Magoosh GRE

Corporate Social Responsibility in the Oil and Gas Industry: A Conceptual Research

| April 6, 2015

Background
The idea of Corporate Social Responsibility (CSR) is one that has come to stay in the world of business, as its importance has gradually increased over the years. CSR essentially reflects the realization that business, including the oil and gas business, does not exist in a social, environmental, or cultural vacuum. Indeed, different organizations may perceive CSR to mean different things. On one hand, some organizations construe CSR purely in terms of compliance with regulatory requirements and statutes governing business practices. On the other hand, some organizations may see CSR as the opportunity or imperative of engaging in philanthropic activities. Yet another conception of CSR is based on the perception of its prospective beneficiaries – ranging from a company’s employees, suppliers, customers, to the immediate/host community, to the larger society (see for instance Utting and Ives, 2006; Husted, 2003).

Although the idea of Corporate Social Responsibility (CSR) has increasingly become popular with many big businesses across diverse sectors and industries, its application to the oil industry has been particularly noteworthy in modern times. Indeed, the oil and gas sector has been at the vanguard of the promotion of CSR initiatives; from all indications, companies in the sector now attach greater importance to the social and economic impact of their activities, and they now implement a greater level of engagement with their local communities more than they used to do in the past. The enhanced emphasis of oil companies on CSR is demonstrated by, for instance, the considerable growth in corporate codes of conduct and social reporting, as well as the adoption of several key international CSR initiatives such the Global Compact and the Global Reporting Initiative. Indeed, major oil companies such as BP and Royal Dutch Shell and BP have become important players in the quest for renewable energy, and have accelerated efforts towards combating carbon dioxide emissions as part of their commitment to reducing the problem of global warming (Frynas, 2005). Furthermore, a significant aspect of oil companies CSR programmes focus on initiating, funding, and implementing community development schemes meant to contribute towards an improved relationship between the companies and their host communities, as well as to demonstrate that the oil companies are not oblivious of, or indifferent to the challenges and problems faced by the community (Wells et al, 2001).

It is possible to identify a number of reasons why the need for CSR initiatives and strategies is especially pertinent in oil and gas management, considering the considerable emphasis on ethical practices, as well the high level of interest in their level of responsibility by civil society groups, community, regulatory agencies, and other interested stakeholders. First, the volatility of the oil and gas industry is widely acknowledged, particularly in terms of the relatively difficult operating conditions, and the present danger of environmental degradation in oil exploration and production – factors that may sometimes cause uneasy relations between oil companies and a wide variety of stakeholders in their operating environments. It is therefore important for an oil company that seeks a stable operating environment to identify with the cause of the local community and demonstrate adequate compliance with regulatory provisions. Second, oil companies often have to contend with the widely held notion that they make substantial revenues (at the expense of the local communities and the environment), and as such face the imperative of ploughing back some of their profits to positive environmental, social and developmental causes in order to ensure favourable public perception. Taken together, it has been suggested that oil companies are impelled to pay greater attention to CSR in order to, amongst other things, maintain a stable operating environment, obtain competitive advantage, manage external perceptions, and keep its employees and stakeholders happy (Frynas, 2005). Against this background, the proposed dissertation seeks to evaluate the importance of CSR in oil and gas management, with a view to ascertaining the principal motives behind such initiatives, and to determine the extent to which oil and gas companies may derive business benefits from CSR.

Significance of the Research
The proposed research is justified by the increasing importance that companies in the oil and gas industry attach to Corporate Social Responsibility in the various locations that they do business across the world. Given that CSR now appears to be a key aspect of management-level decision making for oil and gas companies, it is important to determine the extent of influence that it has on oil and gas management. Furthermore, the considerably prominent position that CSR issues have attained in the oil and gas industry makes it necessary to investigate the complex range of factors that are responsible for its increased importance, as well as the motives that drive its implementation. Indeed, opinions differ about the reasons why oil and gas companies now appear to champion social responsibility causes across the world. On one hand, some perspectives attribute this to the greater consciousness of the ethical obligation to adopt environmentally friendly measures and to carry the local communities along (Haigh and Jones, 2006). On the other hand, other perspectives suggest a less altruistic reason for oil companies’ involvement in CSR – indicating that CSR programmes are mostly public relations devices driven by the managements’ desire to ensure continued profitability by enjoying positive perceptions in their operating environments, rather than any actual ethical or philanthropic underpinnings (see for instance Windsor, 2001). Accordingly, it is worthwhile to examine the key issues involved in CSR in the oil industry, in order to understand the real motives, dimensions, underpinnings, and implications of CSR in the industry in order to contextualize its significance in oil and gas management.

