The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

“Securing the ‘license to operate’ will only get more difficult”

In this exclusive Critical Resource Q&A, Chairman of Shell and Critical Resource Senior Advisory Panel member Chad Holliday urges oil and gas companies to better understand the implications on their business of climate change pressures and elevated geopolitical risk.

Chad Holliday has been Chairman of Shell since 2015, having previously served as a Non-executive Director since 2010. A former board chairman of Bank of America and CEO of DuPont, he is a leading advocate of sustainability in business and has served as chair of the World Business Council for Sustainable Development and board member of WWF. Chad is a member of Critical Resource’s Senior Advisory Panel.

 

Should the oil and gas industry be doing more on climate?

Chad Holliday

“The world is not yet doing enough to meet the two-degree goal, and the oil and gas industry is not doing enough either. Bearing in mind that the industry has an obligation to supply energy to the world, there are certain things mid-sized to very large oil and gas companies should be doing. For example, they should consider getting an objective analysis of how they measure up on climate – understanding this is essential to frame all decisions about what steps to take on the issue. Likewise, companies could regularly bring in climate scientists at the senior level in order to understand the science and how it is changing. I am pleased to say Shell is playing a leading role with Net Carbon Footprint reductions aligned to the Paris agreement.

Adaptation activities are also absolutely essential and there is currently not enough of a conversation about this. While an offshore platform is likely to be quite resilient to more extreme weather events, a refinery – many of which are built right on the coast – may not be. This is what investors and the world more generally should be thinking about – climate change and its impacts are on us right now.”

 

Will higher geopolitical risk be with us for a while?

“President Trump seems to be having an impact on the world through his decisions on trade and other actions. He is the first US leader in a while who has really done something different, moving away from the consensus approach that has served us well for many decades. I believe we are going to see more countries become more unpredictable, which will probably be negative for growth and sustainability.

Geopolitical uncertainty is going to be with us for anybody’s reasonable planning horizon. Major investments require much more time for planning and analysis on political risk than would have been the case only ten years ago. Shell has just agreed to invest in a multibillion-dollar liquefied natural gas project in Canada. You might think Canada is a relatively easy place to be, but it is still important for the company to consider the geopolitical implications of its investment carefully.”

 

Should companies double down on their values in the face of lowering regulatory standards?

“With leaders in some countries lowering regulatory standards, companies’ clear answer should be to double down on the right approach. Companies should continue to emphasise the right values, how they do business, and the importance of social responsibility. Although many companies will probably realign with the lower regulations pretty quickly, the companies planning for the long term would not and should not. You cannot suddenly change your mind on what is important because of a change in political views.

In the US, there is reporting every week on what is being deregulated, but some of these deregulations are going too far and will turn out to be inappropriate. Some companies might go ahead and lower their standards in line with deregulations, but for the great majority it makes good business sense to keep operating to the same high standards because they know stricter regulations are going to come back someday.”

 

Will securing the ‘license to operate’ become more difficult?

“With political pressure and scrutiny from NGOs growing, companies will need to become a lot more creative, going beyond traditional social programmes and tailoring their activities to the local situation. For example, in Trinidad Shell took the time to explain its plans to the prime minister in great technical detail, giving him the necessary confidence. It put in place locals who really understand the country when it bought a facility from BG, rather than having people in The Hague making decisions. Shell also decided to sponsor a local band which turned out to be a great move, demonstrating respect for the local culture. What is the right thing to do in Trinidad may however not be the right thing to do in the US, China or Russia – companies need to make every effort to understand and adapt to the local context. Maintaining the license to operate is going to get more and more difficult.

Companies need to be very understanding of the political realities for the governments they deal with and adaptable to what is required locally. For example, a government in a difficult financial situation may understand the sanctity of contracts but nevertheless ask for flexibility on a company’s part, which the company should consider. As a company, if you are not mindful of the challenges political leaders face, there is a possibility that all of a sudden you are going to find yourself dealing with a new government, which can be a worse outcome.”

 

Do entrenched corporate structures need to be challenged for social responsibility to take root?

“Many companies still deal with social responsibility through a small group with a small budget that often does not manage to push through the most significant programmes as they would go against entrenched structures and mindsets. Many of those people who have been very successful in commercial or technical positions simply have not spent much time thinking about license-to-operate issues when they move up to more managerial roles.

While I was at DuPont, we took some of our very best people and put them into new situations for training purposes, for example having them mediate in a dispute between fishermen and developers in New England. This completely changed their thinking about CSR issues and helped them to become more successful leaders. Finding solutions that work for all parties involved is unfortunately often not how a businessperson thinks – usually, it is ‘if we don’t have to do it, let’s just not do it’. Social responsibility needs to be at the core of a business and its leaders’ thinking.”