Sustainability. Repsol Case. Group No. 2

Group no. 2:
Alberto Renegel, Carlos Cerdán, Pablo Gonzalez, Diana Sánchez

Repsol case study

Introduction

Nowadays, one of the main concerns refers to trade off between the future energy supply and the sustainability of the resources. The depletion of natural sources (fossil fuels), the climate change threat, plus the increasing growth in population, presents one of the main economical and political challenges.

The private sector plays a major role in this scenario. Their decisions and priorities will determine the direction of the energetic path. We want to focus our attention in this sphere, analyzing the specific case of Repsol, one of the most important industrial Spanish companies, with worldwide presence.

Business case

Repsol is an oil and gas company with operations in 29 countries, including Argentina, Brazil, Mexico, Chile and Colombia. It has more than 36.300 employees from more then 70 different nationalities, being 27% women and 62% under collective agreement.

Map world presence

The National Institute of hydrocarbon, INH, funded Repsol in 1987 in order to accomplish the privatization of CAMPSA, the monopolistic Spanish petroleum company since 1927. Now, it is Spain’s largest industrial company and the sixth-largest oil company in Europe in terms of sales. It is also the 15th largest petroleum refining company, according to Fortune Global 500 List.

Its business consists mainly in the exploration, production, transport and refine of oil and gas. REPSOL also promotes and researches for new renewable energies such as bio-fuels.

The Company’s activities are divided into five business areas:

1. Upstream, which is responsible for oil and gas exploration, and production activities
2. LNG (Liquefied Natural Gas), which manages LNG midstream and marketing activities
3. Downstream, which is responsible for refining and marketing of oil, chemicals and LPG.
4. YPF, which is responsible for the integrated value chain activities (exploration, production, refining, logistics, marketing, and chemicals) undertaken by YPF.
5. Gas Natural, which corresponds to the company’s stake in Gas Natural

In 2010, was created the New Energies business line with the aim to promote the diversification of the energy portfolio, with a special emphasis on the low-carbon and more efficient alternatives.

All these activities had important impacts on the financial performance of the Company. In 2010 the net profit was tree times more than one registered in 2009, reaching E 4.693 billion.

All the business lines experienced significant growth in its recurrent operating income: upstream +66%, downstream +45,5% and Gas Natural Fenosa +14%.

Even the crisis, Repsol has maintained a solid financial position. The net debt had decreased a 65% during the last year, in order to be ready for uncertain future crisis forecasts.

In this context, Repsol performance was good. The new starting projects in Brasil and Venezuela, as weel as in Spain are the ones that will ensures the Company’s future growth.

Stakeholder analysis

One of the main issues of Corporate Responsibility model of Repsol is related to the stakeholders engagement. The identification of each one of the expectations in line with sustainable development of the stakeholders set the base for this job. However, recognizing who is who, and delimit the scope is not at simple at it sounds .

The identification of Repsol’s stakeholders allowsclassifying them in the following groups: employees, suppliers, customers, community, government and shareholders. This case does not differ from this proposal.

In this case is possible to affirm that the interests of most stakeholders can be related to the social responsibility of the organization. The challenge is to address the link between the stakeholders’ interests and the responsibilities of the organization to society at large.

Customers. Repsol customersare drivers, haulage contractors, households, industrial clients, airlines, civil construction, workshops, farmers, ship owners, fishermen and charterers. There are 4 main issues for the Company in the relation with its clients: satisfaction, product quality and safety, and transparency and veracity in their communications. For this, Repsol has mechanisms to measure and manage this subjects, such as surveys, specialized units to monitor the health and environmental risks of the products they market, voluntary mechanisms and codes to ensure the transparency and veracity of advertising communications, and Self-Regulatory Code on Environmental Claims in Commercial Communications and the Ethical Code of Online Trust. At the end, the customers are the main reason for a company; taking care about their concerns and necessities is vital for their business success.

