Front cover picture

This picture captures the vulnerability of life;
of communities moving and changing as they
go. It serves to emphasise the respect, care
and sensitivity which companies, governments
and all other influential bodies must exercise.
And for us, it also illustrates our fundamental
belief that we do not have to choose between
profits and principles.

The picture shows a herd of caribou
(Rangifer tarandus) crossing a tundra pond.

Cover photograph Alexander.

 

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Introduction

 

This. Report is about values.

It describes how we, the people,
companies and businesses that make
up the Royal Dutch/Shell Group, are
striving to live up to our responsibilities
financial, social and environmental.

It is also an invitation to you to tell us
what you think of our performance,
and in this way participate with us in
the global debate about the role and
responsibilities of business.

The following pages also relate the
feelings and determination of over
100,000 people in the Shell Group who
are dealing with profound change as
they rise to the challenge of making the
Group more efficient and competitive 
in a way that conforms to the core
values which have been the bedrock

of the Group since it was founded.

It is a matter of pride and reassurance to
us that throughout the years these core
values have endured. They represent an

unshakeable foundation on which to
build at a time when society has rising
expectations of business.

Debating expectations

Multinationals have been criticised as being
overly concerned with profit and failing to
take their broader responsibilities seriously:
to defend human rights, to protect the
environment, to be good corporate citizens.

Such accusations reflect a shift in what
society expects of both business and
government. Some commentators argue,
for example, that the privatisation of
traditionally state-run companies transfers
power from government to the private
sector. An opposing view holds that
governments are merely realising that
business and civil society can perform
these functions better.

This debate is taking place in the context
of a fast?changing world, characterised by
global communications and diminishing
respect for established authority, professions
and social frameworks a form of moral
vacuum in which fear and doubt prosper.
Faced with such uncertainty, people are
withdrawing their trust in traditional
institutions unless it can be demonstrated
that such faith is warranted what has
been called a move from a 'trust me'

to a ?show me? world.

Clearly, the forces of globalisation, rapid
improvements in technology and dramatic
changes in world order have caused
considerable confusion over exactly what is
and is not expected of business. Should
it play a bigger role in society, by providing
infrastructure and social services where
government does not, and then face
accusations that it is interfering or buying
influence? Or should it concentrate on
what it does best: serving its customers and
getting the best return for shareholders?

 

Searching for answers

Answers are not always easy to find, but
managers who run a business in this uncertain
world have no choice but to make difficult
decisions in the face of complex dilemmas.

We were all shaken by the tragic
execution of Ken Saro-Wiwa and eight
Ogonis by the Nigerian authorities.

We were ill?prepared for the public
reaction to plans to dispose of the Brent
Spar off?shore storage buoy in deep water
in the Atlantic.

We believe that we acted honourably

in both cases. But that is not enough.
Clearly, the conviction that you are doing
things right is not the same as getting
them right. For us at least, this has been
a very salutary lesson.

We were ready to learn fromexperiences,
however painful, because of a planned
process of change begun in 1994.

It represented the most thorough and
far?reaching review for over 30 years our
Transformation. Nothing was sacrosanct
and fundamentals were questioned: the
structure, the way business is done, the
quality of leadership, relationships with
people and our vision of the future.

One element of the Transformation involved
a worldwide programme through 1996 of
conversations with people to understand
society?s expectations of multinational
companies, and another to explore the
reputation, image and overall standing of
the Group. This involved 7,500 members of
the general public in 10 countries and 1,300
opinion leaders in 25 countries. We also
interviewed 600 Shell people in 55 countries.

The news was both good and bad. Half
of the general public and opinion leaders
had a favourable view of Shell, while
40% were neutral and 10% had an
unfavourable opinion of us. Shell was
thought to be wanting in its care for the
environment and human rights by a small
but significant group of people.

We had looked in the mirror and we neither
recognised nor liked some of what we saw.
We have set about putting it right, and this
report is a small manifestation of widespread
action taking place across the Group.

Economic responsibilities

The Royal Dutch/Shell Group is commercial
in nature and its primary responsibility has to
be economic wealth generation, meeting
customer needs, providing an acceptable
return to investors, and contributing to
overall economic development.

But there is also an inseparable
responsibility to ensure that our businesses
are run in a way that is ethically acceptable
to the rest of the world and in line with
our own values. Equally important, we
must show we are doing so, by providing
independently verified assurance. This
approach is absolutely fundamental to the
health of business.

We realise too that we must be part of
the debate in order to learn from others,
explain our actions and put our point of
view forward. We may not always get it
right but we do strive at all times to be
good corporate citizens. We have a proud
history of social responsibility and we
want to build on that.

Much of what follows addresses the
Statement of General Business Principles.
This is our code of conduct to help
those having to make difficult decisions.
There has been a formal set of Principles
since 1976 and the latest in a number
of updates was completed in 1997 to
take account of changes in society and
world views.

The Principles show that we are very
serious about our responsibilities to
society at large, our shareholders,
employees, customers and those with
whom we do business.

we Aquamfio 

Profits versus principles

This assertion is easy to make and hard
to substantiate in a short publication, but
we are determined to try. This is a first
attempt at what will be an annual report.
We will get better at it as we learn.

Success is almost entirely dependent on the
heart-felt approval of all those in the Shell
Group, and on how well we can equip
ourselves with the right tools to tackle the
many challenges which await us.

This is why part of our plans for
improvement involves the development
and integration of new processes and
thinking to help us better manage our
social and ethical responsibilities, measure
performance and report regularly.

It is a big step for the Group. Shell
companies are, in effect, reinforcing their
global undertaking to society to live by
their Business Principles and to be judged
by their performance.

This undertaking may well be unique in a
Group of our size and complexity. We are
proud to play a leading role and we are
confident that the Group, with its experience
and global capacity, has much to offer.

We also know that we need to listen to
others very carefully and therefore we
would appreciate your advice. ?Tell Shell?
reply cards are provided in the Report for
you to send us your views on issues that
concern big business and on the Report
itself. Your comments will be taken into
account and published on our website,

if you so wish.

We hope, through this Report and by our
future actions, to show that the basic
interests of business and society are entirely
compatible that there does not have to
be a choice between profits and principles.

 

 

 

Contents

Where to find what

Living up to
our Principles

Look here for detailed evidence of how the
Statement of General Business Principles is
put into practice. We argue our approach
and support it with examples from Shell
businesses. A copy of the Statement of
General Business Principles booklet is
provided for reference in the ?Tell Shell?
reply envelope at the back of this Report.

?Tell Shell' reply cards

Your opportunity to tell us what you think
of this Report and your views on a range
of issues typical of those faced by
managers of multinational companies.

Fill in the cards and return them in the
post?paid envelope or use our website.

Issues Dilemmas

Find our view on significant global issues
affecting society and the environment,
and read about some of the dilemmas

facing Shell managers.

Contributing to society

John Elkington, chairman of SustainAbility,
looks at alternative ways to measure what

Shell contributes to society across the three
components of sustainable development.

Message from the Chairman
and Road Map

Cor Chairman of the
Committee of Managing Directors (CMD),
of the Royal Dutch/Shell Group, looks to
the future and gives a detailed Road Map
of the Group?s plans to manage and
measure our contribution to sustainable
development and social accountability.
Look here for targets and timetables.

Auditors' Report

Annex

Find supporting detail here, including a
description of the Group's businesses and
how to contact us.

Reply envelope

 

Pages 5?30

Between pages 30-31

Pages 31-45

Pages 46-47

Pages 48-51

Page 52

Pages 53-56

 

 

 



 

Living up to

our Principles

 

 

Royal Dutch/Shell Group of Companies

Statement of
General Busmess

Principles

 

 

 

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The Royal Dutch/Shell Group has a set

of Principles which applies to all of our
business affairs and describes the behaviour
expected of every employee. The Principles
are rooted in our core values of honesty,
integrity and respect for people. We believe
in the promotion of trust, openness,
teamwork and professionalism, and in
pride in what we do.

There has been a formal Statement of
General Business Principles since 1976. This
has been updated periodically, most recently
in 1997 after extensive consultations
with interested parties around the world.
Relatively few changes were made, mainly
because the core values on which the
Principles were originally based have
endured. The revisions reflect heightened
public interest in human rights issues 
we are the first major energy company

to support publicly the United Nations
Universal Declaration of Human Rights 
and the emergence of the concept of
sustainable development.

All Group companies are expected to
comply with the Principles as a matter of
course. In joint ventures we use our
influence to persuade our partners to
adopt and apply principles consistent with
ours. We also expect contractors in their
work with Shell companies to conform to
the Principles in all aspects of that work
(see Principle 2 for how we go about this).

 

   

This section attempts to show the extent tin
which our Principles work in practice. Wher

possible we provide objective evidence to I
support our claims using data from the Shell
Report Sun/ey Results (see Annex, page 56). 

This is indicated throughout this Report by:


This data has not been verified by the
auditors.

 

 

 

 

We are developing management systems 
designed to enable future reports to
include increasingly verifiable measures
of the performance of Shell companies
against the Principles (see Road Map,
pages 49?51).

 

 

[j The Statement of General Business
Principles has been translated into
34 languages, which cover the local
languages of more than 96% of
Shell employees, and of partners
and contractors in 102 countries.

 

   
 
 
 

 

 
   
   
         
  

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Putting theory into practice

A Social Responsibility Committee was

set up in 1997 consisting of six members

of the Boards of the Parent companies of

the Shell Group, three from Royal Dutch
Petroleum Company and three from The
?Shell? Transport and Trading Company,

p.l.c. The role of the Committee is to

review the policies and conduct of Shell
companies with respect to the Business
Principles, the Group Health, Safety and
Environment Policy and Commitment,
as well as major issues of public concern. 1

Specific commitments are made in the
Business Principles to sustainable
development and human rights. It is easy
to talk about these issues but a lot more
challenging to apply the theory in the
field. Real progress will only be made by
working together with others in a process
that learns from experience and best
practice. But Shell companies have made a
start and are beginning to make headway
on some day-to?day practicalities.

We have published an introductory guide
for managers on human rights. Written
with the help of independent experts, this
booklet aids the understanding of human
rights, its history, vocabulary and the
dilemmas that a belief in such rights can
pose. It will help Group companies better
identify their roles and responsibilities in
supporting human rights and forms part
of an awareness programme designed to
help managers deal with these issues in
their work.

We are developing a detailed and practical
guide on how to make oil and gas
production more sustainable. Topics include:

0 Tools and techniques to contribute
to sustainable development: their
relationship with existing management
systems; checklists for projects; health
and social impact assessments; life cycle
assessments; full-cost accounting.

0 Case studies on how to get started,
from Shell companies in Canada and
Peru; policy making; target setting;
consulting with stakeholders;
minimising impact on health, social
structures and the environment;
building social capital.

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Embedding key policies

Company policies are of value only when
there are rigorous procedures to make
them work in practice. This section
concentrates on implementation in key
areas of the Statement of General Business
Principles, in particular Business Integrity
and Health, Safety and Environment (HSE).

Every year managers of Shell companies
are required to sign letters covering
performance in each of these areas. These
provide confirmation to the Directors of
the Group Holding Companies that the
policies have been adopted and that
procedures are being or have been
implemented to ensure compliance.

Submission of the letters is a responsibility
of the senior managers of Shell companies
worldwide. Their responsibility is taken very
seriously. Senior managers are encouraged
to discuss their letters with their own
management teams, and many ask their
own team members to sign similar letters
on a cascade basis.

Managers who sign the letters are held
personally responsible for their content.
Performance is monitored as part of the
reward and career progression processes.
The provision of false information or
failure to reveal the truth is regarded as
a very serious disciplinary matter and
can lead to dismissal.

This process has evolved over the past
two decades; it is as follows.

 

 

Letter of Representation

The Letter of Representation was first
introduced in 1978. The letters are signed
by the Chief Executive and Chief Financial
Officer of Shell companies. They contain
a number of assurances which include
confirmation that business is carried out
with integrity, according to Principle 4
(see page 20), and which are submitted
in respect of all Shell companies. They
are also a declaration by management as
to the effectiveness of sound financial
controls, the proper recording of
transactions, and any instances of bribes
or illegal payments.

The letters are in standard format and any
exceptions or other matters reported are
summarised and reviewed by the Group
Audit Committee.

The process is reviewed by the External
Auditors who report the results of their
review to the Group Audit Committee.

The letters also support the representations
made by the Directors of the Group
Holding Companies to the External Auditors
prior to completion of the annual Financial
Statements of the Royal Dutch/Shell Group
of Companies.

Health, Safety and Environment letter
A common HSE policy has been formally
adopted by Shell companies, and all
companies are committed to setting up

a formal HSE management system by the
end of 1999.

The HSE letter was introduced within the
Groupas public concern about HSE issues
increased and is submitted by the Chief
Executive of individual companies. It is
designed to give assurance that the
necessary management procedures,
including systems and audits, are in place
to ensure knowledge, understanding and
implementation of the policy.

Adoption of the common HSE policy is
being verified, along with certain
performance data, and will be reported
on by External Verifiers in the Group HSE
Report and those of the major Businesses
to be published in June 1998.


In each country where Shell companies operate, one person acts as the ?representative? of Shell
Group companies generally. This person is called the Country Chairman when several businesses are 2.212;!
operating in a country, and is called the Shell Representative when only one business is present. WM
All

Business Principles letter

Following the update of the Statement of
General Business Principles completed in
1997, the Boards of all Group Companies
were invited to adopt the revised Business
Principles as their own company policy,
and to confirm their adoption in writing
to the Chairman of the Committee of
Managing Directors.

Confirmations covering Group companies
in 125 countries have been received.

A number of confirmations are still
outstanding, in most cases because the
board meeting has not yet taken place.

In addition, a new annual letter, the
Business Principles letter, has now been
introduced.

These letters are from the Country
Chairmen* and are intended to cover
all Shell companies worldwide. They are
designed to confirm that the necessary
procedures have been put in place to
ensure that the spirit is understood by
employees and that the Principles are
being implemented.

The letters do not have a standard format.
Country Chairmen have been asked to
cover a number of specific issues and
have been encouraged to give as much
detail as possible on how the procedures
are being put into effect.

The letters received are being summarised
and a report on the responses will be made
to the Directors of the Group Holding
Companies. Each signatory of a letter will
have a formal meeting with the relevant
Regional Managing Director, either directly
or through a senior executive, to discuss
plans for implementing and applying the
Principles over the coming year. It should
form the basis for action over the coming
year, before the whole exercise is repeated
on an annual cycle.

The deadline for the return of these letters
has not permitted a full analysis in this
report but a preliminary examination shows:

Inn?? ?nut? rim! ni-

 

  
   
   
   
  
   
  
 
  
  
  
  
   
     
 
   
   
   
  
 
 
   
  
   
   
 
    
  
 
 
 
 
 
  
  
  
      
 
 

- A total of 127 Business Principles letters 
have now been received out of 129.

The extent of the implementation already
achieved is encouraging and is illustrated
by extensive communications and
awareness training programmes, and
workshops with employees on the
application of the Principles in the
local environment.

We are keen to explore further the
acceptance of these Business Principles in
areas where operational control or financial 
authority does not vest in a Shell company i
exclusively for example in joint ventures. 4
Independent verifiers have been requested
to review the assertions set out above
with regard to the process for the
adoption of the revised Statement of
General Business Principles. Their report

is included on page 52.

Note: There is a considerable amount of
overlap in the areas covered by the
different Principles. We have chosen those 
aspects which we feel are pertinent under
each Principle. If you would like to
comment on our approach, please use the 
?Tell Shell? reply card 9.

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Living up to

our Principles

 

Principle 1
Objectives

The objectives of Shell companies are
to engage efficiently, responsibly and
profitably in the oil, gas, chemicals
and other selected businesses and
to participate in the search for and
development of other sources of
energy. Shell companies seek a high
standard of performance and aim to
maintain a long-term position in their
respective competitive environments.

 
  
 
 
 
 
 
 
  
  
   
   

Acting responsibly

Shell companies have responsibilities to a
wide range of interested parties, such as
shareholders, employees, customers and
others in society. And the responsibilities
relate to our financial, environmental and
social impacts on each of these groups.
Living up to their expectations demands
a long-term perspective, embraces many
non-financial considerations, and calls
for balance when requirements conflict.
Our approach to these responsibilities is
a main theme of this report.

Operating efficiently 

The efficiency of a business can be gauged
in many ways, for example, by how well its
employees perform (total staff hours per
barrel of oil produced or sold); how low its
costs are (costs per barrel, see graph); how
much value it adds to the world?s economy
and how eco-efficient it is. Eco-efficiency
refers to the provision of goods while
progressively reducing the environmental
impact of their lifecycle to sustainable levels.

The choice of measure depends largely on
the perspective of those who are judging.
Financial measures are better established
and are the most general, they enable
investors to compare the performance of
different businesses, and to be assured that
their capital is being used as efficiently as
possible. A traditional efficiency measure
among investors is how well a company
uses its capital and assets, such as Return
On Average Capital Employed (ROACE) 
how much money is made from the
money invested.

Operating costs (USS bbl)

Operating efficiency


1996

Year

I Exploration and production
operating costs

. Refining operating costs

 

1995 1997

The Group finds ROACE useful in judging
the economic efficiency of operations
worldwide. Their aggregated performance
over the past 10 years is shown in the
graph below, compared with the average
for the oil sector.

The Shell Group is bottom when compared
with the main competitors, and the
performance gap widened in 1997. This
can be explained, in part, by the mix of
businesses that make up the Shell Group
and in part by the holding of large cash
reserves. The Group is determined to
improve its performance and have
committed to deliver a minimum of 13%
ROACE in 1998 and 15% by the year
2001, based on an oil price of 18 per
barrel. It will be tough to achieve, but we
will continue to make better use of our
existing assets and cash reserves and to
invest in areas of growth.

ROACE for 7 oil majors
1988 to 1997

20?

ROACE 
a

 

0 I

 

CHEVRON

- EXXON

- - MOBIL

SHELL

TEXACO

 

1988 1989 1990 1991 1992

Year

1993 1994

 

1995 1996 1997

I Selling, distribution and admin costs

Making a profit

By most measures the Shell Group has
been a leader in total profit (see Principle 2,
responsibility to shareholders). Profits are
essential to sustain a private business:
without profits to re-invest, a business
Ceases to exist and contributes nothing. 
They also enable us to fulfil our social and
environmental obligations (see Principle 3).
Our Principles aim to ensure that profits
are both fairly earned and well used.

