COP 23 represents a crucial opportunity in which to discuss about Climate Change issues and to accelerate the delivery of “concrete” goals by 2030. Two years after the Paris Agreement was signed, UN Environment’s Emissions Gap report has shown that more concrete steps are needed in order to deliver the expected results promoted by the Treaty of Paris.
According to UN Environment’s Emission Gap Report (18th edition), Investments in technologies that aims at improving the industrial efficiency of the firms operating in the main field related to sustainability: transportation, Energy production, agriculture and forestry, represent the key through which to reduce the negative externalities that affect the society.
Climate Change issue and sustainability
The treaty of Paris signed in 2015 during the Conference of Parties (COP21) by 195 countries, helped the international community in focusing on Climate Change and the instruments (technological and institutional) that are needed to be developed in order to reach the 2°C Scenario. Climate Change widely spreads its effects on several economic and humanitarian fields from farming to health, from water security to political stabilization. The impacts that Climate Change has on our lives has brought the United Nation (UN) to focus its attention on the investments that are needed to protect the present and the future generations against the rising of temperatures.
Today Climate Change represents one of the 17 Sustainable Development Goals (SDGs) promoted by the UN in order to address Governments and private sector towards a sustainable future. SDGs cover a wide range of social issues such as poverty, health and education and represent legal bindings for the signatory countries of COPs. Each country, in order to create a specific sustainable framework and to monitor its sustainable performance, aimed at defining its own Intended Nationally Determined Contributions (INDC) through which to cooperate with the international community.
Both Governments and Private sector play a central role in the achievement of sustainable goals towards Climate Change. While governments aim at creating the basis for sustainable policies, the firms operating in the private sector introduce in their ordinary an extraordinary activities best practices concerning the elimination of wastes and the reduction of pollution.
How private sector may be able to address Climate Change issue
In the private sector, the Oil & Gas (O&G) multinational companies play an important role in the introduction of best practices concerning the reduction of pollution. The production of energy that powers our economies in fact is usually correlated to engineering processes such as “gas flaring” that need to be reduced and eliminated in order to prevent business inefficiencies and negative externalities towards the environment.
As a private sector, the O&G industry creates jobs and provide energy both through their “exploration & production” (E&p) and “downstream” activities to the local communities as well as for the rest of the market. During the past years, thanks to the UN commitment and the social responsibility of O&G firms, the necessity of reducing the externalities has rapidly growth in order both to reach the 2°C Scenario, which is considered the first best condition to maintain “stable” the environmental equilibrium, and to create social value towards local communities.
The concept of Shared Value developed by Porter and Kramer, for the first time published in 2011 in Harvard business review, aims at defining the concrete necessity of the firms in being able to supersede Corporate Social Responsibility (CSR) with investment in Shared Value (CSV) to develop a new strategic business approach. “Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center” (Porter and Kramer, 2011).
This statement wants us to think about SV And CSR as two different concept: but not totally separated. While Shared Value creation aims at reconciling society (and social needs) to business performance through strategic sustainable investments, Corporate Social Responsibility focuses mostly on the the introduction of best practices concerning health, security and environmental commitment.
Corporate Social Responsibility and Shared Value creation in O&G Industry
Social Responsible O&G firms maintain sustainable long-term relationships with the countries they cooperate with. Significant examples that explain why long term relationship between firms operating in O&G and local communities are important are given by the brown and green field projects in the upstream.
- Brown field projects: The exploration and production activities are focused on the refurbishment of the existing reserves;
- Green field projects: The exploration and production activities are focused on the developing of new gas reserves.
The length of these projects are between 5 to 10 years from the exploration phase to the production, while the utilization of the natural reserves may last more than 20 years according to the kind of field.
Invest in Shared Value contribute to boost business performance, prevent wastes and to improve social benefits:
- Shareholders and Stakeholders aims at investing in social responsible firms: Socially responsible investors encourage corporate practices that promote health, security and environmental initiatives;
- Investments in sustainable growth improve both the social value of the community and the business performance of the private firms.
In private sector, partnership made up of leader firms operating in the Oil and Gas which main aim is to invest in technology to boost efficiency in e&p activities as well as in transportation, storage and downstream sectors may be part of the solution towards Climate Change issue. The year following the Treaty of Paris, several companies have immediately engaged their commitment in addressing climate change, exploiting their own technology and knowledge management. The most important pillars concerning the environmental commitment of leader firms focus on:
- The maximization of the climate benefits of natural gas through the minimization of the methane emissions along the entire gas value chain;
- Respect the long-term decarbonisation process which is taking place in Europe as well as in the rest of the world;
- Improve the industrial energy efficiency in order to limit the wastes in O&G production through investments in technology such as Carbon Capture and Storage (CCUS) or gas flaring;
- Free access to energy to the poorest countries;
- Investments in Renewables.
- Developed countries need to support the developing countries in reaching significant sustainable goals.
According to the resourced base view concept promoted by Barney (1991), resources need to be heterogeneous, not replicable and rare in order to create sustainable competitive advantage. The answer to Climate Change prevention in fact lies on Knowledge Management and technology. Expenses and investments in Research and Development (R&D) are essential to nurture companies’ internal potentials. Sharing know-how through Corporate universities, attracting expertise from the external environment and improving the best practices concerning the reduction of pollution represent the most suitable means through which to increase the chances to reach the “Carbon neutral scenario within 2050” promoted by European Commission.
Cooperation between Governments and O&G firms is needed in order to reach sustainable goals promoted by the Treaty of Paris. Today, Shared Value creation and partnership between leader firms operating in O&G industry may represent the best mix through which to reconcile both society and business performance, improving the positive externalities for the present and future generations.