SUSTAINABLE ENTERPRISE SUSTAINABILITY MONITORING SYSTEM

Introduction

This paper describes about a monitoring system that monitors the sustainability of a business. It is very important for all businesses to measure their sustainability periodically from the people, planet and profit perspective to make the business operations more effective. Business monitoring system does the job of doctors where they use the medical monitoring systems to diagnose problems that cause hindrance to the sustainability of patients. The difference is that medical monitoring system monitors the health of patients while business monitoring system monitors the operations of a business activity. Proper monitoring of business can help to reduce risk by making proper decisions at proper time. Every business will have certain obligations to the people associated with it and also towards the nature. The economic aspect is also equally important. The triple bottom line or the three pillars people/social, planet/environmental and profit/economic are briefly discussed in the report.

The paper also identifies and discusses the sustainability indicators of the leading energy and petrochemical company, the Royal Dutch Shell.

Dimensions

People, Planet and profit also called as the “triple bottom line captures the essence of sustainability by measuring the impact of an organisation’s activities on the world. Variation in company’s profitability and share holder’s value and it’s social, human and environmental capital is reflected by the triple bottom line” (Savitz, A.W & Weber, K, 2006). There is no universally accepted definition for triple bottom line but a positive triple bottom line indicates that the business operates in an effective manner. The figure shows the dimensions as three spheres of sustainability.

People:

The social impacts of the company are easier to measure when compared to the economic and environmental. Employee satisfaction, their health and safety, impacts on local community and consumers are the main factors to be monitored to ensure the social sustainability. “The Global Reporting Initiative (GRI) identifies four core social performance indicators. They are:

Labour Practices: Employment, Health and Safety, Management relations, Diversity, Training & Education.

Human Rights: Freedom of association, strategy and management, non-discrimination, collective bargaining.

Safety: Community, Bribery & corruption, political contributions.

Product responsibility: Products & services, Customer health & safety, Respect for privacy.

It is a challenge for all the organisations to be socially accountable even though the customers expect the businesses to be so. Polls conducted on corporate social responsibility found 45% of 25,000 respondents believing that higher ethical standards should be set by the companies and thus help to build a better society. 40% of them even opined to punish the companies which are not socially responsible” (Miller, E, 2010).

Profit:

“The economic dimension of sustainability concerns about the impact of the organisation on its stake holder’s economic circumstances. This dimension focuses on improving the economic status of stake holders rather than the financial status of the company itself. The financial indicators are considered to be the sub set of economic indicators as it focuses primarily on the profitability of the organisation for informing the stake holders and management” (Slater, A, 2004). The economic performance indicators identified by the GRI are:

Sales, Profit, Return on investment

Tax paid

Monetary flows

Jobs created

The economic indicators identified by the GRI divides the stake holders in to five major groups and figure the economic impact on them. The groups and the major factors that indicate their economic status are as follows:

Customers: The monetary flow is indicated by the net sales and geographic break down of markets.

Suppliers: The monetary flow is indicated by the cost of all goods, materials and services purchased.

Employees: Total payroll and benefits that include wages, pension, redundancy payment etc indicates the monetary flow.

Providers of capital: Increase or decrease of the retained earnings at the end of the period indicates the monetary flow.

Public sector: Total sum of taxes and the factors such as donations to community, civil societies etc are the indicators.

Planet:

“The ecological sustainability focuses more on meeting the needs of present generation without affecting the possibilities of future generation to meet their needs” (Inge de Groot, 2001). It is important for all the organisations to give special care for nature by preventing the hazards caused to all living organisms by its activities. Companies should integrate the care for environment in to its business. This dimension considers the impact of company’s activity on the environment. The environmental performance indicators considered by the GRI are:

Materials: Volume of materials used and the percentage of recycled materials

Energy: Direct and indirect energy consumption by the primary energy source, energy saved due to conservation, steps taken to reduce energy requirement by promoting renewable energy based products and also the steps taken to reduce indirect energy consumption.

Water: Total water withdrawal and the percentage of volume of water recycled and reused.

Biodiversity: Size and location of land owned near the protected areas of high biodiversity, Strategies for managing impacts on biodiversity etc.

Emissions, Effluents and waste: Direct and indirect green house gas emissions and the initiatives to reduce it, emissions of ozone depleting substances, total volume of spills.

Transport: The environmental impacts of transporting goods and materials used for the organisation’s operations and transporting the members of workplace.

Company Description

Royal Dutch Shell is an energy and petrochemical company operating globally which has it’s headquarter at Hague, The Netherlands. It is currently the global leader in oil and gas industry and also seeks to reinforce its position in order to provide a competitive return to their share holders while helping to meet the global energy demand. The company values honesty, integrity and respect for people, that forms the basis of their general principles.

