Indicators to evaluate environmental, social, and economic sustainability: a proposal for the Brazilian oil industry
Sergio Pinto Amaral
Petroleo Brasileiro SA
Emílio Lèbre La Rovere
Federal University of Rio de Janeiro, Rio de Janeiro
Terms such as sustainable development, sustainable growth, and sustainable consumption are today used to present a new view of economic and social progress that is more encompassing and appropriate for humanity.
The concept of sustainable development, as defined in the 1987 Brundtland Report, views sustainable development as "the development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
In the early 1990s, even before the United Nations Conference on Environment and Development (UNCED 92), industries began to concern themselves with the theme of entrepreneurial sustainable development.
Entities such as the World Business Council for Sustainable Development (WBCSD, www.wbcsd.org) and international oil companies such as Royal Dutch/Shell Group and BP PLC began working on the theme at that time.
In March 1997, the Brazilian Entrepreneurial Council for Sustainable Development (CEBDS, www.cebds.com.br), which is associated with the WBCSD, was founded. At present, CEBDS has 62 associate member companies and publishes an annual report on the experience of its members.
The concept of entrepreneurial sustainable development contains three components: economic, environmental, and social. Although the oil industry operates with raw materials and products of nonrenewable origin (fossil fuels), its practices and actions can be geared towards sustainable development, such as better use of natural resources, use of alternative sources of energy, and energy efficiency. Oil companies also can develop or support third-party projects that further sustainable development objectives. The fact that an oil company engages in practices aimed at sustainable development makes its employees more satisfied, and this too is important to the shareholders of the company and to society as a whole.
The theme of sustainable development in companies is a novel and as yet little-explored matter in Brazil and the rest of the world. This article will discuss the background of the theme, its conceptualization, and the types of general and specific indicators of sustainability being used by the international oil industry in general and by the Brazilian oil industry in particular. It will also propose a set of balanced indicators to evaluate environmental, social, and economic sustainability to be used by the Brazilian and international oil industry.
General indicators of sustainability
As far as more general and far-ranging indicators of sustainable development are concerned, entities such as the World Bank, through its World Development Report; the Organization for Economic Cooperation and Development, through its list of environmental and social indicators; and the United Nations, through its publication "Structure and methodology to create indicators for sustainable development," present general examples of indicators of sustainable development that can be used by organizations. The UN Committee on Sustainable Development has proposed a list of 134 general indicators for measuring sustainable development.
Some authors claim that the number of indicators for sustainable development proposed by the United Nations is excessive, and that this is a reflection of the absence of a methodology that integrates the economic, social, and ecological dimensions, thus making the indicators proposed by the UNCSD a juxtaposition of information that fails to offer a view of the whole. Furthermore, the UN Program for Development also establishes an Index of Human Development that takes into account indicators on income and quality of life such as literacy, life expectancy, and consumption of calories.
Zhao (1999), in his publication "Indicator system and evaluation framework for sustainable development," reports that indicators of sustainability measure the distance between the physical environmental impact and what the biosphere ultimately can endure. For example, if a region wishes to develop in a sustainable manner, what types of environmental, social, and economic impacts will it be able to withstand? Will these impacts be acceptable? Will the region be heading towards sustainable development?
Other authors, such as Opschoor and Reijnders, as quoted in Zhao (1999), have proposed an indicator for sustainability based on a condition of "reference situation." Still others, attempting to correct the gross national product in light of environmental changes, devised an environmentally adjusted GNP, or a "green" or "eco" GNP.
It is also worth underlining the work carried out by the British government to establish global indicators of sustainable development. With respect to indicators related to energy, for example, the following were identified for the general objective of "optimum management of natural resources": depletion of fossil fuels, consumption of primary and secondary energy, and use of energy in road transportation. For the general objective "prevention of climatic changes," identified indicators included changes in global temperature, warming of the atmosphere, emission of gases that contribute to the greenhouse effect, and emissions of carbon dioxide by thermoelectric power plants.
Entrepreneurial indicators of sustainability
As far as entrepreneurial indicators are concerned, Beaver and Bellof (2000) contend in their article "Sustainability indicators and metrics of industrial performance" that indicators of sustainability should be simple to use, easy to understand, robust, easy to reproduce, complementary to existing legal follow-up programs, easy to collect, financially feasible, useful as a management tool, and able to protect company data.
