Sustainability and Sustainable Development in Oil and Gas industry

Keywords: Carroll CSR model and Freeman triple bottom line, Eco- strategies, Orsato’s framework, Sustainability and sustainable development, Corporate Governance, Future Sustainability and strategic Leadership, Sustainability Assignment Writing

Introduction

Sustainable development ensures that resources are used in a responsible manner so that it meets the need of the present generation without jeopardizing the resource need of the future generations. The sustainability is dependent upon three board categories which are community, nature as well as life support systems along with immediate impact upon the environment, culture and earth (Christen & Schmidt, 2012).

Pearce et al (2013) explained that the three essential impact of the sustainable development are; 1) economic sustainable system which highlight the production of product and services without the sectorial imbalances which damage the biosphere; 2) environment sustainable system which are avoiding over-exploitation resources; and 3) social sustainable system which represent fairness in distribution of opportunities and adequate provision of the social services.

However, the concept of the sustainable development has a limitation imposed by the present technology as well as environment resource utilizes by the social organisation which restrain the ability of the biosphere to absorb the impact of the human activities (Zaccai, 2012).

This essay examines the sustainability and sustainability and sustainable development practices of the oil and gas sector in the light of the various sustainability, corporate social responsibility, business ethics and corporate governance of the company in this sector. Moreover, sustainability strategies and sustainable leadership will be examined.

Oil and Gas industry

The oil and gas industry has dramatically changed in the recent years with growing demand for the energy which has resulted in increased revenue as well as cost. The large and complex structure of the oil and gas sector which include upstream (drilling and exploration), processing (refining) as well as downstream (distribution) has endangered the lives of the people and the environment (Blewitt, 2014).

The high-risk nature of the oil and gas sector is evident from deep water horizons in the Gulf of Mexico as well as Santa Barbara in California which has significant on the environment and society (Manfredo, Vaske, Rechkemmer, & Duke, 2014).

Module Overview – Reflective Journal

The module has helped to understand the concept of the sustainability and sustainable development along with the role of the organisation to make a contribution towards the society and preserve the environment. The approach and understanding on the aspect that organisation should look beyond the traditional aspect of the profitability and contribute towards the society and environment has developed new perspective and theme to elaborate the existence of the organisation in the society (Guha & Alier, 2013).

For example, understanding the cleaner production and eco-efficiency has helped to understand the need of the preservation of the society resources as well as minimisation of the impact on the environment and society. The highlight is that these concepts have to understand that how an organisation can achieve the voluntary internalisation of the externalities (Li, Winter, Kara, & Herrmann, 2012).

The least cost theorem helped to understand the concept of meeting the cost targets for the total emission. The understanding of the firm cost perspective and how it affects the revenues of the company in the light of environmental sustainability provide an overview of the cost efficiency and returns (Turker, Toker, & Altuntas, 2013).

An interesting fact in the time of the share economy systems, the Industrial symbiosis helped to comprehend the services and resources sharing among the industries which reduce cost and improve environment concerns. The industrial ecology is useful because it highlight the important of the resource utilization and energy efficiency system. Therefore, the perspective on the sustainability and sustainable development has changed as well as understand is developed how firms balance the internalisation and manage the externalities (Boons & Howard-Grenville, 2009).

The module provided the understanding and application of the business and corporate social responsibility (CSR) perspective of the business.  The concept of the CSR highlight how firm developed the corporate conscience and integrates the self-regulated sustainable practices into its business model. The need of the various stakeholders was elaborate and understood using the freeman stakeholder’s model. This highlights that module has helped to understand the suitable development using the ‘Carroll CSR model and ‘Freeman triple bottom line’ (Preuss, 2013).

Schwartz (2011) highlighted that the Carroll pyramid underlined the legal, economic as well as ethical practices of the business to ensure it achieve the sustainability. Moreover, the concept of the social responsibility and sustainable practices was further enhanced through the triple bottom line which highlighted the social, financial as well as environment perspective in depth using integrated approach. The collaborative approach helped to develop an understanding on the border perspectives of sustainability and ethical responsibility of the business.

Another important concept developed and understood from the module includes corporate governance. The importance of the transparency to address the various stakeholder holders’ needs was an implicit part of the business reporting and increased reliability and credibility of the financial of the company. The study of recent high-profile corporate scandals has highlighted the need of the transparent reporting system in an organisation (Tricker R. I., 2015).

Nevertheless, the along with the sustainability practices and ethical important the module helped to understand how to evaluate the eco- strategies of the companies. The Orsato’s framework was highlight of the module as it allowed putting the different perspective into practice approach in order to understand how to evaluate the responses to suitability challenges by the companies. (Yadav & Pathak, 2013)

Business and Sustainability – Oil and Gas Industry

Sustainability and sustainable development

According to Almeida et al (2013) the cleaner production and eco-efficiency are two mutually reinforcing concept. The cleaner production includes the application of the preventive strategy to preserve the environment in the whole value chain. The cleaner production ensures that pollution is low while natural resources are used efficiently. Moreover, the eco-efficiency is useful to confirm that products and services meet the need of the people with reduce ecological impact and protect the biosphere.

