Good Honest Dollar $$

(Slush spilling out from the damaged West Atlas Oil Rig) (Image by Chris Twomey via Wikipedia)

“Sorry” was the hardest word for Elton John, according to his 1976 classic hit.

It also seems to be a pretty difficult word for Jose Martins, Chief Executive Officer of PTTEP Australasia, a subsidiary of Thai oil exploration company PTT Exploration and Production Company Limited.

Mr. Martins’ refusal to apologize (refer article) for what is believed to be Australia’s third-worst oil disaster – the result of a leakage from one of the company’s oil rig’s off the north coast of Western Australia, is simply inexcusable and pathetic.

 
An environmental catastrophe
The debacle occurred at the site of the West Atlas oil rig, an offshore oil rig which is located in the Timor Sea about 200km off the north west coast of Australia, which is operated by PTTEP Australasia.

As a result of a leakage from the rig, massive amounts of oil began spilling into the sea on August 21. This continued over the course of a ten week period until the company was able to plug the leak by pumping mud into a relief well which was set up for the purpose of intercepting the leaking well (refer article).

Environmental groups say the impact of the spill, which occurred within what is considered to be a key migration route for whales and humpback turtles, could be catastrophic, and the company has acknowledged that it could take as long as seven years to work through the full environmental impact (refer article).

[Along with whales and turtles, many other species, such as spinner dolphins, sooty terns, spotted sea snakes have been observed swimming in the resulting slick in the nearby area.

Biologists have also raised serious concerns about the impact upon birds, marine invertebrates, algae coral and marine algae in the region from exposure to the toxic effects of the leak (refer article)]

 
“We regret it – but we won’t say sorry
Asked whether or not the company was prepared to apologize, PTTEP Australia’s Martins refused (refer article). Instead, Martins simply stated that “We regret what’s happened,” and that “the rest will have to come out in the inquiry (see below).”

Pathetic.

Mere expressions of regret are appropriate when we are talking about overcharging of customers, shipments of incorrect merchandise or a publicity stunt gone wrong. But they simply do not cut it in cases like this when we are talking about years of serious environmental damage resulting from a nation’s third largest spill on record. Only full and frank apologies are adequate in such cases.

(The inquiry to which Martin refers has been set up by the Australian government to investigate the cause of the spill. The company has also set up it’s own internal inquiry)

 
Genuine legal concerns …
It is somewhat understandable that PTTEP would not be keen to say a great deal prior to the outcome of the inquiry – lest anything said now backfire later in legal proceedings.

And in that regard, one would imagine that they would have plenty to worry about. Nearby tiny island nation of East Timor is making noises about possible compensation and there are fears about effects within Indonesian waters as well (refer article).There are plenty of areas where litigation could arise over the course of the coming years and the company is understandably coy about making any form of statement which could aid or encourage any litigation efforts.

(More, in a later post, about the need to allow companies to give proper apologies without fear of adverse legal ramifications from any apology given)

 
.. but surely an apology will be needed anyway
But that is no excuse to delay an apology – not least because a full and proper apology will surely be warranted irrespective of the inquiry outcome.

True, we don’t yet know whether or not this incident was the simply the result of an unavoidable accident or whether negligence was a contributing factor.

But this shouldn’t matter – at least not as far as the issue of an apology is concerned. Let’s look at what we do know for certain:

(1) Beyond doubt – the spillage resulted from leakage from a rig operated by PTTEP
(2) Beyond doubt – the environmental damage is serious and long term.
(3) There are no serious suggestions sabotage or interference from any external party whatsoever.

These facts are not in dispute, and are surely sufficient to warrant a full and frank apology even if the outcome of the inquiry concludes that the company was not negligent.

Delaying tactics on the part of the company in this regard represent extremely poor conduct.

Elton may have found ‘sorry’ a little difficult, but neither the Australian people or people from affected surrounding nations deserve anything less than a full apology from PTTEP.

For the Obama administration, maintaining an appearance of pro-activity with respect to environmental management when compared to the previous administration was never going to a particularly difficult task

Indeed, no matter how messy the approach adopted in the Clean Energy and Security Act may appear to be, the fact that it seems to finally represent some action on the part of the American government towards responding to the challenges associated with global warming is certainly pleasing.

Surely, any form of action at all was always going to beat the ‘zero meaningful action’ policy approach adopted under Bush.