There is a scarcity of widely accepted measures and indicators for an industrial or commercial-sector company to evaluate its performance vis-à-vis practices of entrepreneurial sustainability. According to the authors, these indicators should take into consideration material intensity, energy intensity, consumption of resources, and dispersion of pollutants. These measures alone, however, are not indicators. They must be evaluated in the context of what they represent in company costs and what value they add or can add to the company's business. The authors also offer some comments on the concept of eco-efficiency.
According to the WBCSD publication Innovation, Experimentation, Adaptation—1999 Annual Review of World Business Council for Sustainable Development, the concept of eco-efficiency is closely connected to the work of this council. The concept of eco-efficiency combines improvements in the company's environmental and economic performance to ensure more aggregate value to products and less impacts.
The eco-efficiency approach focuses on the proper use of material and energy resources in order to lower costs and maximize profits. This concept of eco-efficiency, adding value to business through appropriate environmental management, is very attractive to entrepreneurs. Companies affiliated with the WBCSD have implemented indicators and programs geared towards improving eco-efficiency.
It should also be stressed that 1998 saw the launching of the European Eco-Efficiency Initiative (EEEI), with the participation of over 20 organizations from the European Union and some from elsewhere, involved in making the concept of eco-efficiency one of the main elements of the environmental policy of European companies. Another important event was the launching of the Dow Jones Sustainability Group Index (DJSGI, www.indexes.dowjones.com), based on the performance of 200 companies that transact about $4.4 trillion annually and are identified by the Dow Jones Institute as leaders in sustainability.
Similarly, ISO Standard 14031:1999— Environmental Performance Evaluation—informs us that the indicators to be selected should relate to the significant environmental aspects of the organization, influence its environmental performance, and reflect the views of the interested parties in the business.
ISO 14031:1999 is a good guide for selecting environmental indicators in organizations.
Environmental indicators may be managerial, operational, and related to environmental conditions. Some cultural and economic aspects are also taken into account, although the standard is not specifically for indicators of sustainability. It uses the PDCA (Plan/Do/Check/Act) approach to:
- Plan and select the indicators.
- Collect, analyze, convey, and report the data.
- Revise and improve the environmental performance of the organization.
Finally, special mention is due to the work of the Global Reporting Initiative, an independent entity born in the US in 1997 from a partnership between CERES (Coalition for Environmentally Responsible Economies) and UNEP (the United Nations Environmental Program) and made up of international corporations, nongovernmental organizations (NGOs), consultant groups, universities, and business associations.
In the Gas Research Institute publication "Sustainability Reporting Guidelines on Economic, Environmental, and Social Performance" (GRI, 2000), general guidelines are presented to enable organizations to report in standardized form on their practices in respect to sustainability. Of the proposed set of 96 indicators—36 of them linked to environmental performance, 23 to economic performance, and 37 meant to measure the social performance of the organizations—many are still in the experimental stage.
Oil industry use of sustainability indicators
The following presents two international experiences that are considered relevant to the use of indicators by oil companies.
The first experience to be reported concerns Royal Dutch/Shell Group. According to Shell Exploration & Production's Bradley and Hartog (1998), in "Sustainable Development—How to Assess your Contribution," a proposed scale of 0-10 to measure the indicators of entrepreneurial sustainability takes the E&P segment of the oil industry as an example. It is also stated that the environmental indicators of the international oil sector outnumber the social and economic indicators.
Shell began to concern itself with a theme of sustainable development that tracks the Rio-92 Conference agreements: All elements of society have to make their contribution, including the oil sector. In accordance with this evaluation, the multinational companies are changing their attitude, and the success of their projects depends on sustainable action approved by the community and other interested parties such as shareholders and NGOs. In order to have a "license to operate," the Shell companies have responded positively to the challenges arising from sustainable development.
The authors present a tool for following up on the evaluation of sustainable development, as well as a checklist to evaluate the level of development of projects, which takes into consideration the environmental, social, and economic components. Examples of indicators for oil E&P are the following indicators of sustainability, by component of sustainable development:
- Environmental: burning gas in flares, oil leaks, emission of gases (CO2, chlorofluorocarbons, etc.).
- Social: level of employment, education, training, safety, and health in the community.
- Economic: effect of projects on local communities, transfer of technology, economic development in the community.
We also emphasize that in the long run companies should work in a constructive manner with the regulating agencies and should participate in a reliable debate with society so that objectives are met that are common to all the interested parties. In this way, practices and actions of oil companies concerned with sustainable development avoid unnecessary financial risks that go with investments that fail to meet criteria of sustainability.
In the second experience, documented in their article "Prioritizing environmental investments through sustainable development targets," Holgate, et al. (2000) inform us that Amerada Hess Ltd. received the ISO 14001 standard in 1997 and that one of the requirements for this standard of environmental management systems is continued improvement of the organization's environmental performance. According to the authors, the use of environmental-performance indicators and goals is a transparent method of prioritizing investments in the environmental area.
