English - Shell Global

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Economic performance• Strong financial performance

• Major portfolio rationalisation and upgradinga c h i e v e d

• Cost improvements of US$ 2 billion ahead of schedule

• R e t u rn on average capital employed (ROACE)of 12.1 %

• Oil price up, refining margins down

• Motorists rank Shell top for brand pre f e re n c e ,brand awareness and repeat purc h a s e

• Shell employs 96,000 staff, hundreds of thousands of contractors, and contributesto the economies of over 135 countries

HOW DOWE STA N D ?

HIGHLIGHTSEnvironmental performance• All Group-level improvement targets and

projections met except for spills

• Greenhouse gas emissions down more than10% below 1990 levels

Social performance• Best ever safety performance – encouraging

reduction in fatal accidents

• Number of women in senior executivepositions up 18%

• Survey shows 75% of Shell people are proudto work for Shell

• Group security guidelines on the use of forceconform to UN standards

• Nigeria remains a challenge

• Shell companies contributed US$ 93 millionin social investment

Managing our business • 62 contracts terminated and one joint

venture divested because of operationsincompatible with Shell’s Business Principles

• Five breaches of the Group’s ‘no bribes’policy resulted in four dismissals and one resignation

• Certifiable HSE management systems inplace in over 95% of all Shell companies

• Increasing integration of social andenvironmental considerations in investmentand divestment decisions

• Increase in engagement activities on a widerange of issues at many levels

The objectives of the Royal Dutch/Shell Group of Companies a re to engage efficiently, responsibly and profitably in the oil, gas,chemicals and other selected businesses and participate in there s e a rch for and development of other sources of energy. Sh e l lcompanies are committed to contribute to sustainable development.

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Message from the Chairman 2-3Mark Moody-Stuart gives his perspective on howwe stand on sustainable development and how wemeasure up against our targets.

Transparency 4-5We explain here how we stand on transparencyand the techniques that we are using to improvethe credibility of our reporting. The independentreport of our verifiers can be found here.

Sustainable development performanceLook here for evidence on how well – or not – welive up to our Business Principles.

• Why sustainable development? 6-7Look here for what sustainable development meansto us.

• Economic 8-13How do we perform financially? How do wecontribute to the economic progress of society as a w h o l e? Look here for our targets and our perf o rm a n c e .

• E n v i ronmental 14-19Emissions, spills, fines, flaring. Here you find ourverified environmental performance data. Weexplain our stand on global climate change in thecontext of evolving energy markets.

• Social 20-27One of our three core values is respect for people.How do we stand on health and safety, humanrights, armed security, child labour and socialinvestment? Find out here.

• Managing our business 28-33Taking our Business Principles seriously andmanaging our business with integrity. Judge foryourself our progress in integrating sustainabledevelopment thinking into our business in line withthe Road Map we set out in previous Shell Reports.

1The Shell Report 2000

CONTENTS

Shell view of the future and theway forward 34-35

We explain the scenarios that help us plan our

strategy and look at some future challenges

and opportunities.

Business focus 36-47Find out here the progress each of our businesses

has made in integrating sustainable development

thinking, the issues and dilemmas they face and

their strategy for moving forward.

• Shell businesses at a glance 36-37• Exploration and Production 38-39• Oil Products 40-41• Chemicals 42-43• Downstream Gas and Power 44-45• Renewables 46-47

Annex 48-50Look here for details about what we have reported,

data to support the charts and the structure of the

Royal Dutch/Shell Group of Companies.

‘Tell Shell’ 51We really do want to hear your views on Shell or

The Shell Report, about the issues we covered and

anything we didn’t. You can use the freepost card

to tell us what you think. We value your views.

Contact us via• the internet at www.shell.com/tellshell

• e-mail at [email protected]

• or write to us using the pre-paid reply card at

the back.

How do we stand?• Armed security p26

• Athabasca oil sands p16

• Balancing work and home p22

• Biodiversity p19

• Bribery and corruption p30

• Business Principles p28

• Child labour in Brazil p23

• Climate change p16

• Competition p12

• Cuiaba p45

• Diversity p23

• Engagement p33

• Fuel cell partnership p41

• Globalisation and growth p8

• Global standards p28

• Health and safety p20

• Human rights p25

• Integrity standards andfacilitation payments p29

• Iran p12

• Legacies and liabilities p18

• Local procurement p13

• MTBE p41

• Nigeria p25

• Political payments p30

• Product impact p16

• Renewable energy p46

• Road safety p21

• Ship recycling p21

• Sustainable energy programme p17

• Transparency p4

• Working with joint venturersand contractors p29

This report provides the evidence anddocuments the actions we have taken in 1999in striving to meet our commitments.

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MESSAGE FROMTHE CHAIRMAN

2 The Shell Report 2000

MESSAGE FROM THE CHAIRMAN

How well are we delivering on ourcommitment to contribute to sustainabledevelopment? Are we integrating thet h ree essential elements of sustainability –economic, social and environmental andbalancing long and short - t e rm priorities?What is our pro g ress in changing the way we make decisions and how we run the business day-to-day? How dowe stand?

Like the surfer on our cover striving to catch thewave, we’re starting to get the feel of it. But weknow we’ve got a long way to go before wecan stand with absolute confidence, let alonecome up first time with the right approach foreverything that the turbulent waters of a trulyglobal business can throw at us.

We have done the relatively easy parts of thejob, by developing some key management tools to change the way we make decisions.You would expect no less from a Group with a commitment to thoroughness andprofessionalism – but the real challenge is in making this come alive in the hearts andminds of all Shell people.

Financially, we are in much better shape thanlast year, mainly because of our disciplined useof capital, attention to costs, the reorganisationof our portfolio and, of course, a rise in theprice of oil. New ventures in alternative energysolutions, such as hydrogen and fuel cells, as well as Shell Capital and E-business, expandthe scope of our businesses.

E c o n o m i c a l l y, Shell companies continue to makea major contribution to society through capitalinvestment, taxes generated, employment andlocal pro c u rement as well as providing clean,convenient and economic energy choices.

Socially, we are feeling the benefits of engagingwith our stakeholders, including human rightsgroups and local communities in politicallysensitive regions such as Nigeria. I’m part i c u l a r l ypleased we participated in the development ofthe Global Sullivan Principles, which we support ,and we readily accept the challenge of KofiAnnan’s Global Compact.

We have also learned some truths from our own people. In a global survey they spokefrankly about what they like and dislike about

working for Shell. We are acting on this. I ampleased by the fact that a very high proportion(71% favourable, over 15% more than the normfor high performing companies) say that ‘whereI work, we can question our conventional waysof working’. Additionally 68% of people felt that ‘leaders in my unit trust the judgement ofpeople like me’ (7% above the norm for highperforming companies).

I deeply regret that 44 contractors and threecompany staff lost their lives during 1999, 26of them from road traffic accidents. This numberis unacceptable, but I am encouraged by the25% reduction compared to 1998. Our broaderm e a s u res of accidents and incidents improved in all our businesses and 1999 marked the bestever safety perf o rmance by the Group.

We have implemented health, safety andenvironmental management systems in virtuallyall Shell companies and I expect that they willform the platform to drive further performanceimprovement. We are well on track to have theenvironmental component of the managementsystems covering all major installations certifiedto international standards by the end of 2000.

Mark Moody-StuartChairman of the Committee of Managing Directors

My colleagues and I are totally committed to a businessstrategy that generates profits while contributing to thewell-being of the planet and its people. We see no alternative.”

“


OMAN


MESSAGE FROM THE CHAIRMAN

“By creating wealth and transferring skills,we contribute to economic and social

development and generate resources forsocial and environmental improvement.

Maarten van den BerghVice-Chairman, Committee of Managing Directors

Finance East Asia and Australasia

”

”

”

”

”

“Just as the Stone Age did not end for a lack of stones the oil age will not end for a lack of oil. Our progress

towards developing commercially viable renewable resources must continue.

Jeroen van der VeerChemicals, Renewables, Shell Hydrogen

Shell Capital, Group Research Europe, CIS, Middle East

North Africa and South Asia

“The most basic human right is the right to life. Safety is paramount.

Cost cutting does not mean cutting corners.

Phil WattsExploration and Production

Downstream Gas and Power, Coal

“Our challenge is to develop innova t i ve ,profitable and sustainable products

that satisfy customer needs.Paul Skinner

Oil Products

We have met all of our Group-level enviro n m e n t a ltargets and projections except spills. Whilst wecontinued to reduce our greenhouse gas emissionsto a level which is better than our 2002 target,this was partly as a result of reduced activity inour refineries. However, unit rates have incre a s e din some cases as we use more energ y - i n t e n s i v ep rocesses to produce higher specification pro d u c t sfor our customers. We have also started toinclude the possible cost of carbon in assessingthe feasibility of large new projects.

A major task for the Committee of ManagingDirectors is to ensure that the sometimes loftyassertions we make on sustainable developmentmake practical sense to all our staff. I know thatmany who work at the sharp end of Shell companies– on the rigs, in the chemical plants and on thef o re c o u rts – still find it difficult to understand what thismeans to them and how they can best contribute.

T h e re are plenty of reasons for this, notably our sizeand complexity – 96,000 employees, 51 diff e re n tlanguages and operations in over 135 countries.The changes to how we take decisions is part of thea n s w e r, for example making it clear that for pro j e c tp roposals to succeed they must take into accounte n v i ronmental and social considerations as well asfinancial ones. Visible, clear leadership ands u p p o rt a re essential. I am determined that we shallaccelerate the drive to make sustainable developmentp a rt of our culture and continue to meet thep romise to live up to our Business Principles.

Compiling and verifying this report makes usmeasure our progress in a rigorous way. Ouraim is to give you the necessary information toform a view. This year we have combined theGroup Health, Safety and Environment reportwith The Shell Report to provide you with aconsolidated overview of our activities. Read on,judge for yourself and then tell us how we stand.

“A real dialogue must be a two-wayconversation. We must listen, engage

and respond to our stakeholders. We will be judged by our actions

rather than our fine words.Harry Roels

Shell Services International, Planning Health, Safety and Environment, External Affairs

International, E-business Central and South America and Sub-Saharan Africa


TRANSPARENCY


T R A N S PA R E N C Y

We recognise the importance ofaccountability to stakeholders and arel e a rning to be more open, through gre a t e rengagement with our stakeholders, thepublication of this report and providingan opportunity for people to tell uswhat they think of our performance(see page 1 on ways to do this).

Why verify?An integral part of transparency and confidencebuilding is the publication of data andinformation that is verified by respectedindependent organisations. Beyond assuringaccuracy and reliability, verification increasesstakeholder confidence that what is beingreported is a fair picture of performance. It alsoimproves our ability to monitor and manage ourbusiness. We have made good progress on theverification of our critical health, safety andenvironmental (HSE) performance data andparameters. We are looking at ways we cangive the same level of assurance on the rest of the social information we publish.

What we have done to verifyHSE dataWe started with verification of the 1996 data inthe upstream business and extended this to therest of the Group in 1997 and 1998, when wecommissioned the most extensive verification everu n d e rtaken by a large multinational org a n i s a t i o n .This involved the verification of 25 parametersand visits to 40 operating units around the world.

The rigour of the verification in the last threeyears gave the verifiers, and us, a betterunderstanding of the quality of our underlyingsystems and processes.

With this knowledge we worked with theverifiers to focus our attention on the 12 HSEparameters (see tables in Annex, page 49) thatwe – supported by our verifiers – believe reflectthe significant HSE impacts at the Group level.

www.shell.com/hsepolicy

We continue to publish data on all parametersre p o rted last year and we stand by their integrity.But other than the 12 key areas, these data arenot verified.

For the 12 parameters, data have been verifiedlocally at those companies that the verifiers considerto be major (material) contributors to Group totals.

Tr a n s p a rency is important to build trust and cre d i b i l i t y.C o n ventional verification methods alone do not provide theassurance needed. We are committed to working with others to challenge traditional thinking and make pro g ress in this are a .

SHEET OF ICE Photograph by Walter Schmid

HIGHLIGHTS

• Good progress made in environmental and social verification

• Focus on the parameters that reflect the significant health, safety andenvironmental (HSE) impacts at the Group level

• Transparency enhanced through clear identification of what is verified

• Working with others to explore new ways of providing assurance

This has reduced the number of operating unit visitsfrom 40 to 16 without diminishing the quality of the process. The verification process extended f rom data collection at the individual sites to finalconsolidation at Group level, where data from all contributing companies were reviewed.

How we have approachedverification of social dataThere is no universally accepted way to verifysuch information, although it is generally acceptedthat it is important to do so. Companies andorganisations are experimenting with variousmethods, such as surveys and testimonials.

We wanted to make a start and have asked our verifiers to look at the reliability of selectedp rocesses and data. They have verified aspects of some of the key processes we use to managesocial issues, such as the completeness of theBusiness Principles letters process (page 31) and thecompliance of the Shell Group security guidelineswith UN standards on the use of force (page 26).Verification extended to stakeholder engagementp rocesses such as the Shell People Survey (page24) and the development of our key perf o rm a n c eindicators (page 32). The verifiers have also lookedat data such as analysis of the ‘Tell Shell’ re s p o n s e s(page 33). All the verified sections are markedwith the coloured symbol in the Report .


NCY


T R A N S PA R E N C Y

ImprovementsWe also wanted to make verification moreapproachable and meaningful. We worked withthe verifiers to present the verification work inan innovative style and language. In particularwe have introduced verification symbols to showwhat has, and has not, been verified.

Verification in the futureWith the increased confidence and maturity of our reporting system we believe that the nextsteps in improving the efficiency of the HSEverification process will come from the incre a s e duse of self-appraisal and internal contro l s .

Proving the reliability of data is only half thestory. We recognise that this needs to besupplemented by independent views of what the data mean in terms of good or badperformance. We are working with industrygroups to agree standard benchmarks and wea re exploring ways to gather independent views.

Judging social and ethical performance – suchas the effectiveness of anti-bribery processes orhuman rights performance – is difficult becausethose topics are hard to verify using traditionalauditing techniques. For this, alternativeapproaches will be needed along the linesenvisaged for HSE above.

We see key performance indicators (KPIs) as the logical basis for focusing verification effort(see page 32).

Our ultimate ambition is to achieve a level ofpublic trust and respect that will reduce the needfor formal verification. This might be some yearsaway, but we hope that widespread efforts tobuild better relationships between companiesand civil society will lead to the emergence oftrust through alliances and greater involvement.

To: Royal Dutch Petroleum Company &

The “Shell” Transport and Trading Company, p.l.c.

R E P O RT FROM THE V E R I F I E R S

We have been asked to verify the reliability of selected perf o rmance data and statements.We have done so and marked these sectionswith the diff e rent coloured symbols illustratedbelow within The Shell Report 2000 of the Royal Dutch/Shell Group of Companies. The preparation of The Shell Report is theresponsibility of management. Our re s p o n s i b i l i t yis to express an opinion on the reliability ofthe data and statements indicated, based onthe verification work re f e rred to below.

In our opinion:n the data on financial perf o rmance marked with

the symbol are properly derived fromthe audited Financial Statements of the RoyalDutch/Shell Group of Companies for eachof the ten years ended 31 December 1999

n the health, safety and environmental (HSE)statements and graphs, together with theexplanatory information, performance datatables and notes in the Annex (see pages48-49), properly reflect the performance ofthe reporting entities for each of the HSEparameters marked with the symbo l

n the statements and data marked with thesymbol relating to the systems andprocesses Shell has put in place to managesocial performance are supported byappropriate underlying evidence andpresent a balanced view.

Basis of opinionThere are no generally accepted internationalstandards for the reporting or verification of environmental performance data or ofprocesses to manage social performance. We have adopted a verification approach that reflects emerging best practice, using

a framework based on the principlesunderpinning international standards onfinancial auditing and reporting. Therefore, we planned and carried out our work toobtain reasonable, rather than absolute,assurance on the reliability of the perf o rm a n c edata and statements tested. We believe thatour work provides a reasonable basis for our opinion.

Verification work performedIn planning and conducting our work, weincluded environmental and social expertswithin our team. The work carried out isdescribed in the Report:

n Financial – page 13

n Environmental, including health and safety– page 19

n Social – page 27.

In addition, we examined the draft Report toconfirm the consistency of the informationreported with the findings of our work.

Considerations and limitationsIt is important to read the HSE statements and graphs in the context of the explanatoryinformation and notes in the Annex and thenotes to HSE graphs and performance tables.

HSE data are subject to many more inherentlimitations than financial data given both theirnature and the methods used for determining,calculating or estimating such data.

We did not carry out any work on data re p o rt e din respect of future projections and targets.

It is also important to note that the financialdata re p o rted are not sufficient to ensure at h o rough understanding of the financial re s u l t sand the financial position of the Group.

ation

h, safety and

hat is verified

assurance

Malcolm Bailey PricewaterhouseCoopers

Alexander M. van Drunen Littel KPMG

Shell Global Lead Partners

“We are actively supporting thed e velopment of standards andguidelines governing corporate

sustainable deve l o p m e n tre p o rting to bring gre a t e rt r a n s p a rency and value to

companies and stakeholders.”

KPMG Accountants NVThe Hague

PricewaterhouseCoopersLondon

4th April 2000


WHY SUSTA I N A B L ED E V E L O P M E N T ?

6 Sustainable Development Performance

WHY SUSTAINABLE DEVELOPMENT?

We believe that sustainable development is the rightapproach – because values and principles are important tous, and it makes good business sense.

Why sustainable development?Many still question the wisdom ofstriving to integrate the principles ofsustainable development into the waywe do business, saying the ideas areeither silly or too difficult to explain.We have found just the opposite. More than three years down the road(see Road Map, page 29), we believemore than ever that this is the rightapproach because values and principlesare important to us, and it makes good business sense.

As an expression of valuesOur core values of honesty, integrity and respectfor people are at the heart of our BusinessPrinciples (see inside back cover and page 29),the basis on which we do business. In thesePrinciples we undertake to contribute tosustainable development.

Sustainable development offers a means oftackling some of society’s most pressingconcerns – extremes of poverty and wealth,population growth, abuses of human rights,environmental destruction, climate change andloss of biodiversity.

We recognise that Shell is part of society.We share the same agenda. As people we allbreathe the same air and have the same basichopes and concerns for the welfare of ourchildren and their future.

Our success as an organisation is intimatelylinked to that of society. We wish to play our part responsibly – by maintaining andenhancing natural and social capital, as well

as contributing to the global economy’s capacityto generate and distribute wealth. Sustainabledevelopment provides the best model to seethese elements together in an integrated waywhile creating business value.

As a creator of business valueOur sustainable development managementframework (SDMF), see page 31 and the figureopposite, is designed to help us achieve then e c e s s a ry integration and create the conditions for building long-t e rm value and a strong brand in line with our Business Principles and society’sexpectations. Engagement is a critical activity and driver of the SDMF. Other elements ensurethat we can derive value through four key levers:

• Reducing costs – in the short-term bybecoming more eco-efficient (doing morewith less) and in the long-term working withothers to ensure that nothing is wasted

• C reating options – anticipating new marketsdriven by people who want a more sustainableworld, and evolving business portfolios andsupply chain relationships to match

• Gaining customers – enhancing thebrand by providing services and productsbuilt on sustainability thinking to createcustomer loyalty and market share

• Reducing risk – managing risks better byunderstanding what represents responsiblebehaviour. Focusing on managing existingassets in the short-term and evolving thebusiness portfolio longer term. Achievingrecognition from financial institutions forsuccess in this area.


A B L EGUIDE TO PERFORMANCE SECTION

EconomicProfits and growthAssets and liabilitiesDividends and shareholder returnOur customers’ choiceTaxEmploymentCompetitionInvestment and divestmentWhat we spend where

EnvironmentalEmissions to airEffluentsSpills WasteFines, settlements and liabilitiesAwards

SocialSafety and healthWorking hours and wagesChild labourEqual opportunities and diversityUnions and staff forumsSecurityContribution to the community

Managing our businessStandards

HSE Commitment and PolicyPromoting our PrinciplesBusiness integrityPolitical paymentsSystems

Letters of assurance processHSE management systemsSustainable development management frameworkKey performance indicators

TargetsReporting and verificationEngagement

Key to symbols:

Information verified, see page 5

Issue

Find out more at www...

You told Shell

7Sustainable Development Performance

WHY SUSTAINABLE DEVELOPMENT?

We believe that matching these levers to thestrengths of our businesses, in ways that showcommitment and responsible performance, willenhance our reputation and in turn attract andretain talent and capital.

By these actions – which are aligned with andsupport the wider conditions required forsustainable development – we will generateshort, medium and long-term financial value, not just for shareholders but for society at large.

Enough words – show us the performanceWe know that translating our sustainabledevelopment aspirations and commitments into the way we do business will take time. That is why we developed a Road Mapshowing our plans to guide us in our actionsand for stakeholders to chart our progress (see page 29).

