A corporation's social reputation offers profit opportunity.

In 2002, natural environmental disasters cost the world's taxpayers over US $70 billion. As climate change worsens, we've all learned to accept that there is little that we can do, apart from set the alarm bells ringing, get the hell out of the way and make good.

On the other hand, there is much we can do to prevent man-made environmental disasters. Ever since we've been exploring, refining and transporting oil and gas there has been a hefty price attached to either disaster prevention or disaster clean-up. We don't need to revisit all the facts surrounding the Exxon Valdez disaster to know the devastating impact of man-aided environmental disasters. They cost billions of dollars to put right and even then, despite throwing millions of dollars at the problem and levying hefty fines on the culprits, it's proven that time and mother nature are the best cure. No amount of money can limit the impact such disasters have upon wildlife or upon the reputation of the company concerned. After the Exxon spill, investors depreciated its stock by 10%, equivalent to $6 billion in 1989.

Furthermore, it is still energy and chemical companies that, through carelessness, misplaced judgment and out-dated strategies, have the power to match any single natural disaster! Like no other, these industries have the potential to cause devastating environmental damage and carnage, despite the sharp lessons learned from major players when they encounter reputation-threatening forces.

It has to be said, good environmental stewardship goes hand in hand with good reputation, making the maintenance of a company's reputation a key driving force for competitive well being. For example Shell, in 1995, was accused of initiating actions that would damage the ocean environment through the disposal of the platform Brent Spar. In the same year, it was also put on trial by the media for its seeming complicity in the executions of nine environmental activists in Nigeria. It took heed, like no other before, and almost single handedly re-wrote the textbooks to become an advocate for good corporate citizenship and environmental stewardship. That campaign worked so well that today it can be seen as one of the most transparently responsible global organizations. In fact, its recent TV advertising focuses upon promoting it as socially and environmentally responsible and its ethics, policies and procedures have become part of its brand values.

However, it's not just environmental disasters that impact a company's ability to remain viable in the eyes of the world. In 1996, Texaco (now ChevronTexaco) faced serious allegations of institutionalized racism - a clear threat to its ongoing financial health and a good example of poor social responsibility, as it applied to its employees and other stakeholders including its local community. In these circumstances, Texaco did the right thing, by taking a "heads-up" approach, publicly owning the problem. It took immediate remedial action to institute far-reaching change without feeling the long-term wrath of public opinion.

Fortunately, taking care of the environment has become so critical to success and now packs such a positive punch for reputation management that oil and gas companies recognize a real return on investment from doing the right thing.

Therefore, it's reasonable to assume that taking care of the environment has become second nature in this industry. Often companies have gone to extraordinary lengths to protect habitat, deploying ground positioning systems (GPS) to establish wildlife movement and landscape change when repairing minor pipeline fractures and when they set about laying new pipelines or exploring new fields.

Shell and its peers are pioneers in the area of Corporate Social Responsibility (CSR) because they have broadened their thinking and strategic planning to encompass much more than the possibility of environmental damage. They have undeniably been part of a revolution that now balances long-term goals with short-term market expectations, financial performance with environmental stewardship and sensitivity to cultural values, competitive advantage with corporate accountability and transparency.

For those organizations that have yet to begin or need to consolidate fragmented plans and programs, here are the underlying principles of successful CSR initiatives:

* Broad-based support and involvement: Support from senior executives is critical, but meaningful input and active involvement from local operations should drive CSR. This is fundamental. It will not work if there is no broad sweeping support or understanding. Don't let the CSR initiative be a toothless tiger! Unlike most other industries, oil and gas companies have to plan for diversity over decades. They have to consider changes in government and work for ongoing partnerships. Therefore, unless the local management is involved, there will still be an element of risk.

* Not a box-ticking exercise: There is a growing list of certifications, assurances, and quality management programs that can support CSR programs. However, effective CSR is always underpinned by ongoing communication, continuous learning, and a shared corporate understanding of what is the right thing to do. The ethics of the company have to penetrate right down to the lowest common denominator.
* Allowance for local customization: Companies that operate in a global environment must strike a practical balance between an appropriate level of global consistency, and allow for local interpretation of CSR priority issues, indicators and targets.

* Stakeholder engagement: Effective CSR programs will include active, ongoing involvement from communities of interest, both internal to the company and external. Decisions on who should be involved need to be made at the initial stages of program design, and must be re-visited on a regular basis as issues develop.

Stakeholder engagement for the oil and gas industry can be one of the most rewarding and intense aspects of a CSR program. Again, Shell's Brent Spar experience speaks volumes. It was, after all, the occupation of the platform by Greenpeace that brought its plan for ocean disposal into the public eye. At the time, Shell had consulted with appropriate government bodies regarding its plans and indeed received their sanction. And while Shell on the whole believed it was "doing the right thing," it actually placed itself in jeopardy as far as its reputation was concerned. Today, any self respecting CSR program will almost certainly offer transparency and will engage the opinions of all stakeholder communities, including old non-government- organization (NGO) adversaries.

Keeping with the theme of stakeholder engagement, it is not just the NGOs that companies need to take into consideration. Recent programs run by Golder Associates in Brazil for the maintenance and replacement of pipelines running from the Petrobras pier in Guanabara Bay, between Sao Paulo and Rio de Janeiro, to a refinery several hundred miles (kilometers) inland has had to take into account the impact such works will have upon local urban communities. That is particularly true as the pipeline corridor is used intensively by low-income residents and children as a leisure area.

* Adequate attention to change management and training requirements: Everyone involved or affected needs to understand what will be done, why and how it will benefit their organizations (and of course, themselves!). Initial resistance to change is best addressed by training programs that should be developed as part of the program implementation, and form part of a continuous learning curve.
* Reporting - commitment to disclosure and transparency: A company that makes a commitment to a CSR program is committing to widespread disclosure of CSR performance. This means reporting the good with the bad.

The environmental dimension

Experience has taught us environmental impacts, real or perceived, are among the most visible and socially sensitive aspects of a company's operations. It's here that the oil and gas industry faces its biggest challenge, particularly in light of changing legislation and increased consumer awareness and consciences. Therefore, the general approach to CSR should begin with the consideration of all environmental issues and priorities and work through related social aspects and financial implications.

Social dimension

The potential areas of social impact may include employees and their families, local communities, citizens' groups, consumers, shareholders, governments and many others. In dealing with social issues, an approach of enlightened self interest is the best way forward and will help to evolve a win-win situation for all concerned. Underpinning a successful social program will be:
* clear direction on corporate ethics and behavior
* development of stakeholder partnerships
* representation of local stakeholder groups
* communication channels and discussion forums that encourage dialogue

Financial dimension

A holistic CSR approach means that the emphasis in this area is all about risk management. In this way, the company's financial managers and auditors work closely with the external CSR partner to ensure that all material issues relating to environmental and social issues are properly reflected in financial statements and reports. This in turn will help to identify opportunities for cost savings and value creation through technology innovation, new products and new revenue streams. Thus, by "doing the right thing" it is possible to limit risk and increase business opportunity.

We will never master the universe, change the climate or the natural whims of Mother Nature herself. However, through effective planning, risk management and social responsibility, "nearly" wipe out the potential for man-made environmental disasters. In doing so, and by taking a holistic approach to the business and all of its communities, it is possible to improve reputation and use it for increased market visibility and competitive advantage.