Other sources of energy

The Group?s new business Shell International
Renewables, aims to be a major force in
commercial renewable sources of energy,
which we see as gaining a 5 to 10% share
of the world energy markets by 2020

(see Renewables, page 44).

Shell companies have invested in the
development of biomass (plant matter)
and solar energy for the past 20 years. We
have tree plantation interests in Argentina,
Chile, Congo, New Zealand, Paraguay and
Uruguay. We have played a lead part in
the development of sustainable forestry
standards and the use of wood as a clean
source of renewable energy.

In 1997 we committed 500 million
over five years on investments in renewable
energy technologies, especially those that
exploit solar power and biomass. We aim to
achieve a 10% share of the photovoltaics
market by 2005.

This investment is small compared with the
1 billion which Shell companies spend
each year exploring for oil and gas, but we
see it as significant when compared with
other commercial investments in new
sources of energy. Renewables are now
one of our core areas of business and
demonstrate our intention to invest in
areas of sustainable growth.

We are, however, cautious in our
approach. Solar power, for example, needs
to become five times less expensive if it is
to compete in the electricity market at
today?s prices. Continued research and
development is essential. Besides, other
forms of energy are emerging which might
overtake current technologies. We want
to be in a position to take advantage of
any investment opportunities that arise.

Net Income for 7 oil majors
10 19881201997

Net Income (US $bil ion)

 

 

AMOCO



CHEVRON

- - EXXON

- MOBIL

SHELL

TEXACO

 

1988 1989 1990 1991 1992

1993 1994 1995 1996 1997

A bright future from biomass fuel
By the middle of the next century biomass
fuel could be supplying as much electricity

as oil and gas does today.

Shell companies are exploring the potential
to supply small communities with electricity
from wood grown in plantations nearby.
Specially developed trees would be grown
and harvested according to sustainable
forestry practices. The wood would be
turned into gas in Specially designed
gasifiers, and then converted by a gas
engine and a generator into electricity.

Burning wood and growing more to?
replace it does not increase the net
concentration of carbon dioxide (C02) in
the atmosphere, because the trees absorb
as much C02 when growing as they
release when burnt.

A typical 140 kiloWatt biomass system could
supply a village of 50 families with all their
electricity needs, including refrigeration for
essentials such as medicines. The system can
also provide heat for small-scale industrial
uses, such as drying farmed crops.

A wood-based system can be used in
conjunction with solar collectors, in what
we call a Sun Station (see Renewables,
page 44).

Solar in the home

Shell Solar provides one of the most
reliable and long-lasting solar home
systems available. The 50 Watt system
has been designed for simple and easy
operation in remote locations and is
supplied as a complete kit ready to be
installed. In a sunny climate it can provide
enough electricity to run a household?s
lights, radio and television.

 

Living up to

our Principles

 

Principle 2
Responsibilities

Shell companies recognise five areas
of responsibility:

To shareholders
To protect shareholders? investment,
and provide an acceptable return.

To customers

To win and maintain customers by
developing and providing products
and services which offer value in
terms of price, quality, safety and
environmental impact, which are
supported by the requisite
technological, environmental and
commercial expertise.

Total Shareholder Return
7 oil majors, average for 1988 to 1997

 

Amaco -
ee 

Mebn 
Chevron 
Shell 
1d% 15% 20%

Protecting shareholders? investment
As a minimum, Shell companies comply
with all legal controls governing the way
companies conduct their financial affairs.
These are designed to protect the interests
of shareholders and other investors.

We are also committed to good corporate
governance ensuring that companies are
properly directed, supervised and controlled
and we do our utmost to operate in
accordance with best business practice

in this field.

The Parent Companies of the Royal
Dutch/Shell Group both have an excellent
record in providing good returns at low risk
to investors, which is also fundamental to
the protection of shareholders? investment.
One of the ways in which we approach
the management of risk is through our
pioneering work at developing scenario
planning (see page 23) exploring different
pictures of how the future could be for
investment planning and evaluation.

Shares in the Parent Companies are often
passed down from one generation to the
next, reflecting the value and stability in
which they are regarded.

The "Shell" Transport and Trading Co, 
Dividend growth on 1988

Rise over 1988 values 

1988 to 1997

200 

Dividend rise

150"

UK inflation

Rise over 1988 values 

 

 

10011111

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Year

 

100

Operating to best business practice
The Parent Companies, Royal Dutch
Petroleum Company and The ?Shell?
Transport and Trading Company, 
each conform to two fundamental
recommendations found in voluntary
codes of practice: the establishment of
separate committees composed of non-
executive directors, one to set directors?
pay and the other to check the integrity of
financial reporting. In 1967 the companies
introduced the joint Remuneration and
Succession Review Committee and in
1976 the joint Group Audit Committee.

Providing an acceptable return
'Acceptable' is used intentionally, rather
than ?maximum?. This is because it reflects
our responsibility to make profits while
also taking full account of social and
environmental considerations, as well as
the long-term success of investments.

Total Shareholder Return is a recognised
measure of long-term financial performance.
It combines changes in share price growth
with dividends. An investment in shares in
the Parent Companies in 1988, with all
dividends reinvested, would now give the
returns shown above.

Shell?s stated objective on dividends is that
they should provide increases at least in line
with inflation averaged over a period of years.

Royal Dutch Petroleum Co
Dividend growth on 1988
1988 to 1997

Dividend rise

 

Dutch inflation



1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Year

 

 

20 

Customer value

There are over 47,000 Shell retail stations
serving more than 20 million customers a
day worldwide. These sell fuel, lubricants
and other fast-moving consumer goods,
such as food and household essentials. The
popularity of the Shell brand is an important
performance indicator for our businesses.
We have conducted market surveys for
many years. In 1996 we commissioned
independent researchers to carry out the
first global Brand Tracker of retail customers,
covering 52 countries. This was extended to
98 countries in 1997. When retail customers
were asked which brand they would prefer,
all else being the same, Shell was most
preferred in 48 countries, and was in second
place in a further 22 (see graph below).

Some of our businesses, such as Shell
International Chemicals and Shell Exploration
and Production, mostly sell directly to
other companies rather than individual
consumers. These Shell businesses carry
out regular research into how their
customers view their products and
services. They also commission opinion
polls and survey the views of groups in
society interested in our businesses who
might be affected by their activities.

Reducing environmental impact

of products

It is easier for us to affect and monitor
environmental impact if we have direct

control over the process (eg making fuels).

Our HSE reports, for example, show that
the eco?efficiency of Shell refineries has
improved considerably over the past five
years. However, Shell companies accept
that the responsibility for products extends
beyond their production and sale, and they
must do what they can to help reduce the
overall impact.

Take fuels, for example. It is technically
possible to reduce urban emissions by
reducing the content of some of the
potential pollutants during the refinery
process. Low?sulphur diesel, for instance,
has been introduced in a number of
markets. Shell leads the world in the sales
of unleaded petrol and we have a proven
track record in the development and
marketing of cleaner fuels. Shell
companies have also pioneered methods
for measuring the local impact of exhaust
emissions from various types of vehicles.

However, the production of cleaner fuels
invariably involves higher costs. Higher
energy requirements and consequently
higher emissions of C02 may also result.
Additionally, the reduction in the content of
one pollutant may only be possible by the
increase in another. Further decreases in
pollutants may involve extremely high costs
but only a small improvement in air quality.

50 7 Brand share of preference 1997

40?

30?

No. of countries

20?

 

   
 



 

2nd 4th 2nd 4th 2nd
Shell Esso BP

. I
1st 3rd  1st 3rd 3rd

2nd 4th 2nd 4th 2nd 4th
Mobil

Texaco/Caltex Other

Clearly complex decisions are required,
often involving difficult trade?offs. For
instance, the cost of lower emissions
will have to be recovered, either by
increased prices to customers (which
may not always be welcome) or by
changes in the tax regime and thus
reduced government income.

We acknowledge our responsibility to
contribute in this area and Shell companies
work closely with governments by providing
the results of research into technical
feasibility, costs and the impact of emissions
so that balanced decisions can be made.

Responsible care of chemicals 1
Our chemicals businesses support Responsible 
Care?, a voluntary programme initiated by 
the global chemicals industry to boost its
performance in HSE. Responsible Care?
includes a commitment to be open with

the public and to report on performance.

Enshrined in the programme is the idea
of Product Stewardship, in which the
company takes certain responsibilities for
its products throughout their lifecycle

(see Mauritania example, page 42). There 
is a strong emphasis on working with
customers (mainly those in business)

to ensure safety and the reduction of
environmental impact. This involves advice,
information and sometimes direct help in
improving standards.

A key feature of Product Stewardship is
the appraisal of customer facilities and our
customers are visited regularly to check 0
the adequacy of their equipment. Shell
chemical companies work hard to ensure 
that customers can handle their products
safely. There are many occasions when
orders have been declined until Shell
companies have been able to work with
the customer to achieve the necessary
equipment and procedures to handle
products safely.

At the end of 1996 Shell chemical
companies had Product Stewardship
initiatives in 45 companies operating in
30 countries, and the number is growing
(see Shell Chemicals HSE report page 53

and website 

 

12

To employees

To respect the human rights of their
employees, to provide their
employees with good and safe
conditions of work, and good and
competitive terms and conditions of
service, to promote the development
and best use of human talent and
equal opportunity employment, and
to encourage the involvement of
employees in the planning and
direction of their work, and in the
application of these principles within
their company. It is recognised that
commercial success depends on the
full commitment of all employees.

To those with whom
they do business

To seek mutually beneficial
relationships with contractors,
suppliers and in joint ventures and
to promote the application of these
principles in so doing. The ability to
promote these principles effectively
will be an important factor in the
decision to enter into or remain in
such relationships.

Employee rights and conditions

The most fundamental right of each
employee is that their life, health and safety
is protected (see page 24).

We employ more than 100,000 people in
132 countries. Their working conditions,
terms of employment and, where
necessary, redundancy payments are
monitored to ensure these are competitive,
both nationally and within the relevant
industry sector.

[3 The lowest paid Shell employee (in
terms) worldwide receives 1.6
times the statutory minimum wage
in that country.

 

Equality and opportunity

We probably employ the most diverse
group of people in the world and we value
the benefits this brings. The vast majority
of Shell staff are from the countries where
the companies are based. This is reflected
throughout management, and is beginning
to be seen in the top jobs.

Still, many of the top 400 jobs in the Group
are held by British, Dutch and American
men. We are eager to change this through
improved staff development programe
recruitment, training and education and by
embedding diversity into business planning
but most importantly by bringing about
a change in corporate culture. Recently, a
deliberate effort to increase the contribution
from women at the most senior levels of
the Group was announced.

We have formal policies to encourage equal
opportunity employment in all countries
where this is not a legal requirement.

In some countries our position has to be
handled with particular sensitivity to take
account of cultural issues, religious beliefs,
affirmative employment programmes and
laws on sexual preference.

Awards and acknowledgements for the
efforts of Shell companies in promoting
equal opportunities have been received
in Australia, Pakistan, the Philippines,
South Africa and the USA.

Our primary aim is to establish and
maintain high quality, direct and open
dialogue with all individual employees.
Where unions or works councils are an
established part of the employment culture
and legal framework, our relationship with
them is respectful, inclusive and complete,
often covering significantly more than
minimum requirements.

Shell companies in 77 countries have
organised forums for staff to discuss
employment conditions. In 82 countries
employee welfare is protected by clearly
stated grievance procedures. On 548
occasions in 1997 staff either tabled
issues, or were invited to do so.

 

In 1997 the Group had 5,700 expatriates
of 67 nationalities working in 112
different countries around the world.

 

 

Shell Oil recognised for

equal opportunities

In 1996 Shell Oil Company of the USA
received the Moses Leroy Foundation Award
presented by the Martin Luther King Jr.
Community Centre for outstanding and
ongoing support for equal opportunities 
the first corporation to win the award.
HISPANIC, a US magazine, included Shell
Oil Company for three consecutive years
(1995-7) in the top 100 US companies
which provide the most opportunities for
Hispanics. These are two of many examples
where the company has been publicly
recognised for encouraging people

from minority groups in the US

(see 

 

 

Training leads to better working
conditions

Intensive training of employees and
contractors on the Cormorant and Dunlin
Alpha platforms in the North Sea has
enhanced future profitability by 19%,
secured jobs, improved competitiveness
and made the working environment more
satisfying by encouraging employees to
make improvements for themselves.

Shell Exploration and Production, which
operates the platforms, was one of the
?supreme winners? of the UK's 1997
National Training Awards.

Seeking mutually beneficial
relationships

We aim to forge constructive, long-term
alliances with local companies because it
makes good business sense. Where this
cannot be done because partners fail
to meet our standards on employee
human rights, corruption, HSE or quality 
we will explore ways to resolve the
problems. If this fails, we will find other
partners who can meet our standards.

In 90 countries Shell companies are
helping local suppliers to reach Shell?s
required standards. In 60 countries,
Shell companies provide training for
suppliers and contractors, ranging
from road safety to HSE practices and
Quality Assurance. We also participate
in the development of new products,
and improvements to meet
international standards.

 

 

WW6 
Arm/L Wm
WM ZMWM 

Shell companies are committed to major
programmes to support and encourage
the development of local suppliers and
those from minority groups. For example:

0 Brunei Local Business Development
Policy

0 Canada Aboriginal Programme

0 Malaysia Petronas Vendor
Development Programme

0 Singapore Local Industry Upgrading
Programme

0 South Africa Affirmative Action/Black
Business Development Programmes

0 USA Minority and Women?s Business
Programme.



uj?. .

 

(Troll? an Adda/MW

or WW

Health, safety, environment and
human rights

Shell companies do not work with suppliers
and contractors who are not able to meet
Shell standards. In more than 100 countries
Shell companies screen suppliers for their
ability to meet HSE standards and the
human rights of their employees. We
welcome the development of recognised
independent standards which will help Shell
companies and their suppliers measure and
monitor performance in this area.

In 88 countries our Statement of
General Business Principles is provided
or explicitly discussed as a normal part
of major contract negotiations.

In 1997, at least 95 contracts were

cancelled because contractors failed
to adhere to our specified standards
on HSE, or employee human rights.

 

 

Child labour

The use of child labour is of increasing
concern in many parts of the world. Shell
companies employ only those people
above the legal working age, and seek to
use contractors and suppliers who follow
the same rule.

The use of child labour is more prevalent in
certain parts of the world and a number of
Shell companies in those regions operate
specific screening procedures. For example,
Shell China formally checks that no child or
forced labour is used and Bharat Shell in
India specifically monitors its contracts for
the use of child labour.

 

To society

To conduct business as responsible
corporate members of society, to
observe the laws of the countries in
which they operate, to express
support for fundamental human
rights in line with the legitimate
role of business and to give proper
regard to health, safety and the
environment consistent with their
commitment to contribute to
sustainable development.

These five areas of responsibility are
seen as inseparable. Therefore, it is
the duty of management continuously
to assess the priorities and discharge
its responsibilities as best it can on

. the basis of that assessment.

 

(Egan-[CM 

Tax payable billion)

Corporate citizenship

There are, as yet, no universally accepted
measures by which to judge our
performance as a corporate citizen
committed to the concepts of sustainable
development, although some of the
economic aspects can easily be quantifiedTax. Shell companies are a major
contributor to the infrastructure of
economies where they operate. The
total tax and other duties paid to
governments worldwide is shown in
the graph. As economic engines, Shell
companies are now providing more
than 50 billion in tax revenue

each year. To put it in a human context,
The United Nations Development
Programme (UNDP) report on Human
Development 1997 estimates that the
annual costs of universal access to basic
social services are: basic education for?
all 6 billion), basic health and
nutrition 13 billion), reproductive
health and family planning 12
billion) and low cost water supplies

and sanitation 9 billion) totalling
billion.

Tax payable over 10 year period
1988 to 1997

 

 

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Year

 

Employment. Shell companies employ
more than 100,000 people directly

and another 240,000 or so contractors.
Further employment is provided
through business generated for
suppliers. We paid over 6 billion

in employee remuneration and related
costs in 1997.

Research and Technical Services.
Shell companies invest over 500
million in research and technical
services each year, the results of which
directly or indirectly benefit world
understanding and technical capability.

Social investment and charitable
giving. Over the five years from 1992?
1996 we have contributed on average
1.05% of net income after tax 
equivalent to 0.6% net income before
tax to community causes, social projects
and charities. In 1997 our contribution
totalled approximately 78.9 million,
an increase of 15% from the previous
year?s total of 68.4 million.

Globally, Shell companies? social
investments reflect their operations,
as shown by comparing contributions
with capital expenditure (see pie charts). 

Contribution programmes of Shell
companies address issues of direct
relevance and concern to the communities
where they operate. This is reflected in
the range of causes supported.

 

Capital investment
in 1997

Caribbean, Central 
South America 
Far East 
Canada 
Middle East USA 
Africa . 

Europe (37%

 
   
   
  

Social investment
in 1997

Caribbean, Central 
South America 

Far East 

 
 
 
  
 
  

Canada 
Middle East ., USA 

Africa 

Europe (23%

Social investment activities
in 1997

Youth 

Conservation
projects 

   
 
  
 

Policy studies 

Education 
development 

Arts culture 
Medical 
welfare 

Environmental laws

Companies, especially those involved in
heavy manufacturing, may at times fail to
comply fully with environmental laws. This
is not necessarily a wanton flouting of the
law, but is often caused by human error
or equipment failure.

The significance attached to the
transgression and the size of the penalty
depend greatly on the nature of the
particular environmental laws. Penalties
range from fines against the company
through to imprisonment for directors.
Generally, the environmental laws which
companies most often break are
associated with permits issued by the
authorities governing the amount of
pollution they are legally allowed to emit
known as consent levels.

If a company unwittingly exceeds its consent
level, say, when machinery breaks down,
then it can be liable to prosecution. In many
instances the companies themselves inform
the authorities when this happens. Often no
direct damage is caused and the size of the

fine, if one is levied, reflects this.