On the next 26 pages we present evidence ofour performance. Data are catalogued underthe three elements of sustainable development:economic, environmental and social. Ourprogress in integrating these elements into ourstandards and systems and in promotingawareness across the organisation is shown in‘Managing our Business’ (see pages 28- 33).

We indicate how each of our Business Principlesrelates to particular aspects of performance. The corresponding Principle is shown undereach heading.

In each performance section we discuss relevantissues and present case studies to illustrate some of the challenges we face – and successeswe have had – in striving to make sustainabledevelopment part of daily business.

www.shell.com/sustain

“It gives me sheer pleasureto know that there is acompany out there doingsomething to ease thelives of other people.”Philippines

You told Shell

“Some years ago, I did not liketo mention I was employed

by Shell, I knew peoplewould turn their noses up

disapprovingly. The directiontaken by the company is

therefore most encouraging.Shell employee – France ”

You told Shell


ECONOMICHIGHLIGHTS

• Strong financial performance

• Major portfolio rationalisation and upgrading achieved

• Cost improvements of US$ 2 billion ahead of schedule

• Return on average capital employed (ROACE) of 12.1%

• Oil price up, refining margins down

• Motorists rank Shell top for brand preference, brand awareness and repeat purchase

• Shell employs 96,000 staff, hundreds of thousands of contractors, and contributes to the economies of over 135 countries


E C O N O M I C

The Royal Dutch/Shell Group iscommercial in nature and its primaryresponsibility has to be economic –wealth generation, meeting customerneeds, providing an acceptable re t u rn to investors and contributing to overalleconomic development. In this sectionwe re p o rt on our economic perf o rm a n c e .

We have been reporting verified financial datain detail for many years in the Parent CompaniesAnnual Report s . w w w. s h e l l . c o m / a n n u a l re p o rt

This year, like last year, we repeat key financialdata in this report as well as reporting data inthe wider economic context.

Profits and growthPrinciple 1 ObjectivesWe had a strong perf o rmance in 1999 after ane x t remely poor 1998. Full year adjusted earn i n g s *(which exclude special items) were US$ 7,093million, an increase of 38% compared to last year.This was mainly due to higher crude oil prices andcost improvements, partly offset by the effects ofreduced refining and marketing margins.

Cost improvements in 1999 total US$ 2 billion,well ahead of schedule towards the Group’sincreased target of US$ 4 billion annually by2001 (relative to 1998 levels).

Return on average capital employed (ROACE) –how much return is made on the capital invested– is a standard measure of how well a companyuses its capital and assets. Our target is todeliver ROACE of 14% in 2001**. In 1999 we achieved a ROACE of 12.1%, shown in thegraph compared with other oil majors.

Globalisation and growthThe world’s economy is the engine that

provides the wealth needed to fund a betterquality of life for this and future generations.G rowth is essential if a fast expanding populationis to be catered for, but it should not be at theexpense of the environment or social stru c t u re sthat are an essential part of life’s quality.

The Shell Group has been growing at about 3% a year (in terms of oil and gas production andsales) and plans to continue to do so but with an

A year of real pro g ress and this is only the start. T h ro u g hthe vitality of our organisation and the creativity of ourpeople we can now realise the value in our enormousportfolio of opportunities.” Mark Moody-Stuart

Drama on the trading floor – typical of the fast pace of today’sglobal economy.

Violent protest against globalisation at the World Trade Organisation summit, Seattle, USA.

*Estimated Current Cost of Supplies (CCS) basis**Based on certain assumptions, amongst them, US$14/bar rel Brent oil price

“



E C O N O M I C

i n c reasing focus on lower carbon fuels such as gas(see pages 35, 44, 46). This means that we haveto find ways to balance the positive side of gro w t h– more tax paid to government, more jobs, gre a t e rwealth – with the potential to damage thee n v i ronment and disrupt the lives of those peoplewho might be affected by development but whodo not necessarily reap the benefits dire c t l y.

These are complex issues and we do not have allthe answers but we are determined to work withothers to find them. As a minimum, we know wehave to continue to reduce our environmentalfootprints and optimise our social contribution.

For the environment, this means that we have tobecome more efficient in the way we work and find ways to make less and less impact whileg rowing – to disconnect impact from growth. Thisinvolves such dramatic strides in efficiency that noone yet has devised a clear and practical wayf o rw a rd. We have, though, made some pro g ress, asre p o rted last year, on reducing our global warm i n gpotential – cutting emissions of carbon dioxide inabsolute terms – while continuing to gro w.

We are also improving the way that we engagewith the people affected by our activities, toensure we reduce the potential drawbacks ofdevelopment and improve the opportunities tolive a better life. This is reflected in a broadrange of actions, including an improvingunderstanding of human rights, greaterengagement with society and a social investmentp rogramme that delivers lasting value.

If we are to continue growing, we know wehave to fulfil clear social and environmentalresponsibilities and work more in co-operationwith others. Government has an important roletoo, to provide the structures and conditions thatencourage responsible growth. www.shell.com/profits

See message from the verifiers page 13

John MahedyAnalyst, Stanford Bernstein

“Financially, a year of dramatic change for theShell Group. Increased competition and

volatile margins provided the backdrop for asignificant refocusing of the Group’s strategy.

While such a transition is likely to take severalyears, evidence of improvement was seen in

operating results. The equity market respondedrewarding the stock versus its peers.”

It is only in this way that we can provide then e c e s s a ry assurances and choices demanded bythose who buy our products – the people whoultimately decide on our future.

www.shell.com/global



E C O N O M I C

Assets and liabilitiesPrinciple 1 ObjectivesCash and other readily accessible funds*were US$ 4 billion at the end of 1999, upUS$ 1.3 billion on 1998, while the totaldebt (both short and long-term) decreased by US$ 0.9 billion to US$ 12.9 billion. As a result the total debt ratio decreasedfrom 19.3% in 1998 to 18.0% in 1999.

Net assets increased by US$ 1.2 billion toUS$ 56.2 billion during the year. Fixed and other long-term assets decreased by US$ 4.0 billion to US$ 83.5 billion mainlydue to the effects of asset sales.

Dividends and shareholder returnPrinciple 2 Responsibilities to share h o l d e r sThe aim of the Parent Companies of the RoyalDutch/Shell Group of companies is to deliverdividends that increase at least in line withinflation averaged over a period of years.

Dividends for 1999 of Euro** 1.51 per sharefor Royal Dutch Petroleum Company (up 4.0%from 1998) and of 14.0p for The “Shell”Transport and Trading Company, p.l.c. (up 3.7% from 1998) have been proposed.

Both Parent Companies have announced theyare considering a multiple year share buy-backprogramme. A major hurdle under the Dutchfiscal regime seems likely to be removed whennew tax laws are implemented with effect fromJanuary 2001.

Our priority: to provide customers with a fast, friendly,hassle-free service by a ‘one-stop shop’.

The Easypay electronic payment system in The Netherlands. Customerspay with a special micro-chip key-ring, which offers the

convenience and speed of paying at the pump.

www.shell.com/intilaaqahWith the help of the Intilaaqah programme, 19-year old

Wafaa started her own beauty salon in Sur, Oman.

Triple A credit rating

CASESTUDYA corporate credit rating reflects the currentopinion of independent credit analysts of thecompany’s overall creditworthiness. Ratingsa re one of the tools that investors use to makes u re that their investment decisions are in linewith the risk they want to be exposed to.

L o n g - t e rm credit ratings under Standard &P o or’s definitions vary from AAA, for financiallye x t remely strong companies, to D for companiesthat are highly vulnerable or even in default oftheir obligations. The Shell Group of Companiesis one of the few commercial organisations inthe world with an AAA credit rating.**Standard & Poor’s Corporate ratings, September13th 1999, showed 16 companies having a AAAcredit rating.



Shell in sustainability index The Royal Dutch/Shell Group of companieshas been included in the Dow JonesSustainability Group Indices with an overallranking above the industry average.

www.indexes.dowjones.com/djsgi

*Cash equivalents and short-term securities**1 Euro is equivalent to US$ 0.95 (as on 30.03.2000)



ECONOMIC

Our customers’ choicePrinciple 2 Responsibilities to customersShell serves over 20 million customers a day in anetwork of over 45,000 retail stations. Customerscome to Shell – the largest branded retail networkin the world – to satisfy more than just their fuelneeds. We are one of the world‘s largest retailers of LEGO™ toys and convenience goods.

Shell is also one of the biggest marketers of liquefiedp e t roleum gas (LPG), with a global customer base ofm o re than 40 million. In many developing countries,c l e a n - b u rning Shell LPG is replacing enviro n m e n t a l l ydamaging alternatives such as wood or dried dung.

We serve major industrial customers as well:every four seconds, on average, an aircraft isrefuelled with premium Shell aviation productsat one of 650 airports worldwide.

In 1999, 20,000 private motorists in 52countries were asked in our global BrandTracker survey which brand they would choose– all factors being equal. For the third yearrunning, Shell was ranked number one globallyfor brand preference, brand awareness andrepeat purchase – a convincing indication thatwe are meeting our customers‘ needs.

TaxPrinciple 2 Responsibilities to societyWe have a responsibility to our shareholdersto decrease our tax burden and have madegood progress in 1999 in doing so.Nevertheless we make a substantialcontribution to society. In 1999, the taxrevenue generated by Shell companies was more than US$ 50 billion (more thanUS$ 46 billion in 1998). Over US$ 44 billionwas sales taxes, excise duties and similarlevies, the remainder was corporation tax.

To put this in context the United NationsDevelopment Programme (UNDP) Report onHuman Development 1999 reports that the totalexternal debt of the 41 heavily indebted poorcountries in 1996 was US$ 245 billion.

LiveWIRE

CASESTUDYShell LiveWIRE is an investment initiative thathelps young people interested in starting theirown business. LiveWIRE is now operating ineight countries and last year advised over30,000 young entre p reneurs.

Entrepreneurial spirit and a thriving smallbusiness sector are key ingredients of amixed and healthy economy and ani m p o rtant component of continuing economicdevelopment. LiveWIRE encourages youngpeople to develop their ideas into practicalbusiness plans. It also helps them to see whatskills and re s o u rces they need and givesrecognition to those who have succeeded.

Shell LiveWIRE provides core information in English, Dutch, Hungarian, Arabic andSpanish and the programme is adapted toeach country where it operates.

Examples of young entrepreneurs whobenefited from Shell LiveWIRE’s activities lastyear are:

• a company in Tasmania designing andproducing internet and multimediainterfaces which has created a niche foritself in providing training-focused ITdevelopments across Australia

• a luxury knitwear designer and producerin Ireland which sells to both the domesticand overseas markets

• a company in Eindhoven which organisesand plans tailor-made tours for theadventurous, independent Dutch travellerto remote destinations around the world

• an Oman-based business which pro d u c e sand sells ice-cream, confectionery andjuices to the local market.

www.shell.com/LiveWIRE

www.shell.com/casefor more case studies

Lucy Downes, a client of the new LiveWIRE Irelandp rogramme, is a luxury knitwear designer who benefitedfrom LiveWIRE’s Business Growth Challenge course.

“One of the difficult thingsabout stepping out from

behind the curtains is thatyou are now in the spotlight!

I will be watching.South Africa

”

You told Shell


investment and divestment. In 100 of these,decisions also take the full life cycle intoaccount. Find more details of our progress inembedding sustainable development thinkinginto our business decision-making on page 31.

Shell and IranShell has re-started its exploration and

production activities in Iran. In November 1999Shell Exploration signed an agreement with theNational Iranian Oil Company to redevelop theSoroosh and Nowrooz oil fields.

A shift in the international environment hasencouraged foreign oil companies to return toIran as the government there seeks to rebuildrelationships with the outside world.

Iran’s oil reserves are among the top five in theworld and its natural gas reserves are secondonly to Russia’s. But the years of relativeeconomic isolation since the Islamic Revolutionof 1979 have meant that the country has notfully realised the economic and social potentialof its substantial natural resources.

Shell welcomes the opening up of Iran tointernational companies and the fostering of closer relations with the internationalcommunity. We support the emphasis onincreased dialogue and engagement with Iran and believe that commercial relations canhelp encourage rapprochement between Iranand other countries.

As it does in any other country, Shell observes its Business Principles in Iran (see inside backcover). Prior to the signing of the Soroosh andNowrooz agreement, Shell kept interestedgroups informed about its plans.

www.shell.com/sensitive


E C O N O M I C

EmploymentPrinciple 2 Responsibilities to societyShell companies employ 96,000 people (year- e n dfigure), engage hundreds of thousands ofcontractors and have an interest in operations in over 135 countries. In any one country thenumber of people employed by Shell variesbetween two and 11,000 staff. Some 98% of staff are employed in 80 countries spreadaround every region in the world.

CompetitionPrinciple 8 CompetitionIn line with Principle 8 of our Business Principles,Shell companies seek to compete fairly andethically within the framework of applicablecompetition laws. In 1999, two competitioncases (nine cases in 1998) were completedagainst Shell companies.

In one case a Shell company was found to be inb reach of commerce laws in that country for thewithdrawal of a car wash promotion at a numberof service stations in 1996.

The ruling in the other case was in favour of theShell company.

In 1999 Shell Chemicals lost its appeals in theE u ropean Court relating to the imposition of finesby the European Commission for infringements ofE u ropean Competition Law in the polypro p y l e n eand PVC businesses in the 1980s. The finesimposed (including interest) were Euro* 18 millionand Euro 1 million re s p e c t i v e l y.

Investment and divestmentPrinciple 3 Economic principlesCapital investment plans for the next five yearshave been cut by a third but still represent amajor investment in the future.

Shell Companies invested a total of US$ 9.5billion in 1999 (through capital expenditure,exploration expense and new investments inassociated companies), a reduction of nearly40% compared with 1998.

Significant investment decisions includedprojects in Nigeria (offshore development andfurther investment in LNG), Iran, Malaysia (LNGinvestment and new licences) and Brazil(deepwater licences and an additional 5%interest in Comgas, the largest gas distributioncompany in Brazil).

Shell companies expended US$ 451 million in research and development excludingdepreciation in 1999 (US$ 713 million in1998). The underlying expenditure was US$

443 million (US$ 601 million in 1998) with US$ 8million (US$ 112 million in 1998) of special costs.

Discipline in allocation of capital remains a key focus – ensuring funds only go where theprospect of sustainable performance justifies theinvestment. Shell companies in 104 countriesoperate a procedure to incorporate social andenvironmental considerations into major project

“The over-riding imperative of the corporation today is profitmaximisation – don’t tell memaximum profitability and respectfor the external world are compatible– it just simply isn’t true!”Unknown

You told Shell

*1 Euro is equivalent to US$ 0.95 (as on 30.03.2000)

“The observance of a goodcorporate moral code is the soul

of the company and its life for survival in future. A good

corporate image is better thangold and silver.

Nigeria

You told Shell

”



ECONOMIC

Message from the verifiersWe reviewed the financial data marked with the coloured symbol to confirm they havebeen properly derived from the full FinancialStatements of the Royal Dutch/Shell Group of Companies for each of the ten years ended31 December 1999 on which we issuedunqualified audit opinions.

Our opinion on this financial data is on page 5of The Shell Report.

Minority sourcing

CASESTUDYShell Oil of the USA has a target to spend10% of its expenditure* with supplyingcompanies owned by women or peoplefrom ethnic minorities. The company alsoasks its main suppliers to adopt a similarprogramme and to commit to use suchsuppliers on Shell projects.

Shell Oil’s minority programme started inthe early 1970s, prompted by legislationencouraging affirmative action ingovernment subcontracting. The women’sprogramme started in the early 1980s.Besides the legal obligations, Shell Oil’s commitment in this area is based on its broader social and economicresponsibilities.

Excluding qualified suppliers increases Shell Oil’s costs. But it feels that doingbusiness with minority- and women-ownedbusinesses has overall benefits for societyand improves relations with existing andpotential consumers of Shell products.


*Excluding raw materials such as crude oil

“In order to survive thecompany must make profits

but to sustain its profit-makingactivities it has to benefit the

community in which itoperates. South Africa

”

You told Shell

“Shell is purely a ‘just talk’company. I have never seen anyconcrete evidence. I would likeyou to contact me and prove thatyou are more than just talk.”Unknown

You told Shell

What we spend wherePrinciple 2 Responsibilities to societyGlobal procurement and effectively utilisingtechnology such as e-commerce can, and does, save substantial costs, much of it byprocuring capital items, raw materials andproducts for re-sale globally instead of in every country.

For other goods and contractor services, Shell companies make a substantial contributionto the social and material progress of the local

community through their use of local contractorsand suppliers. In 54 countries Shell companieshave a policy to promote the use of localcontractors and suppliers. In 103 countries(74% of the total number of countries), Shell companies spend more than 50% of the total spend on goods and services inside the country, using local contractors andsuppliers. Shell companies in only 13 countriesspent less than 25% of the total spend on goods and services inside the country in which they operate.


ENVIRONMENT


ENVIRONMENTAL

We have been re p o rting annually on oure n v i ronmental perf o rmance in a separatepublication for three years, with the dataindependently verified for the past two.This year we include most of thatinformation in this publication.

The following five pages show ourperformance against the mainenvironmental parameters.

How we organise dataPrinciple 6 Health, safety and enviro n m e n tWe group our environmental performance datainto the main categories: emissions to air,discharges to water (effluents), spills and waste.The graphs throughout this section contain the relevant information and are mostly self-explanatory. Where this is not so, such astargets not met or movement against the trend,we provide an explanation in the text under theappropriate heading. The table on page 48shows activity levels in our main businesses andthe denominators used for the graphs on energyconsumption and unit emissions, where trendsare affected by the amount of business we do.

The Annex on pages 48 and 49 summarises the HSE data and tells you about some of thelimitations on their reliability. On our website

www.shell.com/planet, the data arebroken down into the contribution of individualbusinesses. In addition, some of the information

reported in last year’s Group HSE Report(refinery energy index, chemical oxygendemand, priority substances, EP spills andcertification) can also be found at

www.shell.com/planet

Emissions to airWe discuss first our emissions that relate to globalclimate change, one of the most challengingissues facing the world. This is followed by dataon other emissions to air.

Greenhouse gas (GHG) emissions Emissions of carbon dioxide (CO2), the principalGHG, declined by 2.1 million tonnes in 1999,mainly due to reduced re f i n e ry activity andreduced flaring and venting in our upstre a mbusiness. The average level of emission per unitof production was higher in our re f i n e r i e s ,reflecting a relative increase in the use of moree n e rgy-intensive upgrading facilities which are

Reducing emissions to air, water and land is critical to ourcontribution to sustainable development. We set ourselve stough improvement targets and projections for the Gro u pand we re successful in achieving all but the one for spills.

Buenos Aires refinery – where significant reduction in the oildischarged to water has been achieved by investment in effluenttreatment facilities.

HIGHLIGHTS

• All Group-level improvement targets and projections met except for spills

• Greenhouse gas emissions down more than 10% below 1990 levels

At Shell’s solar service stations in Germany drivers of electricvehicles will be able to charge them with solar electricity.

Exploration and Production (EP) Oil Products and Downstream Gas and Power (OP + GP)



ENVIRONMENTAL

re q u i red to produce higher specification pro d u c t s .Reduced activity levels, improved energ ye fficiency and greater use of energ y - i n t e n s i v ep rocesses are also the main factors govern i n gchanges in our energy consumption. In additionto these figures, our forests sequestered anestimated 700,000 tonnes of CO2.

Much of the CO2 emission in the upstreambusiness is a result of flaring – burning offunwanted gas produced as a by-product of oil production for safety reasons or becausethere is no market. Because this is a waste ofenergy and contributes to GHG emissions, it is important that flare volumes are reduced.

Flaring was 11% below the 1998 level andahead of our projection, mainly as a result ofreduced oil production in Nigeria. With the startup of the Nigeria LNG plant during 1999,further reduction in gas flaring can be expected.

Methane (CH4) emissions were 13% down in1999, mainly as a result of reduced flaring andventing in the upstream business. Historically wehave re p o rted methane together with volatileo rganic compounds (VOCs), and emissions of bothhave declined in line with our projections for 1999.

We also report for the first time emissions of the other gases covered by the Kyoto Protocol(see Annex, page 49), although their contributionis negligible.

Because some GHGs contribute relatively more to global warming than others, we also pre s e n tour emissions in terms of their Global Wa rm i n gPotential, an indicator which expresses them as a CO2 equivalent. In this way, we provide aconsistent picture of our impact. The overall level,which is 3% down on 1998, is ahead of ourp rojection for 1999 and ahead of our 2002 targ e t .The figure includes all six Kyoto gases.

Ozone depleting substancesThe production of substances that deplete ozonein the upper atmosphere is being phased outunder the Montreal Protocol. All businesses haveplans to phase out their remaining inventories.While inventories remain on site, small losseswill inevitably result from maintenance andtesting of appliances to ensure they are fit forservice. Such losses were 11.8 tonnes in 1999compared to 11.1 tonnes in 1998.

