NAICE 20111

Making the 'People' Content of

Sustainability Reports Work

The Case of the Nigerian Oil

Majors

Deji Olatoye

Partner,

The Lodt Law Offices, Lagos, Nigeria

deji.olatoye@thelodt.com

Based on Technical Paper 150781

presented at National Annual International Conference and Exhibition

of Society of Petroleum Engineers,

Abuja, Nigeria, August 2011

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Introduce audience to the principles of Sustainability and

Sustainability Reporting

Give a theoretical background to the GRI reporting framework

(G3)

Highlight the performance indicator for the „people‟ content of

Reports in accordance with G3

Review the „people‟ content of 2009 sustainability reports of four

international oil companies (OICs) with Nigerian operations

Draw out lessons for various categories of stakeholders in the

sustainability reporting on the Nigerian oil and gas industry

Objectives

This presentation will

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Introduction

The paradigm of business is changing…

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Business exists for

profit motive alone

Financial indicators

are the only bases for

measuring corporate

performance

Managers are

accountable to only

shareholders

Introduction – The Old Paradigm

ShareholdersOther

Stakeholders

The old paradigm of business:

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Corporate performance

should be measured by

non-financial as well as

financial indicators

Such indicators include

the social, environmental

and economic

Corporate accountability

should embrace the

broader stakeholders

Introduction – Emerging Consensus

The new, emerging consensus:

ShareholdersOther

Stakeholders

Economic benefit

Environmental contribution

Social contribution

Other financial indicators

Capital Appreciation

Return on Investment

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Introduction – Emerging Consensus

One key feature of the new consensus is

SUSTAINABILITY REPORTING

It is a tool for effecting conformance with BEST

PRACTICES and EMERGING STANDARDS in the non-

financial aspects of business operations

It focuses on the company‟s POLICIES on economic,

environmental and social issues and the progress made by

the company in the IMPLEMENTATION of such policies,

including the RESULT of investments made thereby

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Introduction – Emerging Consensus

The consensus is moving even further

Experts are already talking about the need for

INTEGRATED REPORTING

Integrated reporting incorporates both the traditional

financial report and non-financial report into a SINGLE

DOCUMENT targeted at all STAKEHOLDERS

Since March 2011, South Africa has made integrated

reporting a requirement for companies listed on the

JOHANNESBURG STOCK EXCHANGE

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Shareholders

Employees

Community

Customers

Environment

Government

Supply Chain

Future Generation

etc

Non-Financial

Indicators

Introduction – Emerging Consensus

Financial

Indicators

Social Indicators

Environmental

Indicators

Economic

Indicators

Integrated Reporting

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Emerging rules vary from mere values to

authoritative standards

Introduction – Emerging Consensus

By way of caution, let us note that it is an EMERGING

CONSENSUS and the landscape is yet unsettled

Values Principles Codes of Conduct Norms Standards

[1] . Leipziger, D. 2010, The Corporate Responsibility Code Book, Second Edition. Sheffield: Greenleaf Publishing Limited, p.38

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[2] . With information from Carrots and Sticks – a report by on trends in voluntary and mandatory approaches to

Sustainability Reporting by UNEP et al. 2010.

Not all Standards have

been adopted by

national/regional

regulators and of those

adopted, not all are

mandatory

Introduction – Emerging Consensus

65%

35%

2010 Survey of 142 Standards

with Reporting Requirements

from 30 countries

Mandatory

standards

Voluntary

standards

By way of caution, let us recall that it is an EMERGING

Consensus and the landscape is yet unsettled

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Only in South Africa has INTEGRATED

REPORTING become mandatory for companies listed

on the JSE

Introduction – Emerging Consensus

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Introduction – Emerging Consensus

State

Business

Modern Corporation

Civil Society

The Lessons:

The current unsettled nature of

sustainability standards is NO

BOUNDEN DESTINY

It is a reflection of the typical

trajectory of norms in the

GOVERNANCE TRIANGLE

The overall drivers of corporate

decisions can now be found in

the interaction/intersection of

the STATE, BUSINESS and

CIVIL SOCIETY

Binding laws

and regulations

Social

Pressure

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G3, an entirely non-governmental initiative, is now

globally acknowledged as “the most comprehensive

guidance on sustainability reporting” (UNEP, et al)

Increasingly cross-referenced by other national,

international and multi-stakeholder instruments have

increasingly cross-referenced

Ten countries have formally referenced it in their

governmental CSR guidance documents (UNEP, et al)

Introduction - GRIAn example of a civil society initiative which has now travelled

far in the governance triangle trajectory is the GLOBAL

REPORTING INITIATIVE framework (G3)

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GRI‟s mission is “to elevate the quality of reporting to a higher level

of comparability, consistency and utility” (Leipziger, D., 490).”

