Question

please paraphrase the following in your own words;

1. Sustainability reporting policy: Shell first voluntarily reported sustainability starting the year 1997 before others were practically forced. The reports on sustainability in line with the guidelines of GRI G3 and IPIECA. On the GRI reporting scale, the corporation is considered an A+ level on a scale of six grades going from C to A+. It means Shell reports on specific core and sector-related indicators and it also provides management disclosure together with explanations for indicators not calculated. GRI is an independent network-based sustainability reporting framework that was established in 1997 by a not-for-profit organization called CERES (Coalition for Environmentally Responsible Economies) in partnership with UN’s Environment Programme. Shell is an organizational stakeholder, in other words, a member whose rights include election of members of the Board of Directors or the Stakeholder Council. Shell is also a member of IPIECA, who together with OGP (International Association of Oil and Gas Producers) and API (American Petroleum Institute) formulated the oil and gas industry’s sustainability reporting framework called the IPIECA standards. According to Shell, they are collaborating with GRI in further developing the sector specific indicators for the oil and gas industry. While this initiative is admirable, it raises a question of how objective the company can be in designing indicators that will be used to measure its own sustainability engagement. In addition to the guidelines followed, the annual Sustainability report is audited by an external reviewing committee. This has been done for the past six years in order to ensure transparency. The committee, whose members are changed every year, are experts in fields, such as environmental, conservation, sustainability or ethics. Their job is to assess the ‘content and the process of producing the Sustainability report’, not to verify its accuracy. Although this practice is good, the extension of duties of the external reviewing committee is not sufficient. On one hand, the efforts of alignment to several reporting standards place Shell in a favorable light. On the other hand, the fact that it is voting member in some makes the effort to seem less objective. In addition, the reporting standards of GRI and IPIECA come with three major faults: ‘there is no minimum reporting standard’; companies do not report on targets; and ‘they do not provide a vision’ and a plan for dealing with energy and other concerns in the future.

3. Investment in sustainable research initiatives: The investment in sustainable research is not calculated separately from the total R&D (Research & Development) expense. It amounted to $1.0 billion in 2010. However, Shell highlights that $2.1 billion has been spent on sustainable research (developing alternative energies and CCS) in the past five years. This means that Shell invested 5% of its net income of 2010 in R&D. Over the past 5 years, sustainable research represented 2% of its total net income of $117.89 billion from 2006-2010. Although there is no guideline on how much a company such as Shell should invest in research or sustainable research, there should be a clear report that includes all sustainable research initiatives and the resources allocated to them. 4. Partnerships and alliances in research for sustainable innovations Shell is involved in partnerships with different scientific institutions and companies for the development of alternative energy technologies and sustainable solutions for the future. For instance, Shell has contributed $25 million to a 5-year research project at the MIT (Massachusetts Institute of Technology) in 2010. The research looks into nanotechnology, biofuels, and CO2 management. In addition, Shell was one of the first energy companies to have invested in biofuel research. Given this, it dedicates a lot of time and money in research for more efficient biofuels, such as biofuels from non-edible crops and crop waste. For example, Shell partnered with the Canadian biotechnology company Iogen Energy for the development of a technology that uses enzymes to break down cellulose and turns it to ethanol. It also has another partnership regarding enzymes and ethanol with the American corporation Codexis. In this case, the enzymes are destined for the faster conversion of non-edible crops or plant waste to ethanol and similar chemical components. Another partnership in the US is with Virent. Shell and Virent work together on a technology that transforms sugars directly into fuels. Shell also invests in CCS research since it believes it is one of the main ways of reducing CO2 emissions into the future. According to IEA (International Energy Agency) it is estimated that the rapid development of CCS technologies up to 2020, might lead to a reduction of up to 19% of CO2 emissions by 2050. On one hand, Shell contribution to such research is important and its usage will have a positive impact on the environment. But on the other hand, some environmentalists might argue that developing CCS technologies will lead to an incentive to emit more CO2 with the hopes of capturing it later. As an observation, most research is done in North America. Shell should try to balance the placement of research with the location of its most important operations. In this way, it would be able to share the benefits with the community, while utilizing its resources. It is also important to note that Shell sold its interest in a joint-venture designed to research technologies that convert algae into biofuel. The reason for this is that the corporation wants to focus on other biofuel research that better fits their strategy and vision. Algae are considered to be one of the main prime materials for biofuels of the future. There is a sense of high hopes in the research community regarding its potential, thus many alike companies invest in algae research projects. The corporation’s decision is unpleasantly surprising. Although Shell has research projects in other biofuel materials, this could be seen as a step back on the path of sustainability. In our view, the corporation should invest even more in algae research, because of its potential to improve our future. We believe they made a compromise between medium and long-term interests.

5. Number of patents in sustainable innovations: Like any other large corporation that invests billion of dollars in R&D, Shell holds my patents worldwide. However, it does not make any reference to patents in its Sustainability report for 2010. Research on the corporate website, led to the conclusion that there is no global account of the patents held. In our view, it is understandable that the company does not aggregate at global level its patent holdings, since the size of the company and everyday activities would make this process challenging. However, we also find it concerning that Shell does not refer to any patents, more or less sustainable in its Sustainability report, which is a document that should contain a company’s most important sustainable achievements. Due to this, in our view, we believe the number of patents for sustainable innovations to be small relative to all patents held. One of the latest and most important patents is owned by Shell Oil, the American subsidiary of Royal Dutch Shell Plc. The patent is for the invention of a new catalyst that removes sulfur from oil and gas, thus making the fuel less harmful for the environment. Although it is a beneficial invention, some environmentalists might argue that this technology would only decrease CO2 emissions while promoting the use of even more fossil fuel. Thus, more investments and patents are needed in renewable energies, rather than improvement of non-renewables.

