Friday, July 23, 2010

Why has the BP gush not scared Canadians off of the oilsands?

The Toronto Star recently published a rather scathing article on the complacency of Canadians in light of increased US criticism of the oil industry. While the mainstream US population tends to attribute the massive oil gusher in the Gulf to BP’s poor safety record, many believe that it’s only a matter of time before American citizens begin to see that the social and ecological costs sustained by the gush ultimately represent the true cost of consuming fossil fuels. As the title of the Star article states: “As US awakens, Canada hits snooze on oil addiction”, Canada has certainly not realized this yet.

The article explains that Syncrude Canada, the biggest player in the $200 billion Alberta oil sands, displays images of forests and lakes, “as well as slick videos extolling the mining company’s wetland research and aid to native businesses”. Indeed, the Canadian Association of Petroleum Producers (CAPP) plays a big role in paying millions of dollars in advertisements denouncing environmentalist claims while promoting their environmental and social endeavors.

Shamefully, the Globe and Mail published an article written by Pierre Duhaime, President of SNC-Lavalin Group Inc., a large supplier of the oil and gas sector, encouraging support of the oil sands in light of the inescapable need for energy in the future, the dwindling supply of easy access to such oil, and the contribution it represents to the Canadian economy. I find it utterly distasteful that the top Canadian newspaper granted publication of an article conveying the CEO’s views on what should or should not represent Canada’s socio-political agenda in light of the fact that his remuneration is correlated to the systemic dependence on these natural resources.

What I find particularly distasteful is Duhaime’s claim that we need the oil sands because there are few alternatives available. On the surface, one reads this and thinks: “well, that’s true. I mean perhaps the solution is to extract the oil from this sand in a way that is more sustainable so that we can reduce environmental issues and not engage in too disruptive behaviour”. There are at least two issues with this. First, there is clear evidence that the oil and gas sector, for decades, as influenced public policy to ensure the security of oil as the primary source of demand for energy. Claims that they played a role in killing the electric vehicle, while not conclusive, represent one logical strategy for an industry seeking to survive over the long term. Allowing the president of a company inextricably tied to oil to put forth this rhetoric is repugnant because of the history of political lobbying that has resulted in secured dependence on this source of energy.

Second, change is difficult. Anyone who thinks that to sustain ourselves requires slight alterations to our behaviour is ‘nuts’ and ignorant of the real challenges that lie ahead of us. Anyone with children should be thinking of this because their children (your grandchildren) will be the ones dealing with the implications of the fact that our existing generation was unable to radically change their behaviour.

But let’s get back to the issue at hand. Several articles have discussed the seemingly pervasive parallel between the gulf gush and the oil sands. The difference is that while BP’s true costs are displayed in the form of massive blotches throughout the Gulf, loss of coastal jobs, and visible and permanent ecological damage, the oilsands’ true costs are less explicit yet equally impactful when we consider the 126 million gallons of scarce fresh water a day, the contribution of the intense processes to global warming, and several forms of ecological devastation.

We’re kidding ourselves when we say that these statistics are important because we care about the environment and the Earth. We should be concerned because without the very ecosystem services that these operations degrade, we will not survive as a species. This ecosystem-human survival relationship has been expressed countless times by the Millennium Ecosystem Assessment yet impressively suppressed and under-exposed to the average person. As many scientists have mentioned, the Earth will adapt to whatever we throw at it. Let’s stop pretending that we’re saving the environment. We’re trying to secure an environment that will not eat us up and spit us out as a soon to be extinct species.

While the Alberta Government uses the gush as a way to promote the oil sands, environmentalists use it as a way to illustrate the dangers of further extraction of the oil sands. Susan Casey-Lefkowitz said that "it's ironic that when the oil spill happened in the Gulf, the tar sands people were saying that it is safe". Mario Reynolds of the Pembina Institute argues that Canadians don’t really buy the ads put forth by the oil and gas industry advocating for the social, ecological, and economic benefits of the oil sands. But then why is it that Canadians are “snoozed” and support a government that believes the environmental issues clearly connected with the oil sands represent “side shows”. If anything, the BP oil spill should have woken Canadians up to the dangers of the oil sands. Our government should be finding a way to wean ourselves off our economic dependence on them. Instead, they constantly defend them as if they represent the solution to the planet’s woes…how well this parallel’s the SNC Lavalin President’s article. Embarrasingly for Canadians, American organizations and media are stepping up their campaigns against the oil sands, to which the Albertan government has aggressively responded with massive advertisements.