*Data not verified in 1999See message from the verifiers page 19

“I would like to be a member of an environmental pressure group...but I think I am already, bybeing a member of the public.”Shell employee UK – forum posting

You told Shell

Climate change – one of the most urgent and challenging issues facing the world. Shell has adopted the precautionary principle

on greenhouse gas emissions.


• established that more than 24 greenhousegas mitigation technologies are beingpursued by Shell

• continued to work with partners, such as theWBCSD, the World Resources Institute, the PewC e n t e r, the Massachusetts Institute of Te c h n o l o g yand the International Energy A g e n c y, to fosterdialogue and understanding on climate change

• continued to develop cleaner fuels to helpcustomers reduce their emissions.

www.shell.com/climate

Product impact – automotive fuels

By enabling mobility, our automotive fuels pro v i d ean important benefit to society. However, we knowthat their use results in vehicle emissions. The levelof those emissions depends heavily on factorsoutside our control, such as engine design,maintenance levels and the driving habits ofindividual motorists.

However, as part of our product stewardshipresponsibilities we are acting in a number ofways to reduce impacts.

We work with vehicle manufacturers tounderstand how changes in fuels specificationcan enable improvements in vehicle technologywhich reduce emissions. The introduction of lead-f ree petrol, for example, allowed the intro d u c t i o nof catalytic convertors which, in turn, haveresulted in a major decrease in ground levelsmog. Lower sulphur fuels are making possiblefar more energ y-e fficient engines.

We are also active in the collaborative pro g r a m m ein Europe, known as ‘Auto-Oil’, between theEuropean Union and the oil and automotiveindustries, which aims, via new fuels specificationsand engine designs, to meet governments’ airquality targets at the lowest economic cost.


ENVIRONMENTAL

• set up an internal emissions trading systemcovering over 30% of the Group’s total CO2

and CH4 emissions. Starting in January 2000the pilot will run for at least three years

www.shell.com/steps

• identified eight potential clean developmentmechanism projects. These are projects thatcould deliver benefits in the developingworld, and could, under the Kyoto Protocol,help offset emissions in the developed world.Case studies of the projects are described onthe website of the World Business Councilfor Sustainable Development (WBCSD)Foundation, and have been published toencourage dialogue

www.foundation.no

P ro g ress on climate changeClimate change is one of the most

c o n t roversial and pressing environmental issueswe face. We remain committed to take action andwe have made good pro g ress over the past year.We have:

• further reduced our greenhouse gas emissionsfrom our own operations (see page 14),ahead of our target to reduce these by 10%below our 1990 levels, by 2002. This isdouble the Kyoto target for emissions reductionand well ahead of the Kyoto schedule*

• started to include the effect of a possiblecarbon cost in our investment decisions fornew projects that could produce emissionsover 100,000 tonnes a year of CO2

Athabasca oil sands project

CASESTUDYShell Canada and its joint venturers are to mineover a billion barrels of oil from sands innorthern Alberta and convert it to transport fuelfor sale in North America. At first glance, this may appear to be a surprisingp roject for Shell to do. Oil sands had a re p u t a t i o nfor being a high-cost and environmentallyunfriendly source of energy. But, with newt e c h n o l o g y, costs and impacts on the enviro n m e n thave dropped dramatically, to the point wherewe are now able to do this project in line with our sustainable development commitments.

Our approach to the project, which is supportedby the local community, takes an integrated viewof the economic, environmental and social needs.This includes:• widespread consultation with the local

community as well as interested parties inCanada, Europe and the US

• commitment to environmental best practice,including energ y - e fficient extraction, pro g re s s i v erehabilitation of mined land and a closed loopsystem for re-using water

• reducing full-cycle greenhouse gas emissionsto the same level as the main alternative –imported crude oil. This requires a 40%reduction in the project’s direct emissions. A supporting programme using offsets andproject-based reductions is being developed

• reducing North American dependence onimported oil

• generating more than US$ 3 billion in ro y a l t i e sand taxes over 25 years

• creating 1,000 permanent jobs.

The project – scheduled to start production in2002 – involves the removal of oil and sandfrom just below the surface, using mechanicalshovels and trucks. This material is mixed withwarm (30oC to 40oC) water and agitated toseparate out the oil.

The sand will be used to refill the mining pits.The oil will be sent through an undergroundpipeline to Shell’s Scotford refinery nearEdmonton, for processing mainly into very lowsulphur, light synthetic crude. This will primarilybe used to make very low sulphur, low aromatictransport fuels.

New techniques have reduced the costs andenvironmental impacts of mining oil sands. The project combines these gains withimprovements at the Scotford refiner y, includingnew environmental design features andstakeholder consultation.

Shell is looking to set up an independent panel made up of representatives of localcommunities and environmental organisations to help to ensure that Shell meets its sustainabledevelopment commitments on this project.External auditors will play a part in checkingthat Shell fulfils the promises made to the panel.


*Under the Kyoto Protocol, industrialised countries have agreed toreduce their greenhouse gas emissions by at least 5% on average

relative to 1990 levels, by the years 2008 to 2012

Eileen ClaussenPresident, Pew Center on Global Climate Change

“One of the greatest challenges of the 21st century isaddressing climate change while sustaining a growing

global economy. With the world’s leaders still grapplingwith exactly how to forge an effective international

response to this issue, it is refreshing to see leadershipcoming from the business community, where many

progressive companies already acknowledge the need toreduce emissions, and are working to do so.”

“Shell’s action over the Kyotoagreement is both prudentand politic, but it casts asidevarious scientific argumentsthat the theory of globalwarming is flawed.”Unknown

You told Shell



ENVIRONMENTAL

Nitrogen oxides and sulphur dioxideNitrogen oxides (NOx) and sulphur dioxide(SO2) are emitted when fuel is burnt in ouroperations and can contribute to local airpollution and acid deposition.

The reduction in the absolute level of nitro g e noxides was 11% lower than our 1999 pro j e c t i o n .The principal reduction occurred in the upstre a mbusiness where emissions were 14,700 tonneslower than in 1998 due to lower flaring ande n e rgy consumption. Unit emissions were bro a d l yon target. The installation of low NOx burners atthe Norco plant in the United States contributedto the NOx reduction in the Chemicals business.

Reductions in SO2 emissions were in line withthe reduced refinery throughput.

We are making cleaner fuels such as low-sulphurdiesel or liquefied petroleum gas (LPG) availablein many more locations.

Through our CHOICE marketing programme,we are making available a range of uniquefuels such as the Shell Pura™ petrol now on salein Ireland and Holland or the Shell Optimax™petrol, launched during 1999 in Australia. Each results, amongst other things, in cleanerengines and reduced emissions and has beendeveloped following extensive consumerresearch into motorists’ willingness to pay forthe extra production costs.

For the longer term, we are working with otherson studying practical, clean alternatives toconventional fuels and vehicles (see page 41).

Sustainable energy programme

CASESTUDYThe Sustainable Energy Programme, a Shellgrant-giving initiative to promote sustainableenergy solutions, has approved funding for19 projects in more than 15 countriesspread across four continents. The initiative– part of the Shell Group’s broader socialinvestment programme – funds projects that:

• reduce the environmental impact ofcontinued fossil fuel use

• increase the access of poor communitiesin developing countries to modern formsof energy.

Examples of approved projects include:

• assisting poor families living in natur ere s e rves in the Chinese province of Yu n n a nto use ‘bio-gas’ and natural fertilisergenerated from pig waste. This reduces theirdependence on firewood for cooking andenables them to grow and sell gre e n h o u s evegetables in winter. In addition, their use of bio-gas will mean they no longer collectwood from local forests (up to 1.5 tonnesa year), which will help protect the habitatof the endangered Golden Monkey

• s u p p o rt for a major programme led by theWorld Bank that will significantly improve airquality and people’s health in South America’sfive biggest cities: Buenos Aires, Lima,Mexico City, Rio de Janeiro and Santiago

• help for small-scale coconut farmers in thePhilippines to produce energy from coconuthusks. The energy will be used to pro v i d eheating and lighting for their homes as wellas powering a new mill to extract oil fromraw coconuts. Instead of selling wholecoconuts they will be able to earn muchhigher incomes from coconut oil and getfree domestic energy in the process

• funding the design and set up of a newwebsite to provide practical informationto help individuals, families and groupsto reduce their use of fossil fuels and theassociated emissions of GHGs.

Among its future interests, the programmewill examine links between the use ofbiomass in domestic cooking and the healthof poor women and children particularly,in Asia and Africa; and the promotion ofsustainable transport solutions in cities.

www.shell.com/alternative

“Your products have made asignificant contribution to the

destruction of the environment on a global scale, you shrug it

off with excuses like ‘it’s not our responsibility what our

customers do with our product’. Germany

”

You told Shell

Exploration and Production (EP) Oil Products and Downstream Gas and Power (OP + GP)



Cleaning up in Alice Springs

CASESTUDYIn May 1997, Shell Australia detectedhydrocarbon fumes in a stormwater drain at theboundary of its fuel depot in Alice Springs.

The company told the authorities immediately andan investigation began. By July studies showed thatpetroleum products had penetrated groundwaterbelow the depot and infiltrated the stormwaternetwork through joins in the stormwater pipes.The source was a leak from one of the tanks.

The authorities were told that a plan was beingprepared to minimise public health and safetyrisks, and impact on the environment. Reports onthe extent of contamination were presented tothem in October and later in January, 1998.

A surface area of some 30,000 square metres of

g roundwater was affected and remedial workhas since been focused on reclaiming as much ofthe fuel as possible, and breaking down the re s t .F o rtunately the land affected is not used fora g r i c u l t u re and water is not extracted there. Thecontamination is below the depth of plant roots.

Shell Australia was prosecuted for breaking theWater Act. The magistrate criticised the system forchecking and reconciling storage tank volumes, butalso noted that the company ‘was its own whistleblower’, had co-operated with the authorities andhad instituted remedial plans. Shell Australiapleaded guilty and was fined Aus$ 75,000*.

www.shell.com/legacies*One Aus$ is equivalent to US$ 1.5 (as on 30.03.2000)


ENVIRONMENTAL

Effluents The main discharges to water from our operationsare oil in the water that accompanies oilp roduction (production water) and oil in eff l u e n t sf rom refineries*. We re p o rt these together as oil ine ffluents to surface environment. We have re d u c e dthe oil content in such discharges by over 37%c o m p a red to 1998, with notable impro v e m e n t sin treatment facilities at the Buenos Aires re f i n e ry.Between 1998 and 1999, the concentration of oil in production water dropped from 19 to16 milligrams/litre (mg/l) in 1999, whilst oil ine ffluents from refineries was reduced from 7.9 to 4.6 mg/l. The 2003 projection reflects thecontinuing increase in surface water discharges inour upstream business as oil and gas fields mature .

SpillsWe re p o rt, as a single figure, spills of crude oil, oilp roducts and chemicals, caused by equipment failure(including corrosion), human erro r, acts of sabotageand natural events, such as storms and floods. Our performance in 1999 was disappointing,

with an increase in the volume of spills asc o m p a red to 1998. The main incident was a spillof 4269 tonnes of light crude oil when anothervessel lost propulsion and steering and collided withone of our ships in the River Plate in Argentina. Not included is the spill incident at Ekakpamre ,Nigeria caused by sabotage. Work is continuing to obtain an accurate and re p o rtable figure .

WasteWaste includes material from industrial operationsfor which there was no economic demand andwas consequently disposed of, either to landfill or by incineration. It excludes domestic, officeconstruction waste and contaminated soil. This isthe second year that we report separate figuresfor hazardous and non-hazardous waste. Theamounts reported in 1999 are broadly similarto the year before, although Chemicals reporteda doubling of hazardous waste, largely due toinclusion of material from a demolished furnace.

Fines, settlements and liabilities Shell companies paid a total of US$ 2.83million in 1999. Not included is the levy wepay in Nigeria for flaring associated gas,amounting to US$ 6 million.

The number of fines and settlements each year(306 in 1999) has remained broadly constant, but the total amount paid has increased over thelast two years. The principal amount in 1999related to a settlement following soil contaminationadjacent to a UK facility. Chemicals have changedtheir re p o rting re q u i rements to include Wo r k m a n ’sCompensation awards in the United States.

*Discharges from chemicals manufacture, measured as chemicaloxygen demand and priority substances, are reported by our

Chemicals business at www.shell.com/planet

w w w. s i . e d u / s i m a bThe cover of ‘Working for Biodiversity ’ – a guide pre p a red

by Smithsonian Institution scientists using experiences gained on theCamisea project as a re s o u rce for learning more about biodiversity.

www.shell.com Shell’s open and pro-active approach to a spill of crude oil in Gore Bay, near Sydney harbour, won it widespread public support

even though a third-party shipping company later admitted liability for the spill.



ENVIRONMENTAL

At the end of 1999 the total liabilities being carr i e dfor environmental clean-up were US$ 505 million(US$ 513 million in 1998), while releases ofp rovisions in 1999 amounted to US$ 10 million.

BiodiversityPreserving the richness and diversity of

biological life (biodiversity) is expected bysociety, established in international law andintegral to our commitment to contribute tosustainable development.

Shell has been involved in a number of majorconservation projects, such as the US$ 5 millionalliance with the National Fish and WildlifeFoundation in the Gulf of Mexico, and our workwith the Smithsonian Institution in the Camisearegion of Peru, see below.

Increasingly our upstream activities are takingplace in sensitive environments. We set highstandards for the Camisea project in Peru, w h e re we worked together with the SmithsonianInstitution to establish a biodiversity baseline andapply the knowledge gained in decision-making.The challenge is to apply appropriate standard ssystematically across our global operations.

To understand the issue better, we held a

Smithsonian and Camisea

CASESTUDYFindings of the Washington-based SmithsonianInstitution in the Camisea region of Peru, whereShell Prospecting and Development Peru (SPDP)was recently exploring for natural gas, helped in the design of equipment and practices thatreduced environmental impact.

Data collected by the Institution demonstratedthat there was minimal impact beyond theboundaries of the four SPDP sites. Shell and itsco-venturers withdrew from the Camisea LicenceAgreement after being unable to commit to theproduction phase of the project.

The partnership between the Institution and SPDPdemonstrated the value of such collaboration forthe environment, local people and science. TheInstitution organised two international scientificworkshops in Washington and Lima to review

and standardise the assessment and monitoringprotocols for their biodiversity studies in Peru.

The protocols were then implemented at thePagoreni well site during a training programmefor young biologists. Fifty-five international andPeruvian biologists took part in the trainingprogramme and assessment of the well site – 24came from seven Peruvian organisations. Manywent on to work on a subsequent assessment ofthe proposed route for a gas pipeline.

During SPDP’s withdrawal from the Camisearegion, the Institution returned to the four wellsites to collect seasonal biodiversity data for a report on each location. The data showsclearly that the area has an extraordinarydiverse biological life and an abundance ofanimal species.

www.shell.com/treetopsBotanists tree walking on top of Gabon’s Mokandé rainfore s t ,

suspended from the world’s largest motorised balloon. Shell supported thep roject, run by Pro-Natura, an organisation working to find sustainable

ways to manage the forests and deliver benefits to local people (page 3 9 ) .

“It is great to see an oilcompany step up to the

plate and engage in thesekinds of discussions and

issues. Let’s pray more oilcompanies will follow.

USA”

You told Shell

“Every facet of the industry fromexploration to consumption is at odds with environmentalconservation. Is that fact lost toyou people? I think not.”Australia

You told Shell

workshop in 1999 with members of the world’s leading conservation organisations.Their suggestions included:

• articulate a consistent Group position onbiodiversity

• operate responsibly. We will revise ourenvironmental assessment process to take intoaccount more specifically potential impactson biodiversity. Dialogue is an essentialcomponent of the assessment process and we will identify and engage key stakeholdersas we develop new business opportunities in sensitive environments. Similar processeswill be needed for ventures that we areinvolved in but where we are not the operator(see page 45)

• work with others to make a positivecontribution towards conserving biodiversity.We are in discussion with leadingconservation organisations

• raise awareness about the issue with employees.A booklet on biodiversity, prepared by theSmithsonian Institution, has been distributedto all senior managers.

www.shell.com/biodiversity

AwardsA total of 105 external awards were received in1999 – four in Exploration and Production, 31 i nOil Products and Downstream Gas and Power,69 in Chemicals and one in Coal.

Message from the verifiersWe assessed the HSE data parameters markedwith the coloured symbol in the enviro n m e n t a land social sections by:

• obtaining an understanding of the system usedto produce perf o rmance data at a Gro u p ,business unit and operating unit level

• reviewing the operation of the system used to gather and re p o rt perf o rmance data at aG roup, business unit and operating unit level

• assessing the completeness and accuracy ofthe performance data reported

• visiting operating units that are significantcontributors to the Group perf o rmance data(including 16 operating units in 13 countries)and sample testing their perf o rmance data toassess their re l i a b i l i t y.

Our opinion on the data parameters is on page 5of The Shell Report .


SOCIAL


S O C I A L

Apart from safety data, we have beencollecting health and social p e rf o rm a n c edata for only two years. Confidence inthe data is growing as we learn fro mexperience. Systems are still beingdeveloped and verification is in itsi n f a n c y. Where applicable we re p o rtagainst targets and legal re q u i re m e n t s .The following seven pages show ourperformance against our BusinessPrinciples and societal expectations.

SafetyPrinciple 6 Health, safety and the environmentWe deeply re g ret that 44 contractors and thre eShell employees lost their lives in work-re l a t e dincidents, with road accidents still remaining theprincipal cause. Whilst this is some 25% fewerthan 1998, and one of the lowest totals in re c e n tyears, our target remains zero – all fatalities areunacceptable. Each one that occurs is the subjectof a detailed review involving the Chief Executiveof the business concern e d .

As well as a reduction in fatalities, we arepleased to report a general improvement insafety performance for 1999.

We strive to be responsible members of society andcontribute to the we l f a re of our staff and the communitiesin which we operate. We support fundamental humanrights and continue our battle to improve safety.

www.shell.com/nohandicapA deaf attendant serves customers at the Shell-supplied

‘FuelStop’ in Durban, South Africa. Owned by the Natal Blindand Deaf Society, it is probably the first in the world where themajority of staff are deaf.

Despite driving greater distances, the number of fatal roadaccidents involving vehicles owned by Shell or our contractorsdropped by 37% between 1997 and 1999.

Firefighting – a critical part of Shell’s health and safety training programme.

HIGHLIGHTS

• Best ever safety perf o rmance – encouraging reduction in fatal accidents

• Number of women in senior executive positions up 18%

• Survey shows 75% of Shell people are proud to work for Shell

• Group security guidelines on the use of force conform to UN standards

• Nigeria remains a challenge

• Shell companies contributed US$ 93 million in social investment

www.shell.com/people




SOCIAL

Road safety

CASESTUDYDespite the greater distances driven, the number of fatal road accidents involving vehicles ownedby Shell or our contractors dropped by 37%between 1997 and 1999. The number of Shelland contractor staff killed in these accidents hasfallen from 41 in 1997 to 26 in 1999. Particularsuccess has been achieved in Brazil, Malaysia,Oman, Pakistan and Syria.

This encouraging reduction shows the benefit of introducing structured management systemsdesigned to help stop accidents from happeningby systematically identifying hazards and takingpreventative action.

Examples of such action include:

• refresher training courses

• better journey management (avoidingdangerous locations and times of the day)

• establishing driver rest facilities at key locations

• more audits at regular intervals

• wider use of tachographs to monitor driverhabits and time spent driving.

Implementing the systems has been madepossible by the support of Shell staff, contractorsand, most importantly, the drivers.

In many developing countries, road conditionsare poor and general driving standards, safetyawareness and self-discipline are low. Drivershave often learned to behave aggressively onthe road and some act in a fatalistic way.Encouraging them to think what could happenand drive defensively is not always easy.

We have developed initiatives to encouragedrivers to change their way of thinking. Theserange from the use of recognition programmes,which reward good driver performance, toawareness programmes appealing to religiousor family values.

Our goal remains no harm to people and any accident is unacceptable. With structuredmanagement systems in place, the way forwardis through visible management commitment anda pro-active approach.


Total recordable case frequency (TRCF), which is a broad-based measure of accidents andincidents and includes both employees andcontractors, improved by 16% to 3.7 cases permillion man-hours. Although not quite achievingthe target of 3.6 that we set ourselves, this is the best performance ever achieved by theGroup, and reflects improvement across all thebusinesses. The majority of incidents reportedare minor, resulting from slips, trips and falls.

We believe that this improvement in our safetyperformance can be ascribed to consistentcommitment and attention at all levels and to theimplementation of focused programmes, whichhave proved especially effective in reducingfatal road accidents (see case study).

HSE management systems, if applied properly,are valuable tools to ensure a rigorous andsystematic approach to HSE risk managementand are reported to be in place in over 95% of Shell-operated companies. Effectiveimplementation of these systems, and ensuringthat we all do what they require of us, are key to further performance improvement.

We have set ourselves the target to reduce ourTRCF by a further 40% to 2.2 in 2003. Ourfocus will be on high risk operations, as well asimplementing pro-active measures that drive goodsafety behaviour through all parts of our operations.