In many countries authorities acknowledge
the difficulties in immediately complying
with new laws and allow companies time
to reach the desired level of performance.
In some countries the laws regarding
environmental liability are far reaching and
can involve companies in severe penalties
and remediation costs.

wwmwu

 

shiUdAs for balm

com/omega W3 I
6% we AWW MW.

 

Shell Seeks ClemenCy for Ogoni 19

hell Penolwm Development

Company Nigeria Limited

(SPDC), the Anglo/Dutch

multinational oil prospecting
company has made fresh pleas
for clemency [or the 19 Ogoni
activists still awaiting trial for
the murder of the four prominent
Ogoni chiefs in 1994 for which
playwright Ken Saro-Wiwa and
eight other Ogonis leaders were
executed.

Speaking yesterday in Lagos
at a valedintorv press conference
going Chainnan/

Mr Brian

 

Restructures Operation as MD leaves Nigeria

 

By lsicliei Osamgbr

 

He said though they had made
a case fOr fair trail and failed, they
are not rcleming in seeing that the
remaining 19 do not go the same
way.

?We urge fairness and plead
for fair trail and leniency in the
case of the remaining 19, as well
as other people facing such crim-
inal charges", he said.

He added that the group noted
all the comments on the issue, but

. \?trl.tzr.9v? unl- 1hr?, enuld, a ..

?There would he a major re-
organisation in July to bring our
operations closer to the frontline.
We want our people to move
closer to the oil producing com-
munities", Anderson said.

He said there would be a devo-
lution of powers by granting
greater autonomy to the regional
divisions of East and West. This,

he said, would involve 

splitting of the 
threw-r"



Nigeria, his heart still remains
with the country he has served and
lived for the greater part of his
life. He called for an improved
government?s investment and
cash call payments in the industry
to enable joint venture partners
to Operate e??ccti vely.

He noted with dismay that it
quite unfortunate that the govern: 
ment is still owigtv-tk?-' 



Extract taken from Nigerian
national daily newspaper

"This Day? 25th May 1997,
reproduced with permission.

Twenty Ogonis are currently detained in
Nigeria in connection with the same

Supporting fundamental human rights
Shell operates in 132 countries worldwide.
Human Rights groups claim that the
authorities in over 90 countries have
violated the rights of their people, as
defined by the United Nations. It is
ineVitable that many Shell companies

will be doing business in such countries
(see page 32).

Our position on two high-profile cases:
Nigeria

The execution in 1995 of Ken Saro-Wiwa
and eight other Ogonis shocked and
saddened all of us.

Before Mr Saro?Wiwa?s arrest we said that
while we did not necessarily agree with all
of his views, he had the right to voice his
opinions. After his arrest we said he
should be treated fairly in prison and
should be given the necessary medical
attention. We did not seek to influence
his trial, but after the verdict the
Chairman of the Group?s Committee of
Managing Directors sent a letter to the
Nigerian head of state urging him to
grant clemency for all those sentenced.

incident. We are the only major company
operating in the country to call publicly,
and repeatedly, for humane treatment, a
fair trial for the detainees and clemency
for those found guilty. We have made
these appeals both publicly and privately.
We will continue to promote humanitarian
values in Nigeria.

For example, when oil unions took part in
the general strike of 1995, production by
Shell Petroleum Development Company
(SPDC) fell by a half. We took the position
that we would not work under military
protection to increase the flow of oil.

Nigeria is poor, despite being Africa's
leading oil producer. Its population of more
than 100 million has a gross domestic
product of only 260 per person.

\1t has many development challenges.

There is a lack of government investment
in the social infrastructure of the area

in which we operate. We recognise a
responsibility to act. In 1997, the Shell joint
venture spent 32 million on a wide
range of community and development
projects, including the building of hospitals
and schools (see the Shell Nigeria website


 

The Warrenton community,
Shell and the North Cape
Province have provided a
model of the kind of
partnership that is rebuilding
South Africa.

President Mandela,
30th August 1996.

South Africa

Shell South Africa has advanced over
nearly 100 years from a small agency
based in Cape Town to a significant
nation-wide commercial enterprise, an
integral part of the national economy
with deep roots in South African society.

During the apartheid years, when pressure
was first exerted on Shell to withdraw
from South Africa, the company was
employing more than 2,500 people,
representing all the different racial and
cultural groups in the country. An equal
opportunity employer for many years,
Shell speeded up black advancement in
the company from the beginning of 1980.
The company provided housing for black
employees in segregated ?white areas?
and offered legal assistance should they
be prosecuted under apartheid laws.

The company?s commitment to employees
was encapsulated in what were
enlightened employment policies for
South Africa at the time. These included:

0 equal pay for equal work

0 recruitment, development, training and
advancement of black staff to redress
the imbalance between black and
white staff within the company

0 housing assistance to promote home
ownership

retirement benefits, medical aid,
educational assistance for employees
and their children

0 promoting good industrial relations
with both unionised and non?unionised

employees.

 

The company ran so-called ?statement?
advertisements (see right) which condemned
detention without trial, closure of
newspapers and called for democracy and
the release of political prisoners. Their
purpose was to express the company?s
condemnation of inhumane and unjust
practices, its belief in a free and equal
society and to provide financial support
for the alternative press.

Shell South Africa continues to fund and
promote a wide range of community
projects in the country. its work has been
publicly recognised and was most recently
shortlisted for the Worldaware Award

for Sustainable Development in 1997.

It won the Lawrie Group Award for Social
Progress in 1997, for Shell?s Centre for the
Advancement of Science and Mathematics
Education (CASME). The judges said ?with
its CASME project and ongoing Educational
Services, Shell has been a long?standing
contributor to South African education,
both during and after apartheid?.

 

President Mandela opens
phalanx/t1 sd?wl

of?
o?gg?moc 
0
LE 
LT
AL 
we?
CORPORATE 
Shell urges Government 
I. Endth 
2. Releasee ?13:33:; gency
Eq?lmcal leaders
1- 
on democratic
. a 

We look forward to the
release of all DOhllcal

  
 

 

  
     
  

 
    
     
     
     
    
 
  

prisoners, the
unbanning of political
organisations and
freeing of the
democratic process.

  
  

Aw 

 

Shell urges Government to:

. End the State of Emergency
. Release and unban all

. Lift" restrictions on

. Allow and encourage

 

Shell
supports
freedom of
association

 

difference now.

 

 

LET THE PEOPLE


political leaders
democratic organisations
freedom of expression
LET
JUNE 10

FREE THE DEMOCRATIC
PROCESS

 

 

 

Living up to

our Principles

 

Principle 3
Economic Principles

Profitability is essential to discharging
these responsibilities and staying in
business. It is a measure both of
efficiency and of the value that
customers place on Shell products and
services. It is essential to the allocation
of the necessary corporate resources
and to support the continuing
investment required to develop and
produce future energy supplies to
meet consumer needs. Without profits
and a strong financial foundation it
would not be possible to fulfil the
responsibilities outlined above.

Shell companies work in a wide variety
of changing social, political and
economic environments, but in
general they believe that the interests
of the community can be served most
efficiently by a market economy.

Criteria for investment decisions are
not exclusively economic in nature
but also take into account social
and environmental considerations
and an appraisal of the security of
the investment.

 

Profitability

The idea of profit is seen as quite
acceptable by the majority but some
perceive it as explditative and uncaring,
which is unfortunate because economic
sustainability is one of the three 
supporting pillars of sustainable
development, a concept fully endorsed
by all members ofthe United Nations
(see and 

Business has a number of social and
environmental responsibilities but without
profits a company no matter how big or
small ceases to exist and can make no
contribution to any of its stakeholders.

Competitiveness in the marketplace must
be a primary concern for all businesses,
and Shell?s are no different. The emphasis
is now increasingly onhow companies
compete the ethical framework which
determines their actions and how they
use their profits.

Regular profits enable Shell companies
to carry out our social and environmental
responsibilities laid out in the Principles.
Profits give us the confidence to take a
long-term view, and the capacity to avoid
the temptation of short-term wins, which
could undermine our commitment to
sustainable development.

my mum:
WW am JMW 

Criteria for investment decisions

This Principle helps our managers find a
balance between ensuring the commercial
success of investments and our long?term
responsibilities to society and the
environment. The Royal Dutch/Shell
Group, from its origin as two small
companies in the 18905, has grown to a
Group of more than 2000 companies.

It has been successful for over a 100 years.
And to continue, it is essential to have
endorsement from society what some
call a ?licence to operate?.

This will involve keeping in tune with
society?s long-term expectation of business.
One of the tools we use to do this is
scenario planning exploring different
pictures of how the future could be. We
are acknowledged leaders in this field and
we have developed scenarios specifically
to help us decide on investments. Making
good, secure investments involves the
balancing of many issues, ranging from
political stability of the country in which
we intend to do business, through to the
health of the global environment.

Environmental Impact Assessments are 
undertaken for major projects. We are
increasingly conscious of the need to be
more systematic in the assessment of the
social impact too. The care and sensitivity
we have shown in new projects, such as

our search for gas in Peru and our gas
project at Malampaya in the Philippines,

is evidence of the progress we are making

in this area.

 

Doing it right in Peru

Shell Prospecting and Development Peru
(SPDP) is assessing natural gas reserves in 
the upper Amazonia region of Peru in
South America. The area, which straddles
the Camisea River, is home to a number
of indigenous peoples, borders the Manu
national park and is rich in biodiversity.

The Camisea Project is important to Peru
because it could substantially increase the
country?s reserves of gas, which would
provide cleaner alternatives to widely-used
dieSel. It could also protect foreign currency
reserves by reducing imports of fossil fuels
and providing earnings from exports.

SPDP knew from the beginning that the
project had to conform to the highest
technical, environmental and social
standards. This meant using the best
available technology and being open
and responsive to those who could be
affected by the operations.

The project has given SPDP an opportunity
to pioneer the way large companies
should work in remote and sensitive
regions of the world, which is particularly
pertinent to the Group?s commitment to
contribute to sustainable development.

wm leM/
cow/cam? MW 

approach, which is being
implemented with the help of others,
has three main elements:

0 Be open, consult widely and co?operate
with local and foreign interested parties.
The project is being monitored by Red
Ambiental Peruana, a national health
umbrella organisation made up of 35
Peruvian non-governmental organisations
(NGOs). Pro-Natura, a Swiss-based N60
is working with SPDP to ensure that it is
constantly aware of its commitment to
sustainable development.

0 Minimise the impact on the health and
social structures of local people, and their
environment. The Royal Tropical Institute
of Amsterdam, working with Peruvian
experts, has assessed the health of local
communities. Health carers from the local
communities and the Catholic Church
are working with SPDP to protect and
improve the health of people in the area.
All SPDP workers have to carry a Health
Pass showing that they have been
vaccinated. SPDP is helping in regional
vaccination campaigns. The Smithsonian
Institution has made an inventory of the
local environment (including biodiversity
assessment) and has joined Peruvian
environmental organisations to monitor
for any detrimental effects of the project.

0 Work to increase the social capital of
the region, in this way ensuring that
the local communities benefit from the
project. Alternativa, a Lima-based N60,
is helping local communities deal with
their waste in an innovative way. Senati,

a leading training institution in Peru,

has developed workshops on sewing

and cloth making in Nuevo Mundo,

Cashiriari, Camisea and Kirigueti

(see 

   
  
  
 
   
  
  
  
   
   
   
  
 
  
  
  
  
  
 
   
 
  
 
 
 
 
   
 
 
 
 
 
 
 
 
 
   

Living up to

our Principles

 

Principle 4
Business Integrity

Shell companies insist on honesty,
integrity and fairness in all aspects
of their business and expect the
same in their relationships with all
those with whom they do business.
The direct or indirect offer, payment,
soliciting and acceptance of bribes in
any form are unacceptable practices.
Employees must avoid conflicts of
interest between their private
financial activities and their part in
the conduct of company business. All
business transactions on behalf of a
Shell company must be reflected
accurately and fairly in the accounts
of the company in accordance with
established procedures and be
subject to audit.

 

Au brown 

 

Bid/be

No bribes

We do not bribe, nor do we accept bribes.
We do not sanction illegal payments of
any kind. We investigate all suspicious
circumstances. Any employee found to
have bribed or to have accepted bribes

is dismissed.

We believe that cutting corruption is
essential and leads to greater equality,

a happier workplace, more efficient
economies, rapidly increasing investment
flows and the spread of prosperity.

It is a fact, though, that Shell managers are
regularly offered bribes, or urged to pay
them to secure business and we work hard
to reduce this pressure. Employees are
assured that they will not be penalised if
they lose business because they choose not
to compromise Shell?s Principles.

0105/

:l Shell companies have ?official' no
bribes policies in all 132 countries
in which they operate, backed by
procedures to detect such cases.

 

The policy and actions taken to enforce

it are part of a strong anti-corruption
culture within Shell. It is reinforced through
a range of interrelated actions, such as
supporting international initiatives against
corruption by government, business and
pressure groups (for example, the
Organisation for Economic Co-operation
and Development (OECD) Convention

to Combat Bribery of Foreign Officials),
and thorough internal investigations of
suspicious circumstances.

This is helping to establish Shell companies
as ?no bribes? organisations where business
is won for business reasons.

 

 In 1997, Shell companies reported 23
instances in which Shell staff were
detected soliciting or accepting bribes
in any form.

In all cases, the financial value involved
was small, but in some cases the .
consequences could have resulted In
high costs to the company. All cases
were investigated, and the lessons
learned were circulated internally to
improve the systems.

Every case resulted in termination of
employment.

No cases were reported in which a
bribe was offered or paid by or on
behalf of a Shell company.

 

bee? 
6 a
?tithe 5 

-w

 

The policy is to withdraw from potential
business opportunities if they cannot be
conducted in line with the Business 

For example, we withdrew from the
market in Italy for 14 years in 1976 when
it became clear that companies could not
do business without making unauthorised
payments. We uncovered eVIdence of
extortion demands linked to the payment
of political contributions totalling more
than 4.5 million. The matter was fully
investigated, and the General Manager
was dismissed.

{e that 

9.330 ?e\e\l



15's,.

Statement of General Business Principles
(Revised text as of 10 December 1997)

As an employee of Shell International Ex

ploration and Production B.V. (SIEP) I
con?rm that [have receive

d. read and understood

'gned by Henk Dijkgraaf, Cb'
SIEP Board and lielevant RBD), addressing as?
Business Principles: SIEP Implementat? 
to Con?ict of Interest, signed .rla busi?ess .

. yak-f e??Ebijkgraar on 5

?nm?a??ansactions by Employees, signed by
7 tractors Cor and John Jennings on 12


uncanon of Share Transactions;

2&3ch

5? etc on Insider Information.
A
- l'con?rm I have read the above

documents. For me as an individual, any unclear
points in the and related attachments have been satisfactorily clari?ed in
discussions with my supervisor.

Consequently. I con?rm
letter of the 
Principles and its no:
Employment with 

I can cany out my day-
Iam aware that as of today,
achments as ou?ined above
hell International Exploratio

to~day work within the spirit and the
the Statement of General Business
will form part of my Contract of

and Production B.V.

I have been assured tha

I will not suffer if business i
of the and relev

5 lost as a result of the observance
ant attachments.

I understand that I have
of the and rclev
supervisor.

a personal duty to bring

all (real or suspected) conaaventions 
ant attachments mention

ed above to the attention of my

date.) 

. awvm-W

When is a gift a bribe? .

Gifts are an essential part of dorng?
business in some countries, where itt to
would be rude not to bring a presen ms
the first business meeting. Elsewhere bge 
especially if they are substantial, can
regarded as a form of bribery.

. . 

At what point does a gift become a 3:2:

And who decides? This is a dilemma Id.?

Shell managers often face. 3:12:11 (gag
hou .

rincr le IS that nothing 5 .

Tehe pilicy is that we declare all giflts,eajnd

those above a token value are dec inof.

Some Shell companies have a policy ith

pooling gifts and auctioning them, 

the proceeds going to charity.

 

22

Living up to

our Principles

 

Principle 5
Political Activities

Of companies

Shell companies act in a socially
responsible manner within the laws
of the countries in which they
operate in pursuit of their legitimate
commercial objectives.

Shell companies do not make
payments to political parties,
organisations or their representatives
or take any part in party politics.
However, when dealing with
governments, Shell companies have
the right and the responsibility to
make their position known on any
matter which affects themselves,
their employees, their customers, or
- their shareholders. They also have
the right to make their position
known on matters affecting the
community, where they have a
contribution to make.

Of employees

Where individuals wish to engage in

activities in the community, including
standing for election to public office,
they will be given the opportunity to
do so where this is appropriate in the
light of local circumstances.

 

 

Some of the issues in this Principle are hard
to measure, and little quantified evidence
is available. We are trying to develop
suitable measures of performance for use
in subsequent reports. Please use the ?Tell
Shell? reply cards if you have suggestions
on the sort of evidence you want to see.

Social responsibility

We know that the integrity of employees
as individuals will earn the trust and
respect of those with whom they deal, as
well as people from the societies in which
they live and work.

Shell companies make large investments
over long timescales and they know that
they can only prosper if they act
responsibly within the societies of which
they are a part. Their primary commitment
is to the country and its people, rather
than just to the government of the day.

In 1996 we held a series of round-table
discussions in 14 countries together with
other forms of research to get the views
of the way in which society?s expectations
of large multi-national companies were
changing and might expect to change in
the future. The results of this consultation
helped us improve our Principles and
other key elements which determine how
we run our business. We will continue to
consult this report is part of that process
to ensure that our actions are aligned
with the values and expectations of the
societies in which we operate.






No party politics

Business has no mandate to participate in
party politics, although, as a major
generator of economic wealth, the oil
industry clearly has considerable social
and political impact. Shell companies do
not make contributions to political parties
and treat this issue in the same way as
bribery and corruption (see page 20).

Not all countries have political parties.
As part of our anti-corruption
commitment, Shell companies in 108
countries have clearly stated policies
forbidding payments to political parties.

In 1997, there were no reported cases
of political donation.

 

We do, however, work with regulators and
policy makers and we make our position
known on many matters of government
policy, regulation and legislation likely to
affect our business. This is done as part of
the democratic process. We also work
with trade associations which also lobby
on behalf of legitimate trade interests.

