Partnership, Community and the Search for Sustainable Growth
By Rhonda Zygocki, Former Vice President, Policy, Government & Public Affairs
Statement Delivered at 2008 McCombs Executive Summit, The University of Texas at Austin McCombs School of Business
Austin, Texas, April 19, 2008
Good afternoon. It's a pleasure to be here at UT speaking about sustainability at a university known for leadership in defining the role of business in society.
Today, multinational companies face enormous pressure. Expectations from stakeholders, the media and third-party organizations have never been higher. So, I salute the University of Texas and the McCombs School for your foresight in examining a critical dimension — the responsibility that we in the business community share to help manage the growth taking place in emerging markets in sustainable ways.
Let's start with a word from Bob Dylan: "The times they are a-changin'." My friend, Bjrn Stigson, likes to quote Dylan to explain what's happening in the global economy. Björn leads the World Business Council for Sustainable Development, of which Chevron is a member. He calls the search for sustainable development the defining challenge for our era.
For many, the '60s represent conflict, social upheaval and, ultimately, growth toward a more equitable society. But today's volatility is economic — the forces shaking commodity markets, rising costs for raw materials, on everything from rice to iron ore are pushing up prices on finished products around the world. The implications are enormous. The World Bank estimates that global food prices have risen 83 percent over the last three years sparking protests from Haiti to Vietnam and raising concerns about increasing inflation among central bankers.
At the center of this volatility are commodity prices. Earlier this week, the price of a barrel of crude oil touched $115. The energy markets are feeling the presence of rapidly developing markets, and that pressure will only increase. The emergence of China, India and countries around the developing world and their unrelenting appetite for commodities is changing the dynamics in many markets — especially in energy.
I've spent my career developing and producing energy. It's an inherently cyclical business, and volatility has always been part of the cycle, but today, things are different. Based on the rate that energy and commodities are being consumed and what is projected to be consumed, I'm convinced that the world's present course puts sustainability at risk. A conversation about emerging markets and sustainability can not take place without talking about energy. Energy demand is growing, and overall, that's a good thing. Energy is central to the quest for economic growth and rising living standards. The developing world has an enormous need for access to energy; for light, heat, basic mobility, and to power factories and transportation systems.
Energy brings profound changes to daily lives. This can be as simple as the transition of the families previously traveling on single mopeds to vehicles with four wheels — like the $2,500 Nano "peoples car" being built by Tata Motors in India. China has recently overtaken Japan in car sales and is projected to surpass the United States by 2016. In response, world energy demand is estimated to increase by 50 percent by 2030. And this growth will build from an industry that is currently enormous in scale. During the 20 minutes we will spend together, the world will consume about a million barrels of crude oil.
It's important to understand how vast the global energy system is already before you can comprehend the challenge of adding another 50 percent. There are a billion people that enjoy our standard of living. There are billions more striving for the same. These future needs will place unprecedented tension on the world's energy system over the next 20 years.
We already see warning signs. The United States (or for that matter, any nation) is not immune to these dynamics. Last year, the U.S. National Petroleum Council [NPC] examined future energy markets. Experts with a wide diversity of viewpoints took part in the study. It focused on the United States, but its findings have global implications.
The NPC found some hard truths about the energy future in the face of exploding demand in the developing world and increasing challenges to conventional energy development. The study concluded there were accumulating risks to a secure and sustainable energy future. Multiple and urgent actions are required.
- Demand must be moderated
- Expansion of all energy resources will be required
- Global energy security must be strengthened by, among other things, more dialogue between producing and consuming nations
- Science, technical and research capabilities must be strengthened
- Address carbon with sound policy
We fully support these recommendations and, as an energy company, have taken individual action across all of these areas to contribute to a sustainable energy future. But another key insight from the NPC is that energy security can't be achieved independently. It requires interdependence. The same can be said for building sustainable societies.
The global economy faces a complex set of issues: enhancing energy security, managing the impact of emerging markets, reducing poverty, combating disease, and reducing greenhouse gases. These challenges are sobering individually — together they reinforce the need to address the rise of the developing world through collaboration and partnerships. We must find new ways to help countries grow in sustainable ways and everyone needs a place at the table. Business stands at the center of stable societies and global companies play a vital role in aiding sustainable development where they do business.