We have for some time been benchmarking ourTRCF data for company employees against leadingintegrated oil companies (see graph opposite).

HealthPrinciple 6 Health, safety and the environmentT h e re is no generally accepted way of measuringhealth perf o rmance. We monitor the occupational

illnesses suff e red by Shell employees using totalre p o rtable occupational illness frequency (TROIF)as our prime indicator. Data were reported forthe first time in 1998. In 1999, the number ofcompanies reporting data has increased and the quality of the data has improved, but thisindicator is still immature. The data show a slightreduction in perf o rmance compared to 1998. We are still not confident enough in the consistencyof re p o rting to set a firm perf o rmance impro v e m e n ttarget for 2000.

Stress and repetitive strain injury (RSI) havebeen identified as two high occupational healthrisks. It is difficult to generalise on the causes ofstress but we plan, during this year, to apply amore structured overall approach to determiningthe nature and severity of the issue in ourbusinesses. Enhanced guidelines and tools formanaging the main potential risks posed by RSI will also be introduced.

Timothy H.SmithExecutive Director

Interfaith Center on Corporate Responsibility

“Today many consumers and inve s t o r sdemand that global corporations

demonstrate excellence in social ande n v i ronmental performance. Fro m

human rights to paying a living wage toclimate change we expect business tocontribute to the ‘social bottom line’. ”

Ship recyclingWhen ships reach the end of their

working lives, in the absence of a suitablealternative use, they are sold for recycling. This takes place mainly at sites in Bangladesh,China, India and Pakistan and involves vesselsof all types. Concerns have been raised about labour conditions and safety andenvironmental standards at breakers’ yards in those countries.

Shell teams have conducted on-site visits to allthese countries to better understand the situationand to provide a framework for responsiblesolutions. These would include pre-selectingacceptable recycling sites, reducing on boardinventories of hazardous substances including fuel, enhanced pre-arrival tank preparation and the training of local work forces in theremoval and disposal of hazardous material such as asbestos.



SOCIAL

Although traditionally referred to as ship‘scrapping’ in reality nearly every part of aship’s structure and almost all individualcomponents are recycled or re-used in someway as part of nationally important industries.Ship recycling, in addition to conserving bothraw materials and energy, also provides much-needed employment and economic benefits forthe countries in which the activity takes place.

The First Global Summit on Ship Recycling held in Amsterdam in June 1999, at which the International Chamber of Shipping (ICS)presented a keynote paper, represented asignificant watershed with the recognition that the problem was a global one requiringglobal solutions. Shell is participating in aninternational working group, convened prior to the Summit, aimed at improving standards. The working group, under the auspices of theICS, has consulted informally with stakeholders,including those in the shipping industry,companies in the countries where recycling takesplace and non-governmental organisations. The object is to:

• establish a Code of Practice for the safe andenvironmentally acceptable preparation ofships for recycling

• develop standardised and verifiableinventories of hazardous materials on ships

• promote safe and environmentally soundworking practices at recycling sites

• encourage ship builders to construct shipsthat will be easier to recycle – the so-called‘maker to breaker’ concept.

Work and family are an integral part of Shell New Zealand’s visionand values. Anske Janssen pictured in her office with her two sons.

Child labour is a complex problem affecting all regions of the world today. Shell Brasil was awarded the title of ‘Child Friendly Company’for its pioneering work in discouraging the use of child labour in the production of sugar cane.

Our objective, working through the ICS, is to support international initiatives aimed atenhancing the welfare of workers and thetransfer of knowledge, competency and bestpractice at existing ship recycling sites.

www.shell.com/legacies

Working hours and wagesPrinciple 2 Responsibilities to employeesThe average number of hours in a full-timestandard working week across the Group isunchanged from last year – approximately 40 hours, with a range of 35 to 48 hours per week.

Shell companies in 131 countries (129 in 1998)c a rry out comparisons of remuneration levels toe n s u re they are competitive. Shell companies inthese countries employ some 96% of all Shell staff .

The lowest wage paid to a Shell employee in1999 was US$ 71 per month (US$ 50 in 1998).In this case no statutory national minimum wageis applicable.

No employee of a Shell company receives lessthan the applicable statutory national minimum.The minimum wage on Shell company pay-scalesfor junior staff is 1.4 to 150 times the applicablenational statutory minimum.

Balancing work and personal life

Shell companies recognise the pressures of amodern working life where high work loads and demanding schedules can compete withpersonal life. We are exploring ways of helpingstaff get the balance right. For example, ShellNew Zealand has been awarded the title of‘Most Family Friendly Company’ in the country.

Judges of the Equal Employment Opportunities Tru s tWork & Family Aw a rds said they were ”part i c u l a r l yi m p ressed with the accountability mechanisms. Wo r kand family is an integral part of the org a n i s a t i o n ’svision and values, and objectives based on workand family balance are included in perf o rm a n c eappraisals for teams, managers and individuals”.

The company finds that its policies create costsavings and a more enjoyable workinge n v i ronment. Children, for example, are allowedto come into their pare n t ’s office before and afterschool. And parents can take regular time off tobe with their children during the week.

“For us, work- life balance is more than justpolicy. It is an integral part of our companyculture. I’ve been involved in Shell becausesocial responsibility has real tangible businessimplications,” says Anske Janssen, manager and mother of two (see photo top left).

Child labourPrinciple 2 Responsibilities to employeesIn sharp contrast to Anske’s sons pictured above,many children experience a diff e rent aspect ofworking life. Child labour is a complex pro b l e ma ffecting all regions of the world today. Thoughclosely linked to povert y, its roots often lie in a mixof socio-economic, cultural and political factors.

Child labour may seem a strange concern for a global energy enterprise like Shell. But thecommitment to human rights in our BusinessPrinciples means that Shell companies must notexploit children in any of their activities eitherdirectly or indirectly through joint ventures,contractors or suppliers.



SOCIAL

Child labour in Brazil

CASESTUDYShell Brasil was awarded the title of ‘Child FriendlyCompany’ for its pioneering work in discouragingthe use of child labour in the production of sugar cane alcohol which it is legally obliged tosell on its forecourts and include in its gasoline (Shell Report 1999).

The award was made by a local non-governmental organisation called ABRINQ,supported by UNICEF, the United Nations child welfare agency.

This recognition follows the participation of ShellBrasil in a broader debate with non-govern m e n t a lo rganisations, local government and distillers tofind ways to help families whose children work inthe sugar cane fields and other rural industries.

The legal minimum working age in Brazil is 14 years.

State governments, distillers and other producers(including producers of sisal, oranges and coal) havebeen working with the affected families to set upfunds that can be used to educate the children whowould otherwise go to work to support their families.

Shell Brasil has introduced a clause in its contractswith distillers forbidding the use of child labourand asking them to respect the Business Principles.So far Shell Brasil has not needed to enforce theclause because suppliers share these concerns.


In every Shell company, our employees areabove the local legal age of employment. The youngest company employee, who is 15 years old, works in Europe (as last year).

Shell companies in 101 countries (84 in 1998)have a specific policy to prevent the use of child labour in any of their operations. In 112countries Shell companies operate a procedureto prevent the use of child labour. The number of Shell companies that screen contractors andsuppliers has also increased (see graph). Becausegoods and supplies are often bought globally,stringent national laws to prevent child labour donot remove the need to screen contractors andsuppliers. We are writing a practical guide fors t a ff to promote awareness of child labour issues.

Equal opportunities and diversityPrinciple 2 Responsibilities to employeesIn 121 countries Shell companies have an equalopportunities policy, although in 28 of thesecountries this is not legally required. In twocountries, operation of an equal opportunitiespolicy is prevented by local legislation. In fivecountries, Shell companies are re q u i red to employa quota of diff e rent ethnic groups and/or women.

The graph shows an increase in the number ofcountries where Shell companies operate equalopportunities procedures.

Our pro g ress against targets for gender diversity is shown below. While the total senior executivepopulation has decreased from 508 to 482 in1999, the pro p o rtion of women in senior executivepositions has risen to 5.8% from 4.9% in 1998.Notable in this respect are the appointments of LindaCook and Karen de Segundo as Chief Executives(see pages 45 and 47).

We have a target to achieve the capability to fillall key leadership positions within a region withstaff from that region by 2003. In 1999, 84.9%of key leadership positions were filled by staffmeeting these criteria.

www.shell.com/human

Oded Grajew, President of ABRINQ

“ It was a courageous, ethicaland socially responsibledecision Shell made. I amsure this attitude will helpmany Brazilian children to be honourable citizens in the future.”

www.catalystwomen.org



SOCIAL

The Shell People Survey

CASESTUDYThe Shell People Survey – to be repeatedevery 12 to 18 months – is part of ourcommitment to listen more closely to thepeople who work for Shell. As reported last year it was distributed in more than 100countries and 30 languages and conductedin partnership with an independent company,I n t e rnational Survey Research (ISR).

The process turned out to be a far morecomplex undertaking than we hadanticipated and had not been designed with verification in mind at the outset.Consequently the process was not always as robust as we would wish. For example,there was not always a complete audit trailto follow from the point of collection of thecompleted forms by Shell companies to theirreceipt by ISR for processing. The resultsshould be viewed with this in mind.

However the exercise was carried out withhonest intent and Shell companies and ISRpresent the results in good faith.

Together with the external verifiers wereviewed the process to identify ways ofimproving it to make the process potentiallyverifiable and, more import a n t l y, give gre a t e rassurance around the reliability of the re s u l t s .


Georg KellSenior OfficerExecutive Office of the UN Secretary-General

“This re p o rt comes at a critical juncture .It shows a way forw a rd on how mark e tf o rces can serve society as a whole. The re p o rt sets a new benchmark onhow universal principles, that cutacross cultures and societies, can betranslated into corporate practice.”

in 1998) Shell companies acknowledge unionsin discussions about employment conditions.

The graph below shows the increase in the numberof countries where employee welfare is pro t e c t e dt h rough organised staff forums and/or grievancep ro c e d u res. On 590 occasions in 1999 (412 in1998), staff used these channels to table concern s ,the majority of which were in the USA where staffgrievances are pro-actively sought and addre s s e d .

Another channel through which staff are invitedto express their views is the Shell People Survey(see below right).

S t a ff views on Business Principles in actionMost Shell employees feel they are well inform e dabout the Gro u p ’s Business Principles (page 28).This emerged after nearly 90,000 peopleworking for Shell companies in over 100countries were asked about their views andfeelings about their employing company and the Shell Group in the Shell People Surveycompleted in 1999 (see case study below).

The Survey’s response rate was 69%. This isconsidered good given that the Group wasgoing through major changes at the time.

70% of respondents felt they were well inform e dabout the Business Principles and most had agenerally positive view of their company’s integrity indealing with environmental and social issues. Thesea re the results of the questions we asked relating toBusiness Principles:

• I think that my company:

a) acts responsibly in the society/community in which we operate. 80% of respondentsresponded favourably

b) acts responsibly in relation to theenvironment. 84% responded favourably

c) achieves the right balance between itssocial, environmental and financialresponsibilities. 67% responded favourably

• I believe that my company operates withintegrity in its dealings with us. 59%responded favourably

• I know how I can contribute to Shell’s corepurpose of ‘helping to build a better world’.55% responded favourably

• my company has a working environment thatrespects differences in cultural backgroundand lifestyle. 68% responded favourably

• I am proud to be a part of the Shell Group.75% responded favourably.

The Survey showed that there is still much toimprove and we are committed to doing so.

DiversityWe define diversity as ‘all the ways

we are different’ (for example nationalities,gender, age, physical ability, education,experience, religions, sexual orientation, workstyles and different ways of thinking). Diversity is a sensitive subject because it deals withpeoples’ values, attitudes and behaviours andhow they relate to the world. But at the veryheart of diversity work in Shell are respect forpeople and the creation of a culture that valuesand builds upon individual differences. It is thecombination of the richness of skills, ideas andtalents that helps to deliver outstanding resultsand leads to a competitive advantage.

A global diversity team has been set-up toprovide guidance and strategic direction forShell companies. We have a diversity self-assessment guide, for use by Shell companies,to help them assess advances in three primaryareas: cultural change, changes to systemsand shifts in the composition of the workforc e .

www.shell.com/diversity

Unions and staff forumsPrinciple 2 Responsibilities to employeesIn every country where unions exist Shell companiesallow employees to join. In 96 countries (90


“Shell is only working toward diversityto the extent that it helps certainracial or gender groups, and as aresult is engaging in preferential

discrimination.USA – forum entry

You told Shell

”



SOCIAL

Human rightsBusiness has a role to promote and

p rotect human rights. Shell companies continueto make an important contribution to furt h e r i n ghuman rights through economic developmentin the countries within which they operate.

In the Group investment decision-makingprocess proposals are screened for issuessuch as human rights. This reflects thecontinuing pro g ress we are making to assessthe actual and potential impacts of ouroperations and in understanding human rightsand its role in our social responsibilities.( S e e w w w. s h e l l . c o m / h u m a n – and thep revious two Shell Reports for greater detailand background on our approach to humanrights and business re s p o n s i b i l i t i e s . )

The explicit inclusion of human rights issuesin the Business Principles Annual Lettersprocess (see page 30) means that we canregularly review and act on these issues.

Other developments since we last re p o rted are :

• we have supported and participated in thedevelopment of the Global Sullivan Principles.These principles, which include a specificcommitment to human rights, have grown out of the original set of criteria governinginvestment in apartheid South Africa and nowprovide a guide for businesses of all sizesworldwide w w w. s h e l l . c o m / s u l l i v a n

• we are contributing to the review of theOrganisation for Economic Cooperationand Development (OECD) Guidelines forMultinationals. This is being done throughindustry bodies to which we belong. T h eGuidelines, which we have supported sincetheir inception in 1976, provide a voluntarystandard for responsible corporate conduct

The Reverend Leon H Sullivan

“For me, Shell is showing leadershipin corporate responsibility and

re s p o n s i veness to community needst h rough its practical support in thed e velopment of the Global Su l l i va n

Principles, and by continuings u p p o rt of our efforts on the ground

in Africa through IFESH* and theAfrican-American Su m m i t s .”

• we support the initiative for a GlobalCompact between the United Nations and business on support for core valuesbased on the Universal Declaration of Human Rights, the International Labour Organisation’s Declaration onFundamental Principles and Rights atWork, and the Rio Declaration onSustainable Development

• we have made progress on the issue ofchild labour in Brazil (see page 23)

• we are publishing two further booklets for staff to help them understand issuesrelated to the rights of indigenous peoplesand child labour. These publicationscomplement primers on human rights (seeThe Shell Report 1999) and dealing withbribery and corruption (see page 30)

• we have continued to engage closely with organisations that have an interest and expertise in human rights. Thisincludes engagement on issues related to specific countries where we haveoperations and on key performanceindicators (see page 32).

Shell companies recognise their interest andobligation to support employee rights. In thisrespect we have recently:

• revised our approach to safeguarding ouremployees in the light of increased risksof attacks and kidnapping of staff in somecountries. Our Group security guidelinesconform to UN standards relevant to theuse of force (see page 26)

• developed tools to encourage and trackprogress in the area of diversity andequal opportunity (see pages 23-24).

www.shell.com/primers

The Reverend Leon H Sullivan, architect of the Global SullivanPrinciples, launched at the UN in 1999.

Nigeria

CASESTUDYThe new Nigerian government is working to improve Nigeria’s struggling economy,alleviate poverty and deal with abuse ofhuman rights, corruption and the problemsof the oil-rich Niger Delta.

The Shell Petroleum Development Companyof Nigeria (SPDC), the Shell company inNigeria, intends to play its part in helpingthe government make Nigeria a better placefor its people.

In Febru a ry 1999, SPDC announced a US$ 8.5 billion series of inter- related pro j e c t sto increase Nigeria’s oil and gas pro d u c t i o ns i g n i f i c a n t l y, while meeting the company’scommitment to end all unnecessary gasflaring by 2008. These projects will provide amuch-needed boost to government re v e n u e s .

SPDC has continued to engage in dialoguewith local communities and with local andi n t e rnational non-governmental org a n i s a t i o n s(NGOs) on its US$ 50 million communitydevelopment programme. As a result, morep a rtnerships were formed with community-based organisations and more projects wereu n d e rtaken with the help of NGOs (seeS P D C ’s 1999 ‘People and the Enviro n m e n t ’re p o rt and website shown below).

The expectations of the seven million people ofthe Delta are high, underlined by their sense ofgrievance that they have not received their fairs h a re of economic and social re w a rds derivedf rom oil income. As a result, community unre s tand general crime is rife and there is violencebetween tribes and against industry. In 1999,t h e re were 349 violent incidents against thes t a ff of SPDC and its contractors, amongwhich were 102 hostage taking/kidnapincidents and 20 armed robberies. Sabotageand community disruption at SPDC facilitiesled to a loss in production of some 200,000b a rrels of oil per day.

Meeting violence with violence will not solvethe problems of the Niger Delta. Action toresolve the legitimate underlying grievances,with the consultation and engagement ofthose concerned, is our priority.

www.shellnigeria.com

“I was impressed by the hardtruths, which Shell facedconcerning its businessprinciples and practices.Thank you for facing reality.”Nigeria

You told Shell

*International Foundation for Eduction and Self-Help (IFESH)



SOCIAL

SecurityPrinciple 2 Responsibilities to employeesand to societyIn 1999 10 countries in which Shell operates facedwar or major community disturbances. Employeesw e re kidnapped in four countries and in at least sixcountries murders, shootings and armed ro b b e r i e soccurred at or around retail forecourts. Shellcompanies in 28 countries experienced severesecurity incidents, including one bomb attack.

Like all organisations, we have to protect the healthand safety of employees and safeguard theinvestment of shareholders. We expect the forc e sof law and order of a country or state to give usa p p ropriate protection and seek an assurance thatany use of force is in accordance with intern a t i o n a ls t a n d a rds of law enforcement. Some countries maylack sufficient re s o u rces to provide adequatep rotection. In such circumstances, managers mayseek authority, or be re q u i red by law, to employsecurity personnel as part of their re s p o n s i b i l i t yto safeguard their people and pro p e rt y.

We have developed Group securityguidelines on the use of force, includingphysical restraint and using firearms, which conform to the United Nations ‘BasicPrinciples on the Use of Force and Firearmsby Law Enforcement Officials’ and ‘Code ofConduct for Law Enforcement Officials’.

These guidelines have been updated since we last re p o rted (see The Shell Report 1999)to include further improvements to the safetyre q u i rements for carrying and using fire a rm s .They lay out Shell’s minimum criteria applyingto armed g u a rds and the safe handling andmaintenance of fire a rms. The Group securityguidelines also include rules of engagementand specify that contracts should cover are a ssuch as re c ruitment and training, s t a n d a rd sand certificates of competence, and incidentre p o rting and investigation pro c e d u res.

The Group security guidelines emphasise thatin all situations guards must respect humandignity and the human rights of all peopleand that in every case only the minimum forc ep ro p o rtional to the threat should be used.

In 117 countries (107 in 1998) Shell companies usesecurity staff to manage security risks, the majorityof whom are contractor personnel (see graph).

While the number of countries using armedcontractor security is equal to 1998 (21 countries),the overall level of armed security, includinggovernment forces, has increased (see graph).

In all cases Shell company armed security personneloperate within Group security guidelines on the useof force. The four companies that re p o rted last yearthat their armed security did not operate in line withthe Group security guidelines on the use of forc enow confirm that they do. There are four countriesw h e re armed contractor security personnel operatein accordance with government guidelines but do not yet operate in accordance with the Gro u psecurity guidelines. In one case the use ofg o v e rnment standards is a legal re q u i rement. In theother three countries there is an action plan in placeto ensure consistency with Group security guidelines.

In 18 countries (15 in 1998) armed governmentforces are used. This is a legal requirement infive of those countries. In seven countries armedgovernment forces operate in line with theGroup security guidelines on the use of force, in the remaining 11 countries they are recruitedand trained by the government.

For the first year we re p o rt on our joint venture sand contractor firms – including those not underoperational control. In 31 countries joint venture sand contractor firms use armed security whiledoing work* in which there is a Shell companyi n t e rest; 19 of them already operate in accord a n c ewith the Group security guidelines on the use off o rce. In a further four countries an action plan is in place to ensure consistency with the guidelines.

www.shell.com/sensitive

www.shell.com/human

“I read ‘The principles are based on honesty, integrity and respectfor people – our core values’. With recent downsizing I don’t seemuch respect for Shell employees.So at page five I gave up.”Netherlands – Shell employee writing on Shell Report 1999

You told Shell

*Contractor firms employed specifically for the purpose ofproviding security are not included in these figures

“I see more and more advertisingby oil companies trying to givetheir business a green spin, andso far, only you have given me

a chance to comment.Japan

You told Shell

”



SOCIAL

Project Better World

CASESTUDYShell staff have the opportunity to take time fro mtheir jobs to work with two non-governmentalorganisations – Voluntary Service Overseas(VSO) and Earthwatch – in a programme calledP roject Better World, launched in 1999.