Making our position known

Shell companies believe in the right to make
their position known, either privately or
publicly, on issues which affect their business
or their employees, such as statutory low
pay and political detentions. We can also
be of help in some circumstances where
our knowledge or expertise contributes to
the better understanding of issues affecting
communities and nations. We realise that
this must be done with sensitivity because it
can easily be misinterpreted as interference
or trying to exercise undue influence.

BMW hwofapm
pWMW/wmm

55? pWa/E par?? [waif/W.

Political payments in the USA

The Shell Oil Company was recently
criticised for helping employees in the USA
to make contributions to the political
candidates of their choice. At their
request, donations were and still are 
deducted from the employees pay and
sent directly to a political action committee
made up of employees who decide which
candidates will receive financial support.
Shell Oil also provides a mechanism for
employee donations for unions and
charities. This support for the freedom of
choice for individuals is common practice
among US companies. Such administrative
help is seen as part of our commitment to
allow employees the right to participate
personally in party politics.

A number of Shell employees have
personal involvement in local and
community politics, while others have
been granted extended leave to stand for
election and have taken up political
positions at national level. These are
individual matters and Shell companies do
not keep figures.

Helping to picture the future

Shell has considerable experience at
building scenarios alternative pictures
of how the future could look. We use
scenarios to help plan our own business.

The summaries of the two scenarios
?Just do it? and ?Da Wo? from the Global
Scenarios 1995-2020 are featured right.

We have also helped other organisations
in developing their own scenarios in
various subject areas, such as:

0 sustainable development with the
World Business Council for Sustainable
Development in 1997

0 climate change with the Intergovernmental
Panel on Climate Change

0 the Mont Fleur scenarios in South
Africa between 1990 and 1994,
which helped shift government
thinking towards a democratic system

0 the Nigeria Scenarios in 1997 which
were presented to the Vision 2010
Committee, and which perhaps uniquely
brought together government ministers,
traditional leaders, special interest
groups, NGO members, public figures
and business for the common goal of
Visioning a better future for Nigeria.

We share our internal scenarios with
key opinion formers in government,
inter-governmental institutions, NGOs
and academics.

Just Do It! 

In this scenario, success comes to those
who take advantage of quick-moving
opportunities in a world of hyper
competition, customisation, and rapid
technological innovation. This world allow
the fullest expression of individual creativit
and rewards those who can experiment
with new ways of doing business.

   
   

 

Da Wo (?Big Me')

In this scenario, countries and companies
discover that success calls for a committed
investment in relationships, where trust an .
the enabling role of government provide th 
long-term strategic advantage. Asia alread
has an advantage because its societies and
businesses are at home in a world in whic 
the individual ?small me? understands
that self?interest is inextricably linked to th
welfare of the whole Da Wo (?Big 

 

24

 

Living up to

our Principles

 

Principle 6
Health, Safety and
the Environment

Consistent with their commitment to
contribute to sustainable
development, Shell companies have a
systematic approach to health, safety
and environmental management in
order to achieve continuous
performance improvement.

To this end Shell companies manage
these matters as any other critical
business activity, set targets for
improvement, and measure,
appraise and report performance.

Management systems

In 1997 the Group published its first
external HSE report covering all Shell
operations. This and subsequent reports
of our major businesses Exploration and
Production, Oil Products and Chemicals
are available by post or via our website.

We were slower than some large companies
to report in this way. We realise that society
now expects open and verified reporting,
and we are committed to reporting
regularly. We are consulting with interested
parties and employees on how to give a full
picture of our HSE performance.

This is only a brief summary of our progress
on HSE. Please read the Group Report for
more detail (see W).

0 Every Shell company has adopted the
Group, Policy and Procedures on health,
safety and environment.

0 More than 90 companies already have
HSE management systems in place. The
target is to have such systems installed
in all companies by the end of 1999,
and to have an assurance process in
place to ensure that .the targets are met.

0 Independent auditors will check adoption
of the HSE Policy and Procedures.
Furthermore, they will check a
representative number of companies to
assure themselves that the data we
collect and publish accurately reflects
the HSE performance of the Group.

Environmental reporting

The Shell Group?s environmental reporting
has been praised by the US-based investor
Responsibility Research Centre (IRRC).
They said the Group "provides the most
extensive environmental data for its global
operations? and commend all four of the
Group?s HSE reports published in 1997.

Managing the environment to
international standards

Getting a qualified independent auditor
to confirm that companies are managing
environmental matters to agreed
standards is a fast?growing trend. Two
examples of recognised environmental
management systems standards are:

0 ISO 14001. Published by the International
Organisation for Standardisation (ISO),
this is part of a new family of
environmental management systems
standards, called the ISO 14000 series.
ISO standards are recognised worldwide.

0 Eco-Management and Audit Scheme
(EMAS). This is the European Union?s
environmental management standard.
EMAS is compatible with the ISO
standard, but goes further to require
conforming sites to report publicly on
the results of regular audits which must
be verified by outside experts.

Our position is that all Shell companies
must have a certifiable HSE management
system in place by the end of 1999.

In many cases this has already been
achieved. For example, Shell refineries

in Argentina and Sweden, lubricant
production in Germany and exploration
and production activities in Thailand have
all received ISO 14001 accreditation

(see W).

 

4% MW WW 

a, (?t/Wk #55 WW
WW by or we.

Safety

Life is a fundamental human right and the
safety of all people at our sites is
paramount. We take our responsibilities
very seriously. Shell companies train their
employees and contractors to work safely
and provide the necessary systems and
technology to ensure their safety. They
strive to encourage a culture of safety in
the company and among their contractors.

Our goal is no harm to people. The
accidental death of anyone working for us,
including those employed by contractors,
must be reported immediately to a member
of the Committee of Managing Directors.
Each case is fully investigated and action is
taken to prevent similar accidents from
happening again.

We deeply regret that 8 employees and
61 contractors lost their lives in 1997
worldwide, mostly in road accidents.
Shell companies continue to work hard
to ensure that drivers are as well trained
and as safety conscious as possible.

We use two standard measures to gauge
safety performance: Lost Time Incident
Frequency (LTIF) and Total Recordable Cases
Frequency (TRCF). They indicate overall
safety performance of employees and
contractors against the total number of
hours exposed to work related risk, and are
fully explained in the Group HSE Report.
Total exposure was some 290 million
exposure hours for employees and some
444 million exposure hours for contractors
in 1997. (These are interim figures only, see
the Group HSE Report 1998 for verified data).

All employees on our sites, including
those of contractors, are treated in the
same way. Safety data from contractors
are collated to help in the analysis of the
causes of accidents and to help in our
programmes to improve the safety records
of contractors.

LTIF (Incidents per million hours exposure)

TC RF (Cases per million hours exposure)

 

Lost Time Incident Frequency
Employees and contractors
1993 to 1997

 

 

21993 1994 1995 1996 1997

Year

Total Recordable Cases Frequency
Employees and contractors
1993 to 1997

 

 

0 I I I I
1993 1994 1995 1996 1997
Year

Improving road safety in Oman

In Oman, company employees have to d.
a lot of driving on dirt roads, over long
distances in intense heat. Such condition
increase the risk of accidents.

Petroleum DevelopmenFOman (PDO) is
particularly concerned about road safety
and is committed to reduce the number
of road accidents and decrease the risk
of serious injuries they cause. Among th-
many initiatives introduced in 1997 are:

- on-the?road spot checks of company
vehicles and drivers by an independen
road safety monitoring team

- mandatory training for all company
and contractor drivers in the interior
of Oman under the PDO driving
permit system

0 an electronic monitoring system in the
vehicle which recognises good and
bad driving behaviour.

research shows that human
behaviour is one of the major contributin
factors in accidents people will break
rules knowingly, especially when they are
alone and unsupervised in vehicles.

This means, as a minimum, careful

training of employees is essential. But
more important, we have to convince
them that the rules will really help protec 
them and other road users.

PDO has significantly improved the road
safety performance in Oman and will
continue to do so through effective
training, sustained vigilance and
accurately targeted safety campaigns.

PDO has been greatly helped by the

Grand Mufti, the highest advisory officer
for Islamic Affairs in Oman. He addressee
employees and contractors in August

1997 and emphasised the sanctity of life
and the religious and legal consequences
of wasting life by reckless driving. 

 

26

Living up to

our Principles

 

Principle 7
The Community

The most important contribution
that companies can make to the
social and material progress of the
countries in which they operate is in
performing their basic activities as
effectively as possible. In addition
Shell companies take a constructive
interest in societal matters which
may not be directly related to the
business. Opportunities for
involvement for example through
community, educational or
donations programmes will vary
depending upon the size of the
company concerned, the nature of
the local society, and the scope for
useful private initiatives.

 

Debating the role of business and
government

moral vacuum is appearing as
governments everywhere cede authority
to business?, says Professor Homer
Erickson of Miami University. ?The role of
government is declining as is the old 705
and 805 agenda of rampant self?interest.
The public is pressuring business
everywhere to act responsibly?.

Professor Erickson?s views reflect the
spirited global debate about the
respective and evolving roles of business
and government in society.

Some see governments voluntarily
withdrawingor being forced to do so by
their constituency, from those areas of
society where business can do a better
job. This has led, in many societies,-to the
privatisation of state-owned businesses,
such as telecommunications, airlines

and prisons.

There are also calls from the media,
governments and non-governmental
organisations for business to do more
than merely pay its taxes and create jobs.
They want business, especially in the less
developed parts of the world, to deliver
development, fight corruption, provide
schools and healthcare, and generally act
as a stabilising influence on society.

At the same time business is criticised for
exerting too much influence on society,
for perpetuating the negative impacts of
globalisation (see page 36), and having
too much sway with government. These
critics want business to play a much lesser
role, or for the activities of multinational
companies to be better controlled either
through legislation or voluntary codes.

In the face of these conflicting demands
some companies have been slow to join
the debate but many are looking more
closely at their role in society.

(For more information see 
and



 

rr - . 
Lluewpre 

MC. Nam/h

Performing effectively

The success of Shell?s business has a positive
effect on the communities of which it is a
part. For example, Shell companies pay
remuneration and related costs (totalling
over 6 billion in 1997) to more than
100,000 employees, and many more are
employed by contractors who work with
us, or by our suppliers. We are widely
involved in training and coaching of
suppliers and contractors, whose skills are
then benefiting the local community.

We realise that communities want us to do
more than simply pay taxes and leave the
building of the necessary infrastructure to
government, for instance roads, schools
and hospitals. A Shell company is not, and
should never be, a stand?in for government,
nor is it a charity. But when invited, Shell
companies aim for mutual benefit through
partnership with communities, developing
the ability of people to work together for
the common good. Some people use the
term ?building social capital?.

 

Community programmes

Contributing actively to communities
throughout the world has "always been
very important to us. Responsibility rests
with Shell companies which address issues
in their particular countries, as well as
with Shell International which supports
societal issues of international concern.
We have a three?tier approach.

First, we provide long-term support to a
range of community activities within
particular geographic areas. For example,
Shell Philippines has supported the
Philippine Business for Social Progress (PBSP)
initiative ever since it helped found the
organisation in 1970. PBSP now has over
180 member companies and has worked
with over 1,000 partner organisations and 
supported over 3,000 projects with funding
in the region of 50 million.

Second, we promote sustained involvement
in helping to develop and encourage best
practice on a particular social issue. For
example, we have had a role in spreading
good models for small business development
across many countries. A programme called
Livewire, which encourages and advises
young entrepreneurs in starting and running
their own businesses, was set up by Shell
UK 15 years ago and is now operating in
Australia, Bahamas, Chile, Hungary, the
Netherlands, Oman and South Africa as
well as the United Kingdom.

Schools education programmes, ranging
from environmental awareness to road
safety training, are also supported in
many countries in the world.

Third, we recognise that as a global citizen
we have opportunities and responsibilities
to help address the critical issues of the
global community. Shell's international
social investments programme seeks to
address issues fundamental to sustainable
development, including economic
development, environmental care and
social progress.

The report Shell?s Investment in Society
features a number of case studies

(See page 53 and 

Helping community banks fund
inner-city entrepreneurs .

Shell Oil of the USA has formed alliances
with two inner-city community banks in a
pilot programme to help provide funds for
minority and women owned businesses
and entrepreneurs.

Shell community financing companies 
especially set up for the purpose will
provide capital to expand the lending
capacities of the Unity National Bank in
Houston and Founders National Bank in
Los Angeles. It is hoped that the funds
will help rejuvenate the communities
served by these banks.

If the trial is a success the scheme could
be extended to four more cities yet to be
named, with a possibility of 45 million
being invested in the pilot project.

?Communities are living entities that
private and corporate citizens must work
together to sustain and grow, said Shell
Oil?s President and CEO Philip Carroll.
?This Community Banking Initiative
provides an excellent opportunity for

us to help support the communities that
support our company. 

 

  
   
   
 
  
   
  
   
 
 
  
  
   
    
  
   
  
  
  
   
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   

28

Living up to

our Principles

 

Principle 8
Competition

Shell companies support free
enterprise. They seek to compete
fairly and ethically and within the
framework of applicable competition
laws; they will not prevent others
from competing freely with them.

Shell was born of free enterprise. We believe
in sustainable growth through meeting
consumer needs in a responsible manner.
The best way of achieving this is by free
and open competition. Highly regulated
markets, and restrictions on trade, lead to
inefficiencies, stagnation and less wealth
creation for all (see page 36).

Even though controlled markets can be very
profitable for the select few, we encourage
countries to move to free markets where
companies can compete on quality and
service as well as price. Shell companies are
keen competitors in one of the world?s
most competitive industries, which is
characterised by tight margins, ever-more
demanding technical challenges and stiffer
laws to protect safety and the environment.

Our main competitive advantage is our
ability to develop and use advanced
technology to improve the efficiency of
our business. This, combined with our
financial strength, means Shell companies
can compete fairly in markets all round
the world (see page 36).

We strongly believe that living up to our
Principles is both right and good for our
business. Such integrity and adherence to
high standards gives Shell companies a
further competitive edge in the long-term.
We also believe that free markets,
consumer choice and fair competition all
contribute to a more free society.

In developed countries, market competition
agencies regularly review competitive
practices. This has involved Shell companies
at least five times in Europe in the last five
years. It is also common for companies

to challenge competitors in the courts in
today?s highly litigious environment.

 

 

 

 

 

 

 

In the last five years, two cases have

been reported in which Shell

anti-competitive action.

fine of 670.

This decision is subject to appeal.

 

companies were found to have taken

In one case, the company was subject
to tight state regulation on refinery
gate prices and margins, and failed to
reduce the price at the same time as
the regulation required. There was a

In the other, an EC Commission decision
from 1988 relating to PVC, which had
been annulled was re?issued against
Shell International Chemicals Limited.

The business was fined 850,000 ECU.

 

 

50:33
419.8-
4 

Living up to

our Principles

 

Principle 9
Communications

Shell companies recognise that in
view of the importance of the
activities in which they are engaged
and their impact on national
economies and individuals, open
communication is essential. To this
end, Shell companies have
comprehensive corporate
information programmes and

provide full relevant information
about their activities to legitimately
interested parties, subject to any
overriding considerations of
business confidentiality and cost.

 

 

Confidentiality and openness:
uncomfortable bedfellows
Companies are often accused of being
secretive and arrogant in the way they
dismiss requests for information from
outsiders.

Such attitudes are beginning to change as
business realises that its success depends
on the approval of a broad range of
people, including those outside the
organisation.

?Tomorrow?s successful company can no
longer afford to be a faceless institution
that does nothing more than sell the right
product at the right price", says an
Economist editorial.

?it will have to present itself more as if it
were a person as an intelligent actor,
of upright character that brings explicit
moral judgements to bear on its dealings
with its employees and the wider world."

Business is starting to talk about a move
away from a ?trust me? world of the past
where people trusted business (and
government) to do the best for society,

to a ?tell me? and increasingly ?show me?
world, where business has to demonstrate
that it is indeed doing the best it can for
the broader society.

A ?show me? world means that business
has to be far more open in its dealings
with society and make much greater
efforts to accommodate requests for
information. It is struggling to find a way
of doing this while operating in a highly
competitive market where information

is highly valued and can be used by
competitors to thwart success.

The necessity to keep some information
confidential will always prevent business 
as it does for government from being
totally open about its activities. Successful
companies will be those who find a
balance where legitimate demands for
information are treated with openness
rather than arrogance. 

Open communication
Communications technology and the
expectations of those who depend on
Shell, or who are affected by our
activities, have changed dramatically in
recent years and continue to do so.

Our traditional corporate culture has not
necessarily encouraged openness. But we
are now trying hard to be more accessible
and open in the way we deal with
requests for information, and in the

style in which we communicate with
employees in the Group, the media,
opinion formers and the general public.
We are also determined to listen more
and get involved in debate and dialogue.

 

 

 

 

For example:

0 We organise regular meetings with
interested parties around the world to
hear their views and expectations. In
1996 we held round?table discussions
in 14 countries to discover people?s
attitudes towards multinational
companies and Shell in particular.

We commissioned a global survey by MORI
in 1997 to get statistical data to support
the findings of our round-table discussions.

0 Our senior managers accept invitations
to speak in a wide range of forums.
The speeches are published.

Major effort is put into the training of
senior executives and external affairs
staff to help them understand the issues
which are of public concern, and to
communicate clearly and accurately. This
includes self-assessment methods backed
by competence development programmes.

0 Shell International runs an award-
winning website This
has a discussion group dealing with
matters of public concern. There are
links to other sites, including those of
our critics. There are 28 linked Shell
websites in different languages dealing
with specific issues or regional interests.
Notably there is a regularly updated site
on the fate of the Brent Spar storage
buoy with more than two years of
discussion and information, and
another on Shell?s activities in Nigeria.
Our websites are interactive and we
encourage debate. We respond to 95%
of enquiries within two working days.

0 Besides our internal magazines and staff
newspapers, we have an intranet (an
interactive computerised information
system available to employees via their
computers) and in 1997 we launched a
Group?wide satellite television network,
carrying real-time presentations by
senior management, news and
information about Shell companies and
other relevant topics.

 

 

 

0 We produce briefs on a wide range
of energy-related and global issues,
including managing air quality and
vehicle emissions, climate change and
sustainable development. These are
posted on our website.

