• Digging deeper

    Oil and gas companies operating in Africa must figure out how to create the most meaningful social impact while minimising their environmental footprint and maximising shareholder profits.

    Digging deeper

    Having a licence to drill is not enough anymore. Oil and gas majors already drive socio-economic growth by their mere presence in Africa – by providing significant local employment and tax revenue in the countries in which they operate – but their responsibilities go much further. Companies are expected to empower local communities affected by their operations through their CSR mandate. Increasingly, they are expected to assist in solving societal problems.

    Arnold Smit, head of social impact at the University of Stellenbosch Business School, explains why this is necessary. ‘Successful businesses depend on healthy and optimally developed societies and, therefore, it’s imperative that a responsible business in the African context shall participate in the continent’s socio-economic transition and development process.

    ‘My preference is to talk about responsible business instead of the social responsibilities of business. The latter too often leads to the misconception that CSR is something that is voluntary and discretionary, and based on profitability.’

    For those in the oil and gas industry, becoming a responsible business is not a question of ‘if’ but rather ‘how’. Companies need to ask themselves how to create the most meaningful social impact, while minimising their environmental footprint and maximising shareholder profits in a transparent, ethical way. The sector faces considerably more CSR pressure than other industries, according to a reputation snapshot for the oil and gas sector by US research house Ipsos.

    The document states: ‘Globally, CSR attitudes are almost twice as impactful as core business needs. The oil and gas industry is the only industry we have seen so far where the CSR pillar is more influential than the core business-needs pillar.’

    These attitudes regarding CSR (which Ipsos defines as ‘ethics, caring about the planet, and economic and community impact’) can make or break a firm’s reputation as well as mitigate the environmental impact of its operations and secure its social licence to operate. The reputational aspect is magnified in the upstream sector – exploration and production, which includes explorative drilling and bringing crude oil and raw natural gas to the surface. The invasive nature of extractive operations – often in geographically remote regions with fragile ecosystems – can lead to conflicts between activists, local communities and oil and gas companies, as in the Niger Delta.

    That’s also why the upstream sector tends to be more in the spotlight (notably in Nigeria and Angola) than the downstream sector, which highlights refining, distribution and retail. In South Africa, which previously focused on downstream operations, the discovery of shale gas in the Karoo and subsequent fracking plans are underlining the importance of diligent stakeholder engagement, reputational management and transparency. Most oil and gas multinationals seem to have taken their social and environmental responsibilities to heart, and have emerged among the global leaders in CSR and sustainability reporting.

    KPMG has noted a trend towards increased corporate responsibility (or sustainability) reporting – which communicates non-financial information such as investments in environ-mental, social and governance (ESG) issues – among oil and gas companies. While KPMG’s 2013 survey of the world’s largest 250 com- panies still found oil and gas companies to have the lowest rate of corporate responsibility reporting (85%) of all sectors studied, this rate had increased to 97% by 2015.

    However, as the big players are generally listed overseas and report globally, it’s tricky to extract oil and gas-related CSI data for specific countries in Africa. One exception is Sasol, the multinational integrated energy and chemical company headquartered in South Africa, which publishes detailed CSI figures for South Africa in its sustainability report.

    George Frynas, professor of CSR at the UK’s Middlesex Business School and an expert in corporate responsibility in emerging economies, has written about Sasol’s ‘particularly sophisticated reporting mechanism and environmental management systems’.

    In a recent paper, he noted that ‘among emerging market companies, South Africa’s Sasol and Brazil’s Petrobras appear to have much more sophisticated and integrated development programmes than, for instance, China’s Sinopec or Hungary’s MOL’.

    In September 2016, Maurice Radebe, executive vice-president of Sasol, explained his company’s approach. ‘During the past year, “promoting sustainability” was identified as one of our material matters that could affect our ability to create value. We regard investing in our communities as a sustainable way to positively contribute to the broader socio-economic development of our communities.’

    The company has recognised the need to shift its social investment approach from ‘licence to operate’ towards becoming a more ‘credible partner’ and is therefore working on strengthening the relationships with its host communities in South Africa, Mozambique and the US.

    In 2015/16, Sasol spent ZAR579.8 million on social investments in South Africa and ZAR655.7 million globally, most of which went towards education and skills development (62%), followed by community development (33%), and environment (4%) and, lastly, employee volunteerism (1%).

    ‘We are particularly proud to have launched the Sasol for Good employee volunteering programme,’ says Wrenelle Stander, Sasol’s senior vice-president of public affairs and real estate services. ‘We provide a platform for our employees to channel their diverse abilities and expertise for the greater benefit of our communities by volunteering time, resources or monetary donations, which Sasol then matches.’

    An online portal will help employees, who are allotted 40 hours per calendar year to volunteer, connect with charities and good causes of their choice.

    The Sasol Global Foundation, which was set up in 2013, manages the integration of all the company’s CSI activities and dedicated teams in the regional operations then execute the programmes. Under the umbrella of community development, Sasol promotes SMME development through incubation, support and funding; investing in infrastructure by collaborating to speed up the delivery of municipal services; and investing in health and well-being through a network of HIV/Aids support and community healthcare facilities.

    Health is one of numerous CSI areas in which oil and gas majors invest. The CSI focus of Italy-based multinational Eni, which is active in 14 African nations, includes ‘the protection and promotion of local community health, often closely linked to access to basic health services, clean water and health hygiene and nutrition awareness’.

    Big oil company Chevron, whose African footprint includes Angola, Liberia, Nigeria and South Africa, has been involved in community-based HIV/Aids education, counselling, testing and prevention for more than three decades.

    In South Africa, it operates the Chevron brand and has partnered with the Desmond Tutu HIV Foundation and a group of NGOs that provides, among other things, a roadside wellness clinic for truck drivers.

    Meanwhile the Shell Foundation, an independent charity established by the Shell Group, is following an innovative, market-based CSI approach – it wants to tackle global development challenges by finding solutions that offer universal access to energy, sustainable mobility, job creation and an incubator for game-changing products and services.

    ‘We’ve learned as much from failure as success,’ the foundation states on its website. ‘Over the years, we’ve moved away from conventional grant-making to develop a new enterprise-based model that we find a more cost-effective way to deliver lasting impact at scale.

    ‘We calculate that 75% to 80% of our grants now support initiatives that are progressing to scale and sustainability (compared with under 20% in our early years as a conventional grant-maker).’

    In the constantly changing CSR landscape, it’s paramount to learn from mistakes and adapt one’s approach accordingly.

    By Silke Colquhoun
    Images: Gallo/Getty Images, Sasol