October 16, 2013 
By Jessica
Over the years “Big Oil” has tried to improve their corporate image by introducing environmental and sustainable initiatives as well as by diversifying into alternative and renewable energy. However, I argue that Big Oil is not making a strategic shift to become fundamentally more sustainable but rather is doing the minimum required to be able to effectively advertise and “greenwash” their operations to minimize public backlash.
Are these companies actually pursuing environment and sustainable initiatives? If you go to the webpages of BP, Chevron, ConocoPhillips, ExxonMobil, Royal Dutch Shell, and Total SA you can find that all 6 have a CSR or Corporate Responsibility report of some sort[1]. You’ll also notice that all 6 homepages have a link, story, or dropdown on the environment and that 4 of 6 also have a link, story, or dropdown on sustainability. So far so good in terms of PR, but does this trend and focus exist deeper in the company?
To answer this question, I undertook a simple exercise to compare certain key word counts on Big Oil’s global homepages to their 2012 financial statements. When we look at each company’s homepage we see the words “sustainable” and “environment” are used often. Interestingly enough, these websites sparingly use the words “oil” and “gas”, and instead have rebranded to “energy”. The word “energy” is used 1.4 more times than “oil” and “gas” combined[2]. Seems odd for companies where hydrocarbon exploration and production accounts for the majority of earnings.[3]
What about the financial statements? Assuming that financial statements are used to show the true operations of a company, then more coverage of certain topics and words would mean a greater importance to the operation of the company. When we look at the financials we see that that the words “oil” and “gas” are used 14.7 times more often than the word “energy”. Additionally, the use of “oil” and “gas” spikes to 12.2 times the use of “sustainability” or “environment”. On the corporate homepage, this figure is only 2.3 times[4] For Big Oil it is clear from their financial statements that hydrocarbons are their core focus and that sustainability and environmental concerns are a very far second concern.
Is this greenwashing or just good marketing? I would argue that is not technically greenwashing as Big Oil does undertake sustainability and environmental initiatives. Otherwise the corporate websites and financial statements would not cover these issues at all. However, it is also clear that Big Oil does not focus on sustainability and environmental concerns. Rather I argue that Big Oil does just enough to meet the marketing bar but no more.
[1] Note: ConocoPhillips produces an Integrated Report that includes both Financials and CSR joinly
[2] Word counts as of Oct 15, 2013 from www.bp.com, www.chevron.com, www.conocophillips.com, www.exxonmobil.com/Corporate/, www.shell.com, and total.com/en
[3] http://www.forbes.com/sites/afontevecchia/2013/02/01/exxon-chevron-and-why-the-future-of-big-oil-should-include-refining-and-chemicals/; http://seekingalpha.com/article/1171631-exxon-mobil-vs-chevron-the-ultimate-comparison
[4] Word counts from BP 2012 Annual Report, Chevron 2012 Annual Report, ConocoPhillips 2012 Annual report, ExxonMobil 2012 Annual Report, Shell 2012 Summary Report and 20-F filing, and Total SA 2012 Factbook
Innovation in Business, Energy, and Environment 
I do agree with Jessica that the topic of sustainability and environmental initiatives for Big Oil is a very challenging one and does require a lot attention. It’s also important to consider extend to which the companies should engage in new initiatives. Investors and general public could interpret new investments in the alternative energy projects in two ways. First, Big Oil is becoming more diversified which is a good sign in case the price of oil/gas drops significantly. However, one might read as the company is spending less on its core business in terms of both resources and attention. The latter might expose the company to additional operational risks. I would rather see Big Oil conducting its operations in safe manner for both people and environment. Finally, I’d like to mention that when I worked for ConocoPhillips, the management team carefully considered and implemented initiatives developed by regular geoscientists and engineers.
I enjoyed and appreciated the quantitative nature of your word count analysis. Also, I agree with your conclusion that these big players are not necessarily guilty of greenwashing, and instead perhaps of executing the bare minimum. Their initiatives do have environmental benefits, but the primary focus appears to be on maximizing profitability and the ratio of “green perception benefit” to spend. This can be expected from these public companies given the nature of their business.
