Status quo of CSR on china petroleum industry

Tentative topic: The state of corporate social responsibility reporting in China’s petroleum industry: A pursuit of standardized practices and widespread adoption or status quo?

Chapter 1: Introduction

Background to the study

The petroleum industry contributes significantly to the day-to-day operations of today’s global economy. This industry is characterized with a wide range of risk and dangerous activities, which mainly relate to the exploration and extraction of petroleum products, notably oil and gas. These activities also generate a wide range of by-products and derivatives. The risks and dangers involved make the petroleum industry impact significantly on the society and environment.

One of the issues that companies operating in the petroleum industry are conventionally expected to address as they go about their activities is corporate social responsibility (CSR). Companies that operate in the petroleum industry cannot afford to ignore elements of CSR. Petroleum and gas are strategic resources that are of great significance to China’s economy. Moreover, China is the second largest energy consumer in the world, owing to high demand for oil products, and a fast pace of economic growth and development.

CSR is a dedication to the advancement of the wellbeing of community through socially-friendly business practices and channeling of business resources to community projects (Kotler & Lee, 2005). In recent times, the oil industry, not just in China but across the world, has been at the front of CSR largely because of the criticisms taken in the course of related business operations, particularly in various developing transitional countries (Shankleman, 2006). In such countries, it has been the case that the governments in place tend to be either weak or authoritarian, translating into poor records of protection of the environment and the human rights of citizens.

The Chinese government has been responding to this global awakening of consciousness with regard to CSR in the oil industry. This is evident in the government’s efforts to reform corporate government with the aim of improving investor confidence. Such efforts culminated in the establishment of a code of corporate governance in 2002, which all Chinese listed companies were required to adhere to (Jia & Tomasic, 2010).

This paper explores the status quo of CSR in China’s petroleum industry. It explores the contemporary business trends and practices among Chinese petroleum companies with regard to CSR activities.

Statement of the problem

The issue of CSR is of great significance to China’s petroleum industry. Many questions linger with regard to the true status of CSR-related activities, with the underlying aim being to determine whether oil companies are really committed to the goals of sustainable production, community wellbeing, and protection of the environment. Of particular importance is the question of whether the CSR status quo is being maintained or there is a trend towards an increase in the level of commitment to corporate social responsibility. More fundamentally, it is within the scope of this dissertation to define what the status quo in CSR in China’s petroleum industry really is.

In order to understand the status quo of CSR in China’s petroleum industry, it is important to first explore how individual oil companies address this issue. Major Chinese companies have shown great willingness to undertake CSR activities. For instance, China National Petroleum Corporation (CNPC), the state-owned company responsible for ensuring China’s national energy security, released its Corporate Social Responsibility Report in 2010. In this report, the CSR activities undertaken by the CNPC are highlighted within four key areas: responsible production, sustainable energy supply, employee development, and public welfare.

Another company that has explicitly made its CSR policy become known is China National Offshore Oil Corporation (CNOOC Limited). CNOOC is the largest producer of offshore natural gas and crude oil in China. It is also one of the largest independent gas and oil exploration and production enterprises in the world. It is not surprising, therefore, that the Corporate Social Responsibility Report the company released in 2009 is within the context of operations in an overseas context. Quite a significant proportion of the oil and gas assets of CNOOC Limited are overseas, mainly in Oceania, Asia, and Africa. It is in such regions that most developing, transitional economies are located, meaning that teething CSR problems are common.

Scholars would no doubt be interested in knowing why CNOOC Limited prefers to focus more on offshore bases yet China already has abundant offshore oil and gas resources that are yet to be exploited. When this question is addressed from the perspective of sustainability, salient CSR issues would emerge. More importantly, it would lead to a better understanding of the status quo of CSR in China’s petroleum industry.

In the case of the overseas contexts in which CNOOC operates, a resounding concern is that the company ships all the gas and oil produced back to the home country while completely disregarding the demands of the local communities. Other concerns relate to the company’s position with regard to human rights issues, the assumption that the company is always under the manipulation of the Chinese government, and the level of adherence to CNOOC’s CSR philosophy by its overseas subsidiaries. Each of these issues, when addressed in greater detail, paints a clearer image of the status quo of CSR in China’s petroleum industry. Moreover, an in-depth analysis of these issues is necessary in determining whether there is improvement or the oil companies are simply endeavoring to maintain the status quo while pretending to care about their responsibilities to societies. Through the analysis of these and other petroleum companies, this paper sets out to define the challenges, setbacks, benefits, and overall impact of CSR in China’s petroleum industry.

Research questions

1. What CSR issues dominate China’s petroleum industry?
2. What developments are taking place in the pursuit of CSR in China’s petroleum industry?
3. What is the impact of CSR activities undertaken by Chinese petroleum exploration and extraction, and marketing companies?
4. Are the CSR efforts undertaken by the Chinese oil companies sustainable with regard to the issues of sustainability of energy supply, responsible production, public welfare, and employee development?
5. How do Chinese oil companies (attempt to) strike a balance between the pursuit of profitability and the demands of CSR?

 

 

 

 

 

 

 

Chapter 2: Literature Review

Today, the issue of CSR is fairly well understood in the Chinese corporate settings. However, this has not always the case, particularly if one considers the international trend of adoption of CSR principles. Whereas the notion of corporate social responsibility became a commonplace concept in most countries as early as the mid-1970s, this was not the case in China. Here, CSR is a relatively new concept, although this communist nation is quickly catching up with the rest of the world.

In contemporary contexts, many multinational corporations in China are extending their interests to create room for community, environmental, social, and human rights issues (Britain Parliament House of Lords, 2010). This trend may be traced to the 1980s, when the country started making economic reforms that were market-based (Yang, 2008). During this time, many companies started developing CSR strategies which were duly translated into CSR policies and programs. Internationally, similar efforts were being undertaken, with an excellent example being the establishment of the World Business Council for Sustainable Development in 1995 (Hitchens, 1999). This body was ideally a coalition of business enterprises, which were collectively committed to sustainable development primarily through social progress, economic growth, and ecological balance. Many companies have signed into the World Business Council for Sustainable Development as a way of demonstrating commitment and support to the principles of this organization, which dwell on the areas of environment, human rights, and labor.

The main reason why concerns tend to be strongly voiced with regard to CSR efforts by oil companies is the high number of environmental disasters that have occurred in recent times. A good example is the 1989 Exxon Valdez oil spill. In the wake of this oil spill, a lot of attention was shifted to environmental damage. Moreover, several legal actions and campaigns were inspired by the destructive effects that trigger suffering and backwardness to communities that reside near areas where oil exploration and production activities are going on. Similarly, allegations of human rights violations such as forced labor have been expressed, both in China and in other countries.

The first standard for CSR management in China was developed in 2005. This standard triggered a move by key state-owned corporations to establish their own reporting mechanisms for corporate social responsibility. For instance, the China Petrochemical Corporation started this process in 2006. These companies later on, in 2008, released their first independent annual CSR reports. For PetroChina Company Limited, this undertaking was fulfilled with the publication of the CSR report for 2007 in 21 March 2008. In this report, the company highlighted its accomplishments in the area of CSR.

