Clean Oil Is Slick Proposition

Vacations on island paradises and ski retreats may come to an end in the next several years for HBS students. In fact, “most of the earth’s people will be on the losing side,” says Harvard University environmental scientist James McCarthy, who co-chaired a panel covering last week’s heralded “Climate Change 2001” report by the UN. Global temperatures will rise a much higher than expected 10.5 degrees Fahrenheit, with clear evidence that auto and industrial pollution are to blame. Fortunately, a presentation at HBS by BP (“Beyond Petroleum” formerly known as “British Petroleum”) on its sustainability efforts helped assuage the anxiety of vacation-loving HBS students.

The February 2001 UN report conducted by 700 scientists points to greenhouse gases for triggering the melting of the equatorial glaciers on Mount Kilimanjaro and on others in Tibet and Peru. Specifically, global warming will lead to more freak weather conditions such as cyclones, floods, and droughts, which has caused global economic loses of $4B per year in the 1950’s compared to $40B per year in the 1990’s. Other irreversible effects include massive population displacement mostly in developing countries, habitat elimination risking the extinction of species, the reduction of crop yields, and the rising of sea levels causing coastal erosion and flooding. While scientists have been predicting the impacts of global warming for years, what is now so significant about the report is the precision of the extent and impact of the climate change.

With the news of last week’s global warming gloom-doom headlines in the front of their minds, HBS students badgered Kim Estes, External Relations Director of BP’s Heath, Safety, and Environment program about BP’s contributory role. Estes presented the audience with BP’s environmental vision and specific examples of its sustainability efforts. BP considers itself the “green” oil company, and believes that companies should be a “force of good.”

Estes shared with the audience that an eleven-year Harvard study of stakeholder-focused companies showed four times higher revenue growth than non-stakeholder-focused companies. Other studies have correlated superior stock performance. Compared to the negative stock returns of BP’s less “green” competitors, BP has a five-year return of 250%. BP believes that Wall Street analysts will begin to value non-financial information such as social and environmental performance, and the company plans to provide an extensive audit of its activities.

BP portrayed astonishing leadership qualities by breaking away from other oil industry groups and by embracing the Kyoto Protocol on climate change. Sir John Brown, CEO of BP, pledged that the company would reduce its fossil fuel emissions by 10 percent below 1990 levels. Additionally, BP’s Conservation Program has supported and endorsed 117 conservation projects in 45 countries. Finally, BP acquired Solarex for $45M, making BP the world’s largest solar energy company. Since then, BP has made investments in GreenMountain and has built solar-powered service stations. Could BP legitimate its claim as the “green” oil company?
According to an audit of its social and environmental performance contained in BP’s annual report, BP decreased its greenhouse gas emissions by 3.6% last year. Additionally, BP contributed social investments of $13.9M in Europe, $36.4M in USA, and $17.1M in ROW. Of this $67.5M total, only $4.7M was used for the environment, which is not exactly a sky-high dollar amount for a company with sales of $84B, net income of $5B, and a market cap of $173B. In fact, for every $10K that BP spent on oil exploration and development in 1998, $16 was spent on solar energy, less than 0.1% of the company’s portfolio. According to BP’s Greg Bourne, “solar energy is not the business that pays our salaries…it isn’t an overnight switch… we don’t always have the right to change people’s behaviors [regarding fossil fuel consumption].”
While BP has made great strides in its sustainability efforts, the very nature of its business makes its activities controversial. According to a recent Wall Street Journal article, “West Africa is expected to receive a huge boost in E&P spending [by oil companies including BP], specifically war torn Angola.” Chike Obianwu of NB exclaimed after the presentation, “I wanted to hear what BP was doing to give back to society – how were their operations bettering the lives of the common citizens of Angola, Indonesia, etc. Was pollution on the decline in these countries? Instead, I learned about how BP was investing for a future of solar paneled homes in western United States. The reality is that their operations create negative externalities that are borne mainly by the citizens of developing countries.” According to BP’s Bourne, “imposing our emissions standards on developing countries would deny them from developing, which would be wrong.” Though the potential for greater positive change exists, BP has become the clear leader in its industry, and consumers and Wall Street have rewarded them for their sustainability efforts.

The event was hosted by the Sustainable Development Society and HBS Oil & Gas Society.