Sustainability Efforts Paper - Using Chevron, Starbucks and Royal Bank of Canada (RBC) as Examples

Sustainability Efforts Paper - Using Chevron, Starbucks and Royal Bank of Canada (RBC) as Examples
Chevron

Chevron, as an energy and petroleum corporation, is scrutinized heavily and more susceptible to negative press. As such, the Chevron Corporation has made significant sustainability efforts in order to have a positive image. Chevron fully reports their finances and painstakingly goes into explicit detail about their record-breaking performance. They conduct their own Environmental, Social, and Health Impact Assessments (ESHIA), which is an in-house assessment that is similar to federal environmental impact statements (EIS) with added social and health assessments. Chevron has a brief and clear visionary statement and policy, where they pledge to fight environmental change by improving energy efficiency and utilizing renewable energy. They further address their vision with seven principles for addressing climate change (Chevron 33). They have made an effort to reduce emissions and improve efficiency to combat environmental and climate change, which also improve economic efficiency. Their target emissions rate was 63.5 million metric tons yet Chevron went past their goal and produced 60.7 million metric tons (Chevron 30). They understand the difficulties of utilizing renewable energy as they may be more expensive or the technology is not fully developed (such as hydrogen fuel), but Chevron states that the costs, risks, and trade-offs and uncertainties will be openly communicated. Their finances and accounting dealing with environmental issues are reported, including upgrades to California’s Dinuba Unified School District, totaling more than $20 million, paid for mostly by energy and operational savings and state grants. There is minimal information on Chevron’s environmental infractions and their fines, Chevron obviously claims that the effects are not very significant.

Chevron’s social vision and policy are also clearly outlined. They clearly state their objection to improve working conditions, enforce reasonable labor practices, and engaging employees in “continuous improvement” which include more balanced work hours in relation to personal needs. Their safety performance is also very good, with the number of safety incidents decreasing annually (Chevron 19). Days away from work and lost-time incident frequency have also decreased (Ibid). Chevron also conducts additional training, with 1800 employees being active in programs teaching science, petroleum engineering, facilities engineering, and completions engineering (Chevron 17). Chevron has no data on employees’ personal health, but assert that they are doing what they can, including trying to reduce the risk of cardiovascular diseases. Chevron has donated $30 million to support the Global Fund to fight HIV/AIDS and are active in anti-malaria programs in Africa (Chevron 20). Chevron also funds educational programs in Southeast Asia.

Chevron goes into some detail on business ethics. They address the issue of lobbying and political contributions. They made $1.9 million in political contributions to candidates and political organizations that support economic development, free enterprise, and good governance – a statement that can be interpreted in different ways to produce either a positive or negative image of Chevron (Chevron 8). They also state that lobbying is essential to the political process and they comply with all registration and reporting regulations related to their lobbying activities (Ibid). Chevron claims transparency in their reporting (Chevron 8). Chevron also gained external recognition for their sustainability efforts.

Royal Bank of Canada

The Royal Bank of Canada has a very clear and easy to read sustainability. It is organized well and makes full use of bullets, charts, and graphs. Their finances are reported although they admit their performance has not been great. Royal Bank’s environmental and social vision and policy are clearly outlined and bulleted. Their sustainability report makes it clear that their three priorities are to reduce the intensity of their environmental footprint, promote environmentally responsible business activities, and offer environmental and services (RY 3). If one wants further information, they give a URL that goes into further detail. RY’s sustainability report provides quantitative data on their energy, paper, and emissions footprints from 2005 onward (RY 27). Energy consumption seems to be relatively constant, with no significant positive or negative trend in different years. Paper consumption increases, but they give further information claiming that direct mail use is responsible for the paper consumption. Also, the company has grown in terms of the number of employees so aggregate paper consumption is predicted.

Their also make it clear returns to shareholders are very important, as well as creating employment, supporting small business and community economic development and foster innovation and entrepreneurship (a claim that all banks can make), and purchase goods and services responsibility. They also pledge to provide donations with lasting social impacts. In 2007, they have donated more than $2 million help disadvantaged people access financial services, helping at-risk youth develop job skills, and help fund other programs (RY 9).

Their sustainability report says that they claim to take business ethics very seriously. As a bank, they address the issue of money laundering and how they train their employees to prevent it (RY 6). Royal Bank also reports high levels of job satisfaction and retention rates, although quantitative data is incomplete. They promote health and wellness, claiming they encourage proper nutrition and physical activity, but specific details are not given (RY 21). Royal Bank has external recognition, but many are not recognized by the PSI.

Starbucks

Starbucks uses a materiality matrix to simplify their sustainability efforts (SBUX 7). The report has historical data on their financial performance, energy consumption, water and paper consumption, and how much of their supply they get from fair and equitable providers. Water usage has a weak positive trend, as 2007 consumption is less than 2006 but more than 2005 (SBUX 75). Electricity consumption has increased, but gas consumption has increased. Whether this was due to a substitution effect is unstated. The data is a footprint of a typical single Starbucks store, so their expansive growth as a corporation in the recent years is irrelevant.

