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Environmental Indicators of Oil Companies

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European Journal of Scientific Research
ISSN 1450-216X / 1450-202X Vol. 146 No 4 August, 2017, pp.386 - 394
http://www. europeanjournalofscientificresearch.com

Environmental Indicators of Oil Companies

Darliane Ribeiro Cunha

Department of Accounting and Administration
Federal University of Maranhao, Brazil
E-mail: darliane@me.com
Tel: +55 9832728426

Abstract

Currently, many interest groups demand that the social and environmental aspects
be considered as a variable key to understand the performance and strategic position of
companies. The objective of the paper is to analyze the disclosure of environmental
indicators by oil companies. It is an exploratory and descriptive research. The oil
companies publish their sustainability reports and use the environmental indicators of the
Global Reporting Initiative. However, the level of the environmental indicators disclosed is
not what is expected, nor is there a proactive approach that is conducive to the demands of
stakeholders. The results of the study show a moderate disclosure in aspects such as
emissions, effluents, waste and biodiversity that are essential for the sector. The oil industry
is responsible for a significant share of greenhouse gas emissions, and controlling these
emissions is vital to contribute to a low carbon future. In addition, relevant indicators such
as materials and energy have a lower disclosure.

Keywords: Environmental Indicators; Sustainability; Global Reporting Initiative; Oil

Sector.

1. Introduction
Presently, many interest groups demand that the social and environmental aspects be considered as a
variable key to understand the performance and strategic position of companies. Recently, the concern
for these aspects in business activities has involved a small group of companies. Today, however, the
significant growth in the number of companies that have begun to adopt the concept of corporate social
responsibility (CSR) is evident and noticeable, especially large organizations and business groups
(Moneva, 2005b).
CSR can be defined as the commitment of companies to different social, environmental and
economic interest groups (Cuesta and Valor, 2003). Previous studies have pointed out the increase in
this type of information (Larrinaga et al., 2002a; Capriotti and Moreno, 2007; Husillos, 2007; Alazzani
and Wan-Hussin, 2013; Moseñe et al., 2013;Bonsón and Bednárová, 2015). The increase in the
disclosure of information on CSR is due to an attempt by companies to legitimize themselves with their
different stakeholders.
Gray et al. (1996) argue that the stakeholder theory attempts to explain social-based reporting
practices by summarizing the role that state, individuals, associations and society, in general, play in
the relationships between organizations.
According to the stakeholder theory, the presentation of socially based information must
respond to the existence of multiple users, other than the traditional ones, who manifest or have
legitimate interests in it.
Environmental Indicators of Oil Companies 387

Husillos (2007) notes that the publication of information on CSR is mainly due to the demand
and pressure of interest groups and the desire of the entity to legitimize itself before them. Patten
(1992) noted an increase in environmental information contained in the annual reports of oil companies
following the Exxon Valdez accident. It is therefore interesting to identify and know the elements that
have a greater or a lesser influence on the decision of the company managers to disclose information
about CSR, which could allow the identification of a disclosure profile, as well as give an important
contribution to the knowledge of the tendencies of the organizations in that sense, serving as reference
and incentive to attain a greater diffusion of the environmental information, in agreement with the
values, norms and social conventions.
Sumiani, Haslinda, and Lehman (2007) indicate that there are several reasons that motivate, or
limit companies in offering responses to stakeholders, corresponding to their respective social
concerns, especially those caused by economic and market pressures, environmental crises and high
population growth rates. Patten (2002) adds that big companies, probably because of concerns about
data transparency, are more likely to disclose more information than smaller ones. In addition,
companies are subject to increased lobbying by interest groups and therefore seek to find more
persuasive arguments for disseminating environmental information.
According to Bonsón and Escobar (2004), thebig companies tend to have greater financial
needs, which is why the provision of voluntary information could enable them to access the capital
market under better conditions. In addition, the larger number of potential users of their information
could exert greater pressure to obtain environmental information in greater detail. According to Adams
(2002), explanatory factors used to evaluate the evolution of different aspects of the process of
legitimation were collected by variables that can be grouped in three categories: a) entrepreneurial
characteristics; B) general contextual factors and c) internal context.
Gray and Bebbington (2001) argue that companies are under pressure from several factors, pro
and con, which influence decisions regarding disclosure of environmental information. Companies
with a high environmental impact, usually linked to oil, chemical, metal and paper companies are
chosen for a great number of comparative studies, considering their environmental impact and
increased external pressure. For instance, Alazzani and Wan-Hussin (2013) note that the catastrophic
oil spill in 2010, caused by an explosion at a BP drilling rig in the Gulf of Mexico, inflicted significant
damage to the ecosystem and had significant financial implications for BP.
The oil industry has an important share of the Gross Domestic Product (GDP) of many of the
countries where these companies operate. For example, according to Talalweh (2011),Saudi Arabia,
one of the countries selected in the sample, is highly dependent on the exportation of crude oil, which
represents between 35 and 40 percent of its GDP.
It has also a key role in boosting the global economy; the sector is responsible for a significant
share of greenhouse gas emissions and monitoring these emissions is vital to curbing climate change.
The activities of the sector also have many negative impacts on the environment, and hydrocarbon
spills have a number of effects on the economy, the environment and on corporate results. In this
context, the objective of this paper is to analyze the disclosure of environmental indicators by oil
companies.

