The Institutionalisation team at The Lodt review the 2009 Sustainability Reports of three international oil companies with operations in Nigeria - Shell, Chevron and Eni - to determine if these reports demonstrate commitment to labour welfare or merely green-wash the issues

1.
No.9 May, 2010
www.thelodt.net info@thelodt.net +2348023624647
P
a
g
e
|
1
Corporate Governance Review
We break off from our regular Master Class this week as we review the 2009 Sustainability Reports of
three international oil companies with Nigerian operations. In view of the ongoing industrial crises in
the industry, we consider if, from the reports, these companies transparently demonstrate commitment
to welfare of their workforce or they are merely ‘green-washing.’ (Substantially as published in our
Corporate Governance Page in The Guardian newspaper (Nigeria) Sunday May 9, 2010, page 17).
CSR: ‘PEOPLE’ GAPS IN SUSTAINABILITY REPORTS OF
INTERNATIONAL OIL COMPANIES
It is season for Sustainability Reports and many transnational
corporations have been releasing their reports in the last couple of
months. Shell, Chevron and Eni – three international oil companies
(IOCs) with Nigerian operations – also released their Reports within the
last one week.
There is an emerging
comity on responsible
and sustainable business
practices with which
global corporations feel
most pressured to
demonstrate
conformance. The
consensus is that
corporate performance
ought not to be
measured by mere
financial returns to
owners alone, but also
by the non-financial
value resulting to a
broader range of
stakeholders, including
the immediate
community and wider environment. This has led to an
increasing adoption of sustainability reporting
alongside the traditional financial reporting. This
approach has been tagged, variously, ‘triple balance
sheet’ or ‘people, planet and profit’.
In practice, companies do not yet publish a single,
consolidated report to serve these different purposes,
although experts are already talking about the need for
‘integrated reporting’. While financial reports continue
to address the profit issue, separate Sustainability
Reports are published to address the people and
planet issues. A Sustainability Report therefore focuses
on the company’s policies on environmental and social
issues and the progress made by the company in their
implementation, including the result of investments
made thereby. Where a Sustainability Report captures
economic information, it is usually about monetary
outflow to non-shareholder stakeholders.

2.
No.9 May,
2010
www.thelodt.net info@thelodt.net +2348023624647
P
a
g
e
|
2
Why Nigerians
should be interested
The Sustainability
Reports of Shell,
Chevron and Eni should
interest Nigerians for a
number of reasons.
Nigeria hosts major
operations of these
companies. Although
Shell operations in
Nigeria have scaled
down in recent years,
Nigeria nonetheless
represented 9% of its
production in 2009. Eni
also reports itself as
having emerged as the
leading IOC in Africa
within the same period.
The flip side even
makes those operations
more material from a
sustainability point of
view – revenues from
Oil and Gas form about
80% of the country’s
total income, and 95%
of its foreign income.
A perusal of the content
of the Reports of these
IOCs would therefore
be ordinarily
recommended to
ascertain what promise
the reporting process
holds for influencing
the most important
sustainability matters arising from their local
operations. In the particular case of this writer, the
objective was to see how the report on the human
resource practices of the IOCs might bear witness to
the most important crisis facing the industry in Nigeria
at the moment.
Only one week before the release of the Reports, Oil
workers in Nigeria were just being talked off a strike
action which was intended to protest allegations of
unethical labour practices by the outsource service
providers of one of the IOCs, Shell. In the main, the
dispute has been about what the workers call
‘casualisation’ but which in effect means that majority
of the OIC’s workforce have been hired on a none-
permanent basis and through small-time outsource
service providers too.
This is only emblematic of the general industry
practice. Because many of these service providers
employ a small number of workers, they are often
exempted from many labour-related legislations in
Nigeria – for example that relating to contributory
pension scheme – and do not bear the pressure of
conforming with sustainability best practices. Besides,
as many of these outsource service providers rely on
their IOC clients for an overwhelming proportion,
sometimes the whole, of their businesses, they serve, in
essence, as functional units of the IOCs, but without
the same pressure for responsible conduct. And
because an overwhelming proportion of the human
resources requirements for the operation of the IOCs
are also satisfied through this kind of arrangement, this
practice begins to appear as verging on outsourcing
irresponsibility.
But how does the ‘people’ content of the Sustainability
Reports address these issues?