Employees. Repsol has policies and programs that go furtherfulfilthe legal obligations and look for the welfare and security of their people. For instance, those related to fair wages that include extra-social benefits, equal opportunities, work-life balance, and health and safety programs. Also, it provides different communication channels, such as Employee Service Desk (SAE). All this initiatives point to the same goal: attract and maintain the best people, and bring the best labour conditions for improve worker’s productivity and performance.

Shareholders and investors.They are an integral part of the organization. They set the roadmap for Repsol performance and decision- making. Their main interest relies on the company’s success. The relation between the Organization and shareholders is characterized by the transparency of information and good governance. Repsol has the shareholder information office (SIO) and Investor Relations Department, relevant channels to share information. Also, it has a corporate governance system the structure and operations of its corporate bodies in the interest of the Company and its shareholders.

Local communities. This is a critical actor for Repsol. Not only for their, in many cases, opposite interests, but also because they are the main reason for the demands and reputational problems that the Company face.

Repsol consider that community relations contribute to the company’s success over the long term as well as to the development of the communities where we operate. For this, they have several programs, besides mechanisms that promote dialogue between both parties. Their effort is concentrated in 4 main areas: (i) work with affected communities (in 2010 for example, its upstream activities and industrial complexes affected more than 300 communities and 20 cities), (ii) dialogue; (iii) social investment; and (iv) indigenous communities.

The interest of the community relies on two main issues. First, the protection of their habitat (including all the environmental, social and cultural heritage), which in many cases is against Repsol’sexploration activities. Second, the consequences (and future responsibility) that the Company’s activity has on the development and quality of life of people.

Government. The policies related to the energy sector affect directly Repsol’s decisions and achievements. At the same time, the company’s performance has important impact on the economic situation of Spain (employment generation, taxes, etc), which is a major concern for the Government.

Partners, suppliers and contractors: Repsol has more than 24.000 suppliers and contractors from 79 countries. The importance of these actors is higher because it affects the whole supply chain and the possibility to accomplish the customer requirements. The relations between the company and the partners are governed by joint operating agreements (JOA), which define the responsibilities of each partner, and in particular, the operating partner, based on the regulation and values (ethical) that Repsol had established. Indeed, for Repsol is requires to its partners the implementation of ethical, social and environmental standards in their operations similar to its own. Furthermore, the contractors are required to meet internationally recognized standards such as the United Nations universal Declaration of Human Rights and the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work. This help to prevent any possible abuse or breach of law, which could be transformed into a reputational or even financial risk for the Company.

The interest of suppliers could be divided in tow categories: those who are current suppliers, and those who are potential ones. In the first case, their interest relies on having win-win conditions that avoid abuses from the biggest party. On the second case, the main interest relies on the opportunity that the Repsol gives to them. In this case Repsol gives preference to local suppliers of products and services with the aim to contribute to local supplier development where possible.

CSR analysis and opinion

One of the major risks that the extractive companies use to face are those related to human rights abuses (deliberate or not) within the community in which it operates, and the negative impacts on environment, which at the end takes a shape of reputational menace. Managing and minimizing this impacts, are main reason behind the increasing interest towards corporate social responsibility programs. Of course, Repsol can’t escape from this scenario.

Repsol’s CSR policies and programs, among other issues, look to enhance the reputation of the organization and fostering greater public trust. Repsol has implemented a Model of Corporate Responsibility that seeks to connect the stakeholder’s expectations (mainly from the communities) with the real performance and interest of the company. In fact, the model presents tree connected elements: (i) the company’s values and principles for action stemming from the Corporate Responsibility commitments it has assumed; (ii) the Corporate Responsibility coordination system; and (iii) the governance and coordination bodies.The entire model is based on the identification of expectations and opportunities of each one of the stakeholders, specially the communities, with the aim to addresses into their expectations and real performance. The main goal of the model regards on reputational indexes.

Regarding to environment, Repslhave adopted several measures such as impact identification, analysis and mitigation, improvement in the design of installations, processes and management systems, as well as continual investment in the best available technology.