Research Objectives
• To identify the key dimensions and applications of Corporate Social Responsibility
• To investigate the underlying motivations for the initiation and implementation of CSR programmes by oil and gas companies
• To ascertain the function and impacts of CSR initiatives in the oil and gas industry
• To determine the business benefits of CSR programmes for oil and gas firms

Research Questions
1. What factors are responsible for oil and gas companies’ leading position in championing the idea of Corporate Social Responsibility?
2. What are the primary reasons for engagement in CSR?
3. To what extent does CSR promote oil companies’ business objectives?
4. How important is CSR in oil and gas management decision-making?

Literature Review
Perspectives pertaining to CSR in the academic literature cover a range of issues including conceptual definitions, dimensions of implementation, motives, purposes, implications, as well as contentions on the relative usefulness of CSR to companies’ business objectives.

There is no consensus on the definition of CSR in the literature, given that different authors describe and discuss its essence from different perspectives. For instance, some authors conceptualize Corporate Social Responsibility as an ethical construct that suggests that business organizations should bear responsibility for their decisions and actions as well as the consequences of those decisions and actions. In this regard, Hohnen and Potts (2007) describe CSR in terms of the way and manner by which companies integrate economic, social, and environmental considerations into their management strategy, decision-making, business culture, and operations – with the goal of establishing more ethical practices within the firm and positively impacting society while creating wealth. Similarly, Van Marrewijk (2003) defines CSR in terms of the capacity of a business enterprise to make its policies and operations relevant to the social environment in a way that takes the needs of both the firm and the community into consideration. On the other hand, Carroll (1999) explains that CSR is not merely concerned with occasional community service actions, but requires that a company should align itself with the cultural, social, regulatory, and legal environment in which it does business. In this regard, CSR aims at ensuring that all the parties and stakeholders that affect a company’s business operations derive clear benefits from such operations.

Maignan and Ralston (2002) identify three different types of processes that businesses use in implementing their CSR principles: (1) environmental management, (2) issues management, and (3) stakeholder management. They further contend that implementing these processes throughout the organization helps the company to keep abreast of stakeholder demands, and to address such demands successfully. Similarly, authors in the academic literature have identified at least three drivers of CSR for most companies: economic drivers, institutional drivers, and social drivers. While economic drivers are based on the expected long-run profit maximization benefits of social responsibility (see for instance Johnson, 1971), institutional drivers are based on the strong interest of state authorities in promoting CSR in order to complement their development programs and to serve national interests. The social drivers, on the other hand, are based on the need to ensure corporate accountability and responsiveness to the needs of the local communities in response to stakeholder demands and civil society advocacy (see Utting, 2005).

With regard to the application of CSR in the oil industry, opinions in the academic literature also focus on different aspects of the subject. For instance, Frynas (2009) contends that the visible effects and extensive recognition of brand image associated with the oil and gas industry is responsible for the intensive pressure that have been put on companies in the sector to successfully manage its relationship with local communities and the wider society. Michael (2005) suggests that the oil and gas industry’s CSR may not be genuinely based on its recognition of the need to behave responsibly, and that such efforts mostly amount to window-dressing or ‘green washing’. This is particularly in environments where existing laws and regulation may not be sufficiently strong to compel the oil companies to engage in meaningfully responsible behaviour. Again, in line with the notion that international oil companies are rational maximizers of shareholder returns, and as such would strive to take advantage of absent or inadequate laws and regulatory standards to exploit the local communities. On the other hand, Spence (2011) points out the some oil companies’ stance on CSR issues may be genuinely driven by their belief that it is inappropriate to leave a legacy of environmental degradation, social dislocation, and poverty. This view indicates that oil companies realize the reputational risk involved in neglecting their social responsibility, and recognize the damage that reputational harm can cause to their profit bottom-line. They also realize that investments in environmentally and socially responsible causes can also provide positive returns in the long run.

