Corporate Social Responsibility, Course 2016 FE1 EDHEC Nice
Tutorial 3
BP, Deepwater and Sustainability
Reporting
The Deepwater Horizon oil rig fire and explosion on April 20, 2010, killed 11 men and caused one of the largest marine oil spills in history. The leak from the undersea well flowed for 87 days and polluted an estimated 68,000 square miles of the Gulf of Mexico waters and nearly 500 miles of coastline from Louisiana to Florida.
At the moment of the accident BP was the leaseholder and operator of the Maconda well located off the coast of Louisiana. The company was ultimately responsible for conducting operations there safely and in respect of the environment. BP hired Transocean Ltd (the owner of the drilling rig
Deepwater Horizon) to provide the vessel and drilling crew to implement BP’s operations of the
Maconda well. 1
Investigations established that bad management on the Deepwater Horizon resulted in poor safety on the rig. The US chemical safety board concludes that a last-ditch safety device on the underwater well had multiple failures and wasn't tested properly. It found that the cause of the initial explosion involved multiple screw-ups with cement, drilling mud, fluid pressure, botched tests, management problems and poor decisions. The blowout preventer sealed the well temporarily, but then it failed and that caused the massive spill.
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For a description of BP’s implication in the Deepwater Horizon accident you can also read Cherry and Sneirson
(2011), p. 988-999. The authors also examine green marketing and corporate governance, identifying elements of each that encourage firms to engage only superficially in corporate social responsibility yet trumpet those efforts to eager consumers and investors. A link to the article is posted here : http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1670149 1
© Björn Fasterling 2016
Corporate Social Responsibility, Course 2016 FE1 EDHEC Nice
Tutorial 3
Legal Aftermath
On March 2, 2012, BP agreed to settle roughly 100,000 claims filed by individuals and businesses affected by the spill. BP estimated that it would pay approximately USD 7.8 billion under this settlement. On 15 November 2012 BP agreed to plead guilty to felony manslaughter, environmental crimes and obstruction of Congress and pay a record USD 4 billion in criminal fines and penalties for its conduct leading to the 2010 Deepwater Horizon disaster. Robert Khuzami, Director of the U.S. Securities and
Exchange Commission’s (SEC) Division of Enforcement commented that “The oil spill was catastrophic for the environment, but by hiding its severity BP also harmed another constituency – its own shareholders and the investing public who are entitled to transparency, accuracy and completeness of company information, particularly in times of crisis.”
In the lawsuit brought by the US Department of Justice (joined by Gulf states and private individuals) under the US Clean Water Act, BP was found guilty of gross negligence and willful misconduct under the Act. See summary: http://www.bloomberg.com/news/2014-09-04/bp-found-grossly-negligent-in-2010-gulf-of-mexicospill.html The penalty to be paid will amount to 14 billion USD. BP also confronts numerous damages claims. http://www.nytimes.com/2015/01/16/business/energy-environment/judge-sets-top-penalty-for-bpin-deepwater-horizon-spill-at-nearly-14-billion.html?_r=0 BP’s communications prior to the accident
About a decade before, BP invested (initially successfully) in its branding campaign of “BP” as
“Beyond Petroleum” that promoted a view of BP as an ecologically friendly oil company. The
Deepwater disaster obviously tainted this campaign (today the company does not market its brand as “beyond petroleum” anymore). Presently, the challenge for BP is to restore trust in its corporate communications about its environmental impact.
CSR reports in 2009 and 2014.
To answer the below questions, you will study two “Sustainability Reports” of the company - bearing the Deepwater accident in mind. One report (for 2009) concerns the period before the disaster (the report was in fact issued just days before the accident). The other is the last report that is currently available (for 2014). Page 20 et seq of the 2009 review reports on safety. Page 32 et seq contain the safety report of the 2014 review.
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© Björn Fasterling 2016
Corporate Social Responsibility, Course 2016 FE1 EDHEC Nice
Tutorial 3
Questions
Teams 7-9 work on questions 1-3.
Teams 1-3 work on questions 4-6.
Teams 4-6 work on question 7 and 8.
1. What is the purpose of BP’s annual sustainability reports? Who are they addressed to?
2. With regard to reporting about safety issues, analyze to which extent both reports resemble each other and spell out differences. Look at content and form.
3. On page 8 of the 2014 Sustainability Report you will find a table with figures. Which crucial figure is missing? Why?
4. BP's sustainability reports have been issued on a voluntary basis. However, do the reports draw from any external reporting standards?
5. In France non-financial reporting on social and environmental issues is mandatory for large companies (cf. Art. L225-102-1 Commercial Code and the Governmental Decree 2012-227 of
24 April 2012). The law obliges certain companies to report on a number of social and environmental issues. It also provides for a mandatory assurance of the report through a certified independent organization. The level of assurance, however, is not stated explicitly in the decree. There is a self-regulatory ISAE 3000 standard that differentiates between “limited assurance” and “reasonable assurance”. What is the difference?
6. Despite being voluntary, do BP's reports employ independence assurances to increase the reports’ credibility and reliability? Are there differences between the 2009 and 2014 reports?
Compare the "independent assurance statements" at the end of each report. Which level of assurance under the ISAE 3000 standard is offered?
7. More generally speaking, does mandatory sustainability reporting as in France necessarily enhance the reliability or quality of information contained in sustainability reports?
8. What would be your general recommendations for a company such as BP with regard to sustainability reporting? Should the company, for example
a. not report at all (unless there is a legal obligation to do so) or report less and in more vague terms?
b. report more details and provide more evidence that support these details?
c. report differently, in particular using a less laudatory style?
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© Björn Fasterling 2016 