In sum, reporting on economic, environmental, and social

performance by all organizations should be “as routine and

comparable as financial reporting” (GRI).

G3 is a reporting framework, a procedural mechanism which sets

rules for communicating the conduct of business.

Unlike a performance standard, it does not propose to set a code for

such conduct.

However, an effective procedural mechanism could be used to assess

conduct or measure performance.

Therefore, its ultimate, practical implication is to influence conduct.

Theoretical BackgroundWhat is G3?

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To be useful for the foregoing purposes, a reporting

framework should comprise sound GUIDELINES and

PRINCIPLES.

The guidelines stipulate the substantive and procedural rules

for collating and verifying, even communicating, the content

of a report.

The principles stipulate qualities which should characterise

both such guidelines and content.

Theoretical BackgroundWhat is G3?

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Theoretical BackgroundG3 Framework

Reporting

Framework

National

annexes

[3] . Adapted from GRI Sustainability reporting Guidelines

(2006). www.globalreporting.org

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[2] . With information from Carrots and Sticks – a report by on trends in voluntary and mandatory approaches to

Sustainability Reporting by UNEP et al. 2010.

Guidance

Guidance for defining report

content

Guidance for setting report

boundary

Theoretical BackgroundG3 Framework

Principles

Principles for defining report

content

Principles for ensuring report

quality

Standard Disclosures

Profile

Management Approach

Performance Indicators

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Theoretical BackgroundSchematic of label for reporting „In Accordance‟ with G3

Requirement for Reporting “In Accordance” Sign of

Reportin

g Level

If

External

Assurance

How Checked

Self

Checked

3rd Party

Checked

GRI

Checked

• Disclosure of Profile matters same as „B‟

level reporter

• Disclosure of Management approach same

as „B‟ level reporter

• Report on all core and supplemental

performance indicators

„A‟ „A+‟ „A+‟

Self

Checked

„A+‟

3rd Party

Checked

„A+‟

GRI

Checked

• Disclosure of „C‟ level profile matters +

more

• Disclosure of Management approach on each

indicator category required

• Report on minimum of 20 core and

supplemental performance indicators

(including 5 specified indicators)

„B‟ „B+‟ „B+‟

Self

Checked

„B+‟

3rd Party

Checked

„B+‟

GRI

Checked

• Disclosure of stipulated profile matters

• Management approach not required to be

disclosed

• Report on minimum of 10 core and

supplemental performance indicators

• (including 3 specified indicators)

„C‟ „C+‟ „C+‟

Self

Checked

„C+‟

3rd Party

Checked

„C+‟

GRI

Checked

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The Sustainability Report of Royal Dutch Shell

Plc (Shell Report)

Sustainability Report of Eni (Eni Report)

Corporate Citizenship Report of ExxonMobil

(Mobil Report)

Corporate Responsibility Report Chevron

(Chevron Report)

ReviewWe will be reviewing the following Sustainability Reports of

international oil companies (IOCs) for the period 2009:

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Nigeria hosts MAJOR OPERATIONS of the IOCs, e.g.,

9% of Shell‟s production in 2009.

Obversely, REVENUES from oil and gas form about

80% of Nigeria‟s total income, and 95% of its foreign

income (CIA).

The imminent FRAGMENTATION of the industry by

the local content policy may create a regulatory

nightmare unless the sustainability practices of major

players such as IOCs are minded.

Review

Why there Reports should interest Nigerians:

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Environmental degradation in the Niger Delta.

Industrial dispute over „casualisation‟.

ReviewAdditional reasons are that the following two major crises in

the Nigerian industry have sustainability implications:

„Casualisation‟, according to industry unions, means that

companies:

Phase out full, direct employment for junior workers

Engage their services through temporary contracts or

outsourcing

Limit worker‟s Freedom of Association and social

entitlements

Erase clear career path for such workers

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This review is not an assessment of the overall quality

of the four Reports.

The review is anchored on a single core performance

indicator of the G3 on scoping and dimensioning of the

workforce (paragraph LA1).

We believe that a balanced assessment of disclosures

made on people-centred investments by the IOCs can

only be made with a proper scoping and dimensioning

of the workforce in the Reports

Review

Basis of review:

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We acknowledge the disparate application of G3 by the four

IOCs

Review

Why anchor review on G3?

