Corporate Engagement Review Shell February 2007 This is the third Corporate Engagement Review of Shell. In 2005 we reviewed Shell prior to their sponsorship of WPY (Appendix II), and the earlier one was done in 1997 prior to the start of our relationship with Shell (Appendix III) This review is intended to update the 2005 review, and includes major issues raised, or continuing to dominate the press since they began their sponsorship, changes in their CSR & environmental policies and new major gifts/sponsorships/awards of other organisations. About the company Royal Dutch Shell and Shell Transport and Trading were unified on 20th July 2005 under a single new parent company, Royal Dutch Shell plc. Previously the company group was 60% owned by the Royal Dutch Petroleum Company and 40% by the Shell Transport and Trading Co. plc. The major issues currently surrounding Shell which need to be considered are: Sakhalin – this was raised in the 2005 review. Shell no longer has a controlling stake since Gazprom took over control in December 2006, but they do remain a major shareholder. Nigeria – this was raised in both the earlier reviews, and still remains a serious issue. Ireland – the Corrib field, a proposed development subject to much protest at the moment. This is a newer development, and so wasn’t raised in the earlier reviews Charity Commission complaint against the Shell Foundation Shell’s profits Negative press surrounding Shell’s sponsorship of WPY (Appendix I) Sakhalin Shell has bowed to pressure from the Russian government to allow state-owned energy company Gazprom to take a controling interest in the Sakhalin-2 oil and gas field.. The Sakhalin deal was struck in the early 1990s when oil was around $20 a barrel and Russia's ailing economy needed foreign earnings. But with oil touching $60 a barrel, Russia wants to reclaim a greater share of earnings. Gazprom took control of the project last December after months of pressure from Moscow, which accused the project, led by Shell and Japan's Mitsui and Mitsubishi, of violating environmental legislation. Gazprom will receive 50 pct of the project plus one share in return for 7.45 bln usd, while the three original shareholders will see significant reduction in their stakes -- from 55 pct to 27.5 pct in the case of Shell, from 25 pct to 12.5 pct for Mitsui and from 20 pct to 10 pct for Mitsubishi. The arrangements were finalised in February this year. According to the Sakhalin Environment Watch website, www.sakhalin.environment.ru, in a press release dated the 7th of December 2006, the Sakhalin regional prosecutor had released information detailing over one hundred violations of Russian legislation by Shell's Sakhalin phase 2 project. Violations were found by the Sakhalin regional prosecutor office when visiting between the 21st-27th of November and included violation of forestry protection legislation, including expansion of the pipeline corridor and the illegal felling of forest without permission and the violation of water protection legislation in seven Sakhalin regions. The CEO of the WWF launched a scathing attack on energy giant Royal Dutch Shell for failing to meet environmental standards on its $20 billion Sakhalin-2 project. WWF believes the project risks making endangered whales extinct and threatens other marine life. (The Observer 27/11/05) An article on the World Wildlife Fund website, www.panda.org, dated the 29th of November 2006, commented on a report released by the Western Gray Whale Advisory Panel which revealed that Shell's Sakhalin construction activities in 2006 breached three of the panel's recommendations by exposing its The Natural History Museum Cromwell Road London SW7 5BD +44 (0)20 7942 5000 www.nhm.ac.uk 1 endangered gray whales to excessive noise. The report was said to criticise Shell for the lack of data it provided and concluded that limited analysis had shown that the noise had effected the whales by displacing them offshore. There were concerns that this could reduce their access to food. In November 2005 WWF-UK published a report on the Sakhalin project, entitled “Risky Business,” Sakhalin Energy had been found not to have complied with Russian Environmental Impact Assessment legislation to conduct public hearings on the impacts of its offloading jetty at the Liquified Natural Gas plant under construction at Sakhalin Island. The report found that Shell had not followed its own Environmental Impact Assessment (EIA) guidelines when carrying out the EIA for its Sakhalin II oil and gas project. The report found that Shell had not taken social and environmental interactions into account and that a lack of strategic planning was resulting in damaging infrastructure development. The EIA was said to use baseline data that was not fit for purpose and had obvious limitations in understanding of the Western Gray Whale and failed to recognise indigenous communities. Shell had failed to incorporate environmental