Reputation and Responsible Management: BP Plc.

Key Responsible Management Megatrends

Megatrends in sustainability, responsibility and ethics are shaping the global energy future. Incorporating their analysis into a corporate strategy can give tactical business insights to obtain true value gains, including long-term reputation. In this report, two megatrends are identified as key to BP: global warming (sustainability) and human and natural rights (ethics). The company must prepare and manage both trends, as they are likely to impact its future business.

Global Warming

Global warming is a major strategic issue confronting the oil and gas industry presently. A rise in the earth’s temperature is associated with frequent extreme weather events such as drought and flooding that impact livelihoods negatively (Eikeland & Skjærseth 2019). The processing of fossil fuels emits significant greenhouse gases (GHGs), such as carbon dioxide (CO2), into the air. The causal relationship between GHG emissions and global warming is well established in science (Nasiritousi 2017). Thus, core BP operations, including the exploration, production, refining, and distribution of oil and gas, contribute to global warming – a phenomenon that has profound effects on BP’s operations because of the pressure to adopt sustainable practices.

Global warming is a megatrend requiring responsible management from BP plc. The evidence implicates oil and gas companies as the largest contributors to global temperature change through direct GHG emissions and denial of the climate problem (Ekwurzel et al. 2017). The GHG gases that cause global warming are CO2 and methane. BP is among the world’s major private and public (government-run) firms considered high carbon emitters through their exploration, extraction, production, and distribution activities.

A review by Grasso (2019) found that 62% of GHG emissions in the 1751-2015 period could be attributed to 100 companies. Much of the industrial emissions have occurred in the last few decades. Oil and gas firms are the biggest emitters, with BP contributing 1.5% of the cumulative global GHG discharge from 1988 to 2015 (Grasso 2019). Thus, based on historical data, BP would be required to cut GHG emissions, which would mean reducing its operations.

The high carbon emissions account for the rising concentration of atmospheric CO2. This relationship means that oil and gas companies must play a primary role in climate governance. It is feared that the combustion of fossil fuel reserves held by major companies would raise the average global temperature to 2°C, above the internationally binding 1.5°C thresholds (International Governmental Panel on Climate Change 2018). Therefore, oil companies, including BP, must incorporate sustainability and mitigation measures into their business models, as the current oil-dependent economic system is unsustainable.

In light of these trends, BP has committed to decreasing GHG emissions in its operations. Its operational targets established in 2018 are to achieve a zero net increase in emissions by 2025 and 3.5Mte sustainable GHGs in the 2016-2025 period (BP 2021). The reductions are to be attained through process optimization, improving the performance of its generators, decreasing on-site fuel consumption, and efficient shipping operations. Also, BP aims to reduce the carbon intensity of its oil products by 50% before 2050 (BP 2021). These measures reflect the responsible management megatrend of cutting GHG emissions to curb global warming.

Human and Natural Rights

Responsible oil firms have assumed a leading role in tackling human rights issues linked to their operations. The basis for such proactive measures is the recognition that they impact employees, supply chain actors, and communities in project areas. Human rights are fundamental ideals for securing “dignity and equality for all” (Ishak & Nordin 2019, p. 241). They are enshrined in the International Bill of Human Rights and other documents stipulating globally recognized rights and freedoms. Examples include the right to life, free expression, and quality working conditions. Those relevant to businesses include the right to collective bargaining, freedom from forced labor, and non-discrimination (Toft 2020). Responsible companies in the oil industry actively address project risks that may limit human and natural rights.

The oil industry supports development in many countries through revenue from petroleum exports. The income generated can be used to reduce poverty and promote human rights, such as the right to work, healthcare, and education (Ishak & Nordin 2019). Oil companies that uphold human rights are those with a solid health and safety record, a lower carbon footprint, and sustainability programs that benefit society. Contrastingly, those that fail to respect human rights have negative effects on people and the environment.

This action leads to operational delays, costly litigations, low staff morale, lost opportunities for growth, and reputational costs for the company (Toft 2020). A notable trend involves a collaboration with governments and the civil society to initiate programs promoting human rights, environmental, and social issues in offshore extraction or processing sites.

BP’s contribution to negative human rights effects may come from its operations or practices by partners. Responsive policies and processes are necessary to tackle these impacts in the locations where its operations. In countries with weak governance or civil society, the exploitation of natural resources could contribute to negative human rights impacts. Poverty, corruption, and conflict may emerge because of these challenges. Oil firms will typically do more to promote human and natural rights through meaningful engagement of indigenous people (Ishak & Nordin 2019). BP is also obligated to support or compel its partners and contractors to meet this responsibility to avoid reputational risk to its operations.

Implications for the Company and Its Reputation

Opportunities

Global warming presents key opportunities and constraints to BP’s brand reputation. The oil firm has promising prospects to meet the global targets for GHG emissions and human and natural rights in its business and partnerships. First, BP will need to transition to zero net emissions in a few years to build a stronger position and brand in the future energy market. Adopting innovative plans and technologies will create a diversified firm that provides a range of low-emission solutions based on non-carbon sources (Bach 2019). Thus, notable opportunities lie in developing carbon capture and storage technology to offset GHG emissions from its operations.

Global warming and negative human rights impacts have emerged as key risks in the oil business. BP needs to be proactive in developing energy systems aligned with zero net emissions. Leveraging on the current R&D capabilities and scenario planning capacities, oil firms can determine the impacts of current and future projects and choose cost-effective, technology-based investments aligned with global goals (Bäckstrand et al. 2017). Innovative solutions will reinforce BP’s standing, as it will show its commitment to keeping the global temperature below the pre-industrial 1.5°C levels prescribed in the Paris Agreement.

