical products include petrochemicals, hydrocarbons and other energy-related products, and alternative energy sources (e.g. biofuels).
2.0 Sustainability Aspects: Its Aspects and Contributors
The concept of sustainability is an extremely broad one. In fact, it is so broad many have considered creating an academic field specifically to delve on the issues involving sustainability. Wiek, Withycombe, and Redman (2011, p. 203) described a broad array of issues from climate change and war to poverty and pandemics. Moreover, each of these array of sustainability aspects has its respective complex issues, such as damage potential, urgency of need, among others. Bonevac (2010, p. 84) attempted to lump these issues into four areas, such as environmental policies, economic policies, development, and resource utilization.
However, even these general areas are not large enough to cover everything there is consider when pursuing sustainability in aspects that are highly valuable to different stakeholders in society. Development alone can mean a lot of things to different stakeholders. The United Nations, for instance, identified three dimensions of development, namely, economic, social, and environmental (Kuhlman and Farrington, 2010, p. 3438). Moreover, Andre Dobson managed to isolate at least 300 varied sustainability definitions from the available sustainability literature (Bonevac, 2010, p. 84).
For business institutions, however, the key to effectively respond to the call for sustainability is selective focus. Shell, for instance, focuses its sustainability efforts in supporting current energy needs (Shell, 2014b, p. 8), which is perfectly aligned with its core operational strengths and environmental impacts. Accordingly, it planned to accomplish this general objective through eight specific sustainability objectives: safety for employees, contractors, nearby communities, and the environment (Shell, 2014b, p. 13); environment and its protection from impacts, such as in air quality, local biodiversity, dependent communities, and waste management (Shell, 2014b, p. 14); decommissioning of retiring assets safely and responsibly (Shell, 2014b, p. 15); energy and climate change mitigation, such as increasing use of gas as energy source in tandem with renewable energy sources, such as solar and wind, in addition to sustainable technology (e.g. carbon capture and storage) (Shell, 2014b, p. 16); communities; contractors, suppliers, and joint ventures; partners; and collaborations (Shell, 2014b, p. 13-23).
The United Nation’s Brundant Report viewed sustainability in its environmental dimension with a focus on development at a level that should support the needs of the present society without compromising the support of the needs of future generations (Kuhlman and Farrington, 2010, p. 3438). Conversely, Robert Solow viewed sustainability from the same environmental dimension with focus on substitution of natural resources with synthetic materials, which can be accomplished using the currently burgeoning and highly renewable capital (Kuhlman and Farrington, 2010, p. 3441). Moreover, he also recommended that new natural resources should be used as substitute to currently used natural resources before the latter become scarce. Echoing the early twentieth century economist Harold Hotelling’s concept of resource rent, he proposed that productive capital must be invested into resource development as a compensation to future generations for the current loss of natural resources (Kuhlman and Farrington, 2010, p. 3442).
Kuhlman and Farrington (2010, p. 3443) argued that the central issue in sustainability revolves around the type of resources (e.g. natural resources, environmental quality, or capital), which the present generation should leave to the future generations. This idea has led to the debate over weak and strong sustainable resources (i.e. weak vs. strong sustainability), which Pearce and colleagues stimulated with their proposal of two essential resources for the survival of future generations: (a) a stock of wealth, which includes both man-made and environmental assets (later called ‘weak sustainability’); and (b) a stock of environmental assets (later called ‘strong sustainability’). Both of these resources should be no less than those inherited by the previous generation.
3.0 Sustainability in Energy and Climate Change
The choice of energy and climate change as the central interest of this paper comes up, perhaps with no surprise, because of the media mileage it has gained in the recent years. Its impact to the future generation, however, is inestimably high when mitigating efforts will not be launched today. And, humanity appeared to be far behind in that mitigation response.
Climate change constitutes an urgent and possibly irreversible threat to humanity and the planet (FCCC, 2015, p. 1). Greenhouse gas emissions are the main cause of climate change. And the largest component of greenhouse gas is carbon dioxide, which is estimated to pass the level of 3.7 trillion tons by 2040. It means that greenhouse gas emission has been rising faster than ever. Left unaddressed, the cumulative release of carbon into the atmosphere is estimated to increase global surface temperature (GST) beyond 2oC, the average global GST rise established within the United Nations Framework Convention on Climate Change (FCCC, 2015, p. 3).