 
How carbon permits should have been allocated
That said, the approach adopted under the bill toward the allocation of permits for carbon emissions under the proposed cap and trade system appears not only be unnecessarily complicated but also somewhat unfair and lacking in transparency.

As I understand it, one of the key features of the bill is the adoption of a new cap and trade system with respect to carbon emissions, which is envisaged to operate in a manner which is somewhat similar to that currently in place in Europe.

The fairest (and most logical) approach toward the allocation of permits for carbon emissions under this system would be for the government to sell a given number of permits, either each year or otherwise on a periodic basis, via an auction process. Companies would submit bids for a sufficient number of permits to cover their anticipated volume of emissions.

As well as being beneficial for government coffers, since sales of the permits would raise much needed revenue, such an approach would be completely transparent and fair, allowing all firms across all sectors the equal opportunity to secure the required level of permits to cover their anticipated level of emissions, regardless of any political influence or otherwise which is commanded by the industry in which they operate.

 
But this approach is strange
But instead, under the current bill, the vast majority of the permits issued (approximately eighty-five per cent) will simply be handed out for free, leaving just fifteen per cent to be allocated through a transparent auction process (refer article).

Not only does the idea of doling out free permits to the worst polluters seem to be somewhat strange and contradictory to what the scheme is trying to achieve, but the process of deciding exactly who is to receive such handouts is inevitably political, with some industries being able to secure a better deal than others based on their political power and influence.  

Even if it were free of political influence, the process of deciding who gets such permits would appear to be horribly complex, not to mention the lack of transparency from an accountability viewpoint.

Instead, the whole lot should have been auctioned through a straightforward auction process, which would have represented a simpler, fairer, more transparent and better approach.

 
America must lead, not wait for others
But messy action is surely better than no action, and it is pleasing to see that America finally appears to be on the move with respect to action on global warming.

Kudos to Europe for it efforts to date, but climate change is a global problem in need of a global solution. Any form of effective response to the challenges which it poses requires the support of all major players within the global landscape, not just those of one continent.

In addition, given its status as the single most influential leading nation with respect to many aspects of global society, any lack of action on the part of the emerging or developing world does not provide any form of justification whatsoever for inaction on the part of America. (Equally, inaction on the part of America does not provide any justification for inaction on the part of my home country of Australia)

Leadership is about action. Leaders step out and act first – they don’t sit back and wait for others.

This concept applies not just to individuals, but to nations as well, and given its unique leadership position, America must not wait for countries like China and India to come on board.

Instead, it must step out and join Europe in taking the lead in responding to the world’s global warming challenges, and no matter how awkward its approach, it’s pleasing to see that the American government finally seems to be getting serious in this regard.

Only once the leaders move, will others do likewise.

The recent announcement by Wal-Mart of its intention to adopt a more stringent approach toward its supply chain in terms of labor and environmental standards represents a positive step in the right direction.

Now comes the hard part – verifiable and lasting improvement on the factory floor.

 
Wal-Mart’s strategy
On October 22, the company outlined a renewed strategy designed to produce significant improvement in terms of the management of its supply chain from a social and environmental perspective.

The centerpiece of this strategy is a new supplier agreement, to be phased in over a three year period beginning in January 2009. Under the new agreement, suppliers will be required to:

• Certify (a) compliance with all relevant laws and regulations in areas in which they operate and (b) adherence to strict social and environmental criteria;
 
• Conduct their own audits, as well as co-operate with (sometimes unannounced) audits from company representatives or independent auditors;
 
• Provide the name and location of every factory which they use in the manufacturing process; and
 
• By 2012, source 95% of all manufacturing inputs from suppliers which receive the highest ratings in relation to social and environmental practices.

In addition, the strategy also includes a range of targets relating to energy efficiency and product quality and safety, with particular emphasis upon its Chinese operations.

(Refer company announcement and International Herald Tribune article for more details)

 
Lessons from Nike
Associate Professor Chris McDonald, author of The Business Ethics Blog, draws a comparison with Nike. By all means, this is a valid comparison – Nike once had a poor reputation from the point of view of labor practices within its supply chain, but its reputation has improved considerably over recent years due to improvements in public transparency and accountability.

Nevertheless, the comparison with Nike raises three interesting issues:

 
• Wal-Mart’s efforts, at least in terms of public accountability and transparency, do not appear to be as extensive as those of the sporting goods manufacturer.

Nike currently provides full public disclosure in relation to (a) the location of supplier factories; and (b) the aggregate results of audits into labor conditions at supplier factories.