Nevertheless, even before the establishment of the first standard for CSR management in 2005, some international companies with operations in China had already started embarking on CSR activities. A case in point is BP (British Petroleum), which had already allocated some $5 million for social investments (Dirks, 2001). Another example is that of CNOOC, which has for a long time maintained the commitment to the provision of employment, training, and development opportunities to local communities. Similarly, even before the establishment of the CSR reporting standard in China in 2005, CNOOC was actively engaged in activities aimed at supporting economic development in local communities.

For the majority of Chinese oil companies, though, an increase in community welfare engagement has been recorded after the creation of the CSR management standard. Today, the China Petrochemical Corporation is making all-round CSR efforts, which corporate governance is being strengthened in order to be applicable for issues of institutional assurance to local people. The company is also actively engaging various stakeholders to win their support through improved communication channels.

Level of CSR compliance China’s petroleum industry

There are a number of issues that predominate in the CSR efforts of most Chinese oil companies. According to Zhang (2010, p. 51), two key issues that most oil companies in China have restricted themselves to include contribution to security and social welfare. Zhang (2010, p. 51) feels that if consideration is to be put on the actual context in which oil China’s oil companies operate as well as on the contemporary CSR theory, the extent of engagement in CSR activities by Chinese petroleum companies is by far below the conventionally expected standards. In this regard, Zhang proposes that the companies should extend the scope of their CSR activities to include social responsibility, economic responsibility, and environmental responsibility.

It is possible for the oil companies to succeed by focusing on economic, social, and environmental aspects of CSR. This is because in China, many stakeholders have in recent times expressed willingness to participate in CSR activities. Some of these stakeholders include local communities, employees, shareholders, environment advocates, and business advocates (Zhang 2010, p. 52).

The core CSR issues in China’s petroleum industry are also inherent in trends in CSR reporting practice, not just in the country’s petroleum industry but also in the larger economic segment of mining and minerals (Dong, 2010, p. 18). Companies operating in this segment of the economy are required to fulfill China’s sustainability reporting requirement. By definition, sustainability reporting is systematic public reporting on social, economic, and environmental performance by companies. The core objective of sustainability reporting is normally to improve information transparency with regard to the full corporate responsibilities of all companies. Sustainability reporting also builds public trust as well as furthers the underlying goal of sustainable development.

Stakeholders in the petroleum industry as well as the larger mining and minerals segment of the Chinese economy are also aware that there is a need for proper coordination of employee development, social development, and industrial development. This would go a long way in improving public safety capacity and occupational health conditions. In the long run, this would take China on the path of less environmental pollution, a higher rate of resource utilization, less environmental pollution, and economic benefits. Ultimately, it would lead to sustainable development in the mining industry.

However, in a 2008 World Bank Report, the dimensions of social, economic, and environmental development in CSR programs are seen to be only partially reflected in China’s current practice as far as sustainability reporting is concerned. On a positive note, though, the benchmarking efforts contained in the Chinese CSR Report Preparation Guide have led to a rapid increase in the number of companies participating in disclosure activities. The improvement has also been evident with regard with the quality of reporting, particularly since 2006 (Dong, 2010, p. 20).

It appears that year 2008 was the turning point for many Chinese companies, which started adopting sustainability reporting in large numbers in order to be actively promoted by the stock exchanges as well as the Chinese government. The initial stage of China’s move towards sustainability reporting was evident in the continued use of traditional annual reports as a means of sustainability reporting. Another indicator of the initial stage in the move towards the new trend in sustainable reporting was the use of stand-alone reports, which were viewed as being more informative compared to other information media.

With regard to the quality and content of disclosure, literature shows that most Chinese oil companies do not provide comprehensive reporting on their CSR behavior. This finding is particularly reinforced by studies that offer poor scores to the companies with regard to quality of sustainability reporting (Wang 2010, p. 27).

A particularly prevalent problem that affects the quality of sustainability of sustainability reports is selective disclosure. Selective disclosure makes stakeholders doubtful about the companies’ willingness to provide all the information that they need in order to make wise investment choices. It is unfortunate that selective reporting has continued to prevail despite the existence of numerous guidelines on sustainability reporting. Some oil companies have the tendency to intentionally neglect topics that may force them to delve deep into issues such as human rights and anti-corruption.

In the Chinese oil and gas industry, there are three predominant categories of disclosure: Social Performance disclosure; Strategy, Vision, and Governance disclosure; and Environmental Performance disclosure. It is within the Strategy, Vision, and Governance disclosure that companies address the issue of establishing a CSR management system. This is largely a reflection of efforts to integrate or mainstream CSR concepts into corporate governance structures in line with global practice. Moreover, some petroleum companies embarked on efforts to improve their environmental performance in the long run by adopting ISO 14001, an international standard for environmental management. An example of these companies is PetroChina.

On the issue of production safety, Chinese oil companies have so far performed rather well as far as the comprehensiveness of reporting is concerned. Indeed, the issue of production safety has taken a dominant position in overall sustainability disclosures. According to Wang (2010, p. 29) the West has been at the forefront in criticizing China’s mining industry as one that contributes most highly to pollution in the world. Companies that disclose information regarding safety demonstrate good international mining standards, thereby legitimizing their operations.

The Chinese Academy of Social Sciences has provided a classification criterion for grouping various industries in terms of their success in sustainability reporting. The five categories provided include ‘reporter’, ‘leader’, ‘follower’, ‘starter’, and ‘hoarder’. The ‘reporter’ industries are characterized by a mature and comprehensive CSR management system, excellent CSR performance, and complete reporting. ‘Leader’ industries, on the other hand, are those that are in the progress of establishing a CSR management system, are leading in CSR performance, and whose reporting is relatively comprehensive. ‘Follower’ industries are considered to be those that promote CSR management, exercise limited reporting, and participate in CSR activities. According to the report by the Chinese Academy of Social Sciences, China’s mining industry belongs to the ‘follower’ category.

At this level, the CSR performance is higher up the ladder compared to that of companies that are in ‘starter’ and ‘hoarder’ categories. ‘Starter’ industries, which are next in the CSR performance hierarchy, are characterized by lack of efforts towards CSR management and scattered, incomplete, sustainability reporting. They are also seen as being in an infant stage as far as CSR activities are concerned. ‘Hoarder’ companies are at the bottom of the hierarchy, and they are characterized by a significant lack of sustainability reporting.

In another related hierarchical categorization, Sun (2010, p. 39) lists four categories: ‘leader’, ‘pursuer’, ‘participator’, and ‘onlooker’.  These four categories were used to classify the CSR performance of China’s top 100 companies. Some industries seemed to perform well in CSR compliance while for others, the performance was dissatisfactory. The oil and petrochemical industry was classified in the category of ‘pursuer’, one step below the leading pack, that is, industries in the ‘leader’ category. Industries in the leader category included the power grid industry and electric power industry. There is a striking similarity in the position of the oil industry in the categorization provided by both Sun (2010, p. 39) and the Chinese Academy of Social Sciences.

