Case Study: BP Gulf Of Mexico Oil Spill
Purpose The aim of this assignment is to relate some of the key concepts of this course to a real-world phenomenon. The BP Oil spill of 2010 will be used as a basis for applying the understanding gained in prior lectures to a practical situation where sustainability accounting and reporting could be a possible response.
Background Case Materials
- BP Gulf of Mexico Oil Spill Response: http://www.bp.com/en_us/bp-us/community/commitment-to-the-gulf-of-mexico.html
- Independent assessment of Gulf of Mexico Oil Spill: http://www.theguardian.com/environment/bp-oil-spill
Panchal Arora, M and Lodhia, S (2017) “The BP Gulf of Mexico Oil Spill: exploring the link between Social and Environmental Disclosures and Reputation Risk Management” Journal of Cleaner Production Vol. 140, No. 3, pp.1287-1297.
- Identify the sustainability impacts associated with oil drilling operations such as that in the Gulf of Mexico? Despite these impacts, why is oil drilling still undertaken?
- Identify the difficulties associated with making multinational corporations accountable for their social and environmental impacts in foreign operations, as illustrated in the BP case. Would this matter have been more difficult to manage if this disaster had occurred in a developing nation?
- Discuss how the management of BP could have engaged with its various stakeholders in relation to this incident. Your discussion should focus on the relevant stakeholders and the impact of such engagement on its reputation.
- Discuss how BP has undertaken sustainability reporting since the spill in order to provide an account of this incident and its subsequent actions?
- How and why might events such as the BP oil rig disaster affect other oil companies’ subsequent activities and would these lead to changes in their sustainability accounting and reporting practices?
The oil leak in Gulf of Mexico fired up arguments which were against offshore drilling, which involves a mechanical process whereby a wellbore is drilled below seabed. The drilling operations have considerable effects that are negative on wildlife and marine. Among other important impacts of drilling that is a threat to sustainability is:
Water And Air Pollution:
Drilling mud has use in lubrication and cooling of drill bit and the pipe. This helps in removing cuttings coming from oil well’s bottom and preventing blowouts by acting as sealant, however they release toxic materials that are affecting marine life (Wilderness.org 2017). Air pollution is mainly caused through emission harmful gases like methane which are dangerously responsible for climate change.
The related construction activities have a radical impact on the landscape. Development of oil and gas complexes strip environment’s vegetation, increase erosion, disturb land’s ground surface.
There is traffic at the Oil drilling sites which has a large contribution to noise pollution in the wild lands. Exploration involves firing of air guns which can send strong shocks across seabed which can lead in stranding of mammals. Due to physical collision with rigs bird mortality has been seen including oil from leaks and incineration by flare. Flaring involves burning fossil fuels producing black carbon (Olawuyi 2012).
Companies in spite of the environmental impacts and after the spill in the Gulf of Mexico have not given up on oil drilling because there has been no corresponding drop in consumption and which would lead to importing from international sources more oil in case drilling is abandoned. The companies are aware that oil is oxygen of economic life in America and no president will ever attempt to stifle. All we can expect is the companies resort to safer ways of drilling oil which can considerably reduce the effect of the same on the environment.
According to a report published only 128 companies out of 4609 that are listed on world’s stock exchange fail to disclose basic information relating to how do they meet their responsibility to the society. International Organization of Securities Commission (IOSCO) its global standards of disclosure and is focusing recently on financial transparency, it will be looking at companies responsibility related to non financial reporting (Leinaweaver 2017). The companies struggle with reporting because that would imply liability for disclosures costing transparency. If they are required to report on something they would be held responsible for its accuracy of disclosure which would gain effect transparency (Bsr.org 2017). The main difficulties associated could be that due to operations related to oil drilling there are possible negative effects that are caused to the environment, sustainability reporting involves reporting of the same and measures initiated towards its correction. Companies associated this with the stakeholders who can be influenced negatively with the operational impacts on the environment and may be lured to pull their investment back. Also, this involves economic resources being heavily spent on technology for taking initiatives which would cap the environmental impacts. The companies are also forced to think the government intervention which will be forcing them to curb their operations in view of the impact on society and environment. Also in companies view Sustainability report don’t have a serious target audience which in real analyse the report.