Starbucks makes it clear that they are trying to develop a relationship all throughout their supply chain, from coffee growers to retailers. The primary countries that grow coffee (Colombia, Costa Rica, Ethiopia, Kenya, and Indonesia) are not particularly known for progressive labor practices and Starbucks pledges to change this (SBUX 25-35). Their supply has to meet the prerequisites of product quality, economic accountability, environmental leadership, and social responsibility.

Starbucks says that they increased wages of the majority of hourly store partners and says they are well compensated in benefits, but they are not entirely clear. Starbucks has a clear health and wellness program called the Thrive Wellness Initiative, which offers personalized health regimens based on WebMD’s Health Risk Assessment (SBUX 84). They also claim to have tools to record and track personal health data. Starbucks also offers nutritional coaching. Starbucks advocates more of a socialist-driven health care system than a capitalist health-care system, which is bold and daring as it may alienate people who disagree (SBUX 85).

Comparisons & Contrasts

There are many differences in the three companies’ sustainability efforts that are most likely due to the companies belonging to different industries. For example, Royal Bank has no formal policy on child labor, but as they specifically state that there is no reason to given the nature of their business as a financial institution operating in develop nations (RY 19). They do mention however, that they have child labor provisions in outsourcing. Chevron has the most comprehensive vocational training programs, but that is due to many of their positions requiring high technical skill in engineering and drilling. Human capital (education and knowledge) is required to maximize efficiency and reduce risk in a potentially dangerous working conditions, and quantitative data has shown that incidents have historically decreased. The study does not particularly state that there is a correlation, but it is reasonable to assume that increased knowledge and training reduces the risk of drilling.

In terms of environmental intent, Chevron and Starbucks were essentially tied, with a one point difference between them. This again may be due to them belonging to industries that are surrounded by controversy. An energy program has to leave an environmental footprint with today’s technology; as petroleum is a major source of energy, an energy source that requires drilling and emissions. To improve their image and the image of the industry, Chevron must undergo substantial environmental efforts. Still, Chevron did not have the highest rating in environmental intent with 32 points. The honor goes to Starbucks with 40 points. Chevron also had the lowest environmental subtotal with 44 points, being beat by Royal Bank by one point (45 points) and significantly beat by Starbucks with 60 points.

Although the PSI is a good indicator of sustainability performance, the PSI primarily evaluates how much information a given sustainability reports provides, not the degree or level of their sustainability efforts such as the level of money spent for funding environmental programs to reduce emissions. For example, Chevron has spent over $2.75 billion in environmental spending (CVX 38). Even accounting for the fact that Chevron is the largest company of the three in terms of revenues, and owners equity, and employees, it is still relatively more than the other companies. Starbucks had the lowest rating even though they are lauded as an eco-friendly company, but again, the PSI is not representative of a company’s efforts but only how informative their sustainability reports are. Starbucks’ sustainability report offered more descriptive qualitative data as they offered a more detailed habitat/ecosystem conservation policy, which indicates Starbucks is extremely concerned in maintaining their corporate image of being environmentally friendly.

Chevron also had the least amount of environmental reporting, receiving a zero in every quantitative field in sections A-D except for the sum of energy used. They do give a sum of the energy consumed in BTUs, a unit of power, and how much the energy cost in dollars. However, they do not differentiate how much energy is used from different sources such as oil, natural gas, solar, etc. but at least Chevron provided the aggregate level of emissions they produced annually. Royal Bank also gives very incomplete information. Starbucks had the most information, giving percentages on what percentage of energy sources are responsible for their greenhouse gas emissions but I also found it more than wanting. All three companies offered very little information. This may be due to the difficulty in estimating such figures, as one can imagine how time consuming and how much number crunching is involved. I found it surprising that Chevron’s estimates were touted as being accurate given the large size of their company and the large number of global facilities. Chevron offered no quantitative data on water use, recycling, and waste produced. It may be due to the difficulties in estimating such figures accurately with such an expansive corporation or that the data is not conducive to the positive image they want to invoke with their sustainability report. Royal Bank did the 2nd best in quantitative reporting, as they reported on the sum of waste recycled and the sum of water used during operations. Starbucks had the highest rating, primarily due to their 3 rating in question #29 which asked the sum of water used. This may be due to Starbucks being in the beverage industry, with water use being easier to calculate than a bank or an energy company.

