Sustainability in Royal Dutch Shell

This report discusses the focus of the oil and gas industry on sustainability, with a focus on Royal Dutch Shell. It explores the strategies, impact of stakeholders, pricing policies, and government regulations in the industry.

Running head: SUSTAINABILITY IN ROYAL DUTCH SHELL
Sustainability in Royal Dutch Shell
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Executive Summary
This report intends to throw a light on the focus of oil and gas industry on sustainability. The
report presents an in-depth view of how this industry tackles sustainability in respect of product,
decision and operations. It studies the initiative taken by Royal Dutch Shell towards
sustainability. Further this report states the types of crude oil and factors that affects oil market,
meaning of upstream and downstream in oil industry. It intends to study the strategies of shell,
the impact of conflicting shareholders on the strategies of this industry, pricing policies and
government regulations.

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Table of Contents
Introduction......................................................................................................................................3
Aim of the report.............................................................................................................................3
Theories and concepts of sustainability...........................................................................................4
Introduction to oil and gas sector.....................................................................................................5
Sustainability in oil and gas industry...............................................................................................5
Factors affecting energy market....................................................................................................10
Upstream and downstream............................................................................................................11
Strategies of Royal Dutch Shell.....................................................................................................12
Impact of conflicting stakeholders and shareholders on strategies of oil companies....................13
Oil price theories and taxation.......................................................................................................13
Government regulations and their impact on oil industry.............................................................14
Conclusion.....................................................................................................................................14
References......................................................................................................................................15

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Introduction
According to Solow (2014) sustainability related to the concept of coping up adopting to
the environmental changes and using the resources to meet the present needs without affecting
the future generation’s ability to meet their own requirements. It not only includes environmental
sustainability but also includes sustainability of social and economic resources. The concept of
sustainability also includes developments in social and economic aspects of the society.
Sustainability is regarded as a component of corporate ethics and Corporate Social
Responsibility (CSR), which has emerged due to public’s dissatisfaction towards the damage,
caused to environment by industries in order to make profits. The three pillars of sustainability
are environment, society and economy. The sustainability issue is a major concern for
governments and owners of oil and gas companies from across the world. The negative impacts
of activities that are carried out by the oil and gas industries are not only the health and lives of
people but on the environment as well which results to pollution (Bamossy and Solomon 2016).
This report deals with the analysis of methods by which international oil and gas companies
maintain sustainability in respect to their products, business decisions and operations citing the
example of the Royal Dutch Shell. It intends to critically asses how the pressure from
stakeholders impacts the strategies of such companies. The followings sections include
discussions related to the factors which affect oil and gas industries, sustainability and
environmental change, marketing strategies and government regulations.
Aim of the report
The aim of this report is to understand the concept of sustainability and sustainability
development. By the end of the report, it is expected to gain a full knowledge about how
sustainability is maintained and developed in oil and gas companies citing the example of Royal

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Dutch Shell. Through this report it is aimed to achieve the understanding of the strategies of the
company and the pricing policies and government regulations that affect oil and gas sector.
Theories and concepts of sustainability
Sustainability theories attempt to integrate and prioritize social responses to cultural and
environmental problems. An economic model aims to sustain financial and natural capital, an
economic model looks to ecological integrity and bio-logical diversity and a political model
takes care of the social systems that realize the dignity of human. Realization has resulted to
debate with critical, symbolic and motivational resources for change in culture.
The following are the evolving theories of sustainability:
1. Model of early community development- This theory of sustainability studies the society,
environment, and economy as a separate discipline.
2. Ideal scientific model- This theory uses systems in order to incorporate the effects of
linkages and feedback between all three spheres.
3. Theory of popular sustainability- This theory emphasizes on the links between economy,
environment and society.
The sustainability concept is composed of three pillars namely economic, environmental
and social. The three Pillars are also known as profits, planet and people. Social
sustainability is dependent on economic sustainability and vise versa. Social as well as
economic sustainability depends on environmental sustainability.
Introduction to oil and gas sector
According to Ghandi and Lin, (2014), in terms of dollar value, the oil and gas industry is
a global powerhouse which employs thousands of employees worldwide generating billions of

