Going Green at an Oil Company

Going Green at an Oil Company

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Abstract

 A viable environmental sustainability measure is essential in preventing environmental disasters. Petrobras is an international company based in Brazil. Between 1997 and 2001, the company experience major disasters that led to the death of employees, oil spillage, and massive demonstrations. This paper discusses the sustainability practices of Petrobras. The paper discusses the triggers that led to the need for sustainability measures and then discusses the success of the green policies implemented by Gabrielli, CEO. Sustainability plays an important role towards the safety of the world. Companies should therefore strive to go green which part of the corporate social strategy.

  1. Introduction

Petrobras is an international company based in Brazil. Between 1997 and 2001, the company experience major disasters that led to the death of employees, oil spillage, and massive demonstrations. These disasters destroyed the environment irritating the Brazilians. The image of the company was destroyed harming its bottom-line. These problems triggered Gabrielli’s commitment to going green. The company has done well in increasing budget on safety, health, and environment programs, in using its enormous clout to influence suppliers to comply with the global environmental management standards, promoting biofuel development, and is listed in the Dow Jones Sustainability Index. However, there is room for improvement in the implementation of these policies. After reviewing the case study, Gabrielli’s assessment of the green policies at Petrobras is a success. The company has been ranked among the most sustainable companies in the oil industry in the world. Sustainability plays an important role towards the safety of the world. Companies should therefore strive to go green which part of the corporate social strategy.

  • Factors that triggered Gabrielli’s commitment to going green at Petrobras

Environmental disasters at Petrobras triggered Gabrielli’s commitment to going green. In the early 2000s, the company was faced with various environmental disasters. For example, in January 2000, crude oil, specifically, 350,000 gallons went leaking into Guanabara bay which is near Rio de Janeiro. This region is a tourist destination, wildlife habitat, and it gave livelihood to the fishing community. The disaster occurred three years after a major spill that had occurred in 1997. During the disaster oil leaked for two hours before detection associated with lack of modern sensors (Petrobras, 2016). As a result, Greenpeace activists and local fishermen conducted major demonstrations. The company was also fined $25 million. Thinking that the disaster was big enough, the company was faced by a bigger one. This happened only six months later where oil leaked at a refinery that is near Curitiba.

A million oil gallons leaked into nearby rivers. This disaster attracted a lot of media attention and the company was accused of having a competence level that is embarrassing causing such disasters. The company received a fine of $115 million. Petrobras was also accused of having leak detection technology that is outdated, lack of emergency plans, and having inadequate staffing (Petrobras, 2016). In 2001, March, P-36 oil platform which was the largest production platform that was floating globally sank. The disaster had 300,000 oil gallons leak while 11 employees at the company were left dead.  These major disasters as well as other minor ones triggered Gabrielli to adopt a sustainability strategy considering that the disasters were destroying the environment, harming the bottom line of the company, damaging its image, upsetting the employees, and people in Brazil and across the world (Petrobras, 2016). To avoid public criticism which can have a negative impact on the business, Gabrielli had to address the disaster issue. This way, the company can gain public trust and support essential for its growth and development.

  • Evaluation of Petrobras’ sustainability effort

3.1 Petrobras has increased budget for sustainability programs

Petrobras has effectively managed to increase the budget on health, safety, and environment programs as part of the sustainability efforts. An overview of the sustainability report of the company indicates that this strategy is being conducted well. A sustainability report helps in assessing sustainability efforts of a company. It helps in enhancing the sustainability index (Reinlie, 2017). The company does the reporting in accordance with the Global regulations. In 2007, the company invested $186.3 million in projects that focus on culture, environment, and sports. This was accompanied by a plan to invest R$ 1.3 billion in the reduction of social inequality and poverty in the country.

In 2009, the company combined the publishing of sustainability report and an annual report indicating their commitment to sustainability. In 2009, the total investments amounted to R$ 464.5 million less than 2007. However in 2010, the investment increased to R$ 707.8 million. On environmental projects received R$257.7 million much higher compared to R$44.6 in 2006 and R$933.9 in 2009. To reduce greenhouse emissions, and maximise energy efficiency, the company spent over R$ 976 million. The increased budget on sustainability shows that Petrobras is making major steps towards going green (Reinlie, 2017).

