Analysis of British Petroleum and its Application of ESG Compliance Practices
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Analysis of British Petroleum and its Application of ESG Compliance Practices
Introduction
British Petroleum is a multinational oil and gas company headquartered in London. It has grown and expanded at a staggering rate, amassing a presence in several countries such as the UK, USA, and Germany. It has also performed exceptionally well, netting a profit of $13.8 billion in 2023 (Nadig, 2024). Sustainability is a significant concern when examining the success of this company as it looks at its ethical practices and their impact on the environment and coexistence in nature. This paper will discuss the sustainability of this firm by reviewing four key metrics: evidence of ESG compliance and its nature, their implications on sustainability in the UK and other countries in which the firm operates, and the issues governing social and government adherence to protocols such as the Kyoto Protocol.
ESG compliance assessment
Environmental Compliance
Becoming environmentally sustainable has been one of the critical goals of modern organizations because it allows them to tackle the rising concerns of clients regarding their ability to conserve natural resources and protect the global ecosystem. British Petroleum has implemented various measures to achieve this goal, including its aim to become a net zero company, referring to a company that adds no more greenhouse gasses to the earth’s atmosphere than it takes out. The company spearheaded this endeavour in 2020, aiming to entirely comply by 2050 (BP Global, 2023). By consulting various internal and external specialists and working with different trade bodies and institutions, the company was able to draft a set of 20 aims that are guaranteed to propel them toward a greener future. The first five aims are the most crucial as they examine how British Petroleum can get to net zero, such as ensuring that all its operations become carbon neutral; it targets a 20% reduction by 2025 and 50% by 2030 (British Petroleum, 2023). Its second aim tackles being compliant on an absolute basis across the carbon upstream oil and gas production, with its third goal being a reduction to net zero carbon intensity of the energy products it sells, meaning that any harmful gasses emitted through the use of its products will be offset by the company thus providing consumer confidence in the brand.
Furthermore, it plans to install equipment to measure methane at its oil and gas processing sites and eliminate the methane intensity target to 0.2%. Its fourth goal is an increase in the proportion of investments it makes in its oil and gas business (British Petroleum, 2023). The remaining aims are targeted at how the company can help the rest of the world to become carbon neutral; this is based on the notion that one single company working alone to protect the environment might not be sufficient; the world as a whole must thus rally in support of these efforts. Among the most noticeable of these tactics involves advocating for policies supporting net zero, incentivizing the global workforce to protect their environment, and partnering with other organizations to pursue a net zero economy.
Social Compliance
Social Compliance refers to how a business protects the health, safety, and rights of its employees, stakeholders, and the community. British Petroleum has made efforts to improve its stakeholder engagement by establishing relationships with local governments, NGOs, communities, shareholders, and employees. One of the most noticeable results of this action is its partnership with the Nature Conservancy and its payment of $10 million, thus giving legitimacy to the company’s environmental disclosure (Saha, 2024). It also reassured the public of the firm’s continued sustainable practices and ability to be responsible for its actions following the reputation damage after a fire in its Texas refineries, Alaskan pipeline spillage, and an explosion in its Gulf of Mexico oil rig. The company also has a history of supporting charities and community organizations through donations and charitable programs such as its fuel and food poverty efforts, where it has given over $14 million to help vulnerable people in the UK (Kingdom, 2022).
Governance Compliance
This refers to an organization’s ability to manage its governance and risk. Firstly, key executives have implemented sector 406 of the US Securities as Exchange Commission (SEC) (BP Global, 2023). This helps the company maintain transparency with its stakeholders by reporting its financial performance and endeavours and ensuring executives can be held responsible for wrongdoings. Integrity and honesty have been integrated into its company culture, ensuring that officials act in good faith when utilizing company assets and delivering on its promises. Furthermore, it has implemented conflict of interest laws that ensure that covered officers cannot influence decision-making in pursuit of personal gain or advantage. This firm has thus gained firm control of its compliance activities.