VSO places skilled people, such as teachersand engineers, in developing countries to work on development projects. Earthwatch isan environmental organisation that placesvolunteers as research assistants in the field.

“Our aim is to engage Shell staff in makingthe Group’s core purpose – ‘Helping peoplebuild a better world’ – come alive,” says Peter Baruch who spends eight hours a weekaway from his technology consultancy job

helping to organise Project Better World.

“Everyone wins from the project. The NGObenefits from the knowledge and expertise ofour staff. Shell benefits because staff areexposed to cultural change and constructiveinteraction with key stakeholders. And thepeople involved can sharpen their personalskills in new and different environments.”

Eight pilot projects with Earthwatch have beencompleted and 24 staff will join a series oftwo-week projects in 2000. Up to 10 staff areplanning to participate in separate six-monthprojects with VSO in 2000.


Contribution to the communityPrinciple 7 The communityIn June we will launch The Shell Foundation* as the basis for the Group’s social investmentcore programmes, which include LiveWIRE(see page 11) and the Sustainable EnergyProgramme (see page 17).

Over the five years from 1995 to 1999, Shell companies have contributed on average1.19% (1.18% average from 1994 to 1998) of net income after tax – equivalent to 0.64% net income before tax.

The total amount of voluntary social investmentcontributions to community in 1999 was some US$93 million (US$ 92 million in 1998). In all re g i o n sa large pro p o rtion of social investment contributionsis in the area of education and skills development.In Europe and North America the majority ofcontributions is in this area, whereas in Africa the majority of contributions were in the area of‘community development’ and medical and welfare .

In addition, some US$ 6 million was paid forsocial and environmental benefits as part ofcontractual requirements.

Shell companies in 60 countries have a pro c e d u rein place to set social objectives for their socialinvestments and to evaluate the benefits.

Message from the verifiersWe assessed the statements and data marked withthe coloured symbol in the social, economicand managing our business sections by:

• reviewing management processes andsupporting evidence to assess theappropriateness and robustness of theseprocesses and the fairness of the accountShell gives in this Repor t

• assessing conformity of the updated ShellG roup security guidelines with United NationsS t a n d a rds relevant to the use of forc e

• interviewing Shell people and, in the case of the development of the Bribery andCorruption Primer, external experts toconfirm their involvement

• o b s e rving, reviewing and sample testing the key perf o rmance indicator (KPI)development process to assess the accuracyand consistency of the processes used tosynthesise stakeholder input contained inrecords of stakeholder dialogue, agreed asaccurate records by both parties

• testing data presented in relation to ‘Tell Shell’and the Shell General Business Principles(SGBP) letters to assess accuracy

• reviewing evidence to assess the completenessof the distribution of the Bribery and Corru p t i o nPrimer to Country Chairmen and the receipt ofSGBP letters from Country Chairm e n

• assessing evidence to support managementassertions regarding Shell’s participation inexternal initiatives.

Our opinion on the statements and data relating tothe systems and processes Shell has put in place tomanage perf o rmance is on page 5.

www.shell.com/people

“I’m sorry, but if you expect any self-respecting activist tobelieve a word you say aboutyour commitment to human

rights, then you are as arrogantas the PR firm that came up

with this strategy.Unknown

You told Shell

”

*This is distinct from the long-standing Shell Oil CompanyFoundation for social investment in the USA


MANAGING OUR BUSINESS



In this section we re p o rt on the pro g re s swe have made in instilling the principlesof sustainable development into theunderpinning systems that make theRoyal Dutch/Shell Group what it is.

Our businesses are focusing on diff e re n taspects of sustainable developmentconsistent with the nature of theiractivities (see pages 36-47). For thisreason some of the data in this section is displayed by business.

The way we manage our business is based on a set of core values – honesty, integrity andrespect for people. These are embodied in ournine Shell General Business Principles (SGBP), see inside back cover, that describe the behaviourexpected of every employee in their businessrelationships with other people, organisations and companies. The Principles encompass ourcommitments to human rights, sustainabledevelopment and high standards in issues re l a t i n gto health, safety and the environment (HSE).

We believe in the promotion of trust, openness,teamwork and professionalism, and in pride in

what we do. To make sure that we behaveaccording to our values we have put in place –and in some areas are still installing – thenecessary management systems and practicaltools that help employees go about their dailybusiness in a responsible way.

T h e re are still many things we need to do to integratefully the concept of sustainable development inthe way we do business. This will take some timebut we are determined to advance and we havedeveloped a Road Map to show our intentions and progress (see Road Map opposite, whichhas been updated from previous Shell Reports).

StandardsSetting standards is one way of making thePrinciples more practical. We have standards thatcover key aspects of what we do.

HSE Commitment and Policy There are two elements concerning HSE, whichapply to Shell-operated companies worldwide:

• the mandatory Group HSE Commitment andPolicy, and its associated procedures

www.shell.com/hsepolicy

We operate in more than 135 countries, employing 96,000 people in thousands of locations and communities.Our Business Principles and global environmental expectationsset the same standards for all our operations in eve ry re g i o n .

Shell’s Business Principles apply to all transactions – large orsmall – and describe the behaviour expected of every employee,in every Shell company, in the conduct of its business.

Offering customers differentiated fuels tailored to meet specificconsumer needs.

HIGHLIGHTS

• 62 contracts terminated and one joint venture divested because ofoperations incompatible with Shell’s Business Principles

• Five breaches of the Gro u p ’s ‘no bribes’ policy resulted in four dismissalsand one re s i g n a t i o n

• C e rtifiable HSE management systems in place in 95% of all Shell companies

• Increasing integration of social and environmental considerations ininvestment and divestment decisions

• I n c rease in engagement activities on a wide range of issues at many levels


SS

• minimum environmental expectations – someof which are targets, and will take time toachieve, and others which are already currentpractice. www.shell.com/hsepolicy

All of our operations will at least conform tothese common standards – no double standards.

Promoting our PrinciplesWe use our influence in joint ventures topersuade our co-venturers to operate the venturein ways that are compatible with our Principles.We also expect our contractors in their work with Shell companies to be compatible with thePrinciples as they relate to the way the work is done. If this cannot be achieved we willt e rminate contracts and divest from joint venture s .In 1999 at least 62 contracts were cancelled (69 in 1998) and one joint venture was divestedbecause of operations incompatible with ourBusiness Principles, mostly with respect toPrinciple 6 (Health, safety and the enviro n m e n t )and Principle 4 (Business integrity).

Shell companies in 119 countries (112 in 1998)explicitly discuss the SGBP in contract negotiationswith contractors and in 107 countries (97 in 1998)with suppliers. In 104 countries expectations withrespect to SGBP are written into contracts. In manycases screening for SGBP compliance takes place.

Shell companies are helping local suppliers andcontractors to reach Shell’s required standardsin 127 countries (67 in 1998). Help rangesfrom management support and supplyingdocumentation and videos to training on ISOquality assurance and HSE auditing.

The SGBP are available in 51 languages,covering the local languages of 99.9% of Shellemployees. Shell companies in 135 countrieshave a procedure to ensure that new employeesreceive the SGBP, and in 109 countries there isa new employee training programme about SGBP.

www.shell.com/sgbp



Business integrityPrinciple 4 Business integrityC o rruption can occur in all parts of the world andat all levels but in some countries the payment of bribes and facilitation payments to low-levelg o v e rnment officials is common practice andmanagers are under continuous pre s s u re to paybribes to avoid ‘penalties’ and additional ‘taxes’.We aim to achieve the highest standards ofintegrity in our business dealings and in 1999 we produced a practical guide to combat briberyand corruption and to support the applications of our Business Principles (see case study).

We have a Group-wide policy and a target ofno bribes. In 97 countries (94 in 1998) Shellcompanies have procedures, above and beyondthe Group’s control measures, to prevent andidentify possible breaches of the ‘no bribes’policy. In 80 countries Shell companies operatea procedure to identify and prevent possiblebreaches of the Group’s policy concerningfacilitation payments.

In places it is customary to employ ‘interm e d i a r i e s ’or agents to arrange services more quickly ore fficiently than would otherwise be possible. To avoid inadvertently becoming involved withc o rrupt practices through the use of interm e d i a r i e s




Peter EigenChairman, Transparency International

“Tr a n s p a rency International, togetherwith Shell and other like-minded

organisations, is exploring thed e velopment of a vo l u n t a ry integrity

management standard for companies.We welcome Sh e l l’s invo l vement in what

we believe is an important initiative .”

Political paymentsPrinciple 5 Political activitiesWe have a policy and target of no politicalpayments. Shell companies in 113 countries (108 in 1998) operate a procedure to preventand identify possible breaches of the ‘nopolitical payments policy’. In 1999 no politicalpayments were made.

SystemsManagement systems help us embed ourpolicies in the Group and rigorous assuranceprocedures provide the necessary confirmationthat the policies are working as planned.

Letters of assurance processE v e ry year managers of Shell companies world-wideare required to write and sign three differentletters covering performance in the areas ofBusiness Integrity; Health, Safety and Enviro n m e n t ;and the Shell General Business Principles (seecase study). These provide confirmation to theDirectors of the Group Holding Companies (see page 50) that the policies have beenadopted and procedures are being – or havebeen – implemented to ensure compliance.Those who sign the letters are held personallyresponsible for the accuracy of the contents.

Bribery and corruption primer

CASESTUDYWe have published a guide for staff on how to deal with bribery and corruption. This has been done because we want make sure that our business integrity Principle is applied andunderstood by our employees and businessp a rtners. (See Principles 4 and 2d in the BusinessPrinciples, inside back cover).

The booklet – called ‘Dealing with Bribery andCorruption’ – describes some of the many formsof bribery and corruption. It sets out to raiseawareness about the threats and improveunderstanding of the difficulties involved indealing with the issue. Case studies, based onthe experiences of Shell employees, provideexamples designed to help staff cope whenfaced with business integrity issues, such asbeing asked for bribes or offered gifts.

Independent experts from TransparencyInternational, the US organisation Business forSocial Responsibility and KPMG Ethics andIntegrity Consulting Unit contributed to the primer.

A draft was published on the Shell intranet andemployees were asked to comment and contributetheir ideas to the final version.

The booklet has been distributed to all CountryChairmen* and to the finance departments in allmajor operating companies. They have beenmade aware that the primer could be useful tohelp current and potential business associates(including joint ventures where Shell is a minorityparticipant) better understand Shell policies onbusiness integrity. The booklet could also be usedin discussions with people outside Shell who areinterested in the issues.

Copies have also been sent to those experts whow e re consulted during the writing, and the booklethas been made available at conferences and publicmeetings. The guide is on the internet and a limitednumber of printed copies are available on re q u e s t .Our address is on page 50 or contact us at

w w w. s h e l l . c o m / p r i m e r s

Shell companies in 71 countries operate ap ro c e d u re to ensure that the use of interm e d i a r i e sdoes not compromise business integrity.

In 1999, Shell companies re p o rted three instances(four in 1998) in which a total of three employeeswere detected soliciting or accepting bribesdirectly or indirectly in some form. The totalfinancial value was estimated to be US$ 153,000.In one case the employee resigned before theincident was discovered, in the other two casesthe employees were dismissed. In two casesprosecution is underway.

In 1999 there was one case in which a Shellemployee used an interm e d i a ry to make paymentsof US$ 300 to a government official to silence acomplaint that had been made against him for hispersonal behaviour. The employee was dismissed.

For the first time we are in a position to report breaches of Group policy concerningcontractors, intermediaries and others (includingtemporary staff). In 1999 there was one case

involving two temporary workers who weredetected accepting bribes. The contract with theagency was terminated.

Information integrity

CASESTUDYGathering information about markets andcompetitors is an essential part of everydaybusiness and promotes free enterprise andcompetitiveness. But the methods used to getthe information must be within legal andethical boundaries.

S h e l l ’s Research and Technology Services, forexample has drawn up a code of conductfor staff. It emphasises that no illegal acts,such as wiretapping, bribery or stealing, willbe tolerated in the pursuit of inform a t i o n .F u rt h e rm o re, staff and those that re p re s e n tShell companies must behave ethically whenacquiring information. They must, forexample, disclose their identity fully andrespect requests for confidentiality.

www.shell.com/integrity

Corruption can occur in all parts of the world and at all levels. We have a Group-wide policy and a target of no bribes.


These processes and the related performanceare reviewed by the Committee of ManagingDirectors and the Social ResponsibilityCommittee, which comprise external directors of the boards of the two Parent companies ofthe Royal Dutch/Shell Group of Companies.

G reater detail describing the letters and the rigourof the pro c e d u res can be found in previous ShellR e p o rts and on www.shell.com/letters

HSE management systems (HSE MS)Shell companies are committed to manage HSE in the same way as any other critical businessactivity. This involves a rigorous and systematicapproach to the management of HSE. We set the target that all Shell companies would have a certifiable HSE MS in place by the end of1999. Over 95% of companies report that they have met this target and those remaining will complete the task during 2000. The nextchallenge is to check that the systems arefully implemented – the proof of this will comethrough improved performance.

‘Business in the Community’ benchmarks bothe n v i ronmental management and perf o rmance of major UK companies. We participate in theirself-assessment ‘Business in the EnvironmentSurvey’, as this gives us a good check on theprogress we are making. In particular, our HSE MS, internal environmental auditingprocesses and contractor programmes havesubstantially improved our rating to 97%.

All Shell companies are encouraged to havetheir environmental management systemscertified against recognised, independent system standards, such as ISO 14001 or theEuropean Union’s Eco-Management and Audit Scheme (EMAS).



What the Business Principles letters reveal

CASESTUDYThis year, 143 annual Shell General BusinessPrinciples (SGBP) letters have been received from133 Country Chairmen* representing countriesor groupings of countries and from 10 businessorganisations. This is a 100% response rate, as for last year.

The analysis of the letters shows good pro g ress inboth applying the process and achieving re s u l t s .

The SGBP have been formally adopted in allcountries. The letters re p o rt that they are alsoadopted by all joint ventures in 43 countries, and a re being adopted in at least 15 more joint ventures.

The Business Principles are generally wellcommunicated and applied:

• 45 Country Chairmen mention that the SGBPis part of the performance appraisal process

• best practices with respect to SGBP aregenerated, shared and used in some 70 countries.

The letters reveal that:

• 43 Country Chairmen report an activeinvolvement in the development and welfareof local populations

• 87 Country Chairmen raise bribery andcorruption as a serious issue on which theyfeel personally responsible for upholdingShell’s position

• 43 Country Chairmen express concerns about human rights in the external operatingenvironment, including child labour,community rights and equal opportunities.

We have published two practical guides to help staff understand and deal with the issues of human rights and bribery and corruption (see page 30). We are also publishing primerson child labour and indigenous peoples.

www.shell.com/primers

All major installations having significantenvironmental risks should be certified by end2000. We are well on track, with 42 installations(40%) having achieved this status by the end of 1999.

Sustainable development management frameworkWe developed a practical tool to help embedsustainable development principles into ourdecision-making. This is called the sustainabledevelopment management framework (SDMF).The framework is built on our core values andPrinciples and helps us bring the necessarystructure and consistency to our efforts.

It is essentially a standard management processadapted to embody sustainable developmentthinking. It can be used to identify and fill‘gaps’ in existing systems and processes. Keyfeatures include: integration of the economic,environmental and social elements in oureveryday business; engagement; open reportingand verification. Supporting the framework is anextensive toolkit of best practice and procedures

to help users apply it to their own activities.

A Sustainable Development Council exists to drivethe transition from traditional business practices tothe management approach articulated in the SDMF.

The Council, chaired by Managing Dire c t o rH a rry Roels, comprises senior business executivesfrom each of the five core businesses and theheads of the corporate centre directorates. The Council is accountable to the Committee of Managing Directors.

The SDMF has been distributed by the businesses to over 3,000 of their senior managers worldwide.This re p resents the management teams of morethan 86% of countries (119 countries). The Gro u pcommitment to sustainable development has beenb rought actively to employees’ attention through thebusiness line in 87% of countries (121 countries)– in which up to 96% of Shell staff are employed.(See pages 38-47 for progress being made bythe businesses in applying the principles of theframework to their processes and operations.)

www.shell.com/managing

Simon ZadekChair, Institute of Social and Ethical AccountAbility

“The challenge is to make social ande n v i ronmental accountability synonymous

with business success. Leadership companieswill remould themselves and markets thro u g h

innovation and by embracing standards such as AA1000, and support enablingnational and international regulations.”

*One manager acts as the senior representative of the Groupand is called the ‘Country Chairman’ in a country or groupingof countries, whether or not he or she is actually chairman of thelocal companies


“Implementation is a separatematter to having the appropriatepolicies. But regardless of that,at least it is a start.”UK

You told Shell


Key performance indicators Engaging with our stakeholders on how ourp e rf o rmance may best be judged is one ofthe elements of the SDMF. We are workingwith our stakeholders to develop keyp e rf o rmance indicators (KPIs) that can beused to measure and re p o rt on pro g ress inour commitments to sustainable development.

Indicators are used widely in financial andeconomic reporting to show how well orbadly a company or country is performing.Typical examples are return on capital andgross domestic product.

Good progress has been made over thepast decade in formulating environmentalperformance indicators. But the developmentof meaningful social indicators – mainly bygovernments and non-governmentalorganisations (NGOs) – is still in its infancy.

We shall continue to work with othero rganisations in KPI development. But we needto define a set of KPIs to drive our own activitiesto fulfil our plans for making sustainabledevelopment integral to the way we dobusiness (see Road Map, page 29).

We see KPIs as the logical basis for settingtargets and driving continuous improvementacross our operations and for developingstandards of reporting and verification.

Stakeholder views are vital in the processbecause KPIs must be critical to the businessand relevant to the concerns and expectationsof those who have an interest in our pro g re s s .

The support and guidance of seniormanagement within Shell has been pro v i d e dby the Sustainable Development Council (see page 31). Staff from the businesses andcorporate centre have helped in developing oura p p roach and providing expert views in are a ssuch as HSE, finance, strategy and policy.

We are looking to develop seven or so KPIcategories to fit within a framework spanningthe economic, environmental, social andunderlying governance and values aspects of performance (see diagram above).

We developed a list of two or three potential KPIs for each category as the starting point for dialogue. We then held 33 meetings withstakeholders drawn from the following gro u p s :shareholders, NGOs, labour organisations,academia and government.

We received a wealth of suggestions, whichwe systematically re c o rded, analysed andcategorised using a series of screening criteria(including those shown above). The Groupverifiers provided advice on the verifiabilityof input received.

The key learning for us was that statisticsalone are poor measures of performance.These need to be complemented bymeasures of quality and value-added,although how to do this is not always clear.

The Sustainable Development Councilapproved a timetable for testing thepracticalities of an initial list of KPIs and fortackling those requiring longer-term study.



We shall introduce KPIs progressively overthe next one to five years as we develop the necessary systems and implementationguides. We shall report on them in futureShell Reports and continue the dialogue withour stakeholders on their development.

www.shell.com/KPIs

TargetsWe have well established financial and HSE targets and projections (goals) to drivecontinuous improvement in critical aspects ofperformance. Like most organisations we havestruggled with defining meaningful targets insome aspects of social/ethical performance. We see the emerging KPIs as the logical basisto reassess existing targets and set targets in the future.

Reporting and verificationWe are doing well in moving towards integratedre p o rting. We have merged the Shell Report andthe Group HSE Report and also provided morefinancial information in this edition of the ShellR e p o rt. The content of the Report can be foundonline throughout www.shell.com w h e re itis an integral part of the site and will be updatedt h rough the year.

We are also working with others such as the Global Reporting Initiative (GRI)

www.globalreporting.org to helpestablish and test emerging internationalstandards of sustainability reporting. This reporthas been produced within the spirit of the GRIguidelines. We will continue to innovate andshare our learning with interested parties.





‘Tell Shell’

CASESTUDY“I’ve worked for Shell for 20 years and I wassurprised at the strength of feeling about us fromsome members of the public,” says Joanne Chandlerwho deals with public comments that come thro u g hthe post or via the web in response to the ‘Tell Shell’invitations in this Report and to the Profits andPrinciples advertising campaign.

“Some of the negative comments used to depressme a little and they have certainly brought hometo me the mistakes we’ve made in the past.

“But I believe we’ve made an immenseimprovement in the way we face up to the issuesand how we communicate with people. The ‘TellShell’ facility is one really good way for ourcritics and others to have their say, and for us to tell our side too.”

Joanne deals with queries directly when she can,or sends them to Shell experts or senior leadersfor their response.

“The business executives have read and discussedthe comments in the Sustainable DevelopmentCouncil meeting too, which shows that theresponses are taken seriously at the highest level.I think they must be – otherwise all of ourcommitments would be just empty words.

“We’ve asked people to talk to us and theyhave. Sometimes people have been quiteaggressive initially but have then responded tosay they really appreciated our open and honestpersonal response.”

www.shell.com/tellshell

We remain committed to transparency andverification in our reporting. We continue toexplore, with our verifiers and others, ways ofp roviding the necessary assurance to stakeholderson what we report – see page 5.