An indicator of this success is a reduction of accidents. The company has managed to accidents during the operations saving human lives. For example, in 2016, the frequency rate of injury decreased by 24%. This is attributed to investment in the implementation of initiatives that prevent injuries. However, in the same year, the company recorder fatalities with an accident happening where a contractor fell from an oil platform, an employee fell in refinery storage tank, and another contractor fell from a fertilizer plant (Reinlie, 2017). However, in response, the company develops emergency plans that would prevent such happenings.

            3.2 Listing in Dow Jones Sustainability Index

            Petrobras has also done well by joining the Dow Jones Sustainability Index. This has helped in external monitoring and reporting of the company’s efforts. For example in 2006, the company was listed on the index for an ongoing improvement on transparency. The Dow Jones Sustainability Index focuses on identifying companies that are well equipped to identify and counter emerging risks and opportunities from the worldwide sustainability trends. Being listed by the agency confirms that a company is embracing sustainability trends (Reinlie, 2017). In this case, Petrobras is efficient in adapting the trends of sustainability.

The inclusion index takes place after performances in terms of social, economic and environment are evaluated involving over 2,500 companies from various sectors globally. According to the evaluation criteria, Petrobras is doing well in environment performance, human resource development, brand management, and transparency among others. This performance made the company be listed position 73 in 2008 from position 70 in 2007. In 2013, the company was also listed in the sustainability index for transparency and management of the environment (Reinlie, 2017). The sustainability index leads in the world for evaluating practices in economic, social, and environmental management globally. Therefore, the listing of the company indicates that the company is performing well in mitigating and minimizing the impact of its activities on the environment. 

However, in 2016, Petrobras was removed out of the sustainability index. Dow Jones sited corruption as a major reason behind the removal of the company. The corruption case involved the company being accused of taking bribes in exchange for contract bids. This lead to a review of the company’s membership in the sustainability index (Gillespie, 2016). It is however important to note that the company was ready to comply with the requests. Being listed in the sustainability index shows the commitment of the company to embrace sustainability trends. Therefore, the removal questions the capacity of the company to maintain sustainability (S&P Dow Jones Indices LLC, 2015). Such issues indicate that the company has not done very well with this solution.

            3.3 Biofuels development

Petrobras is doing so well in moving away from gasoline to biofuels production. The company’s operations contribute to carbon emission. To reduce gas emissions and go green, the company planned to develop biofuel. The plan included developing second-generation biofuels such as ethanol. This would be developed from agribusiness waste.  The company started the projects and made major milestones. The plan was to become a global leader in the development of biofuels. However, in 2016, the company announced a plan to exit biofuel production for gas and crude oil production (Reuters, 2016). By then the company was working with other companies such as Brazilian sugar to produce ethanol. Reports indicate that ethanol and sugar prices were affected by the project and when the company announced a plan to leave the sector the prices started recovering. 

Biofuels are beneficial because they save the environment from pollution, helping companies to go green. Even though Petrobras recognizes the importance of developing biofuels for a green economy, the company has not filly managed to embrace the development (Flexor & Kato, 2016). It is essential that the company focuses on the development to meet the energy needs which helps in reduction of gas emissions. The production of natural gas and oil is comprised of various steps each of which has a potential impact on the environment. To avoid the negative impacts, alternative projects should be considered (Flexor & Kato, 2016). As a major company in Brazil, in terms of power, Petrobras would have managed to influence other companies into embracing biofuel production. However, it has not managed to lead the shift yet. The company has not yet managed to improve their operations fully or the operations of other companies.

            3.4 Influencing suppliers in managing environment

Businesses have a role to play in the effective management of the environment. Any impacts on the environment affect everybody. It is thus important that organizations adopt sustainable practices to protect the environment. It is this role that motivated Petrobras to put up a strategy of using the enormous market clout to demand from the suppliers’ compliance with the environmental management standards. Considering that the company has one of the largest market clouts in LA, it would have managed to reach a wider audience and influence them to comply with the standards (Flexor & Kato, 2016). However, despite the will to apply this strategy, the company have not managed to reach and influence all the suppliers.