To succeed today, a company like Chevron must demonstrate world-class performance in every aspect of our business, from our technical and financial performance to our impact on society and the environment. Our values, policies, practices and actions must be so aligned.
You can gauge any company's commitment to sustainable development by analyzing its approach to corporate responsibility. There are philanthropic reasons to help communities in need, but some of the most compelling drivers are recorded on a balance sheet. As Björn Stigson puts it, "businesses can't succeed in failed societies." It is clearly in the investor's interest to build healthy societies.
Global corporations can't, of course, assume the duties of government, but they can certainly help build capacity and enhance the communities where they do business. In a century-old business like ours, some of our community relationships also are more than 100 years old. We don't achieve this longevity by accident. Having a meaningful impact on sustainability will require your business to think long term. It will also require you to be values-driven, to integrate actions into core business and to act in partnership.
Strong values are essential. At the heart of corporate responsibility at Chevron is something we call The Chevron Way. It articulates the values that guide our business decisions every day — integrity, trust, diversity, ingenuity, partnership, environmental stewardship and high performance. That means doing things the right way.
We believe our actions to build sustainable communities must be tightly connected to our core business and work across multiple dimensions. In countries where we have major investments like Indonesia, Nigeria, Angola or Kazakhstan, the first benefit we bring to a partnership is a revenue stream to the government.
The next value we provide is opportunity — jobs. In those countries and others, our workforce is more than 90 percent local. We provide the investment and training needed to sustain that local workforce.
Our next commitment is to help build a local supply chain. We make it a priority to purchase what we can locally, facilitating the creation of a local supply chain — small businesses that can provide the project with supplies and services, creating even more jobs.
For each major project, we do a comprehensive assessment to determine all the impacts a project may have. We use it to determine needs and to understand all the ways that the project will affect a community and the environment. But, more importantly, we try to leverage our investments in a project to create wider value in the community and to minimize our footprint.
These assessments help us to look at our projects holistically. Our goal is to create integrated value — economic, environmental and social value — over a project's entire lifespan. Our projects are typically very large, capital-intensive and long lived. A typical deepwater project, for example, requires an investment of $5 billion and has a lifespan of 30 years or more. Chevron currently has hundreds of projects under way; in 40 of them our share of the investment is greater than $1 billion. Every one is a touch point for sustainable development.
And beyond our fence lines, we make strategic investments in the social health of the broader communities where we operate — areas such as education, HIV/AIDS training and other health services, or local economic development. We are guided by our corporate desire to focus our community investment on three areas that we believe are the foundation of building sustainable societies the world over — basic human needs, education and capacity building.
These efforts are changing lives. Let me give you an example in the area of HIV/AIDS, which is a critical issue in some of our largest operating areas. In Africa, babies often contract HIV/AIDS from their mothers. This can create great hardships for families and communities. The disease is an economic, social and public health challenge.
But knowledge can protect children. Our comprehensive policy combines training, testing and treatment that can save lives. Among Chevron's Angolan population, there hasn't been a single mother-to-child transmission of the disease in over two years. And most if not all of these efforts are done in partnership with others — governments, nongovernmental organizations [NGOs] and communities themselves.
One example is our commitment to the Global Fund to fight HIV/AIDS, malaria and tuberculosis. This effort will go far beyond our initial $30 million contribution by lending our management skills and business infrastructure to help develop and implement national strategies in the fight against AIDS, tuberculosis and malaria.
Our $25 million investment in the Angola Partnership Initiative was increased to $56 million through other donors who worked in partnership to rebuild the lives of millions of Angolans impacted by years of civil war. This investment brought real benefits: resettling about 2 million Angolans into new homes; extending loans to more than 5,000 small businesses; and organizing more than 3,000 farmers into marketing associations to help create markets for their produce.
Here in the United States, an $18 million Energy for Learning partnership with local schools in hurricane-impacted Mississippi and Louisiana is rebuilding K-12 education programs.
Partnerships that promote sustainability are not limited to community efforts. Where we see the need, we are advocates for policies that allow responsible corporate practices and good governance practices to thrive. The Extractive Industries Transparency Initiative, an agreement among energy-producing countries, energy companies and NGOs, is one such example. We are committed to doing what we can to improve revenue transparency. It is an important step on the pathway to improved governance. Ultimately, we hope this translates into a more equitable distribution of natural resource benefits throughout society in countries that produce energy.