The announcement by Wal-Mart does not state whether or not such information will be publicly disclosed. If not, the general public will not have means by which to verify any claimed improvement in supply chain practices.

 
• Wal-Mart’s problems go beyond its suppliers.

Whilst the problems at Nike relate predominately to its external contract manufacturing practices, those at Wal-Mart extend further, and include alleged poor labor practices in the U.S.

If the company is serious about improving its reputation, it must address all of these issues, not just the issues which pertain to its supplier base.

Moreover, responsibility for improvement cannot be simply transferred to suppliers. Wal-Mart itself has a responsibility to adopt proactive supply chain management initiatives, including the training of suppliers in terms of best practice operating proceedures. Perhaps the most important action which the company could take is to cease placing unrealistic cost and time pressures upon its supply chain - suppliers must be provided with the opportunity to make improvements in operating practices without compromising the viability of their operations.

 
• Accountability is one thing, results are another.

As noted in an earlier post, whilst Nike has made significant improvements from an accountability viewpoint, its progress in terms of verifiable improvement on the factory floor has been very disappointing, with problems occurring frequently in terms of excessive overtime, poor occupational health and safety practices and failure to pay legal minimum wages.

Wal-Mart must go beyond Nike and demonstrate a substantial level of verifiable improvement at the level of the factory floor. Until this happens, no improvement in its corporate reputation will be justified.

 
Summary
Wal-Mart is to be commended on its positive initiatives, particularly its new supplier agreement.

Now comes the hard part – results on the factory floor.

When business and conservation groups fight against each other, both tend to lose out.

On the other hand, when they work together, mutually beneficial results are often achieved.

Today I would like to highlight the new Integrated Biodiversity Assessment Tool (IBAT), a wonderful example of a common sense project which can occur when large business and conservation groups work together in a spirit of mutual co-operation.

  
The problem
New business projects, such as construction of mines, pipelines, and many other forms of infrastructure, often have a significant impact on the area concerned from a viewpoint of biodiversity.

In order to prevent or mitigate this impact, or to avoid costly modifications to the project at later stages, it is crucial that such concerns are considered during the early stage of the planning process.

However there are at least two key barriers toward this end:

• Companies may be reluctant to share their plans with conservation groups until planning has reached a considerably advanced stage, lest they give away sensitive information.

• The process of conducting Environmental Impact Assessments (EIAs), which can involve compiling a substantial volume of information from a wide range of disparate sources, is arduous at best, and is often not complete prior to crucial decisions having to be made.

  
The solution
What business needs is a one stop shop – a singular, comprehensive, publicly accessible database which details, in consolidated form, complete information about each and every significant biologically sensitive area on a worldwide basis.

This is the objective of the IBAT, a consolidated web based analytical database which has been developed by Conservation International, in conjunction with a range of conservation groups and corporate partners.

  
How IBAT Works
Say, for example, that BP plans to build a new pipeline or road.

Regardless of where in the world the project is to take place, BP will be able to use the database to determine:

• whether or not any proposed construction routes intersected with legally protected areas;

• whether or not any such routes intersect with area which are not legally protected, but which are otherwise considered to be of significance from a conservation viewpoint; and

• which licenses or permits which, if any, the company will require.

Further, IBAT will also enable the company to explore each individual site in a considerable degree of detail and gain an in depth understanding of specific biological issues associated with the proposed construction routes, in turn providing guidance during the EAP process.

  
How IBAT benefits business
The benefits of IBAT to business will be twofold:

• Better information – earlier.

By helping companies indentify and accommodate specific conservation related concerns at an early stage of the planning process, the database will help to avoid: the need for significant adjustments to the project at a later stage; and/or any adverse reputational impact from allowing potentially destructive plans to reach advanced stages.

• Anonymity.

After an initial registration process, companies will be able to use IBAT on a completely anonymous basis, allowing them to search the database without fear of alerting external parties to any plans under consideration.

  
Environmental benefits
The benefits of IBAT from a conservation viewpoint are equally as clear.

The earlier that potential biodiversity related concerns are identified within the planning process, the greater the likelihood that firms will be willing to make adjustments to projects in order to accommodate such concerns.

  
Sleeping with the enemy produces results
Perhaps largely due to issues of mistrust, some on the side of both business and conservation have been reluctant to embrace any form of collaboration.

However, the IBAT initiative is a shinning example of the benefits to both which can accrue when they put aside any differences and work co-operatively toward mutually beneficial solutions and outcomes.