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Global Governance 17 (2011), 155-159

GLOBAL INSIGHTS

Does Corporate Social Responsibility

Make a Difference?

Christine Batruch

We have always known that heedless self-interest was bad morals. We know
now it is bad business.
-Franklin Delano Roosevelt (1937)

Lundin Petroleum's First Steps in

Corporate Social Responsibility
The introduction of corporate social responsibility (CSR) in a company is
often linked to a crisis. The Exxon Valdez oil spill in US waters and the pro-
posed sinking of the Brent Spar platform in the North Sea represented seminal
events leading to a higher awareness of environmental issues within the sec-
tor. The recent Deepwater Horizon accident in the Gulf of Mexico will no
doubt have a similar impact. Likewise, allegations of complicity in human
rights violations in Burma, Nigeria, and Sudan brought sociopolitical issues
onto oil companies' agendas. In each case, traditional business models that fo-
cused on technical and financial parameters proved inadequate to deal with the
crises and criticisms regarding the companies' possible role in them.
The conflict in Sudan led Lundin Petroleum to review its business model
and integrate CSR in its business strategy.' In 1997, it had acquired a license
to explore for and produce oil and gas in South Sudan (Block 5A). Although
the government of Sudan was embroiled in a civil war and not perceived well
internationally, there were no legal impediments (sanctions) to the company
doing business there. Peace prevailed in the concession area and the prospects
of finding oil seemed significant.
A couple of years after the company acquired its license, however, certain
tribal factions, who claimed the government was violating the local peace
agreement, started to join the rebels engaged in the civil war. Concerned about
the security of its staff and operations and about mounting allegations of
human rights violations in an adjacent oil field, the company hired a consult-
ant to review the sociopolitical implications of its presence in the area and ad-
vise on steps to be taken. If at the time the company was not linked to the
problems on the ground, management felt that ties with the local communities
should be reinforced to preserve the company's social license to operate.

155
156 Does Corporate Social Responsibility Make a Difference?

Community development projects were thus initiated locally. 2 This first step,
albeit necessary and beneficial to the recipients, proved to be insufficient to make
up for the deteriorating relationship between local tribal leaders and the govern-
ment. The working environment became unsafe, as rebels declared oil fields and
staff legitimate military targets, and certain nongovernmental organizations
(NGOs) began to criticize the company for its alleged role in that conflict.
The company ceased all field operations, except for its community devel-
opment projects, and hired a corporate responsibility (CR) manager to develop
its CSR framework. The adoption of the CSR framework represented a strate-
gic shift in the way the company operated. Until then, the company had con-
sidered geology and its commercial prospectivity as the overriding business
drivers, but the situation in Sudan led it to review its business model and inte-
grate sociopolitical considerations to preserve its legal and social license to
operate, and to ensure the sustainability of the company and its operations.
Lundin Petroleum's values and business principles were rendered explicit
in a Code of Conduct, which was adopted further to discussions with manage-
ment and the board of directors. The CR manager also elaborated health,
safety, environment (HSE) and community relations policies; developed a
Human Rights Primer; launched a community development and humanitarian
assistance program; and initiated a process of stakeholder consultations.
There were multiple stakeholders with divergent views about the situation
in Sudan. If all the stakeholders wanted to see a sustainable peace, they each
envisioned a different way of reaching this outcome; certain NGOs and media
contended that oil was the cause of the conflict and that oil activities should
be suspended until a peace agreement was reached. The company's view was
that poverty was the root cause of the war and that oil, a catalyst for economic
development, represented an incentive for peace. 3 The comprehensive peace
agreement, which was reached a few years later by the parties to the civil war,
validated the company's viewpoint as it relied on an oil revenue-sharing
scheme for its viability and sustainability.
From the time the company adopted its CSR framework until it sold its
interest in Block 5A in 2003, the company did not resume field activities. The
security situation in the area continued to be volatile and the social license to
operate had not been fully recovered. The company maintained its community
development activities, but the conflict hindered the realization of many of the
projects and destroyed some of the facilities (school, clinic) built for the com-
munities. The company thus focused on humanitarian actions and capacity
building, activities that reached only the communities to which the company
had access.
Lundin Petroleum's CSR commitment did not end with the sale of Block
5A; it transferred its community development department and program to the
Malaysian company, Petronas, which purchased its interest and operated an-
other block where it had maintained a stake. Lundin Petroleum thus took an
 Christine Batruch 157