Another opportunity to create a strong brand in light of the identified megatrends is exploring new gas fields in low-income locations. Developing the huge gas reserves in energy-poor African countries can accelerate the transition to zero net emissions and economic development. Replacing coal with natural gas in electricity production, cooking, and public transport can lower the carbon footprint of these states (Bach 2019). BP’s investment in this energy system will strengthen its reputation on the human rights front. Revenue earned by these countries will help support education and health care for the citizens.

Attaining the threshold of global warming will need carbon sinks to offset emissions. Thus, de-carbonization is an opportunity for BP to strengthen its corporate reputation. Investment in carbon capture technologies and afforestation would help end net emissions (Sachs, Maennling & Toledano 2017). The innovations help cut GHGs by sequestering carbon dioxide from the atmosphere for storage. Large-scale carbon capture and storage (CCS) technologies provide an opportunity for BP to collaborate with governments in R&D. Such collaborations will also help surmount key obstacles in CCS deployment to cut emissions. Through the cooperation, BP can maximize the opportunity to develop a common CSS infrastructure and dominate this segment.

At the operational level, BP has an opportunity of contributing to improved energy access consistent with human rights obligations. An estimated 2.8 billion people across the world lack modern energy sources (Beck et al. 2020). Thus, providing these solutions is a significant market opportunity for BP. A majority of the people that lack modern energy live in developing nations. For gas projects, collaborating with local governments and communities can be useful in aligning investments to specific needs (Sachs, Maennling & Toledano 2017). Thus, BP will strengthen its reputation locally and internationally and returns through domestic gas allocation investments. Such projects will also be consistent with the national and international goals of the Paris Agreement.

Effective partnerships with research institutions, social organizations, and customers will also result in significant reputational gains for BP. Potential areas of collaboration may include R&D, consumer education campaigns to enhance efficiency in energy usage, and poverty reduction initiatives. The adaptation and management strategies will improve BP’s image, cut emissions, and reduce the human rights impacts of its operations.

Constraints

The increased awareness and urgency to address climate change puts pressure on firms to act responsibly. Oil companies that will not incorporate mitigation measures into their business will be poorly positioned to compete in the future energy market. This reputational risk will have implications for business performance, R&D investment, and the workforce. As Ekwurzel et al. (2017) note, investor awareness of climate change effects is rising, which implies that companies must divest fossil fuel operations to strengthen their position in capital markets. Further, unsustainable development is likely to limit BP’s attractiveness as an employer, given the growing consciousness of climate change effects.

A talented workforce helps drive a company’s long-term growth strategy. The employer’s responsibility to communities and the environment is a key consideration by the millennial generation besides opportunities for career growth (Grasso 2019). A negative image will make BP unattractive to the top engineers and scientists which will lead to its energy transition. Large-scale projects in challenging offshore locations also require expertise, which may be absent in firms with a bad sustainability reputation.

Fluctuations in oil prices and pressure from investors to increase returns are constraints to the implementation of sustainable development policies to reduce GHG emissions. Shareholders focusing on profitability instead of environmental and climate change adaptability present a sustainability challenge to oil companies (Grasso 2019). The rising demand for energy in some locations also exerts competitive pressure on BP to increase exploration, drilling, and production investments.

Volatile oil prices affect profitability, making it difficult for firms to comply with GHG emission targets. Unstable partnerships with other developers in the oil sector, including government-owned oil companies, refiners, and supply service providers, are also a constraint to sustainable development. Additionally, smaller upstream or downstream actors contributing to BP’s activities may lack the capacity to protect human rights and meet GHG targets, posing a reputational risk to BP.

Reference List

Bach, M 2019. ‘The oil and gas sector: from climate laggard to climate leader?’. Environmental Politics, vol. 28, no. 1, pp. 87-103.

Bäckstrand, K, Kuyper, JW, Linnér, BO & Lövbrand, E 2017. ‘Non-state actors in global climate governance: from Copenhagen to Paris and beyond’. Environmental Politics, vol. 26, no. 4, pp. 561-579.

Beck, C, Rashidbeigi, S, Roelofsen, O & Speelman, E 2020. The future is now: how oil and gas companies can decarbonize. Web.

BP 2021. Reducing emissions in our operations. Web.

Eikeland, PO & Skjærseth, JB 2019. ‘Oil and power industries’ responses to EU emissions trading: laggards or low-carbon leaders?’. Environmental Politics, vol. 28, no. 1, pp. 1-12.

Ekwurzel, B, Boneham, J, Dalton, MW, Heede, R, Mera, RJ, Allen, MR & Frumhoff, PC 2017. ‘The rise in global atmospheric CO2, surface temperature, and sea level from emissions traced to major carbon producers’. Climatic Change, vol. 144, no. 4, pp. 579-590.

Grasso, M 2019. ‘Oily politics: a critical assessment of the oil and gas industry’s contribution to climate change’. Energy Research & Social Science, vol. 50, pp. 106-115.

International Governmental Panel on Climate Change 2018, Global warming of 1.5°C: summary for policymakers. Web.

Ishak, MK & Nordin, R 2019. ‘Responsibility of oil and gas (O&G) companies to protect human rights: the case of Shell’. International Journal of Asian Social Science, vol. 9, no. 2, pp. 240-247.

Nasiritousi, N 2017. ‘Fossil fuel emitters and climate change: unpacking the governance activities of large oil and gas companies’. Environmental Politics, vol. 26, no. 4, pp. 621-647.

Sachs, LE, Maennling, N & Toledano, P 2017, How oil and gas companies can help meet the global goals on how oil and gas companies can help meet the global goals on energy and climate change energy and climate change. Web.

Toft, K 2020. ‘Climate change as a business and human rights issue: a proposal for a moral typology’. Business and Human Rights Journal, vol. 5, no. 1, pp. 1-27.