A crucial observation to be derived from these hierarchical analyses of compliance to sustainability reporting and CSR activities from this perspective is that although sustainability reporting is being practiced in China’s oil and gas industry, there is a need for considerable improvement to be made with regard to the quantity as well as comprehensiveness of the disclosures. Although there is a high level of concern in the need for CSR activities, the level of engagement in activities that can improve CSR performance remain low.

Such findings are consistent with many previous studies such as Guo (2009, p. 68), who noted that there is an imbalance between quality and quantity in CSR reporting in China, and it is becoming a chronic problem. It is clear, though, that the Chinese government is clear on its advocacy mission of portraying CSR as a core component in the making of a harmonious society. With advocacy is also hinged on the key role that CSR activities can play in China’s growing influence in the global economic market. In the context of such an institutional environment, Chinese companies have an opportunity to have a less bumpy ride towards compliance in CSR management and sustainability reporting.

In the context of a developing country, China’s CSR activities have a great potential of aid social progress for most of the population. The central issue, however, is to ensure that real change takes place with regard to corporate behavior and the entire Chinese society. For this reason, sustainability reports should not be seen as an end in themselves; rather, they are a stepping-stone towards a comprehensive understanding and greater awareness of socially responsible behavior as well as the achievement of accountability of industry-wide corporate behavior.

For China’s oil and gas industry, CSR reporting has the power to function both internally and externally as a tool for communicating and demonstrating good practice towards the realization of the ultimate objective of sustainable development. However, reporting constitutes only one side of the coin; there is another side of the coin: performance. Common criticism across the industry is that too much emphasis is put on reporting and very little is done on performance.

Trends in CSR reporting by China’s corporate entities: A historical perspective

The impact of CSR on the Chinese petroleum industry can best be understood through the lens of the country’s recent economic history. During the 1980s, China embarked on market reforms that triggered the privatization process. Today, the effect of this privatization is evident in the fact that only a third of China’s economy is state-controlled. The economy of the country has been opening up since it joined the World Trade Organization in early 2001. Over the past several years, China has rapidly grown into a major economic force in the world.

However, since a large proportion of China’s population comprises of disadvantaged citizens, social priorities are continually altering the balance of the country’s economic power. For instance, the private sector is strongly being encouraged to complement the public sector in providing help to citizens. Although the government has been withdrawing from direct intervention in economic management, interventionist elements of the ‘socialist market’ still exists.

The CSR concept started spreading across China in the mid-1990s after a rapid rise in a wave of industrial accidents. However, it is only in the mid-200s that the government started to adopt a proactive stance on the issue of corporate social responsibility. The Chinese government was seemingly influenced a great deal by the growing global consensus on the importance of CSR. In 2005, CSR was one of the main themes in the country’s eleventh Five-Year Plan. In this plan, the core aim is the achievement of sustainable development by focusing on the mounting problems triggered by country’s preoccupation with rapidity of economic growth.

Evidently, China’s rapid development has come at a high human, social, and environmental cost. The Chinese Communist Party strongly feels that development of this kind unsustainable, and may even bring about social instability. CSR is one of the approaches that are viewed as appropriate in bringing the country’s industries back on the path of sustainable economic behavior.

Nevertheless, in most industries where there is a large element of state control, such as oil and gas industry, preoccupation is on adopting a business-like stance, thereby neglecting key elements of CSR (Zu 2008, p. 110). One of the ways this trend has been evident is the shedding of some of the social responsibilities that the industries used to exercise previously in local communities. It has also been evident in the form of labor rights violations, tax evasion, and a contemptuous approach to environmental regulations. This state of affairs may be blamed partly on the lack of sufficient state capacity to provide an effective regulatory framework. According to Zu (2010, p. 44), the existing regulatory capabilities are not even sufficient to ensure minimum compliance to legally sanctioned provisions of CSR.

However, all is not lost in the efforts to inculcate a culture of adherence to CSR principles. As reported in the KPMG International Survey of 2005, the situation is gradually beginning to change with the continued expansion of China’s interests through foreign trade, stock listings in overseas markets, and the increased tendency by multinationals to source their products from Chinese companies.

Public welfare activities by Chinese oil companies in the developing world

Many Chinese oil companies claim to be voluntarily undertaking public welfare activities. There is a need for this claim to be explored in great detail to determine its truth. Moreover, doubts exist over the real motivation for as well as the level of effectiveness of the CSR activities of petroleum companies, especially the so-called National Oil Companies (NOCs). CSR advocates may agree, though, that CSR initiatives among Chinese companies are growing.

Concerns have been widely expressed that the oil companies could be just window dressing, particularly in the face of the country’s tarnished international image. This question particularly emanates from notorious allegations regarding the use of companies by the government as platforms for human rights abuses. One of these allegations is that state-owned enterprises are used by the Chinese government in the acquisition of economic and political interests in many conflict-ridden countries in Africa.

A case in point is that of CNPC, which has received condemnation from international human rights agencies for being indirectly involved in the Darfur genocide. Such claims run contrary to the generally accepted notion of corporate social responsibility. It also raises doubt regarding the commitment of Chinese petroleum corporations in CSR activities.

To understand this issue best, there is a need for an in-depth analysis from instrumental, ideological, and institutional dimensions. From an instrumental dimension, consideration should be on the economic pressure existing in the international market as well as the socio-economic and political interests that exist in China. From an ideological dimension, focus should be on the practices of traditional Chinese enterprises, the functions undertaken by the country’s state-owned enterprises, and the Chinese socialist environment. It may appear as if this ideological background sets the stage for the setting up and increased adoption of CSR standards by the country’s established companies.

However, China’s legal, economic, and political institutions appear to pose major challenges for progress in CSR efforts. Few initiatives appear to come from these institutions with the aim of promoting CSR activities, particularly in the petroleum industry. It appears that they often get caught up in vested national interests, particularly in foreign environments. This may explain the frequent claims of indirect participation in human rights abuses in the developing world by enterprises such as CNPC.

The economic and political interests of China appear to be relatively consistent with regard to the promotion of environmental and labor aspects of CSR. However, one may notice that the issue of human rights is implicitly excluded from CSR-related themes expounded on by the Chinese government. This exclusion of human rights issues appears to amount to an emerging distinct CSR discourse that exhibits Chinese characteristics. On the part of private sector initiatives, many private actors in the country are becoming acquainted with most of the CSR standards that apply in the global market. However, on the part of implementation, this is largely dependent on the technological capacity as well as the bargaining power of Chinese companies in relation to their buyers in the international market.

These development trends in China’s CSR culture have far-reaching implications for the country’s petroleum companies as well as the CSR development in a comparative sense as well as from a global perspective. CSR initiatives have already been entrenched as a core component of contemporary global governance practices. With globalization, the business space has increased to extend to areas that may be out of reach for national regulators. This may be said to be in regard to Chinese oil companies, which are increasingly reaching out to Africa in response to China’s ambitious push for oil security. Since these foreign contexts are out of reach for Chinese regulators, law enforcement agencies, inspectors, and environmentalists, the oil companies may easily get a leeway to violate the CSR regulations that are applicable in the home country.