Frame-work

Used

Application

Level

External

Assurance

How

Checked

Shell Report G3 A A+ A+ GRI

Checked

Eni Report G3 B B+ (limited

assurance)

B+ 3rd Party

Checked

Mobil Report IPIECA

API

Lloyd‟s

Register

Chevron Report Informal G3 and

IPIECA

IPIECA: Oil and Gas Industry Guidance on Voluntary Sustainability Reporting developed by IPIECA, API and

API: American Petroleum Institute‟s Compendium of Greenhouse Gas Emission Estimation Methodologies for the Oil

and Gas Industry (2004)

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We are of the view that the G3 is a proper tool to use

for a comparable assessment of the four Reports.

Firstly, all the reports, at a minimum, informally

referenced the G3 framework, including using its

content index.

G3 is the most globally acceptable framework for its

comprehensiveness

The industry-specific IPIECA is fast converging with

G3 with the development of an oil and gas sector

supplement for G3 in 2011

Review

Why anchor review on G3?

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How do the portions of the Sustainability Reports on

labour-related matters (THE „PEOPLE‟ CONTENT)

address employee issues?

How do the Reports conform to, say the labour-related

performance indicators of the G3 framework (LA1)?

Are there loopholes in the framing of the LA1 which

allow for non-clarity in reporting?

How are the IOCs using the tool of sustainability

reporting to address the crisis of „casualisation‟ in their

industrial relations?

Review

The Questions to be answered in this Review:

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Reports should capture total workforce by employment type

(full- or part-time), employment contract.

(indefinite/permanent or fixed-term/temporary), and region.

While excluding supply chain workers, the LA1 associated

protocol requires disclosure where “a substantial portion of

the organisation‟s work” is performed by persons not falling

within the foregoing categories.

Persons in the latter category would include self-employed

persons and, presumably, supply chain workers.

Review

Key requirements of the LA1 performance indicator:

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Breaking down the workforce by employment type,

employment contract, and region (region refers to

„country‟ or „geographical area‟) demonstrates how the

organization structures its human resources to implement

its overall strategy.

It also provides insight into the organization‟s business

model, and offers an indication of job stability and the

level of benefits the organization offers” (see paragraph 1

of the associated protocol).

Review

The objectives of the LA1 performance indicator:

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Where a substantial portion of the IOCs‟

workforce are drawn from contract/temporary or

outsourced hands, disclosures should be made

regarding these.

ReviewImplication of the requirements of the LA1 performance

indicator and its associated protocol for reporting by IOCs:

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As an „A‟ level reporter, Shell is required to report on

LA1 indicators or give reasons for non-disclosure.

Global figure for the workforce include 101,000

employees and 400,000 contractor staff.

However, there is no definite figure for suppliers as the

scope of their contribution to the workforce is captured by

the clause: “a huge number of suppliers” (see page 18).

Review – Shell ReportLA1 disclosures and reticence:

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Shell Report fails to account for supply chain workers in

definitive terms.

This has a negative implication for other workforce-related

information in terms of its applicability to the entire workforce.

For example, Shell Report on fatality, while showing the figure

on employees and contractors, is silent on fatality with respect

to independent contractors working on sites controlled by Shell,

a requirement of the associated protocol to Indicator LA7.

Suppliers would, for the most part, constitute that category of

the workforce.

Review – Shell ReportImplication of partial non-disclosures and reticence:

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As a „B‟ level reporter, Eni is required to report

on LA1 indicators or give reasons for non-

disclosure Eni Report also fails to disclose figures

on the size of its contractors although

acknowledging that contractors “represent a

constantly increasing work force at the oil and gas

exploration, development and production sites.”

Also, the Eni Report does not make any

disclosure on the proportion of suppliers in its

workforce.

Review – Eni ReportLA1 disclosures and reticence:

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The admirable visualisation of the breakdown of

employee figures by gender, professional category and

geographical area does not remedy the reticence on supply

chain and contractor workforce (see p. 63 of the Report).

The real value of regional breakdown under Indicator LA1

is to account for national/regional disparity in the legal

definition of employee, contractor and related categories

with a view to properly contextualising the global

employee-contractor ratio (see paragraph 2 of the

associated protocol).

Review – Eni ReportImplication of partial non-disclosures and reticence :

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Chevron Report only applies the G3 informally and

declares only a limited application of Indicator LA1.

Therefore, there is no breakdown of Chevron‟s workforce

according to employment and contract type.

So also is the Report silent on the proportion of supplier

within the workforce.

However, instructively, the figures on fatality show that

only contractors are affected in the nine such incidents for

the year.

Review – Chevron ReportLA1 disclosures and reticence:

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Mobil Report applies the IPIECA and API guidelines and

does not consider the directions of Indicator LA1 protocol in

reporting „people‟ issues.