The company was established in the year 1907 by the oil export company named Shell and Royal Dutch, the petroleum company. The company expanded to Europe, Africa and America in the early twentieth century and excelled, as the mass production of cars has opened up a vast market. Many Shell operations closed down during the First World War, but after the Second World War, in the years 1950s and 1960s there was a dramatic increase in its oil output and sales. In 1980s, the company explored solutions for many environmental concerns by installing new technologies and launched new products. In July 2005, the parent companies Royal Dutch and Shell unified to form Royal Dutch Shell.

According to the Fortune magazine, Shell has been ranked at second place in the year 2010 among the top 500 companies in the world and first among the oil companies followed by Exxon Mobil and BP, in terms of revenue.

Rank

Company

Revenue($ Million)

1

Wall-Mart

408,214

2

Royal Dutch Shell

285,129

3

Exxon Mobil

284,650

4

BP

246,138

Shell operates in more than 90 countries in the world having around 101,000 employees working with it. It produces almost 3.1 million barrels of gas and oil everyday and has sold 145 billion litres of fuel. It runs more than 35 refineries and chemical plants. As a part of sustainable development, it has spent $2 billion on Carbon dioxide and renewable energy technologies over the last couple of years. $13 billion has been spent with locally owned companies in low and middle income countries in the year 2009. $132 billion has also been spent in the same year on social investment program.

Indicators for the company

This part of the paper explores the indicators used by the company to measure its performance and thus analyse the sustainability. The key indicators falling under each of the dimensions are listed below.

Socio-Cultural:

Human Rights:

Shell has categorized the human rights into five layers. All the layers are shown below.

Source: (The Shell Report, 2001, P.13)

The inner layers identify the company’s duty towards the staff, security and local communities, whereas the outer layer identifies the duty towards the government and also support the international codes.

The company has designed a Health, Safety and Environment Management System (HSE) to protect its employees from harmful activities. Shell also supports the ILO declaration of principles and rights at work.

Shell has played a major role in the development of voluntary principles on security and human rights. The company has come up with a new social management unit which identifies and promotes good practise and operations in communities. The company is also guided by the UN Global Compact, OECD Guidelines for multinational enterprises and Global Sullivan principles while investing in foreign countries.

Diversity:

The company has a systematic approach to manage its diversity. Shell believes that it will earn more respect if it attracts people from various backgrounds and experience. As a result, it will help the company maintain good relationship with others and help in competing in assorted cultures and markets.

Security:

Security involves the protection of the employees and safeguarding the shareholder’s investment. The company abides by the law and order which is at par with the international law enforcement standards. Armed security is used when there is any legal issue or when there is no alternative to manage the risk. There is security group that protects the employees, property and information.

Health Safety:

The company has a systematic approach to manage HSE. The company must follow all the Group HSE Policy and Procedures. Shell uses a parameter called Total Reportable Occupational Illness Frequency which monitors the health performance of all the employees. The year 2009 recorded the lowest mortality and injury rate for Shell.

Source: (The Royal Dutch Shell Sustainability Report, 2009, P.35)

ENVIRONMENTAL:

Shell is always in search for new ways to reduce its harmful impact on the environment. It has come up with new substances that would cause less harm to the nature.

The year 2001 was a disappointing year because it failed to meet the target and could not perform up to the mark. There was also an increase in gas flaring and oil spills which caused more harm to the environment.

Climate Change:

Climate change is one of the biggest challenges faced by the society today. To overcome this challenge, Shell is taking initiatives in building up an energy system for future that would reduce environmental risks. It has come up with 6 pathways that will reduce carbon-dioxide and help in achieving low-carbon energy for future. The six pathways are:

Increase the efficiency of all the operations.

Establish a substantial capability in CO2 capture and storage (CCS).

Continue to research and develop technologies that increase efficiency and reduce emissions in hydrocarbon production.

Develop low-CO2 sources of energy, including natural gas and low-CO2 fuels.

Manage energy demands by growing the market for products and services that help customers to use less energy and emit less CO2.

Work with governments and advocate the need for more effective CO2 regulation.

Shell is now moving over to bio fuels, emphasizing more on the sustainability of the first generation bio fuels. It is an indication of the evolution of bio fuels which will help in reduction of CO2 gas in the near future.

Green House Gas Emission:

Shell is taking steps in inventing new technologies to improve energy efficiencies by reducing the green house gas emissions. It has been noted in the year 2009 that, the direct Green House gas emission from the facilities operated by the company were 67 million tonnes on a Carbon dioxide equivalent basis which is lower than in 2008 by 11%.