3.
No.9 May,
2010
www.thelodt.net info@thelodt.net +2348023624647
P
a
g
e
|
3
Shell – ‘A+’ with a
lot of qualification
Royal Dutch Shell Plc’s
2009 Sustainability
Report (Shell Report)
parades all the
trappings of a best
practice report. It
obtains an A+ rating in
the application level of
the Global Reporting
Initiative (GRI)
framework (otherwise
known as the G3). It
also carries the blue GRI
confirmation logo for
that rating. An A+
rating suggests that Shell
is an advanced reporter
which has also obtained
external assurance for
its report. Shell’s
external assurance
providers think Shell’s
reporting process for
the 2009 Report
demonstrates
“leadership by
producing a balanced
and comprehensive
sustainability report.”
Presumably, as an
advanced reporter,
Shell would have,
among other things,
reported on all core
Performance Indicators
in the G3 or provided
reasons for any omission in that regard. Besides, Shell
would have reported on relevant details of its
stakeholder engagement methods.
But how are these borne out by the ‘people’ report of
Shell? A core Performance Indicator in the G3 is that a
Report should capture “[t]otal workforce by
employment type, employment contract, and region”
(see Indicator LA1 of G3). While the Shell Report
describes Shell as “employing 101,000 people”
globally, it does not stipulate the number of the non-
employee hands in its workforce. Yet, the devil crawls
out of the woodworks. 95% of the fatalities recorded
in Shell’s operations in 2009 are those of contractors
as against 5% for its employees. No separate figures
are recorded for injuries to those two categories of the
workforce. But if nothing, the fatality figure reveals
one of two things – either that Shell has overly relied
on the use of contract workers in its operations or it
does not ensure the same safety standards for its
employees and contractors – or both. Neither shows
Shell’s human resource practices in good light.
Outsourcing of services is standard business practice,
agreed. But companies must continue to take
responsibility for ethical practices along their supply
chain. Yet, as figures in the Shell Report demonstrate,
contractor services go beyond supply chain matters.
While the word ‘contractor(s)’ is used in conjunction
with the words ‘employee(s)’ and ‘staff’ 10 times in the
report, it is only used in conjunction with ‘supplier(s) 6
times. In our view, this shows that even in Shell,
contractor issues are considered more as human
resource issues than mere supply chain affairs.
On the whole, the Shell Report does not help us in
understanding what Shell’s policies are in regard to key
welfare and safety issues of an overwhelming majority
of the hands in its workforce. In fact, it does not carry
GRI content index, as is required, to assist us measure

4.
No.9 May,
2010
www.thelodt.net info@thelodt.net +2348023624647
P
a
g
e
|
4
conformance with the
entire G3 framework.
Eni – somewhat
transparent, yet
little help
Eni 2009 Sustainability
Report (Eni Report)
parades a B+ GRI
rating.
PriceWaterhouseCoope
rs provided a limited
assurance in support of
its G3 compliance. In
our assessment
however, the Eni
Report demonstrates
more transparency in
conforming with its B+
requirements than does
the Shell Report in
regard to its A+ rating.
But how substantially
does it comply with the
LA1 requirements of
G3? The Report uses
the term ‘workforce’ in
a way to suggest both
employees and
contractors collectively,
which appears to us to
be the intendment of
LA1. In fact, the special
section on ‘contractors
safety’ admits that
contractors “represent a
constantly increasing
work force at the oil
and gas exploration,
development and
production sites.”
Nonetheless, in
disclosing information
on its workforce, the Report resorts to the use of the
term “employees.” The information (see page 67)
shows employees by type of contracts – permanent
and temporary. Graphic information on pages 63-65
captures only employee segmentation by professional
category, gender, age and/or geographical areas. No
figures on “workforce type by employment type,
employment contract” in the LA1 sense appear in the
Report. Thus we are unable to ascertain the number of
contractors relative to employees (permanent or
temporary) in the workforce of Eni.
Because of the lack of transparency in regard to
distinction between contractors and employees, charts
showing increase in health, safety and environment
(HSE) spend, training hours and other personnel-
related statistics do not disclose improvement in Eni’s
responsibility to the generality of its workforce.
Fatality-related information such as decrease in
“company motor vehicle incidents” can also not be
applied to the entire workforce. This, besides the all-
too-well-known, though usually unreported, heavy
reliance on contractor-model to workforce recruitment
in the industry, may explain the wide disparity
between fatalities and injuries to contractors and
employees. For Eni, contractor fatality is 75% of all
workforce fatalities in 2009.
Chevron and supply chain efforts
Although the Chevron 2009 Sustainability Report
(Chevron Report) does not parade any rating on its
conformance with a global reporting standard, it does
the most to demonstrate the efforts of a company to
address labour issues in its supply chain. In fact, the
Report only secured limited assurance for its HSE
aspects. Nonetheless, in preparing the Report, Chevron
claims to “continue to be informed” by reporting
frameworks like G3 and another industry-based
reporting framework.
In view of the foregoing, The Chevron Report only
partially complies with Indicator LA1 of G3. Thus,

