International Management Governance and Sustainability

Coursework II Assignment
Word count: 2,248 (excluding references)
Word count: 2,803 (including references)

Introduction
This work focuses on the SDG number 13 for three reasons amongst others. Firstly, climate
change is one of the chief issues that is impacting international businesses (Twerefou et al.,
2017), and is partly the reason why the 2015 Paris Agreement with the objective of keeping
global warming below 2 degrees centigrade between now and 2050 was signed. According to
Comyns (2018), multinational companies are among the carbon majors responsible for
significant historical anthropogenic greenhouse gas (GHG) emissions globally. The same
facts have been corroborated by other recent literatures (see Liesen et al., 2015; Dai et al.,
2022) analysing the comparative emissions by international businesses. Secondly, climate
change has been fingered as one of the reasons for a surge in the cost of power in the
manufacturing environment.

According to the IPCC (2021) nearly 200 CEOs representing biggest American corporations
agree that anthropocentric pollutions have led to droughts and erratic climate patterns leading
to surge in energy and food prices. Thirdly, many sectors of the economy are now developing
policies on reduce climate change. e.g., the Fashion Pact signed by major brand owners to
align the UN Fashion Charter on Climate Change with the 2050 NetZero pledge (Olatubosun
et al., 2021). This work therefore focuses on the role of Royal Dutch Shell, an international
company listed on the London Stock Exchange in adapting to the dynamic international
business environment, and the achievement of the reduction in the incidence of global
warming.

Critical analysis of the international management environment

In terms of policies on climate change, the external business environment of oil and gas
seems to be less unstable for the achievement of NetZero by 2050 by the activities of the oil
majors (Barchielli et al., 2022) until the war in Ukraine in early 2022, making developed
countries to revert to the use of dirty energy like coal which is damaging to the environment.
This jutsifies the “structure follows strategy” mantra by Porter (Kim and Mauborgne, 1994
p7) in major oil and gas businesses that quickly structured their operations to cash-in on the
surge in the demand for oil through increase in their oil production. Royal Dutch Shell also
increased its production and sales during this period (Shell, 2019; 2020; 2021).

Table 1: Energy companies’ external environment

Environmental Issue Narrative affective international oil and gas business
Political Adoption of SDG; Paris Accord; NetZero policies terminating the
use of fossil fuel in the EU by 2050; war in Ukraine increasing
demand for oil and gas;
Economic Instability in the international business environment due to cost-
of-living crisis; potential economic recession in the EU and the
USA, resurgence of new covid-19 strains in China slowing down
production and demand for oil and gas on one hand, and the
growing urbanisation in the developing countries making demand
to outstrip the supply of oil and gas.
Social The attitude towards the consumption of fossil fuel in developed
 economies is mixed due to the rising costs of energy which makes
an average consumer to be indifferent between renewable and
carbon energy.
Technological Investment in, and the development of cheap renewable energy
generation capabilities (wind, solar, gravity, etc.) by top energy
companies; development of energy-saving devices.
Source: researcher’s own findings from multiple sources.

By this, the management of Shell demonstrated the necessity of aligning the internal business
environment (in terms of their capability to increase shale gas production at this time) with
the dynamic external environment that requires constant adaptive strategies to avoid dropping
off the cliff in a highly competitive globalised business environment. Therefore, the war in
Ukraine has exposed the vulnerability of the NetZero 2050 plan, which means that climate
change may be irreversible after all, and that except there is a concerted and deliberate policy
to shift from fossil fuel to renewables which is backed up by punitive measures globally,
achievement of the SDG 13 may become a mirage.