2. Literature Review
2.1 The Oil Companies and Environmental
The current energy consumption matrix is essentially based on fossil fuels. So, oil is the most relevant
fuel. It is also true that this nonrenewable resource will continue to be important in this energy matrix
to sustain development over years to come, which is why it is necessary to know the negative impact
that its exploitation will have on the environment.
The oil industry carries out numerous processes that have direct consequences on the
environment, especially atmospheric emissions, liquid effluents, solid and hazardous waste. Its main
388 Darliane Ribeiro Cunha

processes generate a significant destruction of biodiversity and contribute to the degradation of the
environment in general. In drilling, for example, Ramos (2011) points out that a large quantity of
explosives is used and adds that such drilling techniques and the subsequent location of oil rigs
contaminate, alter and fragment ecosystems. On the other hand, in relation to extraction, Ramos (2011)
notes that the reserves of superficial and undergroundwater, as well as the biodiversity, are affected by
the wastes generated during the extraction on land,at the same time that wastewater in the oceans can
be washed away by sea currents hundreds of kilometers, thus affecting the ecosystems they encounter
in their wake.
It is important to add that underwater extraction, which has seen a considerable increase over
the last few years, could have many negative implications for the environment. In this sense, Azcarate
and Mingorance (2008) state that, due to the existence of numerous terrestrial oil wells already
depleted, derricks are used with increasing frequency for the extraction of offshore oil, on floating and
partially submerged platforms.
Undoubtedly, oil exploration causes impacts in the water, air and soil. As to water impact,
Chiang (1988) notes that, of all marine pollutants, oil and hydrocarbons are those who have received
greater international attention, both politically and scientifically. The author notes that, of all foreign
substances that enter the marine environment, oil was one of the most destructive to aquatic life, and
not just one of the most harmful, but also one of the most abundant.
The problem of oil pollution could be considered under its short-term and long-term effects.
The short-term effects are divided into two categories, one related to the effects caused by coating and
asphyxiation and, second, by the effects of petroleum toxicity. On the other hand are the long-term
effects, especially those related to low concentrations of oil components on living systems. Many
biological processes important for the survival of marine life are affected by extremely low
concentrations of chemical pollutants in seawater.
Regarding the impact on the soil of the oil industry, the transformation of the space where this
industry operates generates soil compaction and erosion, as well as sedimentation and consequent
destruction of living organisms. These impacts have an effect on the agricultural systems of local
populations, as well as on the ecological balance of natural ecosystems.
About the impact of the oil industry on the atmosphere, it is known that gas is extracted with oil
and that when the amount of waste gas or its recovery is not commercially attractive, it is burned. The
burning of gas accelerates the process of global warming and affects the health of human populations
and biodiversity, because in areas near the separation stations, acid rain occurs with high hydrocarbon
contents.

2.2 Environmental Reporting of Oil Companies

In general, the environmental information provided by the companies can be classified from different
perspectives and, regarding this matter, Larrinaga et al. (2002b) define the criteria of nature and
information support to classify the environmental information. In relation to their nature, the
information described is distinguished between financial and non-financial. For its part, the
environmental financial information is usually, mainly in the balance sheet, the income statement and
the report; however, this information may also be in a specific report.
According to Larrinaga et al. (2002b), most of the information provided by companies in their
annual accounts, such as the value of their assets or turnover, falls into the category of financial
information. On the other hand, there are some problems with the quantification and valuation of
certain facts and environmental factors. It is possible to identify a series of difficulties, such as the
subjectivity of the models to assess environmental costs and benefits and the difficulty of establishing
the magnitude of the environmental impact in the company. Thus, it is advisable to use non-financial
information.
Non-financial environmental information can be quantitative, or narrative and descriptive. In
general, quantitative data describe indicators, in physical terms, of emissions of pollutants into the
Environmental Indicators of Oil Companies 389