Islam et al (2012) suggested the relevance of the cleaner production could not emphasis less in the oil and gas industry because of the extensive value chain.  For example, the exploration and drilling in oil and gas and consequently processing to refine the oil present significant health and safety challenges. The oil spillage incident of the deep water has reinforced the need of the cleaner and safe production processes. It is critical that oil and gas sector remove the unsafe material, follow safe working practices as well as cut its emission. In order words, it concerned with reducing the negative effect through the life-cycle of the oil and gas (Dincer, Midilli, & Kucuk, 2014).

Pedroni et al (2013) further elaborate that economic efficiency involves the efficient use of resources which reduce the material, energy and toxic waste while improving the quality of the product. Therefore, the use of the technologies could help the companies to improve the supply chain through cutting the resource consumption and reducing the environment impact. The eco-efficient is an important factor to help the companies to understand how to use few resources and making less impact on the environment (Berthelot et al., 2013).

The initiatives for the cleaner production are shell who started the program to reduce the emission and minimise the energy usage in processing and distribution. The highlight of the program is that company has introduced new modelling for the drilling to minimise the impact on the sea and preserve environment and resources (Shell, 2015).

According to Stavins (2005) trade taxes and permit are critical in oil and gas sector because companies need to have permission from the governments before they drilling and consequently sharing profits with the companies. The oil and gas companies need the permits to tackle the emission and greenhouse gas such as ‘Kyoto Protocol’. Therefore, oil and gas industry is subject to a number of regulation which include putting carbon emission, minimising the toxic waste in the sea as well as drilling in responsible to preserve the nature resources.

Bugge (2011) suggested the regional differences have presented different reaction and law to the oil and gas companies and it vary based on the need of the stakeholders. For example, because of the unresponsible practices and failure to address the environmental concern, Bulgaria government has canceled the permit fo the ‘Chevron’. The reason behind the cancellation was government wants more stable and technological advanced drilling techniques rather using methodologies which damage the environment and public.

Another important aspect in order to evaluate the Sustainability and sustainable development is the industrial symbiosis. Lombardi & Laybourn (2012) added that Industrial symbiosis (industrial ecology) is concerned with the flow of the energy and materials of the organisation system at different scales and purpose is to reach the sustainable industrial development. The key to Industrial symbiosis is the collective approach and synergy among the firms from the geographic proximity.

Eckelman & Chertow (2013) industrial symbiosis model proposed by the Kalundorg is valuable to understand the interchange of the energy and material to minimise the waste treatment and production cost. Golev et al (2014) assessed that the geographic complexities have resulted in low integration among the oil and gas companies. The problem in the industry is based on the poor compatibility as well as technical attributes has resulted in limited sharing of the resources because of lack of the organisational culture of inter-firm cooperation. The competition for the proven reserve and unconventional oil reserve is a key problem to limit the firm cooperation (Jacobsen, 2015).

Business Ethics and Corporate social reasonability

According to Allen & Peloza (2015) the new role of the cooperation in the society is to take the responsibility for the actions in terms of their impact on the environment, natural resource and societies. The perspective of the cooperation to generate profit and stay in isolation from the agents who are effect from its actions is not possible in today’s world. Therefore, the focus is on the increasing the bottom line and become good corporate citizen. The ranges of issues address by the organisations include fair competition, equal opportunities, social services as well as stable ecology strategies (Allen & Peloza, 2015).

Omran & Ramdhony (2015) highlighted that Carroll’s pyramid is useful to understand the ethical, legal and economic responsibilities of the firm. It is useful to understand the needs of the various stakeholders of the firm. For example, economic responsibilities provide a reasonable return to shareholders; stay profitable, high level of operating efficiency. The legal responsibilities include meet the regulations, comply with the law as well as provide good which meet the law and standards.  For example, the CSR report of the BP highlight that it has generated $359 Billion of economic and responsible share the economic values with supplier and government.

DiStaso & Bortree (2014) argued that BP is a commitment to the meet the safety of its employees and producing petroleum product which have a lower level of ‘Lead’ to minimise the impact on the environment. However, the significant challenges for the oil and gas companies exist because of the regional differences which have resulted in the start of the various programs in a different region of the world (BP, 2015).

Carroll & Buchholtz (2014) highlighted the ethical responsibilities include operations of the firms are consistent with societal moral values, recognise and respect the moral norms and corporate behaviour is managed through ethical behaviour and integrity. The philanthropic aspect must be consistent with actions of the organisation such as the provision of the public services.

Garriga & Mele (2013) Total has started various programs to ensure it meets its moral obligation as well as conduct operations in an ethical manner. For example, to support the ethical and moral perspective Total employee’s local people, biomass project, the safety of the employees and making its operation energy efficiency using wind energy at extraction sites in deep waters.

