When “Double Standards” means “High Costs” for you

Last month, during a break at a conference, a colleague of mine told me. “In terms of Corporate Social Responsibility, there is an enormous gap between words and deeds. In general, companies still practice double standards in both rich and poor regions, making empty promises about making good any damage they may have wrought.”

At that moment, I remembered Hilton Kelley, the founder of Community in Power and Development, in Port Arthur, Texas, who claimed that the Shell refinery was emitting 200-300 times the allowed emissions of chemicals – many of them carcinogenic. In 2004, he said children suffered from asthma and cancerous tumours, while women, including members of his family, had had their uterus and ovaries removed. He and other activists accused Sir Philip Watts, the ex-chairman forced to resign earlier this year over the reserves fiasco, of reneging on promises during talks at the 2003 meeting to resolve problems and to get local management actively involved.

Another activist, Desmond D’Sa, from South Africa, said Shell was using outdated equipment and processes at the local refinery, and accused it of refusing to install the clean technology it operates at a Danish refinery. It had to react at great cost. However, Shell learned those lessons.

A recent study by the World Resources Institute found that by working to obtain community consent at a project in the Philippines, Shell may have saved as much as $72 million in project delays, which amounted to a 1,200 per cent return on its community consent efforts. This is a lesson we all need to learn early on.

For mining, oil & gas, steel and other heavy industries, not managing their social and environmental issues properly can prove to be very costly. One not-well-thought-out decision can mean:

• Divestment from major investors. For example, The Government Pension Fund of Norway, the world’s second largest pension fund, has divested over $870 million from two major mineral producers, due to criticism over the environmental damages they caused.

• Losing the social license to operate. For example, after weeks of protests, a global gold producer lost access to South America’s largest gold mine, acknowledging that it had not fully understood the concerns of the local communities, and relinquished an estimated $1.7 billion in company earnings.

• Becoming entangled in a diplomatic rift. For example, a pulp company’s plans to build a pulp mill on the borders of two South American countries resulted in a court case at the International Court of Justice.

• Being involved in a multi-billion-dollar lawsuit. For example, a US oil company has inherited a lawsuit — for ecological damages and human health impacts- caused by massive oil spills in the rain forests of a South American country — when it had bought out the company originally responsible.

In earlier times, companies could get away with not addressing pressing social and environmental issues. As the world has now became a global fish-bowl, business-as-usual approaches will no longer suffice. Thriving in this new competitive environment, however, is not simply about corporate charity or token consultations with communities. It entails making environmental and social management central to a companies’ business model. It is only through a clearly planned set of actions that a company can understand the relationships between financial and non-financial performance, both positive and negative, in order to make the right decisions for creating a sustainable strategy for a sustainable society. And, it is through integrated strategy that a company makes a binding commitment to do so, provides evidence on its progress, enables all stakeholders to evaluate and challenge its performance, and, through the Internet, facilitates dialogue and engagement with them.

At a time where cost reduction is a priority for most companies, this is money you cannot risk losing. CMJ