Here in the United States, we are advocates for a national framework climate policy recognizing, among other things, the continued dependence on fossil fuels for years to come; ensuring their sustainability in a carbon-constrained world.
When these practices are deeply integrated into your core business, they plant the seeds of true sustainability. I'd like to share two examples from our worldwide operations that I am very familiar with. One area we've exited, another we're just entering.
Let me first take you to the Kikori River Basin in Papua New Guinea, one of the world's environmental treasures and home to a number of rare species of plants and animals. Some 20,000 people use the rain forest as a base for subsistence farming and hunting, and they use the Kikori River for transportation and food.
Chevron arrived in 1992 when we began development of the Kutubu oil field. We were operating in a pristine, fragile environment and our stakeholder's expectations were, understandably, extremely high. Our plan to develop the Kutubu oil field took place through a collaborative partnership between Chevron, the government, the local communities and NGOs. Central to this partnership was conservation and sustainability.
We worked hard to minimize the physical footprint of the operation. And, by re-injecting natural gas associated with the project, we eliminated flaring and conserved a valuable energy resource. We formed a permanent foundation with the World Wildlife Fund, using Chevron staff and facilities, to conserve the rainforest and its wildlife. It marked the first time a major environmental group helped an energy company create a foundation for sustainable development. We formed partnerships with local communities to promote sustainable development, and preserve cultural heritage. A World Bank report called our project, quote, "a model for other resource developers in ecologically sensitive environments."
Last, we developed a talented and capable Papua New Guinea workforce who prided themselves in building an industry that contributed significantly to PNG's economy. We have since exited PNG but the practices live on in Chevron.
Now, let's travel north to Bangladesh to a new project we have called Bibiyana that will develop a large natural gas field. Bangladesh is a country of many challenges and hopes. During the project's development, more than 200 meetings were held with community members to understand their concerns and explain the project's impacts and benefits. Residents were surveyed to understand their perceptions and relationships were built with local leaders, communities and NGOs.
Land is considered a cultural and economic asset in Bangladesh, and land was important to the project's success. Chevron took steps to mitigate the impact of land acquisitions and leases by building the pipeline without displacing people from their homes. The Livelihood Program was established to assist landowners and economically vulnerable community members who lived near the project. Administered by a local NGO, the program provided training in capacity building, startup funding and ongoing support to 1,300 families for handicraft and agricultural micro businesses. Other community contributions targeted health concerns and education. We helped establish a health care clinic to serve 6,500 villagers, and we supported three high schools.
Today, the Bibiyana natural gas field is one of Bangladesh's most important sources of energy and one of the largest gas fields in the country. Whether in PNG or Bangladesh, my visits to these operations and communities always left me inspired. While our facilities are impressive and well run, it is the smiles on the faces of the children in the local village that tells me our work is making a difference.
We may live in a very modern world, that is experiencing an explosion in emerging markets, but one thing we have learned from years working in the developing world is that efforts to progress sustainable societies are still very much grass roots and focus on the basics: health, education and human capacity.
But the larger lesson here is for you as leaders entering the business world. These broader corporate responsibilities are not "add-on's" to your business. They are your business, and getting this right is integral to your business success.
Be values driven, think long term and holistically, integrate sustainability into your core business and seek partnerships. These are today's rules of engagement, and no business can survive without them.
The emerging economies are accelerating. Their power and impact are being felt. The challenges facing us are daunting, but they are not insurmountable. Governments, NGOs and communities will look to business to be part of the solution. And we must act - seeking collaboration not confrontation, and with each investment and action, progressing a sustainable world.
Today, within the global economy there is no "them." There is only "us" — all of us; more than 6 billion people and the generations to come — connected and interdependent. We all have equal claims on safety, comfort and opportunity. It will be an enormous undertaking to make those collective hopes reality. Many of you will be part of that effort as both a representative of your company as well as a citizen of our world.
Together we can accomplish extraordinary things, creating value for our shareholders, enhancing our communities, empowering sustainable growth in emerging markets and leaving our world better than we found it.
And while, in 15 minutes, I can easily give you a "formula" for success, I can not give you the will. The world needs leadership; courageous, inspired leadership — leadership I know does and must exist in this room today.
Thank you for listening and now I look forward to hearing from you and taking your questions.
Updated: April 2008