Going Green at an Oil Company: at Petrobras - Case Study Example

Going Green at Petrobras Going Green at Petrobras Question A series of monumental oil spills in recent years triggered Gabrielli’s commitment to making Petrobras green. The first spill occurred in 1997 at Guanabara Bay, a tourist destination near Rio de Janeiro (Gabrielli de Azevedo, 2009). Guanabara Bay is also home to a fishing community and a wildlife habitat. Three years later, in January 2000, a corroded pipeline spilled an approximated 350,000 gallons of crude oil into the same area. Because the pipeline lacked modern technology, it took Petrobras more than two hours to detect the leak. The leak sparked outrage from environmentalists and the fishing community and attracted a fine of $25 million. Six months later, an even bigger leak occurred at a refinery within the vicinity of Curitiba – a million gallons of oil flowed into two rivers. Once more, the company was criticized for using outdated technology to detect leaks and for inadequate staffing and lacking emergency plans. The Curitiba accident elicited the worst negative publicity in the history of the company and led to a fine of $115 million being imposed on Petrobras. Just when the company thought that the worst was over, an even worse accident came in March 2001 when the company’s P-36 oil drill sank. Valued at $350 million, the facility was the world’s largest floating production facility. The accident killed 11 of the Petrobras’ employees and leaked over 300, 000 gallons of oil. The three major and several other accidents had far-reaching implications for the company – employees were demoralized, the image of the company was damaged and investor relations suffered (Barros de Cerqueira Pae, 2012). In addition, the hefty fines imposed on the company ate into its profits. Something drastic had to be done. The then CEO of Petrobras responded to the disasters by creating the new position of Director of Health, Safety and Environment (HSE) and introduced the Program for Excellence in Environmental and Operational Safety Management (PEGASO). These two interventions created a springboard from which Gabrielli dived into the business transforming Petrobras into a green oil company when he became the company’s CEO in 2005. Question 2 In order to turn around Petrobras, Gabrielli adopted a three-point strategy on the environment (Gabrielli de Azevedo, 2009). First, he embarked on improving internal operations. At the heart of Petrobras’ internal strategy is the company’s HSE program. The program is a massive one – between 2009 and 2012, the company committed $2.5 billion in the program. The program is based on a set of guidelines for the expected performance in fifteen areas of the company such as risk analysis and management, compliance with regulatory requirements, and training. The HSE program requires that managers lead by example by being on the forefront in matters of mitigating the environmental impacts of the projects under their jurisdiction. Even though Petrobras HSE program won ISO 14001 certification, it has certain glaring weaknesses. For instance, much of the program was executed by the managers many of whom, according to Gabrielli, were committed to it. Employees seem to have no place in the program despite the fact that they are the first and most affected in the event of a disaster(Barros de Cerqueira Pae, 2012). Thus, there is the urgent need for Gabrielli and his managers to promote the program among the employees and get them to own it. The second point of Gabrielli’s environmental strategy focuses on the companies that Petrobras does business with. Even Petrobras is now a quasi-public company with 60% of its shares traded on the New York Stock Exchange and Bovespa, the company still possesses nationalistic values (Gabrielli de Azevedo, 2009). As a result, in awarding contracts, the company gives priority to Brazilian companies. For instance, of the $40 billion that the company spent on products and services in 2007, 70% was shared among 4,000 or so Brazilian suppliers. This magnitude of spending power makes Petrobras an influential actor in the Brazilian economy. Petrobras has taken advantage of its economic clout to influence its partners into promoting environmental stewardship. Thus in addition to requiring suppliers to meet technical, legal, financial and other requirements, Petrobras demands that the suppliers adopt the 10 principles developed in 2003 by the United Nation’s Global Compact, a program to champion social and environmental policy and of which Petrobras is a member(Gabrielli de Azevedo, 2009). Besides pressuring suppliers, Petrobras also encourages them to create departments of HSE in their organizational structures. Gabrielli’s second strategy is an ingenious way of harnessing the influence of the company to champion environmental stewardship. It is also commendable the Petrobras leads by example. For instance, before asking its partners to invest in HSE, the company first put the platform in place. Gabrielli recognizes that improving the operations of Petrobras and those of its partners can only go so far in conserving the environment; in the longer term, Gabrielli argues, the solution lies in green energy (Pulver, 2007). To this end, Petrobras plans not to abandon oil exploration and production but to become one of the five leading providers of integrated energy solutions in the world. As a sign of commitment to the companys long-term goal, between 2009 and 2012, the company invested $1.5 billion in the development of biofuel. In a way, Gabrielli is putting his money where his mouth is. For the start, this level of investment in alternative energy sources is commendable. Other oil companies have lessons to learn from Petrobras. However, Petrobras remains a crude oil-based Corporation as it continues its exploration activities and seeks increase production. For instance, as of 2009, Petrobras aimed to double its daily production to 3.5 million barrels by 2012. Indeed, Gabrielli asserts that biofuels are not about to replace oil in the future. Question 3 I agree with Gabrielli’s assessment of the success of Petrobras’ green strategy to the extent that because of that strategy, Petrobras has turned around from a company bedeviled by disasters and struggling to recover from the disasters at the turn of the twenty-first century to a global leader in environmental stewardship. Also, the company had no major accidents in the eight years following the adoption of the strategy (Gabrielli de Azevedo, 2009). Today, Petrobras is a member of the World Business Council for Sustainable Development and the Global Compact, a United Nations-led program of social and environmental policy. In addition, Petrobras is now listed on the Dow Jones Sustainability Index. These are some of the accolades Petrobras has received, thanks to their sound strategy on environmental stewardship. Besides the strategy, the success of Petrobras is attributable to the manner in which the company approaches the issue of environmental conservation: environmental conservation is not the mandate of any particular business unit. Rather, environmental values have been integrated into the corporate values of the company and are an important part of the companys strategy on corporate social responsibility (Kama, Hansen, & Juslin, 2003). Unfortunately, the global recession that struck later in the first decade of the century had a negative effect on Petrobras’ momentum on environmental stewardship (Gabrielli de Azevedo, 2009). The economic downturn forced the company to reevaluate their allocation of capital, at least in the short term. Besides environmental conservation, the company had to reduce spending across their business lines until oil prices and capital markets recovered. However, even in the face of austerity measures, Gabrielli remained committed to ensuring adequate budgetary allocations so that the company was able to meet its environmental goals. The case study of Petrobras demonstrates how, with a good strategy in place, a company can transform to a polluter of the environment to a leader in the conservation of the same. By itself, the strategy is inadequate; it must be backed by a commitment from the leadership. Because of his commitment to environmental stewardship, Gabrielli was able to rally his managers to support his cause. References Barros de Cerqueira Pae, H. (2012). Investigation into Stakeholders Influence on the Environmental Strategies of Oil Companies - A Case Study of Petrobras. Online Journal of Communication and Media Technologies, 2(3),71-92. Gabrielli de Azevedo, J. S. (2009, March 9). The Greening of Petrobras. Retrieved from Harvard Business Review: https://hbr.org/2009/03/the-greening-of-petrobras Kama, J., Hansen, E., & Juslin, H. (2003). Social responsibility in environmental marketing planning. Europen Journal of Marketing, 37(5),-6848-871. Pulver, S. (2007). Making Sense of Corporate Environmentalism: An Environmental contestation approach to analyzing the causes and consequences of the climate change policy split in the oil industry. Organization & Environment, 20(1),44-83. Read More