0 We hold informal shareholder meetings
in the UK and the Netherlands to keep
in touch with private shareholders in
the parent companies.

0 In January 1998 we held our first ever
meeting with institutional shareholders
to talk about non-financial matters.

0 We have increased our public transparency
by providing more opportunities for the
international media to meet and question
members of the Committee of Managing
Directors ?on the record?. I

Such a change in attitude is in line with
what people expect of us, and it makes
good business sense too. This is because
it helps us understand the needs of a
fast-changing world and enables us to act
quickly and decisively.

This Report is itself symbolic of the change
in approach within Shell, and is an
example of our determination to be as
open as possible in a highly competitive
world. Our plans to manage and measure
social accountability (see Road Map, pages
49-51) implies a commitment to the
development of partnerships and dialogue
with interested groups.

Please use the ?Tell Shell? reply cards if you
have suggestions on how we can improve

   
  



1.56 We WATER i


0 We have an award?winning film and video
unit which produces documentaries
that contribute to world debates on
such issues as deforestation, water,
soil erosion and poverty.

. our communications.

at

 
   
 

. .
o. 
I

 

 

 

MW um l/4
Companies must strike the balance between providing the financial returns that

shareholders expect and investing money in the social fabric of the countri
and communities in which they operate?

gimes in power.

ese situations are typical of those faced by some managers in the everyday conduct of

Th
their

How would you do this?

For Shell?s approach see Business Principl- 

business and the factors they have to take into account when making decisions5?5


the national GQR Over the Iast,50 years there have. been several different re

Under what circumstances, if any, should a major company use its economic power
to deliver, or at least influence, political change especially in nations with
undemocratic governments and poor human rights records?

Undoubtedly companies can be a major force for good but should an un-elected
body impose its will on a country?

For Shell?s approach see Business Prin I



Multinational companies may have to decide whether or not to do business wit
developing country where bribery and corruption are commonplace and there IS
little regard for environmental issues:

ny of a multinational corporation.
the country in question for 75 years.

you may find it helpful to put yourself in
1,000 employees of whom 98% are local staff.

compa

1. should you go in and expose yourself to possible criticism that you are willin-
engage in business with such a government?

. should you stay out and deny the country and its communities the economic
benefits your presence would bring and indeed the financnal returns your
shareholders might expect from such an opportunity?

In considering many of the fol/o wing questions
the position of the manager of a local operatin
Imagine that your company has been present in
It has assets of some 500 million and

. what would be the basis for your moral stand for either option?

For Shell's approach see Business Principle

 

our View

Tick here if you would like your view posted on our website.

Your name and address (voluntary).

?our View

:1 Tick here if you would like your view posted on our website.

Your name and address (voluntary).

(our View

1 Tick here if you would like your view posted on our website.

Your name and address (voluntary).

 

 



When multinational enterprises operate in developing countries, they bring with
them new jobs and greatly increased prosperity. Unfortunately, this often creates
?islands of wealth? where a small but significant number of local people are paid
considerably more than the rest of the population. In turn, this can lead to
inequalities and tensions. How can companies tackle this question?

Would you pay local employees at international rates in the belief that the
wealth will spread to the wider community?

Would you pay local rates and face accusations of exploitation and double standards?

?03 somw; of 

re have been several different regimes in power.

{gm

3.
years 
These situations are typical of those faced by some managers in the everyday conduct of

over
their business and the factors they have to take into account when making decisions.

For Shell?s approach see Business Principle

Whmt?af?eab??e?

Most people agree that the giving and receiving of bribes is morally unacceptable and 
undermines economic and political freedom. But at what point does a consultancy fe-
for example one paid to an influential intermediary for negotiating a major piece of 
additional business become a bribe?

The revenue generated for the local

The company could take various forms of action:

1. view the contract as big enough so that it could afford to pay the intermediary a
sum equivalent to a small percentage of the total contract value and leave it up to.
him to decide how best to use the money

2. try to put the intermediary on a retainer in other words, engage him on a short
term contract to work for the company 

3. try to draw up a contract detailing what the consultancy fee may or may not be used
4. another course of action.

What would you advocate and whyFor Shell?s approach see Business Princic.1





ay find it helpful to put yourself in
In the country in question for 75 years.
,000 employees of whom 98% are local staff.





Multinational enterprises often work with state run companies as joint venture partners.
in poorer nations, however, economic pressures may force authorities to adopt lower
Health, Safety and Environment standards than those practices in the developed world.
Multinationals can take various courses of action, for instance:

1. accept the lower standards and the possible accusation of operating double standards

2. make a stand for higher standards even though the country's economy cannot
afford them

In considering many of the following questions you 

the positiongf the manager ?amalgam fn
Imagine that your company has been presen
It has assets of some 500 million and 1

3. pull out of the deal altogether and let another company make the decision, or
4. adopt an alternative strategy.

What would you advocate and why?
For Shell?s approach see Business Principle 2

 

 

view

here ifyou would like your view posted on our website.

Ir name and address (voluntary).

View

:k here if you would like your view posted on our website.

ur name and address (voluntary).

ck here if you would like your view posted on our website.

our name and address (voluntary).

 

 yourself in .- Theurevenue generated by your operations represents some 20% of

43-] 

onspyoumay .

omngique

consuermgmanyo

the national GDP. Over the last 50 years there have been several different regimes in powerThese situations are typical of those faced by some managers in the everyday conduct of

their business and the factors they have to take into account when making decisions.

years.

,000 employees of whom 98% are local staff.

Imagine that your company has been present in the country in question for 75

It has assets of some 500 million and 1

 

 

 

2 2! 
Multinational companies are sometimes accused of being overly secretive and
impersonal as well as lacking the willingness or the means to communicate effectively.

How do you think companies can improve the way they communicate with interested
parties and society at large?

 

For Shell?s approach see Business Principle 9

Wow 07? WW 
Wan/1616 WW Jam/cw. .

What can multinational energy companies working either alone or in partnership 
do to speed up the pace of development and drive down the cost of renewable
energy sources?

 

What factors could help or hinder this?

For Shell?s approach see Business Principle 1

f? 2
r0 its and does there have to be a ch Ajw 
. once? 
.

1. What did you like about this report?
2. What could we have done better?

3. What evidence of our performance or coverage of issues would you like to see
more of in future?

 

 

iew

iere if you would like your view posted on our website.

name and address (voluntary).

here if you would like your view posted on our website.

name and address (voluntary).

view

here if you would like your view posted on our website.

name and address (voluntary).

 

 

 

Issues 

Dilemmas

 

Here we discuss six critical social and
environmental issues facing the Group:
human rights; climate change;
globalisation and the role of
multinational companies; operating in
politically sensitive regions; dealing
with industrial legacies; renewable
resources. A short summary of the
issue is followed by Shell's approach.

Many of these issues are still emerging
and present us with dilemmas on how
to act. Our Business Principles give us
basic guidance on how to resolve
dilemmas, but there are many areas
where no one yet knows the best
approach. We are committed to work
with others to find the right path and
we would appreciate your views. These
can be sent to us on the attached 'Tell
Shell' cards or directly to our website.

fail to do good when
it is in one?s legitimate
power to do so is 
condemned by the world.

Sir Geoffrey Chandler;
Amnesty UK.

 

 

Issues 

Dilemmas

 

UNIVERSAL

DECLARATION
of
HUMAN RIGHTS

 

Assembly of the
MBER 10 1948, [ht General .
gzitDetElclfIaxions adopted and the Uglxi?rissl
claration of Human Rights, the full textp h' ?c
followmg pages, Followmg [his [start
Assembly called upon all Member countries to
a? 'l he Declaration and to cause.? to
d, read and cxpoundmt minus-

heals and 0 cr educations
{Exams}? ifstinclion based on the political status 0
countries or territories?.



 

 

 

Human Rights

Human rights are the universal rights
which every human being is entitled to
enjoy and to have protected.

The underlying idea of such rights 
fundamental principles that should be
respected in the treatment of all men,
women and children - exists in some
form in all cultures and societies.

Such rights are enshrined in the Universal
Declaration of Human Rights adopted

by the United Nations in 1948. The
declaration covers two broad sets of
rights: one is known as Civil and Political
Rights; the other as Economic, Social and
Cultural Rights. More detail from UN

(see and Amnesty International

(see and Human Rights

Watch (see .

Responsibilities of government
Governments are held responsible for the
protection of human rights. They must
protect the life, liberty and security of their
citizens. They should guarantee that no?one
is enslaved or subjected to arbitrary arrest,
detention or torture. Everyone is entitled to
a fair trial. The right to freedom of thought,
conscience and religion and the right to
freedom of expression are to be protected.

Governments are expected to improve the
living conditions of their citizens by, for
example, guaranteeing the right to food,
clothing, housing and 'medical care, the
protection of the family and the rights to
social security, education and employment
and to promote these rights without
discrimination of any kind.

Some commentators have argued that the
idea of universal human rights conflicts
with the very specific characteristics of
local or regional cultures and customs 
or may vary in different religious contexts.
However, the governments of such regions
have argued that strict measures curbing
political freedoms were necessary to prime
their economies, or that development can
be regarded as a separate aspiration. This
is despite the fact that at least half the 30
articles of the Universal Declaration specify
economic, social and cultural rights which
constitute much of the development effort.

Duty of business

Companies have a responsibility to respect
the civil and political rights of their
employees and many would accept that
their suppliers and contractors should act
likewise. There is still considerable debate
on whether business can or should use its
influence with the governments of the
countries in which it operates to address
broader issues of human rights.

Most multinationals choose to stay
politically neutral and not to interfere in
what they see as national issues. But
companies that play a major economic
role in a country are coming under
increasing pressure from human rights
groups and others to speak out against
human rights abuses or to divest 
particularly when complaints to
governments fail.

Campaigners argue that companies
should recognise a direct self-interest in
promoting the preservation of human
rights. The violation of human rights often
leads to civil instability and uncertainty in
the investment climate. And even in
stable times, a lack of positive action from
companies in this regard can damage
corporate reputations.

 

 

Shell's approach

We support the Universal Declaration of
Human Rights, and have made specific
reference to this in our Business Principles
(see page 5).

This is what we have done to ensure we
act in the best possible way when
confronted with human rights issues.

0 We speak out in defence of human
rights when we feel it is justified to do.

0 We included specific references to
human rights in our Business Principles
when they were updated in 7997. This
followed widespread consultation with
many different interest groups, including
those defending human rights.

0 We engage in discussion on human
rights issues when making business
decisions.

0 We have established a regular dialogue
with groups which defend human
rights. One such dialogue was with
Amnesty International and Pax Christi
together. This has subsequently been
published by Fax Christi (March 7998)
to assist others addressing this topic

(see 

0 We are setting up Social Responsibility
Management Systems (see pages 49?5 7),
designed to help in the implementation
of our Business Principles, and therefore
our stated support for human rights.

0 We are developing awareness training
and management procedures to help 
resolve human rights dilemmas when
they arise. This includes a guide to human
rights for managers (see page 6).

It is abundantly clear that issues and
possible courses of action differ according
to culture and local conditions. This
makes it important for Shell managers to
be trained and fully briefed so that they
have both the knowledge and authority
to take appropriate action in their
particular circumstances (see page 6).

We continue to debate the issues within
the Group and work with human rights
specialists to improve our understanding
of the subject (see Working in

Political/y Sensitive Regions, page 38,
see 

 

1'3. Ex Christi and Amnesty

International wish to take
this opportunity to again
express their appreciation of
the pioneering role that Shell
is fulfilling in recognising that
multinational corporations
bear responsibility in the
field of human rights. On
the basis of the contacts
that both organisations
maintain with various other
companies, they expect
that other multinational
corporations will be taking
similar or further reaching

measures in the futurgg 89?


Pax Christi and Amnesty International:
Utrecht 1997.

Extract from correspondence on the Shell Group?s
Statement of General Business Principles.

 

 

Issues 

Dilemmas

 

 

Climate change

Human activities, especially the use of
fossil fuels, may be influencing the climate,
according to many scientists, including
those who make up the Intergovernmental
Panel on Climate Change 

Gases present in the atmosphere, such as
water vapour, carbon dioxide (C02) and
methane, keep the earth warmer than it
would otherwise be, by acting as an
insulating blanket and trapping some of the
sun?s rays the natural greenhouse effect.

The burning of fossil fuels coal, oil and
natural gas together with other human
activities, such as deforestation, releases
greenhouse gases, mainly C02 into the air.

Their concentration in the atmosphere has
been rising since the industrial revolution.
This has led to an enhanced greenhouse
effect and there is concern that it will
cause the world to warm up, which could
lead to a change in climate and local
weather patterns, possibly with increased
droughts, floods, storms and sea level rise.
The average temperature of the earth has
risen by about half a degree Celsius over
the last century, possibly due in part to
greenhouse gas emissions caused by
human activity.

What the world has decided to do
Most of the world's nations were sufficiently
concerned to sign a United Nations
agreement, the Framework-Convention on
Climate Change in 1992. Industrial
countries aimed to reduce emissions of
greenhouse gases to the level they were in
1990, by the year 2000. Very few countries
will meet this target.

At a conference in Kyoto (December
1997), stronger commitments under the
Convention were agreed. Rich countries
will be legally bound to reduce their
greenhouse gas emissions by at least 5%
on average relative to 1990 levels, by the
years 2008 to 2012. This is the first real
step in what will likely be a series of
further international negotiations to
tackle the issue globally.

Shell's approach

Curbing the use of fossil fuels has obvious
business implications for Shell. Nonetheless,
we share concern over the impacts of
potential climate change and believe that
prudent precautionary measures are called
for The reductions set out in the Kyoto
Protocol provide the necessary direction to
encourage such measures.

Shell companies are committed to play
their part and to help customers play
theirs in making the savings in energy
needed. We feel strongly that further
research is needed to help the world
better understand the potential impact of
climate change and we continue to
contribute funds to make this happen.-

We think agreed mechanisms to curb
greenhouse gas emissions should be
highly flexible and allow reductions to be
carried out where they can be achieved
most efficiently and be of the greatest
benefit to everybody. We welcome the
possibility of emissions trading and
partnerships between countries to
implement reductions joint/y.

The world needs to take action now. But
we must do so carefully, appreciating that
the timescale is necessarily long, that our
understanding will develop, and that the
human costs of stunting economic
development would be very high.

Unfortunately many assertions about
future climate are based on simplistic
extrapolations of current energy trends,
which lump all fossil fuels together This
ignores their very different impacts.

The carbon intensity of energy supply has
steadily fallen as we have moved from
wood, to coal, to oil, to gas. All the world?s
estimated resources of conventional oil and
gas could be consumed without raising
atmospheric carbon concentrations above
the limits suggested by even the most
pessimistic observers. The real problem is
with the very much larger resources of
carbon intensive coal.

 

 

The decarbonisarion trend will continue as
the world moves towards a greater use or
renewahies and, possibly other forms or
energy With this in mind, Shell companies
have been active ror 20 years with
research into the viability or renewables
and the development and harnessing of
technologies. We think renewable sources
could be supplying 10% or the worlds
energy by 2020, and perhaps half by
2050 Our past activities, our inclusion of
renewables as a core business activity and
our rKent investment commitments are
discussed in more detail on pages 9 a 44

Read on it you would like to know more
detail on what shapes our thinking,

what shapes our thinkan
We are iniluenced by our view or
sustainable development and the longsterm
energy scene

We believe that affordable, clean and
reliable energy products are essential to
sustainable development meeting the
needs of the present Without
compromising the ability or future
generations to meet their own needs

Fossil fuels supply around 85% of the
world's pnmary energy needs. There are
no alternatives available now in sufficient
arnouns at a price consumers are
willing to pay a to replace these iuels
But we expect renewable sourres to get
cheaper over the next few decades.

This view is based on our work with
independent otperts to make educated
guesses on what mighthappen in the
future We see three developments

1 The eventual consumption or most or
the worlds conventional oil and gas,
mainly because these iueis are highly
eirective, convenient to use, and easy
to transport

2, use or coal will grow, but not to the
same level as some others would suggest

3 cos ernissrons could peak in the period
20202030, at a level below that of
many long-term stimates made by
others, including govemments i'his
would lead to stabilisation of
atmospheric levels at just over twice
the preindustnal level, close to the
target proposed by the european union





Energy markets are changing last. We
have to plan for this and do the best for
the Group, our shareholders and the
broader society in short, Shell companies
expect to do the followmg

- (ontinue to produce oil and gas to
ruei the next 2030 years or economic
growth, particularly in developing
countries Growth is essential it fast
growing and oiten poor, populations
are to improve their living standards
This means we have to continue to
more reserves

- Provide more natural gas this 
in high demand for the next rew decades
because it is abundant can be converted
emeiendy into elecuroty; is relatively
cheap to find and transport, and arms
far la: CO1 and other pollutants than
competing ruels We will continue to
reduce the amount or co; our tueis emit
on use by concenuanng on iowcarbon
materals such as gas and renewables.

- Develop our businesses in gas-tired
power generation electricity is essential
ior development and improvements in
the quality oi lire, especially in
developing countries

Develop renewable energysources, (which
docussed in detail on pages 9 a 44).

- Reduce emissions horn their own
operations Since i992 we have reduced
flaring of unwanted gas by 20%, venting
by 26% and the emixslons orchioro
fluoro carbons (CFO) and halons by
85% We are to cease
continuous flaring and venting by 2003
(Gas is produced as a by-product oi oil
production rlanng refers to the burning
of unwanted gas venting is the release
oi gas vvithout buming Natural gas and
(res and haions are powerful
greenhouse gases riaring creates cos,
the principal greenhouse gas)

- Help customer: reduce thEir emissions
rhis is achieved by providing lower-
carbon iuels, especially natural gas and
renewable energy sources Many Shell
companies have promoted automotive
LPG. a fuel With a lower carbon content
than gasoline Modern petrochemicals
products made by Shell (hernias!
operations allow the substitution oi
energysintenxive materials, such as steel
with less energy-intensive plastics This
has helped reduce the weight of cars,
improving fuel efficiency Further
improvements, albeit small in cor
emissions, came from the additives used
in fuel: and lubricants that improve or
maintain engine efficiency

Lobbying and industry associations
Shell companies belong to many industry
associations, some of which talce a view
on climate change and lobby regulators
The most controversial or these is the
Global Climate Coalition of the USA

Shell Oil in the USA remalnx a member of
the Global Climate Coalition, which has

a style unique to the USA reiiecting the
political culture Shell oil believes it has a
better chance to inf/Meme the actions or
the Global Climate Coalition, and persuade
is fellow members of the view held by
sneil companies on climate change, irit
remains a member

More information l5 available on the Shell
position (see Climate change bner on
and recent speeches by
Group Managing Directors, Page 56).