active role in advising the operator, and monitoring its community develop-
ment projects and HSE performance. At the time that it relinquished its inter-
est in the concession, it requested that the operator turn over community
projects and facilities to local authorities to ensure their sustainability.

CSR as an Integral Part of Lundin Petroleum's Business Model

The CSR framework developed for Sudan was not a discrete measure adopted
solely for operations in that country. From the time it was adopted, CSR was
integrated into Lundin Petroleum's business model and became, over time, a
valuable tool for the company's growth strategy.
In 2002, Lundin Petroleum set to acquire a French company with assets
in France, Indonesia, the Netherlands, and Tunisia. In the process, the com-
pany reviewed potential CSR issues with which it could be faced such as en-
vironmental sensitivities in the oil fields situated within the French champagne
vineyards and the problem posed by boat people near the company's offshore
facility in Tunisia. In both cases, measures were put in place in a manner that
protected the interests of the company and of the areas and people concerned.
A year later in order to qualify as operator in Nigeria, the company was
required, as part of its operating capability, to provide information regarding
its competence in managing HSE and community issues. The same operating
capability was required by other African countries where it sought to obtain
exploration licenses over the years.
In 2004, Lundin Petroleum acquired exploration and production assets in
Norway and the UK from a Norwegian company. A condition for this transac-
tion was to demonstrate not only the company's financial, legal, and technical
competence, but also its HSE credentials. In order to be assured that HSE was
part and parcel of the company's culture, Norwegian Petroleum Safety Author-
ity officials visited Lundin Petroleum's corporate offices and audited its
French facilities. In addition, over the years, banks that had signed on to the
Equator Principles questioned the company's environmental, social, and gov-
ernance (ESG) practices before granting the company syndicated bank loans.
The process followed by Lundin Petroleum for the acquisition of licenses
in Ethiopia in 2005 further shows how thoroughly CSR has become formally
embedded in its business model. Indeed, when deciding whether to bid for
concessions in Ethiopia, the company not only looked at the geological and
commercial potential of the area, but also took into consideration the potential
sociopolitical risks that it could face and mitigating measures that could be put
in place. Before the company began negotiating with the Ethiopian govern-
ment, it consulted with international NGOs and representatives of the Swedish
government to determine whether there were impediments to working there.
In parallel, it carried out a CSR analysis of the country, reviewing the ESG is-
sues involved.
158 Does Corporate Social Responsibility Make a Difference?

The company was attentive that the security clauses of the production-
sharing agreements conformed to the Voluntary Principles on Security and
Human Rights and included community development clauses. Obtaining gov-
ernment approval to community projects signified the government's accept-
ance that the projects were an integral part of the company's work program
and thus subject to cost recovery.
Lundin Petroleum then commissioned third-party security, infrastructure,
and social assessments to gain knowledge of the area and identify its main
local stakeholders. Based on the findings, with the assistance of local NGOs,
the company convened sixty-five clan leaders from its concession areas to a
stakeholder awareness meeting. The purpose of the meeting was fourfold: (1)
to get to know local communities' views regarding oil activities; (2) to present
the company as well as its CSR approach and the phases and implications of
the planned oil activities; (3) to manage community expectations in terms of
type and timing of benefits they would receive from the company's activities;
and (4) to get government buy-ins that the revenues the oil would eventually
generate ought to be shared equitably with the local communities.
During the stakeholder awareness meeting, the company committed to
"do no harm," to pay compensation for accidental damage, to hire locally
where feasible, and to fund some community development projects. It empha-
sized that its main contribution to economic development would come in the
form of revenues if and when oil would be produced (some years hence). It re-
quested that local communities provide a supporting and safe working envi-
ronment for its operations and reminded everyone, including the government
representative, that oil revenues should go toward the socioeconomic welfare
and development of the area. This process was repeated a few months later in
Lundin Petroleum's concession areas in Kenya.
In 2009, Lundin Petroleum decided on a new growth strategy focusing
on Europe, Russia, and Southeast Asia as core areas and sold its remaining
interests in East Africa, having received assurance that the CSR framework it
had put in place would be maintained by the Canadian company that took
over the assets.