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dollars each year and is considered the biggest sector in the world. The products of largest
volume of this oil and gas sector are gasoline (petroleum) and fuel. Petroleum is the raw the
material for several chemical products which include pharmaceuticals, fertilizers, solvents,
pesticides and plastics.
The chosen organization from the oil and gas industry is Royal Dutch Shell which is used
to study the various aspects of the industry.
Royal Dutch Shell, commonly known as shell is a British-Dutch oil and gas company
having its headquarter in the Netherlands and is incorporated in the United Kingdom and is the
world’s fifth largest company. It is a group of petrochemical and energy companies performing
in more than 70 countries with an average 86000 employees (Shell.com, 2017). The company
focuses on building a sustainable energy future by using advanced technology and creating
innovative ideas. Royal Dutch Shell started its business in 1833 as a small family business
selling seashells.
Sustainability in oil and gas industry
In the views of Schneider at al., (2013), the oil and gas industry requires both upstream
activities, which include the processes before the refinement of raw materials; drilling,
exploration, extraction, shipping and storage, and downstream activities including selling and
distribution of products and refinement. The companies work towards reducing the negative
impacts on environment and society to due to the nature of these activities, which involves high
risks. In the recent years, the companies in this sector have taken steps towards maintaining
sustainability. They have started reporting their efforts towards sustainability, which is also
referred to as “corporate citizenship or environmental, social and governance (ESG) reporting”

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Companies in oil and gas industry implement operating management systems that
incorporate the companies’ requirements of health and safety, environment, social responsibility,
contractor management and operational reliability (gsm.org.uk 2016). Environmental
stakeholders also get engaged to bring out the best possible outcomes. Oil and gas companies
actively tackle the challenge of energy poverty. Shell, as the founding member of Global
Alliance for Clean Cook stoves has provided technical as well as financial support to stimulate
the adaptation of clean fuel and cook stoves in 100 million households by 2020 (Ahmad, Brito
and Tavasszy 2016).
The particular challenged faced by the industry is climate change. While human
development and industrialization and have been enabled by oil and gas, their utilization has also
led to rise in atmospheric carbon dioxide which in turn has resulted to warming of the climate
system. Oil and gas industries worldwide have agreed to deliver the Sustainable Development
Goals (SDGs) according to the 2030 agenda, addressing the climate change risk as well (Ahmad,
Brito and Tavasszy 2016). Oil and gas industries must act towards finding a solution for
addressing climate change. By careful planning, business decisions and implementation, oil and
gas industries can contribute across all SDGs, either by working towards enhancing their positive
impacts or reducing the effects of the negative impacts. The overall production of gas and oil can
foster the development of society and economy by offering access to affordable energy,
employment opportunities, development of business skills, improved infrastructure and increased
fiscal revenue (Østergaard, and Sperling 2014). The oil and gas industry has contributed to some
of the challenges such as climate change, environmental degradation, social and economic
inequality, pollution displacement, armed conflict, corruption and tax evasion, violation of
human rights and increase in risk of health problems. According to (Balitskiy, Bilan and

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Strielkowski 2014) the companies have the opportunity to operationalize the SDGs in their
business practices by incorporating including them into policies, corporate systems, processes
and standards.
Shell has taken an initiative to address climate change. The company welcomed the
United Nations Paris Agreement on climate change which entered into force on November 4,
2016. The main aim of the agreement is to limit global warming below 2ºC by managing
environmental pressure and climate ensuring development in economy (Shell.com, 2017). While
business decision making, the Royal Dutch Shell considers the potential impact that the
functioning of the company has on environmental and how the society might be affected during
the various projects of the company. In 2017, Shell started working with nature-based-projects in
order to compensate for greenhouse gas emissions improving the lifestyle of local community
and preserving biodiversity. Their operational spills are the lowest in volume.
BP plc makes use of carbon offsets that can help in reducing the greenhouse gas
emission. The developing of the offsetting programs of BP plc has helped in underpinning the
low carbon ambition. Carbon offsetting has helped the company in reaching the Paris goals that
has ensured the sustainability of the company. They have implemented the Target Neutral
Programme that has helped in reducing the carbon footprint by taking recourse to offsetting. The
company has grown the market for that of the carbon credits by the selling and the purchasing of
the credits. The company has made use of market insight along with the innovative platforms
that has helped the company in meeting the emission reduction commitment. The company has
launched the Advancing Low Carbon accreditation programme that has helped in providing a
framework for the company that has helped in demonstrating better carbon outcome (Bamossy
and Solomon 2016). The company has made the operations more efficient that has helped in

