Business Response to Climate Change - Assignment Example

Business Response to Climate Change Brief background about the company: Shell is global giant in the energy sector. It is a global group of energy and petrochemical companies. Shell has operations in 110 countries across the world and has an employee base of 104,000. What began as a small business diversification strategy in importing sea shells from the Far East into London, by shopkeeper Marcus Samuel in 1833, morphed into a global giant and ‘fortune 100’ company by the twentieth century. Today, major lines of business include a) Exploration and Production, b) Gas and Power, c) Oil Products and d) Oil Sands. Office Memo (Internal) Memo classification: Company Confidential From: (insert your name), Climate Change Analyst, Shell To: Jeroen van der Veer, CEO Dear Jeroen, Sub: ‘Business Response to Climate Change’ ‘Don’t blow it. Good Planets are hard to find!’ (‘Time’ magazine, n.d.) As you are aware, I have been actively engaged in driving climate-friendly initiative for our organisation since June of 2008. I’m pleased therefore, to present you this ‘call for action’ memo on Shell’s imperatives in responding to the challenge posed by global climactic changes. Our company, throughout its hoary history of more than 175 years, has symbolised hope for millions across the world in reaching to them clean and affordable forms of energy. Yet, the dangers posed by a rapidly changing planet ecosystem, specifically the climate situation warrants urgent, affirmative and focused action. I’m presenting here, an analysis that is targeted to trigger quick actions. The memo is divided into three parts as mentioned below: a) Climate change as a potential threat to Shell’s business – key risk areas highlighted. b) Proposed action plan for mitigation c) The ‘positives’ i.e. potential business opportunities thrown up by this challenge I present here, some facts that will astound us with their import and what they portend for the sustenance of our vast organisation’s business. Climate change – associated threats and risks Some facts about our planet that gain significance (NASA feed into Jet Propulsion Laboratory website, 2008): 1. The arctic sea ice has shrunk by a whopping 38% since 1979! 2. Atmospheric carbon dioxide levels are at an alarming 386 parts per million (ppm). CO2 levels are the highest in last 650,000 years! 3. The global sea level has increased by 50mm since 1992, and by four to eight inches over the past century 4. Eleven of the past twelve years have been the hottest since 1860! 5. Today, the ozone hole has an incredible size of 8.5 million square miles The facts above help open our eyes into the enormity of the problem. Shell is undoubtedly impacted by these massive changes being witnessed on our planet. The burning of fossil fuels is seen to one of the key contributors to climatic changes. We are an energy producing company and some therefore perceive us to be the creators of the problem and therefore cannot be part of the solution. I emphatically disagree with this perception for the simple reason that global energy demand has multiplied four times in the past fifty years. And, fossil fuels will continue to fulfil most of the world’s energy demands for the next fifty years. The impact of climate change on our business is manifold. Key concerns include: 1) Our business growth will be impacted adversely of favourably depending on the extent to which we become environment-friendly within our production and operational apparatus. 2) Regulations are coming in fast and thick across the globe – these regulations mandate reduction of carbon and other emissions by all industries – and Shell will be no exception. A case in the point is the ratification of the Kyoto protocol (Cook, 2003). 3) Our production processes adopt the highest levels of life and health safety measures. These will need to be tightened even more, in order to protect our employees, our customers and the community at large. 4) We must demonstrate corporate responsibility in greater measure – especially after the adverse downgrading of Shell on the ‘Traditional Governance Score’ by Innovest Strategic Advisors in their Integrated Oil and Gas Industry Report in 2004. This raises the bar significantly for us in terms of the responsibility to evidence and defend our record as a socially responsible organisation. 5) The petroleum industry at large, by virtue of its very nature, is not seen by the market as a ‘green’ or ‘eco-friendly’ industry. This presents Shell with both challenges as well as opportunities, as can be inferred by my observations later in this memo. 6) The world will slowly but eventually move towards eco-friendly and renewable energy sources – While the quantum of renewable energy production at present is miniscule, the proportion is only bound to head northward in the years to come. This would mean our traditional dependence on production of fossil fuel would endanger our business pipeline or funnel as more and more nations begin to adopt environment-friendly energy production as part of their national charter. 7) The declaration ‘Planet in peril’ made popular by the newly elected US President, Barack Obama, echoes the mood of the world currently – The largest and smallest of measures need to be driven with equal alacrity in preventing further endangerment of our planet’s fragile eco-system. 