Methodology
The proposed study is primarily a conceptual research dissertation that focuses on an extensive conceptualization, contextualization, evaluation, and analysis of the key issues relating to Corporate Social Responsibility in the oil and gas industry. A conceptual research employs an analytical framework that is based on “a set of broad theories and ideas that help the researcher to identify accurately the problem(s) they seek to address, frame their research questions appropriately, and locate appropriate literature on the research subject” (Smyth, 2004: 168). In using the conceptual research method, this dissertation would combine theoretical and analytical aspects in order to achieve its aims and objectives and provide pertinent answers to the research questions.

In view of the fact that conceptual research requires access to an extensive pool of resources, I would be relying greatly on diverse sources of secondary materials for analysis. In this regard, some of the sources of secondary data for the research and analysis include Electronic databases such as Questia, Jstor, Emerald Insight, and Google Scholar. Of specific interest to me are journals that focus on CSR issues as well as oil and gas management. Accordingly, three key streams of research would guide the data collection from the above-mentioned secondary sources. These streams of research would focus on (1) The defining elements and dimensions of CSR in general, (2) Evaluation of the motivations and benefits of CSR implementation by oil and gas companies, and (3) Analysis of ways by which CSR initiatives can be made to be more relevant and beneficial to all stakeholders in the industry. Subsequently, I would explore each of these streams of research in an attempt to develop a framework for understanding why CSR has increasingly become a major issue in oil and gas management, as well as the central and underpinning factors behind oil and gas companies CSR programmes. This framework will thereafter be applied to existing research on the same subject in order to ascertain its degree of validity and relevance.

References

Carroll, A.B. (1999) ‘Corporate social responsibility: Evolution of a definitional construct’, Business and Society, 38(3), 268-95.

Haigh, M. and Jones, M. (2006) ‘The Drivers of Corporate Social Responsibility: A Critical Review’, The Business Review, 5(2), Cambridge: Cambridge University Press.

Hohnen, P. and Potts, J. (2007) Corporate Social Responsibility: An Implementation Guide for Business, International Institute for Sustainable Development, Available at: http://www.iisd.org/pdf/2007/csr_guide.pdf [ 28 November 2011]

Husted, B. (2003) ‘Governance choices for corporate social responsibility’, Long Range Plan, 36, 481–498.

Johnson, H. L. (1971) Business in Contemporary Society: Framework and Issues, Belmont, CA: Wadsworth

Frynas, G.J. (2005) “The false developmental promise of Corporate Social Responsibility: evidence from multinational oil companies”, International Affairs, 81(3), 581-598

Frynas J.G. (2009) Beyond Corporate Social Responsibility: Oil Multinationals and Social Challenges, Cambridge: Cambridge University Press.

Michael, J. W. (2005) ‘Righteous Oil? Human Rights, the Oil Complex, and Corporate Social Responsibility’, Annual Review of Environmental Resources, 37(3), 393–98.

Smyth, R. (2004) “Exploring the usefulness of a conceptual framework as a research tool: A researcher’s reflection”, Issues in Educational Research, 14(2), 167-180.

Spence, D.B. (2011) Corporate Social Responsibility in the Oil and Gas Industry: The Importance of Reputational Risk, Available online:
http://www.cklawreview.com/wp-content/uploads/vol86no1/Spence.pdf [Accessed 27 November 2011]

Utting, P. (2005) ‘Corporate responsibility and the movement of business’, Development in Practice, 15 (3/4), 121-132

Utting, P. and Ives, K. (2006) ‘The Politics of Corporate Responsibility and the Oil Industry’, Stair, 2(1), 11-34.

Van Marrewijk, M. (2003) ‘Concepts and definitions of CSR and corporate sustainability: Between agency and communion’, Journal of Business Ethics, 44(2/3), 93-97.

Wells, J.B., Perish, M. and Guimaraes, L. (2001) ‘Can oil and gas companies extend best operating practices to community development assistance programs?’, paper presented at the SPE Asia Pacific Oil and Gas Conference and Exhibition, Jakarta, Indonesia, 17–19 April.

Windsor, D. (2001) ‘The future of corporate responsibility’, International Journal of
Organizational Analysis, 9(3), 225-56

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