5.
No.9 May,
2010
www.thelodt.net info@thelodt.net +2348023624647
P
a
g
e
|
5
there is no information
on the number of
employees relative to
contractors in
Chevron’s workforce.
However, Chevron
appears to take its
responsibility for
labour-related issues in
its supply chain so
seriously that, according
to the Report,
“[t]hrough Chevron’s
shared commitment of
resources (time, money
and knowledge) by our
employees and the
company, our partners
and contractors saw
that they weren’t on
their own for safety
and environmental
performance. We
demonstrated that we
wanted their employees
to be as safe as our
own employees.”(see
page 5). Amongst the
reported initiatives
taken to assure, say HSE
standards conformance
in Chevron’s supply
chain is its Contractor
Health, Environment
and Safety
Management (CHESM)
process, through which
it works “with suppliers
to increase
accountability and
continually improve
their performance in
these areas.” As a result,
the Report records a
reduction in the “Total Recordable Incident Rate” of
Chevron contractors by 38 percent between 2005 and
2009.
Chevron’s can hardly be regarded as a roaring success
though, regarding contractor fatality. The 2009 fatality
figure is 9 made up of 100% contractors. This figure is
worse than the 5 for 2008 – also all contractors. When
it is considered that the figure for 2005 is 4, taken 2
apiece by employees and contractors, Chevron will be
seen to have maintained a zero fatality for employees
for 2 years now, while the fate of contractors has been
worse-off.
Lessons for Nigeria; Lessons for all
There are a number of lessons in all these for Nigerian
stakeholders of multi-national corporations. Firstly,
local campaigners for responsible behaviour by these
corporations need to adopt new tools of engagement
beyond traditional call-outs. One such tool is
engagement at the level of sustainability reporting.
Though voluntary, this reporting method matters to
global corporations. Shell published its first
Sustainability Report two years after its image took a
dip following allegations of collusion in the execution
of environmental activists in Nigeria. Engaging
corporations at this level requires development of new
competencies which may not be available locally at
the moment. For example, in order to obtain
assurance providers for its 2009 Report, Shell engaged
professionals from as far afield as India and Brazil,
markets which, from Shell’s 2009 Annual (financial)
Report, do not contribute as much as Nigeria to that
IOC’s operations.
Besides the reporting companies themselves, GRI and
other emerging providers of frameworks for
sustainability reporting should also be continually
engaged with a view to procuring reflection of new
insights in their respective frameworks and standards.

6.
No.9 May,
2010
www.thelodt.net info@thelodt.net +2348023624647
P
a
g
e
|
6
For example, GRI may
need to establish special
supplemental indicators
for the Oil & Gas
industry (separate from
Metal & Mining).
Although there are
already Oil & Gas
industry based
standards, a special G3
supplement for the
industry will be
necessary in view of the
increasing acceptability
of G3 as a global
standard.
As a suggestion, the
sustainability
implications of the
contractor-model for
recruiting a workforce
in the Oil & Gas
industry need addressing. Human resources
information of certain categories of outsource service
providers should be consolidated to that of their IOC
clients for the purpose of sustainability reporting.
These categories should include companies whose
businesses with IOCs represent an overwhelming
percentage of their turnover or whose size means that
they would easily escape national labour-related laws
and global best practices. In essence, the IOC clients
should begin to take responsibility for the labour
practices of these service providers and report on
them. Chevron would seem to be demonstrating some
leadership in this respect, although it is contestable if
treating it as a supply chain matter rather than human
resources matter adequately addresses the issue.
Furthermore, G3 needs to define terms like
‘workforce,’ ‘worker,’ ‘employee,’ ‘temporary’ and
‘permanent’ employee, ‘staff’ and ‘contractors’ to
avoid selective application of these terms which have
been known to facilitate inconsistency and lack of
transparent reporting.
Corporate Governance Review is a newsletter of the Institutionalisation team at The Lodt Law Offices
Email: info@thelodt.net
Website: www.thelodt.net
Editor: Deji Toye