Should we not be concerned that the Harper government seeks counsel from the National Energy Board which excludes environmentalists, not to mention the fact that scientists rarely get a seat at the table? I’m most concerned with the fact that while everyone I speak with is against what this government is doing, 35-40% of Canadians seem to support them in the polls. Perhaps my colleagues have become what Leah McLaren believes to be “closet conservatives”.

Thursday, July 22, 2010

Canada's Top Performers in CSR: Use of Measures

Following up from my previous two posts on the Corporate Knights rankings, this final blog discusses in finer detail the methodology Corporate Knights uses to measure CSR and sustainability of firms. One could argue that the very methodology and ideology surrounding the measurement system fosters a reductionist approach to sustainability whereby companies receive accolades by focusing on isolated systems or even isolated parts of systems rather than understanding the interconnectivity of social, ecological, and governance systems.

First, let’s consider the measurement criteria they are using. Corporate Knights uses three broad measures for CSR: governance, social, and environmental indicators. Two posts ago, I discussed dangers of limiting a firm’s environmental performance based solely on the energy, carbon, water, and waste of company operations. As expressed in my blog about Loblaw, these measures ignore performance of the broader supply chain that these companies influence. The governance and social indicators Corporate Knights uses are inappropriate proxies for measuring the company’s contribution to the integrity of systems. ‘Sustainability leadership’ is measured based on whether the company has a “sustainability” board committee while ‘sustainability remuneration’ is based on whether one senior executive has a portion of his/her pay linked to sustainability issues. Now, hypothetically speaking, if I wanted to perform well on this exercise, I would arbitrarily create a board committee knowing that there is no due diligence on Corporate Knights’ part to evaluate the integrity of what this committee does and whether it is in the best interests of social, ecological, and governance systems. I would also allocate say 3% of the compensation of one of my senior executives to sustainability issues which would grant me a score of 100% against a company who received a score of 0 for allocating 0% of the compensation of an executive to sustainability issues. Governance is much more than measuring whether a board committee exists or whether there is diversity on the board. Governance is about measuring whether companies have organizational systems and structures that assure social and ecological systems are considered in their decision-making processes.

Social measures used by Corporate Knights are based on employee safety, percentage of tax paid, pension plans and pension funding which unfortunately overlook 99% of the social systems considered relevant to sustainability such as supply chain labour conditions, social equity, poverty, obesity, disease, malnutrition, and health systems. On the transparency measure, half the score is based on how many voluntary metrics are reported (only those Corporate Knights can measure) which on the one hand is the tip of the sustainability iceberg and on the other hand, more importantly, says nothing about the integrity of these measures. The other half of the transparency measure gives points for whether the company uses international standards such as GRI or uses a third party auditor. This doesn’t help much because internationally accepted reporting standards are heavily criticized because they only provide measures companies can use but leave any commitments up to the company.

What this is telling us is that we have a fundamental gap in our ability to measure company contribution to sustainability. On the one hand, I sympathize with Corporate Knights because they are doing what is possible given the tools available. But on the other hand, I criticize Corporate Knights because there is a massive disconnect between what they are claiming to measure (i.e. firm CSR) and what they are in fact measuring. This is misleading to readers who don’t have the time to verify the methods and associated measures and in fact encourages companies to engage in shoddy CSR efforts.

When evaluating the integrity of measurement systems like Corporate Knights, it’s important to consider the ramifications associated with company behaviour when responding to these evaluations. Due to the lack of a comprehensive measurement of systems, their instrument creates tunnel vision because companies are so deeply focused on say the reduction of water use that they fail to consider the fact that reducing water use requires heavy industrial chemicals that negatively impact other systems. This fosters a reductionist approach to sustainability where commitment is meant to be piecemeal rather than part of a company’s culture and way of thinking. This measurement tool also promotes incremental improvements or eco-efficiency which means that companies are encouraged to improve water, waste, carbon and energy within the existing mode of operations rather than reexamining the actual mode of operations itself.