Conclusion
Societal values have evolved and, with them, the requirements placed by stake-
holders on the conduct of companies. In the case of an upstream company, host
and home governments increasingly require the company to demonstrate its
CSR commitment and competence. Institutional shareholders and investment
funds require evidence of the company's CSR approach. Local communities re-
quire positive contributions to their well-being through employment and com-
munity projects while NGOs and media launch public campaigns if they feel
the company is not carrying out its activities in an acceptable manner.
 Christine Batruch 159

The way in which CSR is implemented by oil and gas companies varies
according to their size, their home country, the situation they face in countries
of operations, and their susceptibility to public opinion. A large Western com-
pany is more likely to have a CSR framework in place than others in the sec-
tor, though this can be determined only on a company-by-company basis.
In the case of Lundin Petroleum, CSR has proven to be a valuable tool for
its growth strategy. Taking into consideration sociopolitical and environmen-
tal issues prior to and at various stages of its operations has enabled the com-
pany to anticipate potential risks, put in place mitigating measures, and align
itself with a growing number of stakeholders. These are all required steps for
the company to succeed. @

Notes
Christine Batruch joined Lundin Petroleum in 1999 as a consultant and has served as
the vice president of corporate responsibility since 2002. She has worked as a consult-
ant for companies interested in entering the Ukrainian market, and she has participated
in the establishment in Ukraine of a number of nonprofit institutions linked to the Soros
network of foundations. She is a member of the board of directors of the International
Management Institute (Kyiv) and of the Fondation Vidrodgenia (Geneva) and member
of the Working Party on International Legal and Commercial Practice (WP5) of the UN
Economic Commission for Europe. She also serves on the advisory board of Business
HumanitarianForum, the editorial advisory board of the Journalof World Energy and
Business, and the editorial board of Oil, Gas and Energy Law Intelligence, an online
journal. She has been president of the Geneva Petroleum Club since 2009.
1.For information regarding Lundin Petroleum AB, see www.lundin-petroleum.com.
The term company refers to Lundin Petroleum AB as well as its predecessor compa-
nies, International Petroleum Corporation and Lundin Oil AB.
For a more comprehensive description of Lundin Petroleum's experience in
Sudan, see "Oil and Conflict: Lundin's Experience in Sudan," in Alyson J. K. Bailes
and Isabel Frommelt, eds., Business and Security: Public-PrivateSector Relationships
in a New Security Environment (Oxford: Oxford University Press; Stockholm Interna-
tional Peace Research Institute, 2004).
2. Community development projects, particularly at the exploration stage, are lim-
ited in size and geographical scope. They are meant to promote positive relations be-
tween a company and communities in its vicinity and enhance their well-being;
however, it is once production starts and oil revenues are generated that the economy
can develop in a way that has a lasting impact on the socioeconomic welfare of an area.
3. Oil revenues have clearly acted as a catalyst for economic growth. Since oil
production began in 1999, there has been a constant increase in the annual gross do-
mestic product (GDP; with the lowest figure standing at 5.1 percent in 2004 and the
highest at 11.8 percent in 2006) paving the way for other business investments and in-
ternational loans. With the oil revenues, Sudan repaid its International Monetary Fund
loans, which resulted in its reinstatement and its heightened creditworthiness. See
www.imf.org for information regarding Sudan's reinstatement in August 2000 and
GDP data.
LYNNE RIENNER I
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