Engagement Principle 9 CommunicationsEngagement is an essential component of theSDMF and the prime difference between it andtraditional management frameworks. We havetaken big strides in engaging more fully with abroader group of stakeholders.

Internal Each business has adopted the ideas within theSDMF and is raising awareness with staff andhelping them see how to bring sustainabledevelopment thinking into daily operations.

The Shell People Surv e y, conducted for the first timein 1999, has provided valuable information onhow employees feel about working for Shell (see Shell People Survey, page 24 for details).

ExternalBesides the publication of this yearly Report, theGroup has run a global advertising campaignto highlight some of the major issues anddilemmas it faces. The campaign was designedto stimulate debate and comment on Shell’sapproach and to extend our dialogue to thewidest possible group of stakeholders.

Those wanting to engage with Shell have been invited to do so by using the speed andinteractivity of the web. The Shell website has a ‘Tell Shell’ facility (see case study) anduncensored web forums to promote the debate.

The use of engagement is slowly becoming aroutine part of the way Shell companies dobusiness (see table). There is still much progressto be made but the signs are encouraging.

“Shell do NOT encourage opencommunication internally.There are so many employeeswho do not feel empowered to speak out that to ask ourcustomers for the same seemshypocritical at the very least.”UK

You told Shell

“This is one of the mostboundaryless forms of

communication I have seen. If this forum is the reflection of what your management isreally about, you are on the

right path.Netherlands – forum entry

”

You told Shell


VIEW OF THE FUTURE

HIGHLIGHTS

• Scenarios – plausible and challenging stories of the future – help us plan

• Fossil fuels currently meet about 85% of world’s energy needs but gasand renewables could meet 50% of OECD power generation needs by 2020

• Short-term we need to remain competitive in the hydrocarbon business,but with an increasing focus on lower carbon fuels such as gas

• Our portfolio will evolve to meet the need for cleaner, less carbon-intensive fuels

• We must get right the ‘softer’ aspects of business: leadership,empowerment and diversity


SHELL VIEW OF THE FUTURE AND THE WAY FORWA R D

Our plans for new products and changesin the Gro u p ’s portfolio of businesses arebased on a view of the future that focuseson satisfying the expected demands ofour customers and the broader needsof society they represent. Our successdepends on us devising innovative andprofitable ways to provide sustainablesolutions that satisfy customer needs.

We use scenarios – plausible and challengingstories of the future – to help us plan. Scenarios arenot forecasts; rather they offer very diff e rent storiesof how the future might look. They challenge themental maps we hold and help create a commonlanguage with which the future can be discussed.

Our view on the Gro u p ’s future is bro a d l yinfluenced by two scenarios we have developed,which are shaped by a powerful set of forces –globalisation, liberalisation and new technologies –which are sweeping the world, creating enorm o u schallenges as well as new opportunities. These arecomplemented by the influence of individuals – richand poor – who are, in many parts of the world,becoming wealthier, better educated and freer tochoose. This is creating a more spontaneous,u n s t ru c t u red and less predictable enviro n m e n t .

The two scenarios are:• The New Game: existing institutions and

organisations successfully adapt to the newand evolving complexities of globalisationand liberalisation. At all levels, from the localto the international, people come together tosolve problems and, in the process, oldinstitutions are reconstructed and newinstitutions and rules emerge that encouragefairness and efficiency. Of course, peoplehave always come together to solveproblems, but now there’s only one globalgame to play in –- or, as is the case in someregions, to aspire to join.

• People Power: the individual flourishes in aworld of flowering diversity, which undercutsauthoritarianism and conformity, and appears toweaken many long-standing social and politicalinstitutions. It is a volatile and exciting world,where ‘news of the new’ is rapidly disseminatedand many institutions seem outdated, ineff e c t i v eand incapable of necessary change.

Businesses will need to respond to both sets ofinfluences, described in the scenarios, if theyare to be robust enough to deal with change.The scenarios raise fundamental questions thatbusinesses must confront, such as:

The New Game – existing institutions and organisations successfullyadapt to the new and evolving complexities of globalisation andliberalisation. There ’s only one global game to play in.

People Power – individuals flourish in a world of flowering diversity,which undercuts authoritarianism and conform i t y, and appears toweaken many long-standing social and political institutions

Action on sustainable development, human rights,environment, transparency and engagement as well asproviding greater choice for consumers is right for our fast-changing world and necessary for our continued success.


• What does it mean to be a global organisation?

• What can be done to satisfy current andfuture customers?

• What is the best basis for successful,sustainable business design?

The way forwardIt is the issues raised by these scenarios that weinclude in our considerations when planning theG ro u p ’s future. Our thinking has confirmed that theactivities described in this re p o rt – such as action onsustainable development, human rights, diversity atwork, engagement with our employees and critics,p roviding greater choice for consumers, tightere n v i ronmental standards and greater transparency –a re right for our fast-changing world and necessaryfor the success of our business in the future .

In the medium term, our success will depend onselling the sorts of fuels that society demands.These fuels are gradually moving away fro mthose with a high concentration of carbon, suchas coal, to fuels with lower carbon contents, such as oil and especially gas. In The New Game,

for example, we envisage that gas and re n e w a b l e sw i l l meet almost 50% of the fuel re q u i rements forpower generation in Organisation for EconomicCooperation and Development (OECD) countriesby 2020 (see right). We expect this trend tocontinue as new fuels, such as hydrogen andrenewable energ y, get cheaper and easier to use.

Fossil fuels currently meet about 85% of theworld’s energy needs. There are no alternativesavailable now that are cheap enough to fullyreplace conventional fuels. There is a greatchallenge for the energy industry to developa l t e rnative energy options that are both economicand environmentally acceptable.

Gas is likely to be in high demand over the next fewdecades because it is abundant, can be convert e de fficiently into electricity, is relatively cheap to findand transport, and emits far less CO2 and otherpollutants than competing fossil fuels. The ‘energ ytransition’ is beginning; our longer- t e rm energ yscenarios show that the 21st century will see ani n c reasingly diverse energy market where a widerange of energy solutions is made available.

The move towards fuels with less carbon –decarbonisation – will mean that the Group mayneed to reduce its interests in some areas andincrease its focus on others. The Gro u p ’s port f o l i onaturally reflects the desires of the market andavailable technological options. In the shorter term ,the Group needs to remain competitive in theh y d rocarbon business and meet the gro w i n gdemands of the market for cheap and sustainablee n e rgy products and services, while growing itss t a rt-up businesses in photovoltaics, biomass, wind (pages 46-47) and hydrogen (page 41).

Recent mergers and acquisitions amongcorporations were driven by managers attemptingto improve the value of their companies in a


SHELL VIEW OF THE FUTURE AND THE WAY FORWA R D

Leadership and relationships

CASESTUDYTo enable us to succeed in the fast-changingworld we are undergoing fundamentalchange – transforming ourselves on both the personal and organisational level. A diverse team of individuals with broad-ranging internal and external experience(the LEAP team) has been working for thepast two years to accelerate this change –empowering Shell people and companies to excel.

LEAP runs seven Group-wide learning anddevelopment programmes for staff at alllevels. Some programmes provide theindividual with the skills needed to lead andsupport radical change, while others focuson delivering a step change in businessperformance. The programmes focus ondeveloping the tools and capability forbusinesses and individuals to continue totransform the way they do business.

help us plan

eds but gasneeds by 2020

arbon business,as gas

ss carbon-

ship,

fast-changing world. Our scenarios show thatmanagement must get right not just the ‘hard’aspects of business – portfolio, business stru c t u re sand technology – but also aspects of leadershipsuch as empowerment and diversity. All will beessential for the long-term success of the Gro u p .

www.shell.com/strategy

“It is now an accepted fact thatthe pace of ‘progress’ achieved

this century is unsustainable, andthe human civilisation needs to

throttle back on its aspirationlevels vis-a-vis materialism.

Unknown”

You told Shell

“All the ethical window-dressing inthe world can’t hide the fact thatyour core business is about livingoff the natural capital of oil.”UK

You told Shell


Operating in more than 135 countries around the world, the companies of the Royal Dutch/Shell Group areengaged in the core businesses of Exploration and Pr o d u c t i o n ,Oil Products, Chemicals, Downstream Gas and Power andRenewables .

36 Royal Dutch/Shell Group of Companies

ACTION IN 1999: The Group’s exposure to lowrefining margins continued to be reduced. The ShellHaven refinery in the UK ceased operations, theclosure of the Sola refinery in Norway was set for2000 and an Equilon refinery in the USA was sold.Refinery capacity and retail assets were swapped with other oil companies in Europe. Fuels tailored tospecific consumer needs were introduced in sevenmarkets, and various e-commerce initiatives werelaunched around the world.

OUTLOOK: Oil demand is forecast to increase bysome two million barrels a day in 2000, driven by economic growth. European and US Gulf Coastrefinery margins are expected to remain underpressure until demand reduces excess stocks ofdistillates. Asia-Pacific margins are likely to remainweak because of the surplus capacity in the region.Pressures on gross fuels margins will continue. But ifoil prices are stable or falling, gross marketingmargins may rise from 1999 levels.

Transforming hydrocarbon feedstocks into basechemical products, petrochemical building blocks andpolyolefins, and marketing them globally to createcustomer value.

Chemicals

Refining and processing crude oil and otherfeedstocks into transportation fuels, lubricants, heatingand fuel oils, liquefied petroleum gas and bitumen;distributing and marketing them – together withcomplementary services – to meet customer needs.

SHELL BUSINESSES

Exploration andProductionSearching for oil and gas fields by means of seismic surveys and exploration wells; developingeconomically viable fields by drilling wells andbuilding the infrastructure of pipelines and treatmentfacilities necessary for delivering the hydrocarbons to market.

Bringing renewable resources to everyday life bydeveloping viable businesses: manufacturing andmarketing solar energy systems; implementing ruralelectrification projects in developing countries;sustainably growing and marketing wood; convertingwood fuel into marketable energy; developing windenergy projects.

Renewables

Downstream Gas and PowerACTION IN 1999: Long-term sales contracts ofliquefied natural gas (LNG) to India were won, anddecisions were taken to invest further in Nigeria LNGand Malaysia LNG. An additional 5% interest wasacquired in Comgas, the largest gas distributioncompany in Brazil. Financing was secured for fivepower plants. The US portfolio was restructured, with the sale of Oklahoma pipeline assets and theestablishment of a joint venture to handle the naturalgas liquids business. Shell Energy began tradingpower in Europe.

OUTLOOK: Gas and electricity demand is expectedto continue to grow strongly. But liberalisation of thegas market is likely to challenge the Group’s strongposition in Europe. Future success will depend onintegrating the energy requirements of consumers andon optimising the entire gas-to-power value-addedchain, from wellhead to burner and to electricitymeter.

Marketing and trading natural gas; commercialisingnatural gas through investments in processing andtransportation infrastructure; wholesaling and retailingof natural gas and electricity to industrial anddomestic customers; developing and operatingindependent electric power plants.

Oil Products


STRATEGY: Focus on petrochemical building blocksand large-volume polymers for which the Group hasleading technologies and world-scale plants. Developand mediate new relationships to establish sustainablebusinesses that offer maximum value to the customer.Maintain emphasis on enhancing the portfolio,customer needs, reducing costs and engaging anddeveloping people.

ACTION IN 1999: The asset portfolio was upgradedby divestments (mainly in the USA and Canada) andc e rtain dilutions (most notably in the Philippines). The go-ahead was given for projects in Nigeria (theo ff s h o re EA and Bonga fields), in the USA (the deep-water Brutus field) and in Canada (the Athabasca oilsands). Plans to re-develop a pair of oil fields in Iranw e re announced. Important new licences were a c q u i re din Malaysia, Norw a y, China and i n B r a z i l i a n d e e pw a t e r s. Delivered on cost savings promised f o r 1 9 9 9 .

OUTLOOK: Crude oil prices remain unpredictable.Nevertheless, overall world demand is likely tocontinue growing, driven by the economic recoveryof several Asia-Pacific countries and the continuingstrength of the US economy. Technological advances –particularly in drilling – will drive down industry costs.

STRATEGY: Emphasise short-term profitability whilstmaximising long-term value through cost leadership,investment discipline and production growth.Implement strategy by means of selective investmentsand active portfolio management. Take advantage ofthe Group’s relationships, reputation, technology, skillsand practices to support Group companies as thepreferred partner of both resource holders and othercompanies in the industry.

ACTION IN 1999: In India, Sri Lanka, and thePhilippines wholly owned subsidiaries were establishedto market solar energy systems. In Germany a world-class solar-cell factory was opened, andapproval was given for the Group’s first wind energyproject. Solar home systems were introduced in SouthAfrica. A facility for the manufacture of wood-fuelbriquettes was commissioned in Norway. Forestrycompanies have been restructured, and a globalforestry marketing unit has been set up.

OUTLOOK: Renewable energy can be competitive inniche markets. Outside those markets – and in theshort-term – it will need governmental support. Yet itscost will continue to decline as more experience isgained. And as it becomes more competitive, it willsupply a significant proportion of the world’s energy.Paper and pulp prices, having suffered a cyclicaldownturn, are now strengthening as demand trackseconomic growth.

STRATEGY: Build on the Group’s existing experiencein forestry, solar systems and fuel-combustiontechnologies to position the Group as a global marketleader. Capitalise on synergy with other Businesses,such as that in the rural solar scheme in thePhilippines and in marketing through retail outlets inGermany. Gain a competitive advantage in windenergy from Group skills in the design,implementation and operation of complex engineeringprojects.

STRATEGY: Continue to focus – first and foremost –on the millions of Shell customers around the worldwhilst meeting society’s expectations. Enhance what is on offer through the global network of Shell petrol stations by introducing differentiated fuelsand convenience concepts. Develop alternative fuels,tailored packages of products and services, and e-commerce solutions to meet changing needs.Maintain emphasis on cost reduction, operationalexcellence and active portfolio management.

STRATEGY: Grow the Business to be a global playerin “midstream” gas and power – with enoughphysical assets not only to bring Group equity gas toestablished markets but also to open up entirely newones. Capitalise on industry-leading positions in thecommercialisation of LNG and gas-to-liquidstechnologies. Work with Exploration and Pro d u c t i o n ,t o market gas that might otherwise have to be flare d ,a n d with Oil Products, to satisfy customers’ energyneeds.

AT A GLA NCE

ACTION IN 1999: Performance improvementsthrough cost leadership programmes, improved plantreliability and capacity additions were achieved in1999. Additionally, in keeping with the divestmentprogramme announced last year, Shell companieshave sold several chemicals businesses (such asgeneral purpose rubber, polystyrene and polyvinylchloride). Negotiations on other divestments continueinto 2000. An agreement was reached with BASF tocreate a global polyolefins business.

OUTLOOK: Chemicals trading conditions improvedin the fourth quarter from earlier in the year asconfidence returned to the Asia-Pacific region andfeedstock price rises throughout the year wereincreasingly reflected in finished product prices. No significant change in trading conditions isanticipated in the short-term.

37


E X P L O R ATION AND PRODUCTION

38 Business Focus

EXPLORATION AND PRODUCTION

The Group’s Exploration and Production(EP) business is responsible for findingoil and gas and getting it out of theground. In 1999 EP focused ontranslating the Group’s sustainabledevelopment aspirations into somethingthat people throughout the organisationcould relate to and use.

A document known as ‘The Way Forw a rd’ waspublished to complement the Gro u p ’s sustainabledevelopment management framework (page 31)and provide additional guidance for EPcompanies. The cornerstone of the approach is aset of six sustainability principles to be applied indaily business. These are to:

• respect and safeguard people

• engage and work with stakeholders

• minimise impact on the environment

• use resources efficiently

• maximise profitability

• maximise benefits to the community.

For each principle a description of the types ofactivity that might be undertaken and indicatorsto measure progress are suggested.

Many EP companies have been contributing tosustainable development as a normal part oftheir business for some time and examples froma range of companies are included in thepublication. EP companies are now using ‘TheWay Forward’ to promote a more consistentapproach and to develop plans assessing theirown course and contribution to sustainabledevelopment reflecting their particular positionin the market, environment and society.

EP has established a dedicated website to shareexperiences and ideas. It includes, for example,E P ’s initiatives in the Philippines where a numberof activities are underway to ensure that theMalampaya gas project is fully aligned withsustainability objectives (see case study).Elsewhere, in countries as diverse as Brunei,Kazakhstan and The Netherlands, EP companies

Shell Expro’s wood recycling programme in the UK providesemployment to people with learning difficulties.

Cavite training farm – coffee is one of the crops grown by SPEX scholars for the Pilipinas Shell Foundation's agricultural programme (see case study).

Developing skills in the local community is fundamental to sustainable development, supporting both the technical aspects of our business as well as social needs.

have been holding workshops to look at ways for employees to address sustainabledevelopment issues. In October 1999, a global workshop was held, involving over 60re p resentatives from some 25 EP companies.

While good progress has been made, there isclearly more to do. Some of the issues that willbe addressed in 2000 and beyond require abusiness-wide approach, and include:

• management of greenhouse gases, includingparticipation in the Group emissions tradingprogramme (page 16)

• biodiversity (page 19) and operating insocially or environmentally sensitive areas

• increased focus on stakeholder engagementthrough a series of dialogue sessions on EP-specific issues.

Meeting society’s energy needs lies at the heart of our business.Society expects us to produce finite oil and gas re s o u rces whilecaring for people and protecting the environment – only thenwe will maintain our right to grow.

Training production operators in West Africa.


T I O N

39Business Focus

EXPLORATION AND PRODUCTION

Learning the lessonsShell has operated in the Gamba region

of Gabon for nearly 40 years and has providedvarious services to the local community,including hospitals, medical treatment andschools. Although this form of assistance wasappropriate at the time, the long-term socialimplications were not fully understood. Aquarter of the local population, about 2,000people, came to depend on Shell for basicsocial amenities.

Shell Gabon has spent two years in stakeholderdialogues aimed at shifting community supportfrom direct assistance to self-development.Several programmes, through which Shellprovides sponsorship, advice and training, have been initiated to stimulate the change.Examples include:

• community health care has been transferredto the Regional Medical Centre in Gamba.This centre is now run by the local authoritiesand is developing a vision for regionalhealth care

• an agricultural project, managed by theResearch Institute of Agro-forestry, helpsfarmers grow vegetables for local use andpotential export. Graduates have formed the first farmers co-operative in Gamba

• Pro-Natura, an international NGO, isundertaking a biodiversity study of theMokandé forest and assessing its potentialfor sustainable economic opportunities. The results will be made available to ShellGabon and the government (see page 19)

• The Fondation Entreprise en Créationprovides expert advice on managing loansfor local entrepreneurs to start businesses,such as a taxi service.

“The cultural awarenesscourse was special for me

and the aboriginal Larrakianation. Their warmth andopenness was wonderful

and never before had theymet a company whose

initial approach was to simply ask if they couldtell us about their culture.

I really felt this wasreconciliation in action.”

“To make Shell Nigeria’scommunity development

projects truly sustainable,our communities participate

in all phases of theirevolution. This promotes

empowerment and a greatersense of partnership.

The results are impressive.”

“Making our HSE intentionsa reality is something

we should all strive for – it is hard work, but the

most fulfilling I have been involved in.”

“I have been involved insustainable development inEP since the early days ofthe Group’s commitment.

Many still need to beconvinced of the benefits

and the relevance but I am encouraged by the

progress we’ve made andthe growing enthusiasm to

talk about the issues.”

Like others, Shell has learned the importance of addressing the economic, social andenvironmental implications right from theplanning stage of a project. Applying the sixsustainability principles to daily business willassist EP companies to achieve this goal.

www.shell.com/focus

Malampaya

CASESTUDYShell Philippines Exploration (SPEX) is theoperator of the Malampaya Deep Wa t e rGas to Power Project. This involves pipinggas 500 km from the island of Palawan to Luzon and will allow the Philippines toreduce dependency on heavier import e dfuels such as coal and oil.

F rom the start, SPEX has promoted sustainabledevelopment. Short and long-term economic,social and environmental implications of the project are addressed for each phase. A Sustainable Development Councilcomprising SPEX managers and externalmembers drives this effort.

Minimising environmental impacts andinvolving stakeholders to address concernsare key. The Shell Report 1999 described a number of changes made to the originalplans after local consultation, including the re-routing of the pipeline to avoide n v i ronmentally sensitive areas, ancestralburial grounds and sacred coral form a t i o n s .

E n v i ronmental studies have been undert a k e n .For example, the pipeline will pass MindoroIsland where poorly controlled pastdevelopments have threatened rich andunique biodiversity. The NGO, Flora andFauna International, catalogued endemicspecies for conservation planning in thisa rea. An initiative to re f o rest and pre s e rv ethe habitat of the endangered Philippine fru i tbat was also undert a k e n .

