Sir Philip Watts, chairman of the committee of managing directors at the Royal Dutch/Shell Group of Companies, explains to Global Agenda what his company’s commitment to sustainable development means in practice – and how business must work together with governments and NGOs to ensure that it works

GLOBAL AGENDA Shell made a public commitment to sustainable development in 1997. To what extent was this due to pressure from NGOs and to what extent was it due to Shell developing a social conscience?

SIR PHILIP WATTS Shell has always been a values-driven organization based on our core values of honesty, integrity and respect for people. These values are the foundation of Shell’s Business Principles first published in 1976. Since then they have been revised five times as the expectations of society have changed. A commitment to contribute to sustainable development was added in 1997 along with human rights. What our experience has taught us is that the way values are expressed in our behaviour needs to be constantly refreshed to reflect changing public expectations.

GA How much of an impact did the Brent Spar and Ken Saro-Wiwa events have on Shell’s thinking?

PW Both issues had a significant impact on our thinking – and on the subsequent actions we took. They made us think deeply about how society’s expectations of companies like Shell had changed; how society had changed from a “trust me” or even “tell me” world into a “show me” world; and how we had not changed at the same pace.

The events convinced us of the need to review our positions on human rights, sustainable development and engagement with the world outside Shell on issues such as these.

GA Today, Shell is committed to corporate social responsibility. What, in practice, does this mean?

PW Our commitment to contribute to sustainable development boils down to us doing five main things on the ground. First, we are helping meet the global energy challenge. In this respect, sustainable development means getting the world the extra energy it needs to develop.

We aim to provide access to oil and clean burning gas. By providing clean burning gas to replace coal for power, or lowering sulphur transport fuels, or building the world’s first hydrogen refuelling station, we can help to reduce the impacts from energy use.

We are also helping the world make the long-term shift to lower carbon alternatives, like biofuels for transport, and wind and solar energy for power. We produce 14% of the world’s solar panels and 3% to 4% of oil and gas.

Second, we are continually improving our environmental performance. This year, for example, we underlined our commitment to biodiversity with a pledge not to explore or develop oil and gas in natural world heritage sites.

Other examples are our focus on energy efficiency programmes in our business and our commitment to stop flaring by 2008 in support of the World Bank Gas Flaring initiative.

Similarly we look to improve continually our social performance. One current example of this is our hard work to rebuild trust with fence-line communities around our plants and operations. In support of this, our oil products and chemicals businesses are conducting social performance reviews at all major sites.

In reporting these activities and our performance we try to be transparent. The Shell Report, which goes to more than two million people, continues to be a leading example of such transparency.

And, finally, we do endeavour to live by our core values of honesty, integrity and respect for people in everything we do.

GA How can you assure people that a company like Shell is doing more than just paying lip service to sustainable development issues?

PW For us sustainable development is not just lip service. If it were we’d be missing a trick, because we firmly believe contributing to sustainable development makes us a more competitive and profitable company, lowering risks, cutting costs and enabling growth.

To make sure we capture the business value from sustainable development, we are hard wiring it into our core processes and systems. This means that sustainable development is factored into investment decisions.

For example, we make projects pay for the greenhouse gases they emit, to force them to develop designs for lower emissions. Sustainable development is integrated into leadership training and into our scorecards – my bonus is impacted by our performance. We monitor how we are performing. On an annual basis all countries and businesses must assure that the Business Principles have been followed. At a higher level, a social responsibility committee has been established, made up of executive and non-executive directors, who report to Shell’s supervisory boards.

GA Which NGOs do you work with and how?

PW Shell is committed to engaging with stakeholders with a constructive interest in our business and the issues we face.

We engage with NGOs ranging from international industry groups, such as the World Business Council for Sustainable Development, to NGOs in fields such as human rights, the environment, anti-bribery, and corruption and local interest groups.

Engagement will typically focus on specific business issues or projects, or broader themes of common interest, such as climate change, human rights and integrity. Regular engagement in, advance of major investment proposals is now routine and part of our road map for development.

Wherever we work, we are part of a local community, and while we continue to understand our role and develop our skills in this area, there are many examples where we successfully engage with local NGOs and communities.