The Amerada Hess process can be summarized and visualized as follows:
- Selection of environmental themes and units of measurement.
- Collection and updating of external indicators of sustainable development (benchmarking).
- Establishing corporate sustainable-development indicators and goals.
- Generating cost estimates to meet corporate sustainable-development goals.
- Establishing a schedule to meet corporate sustainable-development goals.
- Prioritizing programs of environmental improvement in the area of cost-efficiency.
- Critical analysis of the program.
The authors assert that the process of establishing sustainable-development indicators and goals is in part scientific and in part political. Science describes the impact of a certain atmospheric pollutant in the environment. On the other hand, the more far-ranging political process determines whether or not these impacts are a priority for the organization. The conclusion is that prioritizing sustainable-development goals can be modified by parameters such as costs, time, future regulation, local environmental sensibility, and public opinion.
Brazilian experience
In the last 10 years the Brazilian oil industry has undertaken a series of actions and practices that may be related to the concept of sustainable development.
In the following sections are some published examples that can be considered to be representative of the experience of Petróleo Brasileiro SA (Petrobras), the Brazilian state-owned oil company that has been operating in the country for almost half a century.
Environmental management
As far as environmental management is concerned, in 1995 Petrobras started the process of implementing environmental management systems by the ISO 14001 standard. In 1996 the company published its policy on environment and industrial safety, which was the basis for setting up the Petrobras corporate auditing program on environment and industrial safety.
Also in respect to the implementation of management systems for environment, health, and safety (EHS), the company carried out a pilot project in four business units: E&P, Transportation, Refining, and Distribution, as a result of the environmental accident that took place in the Duque de Caxias refinery in Rio de Janeiro.
Petrobras modified its environmental structure, revised its EHS policy, and launched a program of excellence in environmental management and operational safety. One of the chief objectives of this program was to implement integrated EHS management systems and later certify all the Petrobras business units by standards ISO 14001 (environment) and BS 8800/OHSAS 18001 (health and safety) by December 2001.
Included among the main Petrobras areas for investment during 2000-03 are automated supervision of pipelines, reduction of residues, treatment of effluents, centers to combat pollution, contingency plans, reliability of equipment, new technology, and management systems. The budget resources for the areas of environment and operational safety add up to $1.3 billion for 2000-03.
Energy conservation, renewable energy
Through its executive management of energy conservation, renewable energy, and support for the CONPET conservation initiative, Petrobras has been active in measures and actions dedicated to sustainable development. During 1990-2000 there was a reduction of 7.6% in consumption of fuels in the Petrobras refineries, which in 1999 corresponded to an economy of 7,400 b/d of oil.
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In the area of solar energy, mention should be made of photovoltaic stations used to supply energy to systems of process monitoring and control, communications, anchorage, and assistance to navigation at offshore platforms. As examples, refer to the platforms of Ubarana, Agulha, and Pescada off Rio Grande do Norte state. These stations (7,000-w peak capacity) enable the platforms to remain unmanned and save diesel oil both in the production of energy for these functions and in transferring personnel.
Another example is the use of photovoltaic stations to supply electric energy to systems for monitoring and aggregating the water steam for use in remote stations to inject steam and water in oil fields, and the use of solar collectors to heat water in Petrobras highway service stations.
Emphasis should also be made of the SIGA-BEM project to reduce dispersion of fuel emissions, consisting of evaluating the consumption of diesel in trucks in Petrobras Distribuidora service stations. In 1998 a total of 19,391 trucks had been serviced as a result, amounting to savings of 145,433 cu m of diesel and elimination of emissions of 112,000 tonnes of carbon equivalent.
Finally, it is appropriate to mention that Petrobras, through its shale industrialization business unit and together with the National Tire Industry Association, is launching a project to recycle used tires, which will be collected and shredded in several locations in the country and transported to the bituminous shale retorting unit in the state of Paraná for processing.
Social, cultural, environmental areas
Since 1998 Petrobras has published its annual Social Balance for shareholders and the public, this being a consolidated statement of the company's principal achievements and funding in the areas of environmental, community, and cultural projects.
As far as internal social programs are concerned, Petrobras has various programs of benefits for its employees and their dependents, such as complimentary medical and financial aid, support for employee associations, preschool and day-care assistance, among others.