In conclusion, I reiterate that the work that Corporate Knights is doing provides an important service to the business community and to society. But they should refrain from claiming that their work measures a company’s commitment to sustainability or corporate social responsibility. Based on the measures Corporate Knights is using, we should either change the definition of CSR or they should avoid the use of CSR as their dependent variable. To me, this initiative is not measuring CSR, it is measuring waste, carbon, energy, and water intensity, employee pay, safety, and pension, taxes paid, and whether the notion of sustainability is even thought about in an organization. These are either required by law or represent a very trivial voluntary effort. In other words, Corporate Knights needs to revisit what they claim to be measuring. Failure to do so will give an inaccurate depiction of what CSR and sustainability is and more importantly fuel the criticism and skepticism associated with the private sector contributing to a sustainable society.

Friday, July 9, 2010

Canada's Top Performers in CSR: Loblaw's False Impression

In my previous post, I began a series of three blogs on some of the limitations of the highly coveted Corporate Knights ranking of Canadian public companies. This next blog looks more closely at Loblaw and the fact that Corporate Knights rated them “top honours” (see article) on the corporate social responsibility front. I think it’s important to pick on Loblaw here because they received an impressive 81.81 percent, almost 10 percent higher than the runner up on the CSR measure. My objective in the discussion below is to show that while Loblaw may be performing well RELATIVE to other companies, they are failing when we examine their social and ecological performance more comprehensively from the perspective of multiple systems and our definition of sustainability from the previous blog.

To be blunt, one walk down the aisles of one of Loblaw’s grocery stores will perplex anyone trying to understand how it was possible that they received such a high rating. If CSR is based on a firm’s responsibility towards the negative externalities imposed on stakeholders stemming from their decisions and behaviours, Corporate Knights fails to consider the complexity of the food system and, more importantly, the complexity of what CSR actually represents.

To understand this, let’s make our way around the grocery store, starting with the produce section. A high majority (very difficult to find the exact percentage on Loblaw’s website) of the produce in Loblaw stores are from non-organic sources, caked with fertilizers and pesticides. As a large centralized retailer, the decision to purchase from suppliers that use these chemicals represents a substantial contribution to the degradation of ecological systems. The use of chemical fertilizers “is considered the major human-related cause of dead zones around the world” and causes farmland degradation, reduced soil fertility and biodiversity according to the UN assessment of Earth’s Ecosystems in 2005 and again in 2009. On the social systems side, growing consensus is emerging linking the excessive use of these chemicals to cancer and other diseases. A recent study summarized by CNN found that 12 products (the dirty dozen) carry more pesticide residue than any others resulting in as much as 67 pesticides remaining on non-organic food despite intense spraying with water. In my walk through a few stores these past few weeks, I was unable to find many of these 12 products in an organic form.

Unfortunately, Corporate Knights does not measure decisions related to what types of products Loblaw chooses to sell. This is an issue when we consider large public companies like Loblaw who 1) have a strong influence on public opinion related to food and 2) have strong power over suppliers. Scoring a firm’s CSR without considering these sorts of decisions is missing a fundamental component of what being responsible is all about. When Corporate Knights measures energy, waste, water, and carbon intensity of Loblaw’s stores, they are missing out on the fact that any improvements in operational waste, for example, is easily offset by the indirect effects of the chemicals ending up as waste in water systems or the carbon intensity of nitrogen found in fertilizers, or the energy required to produce these pesticides and fertilizers or the massive amounts of water required to feed non-organic produce. Is this not a contradiction when Corporate Knights lauds Loblaw for improvements in operational waste, energy, carbon, and water?