  
 
 
 
 
  
 

 

Issues 

Dilemmas

 

 

 

A world war? {0?2 (1

Globalisation and the role

of multinational companies
Globalisation the combination of much
freer movement of capital and much freer
trade in goods and services around the
world brings many benefits but is also
causing deep concern about its social and
environmental consequences.

The debate about globalisation?s benefits
and drawbacks, and the role of
multinationals in particular, is characterised
by splits between those who argue that
progress and the eradication of poverty are
best achieved by allowing global markets
to emerge, and others who think this is
unlikely to address human and
environmental concerns adequately.

The key issue is whether markets sufficiently
encourage companies to take such concerns
into account, and to what extent new
standards and corresponding new accounting
tools are needed (see pages 47 50).

Inter?government support for the idea of
sustainable development, which gives
equal weight to economic progress,
environmental protection and social
responsibility, has intensified the debate.

Nothing new

Free trade and capital flows existed before
the First World War, although on a much
smaller scale than today. The end of
communism and the almost universal
support for market economies, combined
with improvements in information
technology, have encouraged the trend
towards globalisation.

This. has allowed those developing countries
which adopt policies compatible with
globalisation to grow very fast. In the 18005
it took Britain 85 years to double the income
per person. China has achieved the same in
a decade. Those countries which have not
benefited tend to have adopted policies
which discourage trade and investment.

Globalisation means that some businesses
can now choose to make goods in one
region of the world and sell them in
others, constantly seeking out the most
efficient locations. Investors too have the
opportunity to look for the highest rate
of return in a growing number of capital
markets around the world.

Some commentators argue that
multinational companies probably make
the biggest contribution to and benefit
most from globalisation, mainly because
they have the infrastructure, technology
and access to funds to take advantage of
the many opportunities. It is estimated
that the top 500 multinationals account
for nearly 70% of global trade and 80%
of international investment.

Increasing direct investment

Increased activity by large companies in
developing countries can boost trade,
create jobs, and help alleviate poverty.
Such investment, known as Foreign Direct
Investment (FDI), is on the rise and is fast
replacing overseas aid, which is shrinking
as donor governments cut back.

also eliminates the financial risks
that developing governments face if they
borrow money from banks or raise it on
the capital markets. Companies bear

the risk if their investments fail. Both
government and the business benefit

if the investment is successful, through
taxes paid and profits made.

But many people are deeply concerned
that'while multinationals might create
competitive companies in the developing
world, they can also destroy local
enterprises which find it difficult to
compete. People feel powerless to affect
the actions of multinationals and often
accuse such companies of ignoring their
social responsibilities and rigging
international regulations and codes of
conduct in favour of big business.

Multinationals are also accused of operating
double standards in areas such as wages,
safety and the environment: paying lower
rates in the developing world, and working
to lower safety and environmental standards
than they would in their home countries.

It is, though, also acknowledged that
multinationals with long-term investments
and which are also under public scrutiny 
have sufficient incentives to observe
relatively strict standards worldwide.

 

 

 

Another major concern is that globalisation
reduces the bargaining power of low-skilled
labour and increases job insecurity, and thus
contributes to poverty, inequality and social
disintegration. This is because production of
manufactured goods can be moved from
one country to another with relative ease,
but workers are far more restricted in their
ability to cross borders.?The movement of
light manufacturing companies from the
USA to Mexico is an example.

Companies working with natural
resources for example mining, oil and
gas, and tree plantations have to make
long-term commitments because of the
capital-intensive nature of their business.

Some social and environmental groups
want, as a minimum, voluntary codes of
conduct for multinationals. There is also

a demand for legal instruments which
would place greater control on the
activities of multinationals and force them
to include social and environmental
factors in their investment decisions.

Such demands are often resisted by
developing countries because they are
seen as cultural imperialism, designed to
impose a barrier to their development by
reducing their competitive advantage.
Producers in emerging economies also
accuse regulators in the developed world
of creating barriers to trade by imposing
environmental conditions on trade. Two
examples are standards designed to
protect-dolphins in the tuna fishing
industry and the environmental labelling
of paper products in the European Union.

Shell's approach

She/l strongly supports globalisation as a
way to ensure greater prosperity for all.
There are two key issues in the debate: 
the role of private enterprise and the call
for global standards.

Enterprise

In principle, private enterprise is beneficial
and it works best when there is
competition in markets. This provides
strong incentives to innovate and adopt
best practice, which ultimately leads to
higher living standards.

 

Caribbean, Central 
South America 

 

History shows that such prosperity also
brings demands for higher social and
environmental standards. Shell companies,
due to the capital intensive nature of their
operations, are long term investors. in 7997,
the capital investment of Shell companies
worldwide was in excess of 72 billion
(see pie chart for breakdown). in addition
more than 7 billion was spent in
exploration worldwide. It would be short
sighted for Shell companies to practice
low standards at the beginning of the
investment cycle, only to have to raise
them later at much greater expense.

Capital investment
in 1997

 
 
  
 
  
  

Far East 
Canada 

Middle East USA 

Africa 

Europe 

Standards

Special standards governing private

and public enterprise may be helpful to
consumers, workers and the public at
large. The appropriate authorities should
decide on these standards and Shell
companies will then conform to them.
The Business Principles act as a safety net
against abuse or inadequate exercise of
such authority

In some cases it may be sensible to have
mandatory standards. ideally these should
be set as a result of dialogue between the
relevant interest groups. Where this is not
possible where governments are weak
or uncaring then international standards
may be useful.

The imposition of such standards creates
many dilemmas, mainly because those
who campaign for the standards are often
doing so on behalf of others who might,
or might not, appreciate the help.

The principle of different standards is

enshrined in a United Nations agreement
Principle 7 7 of the Rio Declaration of 7992),
which makes it clear that national
environmental standards have to be effective
but ?standards applied by some countries
may be inappropriate and of unwarranted
economic and social cost to other countries,
in particular developing countries?.

She/l companies do not pretend to operate
in an identical manner around the world,
although some standards are global by
their very nature. The importance of
human life is the same worldwide and
Shell operates to the same standard in the
areas of occupational health and safety.

Other standards to which we adhere must
depend on local circumstances, such as
the condition of a region?s environment,
what the customer wants and is willing

to pay for, and the law in any event,

each Shell company has adopted and

will conform to the Group?s Statement of
General Business Principles and HSE Policy

The debate within the Group on the issue
of standards is aimed at achieving the best
policy to ensure that Group?wide standards
bring the intended benefits for Shell
companies, the people who depend on
them, and protection for the environment.

As a minimum, the Group supports

the efforts of government and

in ter?governmenta/ organisations, such

as the Organisation for Economic.-
Co-operation and Development (OECD),

to introduce measures like the Multilateral
Agreement on investment (MAI), which
will enhance international investment
within a sensible framework.

 

Issues 

Dilemmas

 

 

Operating in politically
sensitive regions
Multinational companies, especially those
in the oil and gas industries, sometimes
operate in politically unstable regions of
the world, characterised by oppressive
regimes, civil unrest, armed insurgency
and terrorist or guerrilla activity.

Energy is a state concern and oil companies
are inevitably involved in discussions

with the prevailing government,

either by licensing agreements, fiscal
obligations or through joint ventures

with state-owned companies.

These relationships expose companies to
criticism from human rights and other
groups which see the involvement of
business as an endorsement of
government policies and actions.

Other than human rights (see page 32),
two areas are of particular concern. One is
the way companies organise their security
operations and the other is the role of
foreign companies in joint ventures.

Security

Companies have a duty of care to provide
security for their employees, as well as a
responsibility to shareholders for the
protection of property and information.
The security risks can include malicious
practices, crime, civil disorder, extremism,
terrorism and armed conflict. As ordinary
citizens, companies would expect the
state?s forces of law and order to give
appropriate protection against the more
serious threats to people and property.
However, they would be expected to
provide routine security of their own
assets, which may include guarding. This
can sometimes be seen as running private
armies or using and paying for troops and
police from an oppressive regime.

Joint ventures

Some campaigners argue that companies
in joint ventures with the state, even if
they are minority shareholders, should use
their influence or their own resources 
to ensure higher levels of pay, better
standards of safety and environmental
protection, and to defend human rights.

Shell's approach

We are very concerned by the human
rights issues associated With politically
sensitive regions. We support the
Universal Declaration of Human Rights
(our position is on page 33) and all our
actions are based on our Business
Principles (see page 5).

The Group?s businesses are highly capital
intensive and involve long-term
commitments. We know from considerable
experience that governments Change,
often for the better, as has happened in
South Africa and in the former Soviet
Union. Our commitments are to the
communities and the nations in which

we operate, not just to the government
of the day.

Security

We realise that all private security
arrangements have to be handled with
great sensitivity. The need arises only in
exceptional cases when required by law,
or when the state has insuf?cient resources
to provide normal protection. We have
established a dialogue with Human Rights
groups to ensure that our security guidelines
and actions re?ect current thinking.

Nigeria is a good example of Where security
is needed. She/l Petroleum Development
Company (SPDC), the Shell company in
Nigeria, has reviewed its security force
guidelines against three United Nations
documents: UN Basic Principles on the Use
of Force and Firearms by Law Enforcement
Officers; UN Code of Conduct for Law
Enforcement Of?cials; and UN Pocket Book
on human rights for the Police.

As a result, and in line with the Statement
of General Business Principles, the
guidelines were updated to include
explicit reference on the need to respect
and protect human dignity and uphold
the human rights of all persons.

 

 

 

Joint ventures

We are involved in a number of joint
ventures around the world. In some, the
Shell company is the majority shareholder
and totally in charge. In others where

it holds a minority stake it might be
responsible for running the daily affairs
of the joint venture, but it does not
necessarily control the decisions made

by the venture as a whole (as in Nigeria,
see below). In all minority ventures
where a Shell company has a substantial
investment (greater than 20%) it makes a
concerted effort to see that the Principles
or a compatible set of Principles are
accepted by partners.

She/l companies will no longer form joint
ventures where partners decline to adopt
Business Principles compatible with ours.
One of our dilemmas is how to deal with
existing joint ventures where partners
currently reject such Principles, or fail to
implement them.

The case when She/l companies are a
significant shareholder, but with a
minority stake, can pose many dilemmas,
especially in the areas of pay, and health,
safety and environment.

Take Nigeria. Shell Petroleum Development
Company (SPDC) is the operator of a joint
venture on behalf of the government?owned
Nigerian National Petroleum Corporation
(NNPC 55 interest), Shell 

Elf and Agip The partners
fund the operations in proportion to

their shareholding.

The joint venture?s partners recommended
a business programme for 7997 which,
including community and environment
projects, cost some 7.9 billion. This
was dependent on funds being made
available to cover the 55% share
from the government?s 7997 budget,
which has to balance the growing needs
of a nation with many development and
economic challenges.

It became clear in February 7997 that
sufficient funds were not going to be
available from the government. The joint
venture?s budget was reduced by 40%,
which led to major cuts in its activities.
SPDC managed to maintain the community
programme at 32 million and spent
94 million in 7 997 on environmental
improvement projects.

 

But budget cuts and consequent reductions
in production mean that planned projects
and published improvement targets will
have to be rescheduled. Earlier promises
on environmental improvements will not
be met on time.

What does a Shell company do when
faced with this situationPVSome say it
alone should make up for the shortfall,
even if this is not its responsibility under
the terms of the?joint venture. Such action
would not only fail its investors, but it
could also encourage other joint venture
partners to make similar and probably
unfair demands.

This is clearly a difficult area and provides
us with a dilemma we are working hard
to resolve.

 

inch-9a.. 

 

 

 

 

Issues 

Dilemmas

 

 
  
 
 
 
 
 
 
  
 
 
 
  
  
 
  
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
   



Wit/474m

Wm,

Dealing with industrial
legacies

Most companies involved in manufacturing
and heavy industry have to deal with
environmental problems created by past
activities, of their own or a predecessor?s
making. In some cases the practices which
led to these are no longer acceptable.

For example, paint makers often own
property contaminated with lead, which
used to be an ingredient in paint before it
was known to be harmful to health if
ingested. The soil on sites of old municipal
gas factories is usually contaminated with
coal tars. Heavy industry often owns
property contaminated with chemical
solvents used for degreasing.

Oil production companies own platforms
and other installations that are no longer
needed and oil distributors often have to
deal with ground contamination from fuel
which has slowly leaked from storage tanks.

Much of the industrial contamination of
soil does not pose an immediate hazard,
as long as the property is left undisturbed.
Contamination which is an immediate
threat to people and the environment,
such as contaminated ground water,
usually has to be cleaned up, in most
countries as a matter of law, with the
company responsible bearing the cost.

National laws differ on the responsibilities
companies have to bear for historical
contamination, and the level of remediation
required. Generally, contamination reduces
the value of both the property and the
companies who own it.

Public companies operating in the USA are
required by Securities and Exchange
Commission regulations to disclose large
environmental exposures, such as
contamination. The accounts of these
companies often show provisions which have
been made for the cost of future clean up.

Shell's approach 

Cleaning up contaminated soil and water
is the responsibility of the companies
who own the sites. As part of their
Commitment to HSE, She/l companies
undertake to assess contamination and to
put control and remediation plans in
place. The companies have to make
decisions on restoration based on
conditions on the spot and work closely
with local authorities.

The disposal of obsolete oil platforms and
other installations is controlled by national
laws and international agreements. For
example, in the UK, the process adheres
to the International Maritime Organisation
guidelines, an approach contained within
the UK Environmental Protection Act.

This allows, in some circumstances, for

a portion of the installation to be left,
providing there is adequate water
clearance. Before this is allowed to
happen the requirements of 

(an alliance of 72 nations bordering the

North East Atlantic) must be met.

Unless there are specific legal stipulations on
how installations are to be decommissioned,
Shell companies come to an agreement on
the best option with regulators and will also
consider the Wider social implications. Our
experience with the Brent Spar has taught
us that sticking to the letter of the law is not
enough. We need to dispose of installations
in a way that is also acceptable to the
broader society

 

read--



 

Dialogue leads to Brent Spar solution
Brent Spar, the redundant storage and
loading buoy which was the centre of
controversy over plans for its deep-sea
disposal in 7995, will be used to build a
quay extension near Stavanger in Norway
if the plan meets official approval.

The original plans, which were given
statutory and government approval, were
Opposed when the time came to carry
them out. Protesters felt that the sea
should not be used as a dumping ground
and were concerned that other oil
installations would be disposed of in the
same way if the sinking of the Spar went
ahead. Many false allegations were made
but these were difficult to rebut in the
highly-charged atmosphere of
confrontation that prevailed at the time.

ZEprom?lZ


mmeWofbeh?
WapmMacwuwm/ble

 

 

Protests were vocal and physical. They
ranged from the personal intervention
of senior politica/s in several European
countries, to the occupation of the Spar
by Greenpeace activists. There were
violent attacks on She// service stations
in Germany, with 50 damaged, two
fire-bombed and one raked with bullets.

In the face of such public opinion against
its plan, She/l UK halted the disposal and
the Spar was towed to a mooring in a
Norwegian fjord while its final fate was
decided. Tests by an independent
Norwegian foundation, Det Norske
Veritas, disproved claims by Greenpeace
that the Spar was a ?toxic timebomb?.
Greenpeace later apologised.

A two?year dialogue process then started
with a series of meetings in Denmark,
Germany the Netherlands and the UK

to help She// UK identify a solution by
gathering a wide range of views known
as the Brent Spar Dialogue. She/l UK
consulted with non-governmental
organisations, opinion formers and
experts on the best disposal options.
Participants were asked for their opinion
on the issue, and later on in the selection
process, to help choose between the
shortlisted options for the Spar?s disposal.

This unique consultation exercise has
helped to promote a different approach to
decision making in the Group, and has
shown new ways in which She/l companies
can be more open and accountable

(see the Brent Spar website


 

 

 

  

        
        

   

b?

  

   

. I, 
I- -. .


        



Product Stewardship in Mauritania
In 7997 Shell International Chemicals
completed a project with the non profit-
making German Agency for Technical
Co-operation (GTZ) and the government
of Mauritania to remove and safely
dispose of 786,000 litres of obsolete
dieldrin insecticide and some 7,500
contaminated storage drums from sites
around Mauritania, North West Africa.



0"


AHARA

MALI

 


FASO

The dieldrin was provided by aid agencies
as a strategic stock for the control of
locusts in the 79605 and 705. The licence to
use the material was later withdrawn when
newer products became available but the
stocks remained. With time the stores
posed a potential threat to the environment
and communities. As the makers of the
dieldrin we took responsibility under our
commitment to Product Stewardship to
help in the disposal. Shell International
Chemicals provided technical advice,
assistance and training, and paid for the
transport and high-temperature incineration
in the Netherlands.

Earlier collaborative projects with GTZ
provided invaluable learning on how to
deal safely with obsolete pesticides.
Further projects are underway with the
intention of disposing of all unwanted
dieldrin stocks.

Shell?s multiparty approach to the disposal
of obsolete pesticides is being used as a
model for similar operations elsewhere.

 

 

How to help the environment heal itself
Shell Gabon has been working with the
Gabon government and the World Wide
Fund for Nature (WWF) to rehabilitate
disused exploration areas in the country?s
forests.

Gabon, in West Africa has some of the
largest oil reserves south of the Sahara
and is rich in tropical rain forests. Shell
Gabon has been working in the country
for over 20 years.

Ear/y exp/oration, mainly in the 79605,

led to the building of bridges and rough
roads made from crushed stone; clearing
of sites to accommodate drilling platforms
also made from crushed stone; erection
of engineering equipment, concrete
cellars, flow?lines and the digging of

mud pits to store waste hydrocarbons.

