The Responsible Investment
Peter J. Robertson, Vice Chairman
Wharton Social Impact Conference
March 23, 2007
I must say that it's good to be back at an institution that introduced me to business and markets. Wharton's emphasis on global commerce makes this a fitting place to discuss the role of corporate responsibility (CR) in an enterprise like Chevron.
I also appreciate the opportunity to engage with such a broad cross section of the CR community; NGOs (nongovernmental organizations), academics, practitioners and, of course, the real future of corporate responsibility, the students who will build the businesses of the 21st century.
I would like to give you a sense of the history of corporate responsibility at Chevron – a history that goes back long before we even used the term "corporate responsibility."
I'll give you an idea of how our thinking has evolved since then and what CR at Chevron looks like in practice today. And I'll share a few thoughts on where I think CR is headed, and then I look forward to your thoughts and questions.
Let me begin with a brief background on our approach at Chevron.
Corporate responsibility, as a strategy, is still evolving, but a discussion on this subject probably starts by asking and answering a single question: What is the purpose of business?
At one end of the spectrum, there's Milton Friedman's position. Is the sole purpose of business, as Friedman argued, to make a profit?
At the other end of the spectrum, there's Ben & Jerry's position. Should a company be dedicated to "a sustainable corporate concept of linked prosperity" between its product mission, economic mission and social mission?
I'm sure some of your professors could turn that into a very long debate, but let me give you one short answer.
We've selected a position that respects both our responsibility to turn a profit in a business that, at its core, is about improving standards of living and our intention to enhance the societies in which we do business.
I've come to this conclusion based on more than three decades of experience in the energy industry. To succeed today, a company like Chevron must demonstrate world-class performance across every aspect of our business, from our technical and financial performance to our impact on society and the environment – the so-called triple bottom line.
Fortunately, CR has been part of our industry almost from its formation. In 1906, after an earthquake destroyed San Francisco, John D. Rockefeller, who merged Chevron's predecessor company into the Standard Oil conglomerate, quickly sent a large contribution. Rockefeller's instructions targeted this aid to the most vulnerable earthquake victims.
"I prefer," wrote Rockefeller, "to have the funds used in behalf of the poor, the friendless and the destitute who have no powerful influences to aid them and who could offer no returns of any kind to anyone."
Standard Oil also contributed fuel, provided transportation and established Camp Rockefeller, which housed 1,000 people.
In the last 40 years of his life, Rockefeller defined the modern systematic approach of targeted philanthropy. He created foundations that had a major impact on medicine, education and scientific research. Rockefeller also established International Houses in New York and at the University of California at Berkeley.
Chevron supports Cal Berkeley's I-House. These are residences for international students. At Berkeley, the I-House has 600 rooms and hosts 100 different nationalities.
Given the difficulty that governments and peoples around the world are having communicating with each other, the mission pursued by the I-House is especially relevant and valuable today.
But, returning to our company's CR activities, although Standard Oil Co. (California) broke away from the conglomerate in 1911, Rockefeller left a philanthropic imprint. From the beginning, the leaders of Standard Oil Co. (California) – or Socal as we were then known – shared a progressive vision of the company's place in the world.
By the early 1920s, Socal defined its approach to the so-called soft side of our business – working conditions, employee compensation and benefits – as an investment rather than a cost. Our company realized that a stable and committed workforce created value for our shareholders that exceeded the cost of providing these benefits.
By the early 1970s, Socal's corporate responsibility thinking had evolved further. A contemporary company document stated that, "Increasingly, business firms are coming to realize that social needs frequently represent business opportunities, not unwelcome and troubling chores."
We took then, and take today, a broad view of our mission – one in which business objectives clearly intersect with social and environmental issues.
Today, the heart of corporate responsibility at Chevron is something we call The Chevron Way. The Chevron Way articulates the values that drive our business decisions every single day – integrity, trust, diversity, ingenuity, partnership, environmental stewardship and high performance.
Nearly every single Chevron employee can tell you what these values are. More important, they integrate these values into everyday activities and decision-making. The Chevron Way helps us to deliver high performance the right way.
In a global organization that operates in a diverse set of cultures and regulatory environments, The Chevron Way is the compass we use to navigate our business in an ethically and socially responsible manner.
If The Chevron Way is our compass, then our roadmap for how we develop our projects responsibly is something we call an Environmental, Social and Health Impact Assessment, or ESHIA. After all, we are a company of engineers so we like to give things complex names and awkward acronyms. But essentially, ESHIA is a dynamic, interactive process we use to assess all of the impacts of any given project before it is even started.