atmosphere,as well as the amounts of waste discharged into the water or soil, energy and raw material
consumption, noise reduction, among others. On the other side, the narrative data address the policies
and actions undertaken in environmental matters, the description of the environmental impact and the
activities carried out in research and development (Larrinaga et al., 2002b).
Environmental reporting usually included in non-financial information is a broad term
applicable to all information for shareholders and other stakeholders that is not defined by an
accounting standard or a calculation of a measure based on an accounting standard (AECA, 2012).
AECA (2012) emphasizes that the development of non-financial information is more recent and
less structured, because it is information that is voluntarily prepared and published by companies and
institutions. In general, this information is included in the sustainability report and, in this regard,
Moneva (2005a) notes that sustainability reports have emerged to increase the transparency of
organizations, although their main limitation is the necessary creation of information tools measurable,
comparable and reliable.
At present, there is no legal and legal framework in most countries in which to determine the
content of the sustainability report. In general, in the sustainability report, companies report their
activities and performance, using a series of economic, social and environmental indicators.
In general, oil industry companies use standards such as the GRI Global Reporting Initiative
(GRI), and models provided by the International Petroleum Industry Environmental Conservation
Association (IPIECA) and the American Petroleum Institute (API) to disseminate sustainability
information.
The GRI has supplements for some sectors. The GRI supplement for the Oil and Gas industry
helps companies in the sector disseminate sustainability information. The performance indicators of the
sector supplement, version 3.1, are divided into three dimensions (economic, environmental and
social).

Table 1: GRI Environmental Indicators - Oil and Gas Industry

Aspects Description
Materials EN1 Materials used by weight or volume.
Energy EN3 Direct energy consumption by primary energy source.
Energy OG2 Total amount invested in renewable energy.
Energy OG3 Total amount of renewable energy generated by source.
Water EN8 Total water withdrawal by source.
Water EN9 Water sources significantly affected by withdrawal of water.
Biodiversity EN14 Strategies, current actions, and future plans for managing impacts on biodiversity.
Number and percentage of significant operating sites in which biodiversity risk has
Biodiversity OG4
been assessed and monitored.
Emissions EN16 Total direct and indirect emissions greenhouse gas emissions by weight.
Emissions EN17 Other relevant indirect emissionsgreenhouse gas emissions by weight.
Emissions EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved.
Emissions EN20 NOx, Sox, and other significant air emissions by type and weight.
Effluents and Waste OG5 Volume of formation or produced water.
Effluents and Waste EN22 Total weight of waste by type and disposal method.
Effluents and Waste EN23 Total number and volume of significant spills.
Effluents and Waste OG6 Volume of flared and vented hydrocarbon.
Amount of drilling waste (drill mud and cuttings) and strategies for treatment and
Effluents and Waste OG7
disposal.
Products and Initiatives to mitigate environmental impacts of products and services, and extent of
EN26
Services impact mitigation.
Products and
OG8 Benzene, lead and sulfur content in fuels.
Services
Source: GRI (2012)

Indicators include some traditional GRI and other specific indicators. For the environmental
dimension, there are 19 indicators (with the EN- code for traditional GRI indicators, and OG- for GRI
390 Darliane Ribeiro Cunha

sectorial indicators),in the following aspects: Materials; Energy; Biodiversity; Emissions; Effluents and
Waste and Products and Services. These indicators are analyzed in this study.

3. Research Method
This is an exploratory and descriptive research. It analyzes the disclosure of environmental
indicators.The GRI supplement for the oil and gas industry (table 1) has 19 indicators;under this
approach, each item is granted a grade 1 if the information is disclosed and 0 if the information is not
disclosed.This way, the maximum grade total for a given companyis 19.
The study use the information reportedby the companies in sustainability reports or on their
web pages in the period of 2008-2011. The reports were obtained from the websites of companies and /
or search in the Internet until 2014.
The technique of content analysis is a research technique designed to formulate, from any
provided data, reproducible and valid inferences that can be applied to its context. In addition, it is an
objective, systematic and quantitative technique of the manifested content.
The research population includes the 50 largest oil companies in the world according to the
2010 PIW Top 50 ranking of the Petroleum Intelligence Weekly (PIW), one of the most acknowledged
specialized publications in the sector. All companies that do not have the GRI indicators in their
reports or information published on their respective websites were intentionally excluded from the
sample. TNK was also excluded, as it was bought by Rosneft, with the sample of 34 companies being
conformed as shown in Table 2.

