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Corporate Strategy, Climate Change and Oil Multinationals

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Corporate Strategy, Climate Change and Oil Multinationals European Management Journal Vol. 19, No. 5, pp. 501–509, 2001 Pergamon 2001 Elsevier Science Ltd. All rights reserved PII: S0263-2373(01)00064-0 0263-2373/01 $20.00 Winds of Change: Corporate Strategy, Climate Change and Oil Multinationals ANS KOLK, University of Amsterdam DAVID LEVY, University of Massachusetts Behind pessimistic expectations regarding the industry has been a critical player in the worldwide future of an international climate treaty, substantial efforts to address greenhouse gas emissions (e.g. changes can be observed in company positions. Anon, 1999). The combustion of oil-based fuels for Multinationals in the oil and car industries are transportation, electricity generation and heating increasingly moving toward support for the Kyoto accounts for more than half of greenhouse gas emis- Protocol, and take measures to address climate sions in industrialized countries. At the same time, change. This article analyses developments in the oil multinationals control substantial technological, oil industry over the past few years, observing con- financial and organizational resources which, if siderable shifts in corporate climate strategies. It applied appropriately, could play a major role in compares British Petroleum, Royal Dutch Shell, reducing these emissions and in implementing inter- Texaco and ExxonMobil, of which currently only national policies. From a business perspective, com- the latter strongly opposes a climate treaty. BP and panies can try to seize possible economic opport- Shell have moved decisively toward supporting unities arising from the climate issue by reducing emission reductions and investing in renewable risks and costs, anticipating regulation, developing energy, while Texaco has begun to move in a simi- green capabilities through new products or markets, lar direction. Divergent behaviour can be explained and strategic behaviour vis-a`-vis competitors (Kolk, in terms of company-specific factors, particularly 2000; Reinhardt, 2000a; Rugman and Verbeke, 2000). corporate histories of profitability and location, market assessments, degrees of centralization and With increasing regulatory and public pressure, the the presence of climate scientists. Ongoing stake- climate strategies of most oil companies have started holder pressures, which focus on ‘first-mover’ BP, to change. However, as Table 1 shows, the timing, are evaluated. 2001 Elsevier Science Ltd. All pace and types of responses have varied enormously. rights reserved. BP, followed by Shell a few months later in 1997, were the first to adopt a more open stance toward Keywords: Corporate strategy, Oil industry, Multi- climate science and the Kyoto protocol, and have nationals, Climate change, BP, ExxonMobil, Shell, joined industry associations and partnerships with Texaco, International policy environmental non-governmental organizations (NGOs) that reflect these perspectives. They have Climate change is an international environmental invested resources in low-emission and renewable issue that has provoked widespread controversy in energy sources. Located at the other end of the spec- the industries that are most involved (Ikwue and trum is ExxonMobil, which maintains a strong lobby- Skea, 1994; Levy, 1997). Strong business opposition ing stance against mandatory reductions of green- has contributed to the deadlock in the negotiations, house gases, arguing that these measures are not with a US government that rejects particularly the justified by the science and are prohibitively expens- European efforts to proceed with the international ive. It has not joined its counterparts in investing in approach as agreed upon in Kyoto in 1997. The oil renewables. In between these extremes is found Tex- European Management Journal Vol. 19, No. 5, pp. 501–509, October 2001 501 WINDS OF CHANGE Table 1 Overview of Oil Companies’ Climate Positions Topic BP ExxonMobil Shell Texaco Public recognition of the May 1997 NA September 1997 February 2000 climate problem Current view on climate Precautionary principle Uncertain; Precautionary principle Need to move beyond science precautionary principle ‘protracted debate on precludes science science’ View on Kyoto protocol Is supported Labelled as ineffective Considered to have real Will not responsibly policy commitments fulfil its objectives Membership of Global Left in 1996 Stayed until the end Left in April 1998 Left in February 2000 Climate Coalition Type of climate measures Measurement and No climate measures; Measurement and Measurement of external monitoring of points at emission external monitoring of emissions; renewable emissions; renewable reductions in refineries, emissions; renewable investments, especially investments, especially and research expenses investments in solar, hydrogen solar and hydrogen wind, biomass and hydrogen aco, which changed sides much later, in February this is just one factor informing company behaviour. 