In response to this regulatory vacuum, many transnational governance mechanisms have been set up outside the home country’s traditional regulatory territory in order to capture this emptiness. Nevertheless, the global regulatory regime continues to be inevitably influenced (but mostly constrained) by the existing national institutions. This explains why it is true to say that one cannot claim that a global regulatory order is practicable if it has failed to put into consideration the impact of strict implementation such a global law in the context of a given country.

The development of CSR in China’s petroleum industry provides an excellent platform for evaluating the impact of global governance on local enterprises. If China was taken by surprise by the widespread criticism from international human rights bodies on CNPC’s activities in the Sudan’s Darfur’s region, this could be because of the differences between local institutional values and global CSR practices.

In the contemporary world, the CSR movement is being driven largely by the civil society particularly in developed countries. This movement is increasingly impacting on developing countries largely because of globalization. In such a context, the effects are being experienced even in where party-state distinctions are difficult to make such as China. However, this tends to bring about many effects, some of them intended, but several unintended. After all, the way CSR is understood depends on institutional and cultural settings. In such settings some unintended effects of the contemporary CSR movement are bound to crop up. For this reason, there is need for comparative studies on CSR in China’s petroleum industry and CSR performance in other countries.

General CSR principles for Chinese state-owned enterprises

One of the most significant developments as far as the CSR principles for state-owned enterprises is concerned occurred in 2008 (Lin 2010, p. 12). In January that year, the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) introduced the so-called ‘Guide Opinion’ on State-Owned Enterprises under the Control of the Central Government (Lin 2010, p. 13). In this legal document, the SASAC explained the attitude that the Chinese central government has towards CSR. Such information is important in the context of the present paper, considering that the largest petroleum companies in the country, including CNPC and CNOOC are state-owned enterprises. SASAC, on the other hand, is the body responsible for performing shareholder rights and obligations on the government’s behalf.

Presently, there are about 150 state-owned enterprises (SOEs), which are under the direct control of the Chinese central government, meaning that they are subject to the provisions of the Guide Opinion (Lin 2010, p. 14). These state-owned enterprises (together with their subsidiaries) have a high visibility across China. Most of them are even listed in Shenzhen or Shanghai Stock Exchanges. Some are listed even in Hong Kong as well as overseas stock exchanges. This makes the Guide Opinion a major indicator of the face of CSR in China’s various industries, including the petroleum industry (Lin, 2010, p. 14).

The Guide Opinion comprises of four parts, the first of which explains the importance of CSR for the companies under the control of the Chinese government. The second part addresses the fundamental principles guiding CSR implementation. The third part is on the core components of CSR, and lastly, the fourth part proposes several CSR implementation measures. An analysis of these four parts is crucial for a proper understanding of the status quo of CSR in China’s petroleum industry.

On the first part, the reasons for CSR implementation include promotion of social harmony, the unavoidability of corporate social responsibility for sustainable development, and the need for SOEs to participate in the global market and society. CSR is also seen as a crucial undertaking owing to the centrality of SOEs in China’s economy. The fundamental principles pursued through CSR activities are viewed to constitute an excellent example to be emulated by other Chinese companies. The implementation process, according to the Guide Opinion, constitutes in integrating CSR into the China’s corporate reforms.

The eight core components of China’s CSR in the view of the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) include increasing profitability, complying with laws, improving product quality, improving innovation, upgrading efficiency of resources and environmental protection, protecting employees’ rights, assuring production safety, and engaging in charity.

For purposes of the present study, one of the most crucial things in the analysis of the CSR guidelines provided by the SASAC, though, is measures of implementation. One of them is promotion of awareness in order to cultivate a culture of compliance to CSR standards. This involves such things as educating employees. Other key measures include integration of CSR into corporate governance, establishment of systems for managing, auditing, and evaluating CSR performance, and issuance of periodic CSR reports, also called sustainability reports.

Striking a balance between energy security and requirements of CSR

China is currently keen to secure as many sources of foreign oil and gas in order to meet its ever-growing energy needs. In such a scenario, the competition for key overseas interests tends to compel major petroleum companies to overlook CSR issues. In recent times, the tendency to overlook this crucial aspect of corporate governance has yielded a bad reputation not only for the petroleum industry, but the whole country in general.

According to Chen (2007, p. 46), China’s ambition to secure petroleum to meets it domestic demand has greatly contributed to human rights violations in Burma and Sudan. These conflicts, which have been significantly influenced by abundance of oil and natural gas reserves, have caused a serious strain between the US and China. They have also made it difficult for progress to be made in international efforts to create an effective platform for addressing conflict management and resolution of crises arising from human rights violations.

Chinese oil and gas companies have been frequently accused of failing to maintain a balance between national/corporate interests and corporate social responsibility (Chen 2007, p. 46, p. 48). The main international motivation for engagement with China as a key stakeholder is that failure to do this would influence other countries to make human rights compromises by courting questionable oil regimes. Such a move would be detrimental to global peace, security, and harmonious coexistence.

Other than being engraved into the international corporate governance, the issue of human rights was enshrined post-1945 capitalism, whereby transnational corporations were called upon to conform to fundamental human rights principles (Watts 2005, p. 381). According to Watts (2005, p. 384), there are many instances of oil-related violence, and many transnational corporations have been key participants. This is particularly in the developing world, where government structures are not strong enough to monitor corporations and to take stringent measures when peoples’ human rights are violated for commercial gain.

 

 

 

Chapter 3: Methodology

 

 

Introduction

This chapter addresses the research method to be used in the study. In the present study, the qualitative interview technique is used for data collection. A justification for the choice of qualitative interviews is also provided. The internet interview method is chosen as the ideal way of gathering information from five interviewees, all of them employees of the China National Petroleum Corporation (CNPC).

Research method

Five interviews of CNPC were purposively selected and structured internet interviews were used to gather data from them. The interviewees include a financial officer, a human resource development manager, a senior technician, and an environment program officer. The choice of CNPC as the source of interviewees was crucial, considering that this is the largest producer and supplier of oil and gas in China. Moreover, it is one of the leading global companies in oilfield services and contracting in engineering and construction, with its presence having spread across 70 countries.

The interviewer first sought permission from the company’s management. The information sought first included the full names of interviewee and his designation within CNPC. Since the internet interview platform provided for automatic recording of the online ‘conversation’ in the form of a chat transcript, there was need for any recording equipment. The chat ‘conversations’ were simply analyzed and a formal transcript written down for use in the chapter on data analysis and findings. Once the interview commenced, the researcher endeavored not to interrupt the interviewee questions that may make him or her veer from CSR issues. There was strict reference to the structured questions, which were asked in the same order to all the five interviewees.

Some of the structured questions asked had to do with the efforts the company was undertaking to ensure it is socially responsible. The interviewer also sought to know whether the company was involved in local welfare activities. Moreover, there was a question on whether the company was adhering to environmental regulations and human rights. Upon obtaining this primary data, the researcher carried out analysis work, after which a comparison was made with secondary data on another Chinese companies called CNOOC (China National Offshore Oil Corporation). This comparison is aimed at determining the status quo of CSR in the country’s petroleum industry.

