Making Sustainable Development Work: Governance, Finance And Public-Private Cooperation

Thank you for the introduction. It's my pleasure and I'm delighted to be here.

What I would like to do is give you an overview of how we view sustainable development at Shell, with the emphasis on what we're actually doing about it. I'm heavily involved with His Royal Highness the Prince of Wales’ Business Environment Program. It has been an enlightening experience to me to join that group. I actively seek best practices through the World Business Council of Sustainable Development. But I guess I became involved with the basic concepts of sustainable development traveling around the world with my parents, including here in Washington, and joining Shell about 22 years ago, during which time I have had the privilege of working in about 25 countries in various technical, commercial and governance roles.

So change has been the norm in my professional life. It is not just about where I have enjoyed working. It is about how business is conducted across the borders and continents very differently. We hear an awful lot about globalized businesses. The reality is that firms that want to thrive, that want to look forward to the future recognize a profound sense of responsibility they have to all stakeholders. It's a sine qua non. There is no other option. We use the acronym TINA, There Is No Alternative.

But it feels good. We're all concerned about our global image. At the end of the day, it is key, the focus on business ethics and transparency. You see what happens when you don't. Shell is one of the largest companies in the world. We operate in more than 130 countries. Through that process, we have developed an abiding commitment to sustainable development through major discontinuities, through learning, through shocks, through Brent Spar and so forth. It is ingrained in the decision process. It is ingrained in everything we do. We're learning through that process. But it feels good. And more importantly, and I think that's the key message I want to leave today, it is recognized and embraced as an internal aspiration and it is welcomed as an external expectation. It is truly welcomed. I think it is a major source of competitive advantage.

All businesses are about making profits. But it goes far beyond that. It goes far beyond philanthropy. It is looking at creating opportunities for the future. It is up to us all. It is up to Johannesburg to really set the change, to raise this game and bring about a sustainable world. Unfortunately, there is a major disconnect between social and corporate roles. There is a big divide. There is a tendency to believe that we are the adversaries as opposed to actual potential allies in advancing social causes.

So I very much look forward to Johannesburg. I think we can make a difference, and we need to. We have no choice. The reality is we don't have a choice. Half the world lives on less than $2 a day. That imbalance cannot continue. That's the reality. So we have to close that gap.

We talk about globalized, liberalized, technology advances. They make big differences. They add huge benefits. But the reality -- the pace of change, the scale of change is so significant, that choices seem to disappear. At the end of the day what happens is that those that are concerned, particularly in this world of poverty, characterize global businesses as greedy multinationals destroying the environment, exploiting the poor. The reality is that with political will and corporate responsibility, we can make a difference and we can actually use globalization and really make socioeconomic changes, step changes.

Of course you need frameworks. There is a lot of fear about prescriptive guidance, prescriptive rules. Some believe that regulation will stifle productivity. The reality is you need effective regulation. There is no other way for it. You need a mentality where you have to comply. Companies like us will try and improve on that compliance and raise the standard. But at the same time, when you design those regulations, those frameworks, you have to make sure that you are able to attract business investment.

Let's talk about investment briefly. There has been a huge increase in developing countries in terms of contributions in total foreign direct investment from 20 billion to 200 billion in the last decade. That's quite a steep change, isn't it? But the reality is that only 75% of that goes to 12 developing countries, five percent goes to the lowest 140 remaining countries. So investment is a real big issue.

The last point is -- and it's easy for me to point fingers -- about what roles are the international companies playing. It is about raising the standards in developing countries. It is about providing the energy to raise those standards. It's about safeguarding the environment in those countries. In Shell, we have put a lot of emphasis on sustainable development. It starts by having a compelling vision. It starts by having a set of values, including sustainable development, as part of our General Business Principles which are in effect our Constitution. It moves on to talking about the future.

You know about the Shell scenarios. We have put a lot of emphasis on them. It's about encouraging debate. It's about testing theories. Challenging assumptions. We have two scenarios at the moment. One is called business class. It looks at what will happen if globalization carries on at this pace over the next two decades. It tries to explore whether the so-called global elite, the interconnected global elite can actually drive economic integration and aspire to prosperity for all.