Rational Justification of ESG Compliance
The actions and strategies used by British Petroleum in their ESG compliance are impacted by various needs, with the primary driver being the satisfaction and profit of its shareholders. To ensure that this can be achieved in the long term, the firm must examine the interests and values of its customers, the laws set by governments, and the impact of its actions and personal relations campaigns on society (Editor, 2020). This is visible in its net zero aims, as the firm is aware that climate change caused by industrial activities is a crucial concern to its audience; being an oil and gas company, it is responsible for a sizable portion of these emissions, causing it to endeavour to offset the carbon gases emissions, appease customers and grow their revenues, brand loyalty and market valuation.
The need to adhere to government laws and regulations can also be a powerful motivator. This is because these governing bodies give the company the legal right to run their businesses and provide incentives such as subsidies, tax reductions and passing laws that favour the company’s continued operation. Failure to align with the instructions of governments can lead to dire consequences such as increased risks of fines, penalties, and regal liabilities, which can not only be costly but also ruin the company’s reputation. This would reduce customer and investor trust and loyalty, ultimately causing its demise (Editor, 2020).
Furthermore, British Petroleum can derive several advantages by complaining about ESG requirements, such as providing a competitive advantage that can attract new investors and allowing the company to expand into new markets. It promotes innovation as extensive research and development are put into finding the most efficient methods of achieving its goals (Chong, 2018, 43-48). In addition, it facilitates risk management practices such as by taking the first step to disclose and reduce its carbon emissions even before laws are put forward to mandate this practice; this thus helps future proof the business against such risks and creates a reputation of being a trendsetter (Magellan, 2023). This company has a lot to gain from ESG compliance.
British Petroleum faces consistent criticisms over the environmental impact of its operations. Scrutiny of the occurrences, such as oil spills and greenhouse gas emissions, allows the evaluation of their compliance with ESG measures (Liu & Lu, 2014, 55-57). To fulfil the responsibility of environmental protection, it owes to the general public, British Petroleum is compelled to divert resources and invest in renewable energy sources, implement sustainable practices in its operations and reduce carbon emissions (Chong, 2018, 43-48). Transformation of the business to deal with renewable energy and adopt sustainable operations mitigates local environmental risks to aquatic life, plants, and land and is a stepping stone towards positive contributions to global efforts in combating climate change (Heller, 2012).
With operations conducted in locations bordering communities, the firm owes society a social responsibility at a localized capacity. Implementing policies such as community engagement, observation of the rights of people indigenous to that specific locale and observation of health and safety standards, British Petroleum enhances its social license to operate within that community (Trendafilova et al., 2013, 298-313). Additionally, implementing favourable labour practices facilitates a positive contribution to the firm’s internal and external environment by mitigating social risks, hence fostering long-term sustainability (Sindico, 2016, 130-141). Moreover, strong governance practices that uphold transparency, accountability and ethical conduct adhered to by British Petroleum’s management ensure integrity in decision-making processes, risk management, and compliance with regulations. Such robust governance standards enhance the firm’s reputation and build stakeholder trust, safeguarding its long-term sustainability (Acheampong & Menyeh, 2024, 163-189).
In its country of domicile, the United Kingdom, the firm’s operations are subject to local regulations and policies which staunchly advocate for compliance with environmental, social, and governance (ESG) standards. Adherence to these standards improves its operational performance and demonstrates its commitment to sustainable business practices (Huang, 2018, 218-228). British Petroleum will, therefore, stand to benefit from improved access to capital from investors who prioritize ESG compliance, operational efficiencies translating to cost savings and increased profitability in the long run, as well as long-term value creation for its stakeholders by the holistic approach to long-term sustainability (Sindico, 2016, 130-141).
Being a multinational corporation, its activities, including exploration, refining, marketing and sales, impact ecosystems, communities and economies worldwide. Embracing ESG principles demonstrates British Petroleum’s industry leadership, setting standards and influencing similar companies to follow suit (Acheampong & Menyeh, 2024, 163-189). It also helps to mitigate risks associated with environmental disasters, regulatory compliance, and social issues (Trendafilova et al., 2013, 298-313). Therefore, globally, this drives positive changes across the energy sector, facilitating sustainable growth while complementing the efforts to address climate change and other sustainability challenges.