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reducing the methane emissions. The company is using the autonomous vehicles that can help in
inspecting and cleaning the hull of the floating production. The company has switched from the
pneumatic pumps to that of the electric ones that has paved the path for the fewer emission of the
methane (Ahmad, Brito and Tavasszy 2016). The company has upgraded the technology in
Cooper River petrochemicals that have reduced the energy emission of the company. The
company makes use of electricity from that of co-generational facility that has helped in
powering the turbines.
Royal Dutch Shell and other organizations in oil and gas industry on the other hand are
trying to tackle sustainability in respect to their products by producing petroleum products put of
municipal waste. Since fossil fuels get energy from sun, many companies from across the world
are trying to speed up this natural process and solve the prevailing energy problem without
releasing excessive carbon dioxide into the atmosphere. The most advanced among the lot is
Royal Dutch Shell. The Royal Dutch Shell is focusing on the arena of research by scaling up a
process known as ‘IH’ to manufacture petroleum products from municipal and agricultural waste
(Shell.com, 2017).
Shell has created NXplorers, a global program which introduces potential future leaders
to the creative thinking that is need to bring about a change (Shell.com, 2017). There is to
encourage more than one million people to join the NXplorers by 2020. Royal Dutch shell works
to help the society gain access to reliable, affordable and safe energy which can foster economic
development, improve education, healthcare and livelihoods of people thus removing poverty
from the society. They aim to develop the sustainable market for energy services and products to
job opportunities.

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Shell’s approach to sustainability
Level 3
Assistence
in shaping
a sustainable
enrgy
future.Level 2
Providing wider benefits in the places of
operations
Level 1
Running a profotable, safe, effiecient and responsible business.

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Factors affecting energy market
Like any other commodity, the market for oil, natural gas, renewable energy and
electricity are complex and dynamic and thus changes constantly. Following are the factors that
affect the energy market:
Supply: Energy from gas, coal, oil, renewable resources and nuclear reacts very quickly in
response to demand which results to hourly fluctuation of prices (gsm.org.uk 2016).
Demand: Demand for cooling, heating and light varies with activities in a nation’s technology,
economy and measures of efficiency.
Gas storage: The difference between demand and supply, which is known as inventory, is
represented by gas storage.
Weather forecasts: this factor affects the market price and contracts of short term. Whether the
forecasts come to reality or not is not critical to long term prices.
Transport: Severe constraints in capacity of electrical transmission and gas pipelines take
investment and time to reverse. In spite of growth in production of shale gas, the global change
in oil supplies affects cost of domestic energy industries.
Imports and exports: Global prices of oil and gas determine the profits that suppliers can earn
by distributing fuel globally or domestically.
Government regulations: Regulations by government can change the cost of demand as well as
supply quickly and significantly.
Financial speculations: Like other goods, financial speculations influence the prices of fuels
and energy as well (Kotler and Keller 2009).

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Upstream and downstream
In oil and gas industry, upstream is a term which is used to refer to the recovery,
searching and production of natural gas and crude oil (Lund and Münster 2006). The upstream
sector of this industry includes exploration and production and maintenance. Exploration refers
to searching for offshore and onshore gas and oil reservoirs and drilling of exploration wells
(Lund and Münster 2006).
The downstream sector is concerned with the purifying and processing of raw natural gas,
refinement of petroleum crude oil as well as distribution and marketing of products that derived
from natural gas and crude oil. Shell’s downstream business is responsible for managing
different chemicals activities and oil products including activities related to marketing and
trading.
Strategies of Royal Dutch Shell
The strategy of Royal Dutch Shell is to strengthen their position as one of the leading
companies the in its industry by supplying low-carbon energy and oil and gas as the energy
system of the world changes (Shell.com, 2017). Responsibility towards society and safety remain
the main concerns of the company during their courses of actions.
The sustainable development strategy of UK ensures that everybody has the right to a
clean, healthy and safe environment. This is usually achieved by reducing poverty, population
unemployment and poor housing (gsm.org.uk 2016). Global environmental threats like change in
climate and poor quality of air are reduced to protect the environment and human health.