8) The automobile market, which is by far one of the largest consumers of fossil fuel, is going to find alternative solutions powered by non-fossil fuels in the next two decades. We need to be conscious of the hit on our books as a result of this gradual but imminent change in demand patterns. The list above is a brief subset of the overall risks Shell will face in the foreseeable future. However, every risk presents an opportunity for affirmative action and I therefore move on to bullet out key mitigation actions that need to be driven by us on priority. Proposed Action Plan for Mitigation The following mitigation actions, both operational and strategic, will help Shell sustain and enhance its business while at the same time reduce the risks posed by climate change: 1) Foremost of all, we need to trigger advocacy initiatives to enforce our image as a planet-friendly corporation. The debate is no longer ‘whether we should do’ in as much as ‘what we should do and when’. We need to demonstrate thought leadership in the area of energy conservation as well as neutralization of negative effects of energy consumption on our ecosystem. I propose therefore that we put together a structured global programme across all our centres of business operation to educate employees, customers and the community alike about the measures we shall trigger to save our planet from further ecological damage. I further propose that we seek the help of a professional advocacy consulting organisation in designing and rolling out this programme. I am offering to take the lead in a) finding the right consulting partner and b) facilitating the production of a master advocacy plan by collaborating with the chosen consulting partner. 2) We need to increase the efficiency of our operations in both incremental and quantum measures. We therefore need to invest heavily in technology R&D to invent newer methods of exploration, production and distribution. Here again, a collaboration with a premier energy institute would help us achieve our goals. I again propose to a) find the right R&D partner and b) facilitate the drawing up of a 20-year blueprint for upgrading our operational technologies. 3) Shell should become one of the pioneers in Carbon dioxide Storage and Capture (CCS). Even as I write out this memo, we are continuously experimenting with multiple techniques, minor and major, and we need to hone our strategies to perfection. 4) We need to aggressively develop low-CO2 sources of energy including natural gas. We have to build state-of-the-art LNG plants and manage them from the word ‘go’ with the best of management techniques (Van Deer Veer, n.d.). 5) As I mentioned earlier, beyond the next five decades i.e. towards the latter half of the 21st century, the world would move away from fossil fuels in a significant way. Shell needs to be the forerunner of this paradigm shift in energy use. I propose therefore that we invest in diversifying our energy production to cover wind power and solar power. Many emerging economies such as the BRIC nations (Brazil, Russia, India and China) are already making moves to catch this new energy revolution ahead of the advanced and developed nations – they are keen on reducing their dependence on fossil fuels, although most nations realize that fossil fuels will continue to drive their energy consumption pattern in the foreseeable future. 6) We need to partner aggressively with the automotive industry in helping invent more fuel efficient automobiles. This will win us goodwill as well as serve our purpose of strengthening our brand as a socially responsible global giant. 7) I propose that we act vehemently to oppose short-sighted measures such as purchase of carbon credits. While carbon merchandising began with a lot of fanfare, it is a strategy doomed to fail in its primary goal of reducing dangerous emissions. At best, it serves to allow a select set of nations to continue their damaging ways while imposing responsibility on others to actually become more planet-friendly in their energy utilization. The case of Japan and China proves this point. 8) We need to collaborate with the governments of leading countries in an effort to influence eco-legislation and energy legislation. We owe this to our customers, employees and the society at large. Again here, I’m willing to drive a study that can reveal potential intervention points for us across the globe and the timing by when we should perform those interventions. Climate change is not all about mitigation of risks. It is also about identification and capitalization of great business opportunities for a fabled organisation such as ours. As explained earlier, we have to demonstrate thought leadership and take the initiative to drive the energy profile of the planet through our formidable business and technical knowledge. I now move on to present the possible opportunities that the climate challenge offers us: Potential opportunities offered by Climate Change: 1) We need to invest consciously and scientifically in diversifying towards production of energy from renewable sources. We therefore can partner with energy consulting firms that will help build competitive advantage vis-à-vis renewable energy companies such as Suzlon. We have the skill and the experience of more than 175 years to beat the competition in their own area! 2) Our focus on natural gas has to be stepped up – specially so after the winning of one of the largest deals in corporate history – the 10 billion dollar US Sakhalin deal through Shell Gas and Power. Natural gas presents limitless opportunities and we need to aggressively tap this market across both the developed and the developing world (Van Deer Veer, n.d.). 3) The ‘hydrogen’ economy will soon gather speed. We have already made a start here with the opening of two hydrogen fuelling stations, one each in Iceland and Japan (Van Deer Veer, n.d.). 