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Logic of Ignorance

Why Russian oil companies are not responsive to environmental concerns

© SIGNATURE/ISTOCK

Senior management of Russian oil companies lack environmental awareness and refuse to invest in environmental safety, according to Sofia Villowho has examined the operations of Russia's major oil producer from an ecological perspective.

Responses Kept Confidential

According to studies conducted in the U.S., Canada, Norway and the U.K.,* oil companies' lack of environmental consciousness in developed economies often reflects selfish, profit-maximising attitudes.

In Russia, by contrast, ignorance rather than selfishness seems to be the problem, which tends to be systemic rather than specific to certain CEOs. Villo's review of a leading Russian oil company's practices reveals educational, financial and political factors behind their lack of environmental consciousness.

The name of the company has been kept confidential to protect the respondents' privacy.

Oil Company X is part of the XT group of companies and is working on Project Z to develop the Alfa Oil Field in Russia. Due to significant environmental risks, Project Z, which started back in the 1990s, has repeatedly come under criticism from environmental groups. However, the government perceives this large-scale project to be strategically important.

Villo's study is based on:

 112 documented sources such as press releases issued by the company and its environmental critics, reports, corporate logbooks, surveys, interviews, etc.; and

  15 in-depth interviews with the company’s decision-makers on Project Z’s environmental safety and with external environmental safety experts working with the company.

Pains Faced by 'Green Men'

Lacking environmental awareness, CEOs are reluctant to invest in environmental safety, according to interviews with company representatives (senior managers and environmental safety experts).

A tendency to underestimate the importance of sustainable practices is the key obstacle to better environmental practices in the Alfa Oil Field. Company personnel are not trained in sustainable practices, the environmental monitoring zone is poorly defined, and industrial waste is not sorted.

‘As one example, waste is supposed to be sorted, which means that any waste generated on the platform must be dumped into separate containers. But who needs it? Who would be willing to spend time doing this job and why? They just dump it in one heap for disposal’ (manager of the oil platform operating company).

This lack of awareness often leads to negative attitudes and opposition towards environmental safety experts.

‘It's hard work. Throughout my career, I've faced enormous resistance from CEOs. You have to explain to them why things need to be done in a certain way and why they are legally required to spend money on this’ (environmental safety expert with the oil platform operating company).

Experts insisting on sustainable practices are generally perceived as 'green men' with obscure agendas. According to study respondents, such attitudes are very different in foreign companies.

‘There's no need to explain [to Western companies] time and again what ecology is about. But here [In the Russian oil company X], you have to explain why the platform needs two doctors, not just one. Perhaps for them I sound like a Greenpeace activist, an idealist with shining eyes’ (environmental safety expert with the oil platform operator).

Education Failure

According to environmental safety experts, this type of resistance stems from ignorance, which, in turn, results from the Russian education system's failure to address sustainable development issues.

‘Generally, ecology is perceived as a narrow discipline which is irrelevant to CEO performance. Before 1993, I used to be a CEO in a company operating in the Russian North, and I never heard the word “ecology” spoken there. The only type of environmental work we needed to do was to re-cultivate the lands damaged by the drilling. We were required to hand them over to reindeer-breeding farms with the drilling units and other equipment removed, the ground levelled off and re-soiled, and perhaps grass re-seeded... That was all we were supposed to do, nothing more’ (manager of the oil platform operating company).

When the boss lacks environmental literacy, you can hardly expect them to be willing to educate their subordinates.

‘Our management has not been helpful at all. We had planned to educate the staff about environmental issues so they would understand what needs to be done and why. But it did not work out...’ (environmental safety expert with the oil platform operator).

Supervision Fails to Create Motivation

The Alfa Field development project has benefited from government support, including tax incentives. While they ensured the operator's profitability, these incentives failed to motivate Company X to protect the local ecology as they were granted without any environmental compliance requirements.

Likewise, the government’s environmental supervision did little to create this motivation. The study author describes ‘two mechanisms whereby Russia's current political system perpetuates corporate ignorance in environmental matters’, namely:

 A complex hierarchy of supervising authorities (e.g. an oil spill response plan requires coordination with the local office of the Ministry of Emergency Situations, the seaport administration, representative offices of several federal authorities, and the Ministry of Natural Resources marine inspectorates).

 The supervising authorities' inclination to abuse their power. 

In particular, the respondents mentioned the difficulties they faced in trying to find mutual understanding with the Environmental inspectorate (Gosecologoekspertiza), the body responsible for reviewing every project in terms of the effect on  the environment before the projects are allowed to proceed.

‘Experts who sit there have very little awareness of how the industry operates. Instead, they have more to do with foundations and institutions protecting the earth, the atmosphere, the Atlantic walrus..., dandelions, little bunnies and squirrels, you name it. But we still need to engage with these people. What they write in their environmental impact assessment reports is not about environmental compliance which is required by law but about something they would wish to happen in the first, second and third places, and please tie a bow on top!’ (manager of the oil platform operating company).

The respondents also pointed out companies' reluctance to engage with one another as a specifically Russian feature. Such uncooperativeness may also stem from the system of state supervision which is arranged vertically and does not encourage horizontal links. It is no accident that Project Z did not implement any of the measures which would have required engaging with competition.

‘Company X’s senior managers rejected all environmental safety measures which involved interaction with competitor companies. Neither internal nor external environmental safety experts were able to get certain measures implemented, such as oil transportation from the platform to the shore through a pipeline, building a joint oil spill response system with the Russian oil company M or coordination of environmental monitoring efforts between Company X and other oil companies operating in the region’.

Why Russian Oil Companies Ignore Environmental Safety

 Poor management culture (senior managers lacking environmental awareness).

 Educational system failure (environmental education not being part of senior management training).

 Financial system (fiscal incentives are not dependent on compliance with environmental standards).

 Political system (government interference with environmental safety decision-making and inadequate goal-setting by environmental authorities).

* United States [Shrivastava 1995; Perrow 2009; Crilly, Sloan 2012], Canada [Boiral, Baron, Gunnlaugson 2014], Norway [Hart 2013], England [Crilly, Sloan 2012].

IQ 

STUDY AUTHOR:
Sofia Villo, Senior Lecturer, Department of Management, HSE Campus in St. Petersburg
Author: Svetlana Saltanova, April 16