Select Committee on International Development Appendices to the Minutes of Evidence


Memorandum submitted by the Royal Dutch/Shell Group of Companies


  1.1  Royal Dutch/Shell Group, operating in 135 countries, has adopted "contributing to sustainable development" as one of its core business principles. This means that we will not only produce efficient and affordable supplies of energy for heating, light and mobility, and provide the petrochemicals products and solutions that consumers choose, but we will assess the economic, environmental and social impact of these activities. By integrating sustainable development considerations into our key business processes and maintaining a dialogue with key stakeholders, we seek to create business value through responsible business conduct.

  1.2  Key considerations are:

    —  Shell views the way in which we manage our business and work with stakeholders as key to achieving success, while providing a return to shareholders who have invested in the company.

    —  The provision of energy is a major demand of people in developing countries to provide the basics of life and to enable development. To provide these products and services sustainably is a challenge both for developing countries themselves and the companies that operate within them. Frequently the demand for affordable energy in the short term can be seen as a higher national priority than wider environmental or social concerns.

    —  We are committed to reducing our own greenhouse gas emissions and to supporting our customers, partners and suppliers to reduce theirs by offering fuel alternatives and by developing new technologies. We also wish to progress projects under the Kyoto Protocol's Clean Development Mechanism, which provides credits for those involved in carbon-saving projects in the developing world.

    —  Substituting gas for coal and other high carbon sources, which would otherwise continue to play a major part in energy provision in developing countries, can significantly reduce greenhouse gas emissions while meeting the demands for affordable energy. For example, the Shell-led Malampaya gas to power project inaugurated in October 2001, will produce 25 per cent of the Phillippines' power, reducing CO2 emissions, generating substantial revenue for the Philippines and reducing the country's dependence on imported energy supplies, thereby saving precious foreign currency previously spent on energy imports. In the future the Clean Development Mechanism could assist in pushing these technologies in developing countries.

    —  As the demand for lower-carbon energy sources and cleaner products grows, we aim to combine our technical and commercial experience with innovative technologies to aid the transition from petroleum-based fuels to a portfolio of other energy sources.


  2.1  Business can play a vital role in building a better future for more of the world's growing populations. The Shell Group continues to make a substantial contribution to local economic prosperity through operations in over 135 countries, employing 90,000 people, the majority of whom are local people, and through the use of local contractors and suppliers.

  2.2  Our operations include investing in more sustainable technologies that can contribute to sustainable development and lowering greenhouse gas emissions. Examples include: Shell Renewables bringing renewable power to remote or non-grid supplied communities in a sustainable way, at a price our customers can afford (we currently have schemes in Indonesia, Bolivia, South Africa and Sri Lanka and are reviewing other business opportunities); investigating opportunities for geothermal power in El Salvador and coal gasification in China (a technology which will provide clean and cost effective feedstock for a chemical plant and could also be applied to the energy and chemicals fields).

  2.3  The heart of our contribution to sustainable development is the way in which we manage our business based on our core values of honesty, integrity and respect for people everywhere. These are embodied in the Shell General Business Principles, which govern all our business affairs and describe the behaviour expected of every employee in every Shell company in the conduct of its business.

  2.4  An important part of building confidence with stakeholders in our values and performance, through openness and transparency, is the publication of reliable information, in our annual Shell Report[4]. These same values led to the establishment of the Shell Foundation in June 2000, a registered charity, which contributes funds and expertise to projects that particularly tackle social and environmental challenges related to energy access and use (page 22 of the Shell Report). Its work complements the local social investments of Shell companies around the world and is a further step in Shell's work to integrate the principles of sustainable development in all its activities.

  2.5  Our actions to reduce our own greenhouse gas emissions (with a target of reducing 2002 CO2 emissions by 10 per cent of 1990 levels) include:

    —  Introduction of a strategy to ensure that our future investments will be robust in a world which will increasingly reduce carbon use, by considering the effect of a possible carbon cost in our investment decisions for new projects that could produce emissions over 100,000 tonnes a year of CO2.

    —  Development of the use of market mechanisms. In 2000 we introduced a pilot internal emissions trading system (STEPS—Shell Tradable Emission Permits Scheme), covering some two-thirds of Group Annex 1 Country emissions. The pilot has raised the profile and added to the understanding of emissions trading within the Group and has given Shell the opportunity of contributing its experience to the various schemes under development, including the UK Emissions Trading Scheme (UKETS). STEPS has been established in tandem with our 2002 greenhouse gas target. More recently, we have started the process of externalising the use of market mechanisms, through the creation of a specialist Environmental Products Trading Team within Shell Trading. This team has global responsibility for the use of these new mechanisms in order to maximise our capability in this emerging field.

  2.6  Governments can support action on climate change in a number of ways, namely:

    —  Work with the grain of energy markets and facilitate the longer term transition of energy markets.

    —  Rely wherever possible on international market mechanisms like emissions trading, minimizing administrative burdens and transaction costs and protect companies that take early actions.

    —  Take a consistent international approach to addressing this global issue, including making a start at engaging developing countries. This is critical to avoiding competitive distortions, containing costs and addressing the needs for growing energy use in developing countries.

    —  Encourage the development and introduction of new energy technologies.

    —  Establish a clear and stable policy regime to allow decisions on long term investments.

  2.7  Looking to the future, while longer-term renewables may offer an emissions-free alternative to fossil fuels we do not believe it will be possible, or desirable from an overall sustainable development viewpoint (balancing economic growth, social development and environmental objectives), to phase out fossil fuels completely for many decades. Nonetheless technological advances will continue to make fossil fuels cleaner while alternatives are developed. Eventually concerns over resource scarcity together with social and personal priorities, will also drive the mix of fossil and other fuels over such a period.

  2.8  In terms of power generation and heat, gas is particularly important in offering an environmentally and economically attractive bridge towards a future where renewable sources of energy can begin to play a major role in energy supply. Governments should ensure the benefits of gas are properly recognized in evolving international policies.

  2.9  Oil will remain crucial for transportation needs in particular, until reliable, convenient and cost competitive alternatives are developed, for example hydrogen. Through Shell Hydrogen we are already investing in technological routes to this goal of a low carbon economy with the economic and environmental benefits this could bring the developing world.

  2.10  Mobility, already poor for most developing world urban dwellers is declining. Pollution, much of it transport-related, is in some areas at extremely high levels and is growing worse in the developing world. Through the World Business Council for Sustainable Development, Shell is one of a number of companies to sponsor their Sustainable Mobility Project, which aims to develop a global vision of sustainable mobility and to suggest possible pathways towards that goal, and we hope ultimately firm actions.


  3.1  We believe therefore that as a business, Shell can and is making an important global contribution to sustainable development. However, there is a range of external barriers to successful private sector involvement in developing economies. In particular, these barriers are associated with poverty: weak governance, inappropriate legal and policy frameworks to encourage private sector investment, and limited developmental capacity. Governments, donors and civil society, have historically tackled these challenges but because these issues affect us as a business, we have also sought to tackle them in a variety of ways. For example we have advocated change, operating in accordance with our Business Principles, by working with communities to design and implement social development programmes, and through the efforts of the Shell Foundation to increasing access by the poor to energy services.

  3.2  Partnership is crucial to tackling these challenges to sustainable development. While we have already established partnerships with a range of stakeholders in different countries, we believe that stronger, wider and mutually benefiical partnerships between business, governments, inter-governmental agencies, civil society and donors will need to be established if we are all to succeed in our efforts to promote sustainable development. A key challenge for us all is to explore, develop and succeed in creating such new partnerships.

Royal Dutch/Shell Group of Companies

January 2002

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