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Impact of conflicting stakeholders and shareholders on strategies of oil companies
The conflicting pressure from the shareholders and stakeholder of oil and gas companies
largely influence the strategies and long term goals of the companies. Common goal of oil and
industry is to search and develop the sources of energy to meet the growing needs of consumers
around the world. The impacts of conflicting stakeholders have positive as well as negative sides.
The conflicts among stakeholders and shareholders contribute towards decision making process
of the companies which helps the companies to arrive at ethical decisions considering the
responsibility towards the society. The negative aspect of conflict includes diversion form the
objectives and strategies impacting the society and the industry as a whole.
The conflicting pressure of the stakeholders are having an impact on the strategies of the
oil and the gas companies. In the recent times, communities have been able to find the increasing
capacity of shutting down the operations within extractive industries sector. The mistrust along
with the strained relations with that of the local communities is an arena of concern for the oil
and the gas companies. Trust deficit has been found to differ across the various countries and it
has been found that there is higher trust in the countries where the oil companies play an
important role within petroleum sector (Raufflet, Cruz and Bres 2014). The communities have
the tendency of expecting the real economic benefit but it has however been found that they have
not been able to fulfill the expectations of the community in getting access to the energy.
Oil price theories and taxation
According to Bunn et al., (2017) as oil possess a high demand globally, the fluctuation in
price can have a major impact on economy of the world . The factors that determine the prices of
oil are as follows:

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Demand and supply: With increase in demand or decrease in supply, the price of oil
goes up and with decrease in demand and increase in supply oil price goes down (Dahl 2015).
The prices of oil are set in oil futures market. Oil future contract is an agreement which provides
right to purchase oil at a predefined price on a particular predefined date in future.
Market sentiment: When the forecasts reveal that demand for oil will increase to a great
extent in the near future, the present prices increases. The belief that oil demand may decrease in
future will result to decrease in present price of oil (Nissen 2006).
Royal Dutch Shell has a variable pricing policy since it deals in several goods and
services. The company holds a position of leading brand in the world and therefore has adopted a
premium pricing policy because of its products of high quality (ukpia.com 2018).
Government regulations and their impact on oil industry
The energy market globally has oligopolistic and monopolistic market structure which is
an obstruction to the economic development. Therefore the role regulations are to deal with
market failure and promote efficiency, investment, competition, participation and to protect the
interests of consumers in terms of quality of service, affordability and service sustainability
(LASSOURCE 2013). The main aim of the Paris Agreement is to consolidate global response in
relation to the climate change by keeping the global temperature that rises below the 2 degree
Celsius above that of the pre-industrial level. The objective of the Paris Agreement is increasing
the ability of the countries of dealing with the effect pertaining to climate change. The Paris
Agreement has helped the oil and the gas companies in becoming more transparent regarding
their operational strategies. The companies have moved to that of the low carbon future that can
help in the sustaining of the global economy (Ostergaard and Sperling 2014). The companies

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have reduced carbon impact of the products that can help the company in surviving within the
competitive environment.
The international agreement called Intended Nationally Determined Contributions
(INDC) has the aim of looking after the fact that the world moves towards that of zero carbon
future that can help in safeguarding the environment. INDC can help the government in acting as
the main means in communicating in the international arena that can help in addressing the
climate change in the various countries. The benefits of INDC is that it can help in building trust
along with the accountability with that of the domestic along with the international stakeholders
(Lund and Münster 2006). It has helped the policymakers in taking the collective action that can
help in supporting investment pertaining to the lower carbon technologies. The INDC has helped
the companies in reducing the consumption of the fossil fuel that can help the companies in
getting a larger consumer base. Oil and Gas Authority have published the guidance that have
helped in reporting information related to petroleum. It has helped in the area of data
transparency that has helped in fulfilling the objective of sustainability by the minimizing of
burden on the industry. Petroleum and Natural Gas Regulatory Board has been established for
refining and storing that can help in protecting the interests of the consumers along with the
entities. It can help in ensuring the adequate supply pertaining to the petroleum. This has worked
to the advantage of the oil and the gas companies across the world.
Environmental regulation by government has a positive impact on oil and gas sector.
However, the measures which aim at reducing emissions of greenhouse have negative impact on
coal power plants.

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Conclusion
Thus, from the above discussion it can be concluded that oil and gas sector all across the
globe is a major source of energy. The industry needs to tackle sustainability in an effective way
for the better of the future generation. The industry and its functioning have a huge impact on the
economy of as nation creating more opportunities for a nation in every aspect. The marketing
and pricing policies of oil and gas industry are greatly affected by the rules and regulation of
government.

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