Yes the matter would have been more difficult to manage in a developing nation. The oil spill incident happened with British Petroleum in Gulf of Mexico located near American continent. Context of writing this is that though this incident involved one of the world’s leading oil and gas companies and a developed nation like America still the company failed in managing the incident (Rushe 2017). The Government also faced serious allegations for poorly handling the financial crisis (Cato Institute 2017).
Stakeholder theory states that company stakeholders are not just direct owners, but are any person, entity or group that has been burdened or benefitted by its actions and those who burden or benefit the company through their actions. Stakeholder engagement is helpful in building constructive relationship and oil spill dialogue and response actions, inclusive of dispersants (Brennan 2013).
Community dependent on environment suffered chronic impacts, thus becoming barriers to community resilience and its recovery. This could have been enhanced by access to knowledge transfer from oil spill related authorities and community experts, knowledge regarding oil spill resources and building connection with local community and experts in field of oil spill. The Oil spill literacy could have been developed through risk communication (Walker 2015).
The model for engagement is given below:
Impact On Reputation
The author of Black Tide among the first major books examining Gulf spill, Antonia Juhasz accused that BP lied not just to public but also the regulators about it being unprepared for an iol spill. A fisherwoman from Gulf Coast arrested for protesting against BP was quoted saying, she wanted BP to account for its action in the Gulf relating to the oil spill, cover-ups, lies, skimping on safety, deaths, non existing documents and swinging doors with regulators.
The fire not only destroyed its physical property but the shareholder wealth too. In 2010, the share prices came down by 55% which implies USD 27 a share from USD 59.48 (Heflin and Wallace 2017).
The aftermath not only destroyed the reputation of the company but also the trust it earned among its consumers throughout the years. It has been agreed by BP to pay USD 175 million for settling claims relating to it deceiving the shareholders by underplaying the incident’s severity. Claims were also settled amounting to USD 525 million of Securities and Exchange Commission in 2012 claiming BP misled market over spill size (Davies 2017).
The company believes that for achieving sustainable success the best way is to act in the interest of the shareholders, their partners and society. Due to the oil spill in Gulf of Mexico, the company incurred substantially higher environmental expenditure as compared to the previous years. The company under an agreement with the US Government and an administrative agreement with US Environmental strategy following accident in 2010 has appointed an ethics and a process safety monitor.
The company is trying improve the drilling standards in the Gulf and other operations in deepwater. As per the company’s claims it has been working closely with the government agencies and local communities for restoring the Gulf Coast. The company has met legitimate claims for compensation. Total amount of USD 56.4 billion has been set aside for covering settlement costs, clean up costs and fines (Davies 2017). It provided USD 1 billion for projects of early restoration that would restore those natural resources injured due to the accident. USD 500 million has been contributed which would initiate independent research carried out for understanding ecosystem of the Gulf to mitigate and prevent oil spills potential impacts.
The independent safety and operational risk is well established for safety and operational risk management. The company has reviewed the system and began to enhance simplicity, clarity and consistency in there reporting of risks.
Tested technology has been implemented by the Company which aims in enhancing safety of the Company’s offshore platforms in the Gulf of Mexico. For keeping its people away from harm, the company has been taking action for risk management, like closely working with contractors, joint stimulation exercises, and technologies like crawler robots and sensors for detecting potential problems. A type of capping stack was designed which stood ready for deployment anywhere in world owing to event of leakage in deep water (Kleinnijenhuis , Schultz, Utz, and Oegema, 2015).