Social investment projects were started, manyof which were designed to be self-sustaining.Education and training programmes wer esponsored and a sustainable developmentprofessorial chair at the University of Asiaand the Pacific was established. Otherp rojects include aiding a government malarialeradication programme on Palawan andsolar electricity for rural communities.

w w w. m a l a m p a y a . c o m

His Excellency Dr Mohammed bin Hamed al Rumhy

“It pleases me to congratulate PDO* and its contractors on the completion of this marvel of engineering... which will contribute tow a rds Om a n’sp ro s p e r i t y... helping to diversify theeconomy through the supply of gas to the OLNG** plant near Su r.”

“Exploit or explore? The arrogance is almost

unimaginable. I willcontinue to boycott Shell.

Unknown”

You told Shell

Din MegatManaging Director Middle East, Central & South Asia and Russia

Jury TajomavwoCommunity Development Advisor, Shell Nigeria

Chris SpencerSenior Economist, Shell Australia

Amanda BradleyEnvironmental Advisor, The Hague

*Petroleum Development Oman**Oman Liquefied Natural Gas


OIL PRODUCTS

It sees high health, safety and environment(HSE) standards as fundamental to its successand the use of structured HSE managementsystems as central to continuous improvements inHSE performance, particularly the reduction ofaccidents in road transport (see page 21).

Members of the OP Executive – its top decision-making body – have specific responsibilities toe n s u re that sustainability commitments are carr i e dout. These include setting objectives, monitoringand re p o rting on pro g ress. The review of 1999highlighted encouraging pro g ress in OP’s thre ekey areas of focus: sustainability of the overalla p p roach, of products and of operations.

Plans for 2000 include the provision of furtherpractical guidance to assist operating countriesin planning how to incorporate sustainabilityconsiderations into business management in amore structured way. OP will also participate inthe development of the Gro u p ’s key perf o rm a n c eindicators for sustainable development (see page 32).

www.shell.com/focus

40 Business Focus

OIL PRODUCTS

Oil Products (OP), the business thatmakes, distributes and markets fuels,lubricants, bitumen and associatedservices, published its commitmentduring 1999 to include sustainabilityconsiderations into its key businessprocesses, consistent with the Group’ssustainable development managementframework (see page 31).

OP recognises that sustainability affects the coreof its business: the behaviour of consumers, theway technology develops, changes in re g u l a t i o nand shifts in the way society judges corporateb e h a v i o u r. How it responds to such developmentsinfluences the success of the Shell brand andt h e re f o re OP’s commercial perf o rmance.

This is why OP is working to integrate enviro n m e n t a land social considerations more consistently intoall its decision-making (including investments)and engaging more widely with stakeholders,p a rticularly its customers. In this way it intends toi m p rove the sustainability of its overall appro a c hto business, its products and its operations.

One of its goals is to develop, in dialogue withcustomers and with the help of wide-rangingalliances, a new generation of enhancedproducts, services and technology focused on sustainable mobility and energy. In 1999 it launched new fuels, such as Shell Pura™, Shell Optimax™ and Shell V-Power™, whichoffer significantly enhanced consumer benefits,including reduced emissions and more efficientengine performance (see page 16).

In the wider arena, OP will be activelysupporting a working group on sustainablemobility, which Shell will co-chair with Toyotaand General Motors, set-up under the auspicesof the World Business Council for SustainableDevelopment (WBCSD). Amongst other things,this working group will seek to identify strategicoptions for enabling future personal mobility ina sustainable way.

OP is contributing to the Group’s commitmentson climate change, by looking to become evermore energy efficient and by participating in thecarbon emissions trading system (see page 16).

Shell’s fuel cell research – developing practical, clean andefficient alternatives to conventional vehicles.

Formula One – the ultimate laboratory for testing ultra-clean, high performance fuels.

Shell Pakistan won the WorldAware award for long-ter mcommitment to societal development.

Oil Products recognises that sustainability affects the core of its business: the behaviour of consumers, the way technology develops, changes in regulation and shifts in the way society judges corporate behaviour.


41Business Focus

OIL PRODUCTS

“It is my job to ensure that when Oil Pro d u c t sbusinesses in Shell aremaking investment ordivestment decisions,

they take account of potentialenvironmental and social

consequences in addition toeconomic considerations.”

“A highlight for me was working with the govern m e n tof Panama on the ratificationof international protocols for

oil spill compensation – a toolfor dealing with a major

tragedy such as an oil spill.The result of this work will lastfor future generations. It made

me proud to work for Shelland of Shell commitments.”

“My nine-strongmanagement team is made

up of six nationalities, whilethere are 20 nationalities

in the level below that.Nowadays, if you’re

not totally serious aboutdiversity and unleashing the

talent of all your people,you’re not worth your salt.”

“ To launch diff e re n t i a t e dfuels like Shell Pura™, we

must understand customers’wants. It’s not enough to say

‘ e n v i ronment’ – is it globalw a rming people worry

about or a healthy legacyfor future generations?

To get it right we have toknow what makes a re a ld i ff e rence to customers.”

MTBEA widely used additive in gasoline,

methyl tert i a ry butyl ether (MTBE), will be phasedout by 2002 in California because it has been found to contaminate drinking water.This action was not based on health grounds,but because MTBE gives drinking water anunpleasant taste and odour.

Water contamination occurs from accidentalspills of gasoline, leaks from undergroundstorage tanks, and from unburned fuel emittedby two-stroke boat engines.

The decision in California, which is expected tobe mirrored by other US states, has prompted adebate about this gasoline component’s future inEurope and elsewhere.

The amount of MTBE used grew to meet USlegislation for reformulated gasoline to reduceemissions of carbon monoxide. It is now alsowidely used to increase the octane rating ofunleaded and lead replacement fuels, and tomeet tougher gasoline specification limits inEurope on properties such as the content ofaromatics and olefins.

There are few alternatives to MTBE that meetgasoline specifications and some of these createpotential risks of their own.

Shell is encouraging the fuels industry in Europeto participate in a wide dialogue on the issuewith key interested parties, such as regulators,vehicle manufacturers, and health and waterorganisations. Shell’s belief is that a constructivedialogue will lead to the best way forward.

www.shell.com/stewardship

Californian fuel cell partnership

CASESTUDYAs part of Shell’s programme to betterunderstand the options for sustainable mobility ,Shell Hydrogen and Oil Products ar eparticipating in a Californian public/privatepartnership to examine whether fuel cellpowered vehicles could be a safe, practical,clean and efficient alternative to conventionalvehicles.

Fuel cells convert hydrogen to electricity.As their only emission is water, they are beingconsidered as potential clean replacements forthe internal combustion engine. Fuel celltechnology, although well established forspecialist uses, is only now being applied tovehicles and currently there is no fuel distributionsystem to support them.

The California project will:

• demonstrate the potential of fuel cell electricvehicles, by driving and testing them under re a lworld conditions in California. The first vehicleswill be running by the middle of 2000

• evaluate the viability of integrating alternative

fuels, such as hydrogen and methanol, intothe existing commercial fuelling infrastructure.Standards on the composition of new fuelswill also be developed

• investigate how fuel cell vehicles can becommercialised, by identifying potentialproblems, developing solutions, engagingparticipants in developing the best means forimplementing solutions, and recommendingspecific ways for government to help

• increase public awareness of fuel cell vehicles.

The first vehicles will use hydrogen. Othervehicles that run on liquid fuels which can beconverted to hydrogen on board will beintroduced later.

Other participants in the project are: BallardPower Systems (developers of fuel cells),DaimlerChrysler, Ford, California Air ResourcesBoard and the California Energy Commission,Texaco, Arco, Honda and Volkswagen.


“I shall feel further re a s s u re dwhen I next fill up the tank –

that I am supporting a companythat is not only socially

responsible and accountable but is also concerned for the world

my children will inherit.Malaysia

”

You told Shell

John Mills Vice President Strategy, Portfolio and Environment

Eladio RoblesHealth, Safety & Environment, Shell Panama

Hans van LuijkVice President South Zone

Kate DixonFuels Brand Manager, London

Judges of WorldAware award

“Shell Pakistan shows it is committedto sound, transparent commercialpractices and to the community inwhich it works. This is an excellentmodel of how a multinational can go beyond conventional goodpractice and community relations ina creative and imaginative manner.”


CHEMICALS

The emphasis in 2000 will be to build on earlyexperiences (see case study) as aspirations aretranslated into practical and tangible actions.Chemicals will continue to build supply chainrelationships with companies sharing its visionof the future such as Interface (see commentopposite) and learn together in the process.

Shell Chemicals will also continue to part i c i p a t ein Project Better World (see page 27). This allowss t a ff to gain experience in a broader arena andgain valuable two-way exchange of competenciesand learning. In 1999 staff worked withEarthwatch in construction of solar ovens inIndonesia and a sustainable managementproject for Lake Naivasha in Kenya.

Listening and respondingPeople have become increasingly

concerned about the potential effects ofchemicals on health and the environment. This isimportant for us in Shell Chemicals and for ourindustry. We want to listen and understand theseconcerns and to anticipate and respond openlyto questions from consumers and regulators.

42 Business Focus

CHEMICALS

Despite a difficult year focused onrestructuring the portfolio, globalisationand cost reduction, steady progresswas made in Chemicals’ drive tointegrate sustainable developmentthroughout its planning and operations.

A sustainable development panel wasestablished to promote the programme andprovide guidance to all parts of the business.

The Chemicals business framework, which isused as the basis for running its businesses, hasbeen updated to fully incorporate sustainabledevelopment thinking (see diagram opposite).The Higher Olefins business unit has elected tobe the first to gain experience in applying theframework and will share learning with otherbusiness units (see case study).

Sustainable development principles have beenbuilt into guidelines for capital investmentp roposals to ensure decision-making is aligned.Chemicals is also developing key perf o rm a n c e

indicators that are consistent with the Gro u pinitiative (see page 32) to drive improvement andm e a s u re pro g ress against clearly defined goals.

To stimulate even greater dialogue withinChemicals an interactive website dedicated solelyto sustainable development is being created. Thiswill provide a forum for the free exchange of best practice, experience and learning throughthe contributions of sustainable development‘champions’ from across the global enterprise. It will promote understanding and learningthroughout the business while encouragingcontributions from the expert and interested.

As part of Chemicals’ commitment to dialogue, itholds regular workshops with external sustainabledevelopment experts on plans and progress.Chemicals’ people have learnt through thesecontacts of the need to be clearer on howsustainable development principles will beincluded in business processes. More focus will be placed on this and Chemicals will reportprogress while seeking further feedback.

The concept of sustainable development helped us tochange fundamentally the way we think about our business.It is at the core of our business strategy.

Extensive tree planting in the nearby hills of the BerreChemicals manufacturing site, France, following a forest fire .

Project Better World – Nico Meijboom counting raptors in Hell’s Gate National Park, Kenya.

CORTERRA™, a new synthetic fibre used for clothes and carpets, is fully recyclable and helps reduce environmental impact.


43Business Focus

CHEMICALS

We take our responsibilities for encouraging thesafe use of our products very seriously and goto great efforts to ensure this. Concerns on useand impact can sometimes outpace the scientificknowledge on which regulations are based.

We are actively seeking to gain a betterunderstanding of the effects of chemicals on healthand the environment and to share this knowledge.

These challenges are shared by the chemicalindustry as a whole. That is why we areinvolved in an industry programme assessing

the health and environmental properties of thecommon industrial chemicals that make up thebulk of our product portfolio.

Shell Chemicals is also supporting the Long-rangeResearch Initiative, an international industr yresearch programme developed with externale x p e rts. “It will probe and extend our knowledgeabout how chemicals interact with humans and thee n v i ronment. This knowledge is – in my opinion –c rucial to the long-term survival of our industry,” saysE v e rt Henkes, Chief Executive, Shell Chemicals.

www.shell.com/focus

Sustainable development in the Higher Olefins business

CASESTUDYThe Higher Olefins business is built around thep roduction of versatile chemical intermediates thatenhance the pro p e rties of consumer products such asplastic films, synthetic lubricants and biodegradabled e t e rgents. Higher olefin derivatives are found inhomes throughout the developed world.

“The concept of sustainable development helpedus to fundamentally change the way we thinkabout this business. It is now at the core of ourbusiness strategy,” says Bill Colquhoun, ProductVice President of Higher Olefins.

“It is teaching us to look at our business in a muchwider context and to understand the role we play inthe entire value chain. This shift in thinking altere d

our aspirations and vision for the future, leading usto search for ways to dramatically reduce there s o u rces re q u i red to deliver the ultimate value ofour products all the way to the consumer.

“The key is to work with others in the supplychain and to create whole systems solutions forthe benefit of people and the environment. Theconventional wisdom that trade-offs are requiredbetween development and the environment nolonger limits our thinking. The reverse can betrue and will provide sustainable growthopportunities for enterprises that can innovate.”


“Sustainable developmentenables mankind not onlyto dream of, but to expectand to enjoy continuously

better lifestyles in adynamic world.”

“Sustainable development for me is about our future:meeting today’s business

and societal needs withoutmortgaging or impairingthe future of generations

to come.”

“A business must generateprofits while contributing tothe well -being of the planet

and its people. It is not aquestion of conflict between

profits and principles. It isthe joining of obligation

and opportunity.”

“For me sustainabledevelopment means

harmony between thebalance I want in life,

and the way I contribute to create wealth for

the world.”

Ray C. AndersonChairman & Chief Executive Interface, Inc.

“I cannot imagine a greaterchallenge to industry than thatposed by the systematic demiseof the biosphere in our times.We are pulling together toreverse that deadly trend.”

“Are you being truthful? Areyou different? Time will tell bythe actions you take. If you aresincere, I applaud your effortsand wish you the best of luck.

USA”

You told ShellEvert Henkes

Chief Executive

John D. JohnsonPlant Manager, Deer Park Chemical Plant, USA

Siripan PhattarabenjapolMarket Development Manager, Thailand

Maria Manuel Barreto RosaProduct Manager Glycol Ethers, Europe


D O W N S T R E A MGAS AND POWER

Contributing to sustainabledevelopment in Oman

CASESTUDYOver 200 permanent jobs have beencreated in a US$ 2 billion natural gasproject in Oman in which Shell is ashareholder (30%) and technical advisor.Over half of the new positions are held byOmanis and the target for 2008 is for localpeople to hold almost all of the jobs. Localindirect employment will also be created.

The joint venture project has established alocal forum of business and governmentrepresentatives to advise and assist incommunity initiatives. The project has built a number of much-needed roads anddonated US$ 45 million to help in theconstruction of a local hospital. The projecthas committed to contribute up to 1.5% of net income annually on communityprojects – depending on suitable proposalsbeing submitted.

Shell, together with the national and localgovernments, intends to commission a study of the Sharqiya regions of Oman toenhance the project’s current sustainabledevelopment initiatives for the region.

As part of its global social investmentprogramme Shell also sponsors businesstraining for local entrepreneurs (seeLiveWIRE page 11).

www.shell.com/case

44 Business Focus

DOWNSTREAM GAS AND POWER

In 1999, Downstream Gas and Power(GP) was confronted by some of thepractical challenges of sustainabledevelopment, raising awarenessthrough the Business of the need toactively engage with its stakeholders.

Gas is a convenient, clean, low-carbon fuel. The demand for natural gas is expected togrow. Shell is forcing the pace of growth in thispart of its business. Diversification into powergeneration and downstream gas marketing isaimed at meeting the needs of the increasingworldwide use of natural gas.

Early in the year all staff received a letterexplaining the significance of the Group SDMF(see pages 6 and 31) and the importance ofsustainable development to the business. Theapproach is one of incorporating the SDMFwithin existing business processes.

This recognises that many of GP’s projects –some running for over 30 years – alreadyconform in many ways to the principles ofsustainable development. This approach has

allowed these long-term major projects tooperate harmoniously in local communities andwith the support of the national governments.

The significance of such an approach wasunderlined during 1999 with some projects underdevelopment. For example a joint venture in whichGP participates met objections to building a gaspipeline across environmentally and sociallysensitive regions of Bolivia and Brazil (see Cuiabaissue). “The practicalities of dealing with the socialand environmental issues raised by the pipelinetaught us far more than paper studies would everhave done,” says Nick King, HSE and SustainableDevelopment Manager at Shell International Gas.

In a further example, in Oman a US$ 2 billiongas project now nearing completion has createdmany social and economic benefits (see casestudy). Environmental and social impacts needto be taken into account long before projectsare committed to, even before all the parties aresigned up. This is so in Venezuela where theseconsiderations are already being built into theplanning of a potential LNG plant.

www.shell.com/focus

The practicalities of dealing with the social andenvironmental issues raised by the pipeline taught us far more than paper studies would ever have done.

Liquefied Natural Gas (LNG) plant under construction near Sur, Oman.Community liaison officers in dialogue with local communities on the Cuiaba pipeline, Bolivia.


MW E R

45Business Focus

DOWNSTREAM GAS AND POWER

Cuiaba A new and controversial 650 km pipeline,

a p p roaching completion, will transport natural gasvia an environmentally and socially sensitive ro u t efrom Bolivia to Cuiaba in Brazil where the gaswill be used to generate electricity, replacingdiesel fuel. The pipeline is part of the developmentof a regional infrastru c t u re, the Cuiaba IntegratedE n e rgy project, designed to provide much-n e e d e de n e rgy for the region around Cuiaba in the MatoG rosso region of Brazil.

Shell Gas Latin America is a minority shareholder in the pipeline and the construction of a powerplant in Cuiaba. Tr a n s redes S.A. and Enron are themajority shareholders and operators of the project.

The pipeline goes through different types ofsensitive ecosystems from forest to wetland are a s ,s h rubs and grassland zones, and passes close to towns and villages. This route was selected inthe tender ahead of a competing project ro u t e dt h rough the highly sensitive Pantanal wetlands.

In addition to the environmental impactassessment required by the regulator, asupplemental environmental assessment has been completed to identify critical habitats along the pipeline route and provide details onthe mitigation of potential impacts. A code ofconduct was developed for the 800 peopleworking on the pipeline and constructors weretrained to follow the code. An engagementprocess was set up, listening to the views andconcerns of local people and other interestedp a rties, such as non-governmental org a n i s a t i o n s .

The pipeline has been buried and duringc o n s t ruction, a corridor of a maximum of 30 mwas declared within which all constru c t i o nactivities took place. Restoration of the vegetationwithin parts of the corridor is being assisted andsome sensitive areas are being re v e g e t a t e d .

“When travelling in Chinaand India, I realised how

important it is to use naturalresources responsibly.

I am proud to be part of acompany that spends a

major effort in developingand commercialising

clean technology.”

Donald ChenBusiness Development Manager, London

Linda CookChief Executive

Lew Watts Director Latin America,

Africa and Mediterranean Rim

Mimi TsuiMarketing Adviser – formerly Business Development

Analyst, Shell Companies in Greater China

“It is remarkable how oftensocial and environmental

responsibility comes up inconversation, and how

people’s eyes light up whenyou answer – these are part of sustainable developmentto which Shell is committedand that, for you, it aligns

with your own beliefs on theresponsibilities of business andindividuals in today’s world.”

“My challenge is to ensurewe are taking sustainabledevelopment into account

in all that we do. Ourdecision-making process

for new developments now considers issues suchas the impact on long-term

biodiversity and harnessingthe environmental benefits

of gas.”

“It is a comfort andencouragement for me to

know that Shell is sensitive to the issues surroundingsustainable development

and responsible enough toundertake an active role to

achieve these aims.”

Paul Unruh, Bechtel EnterprisesPresident and Chief Executive

“Shell has set a standard onsustainable development for allof us to emulate. But more thanjust words, Shell is integratingsustainability principles into everything they do.We applaud their leadership.”

Access will be blocked to prevent the route beingused as a means to settle in forest are a s .

The area surrounding the pipeline is inhabited by awide re p resentation of communities. The indigenouspeople belong mainly to the Chiquitano andAyoreo ethnic group. Some 5% of the pipelineinvestment has been allocated to indigenouspeople and the development of local communities.

An environmental and social management systemwas put in place to international standards priorto the start of construction. A monitoring teamwas established to ensure compliance. The teamconsisted of a co-ordinator, two assistants, ninee n v i ronmental inspectors, six archaeologists, onewater quality monitor and a social affairs team of14 people (community liaison officers, indigenousplan officers, community relations plan off i c e r sand a social co-ord i n a t o r ) .

A key area of concern identified was theChiquitano Forest – one of the best re m a i n i n gexamples of a tropical dry forest. Apart from themitigation eff o rts already in place, a separatefund has been established to support a long-termc o n s e rvation plan for this forest. The plan hasbeen set up with the Wildlife Conserv a t i o nS o c i e t y, Missouri Botanical Garden, FundaciónAmigos de la Naturaleza and Museo de HistoriaNatural Noel Kempff Mercado. The pipelineowners have committed to support this with up toUS$ 20 million over the next 15 years with af u rther US$ 10 million expected from the NGOs.

The facts above do not fully convey the high levelof dialogue between the project participants andother interested parties. The project has attracteda lot of local and international attention andproved to be a strong learning experience for us and our co-venturers on understanding andresponding effectively to stakeholder concerns.

www.cuiabaenergy.com

“Shell has taken a back seat and as a result consultation has been minimal at best, the project goes

t h rough primary tropical forest, noa l t e r n a t i ves are being considered

and sensitive habitat may bei r re versibly and significantly affected.