4) Likewise, our renewable energy division, ‘Shell Renewables’ has emerged as a serious contender in the global renewable energy market. We need to invest more and quickly as well. Shell Solar is already the fourth largest producer of solar panels in the world! (Van Deer Veer, n.d.) 5) We must come up with more quantum innovation projects like the ‘AOSP’ – the Athabasca Oil Sands Project, a joint venture by Shell Canada, Chevron and Western Oil Sands (Cook, 2003). 6) Further, we should make every attempt to improve energy efficiency in as many ways as possible. Towards this end, I propose a unique and innovative initiative where we need to partner our own employees on this drive – I’m willing to lead a concerted programme to drive unique energy-friendly measures across the employee base. For instance, employees can use public transport, use energy-efficient bulbs and reduce wastage of power within their own homes as well as at the workplace. I further propose that we install lights across all our offices equipped with movement sensors – this will ensure lights automatically switch off on every floor where the last employee has left for the day at the end of business for the day. I further propose that we exploit the considerable food waste generated across our company to feed captive bio-gas plants – This will take away a good 1% off from our energy bills! 7) We, along with British Petroleum, have won accolades for our superior environment management programmes. However, we need to race ahead and stay on top what our peer companies are doing. For instance, we can take a leaf out of Texaco’s books in waste gasification (Baue, 2004). 8) We possess and use perhaps, the world’s most complex risk management tool that helps provide historical trends going back to the beginning of our company while at the same time help provide highly accurate forecasts for long-term projections going beyond two decades. We need to leverage on this unique strength and extrapolate our business model to cover our long term strategies for the next fifty years. This is no mean task, I hasten to add, but one that we cannot ignore. 9) We have a huge social responsibility in helping the new/emerging economies, specifically the BRIC nation group. These nations are amongst the highest consumers of fossil fuel and every step we take towards energy efficiency has to percolate quickly into these high-economic-growth areas. This will help us build and sustain high levels of market presence as well as earn immense brand value. 10) Industry collaboration is an imperative in today’s world. And, Shell has not shirked from this opportunity anytime in its hoary history. I propose therefore that we strengthen our touch-points and traction within collaborative forums driving climate preservation strategies. We need to be seen as game-changers and prime-movers for planet-friendly initiatives across the globe. 11) The effect of climate change on farming and food crop production is profound. Different geographies have witnessed different kinds and levels of adverse impact because of climatic changes. Shell is strongly positioned to make a social statement by partnering with world bodies such as Food and Agricultural Organisation (FAO) in evolving strategies for sustaining and growing safe agricultural produce. I am willing to explore linkages within FAO and other peer organisations in ‘moving the ball’. 12) We need to make sustained effort in getting into climate advisory councils of major world governments (Cook, 2003) – Our humongous experience and skills within the energy sector make us natural allies of governments across the globe in their climate conservation initiatives. This will help build a symbiotic or mutually beneficial engagement. We stand to gain as much as the governments we align with, in that we shall be privy to the most sensitive yet critical decisions coming forth by these governments in terms of climate preservation. This will help align our business model and plans in line with emerging changes, and stay ahead of competition. To conclude, Shell is a company that is uniquely placed in building the world’s response to climate change. We have been acknowledged time and again for our efforts to sustain and build climate-friendly energy production models. We should continue to be seen as leaders in the war against climate damage and I’m confident my ‘call for action’ memo here will help you crystallise your thoughts and actions as the CEO, in building and enhancing our climate-friendly business model. I’m closing this note with an open offer to engage in a formal discussion/debate on this memo at our next board meeting, should you see the need. Many Thanks! Sincerely, (Place your name) Climate Change Analyst, Shell. ◙ List of References Randal Jackson (n.d.) Global Climate Change – Vital Signs of the Planet [Online]. Available from: http://climate.jpl.nasa.gov/ [Accessed 17th March 2009]. Jeroen van der Veer (n.d.) Our Approach to Climate Change [Online]. Available from: http://www.shell.com/home/content/responsible_energy/environment/climate_change/our_approach_to_climate_change/approach_to_climate_change.html [Accessed 17th March 2009]. David Hone (n.d.) Climate Change Weblog [Online]. Available from: http://blogs.shell.com/climatechange/ [Accessed: 17th March 2009]. Linda Cook (2003) Walking the Talk: Practical Measures to Confront Climate Change Issues [Online]. Available from: http://www.shell.ca/home/Framework?siteId=ca-en&FC2=/ca-en/html/iwgen/news_and_library/speeches/zzz_lhn.html&FC3=/ca-en/html/iwgen/news_and_library/speeches/comfortclimate_shared.html [Accessed 18th March 2009] William Baue (2004) Shell News [Online]. Available from: http://shellnews.net/2004%20Documents/rsodds/socialfunds14oct04.htm [Accessed: 19th March 2009]. --------~~~~~~~~~~~*****~~~~~~~~~~--------- Read More