In that situation, from an energy point of view, you see gas as a major driver, major penetrator. And ultimately, what will happen is that there will be concerns over health, concerns over the environment. And this will have major implications for CO2 trading. That will drive who comes in and out of arrangements such as the Kyoto Protocol and others as well. The other scenario is the opposite. The other one says, hang on: globalization? Forget it. Persisting powers of culture and history will drive different solutions. In that situation, you are going to have local niche products, local opportunities, a lot of instability, a lot of choice. And therefore, oil will remain the dominant player.

And I don't know which one of the two outcomes will result. They are just possibilities, and I suspect we will bounce between the two. The reality is that fossil fuels will continue significantly over the next 50 years. Two-thirds of our energy comes from them. So we cannot deprive emerging economies of that. It's a key issue. But at the same time we have to address the potential ecological damage. And we can step forward with clean energy. This afternoon there will be sessions on clean energy fuels that will allow developing countries to leapfrog the way we grew in the last 50, 100 years in terms of the industrialized countries.

I talked about transparency early on. I think if there is one great thing that Shell has done it is the Shell Report. There are a few copies out there. Any time you have, just log on to www.shell.com. Just go down and download the Shell Report. I would urge you to focus on the things that we're not doing well rather than highlights of the things we're progressing well on. Because we're looking for help, we're looking for partnerships to address how do we move forward and address this issue and that issue.

We have put a lot of focus on Key Performance Indicators like all technocrats. We need metrics to see how we're progressing, score cards for performance measures, how do we move forward. We have 16 metrics focusing on value, safety, integration, greenhouse gases and so forth. Another five will be added. The issue is that we're learning. We're trying to understand. But we're transparent. The annual report is in its fifth edition. Two and a half million copies normally get issued in 22 languages. It is transparency. It's audited. We seek your guidance; ‘you are not covering this, you're not addressing this'. Help us on this front.

Let me move on to what we are doing about sustainable development. And I give you a few simple examples, which are very simple. This is just the tip of the iceberg. We just moved into Pinedale, a large gas field in Wyoming, 90 miles south of Jackson. It is a very exciting environment. Very tight gas. Needs a lot of technology. It's an arid environment, so water is precious. All water is treated, reused for every single drilling operation. We shut down operations when the elk deer, the mule deer, the elks and the sage grouse come in to mate. It's talking about understanding how to participate and contribute to that environment.

We have a huge engagement effort with all local stakeholders, with the mayor, with the community -- because we're a big player. We're going to be spending on the order of $1.2-$1.5 billion dollars in that region over the next 5 years. It's a huge investment, and you can really blow it. So a lot of effort. We have shut down rigs that didn't have good enough safety standards. We have shut down production facilities that didn't have the environmental standards we're seeking. And together with the community, we're trying to make a real success of that venture.

In the Gulf of Mexico, that's home base, that's where we really have leadership in terms of volumes, unit margins, and unit cost. But real leadership has got nothing to do with that. Leadership is secured through external recognition. And we fund the Shell Marine Habitat Program. There are about 43 projects at the moment through that program. We provide about $5 million. It attracts another $10-$50 million. It is federations. It is communities that just want to help. Simple projects. A couple of buoys protecting the coral reef -- the northernmost coral reef in the western hemisphere -- that basically warn ships when they come in and drop their anchor that they will destroy those corals. Coastal projects.

The real learning for us is that it is about openness and engagement. We actually try and understand -- because we're such big players in the Gulf of Mexico -- what can we do to improve the eco-efficiency of that precious environment. In Michigan, a very small operation. We pride ourselves on the corporate citizenship we have in the community. All the awards we receive. It makes people feel good.

I give you a simple example of where technology can play a role.  We are engaged in a pilot project where we take all the emissions of diesel engines, gas emissions, so forth, CO2, and we inject them all in the ground in capillary reefs to basically enhance oil production.  But it removes 97 percent of emissions.  There is no philanthropy.  It's simply good business.

