Aron Cramer, President and CEO of Business for Social Responsibility, interviews Shell Chief Executive Jeroen van der Veer about Shell’s role in securing a responsible energy future.

We’re in the midst of the worst global recession in decades. What does that change about Shell’s approach to sustainable development?
It certainly doesn’t change our commitment. Sustainable development is part of our Business Principles, and we don’t rewrite our principles just because there is a downturn in the economy. Since we made that commitment in 1997, sustainable development has gradually become a mindset throughout Shell. Our people understand that it is part of the way we do business. Nor does the recession change the business case for sustainable development. If you look to the medium term, and not just to the short term, supplies of “easy oil and gas” will struggle to keep up with demand. We will increasingly invest in large, complex projects that can reliably deliver big supplies for decades. These new projects are often found in more complex political, social, geographic and geological environments than the “easy oil” projects we developed in the past. So if we are going to win access to these projects and deliver them successfully we will have to make certain that sustainable development is at the very heart of our thinking when we plan, build and manage them.

We are in a long-term business, with projects that get designed and built over a decade and run for many more. The global economic downturn risks reducing the international community’s focus on the energy and climate challenge, and clearly makes financing projects in our sector more challenging; but when the world comes out the other side, that challenge will return and with a vengeance. We must be prudent during the recession, continuing to reduce our own costs and adjusting our planning so we can benefit from downturns in the investment cycle. However, we cannot lose the long-term view.

But surely some things will change? Aren’t you worried about delays in investment in CO2 capture and storage (CCS) technology for example, as a result of the recession and low oil prices?
CCS is one of the few technologies the world possesses that can have a big impact on the CO2 problem in a relatively short time. CCS needs large-scale demonstration projects, so that people can go through the learning curve and develop business models that can be commercially successful.

And won’t we see slower investment in renewables, for instance, if oil is fetching $100 less per barrel?
That is a risk. During an economic downturn there is less private capital available for investment. And, everything else being equal, renewables projects are at a relative disadvantage because they have relatively high costs and slow payback time compared to oil and gas projects.

Having said that, we made our decision to work to build a substantial renewables business when oil was $26 a barrel – currently it’s a little less than twice that price, even after the dramatic drop last year. The decision still stands because the reasons behind it haven’t changed. We still recognise that a much higher share of the world’s energy must in the future come from non-hydrocarbon fuels. We have always said we planned to focus, once we had identified where Shell ought to be in renewables. We have looked very seriously at wind, solar, biofuels and hydrogen, and decided that, for the next few years, our priority will be on transport biofuels. They are closest to our fuels business, which means we can add real value. So we are focusing our renewables spending during the recession. We do not expect to be reducing it.

The long-term challenge remains: to make renewable energy cheaper through technology breakthroughs. Government support is needed to encourage that technology development. Remember, they choose a country’s energy mix. But even governments cannot afford to subsidise the global energy system by subsidising the roll-out of today’s renewable technologies on the scale needed to change the world’s energy mix.

Why is there such a gap between what the public thinks Shell should invest in renewables, and what you think makes sense?
Over the last five years, we have spent about $1.7 billion on renewable energy sources and CCS. In such small markets, that is a lot of money. Still, people say it is a small share of our total capital expenditure.

I understand that reaction. But I think it is important to understand how different cost levels for research and development are compared to building and operating large-scale commercial projects. R&D projects, which is what much of the renewables and CCS activities are, cost millions, or perhaps tens of millions of dollars. When a technology becomes cost-competitive and is commercialised on a large scale, like oil and natural gas development today, only then are we talking about big commercial projects and billions of dollars.

Also, people often do not realise that we constantly have to reinvest billions just to maintain production in existing oil and natural operations. And we have a lot of existing fields around the world.

How are you ensuring that social performance gets the attention it deserves in all projects?
Good social performance is one of the reasons most of our projects never make the news in a negative way. And where we improve our social and environmental performance after a difficult start, projects gradually disappear from the front pages. Sakhalin II is a good example.

When we have had problems in this area on our projects, they were mainly caused in the very early stages. We have learned, in Alaska for example, that sometimes you have to move more slowly in the early stages of projects to get where you want to be faster in the end.

Nowadays I see more awareness and better procedures to include non-technical issues early on. I’m talking about things like the needs of communities and the interests of government and non-government organisations. This doesn’t always come naturally to business people. We’re building these skills and competences into our learning programmes, such as the Project Academy and the Commercial Academy.

Aiming to be “top quartile” at your facilities gives your employees a clear operational goal they can work towards in many aspects of your business. But I’m struggling to see how you can also use it to enable people outside the company to judge your environmental and social performance.
The top quartile approach is, indeed, primarily an internal management and not an external reporting tool. Its main aim is to help improve operational performance, including environmental and social performance. It makes clear to the people operating our facilities what is expected of them, and what success looks like: simply “do it as well as, or better than, our competitors”.

Top quartile compares apples with apples. With a portfolio as diverse as ours, it makes sense to break it down into different categories of business and set challenging social, environmental and operational performance goals for each category, compared to the best being achieved by our peers.

Reporting to our external stakeholders is also important. We do that by describing our progress clearly and providing performance data in our key areas of environmental and social impact, and doing it in increasingly standardised ways, for example by using our industry’s reporting standards and the Global Reporting Initiative. This will help readers to compare between companies.

You’ve spent a lot of time in the last 12 months using Shell’s “Blueprints” scenario to call for bold changes to the energy system. What have you learned?
Our scenarios are playing out as we speak. The short-termism and narrow national self-interest envisaged in “Scramble” are obvious right now, partly due to the recession. But I can also see the seeds of a “Blueprints” world being sown, particularly with the United States signalling its desire to take a lead on energy and climate issues.

The paradox is that, as the recession progresses, and people get distracted from the three hard truths, the need for “Blueprints”-style collaboration becomes more urgent. The longer society delays, the bigger the problems will be. In that context, it is important that the Copenhagen climate conference produces good progress on CO2 pricing, support for CCS and renewables, and clarity about performance standards in transport, housing and appliances. I have been trying to make the urgency of this clear to governments both as Shell’s Chief Executive and as leader of the European Round Table that represents Europe’s 50 largest companies.

As you look back on your time as Chief Executive, what stands out for you in Shell’s social and environmental performance?
I feel we have made big increases in awareness around safety. I like the Goal Zero programme. Its purpose is simple: zero accidents, zero fatalities. Our people on the front line can work well with it. We still need to do more to improve safety performance. One death really is too many. But I feel we have made an important step.

I am pleased by the top quartile concept. It helps our people to understand how they can make an active contribution to sustainable development and to sustaining our business at the same time. Also, I see a realisation in Shell people that the need for CO2 emission reductions and energy savings is a business opportunity. It isn’t something to be scared of or run away from. Our people increasingly see we can be part of the solution, and that is important.