On the part of Shell, there is a noticeable increase in the diversification into renewables by
Royal Dutch Shell (Shell, 2019; 2020; 2021) which is an adaptation of blue ocean strategy
(Kim and Mauborgne, 2005) to obtain a competitive advantage where the market
development strategy is seemingly stagnating. Some writers have opined that such plans are
not necessarily an attempt to reduce climate change (SDG13), but a diversification tool where
the price of oil and gas have become volatile, and to avoid the possibility of hefty fines which
was levied on BP plc when the Deepwater Horizon oil spillage occurred in the Gulf of
Mexico 2010 (USEPA, 2010). The surging cost of power, and the search for alternatives is
one of the major influences on the adaptability in the international oil and gas businesses.
According to Olatubosun and Köseoglu (2019), the top 20 oil majors have witnessed a 49%
drop in their market capitalisation between their peak period in 2014 and 2019 due to changes
in customer taste and the likelihood of renewables becoming cheaper than fossil fuels.

However, there was a noticeable rebound in the demand for oil and gas in recent years due to
the Russia’s war with Ukraine (being mindful of the price determinant powers of OPEC Plus
representing 44% of global world output). This, according to the World Economic Forum
(2022) amongst other factors like the race for developing countries to become industrialised,
population growth requiring additional energy usage, rapid urbanisation, are likely to make
the basket of energy prices to continue to be volatile thereby making planning for energy
usage mix to be challenging for consumers, and at the same time, making demand for energy
to continually outstrip supply.

Another major trend in Shell’s global business environment is the surge in the unit selling
price of energy due to the war in Ukraine despite the increase in its oil and gas output. It
could be argued that this will enable the company to continually invest in new technologies
and renewables. When compared to BP and other top international energy companies, it is
apparent (with benefit of hindsight), that Shell was able to avoid the loss from exit of the joint
venture with Rosneft worth roughly £1.2b (through the nationalisation of Russian investment)
suffered by BP in Russia which arises from improper scenario planning (Telegraph, 2022).

Critical analysis of the corporate governance environment

The Combined Code of Corporate Governance contains provisions and recommendations on
how to reduce the agency problems through stewardship, director leadership, communication,
and accountability (FRC, 2020). The agency theory provided “that owners (principal) must
monitor and control managers (agents) to protect owners’ residual claims from the excesses
of self-interested agents” (Bansal, 2013, p127), and one of such controls is effected through
the institutionalisation of the periodic investors’ relations meetings.

Table 2: Anglo Dutch Shell’s Quality of Corporate Governance

Governance Issue Snapshot from Corporate Governance Report 2019 - 2022
Board strength and 50% male and 50% female; non-executive director sector
diversity experience spans over public policy, accounting and finance,
consumer marketing, industrial engineering, and oil & gas.
Diversified nationality: British, Dutch, USA, Canadian,
Singaporean, and German.
Board relevance Board met average of 12 times annually with meetings being
held in London, Hague and online. All NEDs are independent
in judgment in character.
Board committees Major committees such as risk, resilience, audit, etc. are run
by the NEDs.
Business strategy and The company hopes to accelerate towards becoming a net-
resilience zero emissions energy company by 2050 by building modern
and resilient business which is built around customers as the
centre of its strategy.
Communication with Investor’s relations meetings held regularly with shareholders
major shareholders and
other major stakeholders
Sustainability governance Shell’s cover value is to reduce the number of operational
spills of more than 100 kilograms by 40% over a 5 year
period and contribute to the reduction of GHG emission
across the supply chain.
Source: Shell Corporate Governance Reports (2019-2022), and Shell Sustainability Reports
(2019-2022)

A review of the company’s Corporate Governance reports (2019 - 2022) showed that the
company complied in material respect with the Combined Code of Corporate Governance
(2020). Quarterly meetings were being held between the executive directors and the major
shareholders representing institutional investors (e.g., Sovereign Wealth Funds, Pension
Funds, and Activist investors) and the minutes of such meetings are usually made available
on the company’s website. Evidence from the review of the website of other energy
companies listed in the London Stock Exchange revealed that the practice has become
universal, which is a good development. According to Solomon and Solomon (2006) and
Black and Coffee (1994), such investors relations’ meetings are some of the ways by which
the company reduces agency costs that are inherent in the separation of ownership (by
shareholders) and control (by directors).