When insufficient oil was found, most of
the infrastructure was abandoned as was
common practice at the time. The roads
and clearings were subsequently used by
other oil companies and by loggers.

 

 

In 7993, working with the Gabon
government and a representative from the
WWF, She/l Gabon set about returning an
area surrounding 26 disused sites to a
condition where the environment could
recover naturally This involved:

0 plugging wells and cutting off access
pipes below ground level

0 removing all debris, or burying it if
removal was more damaging

0 cleaning up and filling mud pits

0 stabilising the sides of the platforms to
minimise erosion and limit surface
water run?off

0 breaking bridges and destroying access
to roads and tracks to avoid re-use

0 seeding the sites and tracks to speed
natural regeneration of vegetation.

In 7996 the job was completed to the

satisfaction of the Gabon government
and the WWF. Shell Gabon is using its
knowledge to plan in advance for the

eventual rehabilitation of its producing
sites in the country.

The work has led to the initiation of
standards, procedures and tools which
are being used by other Shell companies
worldwide. The experience also underlines
the need to include rehabilitation in

the planning of new exploration ventures
now considered best practice by
responsible companies.

 

Won: in Rabi? 

 

Ras?rordns ?Hm WFor'j' Gabon

Issues 
Dilemmas

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 

  

Renewable resources

One answer lo the challenge or acnrevlng
sustarnable economrc developmem rn the
lace ol popularlons rs the
development ol locallyebased renewable
energy sources, supplying local markels

Technologres lo explort renewable energy
sources, such as wrnd, sun and bromass
lplanr matter), are developrng last But
except rn nrcne markels none can yet
compete ettecrruely tne conyenrence,
cost and of lossrl luels ans, ol
course. will change as populalrons grow,
requlnng energy supplles rbat lossrl luels
cannot dellver Renewable resources are
expected Io pron/Ida between 5% and um
ol the world's energy 25 years and
tne market share could glow alter
rnat, perlraps expandll'lg to ball by 2050

ans trend substantrally allecr rne
ol lnose energy companres 
are relrant on lossrl luels rurrnermore tne
enyrronmental drawbacks ol a contrnurng
dependence on sucn luels nrarnly
and explolallon rn socrally and
ecologrcally lragrle regrons ol the world 7
have led to calls lor oll comparlles to
lnvest mucn rnore rn rne development

of renewable:

A substantral away lrorn rossrl luels 
cenalnly reduce many of the enylronrnental
rnyolved rn transpomng,
and usrng orl, gas and coal.
altnougn renewables are not torally lree
lrorn enurronmenral and socral rmpacls

The or gasrlroatron ol bromass rs
consrdered enyrronrnentally sound wnen
convened to useable energy wrtnout narrnlul
ans ls because plants rean lor
purpose absorb as mucn carbon dloxlde
as may release when burnt, and tnerelore do
not rncrease tne concentratron or greenhouse
gases rn the atmosphere

  

 
  
 

Tne creatran or plantalrons rs
a means ol coZ wnen
mature rrees are used lor uses
sucn as paper and umber ln sprte or

tne benelrrs, tree planralrons can create
controversy Tne rssues rnclude.

- tne type at land used and tne 
under ll rs acaurred and occupred

- what nappens to local people wnen
(lees ale planted and What benefits
or dlsadvamages result

- what types pl trees are grown

how lne planlatrons are managed

- now and ecosystems are protected
- when the rmpacr rs on water supply

All or these must be addressed rn rne
and management at planlallons

Renewables are clearly set to play an
lmpoflam pan ln 
the world's need lor energy and 
plovldes energy companres 
potentrally allracrrye 

Shell's approach

We nave been experimenting 
renewable energy lechnologres for 20
years ln 1997 we made a commitment to
aneS! U53 5011 mil/Ion over Ill/e years ln
renewables and rn tne process created
another core busrness, Shel/ lnternatrorral
Renewables The! busrness was set up
demansrrara (he Group's commitment to
tne development ufrenewab/es

The decrsron rllucrrates now rntegral
rssues are to busrness

The need to ensure a sustalnable form of
development rs nelpr'ng dn'rre
the market tor renew/ables, as rs tne
global pressure to reduce tlre arnourrt at
carbon dloxlde emrtted to trre arr

Shell lnrematlona/ Renewable; Wl// devote
mosr of its effort to rnree areas solar
forestry as a buslness rn own
and brornass power generatron

Solar
We expert that the cost orproducrng
photovoltarc panels could drop at the rate
of 673% earh year over the next 20 years
would rnean that 10 years horn now,
the (est olsolar Elenrloty eould oe three
tlrnes (heaper than it ls (oday

The experlence or She/l companles 
prlot systerns ln ooth sunny and (old
(/lmares shows how etternue and userul
the technology (an be however loser
fuels are cheaper to use We are 
to reduse the Cast of solar panels
and luoklng at new terhnologres to
rnrrease the emrrenry or conversron rrorn
(a 

We have a tearn on a desrgn for
a 10 MegaWao manufatrurlng lrne 
ran oe set up anywhere rn rhe world,
dependmg on local 

Forestry and Biomass Power

Wood rs a key sourre or renewable
energy lt ls (om/erred lmo energy by
combustron and ls rdeal for srnallssale
power statlons rn the deueloprng world

She/l Compaan have rnyestedrn plantatron
forestry srnte the early 1980: and have
gained consrderable expedente ln all aspects
of the ousrness, lnc/udlng the enrnronrnenol
and soeral rssues For example, we Worked
the World Wlde Fund lor Nature
(WW9 to produce the Tree Planratlon
Rewew, a senes of 12 nepoos on a range of
socral, KunamlC and enWonrnental rssues
that affect the development of forestry
ppnratrons She/l lnternatronal Renewable;
recently prepared revised guldelrnes for sale
praetrees and enyrronrnental
management of tree plantotrons

A5 pan or the proress, 93d! of our
plantatlon mmpanles ls ta
ashrevlng ISO 14001 the trot
hawng oeen acCTedlted rn luly 1997

Sula! and Biamass (omhined

The lwo technologles can be comblned
ln what we call a 'sun Sfatlan' to supply
yrllages and snrall towns an
unlnterrupted supply of 

We are also lnvesrlgarlng other
techno/pores, suth as offshore farms,
to see how our expense san help to

develop a range of energy temno/ogles

gk 

 
 
 
 
   
  
   
  
  
   
  
 
 
   
    
   
 
 
  
 
 
 
   

L51. 4

Contributing

to Society

 

A Personal View

We invited John Elkington to
contribute his personal thoughts
on the challenges that Shell
companies, and like minded
enterprises, face as they set
about embracing the concept

of sustainable development.

John Elkington, Chairman of
SustainAbility; Member, EU Consultative
Forum on Environment and Sustainable

Development; author, Cannibals With
Forks: The Triple Bottom Line of 21st
Century Business.

Why we decided to work with Shell
I should explain SustainAbility?s decision (as a
values-led consultancy) to work with Shell.
For two years after the Brent Spar and
Nigerian controversies, my colleagues and
I fended off requests for help from various
parts of the Shell Group. There was no
disputing Shell's need, but our logic was
simple. First, or wrongly, we sensed
that many Shell executives were still in
denial. Second, we believed we could better
leverage change from outside. And, third,
we work with-the environmental, human
rights and development movements: even
had we wanted to say yes, a link?up would
have been unacceptable to many of our
own stakeholders.

But we kept a watching brief and late
in 1997 accepted an invitation to

meet and challenge a range of top Shell
people, including chairman-designate
Mark Moody?Stuart. We found a widespread
recognition that Shell must now perform
against what we dub the ?triple bottom
line? of sustainable development.

A pal/mm W.

More specifically, we were impressed by:
Cor candid analysis of the
company?s weaknesses; the thoroughness of
the Shell ?Society?s Changing Expectations?
stakeholder review (see pages 2 22); the
Committee of Managing Directors? clear
commitment to the new accountability Road
Map (see pages 49-51); the development
of Exploration Production?s sustainable
development guidelines; and the formation
of the Shell Renewables business (see page
44), with clear market share targets.

Given that a sustainable oil company is a
contradiction in terms, we were also
intrigued by the brief of the new Shell
Chemicals executive vice-president
responsible for sustainable development.
It not only covers health, safety and
environment (HSE), but also such
?mainstream' areas as strategy and
planning, portfolio management, mergers
and acquisitions, and joint ventures. The
implication: sustainability considerations
will help reshape the Shell Chemicals
portfolio of businesses over time.
Hopefully, the approach will spread to
other Shell businesses.

The sustainable development community,
meanwhile, must develop its toolkit for
triple bottom line accountability and
management. Offered the opportunity to
embark on a multi?year work programme
with Shell's new Social Accountability Team,
we consulted our own international Council
and Faculty and jointly concluded that the
time had come to commit. This is an open-
ended experiment, requiring extensive
piloting in Shell businesses. We will report
regularly on the experience and outputs.

 

Can Shell account for the

triple bottom line?

If sustainable development is to become
a global reality rather than remain a
seductive mirage, governments,
communities, companies and individuals
must work together to improve their
?triple bottom line? (economic, social and
environmental) performance. To this end, we
not only need new forms of accountability
but also new forms of accounting.

This does not mean that every aspect of a
company?s performance can or should 
be reduced to a ?common currency? of
money values. But if we are to manage a
given company?s performance effectively
we also need to be able to measure it.
We must find accurate, useful and
credible indicators of progress in terms of
economic prosperity, environmental
quality and social justice.

Sustainable value creation

Companies exist to create wealth, so the
most direct contribution they can make

to sustainable development is to create
long-term value on an economically, socially
and environmentally sustainable basis.

A key let century challenge, in short,

will be 'sustainable value creation?.

But how can we measure progress against
the emerging economic, social and
environmental performance indicators?
Try to benchmark Shell?s or any other
company?s performance against Shell?s
Statement of General Business Principles
and you will find it hard, if not impossible.
In part, this is a problem of data availability.
But it also reflects weaknesses in
accounting theory and the fragmentation
of standards and metrics in this field.

This is a problem both for outsiders, who
increasingly want to track corporate
performance, and for companies like Shell.
To create long?term trust and shareholder
value, companies need to manage this
complex new agenda, but to do so both
companies and their stakeholders must
be able to measure progress against the
triple bottom line.

 

What about shareholder value?

At the heart of the emerging sustainable
value creation concept is a recognition

that for a company to prosper over the
long-term it must continuously meet society?s
needs for goods and services without
destroying natural and social capital.

The approach does not necessarily imply

a new concept of what companies are
primarily for; rather, it extends the
time?horizon over which the full range

of a company?s and its shareholders' 
interests should be assessed. But it also, as
signaled by stakeholders in Shell?s ?Society?s
Changing Expectations? consultation process
(see pages 2 22), demands a deep shift in
corporate culture, values, decision-making
processes and behaviour.

Happily, the evidence suggests no
fundamental conflict between sustainable
value creation and long?term shareholder
value added. The real difference is that
for value creation to be sustainable, a
company must acknowledge and manage
the full range of relevant economic, social,
ethical and environmental costs associated
with its activities.

Shell International has now assembled an
internal Social Accountability Team, pooling
resources with Arthur D. Little (ADL) and
SustainAbility, to develop a range of ?total
net value added? metrics. The indicators
will be developed with inputs from Shell?s
internal and external stakeholders.

What would triple bottom line
accounts cover?

Unfortunately, these new forms of
accountability have taken most parts of the
accountancy world by surprise, with most
accountants ill-prepared for the challenge.

Even financial accounting, evolving for
500 years, is still developing rapidly. There
are huge debates, for example, over how
to account for new financial instruments
like derivatives. Environmental accounting
has a much shorter history, of perhaps 20
years, with most progress made in the
19905. And, while embryonic versions
have been around for some time, social
and ethical accounting and auditing are
only now getting into their stride.

 

So we need intense, focused efforts not
only to develop these three different
forms of accounting but also to evolve
frameworks which enable the results to
be increasingly integrated to ensure
both full accountability and efficient
business operations. Let?s look briefly at
each form of value in turn.

Economic value added: The scale of Shell?s
economic contributions is indicated by
the figures for its sales (1997: over
billion), sales taxes (1997: over
billion) and total taxation paid
(1997: over billion).

Shell focuses on ?Return on Average
Capital Employed? (ROACE: see page 8),
but another approach ?Economic Value
Added? (EVA) is promoted by US
investors concerned to know whether
given companies or industries are adding
or destroying value. The profits a company
makes are adjusted for the costs of the
capital employed. A linked concept,
Market Value Added (MVA), calculates
how much value a company has created
since it was founded.

To measure total net value added,
however, EVA and MVA values will need
to be adjusted for the linked impacts 
both positive and negative on natural,
human and social capital. The
internalisation of such costs and benefits
represents one of the greatest challenges
both for business and for accountants.

Environmental value added: Among other
things, we must adjust our measurements of
wealth creation and profit with a charge for
the natural capital employed and, in the
case of non-renewable resources, often
consumed for a one?off benefit.

Our natural capital is a combination of
renewable and non?renewable resources.
Even in the case of renewable resources,
the most important values are not in the
timber produced by a forest or in the fish
produced by a sea, but in the ongoing
capacity of such ecosystems to produce
yields on a sustained basis. Some types of
natural capital may be substitutable by
technology and other forms of man?made
capital, but most are not.

 

Even companies pioneering in the .
environmental accounting field have typicall 
not yet integrated environmental accountinu. 1
into their mainstream accounting, although .
some are working in this direction. Key
barriers include the lack of a standard
methodology, the fact that accountants
and auditors lack environmental experience
the difficulties involved in identifying
environmental costs (particularly in
companies pursuing integrated investmen:
strategies), and the valuation of liabilities.

   
    
 
  
 
 
   
  
  
  
 

Social value added: The ultimate botto 
line for any project or business must also
be adjusted for impacts on human and
social capital. In the case of human
capital, we must account for knowledge
and skills developed or lost. In the case of 9
social capital, the focus might be on the 
levels of resilience, mutuality and trust in 
communities, be they villages, mega?cities.
or world regions. 

New benchmarks are emerging, among
them Social Accountability 8000 (SA 8000), 
developed by the US Council on Economic i
Priorities (CEP), and the revision of the
International Chamber of Commerce?s (ICC)
sixteen environmental principles to embrace I
emerging social requirements. New
organisations like the UK?based Institute for
Social and Ethical Accountability (ISEA) aim
to bridge the divide between the different
forms of accounting, auditing and reporting.
But the social accounting challenge has
hardly begun to be addressed.

Total net value added: Despite the
barriers, we will see significant progress
made on triple bottom line accounting,
auditing, reporting and benchmarking.
There will be huge debates about who sets 
the standards and how to value particular -1
outcomes, but our understanding of which
technologies, which companies and which
economies are adding or subtracting value
will be transformed.

Working with the Shell Social Accountability
Team and ADL, we aim to evolve a better
picture of the total net value added by
Shell. If you would like more information,
please call me on +44 (0)171 937 9996
(e?mail: 

A background briefing paper is available
on the web (see 

Message from

the Chairman

 

 

WWM/Lwe??bea 


Writing this message has been on my mind
throughout the preparation of this Report.
How, I wondered, can I succeed in
expressing my thoughts which are both
rational and passionate about the changes
taking place in the Royal Dutch/Shell Group?

Fundamental to this is our commitment to
support sustainable development and to
embody this in our strategic planning and
the daily conduct of our businesses.

It?s true that this document and more
importantly, the planned Social Responsibility
Management System of which it is a part 
are entirely logical undertakings, as
significant for our businesses as any other
commercial activity. It would be quite
wrong to cast the process in anything
other than sane and sensible terms.

But I know too, as someone who has
been at the centre of the Transformation
of the Group, that it is about much more
than sober facts and sound figures. It
involves the passions and feelings of the
people who make the Royal Dutch/Shell
Group what it is. People from different
backgrounds and cultures, all held
together by a common desire to do their
business with integrity so that they can
hold their heads high in their communities
and among their families and friends.

That such determination exists, and is so
strongly imbedded in our organisation,
makes me feel particularly proud of the
plans we have put in motion to reinforce
the ethical underpinning of the Group as
it enters its next hundred years. We
believe fundamentally that there does not
have to be a choice between profits and
principles in a responsibly run enterprise.

 

Our plans reach into the very heart of our
corporate culture and pulse through the
entire organisation, in every corner of the
world. They are based on our commitment
to contribute to sustainable development
and the concept of social accountability.
This represents my personal commitment,
it is the commitment of all my colleagues
on the Committee of Managing Directors,
as it is of the whole of the Group.

it is tempting for me, as I prepare to
retire, to look back with nostalgia on an
eventful and exciting past, but I find
myself only looking forward. Forward
towards the fruits of what has been sown
in the 19905 plans that will help ensure
a sustainable future for the tens of
thousands of people who work within
Shell and the hundreds of thousands who
benefit in so many ways from our
activities, now and in the future.

On the fold-out page opposite is a Road
Map which shows details and timings of
those plans in the context of earlier
developments. Like any long journey
through uncharted territory, I?m sure there
will be good and bad times ahead with
many unexpected problems and
difficulties. We might not get to all the
targets on time and there will inevitably
be detours, but I know we will eventually
attain our stated objective: to provide the
necessary evidence so that others may
judge if Shell is living up to its principles.

Thank you for reading this far. Please use
the Tel! Shell' cards to let us know what
you think of us, how you would like us to
improve and how you might tackle some
of the issues we face on a daily basis. We
might not always agree with your views,
but I promise they will be taken seriously.

Cor 

(Chairman of the Committee
of Managing Directors)
April 1998

 

 

 

Road Map

 

Shell begins Transformation process -
First Exploration Production HSE report 0

External Audit Guidelines -

First Chemicals HSE Report - - ?Society's Changing Expectations' round table; in
- Public statement of support for Precautionary Prir
and C02 emissions (18 months before Kyoto surr

Group HSE Management System Guidelines 0 0 Updated Statement of 

Enhanced Safety Management System -
Environmental Management Guidelines (1987) 0
Occupational Health Management Guide (1989) -

HSE policy -

Introduction of 'Letter of Representation? (1978) 
lnternal Accounting Control Guidelines (1979) -
First Statement of General Business Principles 0

First Group consolidated accounts (1953) -

First Audited accounts of
Shell Transport and Trading (1898) -

 

Fl 
Sustainable 
Development
5 0C

 

FIN
Accounting/ 

 

 


Reporting

>i SOC
In

2
Standards
FIN
Systems
3 External
(B Verification/ ENV
Assurance
Continuous
Improvement/ SOC
Targets

Engagement
INT

 

 

- Group HSE Policy, Com

- Mori poll provi
- First Group HS

 

 

 

 

 

 

mutin-

4 44 Growing awareness Commitment 4 44

44?