information into decision making or conduct a valid, early assessment of alternative project designs. The report also stated that Shell had handled consultation so badly that it had seriously damaged relations and trust with key stakeholders. According to the report, it was possible that Shell's activities at Sakhalin would result in the extinction of the Western Gray Whale. Shell's mitigation was described as being in some cases ineffective (e.g. observers who couldn't operate in the conditions present), in others not implemented (e.g. contractors failing to apply erosion control measures) and in still others non-existent (eg no recognised technique to clean up oil spills under ice). Shell refused to wait for the best scientific advice before installing the platform base, and had not acknowledged the importance of many of the local salmon streams for spawning, and so hadn't developed appropriate crossing techniques and mitigation measures. The European Bank for Reconstruction and Development stated that the Sakhalin II EIA was "not fit for purpose". The report concluded that Shell's activities were already resulting in irreversible impacts on the biodiversity and natural resources of Sakhalin Island. A third of Sakhalin's 553,000 population was employed in the fishing industry, and a complaint had been made to the EBRD because the catch in Aniva Bay, where Shell was constructing its LNG and loading terminal, had gone down by 70% in 2005. Salmon spawning grounds have been seriously damaged by the rerouting and erosion of water courses. Shell's use of limited surveys was said to have resulted in inaccuracies - for example, the EIA found that there were 5 braces of Steller's sea eagles around the Chaivo Gulf in 2005, but a study by the Wildlife Prevention Bureau and Moscow State University found 15 braces. Local indigenous people have protested about the lack of recognition from Shell and actions such as Shell constructing a storage facility on a sacred burial ground. According to the 10th January 2007 issue of CSR Asia Weekly, Russian and US scientists were said to have warned that the sakhalin taimen, an endangered fish, was facing extinction. The fish's numbers were said to have decreased significantly in recent decades, and the planned Sakhalin oil and gas developments were predicted to be a future deteriorating factor, along with dam development sand water contamination in Hokkaido. According to a report based on interviews with the local community around the Sakhalin island oil project published by CEE Bankwatch Network and Gender action ("Big oil's gender impacts in Azerbaijan, Georgia and Sakhalin", 2006), local feeling was that the impact on their lives were predominantly negative. The report highlighted a number of social and economic problems, including: damaged and threatened subsistence fishing, hunting and gathering, especially impacting the indigenous peoples of Sakhlalin; decreased possibilities for recreation in nature; damage to the local fishing industry and decreased security and quantity of drinking water supply. Nigeria Shell’s operations in Nigeria continue to be the subject of much controversy. Royal Dutch Shell risks permanently losing some of its oil production in Nigeria amid growing anti- Western sentiment in the build-up to April's presidential election. Advisers to the two leading The Natural History Museum Cromwell Road London SW7 5BD +44 (0)20 7942 5000 www.nhm.ac.uk 2 presidential candidates are considering whether bringing some of the fields in the most contested areas of the Niger Delta back under government control might be a way of bringing an end to violence in the region. Shell's operations in Nigeria have been seriously disrupted by violence in the Niger Delta. A fifth of Nigeria's oil production capacity, or about 600,000 barrels per day, has been shut down for a year because of militant attacks. (The Business 17/02/07) An environmental report stated that up to 1.5 million tons of oil, 50 times the pollution unleashed in the Exxon Valdez tanker disaster, has been spilt in the ecologically precious Niger Delta over the past 50 years. Environmentalists accuse Shell of failing to meet promises to replace ageing pipes and swamp flowlines that, it is claimed, are steadily leaking oil into the once pristine waters of the delta. Shell estimates that 95 per cent of discharges over the past five years have been caused by sabotage. The report accused the oil companies of "double standards" by using technologies not in line with more advanced practices carried out elsewhere in the world. It called for international action to implement an immediate rescue plan, backed by the oil and gas industries which have exploited the region for up to half a century. (Independent 26/10/06) Gunmen invaded an oil facility operated by Royal Dutch Shell in the southern Niger Delta, taking 60 people hostage and forcing the company to shut down 12,000 barrels a day of oil output.