We use it to determine if we need to offset any potential impacts of a project, but more important, how we can leverage our investment in a project to create wider value in the community. ESHIA helps us to look at our projects holistically and begin to understand how we can create integrated value – economic and social value – over a project's lifespan. Let me explain what I mean by that.
Our projects typically are very large, capital-intensive and long-lived. A liquefied natural gas project, for example, may represent an initial investment of $5 billion to $10 billion and have a lifespan of 30 years or more.
So the first value, other than a revenue stream, that we provide in a country like Nigeria or Angola, where we have major investments, is jobs. In those countries, and others, our workforce is more than 90 percent local. So, one of our fundamental commitments is to provide the investment and training needed to sustain that local workforce.
But we have to do more. We participate in the creation of a local supply chain – businesses that can provide the project with the supplies and services that it needs. That creates even more jobs.
In addition, we make a variety of strategic investments into the social health of the communities where we operate – areas such as education, HIV/AIDS training and other health services, or local economic development.
The ESHIA process also recognizes that assessing the environmental impacts of our operations is critical. We are committed to a high level of environmental stewardship and sometimes that even translates into a net improvement for the environment.
I won't go into a long description here, but I would refer you to the best-selling book "Collapse" by the renowned social scientist Jared Diamond. His book devotes a chapter to a case study covering Chevron's operations in Papua New Guinea and how they ended up benefiting the local ecology.
A final note I'll make here is on the idea of leadership. Where we see the need, we are advocates for policies that allow responsible corporate practices and good governance to thrive. The Extractive Industries Transparency Initiative (EITI), an agreement among energy-producing countries, energy companies and NGOs, is one such example.
EITI is committed to the basic proposition of promoting transparency through the public disclosure of payments made by companies and revenues received by countries. This sounds simple, but it is not – because the devil is truly in the details.
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.
We need to lead people to develop greater consensus in support of approaches like this. Of course, there are principled differences over the scope of such agreements as EITI or the Voluntary Principles on Security and Human Rights.
These differences involve practical tensions generated by moving from points that we all agree on to positions that can raise complications related to the shape and manner of compliance. Like many companies, Chevron is working through these discussions.
We will support an approach that makes progress toward common goals based on consensus and results, not micromanagement or counterproductive requirements.
That's our approach. Now, let me give you a few brief examples of what this approach looks like in practice.
In Nigeria, we are developing a massive oil field called Agbami, located in the deep water about 70 miles offshore. It's an extremely challenging project from a technical standpoint.
Some 10,000 tons of Agbami's major offshore components will be built in local yards. That work will translate into more than 2.7 million work hours for Nigerians. Nigerian workers have already completed two of the large components needed for the development. Although these large components are limited in scope, they are an important part of the project.
The components were built on schedule and without any lost-time injury – showing that local suppliers can develop increased construction expertise and safety performance. The heavy workload led two Nigerian firms to expand and upgrade their facilities.
These improvements will enhance future prospects for Nigerian businesses, and they are a step toward the goal of developing sustainability – and by that I mean a diverse economic base that goes beyond the energy sector.
Also in Nigeria, we are using an innovative approach to build capacity and to resolve complex development issues in the Niger Delta. Last year, Chevron Nigeria Limited and eight Delta community groups signed agreements to develop a new level of cooperation, engagement and accountability.
These agreements will gradually shift control over the design, planning and execution of community development projects from our subsidiary to multi-stakeholder groups made up of community members and representatives from the government, NGOs, and Chevron.
Going forward, Chevron will fund the budget and the communities will be responsible, through an agreed process, for the wise allocation of the funds to those projects that are genuinely needed and that will be supported by the community. This is an effective model because it brings a range of stakeholders together at the grassroots level in a collaborative and transparent process.
Chevron also has major operations in a nearby country, Angola.
A Chevron subsidiary has been operating in Angola for nearly 50 years, showing the importance of long-term partnerships. We've weathered political turbulence, civil war, and we're now experiencing a time of reconciliation and reconstruction.
Driven by energy development, Angola is Africa's fastest-growing economy. That strong economic growth is also supporting Angola's recovery. Among the international oil companies operating there, we're the largest employer, with a 15,000 member workforce.
Chevron has learned that the most productive way to maintain our license to operate is by building human capacity within our countries of operation. There are a wide variety of needs still to be addressed as Angola's recovery continues.
For that reason, we're also building local capacity and helping to improve living standards through the Angola Partnership Initiative (API), conceived, launched and initially funded by Chevron.
Within API, we are partnering with the United States Agency for International Development and NGOs on a range of programs. They are designed to stimulate the growth of the country's agricultural economy and to build more capacity for local community-based organizations to support economic development and diversification.