Justification for qualitative research

One of the key benefits of qualitative research is that it provides an in-depth picture than the variable-based correlations that form the foundation of quantitative studies (Silverman 2001, p. 25). However, it is worthwhile to mention that qualitative interviews can be subject to the participants’ sensitivity. Nevertheless, this weakness can be turned into an area of strength through the use of proper follow-up questions. This is what was done in the present study. Through proper follow-up questions, the researcher was able to determine the level of interviewees’ grasp of CSR concepts.

Qualitative interviews are also beneficial with regard to the issue of objectivity. Typically, different respondents are bound by different perceptions regarding the importance of CSR in China’s petroleum industry. Through a qualitative methodology, it is easy for a researcher to get an excellent picture of trends in the responses provided by interviewees. From that point, it is easy to quantify these trends and use them as a basis for making conclusions. In the absence of a qualitative methodology, it would be impossible to derive trends regarding views on corporate social responsibility, thereby making it difficult to make conclusions.

Another justification for this methodology is that as an organizational study, the present research necessitates an in-depth investigation into the organizational benefits of CSR activities. It would be difficult to identify such benefits with the use of a quantitative study. The qualitative structured interview is the best tool for use in the analysis of outcomes in their specific corporate contexts. It is also the best tool for use in deriving conclusions within the framework of the CSR theme.

Moreover, it is most appropriate for comparisons of individual interviewees’ experiences to be made with regard to different the CSR projects embarked on at CNPC using a qualitative perspective. Upon careful and accurate analysis of these outcomes, it becomes easy to make comparisons with secondary data and existing literature on the company’s CSR reputation. From this analysis, it is easy to wind up the research with credible conclusions. The truth of this argument is particularly reinforced in light of the fact that CSR is a relatively recent development and a fast-evolving phenomenon.

Justification for structured internet interviews

One of the advantages of structured internet interview method is that the respondent had a sense of empowerment as the interview progressed. The interviewee was not anxious since there was not face-to-face setting. To the interviewee, this was just another online chat session. Moreover, structured internet interviews produce a better rate of response because the participant sample is a representation of a large proportion of the population (Connaway & Powell 2010, p. 157).

It is also important to note that with internet interviews, the problem of high research costs is appropriately addressed. It is easy to conduct an internet interview because one does not need to travel to the company’s premises. Email communication is all that is needed and an ‘online appointment’ booked. At the agreed-upon time, the interviewer and interviewee simply log into their respective computer programs and the online interview-chat begins. Moreover, in such an online environment, the interviewer can ask follow-up questions in a timely manner to prevent the interviewee from wasting precious time by meandering away from the subject (Wilkinson & Birmingham 2003, p. 86).

Nevertheless, it is crucial for the interviewer to be keen on clarifications with regard to all the questions posed. This is because in an internet interview environment, the interviewee does not have the freedom of responding to requests for clarification during his pleasure time. Once all the clarifications have been made and the researcher has obtained all he appropriate, the internet interview can be considered a success. This success is considered a particularly important milestone because of a large proportion of the researcher’s time goes into data collection. Once the internet interview is over, the most difficult part of the research can as well be said to have been dispensed with.

 

 

 

 

 

Chapter 4: Data Analysis and Findings

Introduction

This chapter contains three main parts. The first part provides an overview of China National Petroleum Corporation (CNPC) and China National Offshore Oil Corporation (CNOOC Limited) as well as research relating to each of the companies’ CSR practices. The second part provides data findings from internet interviews of five CNPC’s employees. The third part contains a summary of findings based on the comparison of the two companies (CNPC and CNOOC).

Overview of China National Petroleum Corporation (CNPC)

The CNPC first established its CSR reporting mechanism in 2006. The first issue of CNPC’s CSR report was released in 2007, which is the same year of the release of the CSR Key Performance Indicators (KPI) of the company. A year later, the company not only held Several CSR forums, it also launched a website on society and environment. This launch was followed by the issuance of a sustainability report on Kazakhstan and the establishment of a mechanism of stakeholder engagement. The year 2010 was not only marked by the release of the CSR report but also the sharing of best practices in CSR among various CNPC’s affiliates.

The report released in 2010 contained information on the efforts that the company was undertaking to honor its responsibilities not just to stockholders but also other stakeholders as far as the economy, society, and environment is concerned. The main stakeholders include government and shareholders; employees; customers and consumers; business partners; relevant industrial institutions (both national and international); and community. The 2010 CSR report highlighted the efforts that CNPC was making to meet the expectations of each of these stakeholders in its CSR strategy.

For each of these stakeholders, the CNPC CSR report clearly outlines the key objectives and areas of focus as well as ways of facilitating communication and exchange. For instance, for the government and shareholders, the key objectives include stability in market supply, national energy security, and contribution to local development. In contrast, for the local community, the key objectives and areas of focus include offering job opportunities, supporting activities relating to public welfare, participating in community development, and protecting the immediate environment.

Although CNPC achieved quite a lot between 2006 and 2010, these achievements can only be justified when viewed against the backdrop of the success of the company’s CSR strategy. According to the 2010 CSR report, the main areas of achievement during this period touch on national energy security, overseas operations, technological innovation, safe operations, emission reduction, energy conservation, public welfare, and employee development.

Regarding the achievement relating to national energy security, true success would be said to have been achieved if the goal of sustainable energy supply had been achieved by the company. Achieving this goal is an extremely difficult undertaking, considering that oil and gas are scarce non-renewable sources of energy, yet they are of strategic importance as far as prosperity, national security, and livelihoods of individuals is concerned.

The main areas in which CNPC has been pursuing the goal of CSR and sustainability include increase in technical innovation, stabilizing market supplies, boosting the production of oil and gas, development of clean energy, and deepening international cooperation in the realm of oil and gas consumption mix. Although these are the stated goals, it is imperative to note that the reality on the ground may paint a radically different picture, hence the need for a deeper level of analysis.

When CNPC pursues the goal of increased oil and gas production as a strategy of achieving sustainability, many questions arise with regard to the need for increased emphasis on CSR. The main strategies aimed at increasing production include redevelopment of the oilfields that are already mature and scale application of all horizontal wells. The issue of sustainability is also being addressed by CNPC through safeguarding supplies of oil products. Since 2006, this has entailed strategic adjustment of chemical processing and refining activities, which necessitate a stead process of institutional reform. An excellent example is that of the situation of strained supply of diesel in some parts of China’s cities and provinces. CNPC responded by organizing imports, boosting production, and improving all terminal services so as to boost supplies.

Indeed sustainability is a core component of CSR, particularly as far as oil and gas exploration and production is concerned. With this in mind, one is able to understand the thinking behind CNPC’s decision to put a lot of emphasis on technological innovations in areas such as under-balanced drilling, horizontal wells, and snubbing services. Similarly, international cooperation has been boosted between 2006 and 2010 to facilitate a smooth running of oil and gas production overseas. An example of such cooperation is the commissioning of the Khartoum Oil Refinery. This refinery was constructed as a joint venture between the Sudanese ministry of Energy and Mining and CNPC.