Sustainability is challenging considering that it is almost inevitable to cause the environment harm while conducting different operations. It is thus essential that businesses such as Petrobras invest in reviewing the supply chain by asking them to embrace sustainability practices.  However, after joining the Global Compact, the company established a plan whose purpose was to encourage suppliers to adopt the principles of the Compact. This would ensure the suppliers raised their level of sustainability. Through a scoring system, the company was able to monitor the adopted standards (Flexor & Kato, 2016). Those who score high are given contracts. This motivated the suppliers to raise their level of environment management to outdo their competitors. This plan increased the number of suppliers complying with the sustainability standards.

However, there seem to be many other suppliers who are yet to adopt sustainability and their operations cause harm to the environment. In this case, the company has not done so well in influencing all the suppliers to promote environment management. Reports show that a typical supply chain is responsible for over 80% of the gas emissions and over 90% of water and air pollution, and also impacts on geological resources and biodiversity (Petrobras, 2016). Such suppliers must be influenced to adopt sustainability trend. Linking sustainability goals of the suppliers to the global standards helps in detecting whether the supplier is complying or not and hence the plan to influence them to set sustainability targets.

  • Success of Gabrielli’s green polies

Gabrielli’s assessment of the green policies at Petrobras is a success. First the many disasters that the company was facing in the early 2000s have reduced significantly. After 2001, the company went for eight years without experiencing major disasters. This made the company to be recognized as the leader in the world n sustainability (Petrobras, 2016). In 2009, the company received the highest rating in relation to the sustainability practices. According to the sustainability research and rating firm management and excellence Petrobras is the most sustainable companies (Petrobras, 2016). This was confirmed during the fifth annual ranking. The ranking involves measuring compliance of oil/gas companies against the 387 sustainability standards that are globally accepted. Transparency, corporate governance, and social responsibility are also assessed. In 2010, an audit conducted by Newsweek had Petrobras scoring 48 being ranked position 84 out of 100. 

Although the strategies adopted by Gabrielli have not been fully successful, they have helped the company to embrace sustainability. The company has been able to move from great disasters. The policies have made the company to shift focus to going green giving it a competitive advantage over rivals in the industry (Junior & Galleeli, 2015). By focusing on effective environment management, the company will be able to influence other players in the market to embrace sustainability. Having a world that business owners focus on reduction of carbon, and supply of green energy, everybody will benefit from a clean and safe environment (Junior & Galleeli, 2015). However to further reduce the disasters during the company’s operations, it is important that the established policies are effectively implemented. Eventually, Petrobras will take the leading position in terms of being the most sustainable companies in the oil industry in the world.

  • Conclusion

It is clear that going green is the only way to a healthy and safe society. By investing in sustainability, companies will be fulfilling the corporate social responsibility essential in improving quality of life. After a series of major disasters, Petrobras, an oil company based in Brazil, embraced policies to help in going green and so far the company is doing well. Gabrielli was triggered to lead the company into going green after realizing that the company was facing a crisis with the disasters which was affecting its bottom-line. Although the policies require more attention to be fully effective, they have brought positive impacts evident in the regular listing of the company as one of the best in sustainability, influencing more suppliers to adopt the environmental standards, embracing the development of biofuels, and investing more in sustainability programs leading to reduced disasters. This indicates that Gabrielli’s assessment of the green policies at Petrobras was a success.

References

Flexor, B. & Kato, K. (2016). Biofuels and inclusive development: the Brazilian experience. Development in Practice Journal, Vol. 27. No. 2, pp.157-167.

Gillespie, P. (2016). Brazil’s oil giant loses billions amid corruption scandal. CNN Money Invest. Available at http://money.cnn.com/2016/03/21/investing/petrobras-brazil-oil-            scandal/

Junior, F. & Galleeli, B. (2015). Strategic Aspects in Sustainability Reporting: Petrobras   Case. International Symposium on Project Management, Innovation, and            Sustainability, pp. 1-17.

Petrobras (2016). Sustainability Report 2016, pp.1-112.

Reinlie, M. (2017). Corporate Social Responsibility (CSR) and Innovation. Centre for            Technology, Innovation, and Culture, pp. 1-60.

Reuters (2016). Brazil’s Petrobras says to exit biofuels production. Retrieved on July 4, 2018       from https://www.reuters.com/article/petrobras-investments-biofuels/brazils-            petrobras-says-to-exit-biofuels-production-idUSL8N1BW3NR

S&P Dow Jones Indices LLC (2015). Petroleo Brasileiro SA (Petrobras) to be removed from    Dow Jones Sustainability Index, pp.1-2.