Environmental Change: If I Were the New CEO of Chevron…

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ChevronIf I were the new CEO of Chevron, I would stop listening to the lawyers and bring the engineers into the boardroom to develop a strategy to invest a good portion of last year’s record $24 billion profit into inventing solutions to the adverse environmental and social impacts of the company’s operations around the globe.

It is clear that Chevron’s historical reliance upon litigation to get what it wants is being eclipsed by new activist strategies that have effectively boxed Chevron into a corner.

Chevron appears to be on the verge of being handed down a judgment in Ecuador that could total $27 billion for polluting practices of Texaco operations dating back to 1984 – but which Chevron’s assumed liability for in 2001 when it swallowed up Texaco.  An unprecedented campaign to make Chevron the post child of corporate irresponsibility has already persuaded pension funds in California, New York, Maryland and Pennsylvania to consider votes on withdrawing $12 billion in Chevron shares on the grounds that the firm is mismanaging its operations around the globe.

New Chevron CEO John Watson has inherited a mess from outgoing CEO David O’ Reilly – but with challenge comes opportunity.

Here are just three examples of proactive initiatives that may moot criticisms, starting with Ecuador.

  • Amazon Watch maintains that pollution from oil operations in Ecuador “is one the largest environmental and social disasters on the planet,” claiming that 18 billion gallons of toxic wastes have been dumped in an area the size of Rhode Island, threatening the livelihood of 30,000 indigenous peoples belonging to five different tribes. There is no easy way out of this legacy liability, but just fighting the proposed settlement does not send the right signal to activists – or shareholders. Why not come forward with a plan to address these issues before the proposed judgment?
  • In Burma, the brutal military junta ruling the country is siphoning off revenues from oil operations and, according to Earth Rights International (ERI), stashing it in banks in Singapore. Here, the issue is not so much environmental impacts, but rather, the ruthless killing and looting of nearby villages. Why not disclose where proceeds of operations go – that’s just good governance – and cease relying upon Burmese military as the police force for pipeline operations.
  • Kazakhstan is the largest private oil development area in the former Soviet Union. Over six years ago, the village of Berezovka , comprised of 1,300 people, was promised to be moved to a “village of the 21st century,” since it was located within 5 kilometers (km) of these expanding oil drilling operations. National and international laws requiring the relocation of any village that close to such facilities. While Chevron only owns a 20 percent share in the oil production consortium operating here, it is time for someone to show leadership. Why not follow through on implementing the relocation? The cost is small, but the gesture would surely signal the company respects the law as well as communities it does business in.

There are other hot spots, with Nigeria being another major embarrassment for the firm, but making real progress in meeting the environmental and social demands in Ecuador, Burma and Kazakhstan would be a great start. Let’s not forget Angola, Chad, the Philippines and Iraq. Closer to home, there are plenty of opportunities to show Chevron is a model corporate citizen in Alaska, California, Colorado, New York, New Jersey, Mississippi, Utah and Wyoming.

If I was CEO, I might not think the charges against Chevron are all legitimate, but that really doesn’t matter at this point. The public relations battle has been lost, and the longer the company delays in changing its business practices, the longer it will take to reinvent itself to become a global leader on energy, environmental and social innovation.

To put this all into perspective, remember only 36 other countries have a larger Gross Domestic Product (GDP) than Chevron. Based on annual revenues, Chevron is the largest corporation operating in California and the fifth largest corporation in the world. Chevron was the second most profitable U.S. corporation last year, edging out General Electric, which has made its green “Ecomagination” campaign a cornerstone of GE’s future business strategy.

If anyone is capable of showing the world that business can truly deliver environmental and social value in the oil business, that company is Chevron.

[photo credit: Roo Reynolds]

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  • Al Rettenmaier

    Chevron is in the business of producing crude oil, which is what makes today’s world economy run, as well as cars, buses, trains, airplanes, scooters, motorcycles, boats, tractors, harvesters, trucks, and many other vehicles that are driven by humans. It is a tough, competitive business and we are fortunate to have American oil companies as the leaders in this huge energy industry.

    We all want a different model, but the reality for today is that the world runs on oil.

    My personal experience with Chevron is that they are a forward thinking, progressive American oil company. There is a great deal of concern in their company for the environment and safety. They are a company I would trust to do the right thing anywhere they operate in the world.

    We all must remember that the oil business is required for our daily life, and oil is inherently a “dirty” substance. I would not put my hands in a bucket of crude oil. Yet Chevron and other American oil companies go to the far reaches of the Earth to find oil for all of us consumers.

    My passion is Algae to Energy and my company is devoted to bringing this technology to our everyday lives. American oil companies are in the business of producing our stored reserves of biologically created oil to satisfy our needs. We should support them as they fill the current needs of our society.

    Best regards,

    Al

  • Ian

    Peter and Al,

    I agree with both of your points – Chevron has gone so far as to develop it’s Chevron Energy Solution’s into a $400m+ business (admittedly chump change compared with it’s total top and bottom line numbers) and through Chevron Venture they assist in developing energy companies that make long term strategic sense for the company. I have spent a considerable amount of time with the company, and feel that while they are working in an inherently dirty business, and have a legacy of dubious environmental attention they are committed to being an energy company well into the future.

    The company is full of extremely bright people, they know that Cap & Trade, CO2 Taxes and other constraints will make alternatives increasingly competitive with their core business – but they know oil and rightly feel they can compete along the other big oil companies. Their investment in alternatives, efficiency and more are clearly “strategic” investments that have the ancillary benefit of polishing a much maligned environmental image.

    The fact is that alternatives and efficiency do “not” make current economic sense for the company – with ROI in the high teens and low 20′s for their conventional capital outlays, investments in renewables have a different hurdle rate and subsequently eat away at short term shareholder value. The fact that they are still investing in them shows a some level of commitment to the environment; it remains to be seen if they have shown any strategic foresight that other oil companies that are less active investors in environmental technologies will come to envy.

    In the meantime while we scale alternatives it is nice to have a capitalist oil player that is at least accountable to shareholders for their attributed environmental disasters. I put forth that they likely pursue oil more conscientiously than their Chinese and Venezuelan counterparts and until we electrify our transportation systems, scale biofuels effectively, or all start biking to work… Chevron is a lesser in a sea of evils that we all benefit from.

    -Ian

  • http://www.cleantechies.com Ian
  • ferd

    Yes, it would be nice if Chevron (and others) cleaned up their toxic messes and their images. But that is not profitable. These companies know that Americans (their best customers) will not remember or care about problems in other countries for very long, that dwindling oil supplies spell the eventual end of their livelihood (probably in the next few decades), and any money spent on these issues subtracts from monies available for executive bonuses et. al. So they will just avoid “doing the right thing” while they suck up as much money as they can.