Both Chevron and Starbucks had roughly the same score in the PSI’s social subtotal with 81 and 85 respectively. Royal Bank had the lowest with 63. All three companies were very similar in their social intent, had a social vision statement and mentioned topics like having and enforcing a code of conduct. Royal Bank simply did not score well on social reporting by not offering as much quantitative data such as numerical and historical data. Starbucks scored the highest mainly because they reported forced labor of employees and working hours the best while Chevron and Royal Bank scored 0s and 1s (questions 63-65). Again, this may be due to coffee industry, where a lot of manual labor in underdeveloped countries is required to farm and pick the coffee beans. Chevron does not address the issue of forced labor and it is unclear why they did not do so. Royal Bank did not do so either, but maybe Royal Bank and Chevron do not feel a need to as it is probably universal knowledge or a universal perception that Chevron and Royal Bank does not use forced labor. None of the three companies were shy when it came to reporting qualitative and quantitative data on social topics, such as their donation contributions, customer satisfaction, and employee satisfaction. All three had at least some health and wellness program although they seem to take different approaches. Chevron gives employees the opportunity to meet with health mentors individually (Chevron 20) while Starbucks primarily offers electronic tools and methods, which makes storage and access to information easier but is a much more impersonal setting. Using tools such as WebMD may not always offer the most accurate information as personal contact is the best way to reach a prognosis or diagnosis. Royal Bank does not go into detail about their programs, but they emphasize the importance of proper nutrition and physical activity.

I found it interesting that only Chevron had a section on lobbying. Lobbying is definitely a part of the political process and many organizations of different industries, political affiliations, and backgrounds do it. However, only Chevron’s report mentioned lobbying explicitly, as if to quell the perception that lobbying is negative. This again, may have to do with the energy and petroleum industry in general. Petroleum is a major source of energy and energy, especially oil, plays a significant role in world economics and politics. It would be in a company’s best interest to lobby to garner political support. Royal Bank does not mention lobbying probably because they are a Canadian company with different rules, regulations, and political processes. But Royal Bank does mention anti-laundering, which is an industry-specific problem. Starbucks may or may not lobby, but in my opinion, mentioning lobbying in any shape or form (positive or negative) in their sustainability report would not be constructive as it will tarnish their corporate image.

The different industries also have different needs for external recognition and memberships in various organizations. As a bank based in the developed country of Canada, there is not as much external pressure from the public to gain external recognition in sustainability as much Chevron, an energy company, or Starbucks, working primarily in the coffee industry that is surrounded with labor controversies and the notion of “fair trade” coffee. As a result, it is not surprising that Chevron had the most membership while Royal Bank had the lowest PSI rating in external recognition. There is also the perception that Canada is more environmentally friendly than the US, which results in even less pressure for external recognition. However, I do not believe this section is that comprehensive or that great an indicator of sustainability, as many of the companies chose outside organizations not included in the PSI. Then there is also the idea that being a member of every organization listed in the PSI is superfluous, as there is a lot of overlap in sustainability requirements between them. Also, because a company does not have membership in certain organizations does not mean that they are in any way socially and environmentally irresponsible, as Royal Bank has donated millions of dollars in social and environmental programs.

Sustainability vs. Financial Performance

There seems to be a positive correlation between sustainability and financial performance. Starbucks had the lowest composite score (meaning they had the best financial performance given the performance measures used) with 8. Chevron came in second with 10, and Royal Bank came in last with 12. Their sustainability rankings corresponded with the financial rankings with no discrepancy; Starbucks came in first, Chevron came in second, and Royal Bank in third.

However, this does not prove that a company with high levels of sustainability equates to high levels of financial performance. At least in this analysis, there was a positive correlation but it is important to realize that the financial performance were based on a composite score based on ranks. It has nothing to do with level of degree. For example, Starbucks came in first in return on equity, but the composite score gives absolutely no significance to how much more ROE they had than Chevron, which came in second. Further research shows that there is a 5% difference between Chevron and Starbucks. When comparing owners’ equity growth rate, Chevron had 11.8% which dwarfs Starbucks’ 2.5%. As a result, the composite scores may not be entirely reflective of actual financial performance among the three companies. After all, Chevron’s financial report boasts record profits, while Starbucks’ report tries to appease shareholders by pledging to improve their financial performance after a dismal year.

Three of the five measures used to gauge financial performance looked at growth. Smaller companies usually have higher growth rates than larger companies as there is “more room” to grow. Starbucks is the smallest company, so it is not surprising they had the highest net revenues growth rank and the net income growth rank, while Chevron, the largest company, came in third. Starbucks came in last on owners’ equity, but this may be because Starbucks has a lot of liabilities (A = L + OE). One explanation is that Starbucks is being very aggressive in trying to grow as a company that they are using borrowed money to expand. There is bias for smaller companies when using composite scores as a basis for financial performance comparison.

Although using a composite score to measure financial performance, it at least shows that a company who is actively involved in sustainability can still perform very well financially. Sustainability efforts do not have to come at a cost to financial performance, and if nothing else, sustainability efforts may improve financial performance, especially in the areas of the efficient use of energy and water and environmentally healthy waste and recycling habits to reduce operating costs. Even though the sample size was small with three companies, the strong positive correlation between sustainability and financial performance suggests the two may correspond.