However, I am finding myself increasingly less concerned that these companies aren’t doing more to promote sustainability. I have found this surprising because while I was employed by an O&G company, I was frequently disillusioned by the lack of environmental focus. My perspective has changed because I now understand that leaders of these companies have a “fiduciary responsibility to maximize value to their shareholders” (if only I had a dime for every time I heard this in other classes…), and the opportunity cost of deploying capital for reasons other than to maximize extraction is enormous. Also, it’s a highly competitive industry. Thus, sadly we just can’t expect these companies to make long-term environmentally responsible decisions. That would be like expecting a puppy to house train itself. These companies will, and do, invest to prevent spills and environmental disasters, but the primary driver in their analyses is likely cost avoidance rather than detrimental ecosystem impacts.
O&G companies broadly exist on the supply side of the energy generation and consumption equation, and although energy is used to prepare hydrocarbons for combustion at the end-user (estimates of EROI – energy return on investment – vary broadly from 5-100x depending on extraction method and who is calculating), the vast majority of energy is released/consumed at the end-user. Thus, all things equal, the opportunities for end-users to improve processes, increase efficiency, or decrease environmental impact are potentially an order of magnitude greater than those available to O&G companies. Further, the incentives for end-users to undertake these activities are probably directly aligned with their current operations and cost savings initiatives. Additionally, projects that reduce O&G consumption at the end-user / consumer level will result in reduced extraction & production on the supply side, and positive environmental impacts will be realized.
By John Macomber
Please also see a new post about big oil greenwashing here:
This post presents an interesting way to measure greenwashing by Big Oil. The difference in language between CRS reports and financial statements is striking. It is a good question: are these energy companies or oil companies? And how else could they address sustainability in their CRS report and financial statements?
It is a hard pill to swallow when Shell says on its website: “…we believe a broad energy mix will be needed to help meet demand and limit CO2 emissions” and then from 2004-2008 invests less than $2 billion in renewable capital projects relative to $121 billion in all other capital projects, and subsequently sells off their solar business.[1] BP’s record is no better, promising in 2005 to invest $8 billion in renewable technologies by 2015 in its “Beyond Petroleum” campaign. To its credit, from 2005-2013, BP did invest $8 billion toward renewables, but that was relative to $201 billion in upstream, downstream, chemical and other capital investments. Its biofuels division continues to operate. Its solar and wind operations have been sold. In light of their failed efforts to diversify, perhaps we have additional reason to suspect that the emphasis on “energy” is more greenwashing than not.
I agree with argument that major oil companies should stick to what they are good at, especially if we operate under the assumption that companies seek to maximize shareholder value. But how then do we interpret the situation when five major oil companies begin to include a price for carbon in their financial projections?[2] Is this a case of quantifying future risks or a push for carbon mitigation or both?
I would argue that perhaps major oil producing companies have found a sweet spot between greenwashing and business-as-usual that can be included on both CRS reports and financial statements. By including it in their projections, major oil companies are able to appear to be part of the solution to climate change, leading the line in accepting a price for carbon. They also can demonstrate how pricing carbon influences business decisions and (potentially) increase the rate at which carbon-based fuels are replaced with renewable energy sources. At the same time, their financial projections build in a potential future risk, enabling investors to account for a realistic threat to projects with a long lifespan. ExxonMobil has been the most aggressive, pricing carbon at $60/ton. They seem almost eager to show the robustness of their projected future profits.
[1] http://www.shell.com/global/aboutshell/lets-go-tpkg.html
[2] http://www.economist.com/news/business/21591601-some-firms-are-preparing-carbon-price-would-make-big-difference-carbon-copy
By John Macomber
Thank you for this synthesis of events. Useful to see that maybe in carbon pricing the companies do indeed find a useful middle ground between both reports – and also start to push for price-based based action on carbon.
Also like many other firms we have studied in the course, large or small, once again focus is valuable compared to too much (or too random) diversification.