How would you evaluate Petrobras’ sustainability effort? What have they done well and or not so well in the transformation?

Going Green at an Oil Company(?)

For many people, the notion of environmental sustainability does not fit well—if at all—with a giant oil company. This is an industry, it would seem, that thrives on the ever‐increasing consumption of fossil fuels, not to mention environmental catastrophes such as oil spills. José Sergio Gabrielli de Azevedo, CEO of Brazil‐based oil giant Petrobras since 2005, says he is determined to change that image.

Gabrielli describes his personal politics as progressive and leftist, pointing to his 1970 arrest by the Brazilian army as he was protesting his country’s then military dictatorship. After receiving a PhD in economics and joining the faculty of the London School of Economics, Gabrielli joined Petrobras in 2003 as Chief Financial Officer. His fast rise to the top was helped by his close personal and political ties with Brazil’s ruling Workers’ Party.

A State Company

Petrobras was founded by the government in 1953 under the nationalist slogan, “The petroleum is ours!” Petrobras held a monopoly until 1997, when the government gave up its complete ownership (although it still controls a majority of voting stock) and allowed for competition. Since then, the company has compiled a troubling history of disasters. In January 2000, a poorly maintained pipeline spilled oil into Guanabara Bay for two hours before the leak was detected. Six months later, a Petrobras refinery spewed millions of gallons of oil into two nearby rivers. A BBC news report referred to “an embarrassing level of incompetence” on the part of Petrobras managers. Then, less than a year later, a Petrobras drilling platform—the world’s largest at the time—blew up, killing 11 employees and dumping 300,000 gallons of oil into the water. Gabrielli saw that troubled history as a business problem to be solved as well as an environmental threat to be addressed. “From a purely financial perspective,” he said, “environmental mismanagement was just bad business. From an investor relations perspective, ignoring the growing demand for transparency and sustainability was also bad business.” Plus, added Gabrielli, his personal values and political beliefs led him to move Petrobras into a position of environmental leadership.

Gabrielli Acts

In pursuit of his goal, Gabrielli took a number of steps:

Increasing the budget of the company’s health, safety, and environment programs
Using the enormous market clout of Petrobras (which was the largest company in Latin America) to demand that all of its suppliers comply with best standards for environmental management
Personally touring sites to check compliance with company standards
Moving Petrobras’ new refineries away from gasoline and toward biofuels
Joining the Dow Jones Sustainability Index in order to invite external monitoring of and reporting on Petrobras’ efforts
Endorsing (and sitting on the board of) the United Nations Global Compact
Personally blogging and tweeting in order to make the case for Petrobras’ efforts directly to the public.

As evidence that these activities were changing the culture and operations of Petrobras, Gabrielli pointed to two facts:
The company had gone eight years without a “major” environmental accident.
The private consulting firm, Management and Excellence, ranked Petrobras as number one among the world’s oil and gas companies for promoting sustainability.

Petrobras’ 5‐Year Strategic Plan, announced in 2010, called for additional investment in refining capacity. The company’s goal was to make Brazil fuel independent by 2014. That independence, it was hoped, would be supplied by Petrobras’ 2008 discovery of a major oil reserve coming from a vast deep water off‐shore region known as the subsalt. Later that same year, however, the Gulf of Mexico oil spill—a British Petroleum rig exploded, killing 11 workers and pouring nearly 185 million gallons of oil into the Gulf—raised questions about the viability and the costs of future deep-water drilling.

How Green Is Petrobras?

In 2010, Newsweek conducted an audit of the top ranking “green” companies in the world. The highest-ranking companies—IBM, Hewlett‐Packard, Novartis, and Panasonic among them—received an overall score in the 90s. The highest-ranking oil and gas company, French‐based Total, received a score of 65. Petrobras’ score was 48, placing it sixth in the list of oil and gas companies and 84th overall in the top 100 companies. In fact, five of the bottom ten on that list were oil and gas companies.

Read “Changing to Green at an Oil Company (?)” and use these questions as a guideline for the submission.

What triggered Gabrielli’s commitment to going green at Petrobras?
How would you evaluate Petrobras’ sustainability effort? What have they done well and or not so well in the transformation?
Do you agree with Gabrielli’s assessment of the success of green policies at Petrobras? Explain.

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