6. Long-term energy plan The long-term energy plan includes a mix of cleaner non-renewables and renewables. Unfortunately, the focus is on producing more of the former, not the latter. This is because it is estimated that the energy demand will go up as more countries continue to develop.

According to some agencies, most of the energy will be provided from non-renewable sources, namely fossil fuels. Thus, Shell’s strategic energy plan resonates in accordance with this expectation. For instance, deep water extraction of oil and gas ‘will remain crucial’ to Shell. In addition, the natural gas production will be gradually increased, since it is the cleanest fossil fuel. Burning natural gas produces 50-70% less CO2 emissions than a coal plant. In addition, if this is combined with CCS technologies, then CO2 emissions fall by 90% when compared to coal. By 2012, natural gas will account for 50% of Shell’s total energy output. Moreover, it is estimated that the supplies of natural gas are abundant, meaning that they can be exploited at the current rate for another 250 years. To sum up, the long term-energy plan is a mix of the following: natural gas, deep water extractions, advanced biofuels, CCS projects, and improved energy efficiency of own operations. It is worrying that there is no reference made to renewable sources of energy, such as wind or solar power. Although renewables are a part of the strategy, their proportion is very small, making their impact almost negligible. In other view, the corporation’s energy plan for the future resumes to producing cleaner fossil fuel rather than clean energies. So, they are tacking sustainability by exploiting more non-renewables. Although, it is much cleaner, in our eyes, this approach only contributes to the global problems.

Answer 1

Shell has been first in line to report Sustainability in 1997 in line with GRI G3 guidelines and IPIECA guidelines which forced the other companies to follow the suit. With an A+ rating on GRI G3 Index , Shell has offered in its disclosures, core sector related information along with explanations.

Shell, being a member of IPIECA along with OGP (International Association of Oil and Gas Producers) and API (American Petroleum Institute) formulated the IPIECA standards which guide the Oil and Gas Industry.

It has also collaborated with a not-for-profit organization called CERES, an abbreviation for Coalition for Environmentally Responsible Economies which lays out the GRI sustainability reporting framework and are further in process of framing sustainability frameworks for the Oil & Gas sector.

With all the efforts being appreciable, comes certain doubts as well regarding the trustworthiness of these frameworks and guidelines as the company will be subject to the same. Some suspect these maybe biased towards the company.

Thus, to ensure transparent reporting standards, an external auditing committee has been set up to audit the sustainability report from the past 6 Years. The committee consisting of domain experts which change annually.

Although these efforts are appreciable, some experts are torn if this is enough. The company stands at gaining more privilege being a voting member of the major regulatory organisations.

Apart from these drawbacks, the GRI and IPIECA’s reporting standards have certain constraints as they omit to provide a vision for the energy sector in the long run and how to deal with problems, they do not mention minimum reporting standards. Thus companies also omit from sharing their targets.

Further, these must be guidelines stating the allowable investment guidelines for all companies on R&D related projects which is not in place right now. This makes it ambiguous to understand a company’s policies and how to report such investments. The same problem can be seen with shell which reports it invested $2.1 billion in sustainable research being 55 of their net income of 2010 but the sustainable report stating otherwise, I,e. an investment of about 2% coming in from Shell.

Involved in partnerships to develop alternative energy technologies, with various companies and scientific institutions and companies it states top have contributed $25 million to a 5-year research project at the MIT (Massachusetts Institute of Technology) in 2010.Also investing in biofuel research like biofuels from crop waste and non-edible crops.

Like: Partnering with Iogen Energy to develop technology using enzyme for cellulose breakdown to ethanol. Similar partnerships have been entered into by Shell with the American corporation Codexis, Virent(to develop technology turning sugar to fuels directly), CCS research(which According to IEA -International Energy Agency would help reduce CO2 emissions in future by 19 % by 2025)

But some question Shell’s investments in these projects to be motivated by their individual profit. It has been said that Algae will help in biofuel generation in future. But rather than investing in it Shell is investing in other projects. It must invest in Algae projects. The company seems to be balancing its long term and medium term goals based on the current investment patterns.

With so much investment, the company also holds many patents but doesn’t mention any of them in their Sustainability report as well as their website. The company important patents for invention of a new catalyst which help makes fuel less harmful environmentally by removing sulphur from Oil & Gas but has not been publicised in their report.

But, this patent being in non-renewable energy resource, is under scrutiny of experts who wants the company to work and improve patent in renewables.

Although the long term plan for the company is the same, but currently the production focus is more on the former(non-renewable energy) due to the expectation of growing demand by developing countries. For Example, its Oil & Gas deep water extraction which remains Crucial for the company, the gradual increase of natural gas production To reduce the carbon emissions by 90% as when using coal combined with CCS technologies in their coal plant.

Shell’s goal is to produce 50% of its total energy output using Natural Gas.

So, the company’s long term plan involves using : natural gas, deep water extractions, CCS projects, advanced biofuels and improved operational energy efficiency. All this without a reference to renewable sources of energy, such as wind or solar power. And whatever focus has been put is at a small insignificant amount making their impact negligible.