 

44?

 

Non-integrated Non-integrated

4 44 Continuous Dialogue

44?

Financial lav Environmental Social [55 External Internal,

 

49

tensifies open dialogue
iciple on Climate Change
imit conference)

Seneral Business Principles
mitment and Procedure

des quantitative data on worldwide opinions of Shell
Report and Oil Products HSE Report

iormation of Social Responsibility Committee

0 First presentation to Financial on non-financial aspects of Group performance
0 Dialogue with network of experts in area of corporate ethics and social accountability
- Development of workshops/dialogue with Shell personnel on social accountability and Business Principles

- Integrated verification of Group HSE Report

. Implementation of certifiable HSE Management Systems by all Shell companies

1999 2000 2001 2002 2002+

 

. a 44
Building A i

- Immature Developing Mature l:l Integrated

 

 

Road Map

 

Our goal is to have our responsibilities to
stakeholders and society at large clearly
seen as an essential part of the Shell
culture and sustainable development
integral to all decision making.

The Road Map details how we aim to
achieve this. It places our plans in the
context of past developments but more
importantly charts the road ahead.

Our intention is to develop ways for
consistently monitoring, measuring and
reporting performance in a manner aligned
to the expectations of society and our
Statement of General Business Principles.
This framework will encompass the three
components of sustainable development
(financial, environmental and social) and
the Report will reflect the underlying values,
systems and performance in an integrated
manner. It will draw upon internal and
external engagement activities. We call this
framework of values and process our Social
Responsibility Management System.

We will seek ways to collate and report
meaningful performance measures
which can be independently verified by
external auditors.

We will explore options on how we can
obtain an independent view (assurance) of
whether we behave as we claim.

Relevant standards and measures of
performance are mature in the financial area
and becoming established for HSE. They are
fragmented and inadequate in the social
dimension. Those that do exist have not yet
achieved internationally recognised status.

Much of our planned efforts will be
pioneering. To implement the changes
outlined globally, for a Group of such
complexity, is a major undertaking. But
we are determined. We will seek help and
believe that through our efforts we will also
have much to offer. We look forward to
working with like-minded companies and
organisations in furthering developments
in this area.

The following details the key components
to the challenge ahead and the Road Map
overleaf provides the time line.

Sustainable development

Shell companies are fully committed to
contributing to sustainable development
and are under no illusions about the
difficulties. There is little practical expertise
in this field and implementation will be a
process of developing in-house
knowledge and learning from outside
experts. A start has been made with the
writing of a practical guide for Shell
Exploration and Production companies,
Our actions will at all times remain
relevant to our commercial objectives.

Reporting

The reporting structure will gradually evolve
towards an integrated approach reflecting
the components of sustainable development.
As yet there are no established
methodologies or standards for doing this.
We aim to play a constructive role in
helping in their development internationally.

To ensure accuracy, Reports will be based
on data backed by an external verification
process, generated by a Social Responsibility
Management System (of which future
reports will be a part) and based on
standards consistently applied throughout
the Group.

The approach taken by Shell will be guided
and enriched by an extensive process of
internal and external engagement, which
will influence decisions in daily operations
and activities.

We shall also seek to develop an
approach to calculating the ?net value?
which Group companies add to the world
in a given time frame by taking into
account our contribution to the three
components of sustainable development.

The concept of ?net added value? is not
new but the challenge is how to apply it
in practice to an enterprise the size of the
Shell Group. It will require measures of
performance different from those used in
conventional financial accounting. If this
approach is to have credibility or value in
helping companies assess their overall
contribution to society then the basis on
which it is calculated will need to be
broadly recognised and accepted.

We are under no illusions about the
difficulties but we are determined to work
with experts in the field to explore this
approach. We believe that it has the
potential to steer rational debate about
the responsibilities of companies in the
context of their contribution to sustainable
development and to help focus on areas
for improvement. We know it could take
many years to achieve.

Standards

Social accountability standards are slowly
beginning to emerge, although no
universally agreed, comprehensive set
exists yet. Current standards are limited in
scope and do not meet all our needs.

We will seek to work with companies and
other interested groups in the setting of
standards. Our involvement will not
necessarily mean that we will adopt or
endorse the entirety of any standards set,
unless there is a clear relevance to our
businesses.

The objective is to establish ambitious
standards which take into account the size
and complexity of the Group?s worldwide
operations. We may need to create certain
standards ourselves and select the rest
from those which emerge. We will report
on progress.

 

Social Accountability and Social
Responsibility Management Systems
Terms are evolving and ?accountability' and
'responsibility? are often used to mean the
same thing in the literature. In future both
could be replaced with alternatives which
more aptly describe the concepts and
processes referred to.

For the purposes of this Report we use the
term 'Social Accountability? to mean the
over-arching ambition of an organisation to
be accountable to its stakeholders and
society at large. It embraces the need for
an organisation to act responsibly in
contributing to sustainable development,
and be accountable for its performance
through externally verified reporting to
pre-determined standards and performance
criteria. It also implies a suitable degree of
transparency with regard to the basis on
which decisions are made.

We use the term ?Social Responsibility
Management System? to mean the
framework of values and process by which
the needs of social accountability are met.
The sheer size of the Group, the complexity
of its operations and the huge differences
in social structures throughout the world,
means that the systems will have to be
tested in a number of operating companies
first before they are adopted across the
Group. Consultants Arthur D. Little (ADL)
have been commissioned to help in
assessing existing systems and develop
thinking in this area.

Progress will probably be made in steps,
both in terms of the scope of? the
framework and its application across Shell
companies. We see that many components
of the framework are already in place and
that there is much best practice to embody.

There will be an inevitable need to design
and adopt new procedures but we are
determined to keep this to a minimum by
using existing ones as far as possible.

Once the framework has been shown to be
workable all Group companies will adopt it.

External verification

We distinguish between the accuracy of
data, and the assurance process by which
the quality of performance against stated
objectives can be judged.

Accuracy. KPMG and Price Waterhouse 
auditors to the parent companies will
check the integrity of the data generated
by management systems. They have been
chosen for their professional skills, their
infrastructure which exists in over 100
countries in which we operate, and their
familiarity with Shell management systems.

The scope of their verification will depend
on the availability of consistently generated
data. This is a new area for auditors and we
realise that they will need to gain additional
experience in the field.

Financial reports have been subject to
rigorous audit processes for many decades
on the basis of increasingly sophisticated
control and audit mechanisms.

The Group HSE Report, and underlying HSE
reports of the key businesses, are developing
rapidly in the direction of reporting fully
verified data generated on the basis of HSE
Management Systems which will be in place
in all Shell companies by the end of 1999 at
the latest.

Assurance process. We have yet to resolve
how assurance can best be achieved. There
are a number of possibilities, including:

the use of the traditional auditors who are
developing their expertise in this area; the
use of new firms who specialise in this form

_of assurance; inviting non-governmental and

other organisations to review specific areas
of the Group?s activities; or a mixture of the
three. We will explore all of these options.

 

 

Engagement
Engagement encouraging a dialogue
with critics and interested parties is the
essence of social accountability. Our aim is
to gain the acceptance of those who have
an interest in the Group?s activities our
stakeholders and to try to match or
exceed their expectations of us.

We distinguish between internal and
external engagement.

Internal engagement. A structured process
of dialogue with employees has been
tested. The aim is to find an effective means
of engaging all staff in understanding what
social accountability and sustainable
development mean to them and on how
these concepts can be embodied in the
way we live up to the Business Principles
in the daily conduct of-our businesses.

External engagement. We see consultation
with a broad group of non-governmental
and other organisations and opinion
formers as essential to the success of our
social accountability plans. This involves
understanding their expectations.
Engagement is a two-way process,
which gives us an opportunity to
underline how we see our responsibilities
and to set out the social boundaries of
our commercial organisation.

The dialogue process could evolve from
consultation to co-operation and
eventually to some form of alliance with
key stakeholder organisations. Finding
the right partners is a difficult process and
we will do it in a structured way, helped
by independent experts. We may get it
wrong occasionally and we are prepared
to be corrected.

Our consultation process started several
years ago and it will be accelerated in
1998. We will report on progress.

 

 

?Accountants Price Waterhouse 

Royal Dutch Shell Group Auditors
Report of Independent Verifiers

To Royal Dutch Petroleum Company and
The ?Shell" TranSport and Trading Company, p.l.c.

As requested, we have veri?ed the assertions given in the section headed "Embedding Key

Policies" on pages 6 and 7 of The Sheil Report 1998, in particular with regard to the adoption, by

Shell companies worldwide, of the revised Statement of General Business Principles (?the

Principles"). Compliance with these assertions is the responsibility of management. Our

responsibility is to report on the status of the adoption of the Principles based on our veri?cation. 

We conducted our veri?cation, where applicable, in accordance with international Standards on

Auditing as suitably adapted. As part of our work we revieWed, on a test basis. the Board minutes of

Shell companies which represented 96% of the sales proceeds, 82% of net assets and 88% of the
employees based on the data reported in the 1997 Financial Statements of the Royal Dutch/Shell .
Group of Companies. in addition, we reviewed the letters submitted by the Chairmen of the Boards

of Shell companies and by the Country Chairmen con?rming that the Principles had been formally

adopted by their own companies. Our work did not include any additional steps with regard to the
implementation of the Principles.

Based on our veri?cation, We con?rm that the assertions with regard to the adoption of the revised
Statement of General Business Principles by Shell companies, are fairly stated in all material
respects.

in addition, we have reviewed certain data in The Shell Report 1998 comprising dividend growth
from 1988 to 1997, taxes payable over the 10 year period 1998 to 1997, the number of direct
employees, employ remuneration and related costs for 1997 and the level of annual investment in
research and technical services.

Based on our review we con?rm that this data has been derived from the Financial Statements of
the Royal Dutch/Shell Group of Companies for each of the 10 years in the period ended
31 December 1997, on which We issued unquali?ed audit opinionstAzzct'o WM ..

KPMG Accountants N.V., The Hague Price Waterhouse, London .

12 March 1998

KPMG Accountants N.V.. The Nethertands and Price Waterhouse, United Kingdom ?rm, i
are acting jointly as auditors of the Royal Dutch/Shell Group of companies. I

Churchi  p ein 6 KPMG Accountants N.V. are registered with the Chamber of Commerce Amsterdam no. 263683. NO. 1 London Bridge

The principal place of business of Price Waterhouse is at Southwark Towers.
$157?;va T?he :ague 32 London Bridge Street. London SE1 QSY where a list of partners' names is available for inspection. London 90" I
he et an 5 Price Waterhouse is authorised by the institute of Chartered Accountants in England and Wales United K'?9d?m I

31 (70) 338 2222 to carry on investment business. 44 (171) 939 3000

 

 

Family of Reports

Annual Reports of Royal Dutch
Petroleum Company and The "Shell"
Transport and Trading Company, 
Reports and financial statements of the
respective Parent Companies and
information on the Royal Dutch/Shell
Group of Companies including details of
the accounting policies employed.

Financial and Operational Information
Annual publication containing five years?
detailed financial and statistical
information about the Royal Dutch/Shell
Group of Companies.

The Shell Report . 

Annual publication summarising how the 1

Group is meeting its responsibilities and 

matching stakeholders? expectations in

. relation to various economic, environmental
and social issues.

1 Statement of General Business Principles
Booklet stating the fundamental principles
on which the affairs of Group companies
are conducted.

 

Health, Safety and Environment Report
Annual publication providing facts about . Mm
Group companies? performance in the 7 
areas of health, safety and the 
environment. It also discusses Group views
on pertinent issues related to those areas.
Additional reports published by our major
businesses Exploration and Production,
Oil Products and Chemicals provide
HEALTH, SAFETY

. further HSE information. AND ENVIRONMENT
. REPORT

Shell's Investment in Society

Annual publication describing the Group
companies? social investment programmes", 
which aim to support the development of
local communities and, at the same time,
help Shell companies to be an integral part
of the societies that they serve.

 

The above publications can be obtained
from the address on page 55.

 

 

Structure of the Royal

Dutch/Shell Group

Royal Dutch Petroleum Company (Royal
Dutch) and The ?Shell? Transport and
Trading Company, p.l.c. (Shell Transport)
have no operations of their own and
virtually the whole of their income derives
from their respective 60% and 40%
interests in the companies known
collectively as the Royal Dutch/Shell Group
of Companies.

The Royal Dutch/Shell Group of Companies
has grown out of an alliance made in 1907
between Royal Dutch and Shell Transport
by which the two companies agreed to
merge their interests on a 60:40 basis
while keeping their separate identities.

Individuals and Institutions
There are some 600,000 shareholders of
Royal Dutch and some 273,000 of Shell
Transport. Shares of one or both companies
are listed and traded on stock exchanges in
eight European countries and in the USA.

1 Parent Companies

As Parent Companies, Royal Dutch and
Shell Transport do not themselves directly
engage in operational activities. They

are public companies, one domiciled

in the Netherlands, the other in the
United Kingdom.

The Parent Companies directly or indirectly
own the shares in the Group Holding
Companies but are not themselves part of
the Group. They appoint Directors to the
Boards of the Group Holding Companies,
from which they receive incomein the
form of dividends.

Royal Dutch/Shell Group

of Companies
Group Holding Companies
Shell Petroleum and The Shell
Petroleum Company Limited between them
hold all the shares in the Service Companies
and directly or indirectly, all Group interests
in the Operating Companies other than
those held by Shell Petroleum Inc.

Service Companies

The main business of the Service Companies
is to provide advice and services to other
Group and associated companies, excluding
Shell Petroleum Inc. and its subsidiaries
(see opposite).

Operating Companies

Operating Companies are engaged in
various activities related to oil and natural
gas, chemicals, renewable resources and
other businesses throughout the world. The
management of each Operating Company
is responsible for the performance and
long?term viability of its own operations,
but can draw on the experience of the
Service Companies and, through them,
of other Operating Companies.

Structure of the Royal Dutch/Shell Group

Individuals and 
Institutions 
The ?Shel
Tradi 

Shareholding relationship

Advice and services

 

 

 

 

 

    
 

 

 

 

 

Shell Petroleum N.V. holds equity shares in
Shell Petroleum Inc. which are non?controlling but
entitle it to the dividend flow from that company.

 - 

.9. 



I.-. ?-Idb 

 

Service Companies'

Organisation
The Service Companies are structured to
fulfil three principal tasks.

through Business Organisations, they
provide business and technical guidance as
well as advice and services to Operating
Companies, and they support the Group
Holding Companies Shell Petroleum N.V.
(SPNV) and The Shell Petroleum Company
Limited in the exercise of their
shareholder responsibility.

There are five Business Organisations 
Exploration and Production, Oil Products
(covering refining, trading, shipping and
marketing), Chemicals, Gas and Coal,
and Renewables.

CUSTOMERS

 

 

Outside North America

 

Secondly, through a small Corporate
Centre, the Service Companies assist the
Committee of Managing Directors (CMD),
consisting of the members of the
Presidium of the Board of Directors of
SPNV and the Managing Directors of
in setting overall Group direction,
strategy and policies, in supporting key
investment decisions and appointments,
and in appraising overall performance.

i

OPERATING 




BUSINESS ORGANISATIONS

    
  

Thirdly, through Professional Services, 
provide advice and expertise in such ar
as finance, legal and human resources
the Business Organisations, the Corpor
Centre and the Operating Companies.

 

Professional Services

 

CORPORATE CENTRE

 

 

 

Shell Report Survey

This report gives a set of current,
consistent data which was collected by
a survey of Shell companies round the
world. The survey covers 125 countries
where there are Shell operations. The
data embrace all Shell companies
within each country, which are under
operational control or fully consolidated,
and joint ventures in which a Shell
company is operationally responsible
for the activities concerned.

Shell companies have an interest in
operations in more than 130 countries.
Those countries not included in the
survey either fell outside the above
definition or were small enough to
have no material effect on the results.
The results cover more than 99.5% of
the staff and operations. The data has
not been externally verified.

 

 

The companies in which Royal Dutch
Petroleum Company and The ?Shell?
Transport and Trading Company, p.l.c.
directly or indirectly own investments are
separate and distinct entities. In this
Report the expressions ?Royal Dutch/Shell
Group? and ?Group' are used to refer to
the companies of the Royal Dutch/Shell
Group as a whole. The words ?Shell?, ?we?
and ?us? are used in some places to refer
to the Group and in others to an individual
Shell company or companies where no
particular purpose is served by identifying
the specific company or companies.

 

Recent speeches on climate change
Cor Chairman of the
Committee of Managing Directors,

Royal Dutch Shell Group and President of
Royal Dutch Petroleum Company

Reflections on Kyoto?, World Economic
Forum, Davos, Switzerland
2 February 1998

Mark Moody-Stuart Chairman of The
?Shell? Transport and Trading Company,
and a Royal Dutch/Shell Group
Managing Director

?Managing transition energy supplies in
the early 21st Century?, Sanderstralen
conference, Norway

4 February 1998

Shell International Limited (SI), 1998.
Permission should be sought from SI before
any part of this publication is reproduced,
stored in a retrieval system, or transmitted
by any other means. Agreement will
normally be given, provided that the source
is acknowledged.

Contact details
This publication is one of a range
published by:

Group External Affairs

Shell International

Shell Centre

London SE1 7NA

United Kingdom
covering aspects of the oil, gas, coal,
chemicals and renewables businesses.
For further copies, and for details of other
titles available in English or as translations,
please contact the External Affairs
department of your local Shell company.
Alternatively, write to the above address
or fax +44 (0)171 934 5555 (London)
quoting department reference PXX, or
telephone +44 (0)171 934 5293 or contact
us on our website 

4? 



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Your comments will be taken into account and published on our website, if you so wish.

 

sustainably manag

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