Csr - a View from Bp

CSR - A view from BP

Speech delivered at the CSR Forum, held at the School of Economics and Management, Tsinghua University, by Dr Gary Dirks (BP China)

24th April 2004

Chairman Dawson, President Wang, Distinguished Guests, faculty and students.

Good afternoon.

I am delighted to have the opportunity to join you here at Tsinghua University today to celebrate the 20th anniversary of the School of Economics and Management. I am honoured to contribute to a discussion about the important subject of corporate social responsibility. It is a particular pleasure to co-host this forum with my good friend President Wang of Sinopec.

As I see it, Corporate Social Responsibility is just one aspect of a larger debate that is both basic and very old - a debate about just societies, and the roles of the state, civil society and commerce in creating and sustaining them. Seen in this way Corporate Social Responsibility is specifically a debate about the appropriate and desirable role that companies play in society.

This makes the subject complex, but also rich for debate, particularly here in China where we are seeing a rapid reshaping of the social and economic landscape.

I am conscious that CSR is a big subject... too big to cover exhaustively here today. I will therefore necessarily be selective.

At the outset it is important to recognize that the role of corporations can be different from one society to the next. My company comes from a western market oriented tradition, where the primary role of companies is - by law - to operate in the interest of shareholders. Thus in the West on hears a great deal about shareholder value and creating shareholder value.

In contrast here in China enterprises come from a state owned tradition where companies were managed for the collective interest of society. Given that there are differences it is relevant to ask if there can be common ground when discussing Corporate Social Responsibility. I believe there is and the common ground is based on how companies perform their role in society - how they go about their day to day business.

Seen this way CSR goes beyond looking at a company's philanthropic efforts. CSR is not about how companies spend a proportion of their profits. It is about the more fundamental question of how they produce their goods and provide their services. It is about how they make their profits. While philanthropy can be a worthy element of a company's external affairs strategy, it is not an indicator of responsible behaviour.

This perspective is very much in keeping with much current debate in China around the role of companies, particularly as their role in society is reviewed within the notion of "scientific development" which Chinese experts have been exploring since the 16th National People's Congress.

If CSR is about a company's behaviours and practices, what is the standard against which these behaviours and practices should be assessed? I will explore this question from my experiences in BP, not because we have all the answers. I am convinced we don't - I expect to learn much here today. Rather BP is what I know best; it is the frame of my own experience - of my own career.

At BP we begin the "CSR journey" by recognizing that the primary responsibility of the company and its management is to: maximize the value of the firm over time, and to operate the company in a manner consistent with the norms and values of its shareholders.

At first glance this looks deceptively simple, but on deeper reflection it is apparent that from this simple foundation flow some complex issues. Shareholders change over time as do their values and norms. And in maximizing the value, the concerns and expectations of all stakeholders are of great importance - as their views will influence our operating environment and how it evolves.

This leads to the notion that firms need to pay attention to their 'licence to operate' - not a formal legal licence, but an informal licence that looks not just at what is legally permissible but what is socially acceptable both today and tomorrow.

It is this concern about the operating environment, and a firm's license to operate within it, which provides much of the impetus for many corporations, including BP, to undertake a broader role in societal affairs.

Let me explain.

At BP, we believe deeply in our economic purpose. Our products and services contribute directly and indirectly to a better quality of life. They provide the freedom to move, power to heat or to cool and light to see.

I'm proud of our core business: the products we make that satisfy millions of customers every day; the quality of jobs we provide to over 100,000 people around the world; the support we give to societies through payment and even collection of taxes; the innovations we make in technology and management.

We reward our shareholders and recover the cost of capital so that we can continue developing the new processes, products and ideas whose time has not yet come, but which will be vital if we are to conserve the environment for future generations.

But what about the apparent paradox that the very products we produce and impacts we make, may in certain circumstances - even if we stay within the law - have the potential not to be a force for good, by perhaps impacting negatively, on the environment or on the communities living near our operations.

Shouldn't we just obey the lay, pay our taxes and leave everything else to be sorted out by others? Some Western thinkers would say yes.

We've felt in BP that simply operating within the law of the land is not an adequate answer to our shareholders - as over the long term, societal norms change - and laws change.

Poor practices even if legal will cast a shadow over our future; ignoring changing circumstances - social trends or new scientific insights - present risk to our company and its shareholders.

I will illustrate this point with the question of climate change. In the late 1990s, there was growing evidence that precautionary action on climate change was desirable. As a company developing, producing and marketing hydrocarbons, we felt that we needed to tackle this issue, rather than avoid it. If mankind was in fact altering the climate, then the energy industry must be part of any solution. In 1998, in the spirit of the Kyoto Protocol we set targets to reduce our internal emissions by 10% on a 1990 baseline by 2010. Not because we had to by law, but because we felt we needed to respond to new information that