Water:

The World Health Organisation has stated that one out of three people doesn’t get water to meet their needs. Shell uses advanced technologies to reduce the usage of fresh water though they cannot stop water usage for certain refining processes. Shell’s operations used around 198 million cubic meters of water in the year 2009 which is significantly lesser than the amount of water used in the previous year. The new technologies implemented by shell focuses on using recycled water instead of fresh water.

Biodiversity:

The company also operates in some areas which has the risk of harming the biodiversity. Shell considers protecting the ecosystem as an important factor and hence before starting any project, the company carries out analysis and tests that identify and measure the impact of the risk to biodiversity and develop strategies and procedures to minimize these risks.

Ozone Depletion Substance:

Halocarbons like Chlorofluorocarbons (CFC) are released into the air which causes depletion in the ozone layer. In order to help in saving the environment, Shell has stopped the manufacturing of ozone depleting substances.

Spills:

In spite of having the procedures and systems to indicate and prevent oil spills, they do occur due to operational failure or accidents. Shell has spilled around 1,300 tonnes of oil last year which is recorded as the lowest till date. The company has suffered massive loss when a hurricane struck the Gulf of Mexico, fracturing all the pipelines.

Source: (The Royal Dutch Shell Sustainability Report, 2009, P.36)

Source: (The Royal Dutch Shell Sustainability Report, 2009, P.34)

Economic:

Shell is a group of energy and petrochemical companies that aims to meet the energy needs of the society which are environmentally, economically and socially feasible. The company generates substantial revenue for the government. $9.2 billion has been paid in corporate taxes in the year 2009. $80 billion in excise duties and sales tax has also been collected on behalf of government on the fuels and other products transported or sold.

In 2009, the income of the company was $12.7 billion and returned $10.5 to its shareholders. The company also spent $1.1 billion on research and development. Their net capital investment of $28.9 billion would help their business to maintain sustainable in future.

By December 2009, the production of Liquefied Natural Gas (LNG) exceeded a total of 1 million barrels of oil.

Shell came up with a new Mono-Ethylene Glycol (MEG) unit in Singapore which proved to be a key milestone for Shell Eastern Petrochemicals Complex that will be in action by mid 2010. The unit will provide a supply of 750,000 tonnes of MEG per year to the Asian Market.

Shell has also started with two LNG projects called Pearl GTL which is the world’s largest gas-to-liquid plant and Qatargas 4. Pearl GTL will deliver 140,000 barrels a day of clean diesel and kerosene and 120,000 barrels a day of natural gas. Qatargas 4 will help in converting 1.4 billion cubic feet of gas into Liquefied Natural Gas.

The company’s financial, operational and sustainable aspects have been evaluated by certain key indicators and a score card has been set up by the company depending up on those. It can be noticed from the score card that Shell has a better sustainable development performance in 2009 compared to the previous year.

Source: (The Royal Dutch Shell Sustainability Report, 2009, P.9)

Conclusion

The social, economic and environmental dimensions of Royal Dutch Shell have been monitored by using the relevant indicators. By analysing the figures mentioned in the report, it can be noticed that there is a consistent improvement every year in most of the areas of the company. If the social dimension is considered, the company has given more priority to the health and safety of the workers. It can be noted from the social data that the lowest injury rate is recorded in 2009 and there has been a significant reduction in the injury rate every year. $132 million has been spent by Shell on social investment, especially for projects on community development. It can be suggested that, the company should conduct a periodic survey regarding the problems faced by their workers to make their operations more employee friendly and effective.

All companies especially oil companies should give major attention in protecting the nature. Recent oil spill at the Gulf of Mexico by B.P has caused huge loss for the company and also destroyed the natural resources and aquatic life. Shell has implemented new technologies to protect the ecosystem by preventing the hazardous impacts caused by their operations. It can be seen from the environmental data mentioned in the report that the company has taken steps to improve the energy efficiency, and the green house gas emission is recorded to be reducing every year. They have limited the usage of fresh water for their operations and also technologies for using recycled water have been implemented.

The company should focus on preventing oil spills even though the amount of oil spilled was recorded to be lowest in the year 2009. From the graphs, it can be figured out that there is no consistency in the steps taken to reduce oil spills as it went high in 2008 compared to the previous years and again came down in the year 2009. Shell should take measures to employ new technologies to stop spills and invest more on it.

The economic indicators of the company indicate that shell has made and continues to make good profits for its share holders. There is a greater transparency in the payments made by the company to the government and they have generated ample revenue for the government. The company has also invested a good amount of money for maintaining a sustainable business development in future. A significant amount has been spent on research and development. The annual income of the company and its return to share holders indicates that the Shell is economically stable.

By monitoring all the performances of the company it can be concluded that Royal Dutch Shell moves in the right track of sustainable development by giving equal importance to people, planet and profit dimensions.