USA – writing about the Cuiaba pipeline”

You told Shell


RENEWABLES

46 Business Focus

RENEWABLES

Shell Renewables, which supplies energ yand wood from renewable sourc e s ,contributes to a more sustainable worldt h rough the very nature of its business. Ithas adopted six sustainable developmentprinciples (page 38) in line with thesustainable development managementframework (page 31) and is applying thisthinking to all its business decisions, nomatter how small. It is also installingc e rtifiable health, safety and enviro n m e n tmanagement systems to ensure it worksto the same standards worldwide.

Rate of investment and growth

One of the key drivers for developing re n e w a b l es o u rces of energy is the desire to reduce carbondioxide emissions in energy production bygradually replacing fossil fuels such as coal, oiland gas. Renewable sources emit much lesscarbon dioxide than conventional fuels per unitof energy produced (see graph and page 35).Many believe they could become a low costs o u rce of sustainable energy longer term .

Shell Renewables is in the third year of a US$ 500 million five-year investment plan tomake a profitable business from renewablere s o u rces. Success depends on finding enoughc o m m e rcially viable projects. This can be diff i c u l tbecause of the comparatively high cost ofh a rnessing renewable energy sources. A labellingsystem to certify energy generated in this way(see case study) could go some way to impro v ethe viability of certain renewable energy projects.

Shell Renewables has so far concentrated onforestry, making and marketing photovoltaic (PV) panels that produce electricity from the sun, and using wood for energy (biomass). In 1999 Renewables began investing in wind energy.This is an update of progress.

ForestryS h e l l ’s hardwood plantation forests cover 140,000h e c t a res*, mainly in South America. The wood isused for paper pulp and, incre a s i n g l y, for solidwood products. For commercial reasons the businesshas stopped research into the use of geneticmodification in tree improvement. All plantations willseek certification to the independent intern a t i o n a ls t a n d a rd of the Forest Stewardship Council. Carbonsequestration – the storing of carbon in trees – is under discussion in world forums and thecommercial implications are being evaluated.

Biomass energyCommercial biomass energy contributes moreto world primary energy production than allother renewable sources, except for large-scalehydro-electricity.

We are in the third year of a US$ 500 million five-yearinvestment plan to make a profitable business fromrenewable resources. Success depends on finding enough economically viable projects.

A solar panel – part of our Powerhouse™system – providing rural South Africa with

a ff o rdable electricity for lighting, radio and T V.

Shell forester on firewatch over plantations in Chile. Shell works with local companies to deal with this thre a t .

Using solar cells to make solar cells. The roof ofour new factory in Germany has solar panels

capable of providing 10% of its energy needs.

Kirkenaer biomass energy plant, Norway.Biomass briquettes are made from waste woodand are ready for delivery to customers.

*One hectare is about the area of two football pitches


47Business Focus

RENEWABLES

S h e l l ’s focus is to produce electricity, heat andsolid fuels from sustainable sources of wood, such as plantation forests, and waste. In Norw a y,a plant that delivers heat to industry has beenupgraded to make wood briquettes for sale. InDenmark wood pellets are sold to consumers. InE u rope we want to use the higher efficiencies ofcombined heat and power plants that burn wood.In Uru g u a y, we have been re s e a rching the moste ffective way to grow wood fuel.

Wind energyWind energy is the fastest growing of all energ ysources, at some 25% a year. Shell’s goal is toestablish offshore wind farms. The first pilotproject will be at our Harburg refinery inGermany and the electricity generated will belabelled (see case study). In the UK two of thel a rgest off s h o re turbines in the world (2 megawattseach) will be installed short l y.

Solar energyPhotovoltaic power has many desirable features andis growing rapidly. At present, it re p resents only atiny pro p o rtion of the world’s energy scene, aro u n d0.01% of total supply. Encouraged by someg o v e rnments in Europe and in Japan, consumers,

Jan de Beer,Executive Director Technology

ESCOM, South Africa

“Bringing affordableelectrical energy to

people living in ruralareas is an important

factor in the economicrevival of Africa.”

G o rdon EdgeE d i t o r, Renewable Energy Report, Financial Times Energy Newsletter

“PV manufacturers are faced withdaunting decisions. Will thep roposed factory meet mark e tdemand in terms of price, quantityand product type? Too large andt h e re will be idle capital. Too smalland competitors may undercut yo u .”

“People here see us as animportant and committed

player in the field ofrenewables. The focus on

rural electrification isunique. It gives me plenty of

challenges and the chanceto try out new solutions.”

“I am really pleasantlysurprised that an oil

company like Shell wants to put a lot of money into

commercialising energyf rom renewable re s o u rc e s .

For us in Kirkenaer (biomasse n e rgy plant, Norway) it is

an obvious way to make ourworld a better place to live.

It seems there is some similarthinking elsewhere in Shell.”

“It’s a real challenge to be shaping what could

one day become ourbiggest business. While it’s important to provide

sustainable and renewableenergy sources where theyare needed most, we muststrive to establish a profit-

making business or else wecannot continue to grow.”

“I am very pleased that thecompany has given me thepossibility to use new waysof growing and managing

Eucalyptus plantations. I candevelop myself pro f e s s i o n a l l y

in a company that hasestablished a good

reputation with the localc o m m u n i t y. ”

Green labelling

CASESTUDYRenewable energy is expensive to generate, but canbe sold at a premium. A trading system, called theRenewable Energy Certificate System, is now beingset up in Europe to encourage the development ofrenewables by allowing the environmental benefitof the energy to be traded separately.

The system is designed to enable electricitycompanies to sell renewable energy – oftencalled a green tariff – to their customers withouthaving to transport the actual energy from thepoint of production to the consumer.

This is how the system works:

1.The renewable energy is produced, say by a wind turbine, and is fed into the local grid and consumed locally.

2.An official body provides a certificate

vouching that the electricity has beengenerated using renewable energy. Thecertificate has a value determined by themarket (much as stocks and shares) and isplaced on a trade register.

3.An electricity seller offering a green tariff buysthe necessary number of certificates from theregister. Depending on how countriesorganise their electricity markets, the sellerrecoups the cost of the certificate from eitherthe consumer who pays a premium, or fromthe government who might offer an incentivein the form of a subsidy.

It is hoped that this system will help to create a strong and stable market in Europe, therebymaking renewable energy available to an ever-growing number of customers.

businesses and local authorities in these marketsa re erecting solar panels that feed surplus curre n tinto the grid. The market is also growing for ru r a lelectrification systems and Shell has projects in SouthAfrica, Bolivia, India, Sri Lanka and the Philippines.

Shell produces PV panels in The Netherlandsand has recently opened a large factory inGermany. When fully on stream it will be able to make enough PV cells a year to satisfyalmost 15% of the cur rent total world market.

Some commentators are frustrated at the slowg rowth in solar power and feel industry should bedoing more to bring down costs and stimulate themarket, which depends heavily on govern m e n ts u b s i d y. Without such subsidy solar power would berestricted to specialist applications and some ru r a lelectrification schemes. This is a classic ‘chickenand egg’ situation. Without demand companiesa re reluctant to invest in large capacity that off e r seconomies of scale. Customers are unwilling to buyuntil the price comes down. The impasse can beb roken by a combination of technical innovation,g o v e rnment incentives, customer willingness to paym o re and further investment in pro d u c t i o n .


N P RameshTechnical Manager, Shell Renewables India Pvt Ltd

Karen de Segundo Chief Executive

Jo BraatenOperator, Shell Renewables AS, Norway

Patricio Soto Silviculture Foreman,Rucamanqui,

Forestal y Agricola Monte Aguila SA, Chile


Limitations Although we are confident in the overall reliability ofthe reported data, we recognise that the data aresubject to limitations in respect of:

• definitions –differences in definitions for the reported parametersoccur, often due to the use of definitions prescribedfor reporting to regulatory authorities for examplewaste and spills. Health and safety data may beaffected by cultural interpretations and can be thesubject of confidentiality laws.

• accuracy and completeness –methods used to determine environmental data carryinherent limitations in respect of accuracy. Forexample, measurement of oil in effluent to surfaceenvironment may be based on continuous orintermittent sampling, and is influenced by the typeand accuracy of the instruments and techniques used

emission calculations can be based on broadindustry-wide standards, particularly for thedetermination of NOx, CO2 and CH4 emissions. For some data, such as spills, volumes have to beestimated

weaknesses in the control environment in Nigeriagive rise to some difficulty in confirming the degreeof accuracy of the flaring data (this also materiallyaffects the CO2, NOx and CH4 data), spills volumeand oil in effluents to surface environment

in some cases data not captured by an operating unitwere estimated, particularly regarding occupationalillness data and fugitive emissions sources.

ANNEX


ANNEX

Basis of reportingThe basis of reporting is as follows:

• The financial data in the Economic section are takenfrom the Annual Reports of the Parent Companies of the Royal Dutch/Shell Group of Companies (seepage 50). For more information refer to the website

www.shell.com/annualreport

• The HSE data are aggregated from the individualdata returns of Shell Operating Companies to the Business Organisations within the ServiceCompanies (see page 50). A full list of the Operating Companies can be found on

www.shell.com/planet This includes allcompanies which are under Shell's operationalcontrol plus a number of companies to which Shell companies provide operational services.Operational control means entities in which amember of the Royal Dutch/Shell Group has fullauthority to introduce and implement the Group‘sHSE Commitment and Policy. We report the data ona 100% basis even where the Group interest is less.Data from companies which were disposed of oracquired are generally included only for the periodthat companies were under operational control

• The majority of the remaining data in the Social and Managing our Business sections areaggregated from the individual data returns ofCountry Chairmen on behalf of Shell companies in individual countries.

Health, safety and environmentHealth and safety data can be found in the Socialsection, whilst the Environment section contains data onour environmental performance.

Data included this year are pertinent to the Group as awhole, hence data relevant to only one business suchas chemical oxygen demand or refinery energy indexcan be found at www.shell.com/planet

ComparabilityThe comparability of the data is affected by changes tothe portfolio of reporting entities, by changes in themethodology for determining certain data andenhancement in data collection systems.

Changes affecting the comparability of 1998 and1999 data include:

• changes in factors used to determine NOx emissionsin certain operating units

• improved systems to capture/determineoccupational illness, CO2, CH4, VOC, CFCs andHCFCs in certain operating units

• improved clarification and adherence to thedefinitions surrounding the reporting of fines data.

Items affecting the comparability of 1997 and 1998data can be found at w w w. s h e l l . c o m / p l a n e t

RestatementDuring 1999, the following events have led torestatement of the actual 1997 and 1998 data, as wellas the 1999 and 2003 targets as previously reportedin the Group HSE Report last year:

• a change in reporting structure in the upstreambusiness in the USAhas resulted in the exclusion ofdata from Aera Energy LLC

• a major source of NOx and CO2 emissions on certainships was not included in the 1998 and 1997 data

• SO2 emissions for Durban refinery have beenrecalculated

• 1997 VOCs emissions from refineries have beenrecalculated

• minor improvements in calculation methodologies.

These restatements have resulted in a change in 1998NOx, CO2, VOCs + CH4, oil in effluents to surfaceenvironment, spills data of 8%, 6%, 2%, 8% and 21%(1997: 10%, 5%, 9%, 8% and 15%) respectively.As a result we have reduced our 1990 baseline forGHG emissions from 120 to 114 million tonnes ofCO2 equivalent. The 2003 targets and projections for Chemicals do not take into account anticipatedchanges in portfolio. The limited impact of therestatements on all other parameters can be found at

www.shell.com/planet

Targets and projectionsOur improvement goals are of two types. Targets perunit of activity give the best gauge of performance,absolute projections multiply the unit target by theassumed business activity.

Our 2003 targets and projections are in principlefixed. Compared to last year, changes have beenmade to align them with restatements due to historicportfolio and methodology changes. The figures do nottake into account changes in planned activity levelssince last year nor prospective portfolio changes.

Key to the annex:EP Exploration and ProductionO P+ G P Oil Products and Downstream

Gas and PowerChem ChemicalsCoal Shell Coal Pty Ltd.N/A Not applicable

HSE parameters with significant impacts at Group level that have been verifiedOther HSE parameters that have been verified

*Data not verified in 1999



ANNEX

*Data not verified in 1999


‘TELL


ANNEX

The companies in which Royal Dutch Petroleum Company and The“Shell” Tr a n s p o rt and Trading Company, p.l.c. directly or indire c t l yown investments are separate and distinct entities. In this Report thee x p ressions ‘Royal Dutch/Shell Group’ and ‘Group’ are used torefer to the companies of the Royal Dutch/Shell Group as a whole.The words ‘Shell’, ‘we’ and ‘us’ are used in some places to refer tothe Group and in others to an individual Shell company orcompanies where no particular purpose is served by identifying thespecific company or companies.

Likewise, reference to ‘Shell International Renewables’ and to‘Shell Chemicals’ are references to those Shell companies whichare engaged in the renewables business and in the chemicalsbusiness respectively.

© Shell International Limited (SI), 1999. Permission should be soughtf rom SI before any part of this publication is re p roduced, stored in aretrieval system, or transmitted by any other means. Agreement willn o rmally be given, provided that the source is acknowledged.

Paper quality

The paper used in this Report is made from a base pulpextracted from the timber of sustainably managed forests andbleached with oxygen. It has been awarded the Nordic Swane n v i ronmental label for low emissions during manufacture, and the manufacturer is accredited with ISO 9002 QualityAssurance and ISO 14001 Environmental Management System.

The Sustainable Development Group (PXR), Shell International, thank:

Peter Knight for writing.

AIA (Associates in Advertising), London for design and production.

Butler and Tanner for printing.

04.00/120

ShareholdersThere are some 650,000 shareholders of RoyalDutch Petroleum Company and some 284,000of The “Shell” Transport and Trading Company,p.l.c. Shares of one or both companies arelisted and traded on stock exchanges in eightEuropean countries and in the USA.

Parent CompaniesAs Parent Companies, Royal Dutch Petro l e u mCompany (Royal Dutch) and The “Shell” Tr a n s p o rtand Trading Company, p.l.c. (Shell Tr a n s p o rt) do not themselves directly engage in operationalactivities. They are public companies; Royal Dutch is domiciled in The Netherlands, and ShellTr a n s p o rt in the United Kingdom.

The Parent Companies own the shares in theGroup Holding Companies but are notthemselves part of the Royal Dutch/Shell Groupof Companies. They appoint Directors to theBoards of the Group Holding Companies, fromwhich they receive income in the form ofdividends. Royal Dutch derives most of itsincome in this way, on the basis of its 60%interest in the Group; the other 40% is ownedby Shell Transport.

Royal Dutch/Shell Group of CompaniesThe Royal Dutch/Shell Group of Companies hasgrown out of an alliance made in 1907between Royal Dutch Petroleum Company andThe “Shell” Transport and Trading Company,p.l.c., by which the two companies agreed tomerge their interests on a 60:40 basis whilekeeping their separate identities.

Group Holding CompaniesShell Petroleum N.V. and The Shell PetroleumCompany Limited between them hold all the share sin the Service Companies and, directly or indire c t l y,all Group interests in the Operating Companiesother than those held by Shell Petroleum Inc.

Service CompaniesThe main business of the Service Companies isto provide advice and services to other Groupand associated companies.

Operating CompaniesOperating Companies are engaged in variousactivities related to oil and natural gas, chemicals,power generation, renewable re s o u rces and otherbusinesses throughout the world.

The management of each Operating Companyis responsible for the performance and long-termviability of its own operations, but can draw onthe experience of the Service Companies and,through them, of other Operating Companies.

Contact detailsThis publication can be found at

www.shell.com/shellreport

It is one of a range published by:Shell InternationalShell CentreLondon SE1 7NAUnited Kingdom

covering aspects of the oil, gas and power,chemicals and renewables businesses. For furt h e rcopies, and for details of other titles available in English or as translations, please contact the External Affairs department of your localShell company. Alternatively, write to the above address or fax +44 020 7934 5555 (London)quoting department reference PXX, or telephone +44 020 7934 5293 or contact us on our website

www.shell.com


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BUSINESS PRINCIPLESPrinciple 1 – ObjectivesThe objectives of Shell companies are to engagee ff i c i e n t l y, responsibly and profitably in the oil,gas, chemicals and other selected businesses andto participate in the search for and developmentof other sources of energ y. Shell companies seeka high standard of perf o rmance and aim tomaintain a long-term position in their re s p e c t i v ecompetitive environments.

Principle 2 – ResponsibilitiesShell companies recognise five areas ofresponsibility:

To shareholdersTo protect shareholders’ investment, and pro v i d ean acceptable re t u rn .

To customersTo win and maintain customers by developingand providing products and services which offervalue in terms of price, quality, safety andenvironmental impact, which are supported bythe requisite technological, environmental andcommercial expertise.

To employeesTo respect the human rights of their employees, to provide their employees with good and safeconditions of work, and good and competitivet e rms and conditions of service, to promote thedevelopment and best use of human talent andequal opportunity employment, and to encouragethe involvement of employees in the planning and direction of their work, and in the applicationof these Principles within their company. It isrecognised that commercial success depends onthe full commitment of all employees.

To those with whom they do businessTo seek mutually beneficial relationships withcontractors, suppliers and in joint ventures and to promote the application of theseprinciples in so doing. The ability to promotethese principles effectively will be an importantfactor in the decision to enter into or remain insuch relationships.

To societyTo conduct business as responsible corporatemembers of society, to observe the laws of thecountries in which they operate, to expresssupport for fundamental human rights in linewith the legitimate role of business and to giveproper regard to health, safety and theenvironment consistent with their commitment tocontribute to sustainable development.

These five areas of responsibility are seen as inseparable. Therefore, it is the duty ofmanagement continuously to assess the prioritiesand discharge its responsibilities as best it can onthe basis of that assessment.

Principle 3 – Economic principlesProfitability is essential to discharging theseresponsibilities and staying in business. It is ameasure both of efficiency and of the value thatcustomers place on Shell products and services.It is essential to the allocation of the necessarycorporate resources and to support thecontinuing investment required to develop andproduce future energy supplies to meetconsumer needs. Without profits and a strongfinancial foundation it would not be possible tofulfil the responsibilities outlined above.

Shell companies work in a wide variety ofchanging social, political and economicenvironments, but in general they believe thatthe interests of the community can be servedmost efficiently by a market economy.

Criteria for investment decisions are notexclusively economic in nature but also take intoaccount social and environmental considerationsand an appraisal of the security of the investment.

Principle 4 – Business integrityShell companies insist on honesty, integrity andf a i rness in all aspects of their business and expectthe same in their relationships with all those withwhom they do business. The direct or indirect off e r,payment, soliciting and acceptance of bribes inany form are unacceptable practices. Employeesmust avoid conflicts of interest between theirprivate financial activities and their part in theconduct of company business. All businesstransactions on behalf of a Shell company must bereflected accurately and fairly in the accounts ofthe company in accordance with establishedp ro c e d u res and be subject to audit.

Principle 5 – Political activities

Of companiesShell companies act in a socially responsiblemanner within the laws of the countries in whichthey operate in pursuit of their legitimatecommercial objectives.

Shell companies do not make payments to politicalp a rties, organisations or their re p resentatives ortake any part in party politics. However, whendealing with governments, Shell companies havethe right and the responsibility to make theirposition known on any matter which affects

themselves, their employees, their customers, ortheir shareholders. They also have the right tomake their position known on matters affectingthe community, where they have a contributionto make.

Of employeesWhere individuals wish to engage in activitiesin the community, including standing for electionto public office, they will be given theopportunity to do so where this is appropriate inthe light of local circumstances.

Principle 6 – Health, safety and theenvironmentConsistent with their commitment to contribute tosustainable development, Shell companies havea systematic approach to health, safety andenvironmental management in order to achievecontinuous performance improvement. To thisend Shell companies manage these matters asany other critical business activity, set targets forimprovement, and measure, appraise and reportperformance.

Principle 7 – The communityThe most important contribution that companiescan make to the social and material pro g ress of the countries in which they operate is inp e rf o rming their basic activities as effectively as possible. In addition Shell companies take a constructive interest in societal matters whichmay not be directly related to the business.O p p o rtunities for involvement – for examplet h rough community, educational or donationsp rogrammes – will vary depending upon the sizeof the company concerned, the nature of the locals o c i e t y, and the scope for useful private initiatives.

Principle 8 – CompetitionShell companies support free enterprise. They seek to compete fairly and ethically and within theframework of applicable competition laws; they willnot prevent others from competing freely with them.

Principle 9 – CommunicationsShell companies recognise that in view of theimportance of the activities in which they areengaged and their impact on national economiesand individuals, open communication is essential.To this end, Shell companies have compre h e n s i v ecorporate information programmes and pro v i d efull relevant information about their activities to legitimately interested parties, subject to any overriding considerations of businessconfidentiality and cost.


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