Sudan and China embarked on the construction of the Khartoum Oil Refinery a decade ago in efforts to overcome the shortage of various refined products that the Sudanese market was suffering from as well as to facilitate the processing of crude oil obtained from block 6. This joint venture serves many roles. First, Sudan no longer relies on imports for products such as aviation kerosene diesel, and petrol. Secondly, it demonstrates a case of Sino-Sudanese economic cooperation. Thirdly, it inspires the goal of adherence to international standards. By passing different certifications, the project was considered a success. Moreover, since its construction over a decade ago, no serious environmental incidents, accidents, or unexpected shutdowns of the refinery have been experienced.

Responsible production

In the area of responsible production, the ideal CSR strategy for a petroleum company would be to appreciate the preciousness of the people as human resources as well as their immediate environments. For CNPC, it is clear that this awareness has been created. The main question, though, is whether this has always the case. It is also important to ascertain the specific changes in emphasis that were caused by the establishment of CSR management standard in 2005, and prospects for adherence to this CSR management standard in the future.

Ideally, petroleum companies need to respond to climate change as well as undertake their operations in such a way that the goals of energy-saving and reduction of emissions are pursued. Another important issue is that of strengthening safety management. These activities greatly contribute to the establishment of companies that are environmentally-friendly, resource-efficient, and safe.

Some of the buzzwords used by CNPC with regard to responsible production include energy conservation, solid management, reduction of emissions, operational safety, and energy conservation. Emphasis is put on caring for the environment and the ecosystems in which the company operates. The underlying aim is to ensure that CNPC grows into a safe, resource-efficient, and environmentally friendly organization.

Energy conservation and reduction of emissions

Energy conservation and reduction of emissions constitute one of the core requirements of green development in China’s petroleum industry. For many companies, it is a core aspect of CSR efforts. CNPC is one of the companies that pay close attention to this aspect of environmental sustainability. The company pursues this goal through enactment of relevant policies, laws, and regulations relating to the conservation of national resources.

With regard to the promotion of energy efficiency, CNPC has been spearheading the move by China’s oil and gas sector in participating in demonstration activities such as building of pilot furnaces and sample stations. Monitoring and evaluation efforts also form a core element of energy conservation efforts, particularly in fuel pumps, water pumps, furnaces, diesel generators, and gas compressors. Another element of energy conservation efforts of CNPC is the enhancement of the existing standards system. The aim of this enhancement has been to ensure that energy use as well as water use statistics are monitored as a basis for improving energy efficiency.

Emission reduction efforts, on the other hand, have mostly been taking the form of projects aimed at reducing the rate of pollution. In 2010, CNPC launched ten such projects. Additionally, the company put in place follow-up programs assessment programs aimed at assessing the success of emissions reduction programs. Through such efforts, the company hopes to put to an end the discharge of pollutants.

Environmental protection

In this area, the main activities include implementation of ecological restoration projects, increasing the number of environmental protection facilities available, and building of the so-called “Green Grassroots Stations”. In 2010, CNPC made use of Management Regulations on Environmental Monitoring to establish standards for the company’s petrochemical monitoring stations as well as the main environmental monitoring center.

At operation areas, a range of environmental protection measures have also been put in place. Some of these measures include ‘greening’ of areas of operation, facilitating specialized inspections in areas of great environmental sensitivity, and monitoring areas that are likely to become sources of radiation.

Operational safety

At CNPC, the stated goal with regard to operational safety efforts is to ensure that people are put first, and that it is possible to avoid all types of accidents. In relation to operational safety, the values of high quality, good design, a sense of responsibility, and preventive efforts is advocated for. The management of potential risks is said to be enhanced, contractor safety is promoted, and production safety inspection programs put in place.

Operations safety is of particularly great importance in offshore operations. These operations bring into focus the safety of offshore jackets, artificial islands, and drilling platforms. In its 2010 Sustainability Report, CNPC also claims to put a lot of emphasis on the security of overseas operations. This entails the setting up of security management mechanisms to ensure security of all employees. These measures extend to aspects of social safety management, which encompass emergency evacuation procedures, risk assessment, and anti-terrorism training.

Employee development

 

With regard to employee development, the core areas of focus for include growth platforms, employment policies, occupational health, localization and diversification, recreation activities, and building up of petroleum communities.

Overview of China National Offshore Oil Corporation (CNOOC)

CNOOC is the largest producer of China’s natural gas and crude oil. It is also one of the largest independently-operating gas and oil companies that specialize in exploration and production activities around the world. At CNOOC, CSR activities are largely guided by the principles outlined in the UNGC (United Nations Global Compact). The company also refers to the Opinions and Directives on the Fulfillment of Social Responsibility by Chinese Companies, which was issued by the Chinese government. Another reference point is industrial best practices, against which its activities are benchmarked in efforts to fulfill its CSR goals.

A major challenge, though, is on ensuring that all the company’s subsidiaries carry out the company’s CSR philosophy conscientiously in all their operations. In efforts to ensure that this goal is achieved, top CNOOC management has delegated the work of assessing the performance of subsidiaries to Human Resources Departments and HSE (Health, Safety and Environment) Departments of the subsidiaries. These departments are responsible for ensuring strict compliance to the company’s CSR philosophy, both at home and abroad.

Another problematic area is on maintaining a balance in the relationship between the company’s energy development initiatives and protection of environment. In this regard, the stated position of the company is that the goals of emission reduction, energy conservation, and environmental protection are as important as those involving the development of gas and oil resources. This translates into the need for high standards of environmental protection and responsible production.

CSR concepts at CNOOC

One of the core concepts is obtaining business opportunities legitimately. In this regard, all employees are required to sign the company’s Code of Conduct and Code of Business Ethics. Responsible development of resources is another key concept, whereby employees are supposed to reject destructive exploitation of resources. This entails adherence to best practices in the petroleum industry.

The concept of win-win relationship with all stakeholders is also covered in CNOOC’s CSR blueprint. This entails respecting the interests and rights of all stakeholders such as partners, contractors, local residents, and employees. For this goal to be achieved there is a need for a reasonable level of supervision to be provided with regard to business as well as related interests. The issue of win-win relationship applies even in matters of support to local welfare. Provision of support to local welfare is perhaps one of the areas that most companies with CSR programs do not forget to address. In the case of CNOOC, things are no different.

Health, Safety, and Environment (HSE) management is another core concept in CNOOC’s CSR activities. The main challenge in this regard has been on ensuring that HSE management is not just an economic activity but also a core social responsibility. Moreover, employees are recognized as the most valuable resource for the company. The difficulty with regard to HSE management is evident in the fact that the company has to endeavor to nurture a culture of integrated management that allows for continuous improvement.

Integrated HSE management at CNOOC entails identifying and analyzing major environmental and safety risks. Upon analysis, the risks are addressed using HSE regulations. These regulations address the company’s operation processes in their entirety. These areas of operation include organizational structure, change management, employee development, safety operation procedures, occupational health, system audits, and inspection. Other areas of operation include contract management, operation supervision, and information communication.