2000. Company strategies can only be explained from a combination of distinct traditions, backgrounds and How can the divergence of these responses within idiosyncracies, which will be analysed in this article one and the same industry be explained? As the following the elements summarized in Table 2. The industry environment is similar for all companies, detailed comparative case studies, and the rich set the different strategies originate from company-spe- of data derived from interviews and the analysis of cific factors, particularly corporate histories of primary and secondary material, provides insights location and profitability, market assessments, into the different factors that have played a role in degrees of centralization and the presence of climate the strategic changes on the issue of climate change. scientists. In this article, these factors will be exam- ined consecutively to understand variations in the timing, pace and types of climate strategies as adopted by BP, ExxonMobil, Shell and Texaco. Location and the Timing of Change Although observers, especially before Texaco’s shift, have been tempted to trace differences back to Location-specific factors are to some extent internal- regional and country origins, our analysis shows that ized by companies, even if they are large multina- 502 European Management Journal Vol. 19, No. 5, pp. 501–509, October 2001 WINDS OF CHANGE Table 2 Important Explanatory Factors for political developments are nevertheless important to Corporate Positions on Climate Change consider as (historical) background for understand- Factors Components ing company strategies. Locational factors Societal concerns about climate change in home country Socio-Cultural Factors Societal perceptions about scientific uncertainties In the US, climate change became a cause for societal Societal views on the concern at an earlier stage than in Europe. Coinciding behaviour of oil companies with a warm summer, global warming received con- Regulatory culture (litigational siderable media and Congressional attention in 1988 or consensus-oriented) and alarmed US industry. The Global Climate National policies on climate Coalition (GCC) was formed in 1989 to represent change major fossil fuel users and producers, and lobby Con- Economic and market Company financial and gress to prevent regulatory measures. Contentious position economic situation policy battles have been waged on the basis of Competitive, market detailed technical studies, focusing on the scientific positioning (un)reliability of the evidence on global warming. US Role of long-term scenario industry associations and oil companies have chal- planning lenged the legitimacy of the Intergovernmental Panel History of involvement with on Climate Change (IPCC), created in 1988 to investi- renewables gate this matter. As the most outspoken oil company, Internal organizational Degree of ExxonMobil has emphasized the absence of a proof factors (de)centralization for climate change from the very beginning. Only in Position of CEO the past year, after its withdrawal from the GCC in Availability and type of 2000, did Texaco publicly announce its wish ‘to move internal climate expertise beyond protracted debate about the adequacy of Type of decision-making the science’.1 process Corporate culture Compared to the US, European public concern about climate change emerged more slowly with the prep- arations for the 1992 United Nations Conference on tionals that operate worldwide. Public opinion and Environment and Development. Industry did not regulatory policies in the country of origin, which is form an issue-specific association, although it also home to their corporate staff and many of their warned for harm to competitiveness. Since the mid- employees, and accounts for considerable shares of 1990s, societal awareness of the problem, its causes sales and assets, influences the way in which compa- and the potential implications has increased. The nies approach environmental issues. It has been political debate has focused less on the nature of the hypothesized that the trans-Atlantic divide might be scientific evidence and on technical details, and more an important factor for explaining corporate pos- on finding consensus for ways to deal with the issue. itions on climate change (Rowlands, 2000). As exam- Challenging the science and the IPCC without a will- ined in more detail below, a US –European compari- ingness to cooperate and work on alternatives is not son shows differences in the overall socio-cultural considered socially acceptable, and jeopardizes exist- and political contexts, especially related
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