Next, let’s move on to the bulk and central part of the store – the processed food section – the section of the store several authors and a growing number of health advocates have warned consumers to stay away from (see Food Inc., Omnivore’s Dilemma, Food Matters). It does seem rather ironic that a company like Loblaw receives the highest grade despite the fact that 80% of its product offering is linked to major social and ecological issues. The invention of processed foods afforded food companies the ability to reach distant markets because the food can stay on the shelves much longer than perishable foods. But the only way to do this is to remove the ingredients of the food that attract bacteria. Well, like us, bacteria are attracted to nutrients. So we must remove nutrients to make food last longer and then reinsert them synthetically, with no guarantee that consumers will receive the same nutritional benefits. Moreover, any quick read of the ingredients list reveals massive amounts of sugar and derivatives of corn and soy drawn from a wet milling process which is incredibly energy intensive and unhealthy in its effect. The subsequent impact on the health system is monstrous when we consider the onset of diabetes in adults and now children, obesity, and heart disease. While there are subtle improvements in this area, Corporate Knights does not measure the degree to which Loblaw has made decisions to reflect responsibility for these effects. What about the intense waste created from the excessive packaging of the tens of thousands of processed products that end up in landfills and/or is incinerated? I can’t help but chuckle when I read the very narrow-minded praise for Loblaw’s diversion of 70% of its waste from landfills in 2009 when we consider that 77% of the plastic that packages the thousands of processed food Loblaw sells ends up in landfills. Again, the water, carbon, energy, and waste associated with these processed foods are not captured in the Corporate Knights measure.

Then we move onto the meat, poultry and seafood sections. I do commend Loblaw’s commitment to source 100% of their seafood from the Marine Stewardship Council by 2013. It certainly is a step in the right direction. But it’s not that impressive. Shouldn’t a large company like Loblaw be an active participant in its supply chain rather than a passive purchaser? And what is the company doing as a major purchaser of meat and poultry to stem some of the major human and animal health effects of the industrialized meat system, not to mention the ecological effects?

Critics of what I’m writing here will likely argue that it is not the responsibility of Loblaw to influence their supply chain and that what Loblaw does operationally in house in their little nook of the supply chain is all they should be responsible for. Unfortunately this is a very old logic, one that got the apparel sector in trouble during the 1990s when they said that exploitative labour conditions of their supplier factories were not their problem. When we look at the financial crisis that occurred in 2008, we see that this was a failure of a system, a complicated web of services that can only be blamed on a group of firms acting as suppliers and customers rather than on one section or organization of that supply chain. My point is that any attempt at addressing more systemic issues associated with externalities demands that firms see the bigger picture of that supply chain or the web of activities responsible for products and services. Any company that isolates itself in their supply chain without considering their responsibility across the supply chain is not committed to the true definition of sustainability and thus should receive a poor rating. As an important aside, I find it highly hypocritical that Corporate Knights praises Loblaw for sourcing 100% of their seafood from the Stewardship Marine Council in 2013 (as mentioned), yet does not extend this measure to the rest of its product lines like I’ve discussed above.

But what about the 1.3 billion plastic shopping bags that Loblaw prevented from entering landfills? Is that not something to be proud of? This does help of course but it would be equivalent to praising the consumer who brought his own reusable shopping bags only to pack them into his hummer to drive a few blocks home. Focusing on shopping bags afforded Loblaw good PR with consumers yet shifted consumer attention away from the billions of plastic material Loblaw uses in their operations and in the products that they purchase. They instead placed the onus on the consumer while affording the company extra revenue (reusable bags) and cost savings (reduction in plastic bags). Is this responsible? To me, being responsible means asking the more difficult questions about how to discontinue the selling of products laced with BPA, for example, that Health Canada has now earmarked as a chemical toxin dangerous to humans. This takes courage and represents the sort of decisions and behaviours that should be granting companies the score Loblaw received.

The Globe and Mail also touted the firm’s efforts to release an annual CSR report. The release of a CSR report should not be viewed as a commitment to sustainability because it creates an incentive to produce some kind of report with no guidance on what should be in the report and how its contents should be measured, evaluated, and monitored. I’ve read through hundreds of CSR reports and a majority of them are used for PR purposes and avoid any serious commitment to sustainability.

Thus the Globe and Mail’s claim that Loblaw has pushed to “do the right thing in an array of corporate social responsibility areas” is based on a very limited set of measures of what we mean by corporate social responsibility. While I appreciate the work that Corporate Knights is doing, until the measures used more accurately represent proxies for the true definition of sustainability and CSR, we should be careful of encouraging companies to aspire to the CSR performance of a company like Loblaw.

The inability to measure the more indirect effects I’ve discussed above is as critical as it is difficult. In my next blog, I’ll dive more deeply into the measures Corporate Knights uses. They are not the only one struggling with this. This is and will continue to be one of the most pressing challenges of the field of accounting and business more generally.