The API Fund has now grown to $55 million that has either been spent or is committed to be spent, and it has touched lives throughout Angola. The latest figures show API programs impacting more than 2 million Angolans.
A couple years ago, my wife, Candy, and I visited the war-torn, ruined city of Huambo in the heartland of Angola. It was a trip I will never forget.
We visited an agricultural technical college destroyed in the war that was being rebuilt with Chevron's help. We spoke with students, and, despite their personal hardships, they were just as impressive as students anywhere else.
We went to Huambo because we wanted to see for ourselves how the agriculture-based community was coming back to life through the API projects. Our efforts are helping the Angolan people to develop the skills and create the opportunities to develop a well-functioning, sustainable economy.
Chevron also has significant operations in Central Asia.
A Chevron joint venture in Kazakhstan, for example, uses a small business development program to build local capacity by providing loans to small entrepreneurs, which allows them to strengthen and expand their businesses.
Since 1997, this program has provided interest-free loans for more than 150 projects, which have helped to create more than 1,000 jobs. These jobs are in addition to the thousands of jobs created by our base business operations. At least six of the new companies are now doing business with our joint venture.
As in other countries, we encourage local purchasing. In 2006, our Kazakh joint venture made expenditures on local content that totaled over $1 billion.
Also in Kazakhstan, Chevron is helping the government and people capture greater benefits from their resources. We are enhancing Kazakhstan's ability to manufacture value-added products from hydrocarbons. We created 150 local jobs when Chevron opened a Polyethylene Pipe Plant in 2003. Today, our completely local workforce is delivering world-class standards of plant management, production and safety.
The pipe plant has been so successful that we doubled its production capacity two years ago. This factory provides an excellent example of Chevron's approach to developing and training the local workforce by providing expertise, transferring state-of-the-art technology, and developing a culture of safe and cost-effective plant operation.
I've tried to give you an idea of what our CR initiatives look like on the ground and how tightly integrated they are with our business objectives.
I could tell you similar stories from our activities in Indonesia, Venezuela, New Orleans, Louisiana, and Richmond, California. But, in my last few minutes, I'd like to raise a topic I haven't mentioned yet – our products, and their impact on society.
Chevron is in the business of providing energy for our customers – the energy we all need for light, heat, mobility, manufacturing and many of the other fundamentals of modern life.
I've talked about a few of the places we find and produce energy. But I haven't mentioned the difference that energy makes in people's lives.
Energy is truly the locomotive of the global economy. Energy powers everything from transportation and manufacturing facilities to Google's server farms and Apple's iPods. Energy is also a fundamental prerequisite for economic growth and the momentum that is raising the developing world out of poverty.
Think about China for a moment. China has the enormous challenge of bringing hundreds of millions of people up to an acceptable standard of living. India is also attempting to raise living standards for a similarly large population. This is a challenge shared by many countries in Africa and the rest of the developing world.
Let's consider, for a moment, the impact on individual lives when people lack access to clean and affordable energy.
The International Energy Agency estimates that 2.5 billion people use biomass – wood, charcoal, agricultural waste or animal dung – for most of their daily energy needs for cooking and eating.
These people don't have access to clean and affordable energy, and, in some cases, they pay a tragic price. Every year, 1.3 million people, mostly women and children, die prematurely because of exposure to indoor air pollution from biomass.
We need to keep these energy-underserved stakeholders in mind when we consider policies that would severely limit resources or dramatically raise prices.
Chevron shares the concerns of governments and the public about the impact of human activity on our climate. And we are deeply involved in the discussions taking place about climate policy. We support the approach of a national framework, and, to be effective, we think a national framework should be aligned around some core principles.
For example, the framework should recognize the global nature of any solution, maximize energy efficiency, take account for the need for energy security and clearly convey to the public the economic trade-offs. The real challenge for us is to find the right balance so that economies and standards of living can progress at the same time as we achieve a safe and healthy environment.
So, how do we find common ground? Too often, energy companies have been viewed as part of the problem. But we at Chevron are, and will continue to be, part of the solution. We know that this will take complex decision-making that strives for balance, trade-offs and compromise.
The discipline of corporate responsibility and the imperatives of business need to coexist, but energy policies driven by reflexive extremism will poorly serve global customers – particularly, the billions living in the developing world.
Many of you here today are students who will be entering the workforce in the next few years. Many of you will rise to senior decision-making positions in the business world. Few challenges will be greater than this: to reconcile the interests of your shareholders, your employees, your business partners and customers, and your communities.
Balancing the needs and interests of all these stakeholders is one of the biggest challenges – and greatest opportunities – of corporate responsibility.
Published: March 2007