In the area of community programs, worthy of special mention are the Children's Program, which in 1998 covered 3,445 minors in 16 municipalities in 9 Brazilian states, and the Read Brazil Program, which in 1998 was offered to 504,000 children and 14,500 teachers in 515 schools in 104 Brazilian municipalities.
With regard to cultural projects, Petrobras has been investing substantially in art exhibits and restoration work on historical and cultural property, as well as in projects involving poetry, cinema, and music.
As regards sponsoring environmental projects, emphasis should be given to the participation of Petrobras in projects for research and protection of flora and fauna, especially marine life such as the manatee and various whale species.
Economic, fiscal areas
Petrobras has established itself as a company whose ethical and civic-minded conduct has a marked presence in Brazil's fiscal structure. In terms of taxes paid in 1998, Petrobras's outlay was approximately $4 billion, 29% of which was earmarked for the federal government and 71% to state governments.
In terms of royalties paid by Petrobras in 1998, the company paid $294 million to states, municipalities, the ministries of Science and Technology, and the Navy.
The company has also prioritized its contracts to Brazilian industry, contributing to technological development and generating jobs in the country. In 1998 these orders amounted to $987 million in material and equipment, which represented 85% of the overall value of contracted work.
Petrobras use of indicators
The accompanying table shows the main social, economic, and environmental indicators Petrobras uses.
A critical analysis of the Petrobras actions and practices geared towards sustainable development over the last 10 years shows that the company has invested substantially (about 6.38% of its net earnings in 2000) in the internal social area, that is, in its employees, in such items as nutrition, safety, health, skill-building and professional development, participation in financial results, education, culture, and day-school assistance, among others.
As far as the external social area is concerned, Petrobras has likewise made important contributions to the country on behalf of neighboring communities and society in general (education, culture, sports, health, sanitation, nutrition, and leisure, among others) as well as through taxes and royalties paid to the municipal, state, and federal governments (38.2% of net earnings for 2000).
With regard to external environmental indicators, Petrobras has also made reasonable investments through sponsoring environmental projects, environmental monitoring, and other contracts, totaling 1.15% of its net earnings in 2000.
Furthermore, the company has made considerable contributions to the exercise of entrepreneurial citizenship, for example, by encouraging its employees to participate in volunteer programs and demanding that suppliers and contractors comply with ethical, social, and environmental standards compatible with those adopted by the company.
Final considerations
The work undertaken by Petrobras with respect to social and environmental indicators is quite significant, although as far as the internal environmental and renewable energy categories are concerned, the company still has a long way to go. It is necessary to strive towards better coordination of existing programs, set up a sustainable development policy, and use indicators for environmental, social, and economic sustainability that are appropriate to the reality of Petrobras and the country.
Emphasis should also be made on the importance of delineating a strategy for communicating this sustainable-development policy and the indicators of sustainability to all interested parties: shareholders, employees, trade unions, NGOs, government agencies, and society at large.
Finally, it should be noted that in late 2001 Petrobras set up a coordinating department for sustainable development within its safety, environment, and health unit and aimed at implementing a long-term sustainable-development program for the company.
Proposed indicators
Indicators for environmental, social, and economic sustainability proposed for use by the Brazilian (and ultimately the international) oil industry need to be representative of the sector, consensual, easy to collect and use, suitable for splitting into other levels, easily understood by the interested parties, and valued-adding to the organization's business. In other words, they should be used so that a comparison can be made of the company's performance according to the three dimensions of sustainability mentioned, between business units internally and externally through benchmarking with other organizations.
According to the publication "Sustainability Reporting Guidelines on Economic, Environmental, and Social Performance" (GRI, 2000), on the world level there exists a broad consensus among the organizations that report their information publicly: first the environmental, then the social, the economic, and, finally, the integrated performance indicators.
With regard to environmental indicators, we should point out that Petrobras recently commissioned a study on the matter and published the document "Guideline for Information on Environmental Performance," prepared in conjunction with Arthur D. Little. It will serve as a basis for formatting our proposed environmental indicators.
According to this study, four corporate environmental indicators are proposed to the company, in these areas:
- Atmospheric emissions, including emissions of sulfur dioxide, nitrogen oxides, volatile organic compounds, methane, particulates, carbon monoxide, carbon dioxide, and total emissions by flares.
- Liquid effluents, including oil and grease, and ammonia.
- Oil and petroleum product spills in the environment (water and soil).
- Handling of solid residues, including a decrease in stored and generated residues.
These indicators were included in this proposal after a series of visits to various areas, meetings, workshops, and validation for a pilot program in Petrobras business units.
