CR Leaders: Sir Mark Moody-Stuart (Part 2)

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In the second half of a special two-part CR Leaders Corner, AccountAbility interviews Sir Mark Moody-Stuart on a wide range of issues in the oil & gas and extractives industries, and beyond. AccountAbility is joined by Dr. Assheton Carter, Chair of the AccountAbility Standards Board, among other roles.

Part one of the interview can be found here.

Sir Mark Moody-Stuart was Chairman of the Royal Dutch/Shell Group from 1998 to 2001 and of Anglo American plc from 2002 to 2009. He is Chairman of Hermes Equity Ownership Services.

After gaining a doctorate in Geology in 1966 at Cambridge, he worked for Shell in various roles starting as an exploration geologist, living in the Netherlands, Spain, Oman, Brunei, Australia, Nigeria, Turkey and Malaysia, as well as the UK.

He is a Director of Accenture and Saudi Aramco, chairman of the Innovative Vector Control Consortium for combating insect-borne disease, and a member of the Advisory Council at AccountAbility. He was a member of the UN Secretary General’s Advisory Council for the Global Compact 2001-2004 and was appointed to the UN Global Compact Board and as Chairman of the Global Compact Foundation in 2006. He was appointed Knight Commander of St Michael and St George in 2000.

Dr. Assheton Carter is a veteran consultant on business sustainability, a social entrepreneur, and a responsible investment advisor. He has launched many significant public private partnerships, such as the Energy and Biodiversity Initiative, the Business and Biodiversity Offset Program, and the Public Private Alliance on Conflict Minerals.

He has structured innovative ‘green’ supply chains, including the first traceable gold and diamond jewelry for the world’s largest retailer, Wal-Mart. He is a partner in Althelia Ecosphere, an impact-investing platform; Managing Partner of the Dragonfly Initiative, an advisory practice serving businesses in the precious metals supply chain; and chairs and serves on several boards and panels for resource companies, standard-setting organisations, and NGOs. Dr. Carter is Chair of AccountAbility Standards.

 

AA: During the first part of this conversation (link), you said that Shell faced harsh criticism in the late 90’s following a number of high profile issues. Certainly the extractive industries are not strangers to being targets of NGOs and international activists. Do you feel that some of the points raised by critics are fair? And are there critiques which are particularly unfair?

MMS: The extractive industries tend to be very technologically driven, so we’ve tended to be reasonably confident that what we were doing was logical and technically correct. This confidence has actually lead to insufficient engagements with stakeholders. If you look at Shell’s Brent Spar issue, the technical, numerical and safety risk analysis and probably the environmental analysis actually had been very thoroughly done. What we hadn’t taken into account was the emotional reaction. So a valid criticism is that, at times, we’ve been too technologically driven, and even technologically arrogant. The unfair side is the exaggerated claims of environmental devastation and/or that we willfully committed atrocities and so on, which frankly, in many cases, were seriously exaggerated, or in the very worst cases, simply invented. So there are indeed justifiable criticisms and sometimes exaggerated or misplaced accusations which are inflated for emotional reasons, just to have an impact. Exaggerated and misplaced accusations can be difficult for companies to deal with, but companies still have to be very aware of their presence. 

AA: In your book you note that corruption, not climate change, is the greatest market failure of all time. Could you elaborate on why you feel corruption is an even greater failure than climate change, and on some of its impacts?

MMS: The market distorting effects of corruption mean that you’ll end up with misallocation of resources, resources which are not allocated for economic reasons but for corrupt reasons. You get the wrong projects and in addition to that, you get them in the wrong place. The scale of this is just so enormous – it’s many billions of dollars a year. And then you can have simple theft of the proceeds through corruption. So you have both a distorting effect, and then you have the removal of the means by which you could address things, including adaptation to climate change. 

AA: Sustainability reports have come a long way since Shell’s first sustainability report in 1997. With the launch of GRI G4, and the increased attention on integrated reporting, how do you feel sustainability reporting frameworks can move the industry forward, and what are their limitations?

MMS: It’s very important to have generally standardized indicators, it’s important for an industry to save duplication and to allow comparability between companies. So if you’re going to have a report with numerical analysis – whether it’s financial or in relation to environment or social metrics – it’s important to have some standardization, and GRI does a good job in that. GRI gets criticized because people say, “Well, there are too many indicators.” In a sense though, that is a false criticism because the indicators are only there if a company wants to measure them. The limitation is trying to seek a one size fits all solution. This is because priorities and issues vary substantially from industry to industry, and depending on the stage of development in individual countries, societies and industries. 

AA: With your expertise and experience working with corporate responsibility (CR), what do you feel is the optimal organizational governance for CR? Should there be a Chief Sustainability Officer (CSO)?

MMS: Like industrial safety, the responsibility for sustainability has to lie in the line – it is the line’s job.  It is a good idea to have a functional center of expertise in some kind of sustainability unit that can disseminate experience, help and advice across the operating units, but the responsibility for enacting CR and sustainability has to stay in the lines. They really have to buy in.  If you have somebody called a CSO, it kind of sounds as though he or she has responsibility for implementing sustainability, which is not where the responsibility should be. So the sustainability function should be more of an advisory function, a center of excellence and ideas, functional advice, thinking, helping, assisting, but I’d be cautious about actually having the title of Chief Sustainability Officer. In any case, I’m a strong believer in having a good center of expertise, advice and inspiration and going out, finding things and coming back and talking to the line, but the line has to drive it. 

AA: The idea of stranded assets has gained prominence by people like Bill McKibbin, 350.org, and Carbon Tracker in the U.K.  Do you think that their argument has legs and is something that the oil industry should be concerned about?

MMS: The campaigns pushing the idea of stranded assets approach the issue by saying, “If we burnt all the carbon in the world, the climate would be disastrously affected.” That is true, but I don’t think anybody believes that we will burn all the carbon in the world. The important question is, “How do we transit to a lower carbon environment? And while we’re doing that, we need energy.”

Carbon-based assets are going to be stranded. Any company should think about this, companies should also think about the carbon intensity of what they’re producing, and try to work their portfolio in a lower carbon intensity direction. Unfortunately, the world is not yet to a place where it can de-carbonize, but we’ll get there.

Also, if you look at the history of energy, at the beginning of the 20th century, the world had basically two fuels, coal and wood. And as someone pointed out to me, we also had oats for horses, which was a serious fuel – oats for horses. At that time, hydrocarbons were minuscule portion of global fuel. During the 20th century, fuel oil was used to replace coal because of convenience, and then in the second half of the 20th century, natural gas began to replace fuel oil. This shift left the oil industry with a lot of extra fuel oil. So the oil industry, very smartly, took hydrogen and stuck it on the heavy fuel oil and made light fuel.

All of these steps have decreased the carbon intensity of fuel, so we’ve been going through a decarbonization process long before climate change became an issue.