Prioritization of one aspect over the other occurs based on the context and prevailing concerns regarding business practices, environmental conservation, and social responsibility at the moments of discussion. Environmental issues will overshadow social and governance concerns when public outrage occurs over ecological challenges such as oil spills and environmental pollution incidents by British Petroleum’s operations (Heller, 2012). This could lead to reputational damage, operational disruptions, and financial losses for the firm, affecting its performance and revenue generation. The Kyoto Protocol, the Paris Agreement, and the UN Sustainable Development Goals (SDGs) collectively emphasize environmental sustainability as a business’s core objective (Huang, 2018, 218-228). These institutions have set targets for reducing greenhouse gas emissions, preserving biodiversity and protecting natural resources, aligning with efforts to address environmental issues (Sindico, 2016, 130-141).
Conversely, in an instance where British Petroleum faces controversies related to social issues, such as human rights violations in its supply chain or labour disputes in its operations, social problems take precedence over environmental and governance matters. Such situations will cause supply chain disruptions, work unrest and productivity loss in the firm, as well as the loss of the social license to operate (Liu & Lu, 2014, 55-57). To address these, provisions are made in the Paris Agreement and the UN SDGs, tackling social issues through the promotion of social equity, inclusive economic growth and access to essential services such as healthcare and education. These policies appreciate the interconnection between the environmental, social, and economic dimensions of sustainability, emphasizing achieving them as a complementary objective besides the critical focus on ecological sustainability (Chong, 2018, 43-48).
Governance failures can occur within British Petroleum. In the wake of such incidences as executive misconduct, accounting scandals or regulatory violations that lead to regulatory scrutiny, legal action, and reputational damage, governance issues can overshadow social and environmental concerns. In effect, this erodes stakeholders’ trust, negatively affecting the long-term sustainability of the business (Liu & Lu, 2014, 55-57). The Kyoto Protocol, UN SDGs and Paris Agreement emphasize the importance of good governance, transparency, and accountability in achieving sustainable development (Acheampong & Menyeh, 2024, 163-189). Essentially, they recognize the need for effective governance mechanisms which address environmental and social challenges, including stakeholder engagement, corporate responsibility, and anti-corruption measures.
The Kyoto Protocol, the Paris Agreement, and the UN Sustainable Development Goals (SDGs) collectively address the complexities of prioritizing social, environmental, and governance (ESG) issues in business practices and sustainability efforts. This is achieved by providing a comprehensive framework for integrated action since they have acknowledged that prioritization can occur in contextualized environments (Huang, 2018, 218-228). Although the Kyoto Protocol focuses primarily on environmental sustainability, it indirectly considers social and governance aspects by promoting sustainable development principles (Chong, 2018, 43-48). The Paris Agreement adopts a holistic approach that integrates the environmental, social and economic dimensions while upholding the importance of social equity and human rights in climate action (Huang, 2018, 218-228). Similarly, the UN SDGs offer a cohesive agenda for addressing global challenges, encouraging businesses like British Petroleum to align their strategies with broader societal objectives (Acheampong & Menyeh, 2024, 163-189).
Conclusion
The evidence of ESG compliance for British Petroleum is understandable through various channels, including sustainability reports, adherence to international standards, and stakeholder engagement. Environmental, Social and Governance compliance entails initial costs, but its long-term benefits, like enhanced reputation, risk management and access to capital for investments, rationalize its adoption. The adoption of ESG has implications that extend beyond the firm to its immediate locale, country, and eventually global. Therefore, considering international agreements like the Kyoto Protocol, the Paris Agreement, and the UN SDGs is necessary to address the interconnectedness of social, environmental, and governance issues. These agreements advocate for a balanced approach to sustainability.
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