For example, its workforce disclosures are basically with

respect to employees (broken down mainly by gender, region

and ethnicity, with some of these categories based on the

figure for new hires. See pages 22 – 23).

It however breaks down figures on fatality and incident

rates by employees and contractors.

The report is silent on supplier contribution to its operations.

Review – Mobil ReportLA1 disclosures and reticence:

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Review – Observations

The IOCs have yet to reconcile themselves to the

need for incorporating information of

supplier/supply side workers to report on the global

workforce

This has negative implications, including:

The Reports fail to satisfy the objectives of LA1 indicator

The Reports fail the tests of the key principles of G3 and other

standard reporting frameworks

Poor workforce scoping negatively affects the applicability of

other people-centered information for the purpose of assessing

global impact of workforce policy and investments.

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Breakdown of workforce information should be with a view to

accomplishing the following objectives:

Demonstrating how the organization structures its human

resources to implement its overall strategy.

Providing insight into the organization‟s business model

Offering an indication of job stability and the level of benefits the

organization offers” (see paragraph 1 of protocol)

Reticence on or facile disclosure of supply side workforce

information does not satisfy the above OBJECTIVES of indicator

LA1.

Review – Observations

Failure to satisfy the Objectives of LA1 indicator

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The evidently significant scope of the contributions of supply chain

workers to the organisation‟s operations.

The industrial crises precipitated by the human resource model of

the IOCs in an important country to the operations of the IOC.

Example:

Review – ObservationsMateriality and Sustainability Context are two key principles in

defining the boundary of reporting under the G3 framework. The

Reports fail relevant test of these principles for at least two reasons:

Although Shell demonstrated leadership by providing a special national

context on Nigeria (pp. 22&23), nothing in the spotlight shows that Shell

considers the „casualisation‟ crisis a significant risk to its operations.

Recall that „casualisation‟ is one of the two sustainability crises in the

Nigerian oil and gas industry.

Note also, significance of risk and geographical contexts are key tests of

Materiality & Sustainability Context.

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For example, figures relating to injuries and fatalities shows that the burden

of such incidents on contractors far outstrips that on employees.

For Chevron, the 2009 fatality figure shows 100% for contractors while that

of Shell is 95%.

For Shell, the contractor contribution to the workforce is outstripped by its

fatality burden by some 15%.

Shell‟s 2009 fatality ratio for the contractors itself represents a more than 3%

escalation over the average of 92% for the decade up to 2009.

Review – ObservationsImpact of poor workforce scoping other people-centered

information such as health, safety and general welfare

The four Reports disclose the IOCs‟ efforts – policies and investments – in

improving the health, safety and general welfare of the workforce, many of

these often incorporating suppliers within the coverage of such efforts.

However, the effectiveness of such measures can not be properly measured

without the willingness to report on the entire gamut of the workforce in a

comparable manner

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The need to continuously move towards more contextualised frameworks,

including sector and national/regional specific supplements.

For example, the preponderance of contractor and supply chain workers

in the global workforce should receive special attention in both sectoral

and national contexts of the oil and gas in Nigeria.

A suggestion is to consolidate the „people‟ information of certain

categories of providers in the supply chain with that of their IOC clients

for the purpose of sustainability reporting.

For example, suppliers whose businesses with IOCs represent an

overwhelming percentage of their turnover or whose size means that they

could easily escape national regulations or industry self-regulations on

labour-related matters.

In essence, the IOCs should begin to take responsibility for the labour

practices in their supply chain

ConclusionLessons for Reporting Framework developers:

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Labour unions and other advocates of sustainable labour practices

by the IOCs need to adopt new tools of engagement beyond

traditional call-outs.

Engagement through study and critical review of sustainability

report could be a new, useful tool of engaging and altering the

conduct of the IOCs in view of the globalisation of sustainability

reporting and the growing convergence of its standards.

This requires the development of new competencies in preparing,

assuring and checking sustainability reports.

For example, none of the external experts or firms engaged for

checking and assurance purposes in the four reports reviewed for

this paper is identifiably Nigerian even where there are special

Nigerian spotlights.

ConclusionLessons for Civil Society actors engaging with the industry:

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Reporting organisations should strive to gain on the full

benefit of the largely voluntary efforts put into

sustainability reporting.

Sustainability reporting should not just be a tool of

stakeholder engagement and communication alone.

It should also be seen as a tool of risk assessment and

management.

The example of the four reports reviewed for this paper

shows how possible it is to underplay or even completely

ignore a major, brewing sustainability crisis in a country

hosting some of the largest operations of a global industry

ConclusionLessons for IOCs and other sustainability reporters:

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Acknowledgment

The Institutionalisation team at

The Lodt Law Offices, Lagos

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Thank You