In its 2009 sustainability report, CNOOC reported that in 2008-2009, exceptional success was achieved with regard to HSE performance largely because a lot of emphasis was placed on it. No major accidents were reported in the company’s areas of operation, and the company never faced any criticism from regulatory authorities or fines because of violations of principles of Health, Safety, and Environment management.

An integral element of HSE management is assessment of social and environmental impacts. These assessments require hiring the services of professional firms, particularly on assessments of impact of drilling plans. During these assessments, reference is made to international practices, safety precautions, and laws stipulating drilling operations in different environment conditions.

Environmental friendless in areas of operation is enhanced through pollution prevention measures. One globally accepted precaution for pollution prevention is reducing the discharge of oil drilling fluids and other components such as solid wastes and waste water. For CNOOC, this has been an area of focus during design, construction, and production stages.

One of the areas where CNOOC has faced sharp criticism, particularly in overseas operations, is with regard to violations of human rights and territorial integrity, particularly in the company’s operations in neighboring countries. For example, in early 2012, CNOOC faced criticism for violating Vietnam’s territorial integrity in its development activities in the oil-rich South China Sea region (Bloomberg News, March 16, 2012). The region in which the company started undertaking oil exploration activities fell within the disputed Paracel Islands. The prudent thing for CNOOC to do would have been to wait until the territorial dispute had been resolved before embarking on oil and gas exploration missions.

In many remote areas, CNOOC engages in well site restoration after carrying out all its operations. Other issues relating to CSR that the company is conscious of include energy saving, emission reduction, and emergency response management. For these issues to be addressed amicably, however, a great challenge entails training employees, ensuring that have the requisite environment awareness education, and ensuring that all the necessary organizational structures are in place to facilitate continuous improvement.

Employee development

Employee development is one of the areas that have been addressed in great detail not only at CNOOC, but also other major oil and gas companies, including CNPC. The main aspect of employee development that relates most to CSR is ‘employee localization’. Employee localization entails employing many people from the localities where the company is carrying out operations. Since China’s companies started addressing CSR more proactively in the 2000s, many inhabitants of CNOOC’s areas of operation have gained employment. This employment policy has been replicated in overseas operations, with a high degree of success.

Data findings from internet interviews of five CNPC’s employees

All the five CNPC interviewees responded affirmatively on the question on whether a corporate social responsibility strategy existed in their company. However, differences emerged with regard to explanations on what the CSR strategy was like. By and large, their understanding of CSR was not as in-depth as the one depicted in the company’s 2010 sustainability report. The main similarity in the responses was on the role of CSR in uplifting the level of developing in communities where CNPC carries out its operations.  An interesting explanation was given by the human resource development officer, who pointed out that CNPC’s CSR strategy is best captured in the company’s motto: “Caring for Energy, Caring for You”. The HR development manager observed that in this motto, the term ‘you’ was used to refer to all stakeholders in all the company’s energy-related operations, and this includes local communities.

The main CSR activities that the interviewees said CNPC has been engaging in include reduction of emissions and solid wastes, enhancement of safety measures, ensuring sustainability in oil exploration and production activities, and promotion of new sources of energy. Other CSR activities include employment of people from local communities in various areas of operations, and other related public welfare activities.

One of the interviewees, a senior technician, pointed out that in most cases public welfare activities at CNPC were carried out in an ad hoc manner and on need basis. Some of the CSR activities undertaken in this way include disaster relief, support to the education of children from poor backgrounds, voluntary activities by company staff, and services for major events such as the Asian Games and World Expo.

The impact of CSR activities on the interviewees’ day-to-day work at CNPC appeared to be far-reaching in many ways. One of them was improvement in the level of satisfaction. Other effects included heavy workload, particularly at times when staff members had to spare some time and engage in community work. The financial officer, however, noted that such community activities were a rare phenomenon and did not appear to leave a lasting impact on the target communities.

The environment programs officer was one of the interviewees who cited a great sense of satisfaction in his work because of engaging in CSR activities. Other than deriving satisfaction, the environment program officer noted that nearly all the CSR initiatives undertaken by CNPC had a far-reaching impact on the target communities. With regard to poverty alleviation, the main target areas that benefited according to the officer include Henan, Xinjiang, Tibet, Inner Mongolia, and the Three Georges.

The primary data also shows that although CNPC has been undertaking CSR projects for a long time, it is only in the mid 2000s that the company started addressing the issue more proactively. Consequently, some of the most significant CSR projects have been undertaken after 2005. These projects include poverty alleviation activities, donations to education, disaster relief efforts, environment protection, and voluntary donations to the public.

Donations to education take the form of scholarships, assistantships, funds for school constructions, and Research and Development funds. Some of the disaster relief responses by the CNPC in recent years include landslides in Zhouqu, earthquake in Yushu, and drought spells to the South West of China. The financial officer pointed out that voluntary public donations have largely been directed to the areas of sports, culture, arts, medical facilities, and public infrastructure. In environment, the activities mentioned involved afforestation and community landscaping.

The senior technician also noted that CNPC has not always been publishing a corporate social responsibility report. According to the technician, the trend started two or three years ago, when the Chinese government started being strict on the guidelines on sustainability reporting established in 2005. However, the technician felt that there was “a need for the Chinese government to ensure that there were no loopholes in implementation on the guidelines”. The indication here is that it was easy for companies to exploit these loopholes to continue engaging in activities that were contrary to public welfare, environmental sustainability, and responsible oil and gas production.

The program officer gave an excellent chronicle of the events leading to CNPC’s CSR strategy as we know it today. In 2006, the CSR reporting mechanism was established, following by the first issue of CNPC’s CSR report the following year. It is also in 2007 that the first key performance indicators for the company’s CSR efforts were released. The other significant developments including holding of the first CSR forum in 2008, the establishment of a stakeholder engagement mechanism (2009), and sharing of CSR ‘best practices’ among all CNPC’s affiliates (2010).

Out of the five employees, four were gave largely positive comments regarding CNPC’s level of commitment to CSR activities. However, all the employees were clear about the challenging task of balancing between the goal of profitability and that of corporate responsibility. This balance can particularly be difficult to maintain if there is no proper communication among all the company’s stakeholders.

In the case of CNPC, these stakeholders include government and shareholders; customers and consumers; employees; business partners, relevant organizations in the industry, and community. For each of these stakeholders, major differences occur with regard to objective and focus, and this is where the main problem arises. For instance, the government, attention is on contribution to local development, stability in market supply, and national energy security. For shareholders, attention is on return on their investment. For employees, the objective and focus is on career development, safety and health, and job satisfaction. In contrast, the area of concern for community is job opportunities, protection of the environment, and support to public welfare initiatives. Balancing these diverse interests with CSR efforts is a major challenge, and this was inherent in the interviewees’ responses.

The employees’ responses on CNPC’s performance as far as CSR is concerned also yielded crucial insights into CSR record in Chinese petroleum companies. The human resource development manager talked passionately about the role of CNPC in prosperity of communities, mainly overseas. In Sudan, for example, the wastewater generated during the construction of the Khartoum Refinery, which is co-owned between the Sudanese government and CNPC, was cleaned and then channeled into reservoirs. Here, it accumulated to form a man-made lake, complete with fish, water birds, and a surrounding forest.