Nevertheless they are being involved in some public scandals related to abuses of their operation in, Peru Bolivia and Ecuador.

One of the major scandals is related to the exploration of oil in the Peruvian Amazon known as Lot 39, home to at least two of the world’s last uncontacted tribes. Repsol currently claims there is not enough evidence to prove the existence of any uncontacted Indians in Lot 39. It says their existence is ‘extremely improbable’ and bases this claim on the ‘observations and studies available to the company to date. However the international scientific and ad anthropological communities have collected a great deal of evidence (pieces, testimonies, and photographs) demonstrating the existence of these tribes.

In Bolivia the natural gas extraction have created a state restructuring and political mobilization among indigenous peoples. The Guaraní community have borne the brunt of much of the oil and natural gas development in Bolivia. They denounced to be affected by fumes, noise and water pollution emanating from gas extraction activities. Their crops and livestock have also been harm. It was denounced that Repsol YPF and its subcontractors did not adequately consult with Guaraní community members regarding plans to extract natural gas from their lands.This situation has led to several protests by Guaraní residents who have demanded that Repsol pay restitution.

Is evident that these scandals harmed not only the Repsol image, but also its credibility and its license-to operate.

These kinds of situations have important implications on the efficiency and efficacy of the projects, as well as on the productivity and “loyalty” of the employees. Work in a company that are in eye of the hurricane is something that affects motivation. Moreover, it had severe impacts on the social value of Repsol, not only determined by the price of the share in the stock market, but also by what people thinks about the role and contribution that the company has in society.

This highlight not only the difficulties (intrinsic, related to their core business) that the extractive sector usually have, but also the focus given to the Corporate Social Responsibility practice. In our opinion, the reputational argument, valid of course, limits the practical perspective of CSR, putting all the attention on satisfying external audiences. Even this approach fosters dialogue with governments and local citizens, it represent huge challenge. Sometimes stakeholders can never fully understand the company’s capabilities and the real trade-off that the must make, that ends on short-term actions, without attacking the main problems. At the end, they focus on the tension between business and society, instead than on their interdependence.

The real social impact and effectiveness of the investment on social programs made by Repsol is quite diffuse. In many cases this kind of investments lacks of a deep understanding of the problem and could cause a misinterpretation of the real role of the Company in society. Some of these initiatives are not coordinated with the necessities of the community (through the government guidelines), which dissipates the possibility to create social benefit.

What we want to point out is that even there is no universal and acceptable definition of CSR (what is completely normal), companies should address’s their efforts in a sustained and sustainable way. The best way of doing it is connecting their “CSR initiatives” with their strategy and core business. The point is to reinforce the corporate strategy through social progress. Repsol CSR policies is not to far way from this approach, but is necessary to address look beyond the reputational goal, always with a basis of ethics and sustainable values. For example, increasing the investment on R&D towards a new ways of energy sources (renewable) is a way to create shared value between Repsol and worldwide society.

The challeneg becomes more complex regarding to the relation with the comminuty. Repsol has an opportunity to improve the effectiveness and transparency of the communicational channels, the management of human rights impacts, and to find win- win agreements. However, any Company, including Repsl, should start from strong ethical bases, which requires in some cases sacrifices towards the common welfare.

References:

– Perreault, Thomas: “Natural Gas, Indigenous Mobilization and the Bolivian State”.
Identities, Conflict and Cohesion Programme. Paper Number 12. United Nations Research Institute for Social Development. New York. July 2008
– Repsol. Corporate Social Responsibility Report, 2010. http://www.repsol.com/es_en/corporacion/

https://imagenes.repsol.com/es_en/Local_communities_tcm11-593936.pdf

https://imagenes.repsol.com/es_en/Minimizing_environmental_impact_tcm11-593979.pdf

Survival: “39 Things Repsol Doesn’t Want You To Know” Survival International Report.April. 2011

1 comentario / 04 Feb 2012 por Diana Patricia Sanchez Barajas
IMSD /

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