Features & Analysis

National Oil Companies and CSR


The importance of the National Oil Companies (NOCs) has been ignored for a long time, so it was their social responsibility. Long time, their social responsibility was considered implicit due to their “national” component. However, the importance of NOCs in global economy and their “dimension” should not be disregarded. NOCs controlled 77% of the 1,148 billion barrels of world’s proved oil reserves, in 2005, compared to less than 10% controlled by international oil companies (IOCs), mostly publicly traded, such as British Petroleum, Chevron, ExxonMobil, Royal Dutch Shell (Barnes & Chen, 2007). Fourteen out of 20 top worldwide petroleum companies are NOCs or recently privatized NOCs.

The high importance of the NOCs raises many questions related with the impact of their operations on the environment and local communities. However, social and environmental performance differs among NOCs. Factors that influence this performance also vary.

Statoil (Norwegian Energy Group), PEMEX (Mexican Oil Company) and Petrobras (Brazilian Petroleum Company) have engaged in notable sustainable practices, meanwhile PDVSA (Petroleos de Venezuela) and CNPC (Chinese National Petroleum Company) have not developed important sustainable profiles. Even if they got involved in social activities, their practices have not focused primarily on CSR. For long time NOCs have been exempted from societal pressures despite their importance in the global energy market due to their independency from the public stock market volatility. Instead, publicly traded International Oil Companies (IOCs) have often been subject to pressures from NGO’s, communities, shareholders, civil society, and government due to their large international profile.

However, as traditional energy resources decrease, oil companies, both national or publicly traded, are spreading their activities into overseas areas resulting in a higher impact especially on indigenous communities living in these territories rich in resources (Lertzman D. , “Indigenous Peoples and Energy Development: A Matter of Respect”, 2008) (Lertzman & Vredenburg, 2005) (Garcia & Vredenburg, 2003).The national Chinese and Indian petroleum companies are already exploring for oil on various continents.

Government controlled companies in Latin America are also experiencing a decline in their reserves and as it happened many other countries, Latin states face an energy crisis in the next 10 years (Lertzman, Garcia, & Vredenburg, “A National Oil Company as Social Development Agent”, 2009). Many countries in the region, includingColombia,Peru,Mexico, andArgentinahave reached the peak for the oil production and now their reserves are dwelling. Additionally, as it is often the case of countries with state-owned oil companies, these companies are the main drivers of the economy. Petroleum industry is the main contributor to the GDP making the above issue a stringent one.

More than other industries, entire oil industry has been forced over the past two decades to embrace the paradigm shift to Corporate Social Responsibility (CSR) to gain the support of the local communities. The concept emerged in late 1980s and it represented a philosophy of economic growth that focuses on gains for future generations. The concept is understood differently by different organizations and people as noted by Martin Fry and Tom Peyton (Fry & Peyton, 2006). Not only is CSR viewed differently at regional level, but also at company level. As a result in the past decade, CSR policies have flourished. Many industries started to see the environmental factors to be the key of their social responsibility programs meanwhile the energy companies concentrate on the social factors.

The World Business Council for Sustainable Development defines CSR as:

“[…]the continuous commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.” (WBCSD, 1999)

From a cultural perspective, in United States, social responsibility has been connected with philanthropy. Companies run to make profit, and their duty to pay taxes can obstruct this. They also give some parts of their profit to charity without expecting any benefit from this act (Casanova L., 2009). On the other hand the European CSR is concentrated on the social responsibility of business operations and investing in communities to help business’ development. On the contrary, social responsibility actions in Latin Americaare mainly influenced by current social issues such as: poverty and inequality (Casanova L., 2009).

Aspects regarding CSR were the subject of different political and business debates in the‘90s, fueled by the fact that until then the focus was on economic growth and not on sustainable growth. It is necessary to note that the aim of this thesis is not to challenge the existence of CSR within oil companies considering that the social responsibility embodies now a big part of the petroleum industry (Frynas J. G., “Editorial: corporate social responsibility in emerging economies”, 2006). The purpose is to analyze what are the motivations that determined state-owned Oil Companies to shift to CSR, what are the characteristics of their social responsibility policies, and if these policies are trustworthy.

An analysis of different published papers on CSR has shown that in recent years Corporate Social Responsibility (CSR) practices have increased in popularity but the majority of research still concentrates on developed economies and publicly traded oil companies. The literature on CSR conventionally suggests that these practices were underdeveloped in emerging markets.

References:

Barnes, J., & Chen, M. E. (2007). “NOCs and US foreign policy”.Houston:RiceUniversity

Lertzman, D. (2008, March). “Indigenous Peoples and Energy Development: A Matter of Respect”. Focal Point , pp. 4-6

Lertzman, D. A., & Vredenburg, H. (2005). “Indigenous Peoples, Resource Extraction and Sustainable Development: An Ethical Approach”. Journal of Business Ethics, 56 , 239–254

Garcia, P., & Vredenburg, H. (2003). “Building Corporate Citizenship Through Strategic Bridging in the Oil and Gas Industry in Latin America”. Journal of Corporate Citizenship, 10 , 37-49.

Lertzman, D., Garcia, P., & Vredenburg, H. (2009). “A National Oil Company as Social Development Agent”. International Review of Business Research Papers, Vol. 5 No. 5 September , 1-15

Fry, M., & Peyton, T. (2006, January). “Putting energy into your CSR policy”. Petroleum Review , pp. 42-43

WBCSD. (1999). “Corporate Social Responsibility: Meeting changing expectations”. World Business Council for Sustainable Development Publications

Casanova, L. (2009). “Global Latinas: Latin America’s emerging multinationals. Palgrave Macmillan

Frynas, J. G. (2006). “Editorial: corporate social responsibility in emerging economies”. Journal of Corporate Citizenship(24) , 16-19

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10 replies »

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