The indicators will be corporate-wide and apply to all segments of the oil industry operated by Petrobras and its subsidiaries, namely, E&P, Transportation, Refining, Distribution, Gas & Power, and International. The indicators will be determined by direct measurement, calculation, and estimatation or evaluation.
In terms of methodology, each indicator will be calculated at the business unit level and the data aggregated for each business segment. The indicators for segments will be added together to calculate the Corporate Environmental Indicator. It is proposed that in the future the system of environmental, social, and economic indicators will be fed by information and computer tools such as the SAP R3 system now being implemented throughout Petrobras. When this takes place, the data for formatting the indicators will be put online by the business units and will be easy to aggregate.
As far as social indicators are concerned, we suggest the use of the following areas, as Petrobras has been doing over the last few years: nutrition, social taxes, private welfare fund, medical and social aid to employees, number of work accidents, investing in employees' education, investing in cultural projects for the employees, professional development, day-care centers, participation in company results, number of physically handicapped employees, transparency and communication of information, and efficacy of contributions to society (education, culture, health and sanitation, housing, sports, leisure and entertainment, day-care centers, nutrition, etc.).
As far as economic indicators are concerned, we suggest the following cost of wages and benefits; general tax rates; investment in environment, health, and safety; investment in research and development; investment in community development; investment in national technology; investment in renewable energy; and investment in sponsorship of environmental projects.
The 28 indicators for environmental, social, and economic sustainability presented here, being a combination of the indicators already used by Petrobras with others proposed by the authors, represent a balanced set of indicators for sustainable development that can be used in the initial stage by the Brazilian and international oil industry.
We also stress the importance of obtaining a past series of the indicators mentioned in order to make an analysis of their evolution over time and so that they can be presented together with other company indicators such as production, net earnings, and so forth.
Finally, it must be emphasized that in a second stage Petrobras could use indicators of eco-efficiency such as consumption of energy, water, use of materials, and total effluents and residues generated—all this in relation to the quantity of oil produced and processed by the company.
The use of these eco-efficiency indicators could be a good measure, among other strategies, aimed at transforming Petrobras, an oil company, into a sound energy company.
The use of indicators for environmental, social, and economic sustainability helps companies improve their decision-making processes so that resolutions on projects and actions linked to their business can have a more solid basis and more sustainable characteristics.
Using indicators for sustainability makes organizations more transparent and facilitates the practice of benchmarking, as well as monitoring their environmental, social, and economic performance over time.
This work can contribute to improving the actions and practices in the environmental, social, and economic sustainability of the Brazilian and international oil industry.
Acknowledgments
The authors are grateful for the comments and suggestions offered by Ing. Luis Cesar Stano, Coordinator of the Program on Sustainable Development in the Environment, Health, and Safety (EHS) unit of Petróleo Brasileiro SA; and by Dr. Martha Macedo de Lima Barata, researcher at the Interdisciplinary Environmental Laboratory of the Program on Energy and Environmental Planning in the Post-Graduate Department of the Federal University of Rio de Janeiro.
The complete bibliography of the article can be obtained with the first-listed author via e-mail at [email protected].
The authors
Sergio Pinto Amaral is an environmental specialist for 23 years in Petrobras's EHS unit. He works with environmental management, auditing, and sustainability issues. He is also one of the Brazilian delegates of the Brazilian Association of Technical Norms to the ISO TC 207 Committee, which is producing the ISO 14000 international series of standards on environmental management. Amaral is presently a part-time PhD researcher in environmental engineering. He received his MS in environmental technology at the Imperial College of Science, Technology, and Medicine, University of London. He has a BS in chemical engineering and postgraduate work in safety engineering. Amaral has 15 papers presented on environmental matters, in conferences and seminars or published in national and international technical magazines.
Emílio Lèbre La Rovere ([email protected]) is a professor and full-time researcher since 1988 at the Energy & Environmental Program of the Federal University of Rio de Janeiro. He was head of the department in 1995-96 and directed the MS-PhD Environmental Planning Course in 1988-97. Presently, he is coordinator of the Environmental Sciences Laboratory at Federal University of Rio de Janeiro. He has a background in electrical engineering and economics, with an MS in systems engineering and a PhD in economics from the University of Paris He has published more than 40 papers and studies on energy and environmental issues presented in conferences and international journals. La Rovere has worked as a consultant for Brazilian national and multilateral organizations. He also a lead author of several reports for the Secretariat of the United Nations Framework on Climate Change. His current fields of research and consultancy include the greenhouse effect, greenhouse gas inventories, energy conservation, alternative energy sources, and clean development mechanism projects.