Let's move beyond that. Management of gas emissions is a key issue. In Nigeria, a huge investment program to tackle large volumes of gas flared. Billions of dollars between now and 2006. A huge investment program between ourselves and various partnerships. LNG will reduce greenhouse gasses by 60 million tons per annum.

But the issue here again is not about technology, it is about working with the community. It moves from community assistance to community development, establishing investment funds, developing local business, helping people help themselves, providing professionals, working with local banks, with the IFC and other communities to raise the game.

Working in the Niger Delta is difficult. We feel privileged to be there. We want to be a successful player there. Ultimately, we have to play a big role within that community.

In China, the Nanhai petrochemical project, $4 billion. If all goes well, it will be on-stream by 2005. It has huge implications on employment, on secondary manufacturing that will arise as a result of this project. But the reality is that a lot of people have to be relocated. So we spend a lot of time with the government and other stakeholders in resettling programs, to western standards. That has gone in Phase 1 extremely well. That's the feedback from the community.

Gas is a big issue. China has some of the most populated -- polluted -- and populated, I guess, cities in the world. Huge effort to try and increase the gas production. So we're involved in the East-West Gas Pipeline moving gas to the eastern coast. You have got to get it right. It is such a big project. We're working together with the UNDP to try and sort out how do we get it right.

It's not because we're concerned about technical investment. We're good at that. On the other hand, we can't move away from reality. Coal is a major resource for China. There is huge employment, social infrastructure behind it. It will continue to be used. So a lot of emphasis is going on Shell coal gasification technology. It can make a difference.

Then one final example. As we go to cleaner fuels, what is happening on the renewables front? Over the next 5 years, Shell will invest a billion dollars on renewable technology and hydrogen. Shell Wind just made a large investment in Palm Springs, California.

Let me give you one simple example about the changes taking place on hydrogen. In Iceland, we're involved with a consortium with Norsk Hydro and with Daimler Chrysler. We're going to be fueling next year three buses on hydrogen. If successful, that will move on to a thorough transportation system. Iceland will be the first economy to be entirely run on hydrogen. How long will it take? I don't know. We'll be starting next year. It is pretty exciting. Again, it is partnerships. It's a consortium with the European Union and the Icelandic government.

Let me finish off by basically saying that I have given you a snapshot of some of the examples. It's ingrained in our decision making. I haven't talked to you about tools, about metrics. We have, for instance, the 3-D tool that we champion here in Shell EP in Houston The tool looks at everything we do in a project. Not just the economics, the technical uncertainties. It addresses all sorts of questions through a value assurance process, technical, economic, commercial, operational, political, environmental, and so on and so forth.

The important thing about it is not the score that, by the way, helps define the scope of the project or alternatively reject it. The important thing is that it makes sustainable development integral and pervasive throughout the organization. So it's not just leaders, not just rhetoric. Everybody feels involved. And the important thing about sustainable development, I mentioned early on, there is no alternative, perhaps for our generation, but today's generation is only attracted by companies that focus on this. That's the reality.

In my view, sustainable development is great business. It is a competitive advantage. The only area in which I disagree with John Elkington -- in "Cannibals with Forks", which is a great book, if you haven't read it, please go buy it because I find it illuminating -- the only area is that he feels it will take a number of generations, and I don't believe so. I think peer pressure in terms of gradual change that you will see on sustainable development when companies like Shell and many other champions push these things will drive everybody behind it.

But we need those partnerships. We need political will. We need integrated commitment. And let's not assume that public/private partnerships will solve everything. Because if they don't have common aligned goals, and I give you an example: British Rail in the UK, things can really fall out.

I honestly believe that with a common alignment of goals and a minimum set of standards you can continuously raise, there will be a major change. There will be a serious sea change. It's our role. We will be major players. You will be major players in Johannesburg to make a difference and go beyond Bali. Let me just finish off by saying that individuals can address all sorts of things, can live their lives based on values and their own beliefs and model and encourage accountability and try to do their best to raise the game. Individuals working together can make a big difference. Thank you.