The human resource development manager also expressed support to CNPC and PetroChina over criticism over the Sudan’s Darfur region. This is in regard to the genocide that recent occurred in the region. In May 2008, the United Nations Global Compact received an open letter signed by over 80 civil society groups. In this open letter, the civil society groups were requesting the UN Global Impact to join hands with PetroChina, one of the country’s Compact participants, to help in resolving Sudan’s humanitarian crisis in Darfur. The activists lamented that PetroChina (a CNPC subsidiary) was not doing enough to resolve the crisis. This issue has been pointed out in CSR literature as one of the failures of the corporate responsibility failures of the CNPC.

Another area where CNPC has performed poorly is on the reduction of greenhouse gases. On the official front, however, CNPC claims to take a firm stand on the need to prevent the accumulation of greenhouse gases. Some of the efforts that the company takes to deal with this challenge include promotion of internal energy efficiency, carrying out of fuel replacement research, and development of carbon capture technology.  The interviewees’ observation in this regard is that these efforts have not succeeded.

Nevertheless, on the overall, the interviewees were optimistic regarding the future of CSR in China. They argued that there is a need to bring on board all stakeholders and to take their views into consideration in the process of implementing the company’s CSR project. For example, company managers need to put into consideration the regulations put in place by the government instead of looking out for any loopholes that can help their companies escape scrutiny. Particular emphasis is on the need to balance between the needs of profitability and CSR activities, both within China and in overseas operations.

Summary of findings

From the research findings, it is clear that many enterprises in the contemporary world have made attempts to improve their performance with regard to environmental issues. In China, industry efforts on a voluntary basis exist but on a limited scale. In many enterprises, there is a prevalent tendency to take advantage of the environment authorities’ weak enforcement capacity. For instance, there is a tendency by enterprises to make downward negotiations on environmental standards and penalties with local environmental authorities.

Whereas the enterprises comply with most of the existing environmental regulations through the setting up of the appropriate pollution control mechanisms, interviewees’ responses show that mostly do this when there is an expectations that inspectors will visit the companies’ premises. Moreover, only a few Chinese enterprises have put up units that are fully tasked with corporate social responsibility issues as well as environment management.

Moreover, there is no doubt that many leading Chinese oil and gas companies publish CSR and sustainability reports. These publications are lengthy, detailed, and clear on the companies’ mission with regard to CSR and sustainability. However, these reports do not appear to pain a clear picture of the situation on the ground as far as corporate social responsibility activities. For the most part, serious environmental violations are downplayed. Moreover, the reports tend to portray the company in a very positive light, whereby areas that have caused controversy in recent times are omitted or mentioned just in passing. This creates the impression that the said corporations are just engaging in window dressing.

CNPC, the leading corporate entity in China’s petroleum industry, is one of the companies that publish in-depth reports on sustainability and corporate social responsibility. In these reports, one clearly notices the similarity between the company’s CSR philosophy and that of CNOOC. In the sustainability reports of both companies, CSR issues are addressed in the context of five core areas: sustainability of energy supply, responsible production, public welfare, and employee development.

It is clear that both CNPC and CNOOC have not accorded the issue of human rights violations a level of coverage and emphasis proportionate to the criticism leveled against them, particularly with regard to oil and gas exploration and production activities in areas such as Darfur (Sudan) and Burma. Downplaying an issue that has been raised by all the world’s major international human rights organizations is tantamount to declaring support to serious CSR omissions, some as serious as CNPC’s alleged indirect participation in genocide in Darfur.

The problem of selective disclosure manifests itself at both CNPC and CNOOC. At CNPC, it is evident not only in the 2010 CSR report but also in the tendency by all the five interviews to give positive views even in areas where the interviewer has provided evidence to the contrary. For example, in the 2010 CSR Report, CNPC presented a special feature in which it referred to the Khartoum Refinery Project as “The Pearl of Africa”. Although this project may indeed have been constructed in under environmentally friendly and safe conditions, all this does not amount to anything much until and unless the company addresses the allegations of indirect involvement in the Darfur genocide.

The CNOOC is also guilty of downplaying serious violations of its social responsibilities. For example, in the 2009 CSR Report, the company engaged in window dressing while addressing the issue of Health, Safety, and Environment (HSE) performance. The company claimed that exceptional success in overseas HSE performance since no major accidents were reported, and that no liability claims were reported for losses over RMB 1 million. This shows that the company downplays liability claims that represent a loss of less than RMB 1 million. Instead of downplaying such accidents and claims, the company would have addressed issues of how to ensure that the occurrence of such accidents and claims would be reduced even further in subsequent years.

Chapter 5: Conclusions and Recommendations

Conclusions

Many changes have taken place in CRS in China’s petroleum industry since the 1980s. The dominant hand of the China’s central government exerts tremendous influence on trends in CSR activities and policies. Most of the progress in CSR in the petroleum industry was realized in the 2000s. These changes have heralded an era of proactive approach to CSR and sustainability reporting in China’s petroleum industry.

The CSR laws that the Chinese government has put in place to regulate the oil industry have not been complied to fully. One of the reasons for this non-compliance is unawareness on their existence by most executives of oil and gas companies. Secondly, the environmental laws and regulations are mostly weak, unclear, and poorly developed. Failure to put in place proper environment protection laws has been criticized by many international organizations, including the United Nations Global Compact (UNGC).

Some of the criticism that the industry faces is based on the argument that many oil and gas companies put a lot of efforts in sustainability reporting but little in the practice of corporate social responsibility. The establishment of standards in 2005 triggered a move by key state-owned corporations to establish their own reporting mechanisms for corporate social responsibility. However, an equivalent emphasis in practical terms was not put, and this could be the reason for the establishment of a legal guide known as “Guide Opinion on State-Owned Enterprises under the Control of the Central Government” by the Chinese government. however, even with this new guideline in place, many oil and gas companies continue to engage in selective disclosure in their annual CSR reports, as it is evident in the case of CNPC and CNOOC.

There is also a glaring omission of human rights

CSR discourse with no human rights issues (Chinese xtic)

1. Lack of proper systems for managing, auditing, and evaluating CSR performance

On a positive note though, China has made surprisingly impressive steps in CSR reporting. The structure of CSR/sustainability reports released by petroleum companies is becoming standardized. This creates the impression of extended adoption of CSR practices across China. As China continues to emerge as a global economic power, the influence of CSR activities is likely to continue growing both locally and internationally. However, before this progress is accomplished, China will have to repair its damaged international reputation because of human rights violations by the country’s corporations operating in oil rich but unstable countries, mainly in Africa.

As the country continues to pursue the goal of energy security to meet the rapidly growing demand at home by prospecting in the developing world, the issue of sustainability has to be put into consideration. This can only be achieved by ensuring that various CSR aspects, including public welfare, responsible production, employee development, and sustainable energy supply are incorporate into the companies’ operations.

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