Table 2: Sample of research by continent

America Asia Europe

Apache Adnoc BG
Chevron CNOOC BP
CNR CNPC Eni
ConocoPhillips KPC Gazprom
Devon Energy ONGC Lukoil
Ecopetrol Pertamina Novatek
EnCana Petronas OMV
Exxon Mobil Rosneft Repsol YPF
Hess Sinopec Royal Dutch Shell
Marathon Statoil
Occidental Total
PDV
Pemex
Petrobras

4. Results
The quality and relevance of the reported environmental information is a key point that must be
considered in the valuation of the company (Iatridis, 2013). The oil industry has high social visibility,
and it is expected that these companies have a greater concern to improve their image through the
dissemination of sustainability information. Disclosure of indicators is essential, and increased
disclosure could be evidence of a commitment to transparency. However, the results demonstrate a low
level of environmental disclosure and significant differences among companies investigated when
analyzing the disclosure of GRI environmental indicators in 2011.One of the companies investigated
discloses 18 indicators out of a total of 19.
Environmental Indicators of Oil Companies 391

Table 3: Descriptive statistics of disclosure of GRI environmental indicators

N (simple size) 34
Minimum 0
Maximum 18
Mean 9.235
Median 10.5
Standard deviation 6.135

The Figure 1 shows a moderate disclosure in aspects such as emissions (65%), effluents and
residues (54%) and biodiversity (50%).Bonsón and Bednárová (2015) show a moderate use of the
environmental indicators in their study with 360 Eurozone companies. The sector should also be
involved with the issue of renewable energy generation, but only 37% of companies report information
related to the energy aspect.

Figure 1: Disclosure of aspects of GRIenvironmental indicators

PRODUCTS AND SERVICES

EFFLUENTS AND WASTE

EMISSIONS

BIODIVERSITY

WATER

ENERGY

MATERIALS

0% 10% 20% 30% 40% 50% 60% 70%

The oil companies publish sustainability reports but their content is limited and partial. The
Table 4 details the companies and whether there were increases or omissions of the 19 GRI
environmental indicators considered in the study.

Table 4: Increase and Omissions of GRIenvironmental indicators

Company 2008/2009 2009/2010 2010/2011

Adnoc - - -
Apache Fault Increase -
BG Increase - -
BP Increase - -
Chevron Increase Fault Fault/Increase
CNOOC Increase - -
CNPC Fault/Increase Fault/Increase -
CNR Increase Increase Fault/Increase
Conoco Phillips - - -
Devon Energy - Fault Increase
Ecopetrol - Increase Fault/Increase
EnCana - Fault/Increase Fault/Increase
Eni Increase Increase Fault
392 Darliane Ribeiro Cunha

Company 2008/2009 2009/2010 2010/2011

Exxon Mobil Fault/Increase Fault/Increase Increase
Gazprom - Fault/Increase -
Hess Increase - -
KPC - - -
Lukoil Increase - Fault/Increase
Marathon Increase Fault Fault/Increase
Novatek - Fault -
Occidental Increase - Fault/Increase
OMV Increase Increase Fault/Increase
ONGC - - -
PDV - Increase -
Pemex Increase - -
Pertamina - - -
Petrobras Increase Increase Fault
Petronas - - -
Repsol YPF - Increase Increase
Rosneft Increase Fault/Increase Increase
Royal Dutch Shell Increase - Increase
Sinopec Increase Increase Increase
Statoil - - Fault/Increase
Total Increase - Increase

In addition, an evolution of the disclosure of GRI environmental indicators is observed, but it

also happens that some companies omit indicators in some of the years.However, the increases were
more representative.

5. Conclusions
The study aims at analyzing the disclosure of environmental indicators of the GRI with a sample of 34
oil companies.
The oil companies publish the sustainability report and use the environmental indicators of the
GRI. However, the level of environmental indicators disclosed is not what is expected, nor is a
proactive approach conducive to the demands of stakeholders.
In addition to the low and limited disclosure of environmental indicators, it is also observed that
some companies surveyed omit indicators. This non-disclosure attitude could indicate that the
company has an interest in hiding information, or does not have an adequate system of control of its
indicators.
The results of the study show a moderate disclosure in aspects such as emissions, effluents and
waste and biodiversity that are essential for the sector. On the other hand, also relevant indicators such
as materials and energy have a lower disclosure.The oil industry is responsible for a significant share
of greenhouse gas emissions, and controlling these emissions is vital to contribute to a low carbon
future (Cunha and Moneva, 2016).
It will be important to carry out future studies on sustainability and evolution of information
obtained over a longer span of time that would include several periods. It would also be interesting to
expand the study with the inclusion of the social and corporate governance aspects, and compare them.

Acknowledgements
Financial support from CAPES (Coordenação de Aperfeiçoamento de Pessoal de Nível Superior) is
gratefully acknowledged.
Environmental Indicators of Oil Companies 393

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