According to Henriques & Richardson (2013) triple bottom line is a useful framework to determine the economic, social and people account of the company. The model was proposed by the Elkington (1997) which suggest that company should focus toward the triple bottom rather the tradition perspective of profitability. The three areas elaborated are an economic value (profits generation), people (fair business practices) and the planet (sustainable environment practices).

The sustainability report of the BP, shell, chevron and total (key industry players) has evident the practices of this organisation are aligned to the triple bottom line. The sustainability of report of these organisations has focused these three areas to ensure its contribution to the society and environment while meeting the need of various stakeholders. The key variables reported are the economic value generated for the shareholders and contribution to the society, safety of the employee, local employment and social services as well as preservation of the natural resources and minimisation of the impact of the company operations on the planet (BP, 2015; Shell, 2015; TOTAL, 2015).

Corporate Governance

According to Tricker (2015) corporate governance is defined as the way organisations are directed and controlled. In the light of the dominant capitalist model of the value creation the pursuit the organisation is profitability which consequently delivers the dividend and increases the price of the share.  Acharya et al (2013) the renewed interest is based on the social and economic goals and there is a separation of the ownership from the management. Therefore, the emergence of the principal-agent relationship in which agent acts in the best interest of the ownership.

However, the growing demand and dependence of the fossil fuel; the oil and gas cooperation has become large and complex entities. The companies largely operate to maximise the shareholders wealth and it is critical that framework for the accountability and responsibility is effectively implemented in these organisations. The self-regulated and voluntary compliance in these organisations can increase the reliability of the information creditability of the financial statements (Nini, Smith, & Sufi, 2012).

According to Roca & Searcy (2012) the regional difference is prominent in terms of reporting the governance by large oil and gas companies. For example, in UK listed companies are not legally bound to follow the UK corporate governance combine code but the large companies BP and shell both voluntary enclosed the corporate governance of the companies in the report. These report mentioned the accountabilities and responsibilities of the directors, remuneration as well as audit procedure and compliance pursuit.

Steger (2015) added that this ensures the principle-agent relationship between the management and shareholders remain transparent and shareholders have confidence in the operations and internal controls of the company. The corporate governance made up the large portion of the sustainability report published by these corporations in oil and gas sector. The ranges of scenario highlighted to communicate the governance includes board decisions, responsibilities and discharge of the duties of the directors, non-executive directors as well as audit, remuneration as well as nomination committee (McChlery, Kouhy, Paisey, & Hussainey, 2015).

Future Sustainability and strategic Leadership

The sustainability strategies are appropriate if its design is effective and applicability is possible. The ‘five-level model’ is useful to highlight five different hierarchies (system levels) which help to differentiate between the levels of planning. The structural approach helps to relate the overall system of the organisation from the society and ecosphere perspective. The ‘five-level model’ is shown in the diagram (Baumgartner & Korhonen, 2010).

For example, organisation deploy the renewable energy at success level but in reality it belongs to action level which means it requires consistent follow-up and organisation need to achieve success through implementation rather using it as a marketing tool. The system level represents the organisation its stakeholders in terms of the biosphere and environmental needs. The interrelationship of the social systems as well as ecological is defined and understood at this level through examining that reality that society is unsustainable. The reality of the society is waste and emissions are accumulating and resources are declining (Missimer, Robert, Broman, & Sverdrup, 2010).

Leadership and organization systems level

The success level represents the system conditions which represent the ecological and system conditions. The unsustainability concept from the system would enable the success level to design principles for the sustainability. The principles and restriction are developed in order to avoid the activities which help in the preservation of the ecological systems as well as contribute towards the society. The next level helps the organisation to develop the strategy and guiding principles which help the organisation to develop communication with range of stakeholders such as dialogue and diplomacy at individual level, community and institutions role at the organisational level as well as incentives and social service at the societal level (Hallstedt, Ny, Robert, & Broman, 2010).

Blewitt (2014) added that the actions level is the important phase to ensure the practical progress made and consequently measuring the progress. For example, organisation planning to implement the energy efficiency should monitor the reduction in the actual consumption as well as associated systems progress such wind power contribution and cost saving.  At last, not least, the range of the tools such environment management system, ISO and certification would allow the organisation assess, implement as well as monitoring of the system. For example, life cycle assessment approach is useful to develop comprehensive sustainability perspective (Ny, 2006).

Conclusion

The sustainability practices of the organisation in oil and gas industry have highlighted that there are number of programs is implemented. The industry has high risk posed to the society and environment because of the excess activity which affect the resources and environment. The company in the industry has taken measure to preserve the environment through resource and energy efficiency as well as focusing on innovation for alternatives energy resources. The significant developments are made to provide social services to the local communities.

The regional differences are prominent in terms of the developments made by these companies. The triple bottom line approach is widely adopted in the industry but the focus is rather on the success level rather emphasising on the action level.

Industry needs to overcome the problem poor compatibility as well as technical attributes that have resulted in limited sharing of the resources. Moreover, the industry should re-evaluate their strategies to develop systematic understanding the systems in detail and deploy strategies which deliver real benefits to society and preserve the environment.

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