For example, the Malampaya Deepwater Gas-to-Power project in the Philippines won a Partnerships award last year, sponsored by the UN Environment Programme and International Chamber of Commerce, for our NGO engagement activities.

In this instance, two elements – open and ongoing dialogue with stakeholders commencing at an early stage in the project’s development, and the partnership programmes to improve socio- economic and environmental conditions – have been key both to gaining local acceptance and to making the project a success.

Recent dialogue between the World Conservation Union and Shell on protected areas helped us to develop our pledge that no oil and gas exploration would be conducted in any natural World Heritage sites. I am proud that we are the first energy company to make such a commitment.

GA Do you consult NGOs on each of your projects?

PW We aim to consult stakeholders relevant to a particular project. In many projects these include NGOs, but that is not always the case.

GA How real is the relationship between NGOs and big business?

PW There is such a range of non-governmental organizations that it is impossible to generalize on such a relationship. We believe that the contribution arising from dialogue with responsible, transparent and constructive non- governmental organizations can assist us in addressing specific business issues where we have a societal impact.

GA What’s the ultimate aim of your commitment to sustainable development? Can companies like Shell really reduce poverty and empower local communities?

PW We aspire to be a leader in the economic, environment and social aspects of everything we do – for our stakeholders, customers, employees, shareholders, those with whom we do business, society and future generations. Sustainable development is everybody’s responsibility. Governments, civil society and companies – everyone has a part to play.

It’s also a matter of partnership, as recognized by Kofi Annan at the World Summit on Sustainable Development. There are some things that governments only can do or do best such as establishing good governance and the rule of law, or creating the right environment for investment. It may be that the role of business is to support these.

GA Is commitment to your shareholders compatible with commitment to your stakeholders?

PW Yes – absolutely compatible. Stakeholder engagement is essential for gaining and maintaining the licence to operate, and thus for achieving our business objectives.

A robust engagement process helps us to do many things: identify key stakeholders; ensure transparency and openness in and outside the company; provide a conduit for expressing opinions and resolving issues; build external and internal understanding and trust; promote our values and develop relationships; identify risks and opportunities; shape and improve business decisions; and improve the design and implementation of projects, thereby adding shareholder value.

We will, therefore, continue to promote engagement as a key business tool at all levels across the group, building awareness and competence.

GA A recent global opinion poll found that a large number of people believe globalization has a negative environmental impact. How can businesses like Shell convince people that this needn’t necessarily be so?

PW Globalization has accelerated since the 1980s with advances in communications and the opening of major developing economies to trade and investment.

At Shell, we recognize that people everywhere are concerned about the effects of globalization on the environment, social cohesion, their cultural heritage or their ability to hold the powerful to account.

However, we firmly believe that globalization, the liberalization of economies and open markets, operating according to responsible business practice, is a way of bringing greater prosperity to all and offering societies the economic resources to follow – and fund – their own priorities.

We believe that a responsible business like Shell, working in partnership with communities and bringing investment, technology, employment and training will be a positive force in society. The real problem is not globalization, but exclusion from globalization.

GA Does Shell still have an image problem regarding human rights abuse and environmental degradation? If so, how can it overcome this?

PW Over the past few years, we have built a solid reputation for our stance on human rights. We speak out in defence of human rights when we feel it is justified to do so, either publicly or privately, depending on the circumstances.

We engage in discussion on human rights issues when making business decisions, and we have established a regular dialogue with groups that defend human rights. One such dialogue is with Amnesty International and Pax Christi together.

We have developed an inclusive approach to our interaction with local communities that has enabled us to build relationships and address complex challenges in partnership with them.

To help our employees address the unique challenges that might face them in their own work we have developed management primers on human rights.

We have included a specific reference to human rights in our Business Principles and developed processes to ensure their implementation. In this way we stated our support for human rights.

This includes an annual assurance letter process through which our country chairs report on the implementation of the Business Principles, including human rights issues.

We publish an independently verified report, which includes human rights issues. As I mentioned earlier, our underlying corporate values of honesty, integrity and respect for people determine our principles. Within the societies in which we operate we strive to live up to our responsibilities – financial, social and environmental.