However, addressing it is far from being completely possible. Most global economies depend upon carbon-based fuels for their energy requirements. The International Energy Agency (2015, p. 1) reported in 2014 that fossil fuels will continue to constitute the bulk of energy sources globally to approximately 75 percent of the energy mix in 2040. Shell estimated that fossil fuel use can still range from 60 to 70 percent even a decade later (Shell, 2014b, p. 16). Shell, for instance, advocates the establishment of policies that will reduce carbon dioxide emissions into the atmosphere (Shell, 2014b, p. 16). This is an important advocacy due to its direct impact on the problem if other carbon dioxide producers and adopt mitigation measures. Direct greenhouse gas emissions, for instance, from Shell’s operations have declined significantly from 93 million tons in 2005 to 76 million tons in 2014, a decline of 18.3 percent in 10 years (Shell, 2014b, p. 52). The largest gas component in its environmental footprints continued to be carbon dioxide, which reached 73 million tons and comprised 96.1 percent of its total greenhouse gas emissions.
However, despite being its core business at this point in time, the only sustainable approach to drastically cut carbon dioxide footprints is for Shell (and other fossil oil companies) to drastically cut (e.g. by 70 percent or more), if complete eradication is immediately impossible, fossil oil production and refocus its core business to sustainable energy sources. Although Shell has started efforts in advocating for the switch of energy use from coal to gas sources, oil is still a large source of vehicular pollution around the world. Interventions as drastic as this is imperative to ensure meaningful cut in carbon footprints globally. However, it should be recognized that doing so is not that simple to undertake. And yet it should be done.
4.0 Cost and Benefit Analysis of Its Sustainable Strategy
A discussion on the advantages and disadvantages in establishing sustainable projects cannot proceed without mentioning the central issue of costs involved in implementing sustainable agenda. In the case of Shell, investments in research and development to develop technologies that will support the production of more sustainable sources of energy and fuel or develop low-carbon-using technologies run at around $1 billion (2014b, p. 42). The issue of costs is essentially an issue of fiduciary responsibility of the Shell management to its shareholders who will lose billions of dollars in a few years due to the sustainability agenda. These costs should have been returned to the investors, consistent with Friedman’s shareholder wealth theory, as part of their cash dividends instead of spending it into sustainability projects with no clear numerical benefits to the bottom line, either through increased patronage to Shell oil products or cost savings from unnecessary marketing budgets on the ground of customer loyalty to Shell products as a consequence of its sustainability agenda.
The advantages of sustainability projects to the society and the environment are clear and indisputable. Climate change, which had caused, whether directly or indirectly (certainty is unavailable), more damaging natural calamities both to life and property. However, without numerical figures to objectively compare these counter-factors, the debate will continue without a final resolution. Should management break their fiduciary responsibility to the shareholders in favor of mitigating environmental deterioration? The resolution is not a simple undertaking.
5.0 Future Developments
The World Energy Council observed and anticipated further acceleration in the adoption of renewable sources of energy due primarily to technological breakthroughs (Whyman, 2013, p. 4). Meanwhile, climate change mitigation measures are expected to largely constrain the growth of hydrocarbon use globally (McCracken, 2015, p. 8). However, with the growing commitment of corporations in their sustainability initiatives, I expect that, given further push for acceptance globally, sustainability will become an important contribution from the richer and more financially powerful corporations to the global mitigation effort to instill sustainability practices in the utilization of energy and their impacts on the environment and climate change. And, Shell contributed significantly in mitigating these sustainability problems.
Nevertheless, Shell must pursue other sustainability efforts, which it still failed to provide more attention. First, it must establish compensative efforts in directly reversing the damage of natural resources, resulting its core operations, such as oil exploration and extraction. Second, it must quantify the costs and benefits associated with these projects in line with its set objectives. Without this quantification, the costs of its sustainability efforts may not justify the benefits.
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