It cannot be denied that Gulf’s oil spill was an extreme case of business going bad. It is a glaring reminder for businesses that their responsibility is more than the bottom line results and business is no longer accepted as usual. Business success needs to be considered in its impacts on human and environment. The incident highlighted the shortcoming of existing disclosure related to sustainability. The reports were questioned due to it being highly ranked by Global Reporting Initiative. The accident raised concerns regarding reporting giving a more transparent view of the company. Coalition of institutional investors named Ceres after the incident demanded the global companies in field of oil and gas to disclose their existing safeguards and plans in the event of rig disaster like the Gulf’s. The companies were required to address five key points namely, companies investment in prevention of spill and response activities, spill contingency plans for blowout management, lessons learned from Bp oil spill, actions for improving safety contractor selection and governance systems aimed to operations management (Andreassen 2017). The companies are now required to do a focused reporting on sustainability because after witnessing the BP oil spill people want accountability, transparency and honesty, straight talk and strong leadership (Sorensen 2017). The findings have been summarized in the figure below:
(Source: Sorensen 2017)
Andreassen, N. 2017. Sustainability Reporting Guidelines—Safety Issues for Oil Companies. European Journal of Sustainable Development, 6(1), pp.377-387.
BP Global 2016. Sustainability Report. [online] bp.com. Available at: https://www.bp.com/en/global/corporate/sustainability.html [Accessed 12 Jul. 2017].
Brennan, K. 2013. A Stakeholder Analysis of the BP Oil Spill and the Compensation Mechanisms Used to Minimize Damage. UNIVERISTY OF SOUTH FLORIDA.
Bsr.org. 2017. BSR Debates: Should Sustainability Reporting Be Mandatory? | Blog | BSR. [online] Available at: https://www.bsr.org/en/our-insights/blog-view/bsr-debates-should-sustainability-reporting-be-mandatory [Accessed 11 Jul. 2017].
Cato Institute. 2017. The Gulf Spill, the Financial Crisis and Government Failure. [online] Available at: https://www.cato.org/publications/commentary/gulf-spill-financial-crisis-government-failure [Accessed 11 Jul. 2017].
Chesters, L. 2015. BP shares climb as company settles Deepwater Horizon claims. [online] This is Money. Available at: https://www.thisismoney.co.uk/money/markets/article-3147502/Shares-oil-giant-BP-climb-news-finally-settled-long-running-court-case-Deepwater-Horizon-explosion-oil-spill.html [Accessed 14 Jul. 2017].
Davies, R. 2017. BP to pay $175m to investors over Deepwater Horizon spill. [online] the Guardian. Available at: https://www.theguardian.com/business/2016/jun/03/bp-compensate-investors-deepwater-horizon-oil-spill [Accessed 10 Jul. 2017].
Heflin, F. and Wallace, D., 2017. The BP oil spill: shareholder wealth effects and environmental disclosures. Journal of Business Finance & Accounting, 44(3-4), pp.337-374..
Kleinnijenhuis, J., Schultz, F., Utz, S. and Oegema, D., 2015. The mediating role of the news in the BP oil spill crisis 2010: How US news is influenced by public relations and in turn influences public awareness, foreign news, and the share price. Communication Research, 42(3), pp.408-428.
Leinaweaver, J. 2017. EU to force large companies to report on environmental and social impacts. [online] the Guardian. Available at: https://www.theguardian.com/sustainable-business/eu-reform-listed-companies-report-environmental-social-impact [Accessed 11 Jul. 2017].
Olawuyi, D. 2012. Legal and Sustainable Development Impacts of Major Oil Spills. The Journal of Sustainable Development, 9(1), pp.1-15.
Rushe, D. 2017. Deepwater oil spill a ‘classic failure’ of BP management, court hears. [online] the Guardian. Available at: https://www.theguardian.com/environment/2013/feb/26/deepwater-oil-spill-trial-bp-failure [Accessed 11 Jul. 2017].
Sorensen, S. 2017. BP’s Sustainability Lesson. [online] Forbes.com. Available at: https://www.forbes.com/2010/07/07/sustainability-gulf-spill-technology-bp.html [Accessed 11 Jul. 2017].
Walker, A. 2015. Oil spills and risk perceptions: A stakeholder engagement model to address evolving needs. Interspill Amsterdam 2015.
Wilderness.org. 2017. Seven ways oil and gas drilling is bad news for the environment | Wilderness.org. [online] Available at: https://wilderness.org/seven-ways-oil-and-gas-drilling-bad-news-environment [Accessed 11 Jul. 2017].