Also, the quality of the board diversity surpasses the requirement of the Combined Code of
Code of Corporate Governance as the board is quite diverse in terms of skills, qualification,
nationality, and gender (see Table 2). In addition, the remuneration committee (which is
made up of exclusively of non-executive directors), uses LTIPs (long-term incentive plans)
with a range of ESG criteria being applied in determining the remuneration of directors with
a view to aligning their performance with the strategic goals contained in the mission
statement.

Analysis of the focused SDG

The strategy being adopted by Anglo Dutch Shell is mixed, as regards its alignment with the
reduction in climate change is concerned. For instance, a review of its Sustainability Reports
(2019 - 2022) reveals that the company plans to diversify from communities that are
considered volatile by 2030 (e.g., Nigeria), and ensure that 25% of its annual energy sales is
derived from renewables by 2025. By comparison however, the company is ranked number 5
globally in the index of energy companies that are diversifying from renewables (see Table 3)
which suggests that the company may not be doing enough in terms of accelerating towards
NetZero 2050, given its comparative asset size.

Table 3: Top 10 energy companies’ investment in renewables

Rank Energy Company Investment in
renewables 2019-2022
1 BP (UK) $6.98 billion
2 Equinor (Norway) $5.76 billion
3 Repsol (Spain) $4.24 billion
4 PKN Orlen (Poland) $3.97 billion
5 Shell (Netherland) $3.77 billion
6 Total Energies (France) $3.42 billion
7 Eni (Italy) $3.10 billion
8 Suncor (Canada) $2.96 billion
9 ExxonMobil (USA) $2.19 billion
10 ONGC (India) $1.06 billion
Source: Global [Link] (2022)

The target of the SDG 13(a) is to “implement the commitment undertaken by developed
country parties to a goal of mobilising $100 billion annually by 2020 to address needs of
developing countries.” Unfortunately, the total amounts currently being committed to the
research and development of new finds in renewable energy is far less than the $7 trillion
which has been committed to the exploration and drilling for new oil finds globally. This
view aligns with Pfeiffer et al., (2018) that analysed an inventory of power plants globally,
and they found that, to align with the Paris Accord goals of not exceeding 2 degrees rise
above pre-industrial levels, new carbon energy generation must not exceed 240 Gt CO2 (giga
tons of CO2). However, the current global budget of 300 GtCO2 is already 60 Gt CO2., which
makes the achievement of the SDG 13 by 2030 to be doubtful.

In a nutshell, the table 3 above, when juxtaposed with the global investments in new carbon
finds, suggests that short-term company profit is being prioritised over the achievement of the
SDG 13, and this may have wider effect on the achievement of other goals, especially
reduction in poverty levels (Goal 1), zero hunger (Goal 2), and good health and well-being
(Goal 3) thereby resulting in a “wicked problem” phenomenon (Meuleman 2012: 42). This
reflection agrees with the “water-energy-food” nexus paradigm to solving dynamic and
complex global resource and development challenges (Albrecht et al., 2018) that are being
confronted today.

Discussion of actionable recommendations

Based on the complexity and the dynamic nature of the climate change problem that the
society is facing today, a systems approach to the understanding of the problem is required.
Anglo Dutch Shell and other energy companies need to change their orientation from
stewardship to accountability and their short-term profitability to long-term wealth
maximisation perspective, with the understanding that individual and organisational wealth
maximisation are directly linked to community and societal wellbeing. This will enable the
company to thorough map internal organisational issues and their interconnectedness to the
local and international business stakeholders. Guillaume et al., 2015, in analysing a systems
approach to solving environmental problems suggests a five-step approach to addressing this
problem, and these include the following:
1. A careful plotting of linked activities (e.g., food shortage, poverty, climate action) and
their interlinkages with the long-term survival of Anglo-Dutch Shell, which may be
represented by positive or negative nodes.
2. Identifying the key relationships between the identified nexuses.
3. Applying models to represent system models for a better understanding in a 3-
dimensional way.
4. Analysing the effects of the interrelationships of the issues and events from an open
system’s perspective.
5. Developing a systems-induced solution based on 1-4 above.

In a nutshell, Anglo-Dutch Shell company is an integral part of the global value chain, and a
long-term survival of the company is dependent on the survival of the planet earth.

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