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Role of International Business in the Ecological Crisis

4018 words (16 pages) Business Assignment

10th Nov 2020 Business Assignment Reference this

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Introduction:

The concept of Corporate Social Responsibility is relatively new and illustrates the fact that organizations, especially corporations (but not only) have an obligation to take into account the interests of clients, employees, shareholders, the community in which they operate, the ecological aspects and the environmental impact of the economic operations carried out. This obligation is seen as being above the restrictions created by the legal regulations. According to the definition given by the European Commission (Yıldız, A & Ozerim, G. ,2014) , to be socially responsible, a company must integrate into its actions and strategies the social and environmental problems related to the activities in which it is involved.

I chose to write about this topic because Corporate Social Responsibility and the ecological crisis represents today a severe concern of the majority of the companies. This is a new field that involves the future of our countries, and it deserves to be studied and explored. This paper presents some good practice examples of Corporate Social Responsibility communication strategies, their implementation, and their influence and impact on company image, reputation, activity development, and success.

In the first part of the essay, we will examine the concept of Social Responsibility and outlined the benefits of using this strategy on international business.

In the second part of the paper, our primary focus will be on the case study: OMV Petrom, where it will be explained in detail the mission and vision of the company and their social responsibility projects over the last years.  In the last part of the essay, I will make a comparison between OMV Petrom and three main competitors on the market along with their projects of Corporate Social Responsibility.

Main Body:

All companies, regardless of size or geographical area in which they operate, depend directly or indirectly on natural resources. Their activity has a significant impact on the environment and communities, so the core of each business must be based on sustainability.

Governments and businesses are now discovering that protecting the environment is beneficial for companies and jobs. Therefore, an economy based on environmentally friendly policies is innovative and resource-efficient, stimulating growth, and boosting employment. What customers, suppliers, employees, government, and society generally expect from a company is changing the business model, with a greater focus on sustainability and responsibility.

We all want the business to be successful, but not at any cost. With a growing global population struggling to improve their living standards in the context of a planet with limited resources, companies must anticipate global changes and change the way they operate to keep up with these transformations. The challenge lies in how changes can or should lead to a fundamental transformation, the way organizations are run, and how shareholders measure success. And for this, it is necessary to adopt integrated reports that will give to all stakeholders access to a wide range of information about the company and the impact of its activity in the community.

What is Corporate Social Responsibility?

The European Union“defines Corporate Social Responsibility as “a concept by which companies voluntarily integrate their social and environmental concerns into business, promoting them in relationships with stakeholders.” (Yıldız, A. & Ozerim, G., 2014  )  The term “corporate social responsibility” became popular only in the 20th century through the 1960s. In 1953, Howard R. Bowen wrote the fundamental book “Social Responsibilities of the Businessman”, and since then, there has been a change in the way international companies are dealing with environmental issues.

According to Doh, J.P. , Littell, B. and Narda  (2015) the CSR activity has been increasing over the last few years, mainly because companies have recognized the commercial advantages of increased transparency. Therefore, it is believed that the quantity of information regarding sustainability actions will also increase, that’s mainly because companies can gain knowledge of their implications and they can also understand the benefits of this great strategy.

Benefits of Corporate Social Responsibility

The benefits of implementing principles of social responsibility are mainly related to improving company image as well as increasing the company’s reputation and attracting and motivating valuable employees.

Both corporations and the media accept that in the relations between companies and communities, social responsibility is mutually beneficial. On the one hand, it generates profit for companies. On the other hand, social responsibility involves the support of communities or social groups and the involvement of companies in local development.

For small, medium, and multinational companies, the introduction of corporate social responsibility has a multitude of beneficial aspects, such as:

  • Increased motivation and degree of staff involvement in company actions.
  • Improving the performance of employees and the company.
  • Establishing good relationships within the community.
  • Improving the company’s image and reputation among the community, partners business, employees, shareholders, the public.
  • Building and developing closer relationships with business partners.

Promoting Corporate Social values within Petrom SA Romania

About OMV Petrom

OMV is a Romanian integrated oil company, controlled by Austria's OMV. It is one of the largest corporations in Romania and the largest oil and gas producer in Southeast Europe.

The company’s main activities are Refining Oil and Gas, Exploration and Production, and Marketing.

OMV Petrom has operated in several countries:

  • Romania - largest company;
  • Moldova - 2nd largest company, 31% market share;
  • Bulgaria - 3rd largest company, 18% market share;
  • Serbia and Montenegro - 3rd largest company, 13% market share.

The mission and vision of the company

According to the basic principles of those of OMV, the company vision is to consolidate the position of leader in the oil and gas industry in the South-East region of Europe. The mission of OMV Petrom is to have both profitable and sustainable growth of the company, as this is beneficial for shareholders, customers, employees, and the Romanian economy. Another objective of the company is focused on reducing the impact of climate change through growing energy efficiency and reducing carbon emissions by implementing the highest quality environmental standards. (OMV’s Sustainability Report, 2018)

Petrom claims that it has three essential values, which determine the foundation of their business: professionalism, values and partnership. The company is actively involved in the life of the community and society. Petrom claims that protecting the environment is just as important to them as sustainable economic growth, employee, clients and partners safety, high ethical standards in business, or development of the local community. Petrom runs four projects of social responsibility: Parks of the Future (rehabilitation of five parks in five cities of the country), Disaster Preparedness Campaign (together with Red Cross), Petrom Olympics (1,300 young performers receive scholarships for competitions and Resources for the Future (education program on the responsible use of resources, which also featured the TV spot “Andrei”)

OMV Strategy for Sustainability

OMV Petrom focuses on two key fundamental factors for their strategy: people and sustainability. To this end, the company wants to develop an organizational culture based on performance,in order for the company to grow and increase its operational excellence. At the same time, the OMV Petrom group claims that they focus on increasing the culture of sustainability, using natural resources efficiently, and having high standards of safety for the environment.

The company’s actions for Environmental crisis:

According to the OMV Petrom Sustainability reports (2013-2018), OMV’s focus is on reducing greenhouse gas emissions and on the efficient use of water and energy resources. In 2013, the company’s objective was to reduce the carbon intensity of its operations by 2% compared to 2012. This objective was achieved; the reduction of carbon intensity was a total of 3.4%. In 2014, the water consumption of the operations of the company OMV decreased compared to 2013 by 8% by modernizing the water treatment plants.

In the same year, the company invested 11 million euros in the implementation of several eight projects whose objectives were to reduce energy consumption and not to exceed the threshold of 13,000 tons of CO2 emissions. However, GHG emissions increased by 15% in 2015, up to 5.2 million tons of CO2. Approximately 50% of the waste caused by the OMV was recycled in 2013, and in all the locations of the company, there are management plans for waste, risk allergy, and water. Therefore, the company has reduced the waste generated by 20%.

Comparison with other companies in the oil products market

As we mentioned earlier, on the Romanian oil market, we can find three significant players: OMV Petrom, Lukoil Romania, and Rompetrol. Of all these companies, OMV Petrom is the only one that publishes annual sustainability reports, which contains the costs related to Social Responsibility. The other three companies do not publish Social Responsibility reports, but on their website, there is a special section dedicated to Social Responsibility projects.

With their help, we estimated the amount allocated to social responsibility projects for these three companies. After that, we calculated the percentage of profit allocated to CSR, from 2016 to 2018.

After I completed the calculations, I created the following table:
 

     Financial year

Company

2016

2017

2018

CSR Budget

Procent

CSR Budget

Procent

CSR Budget

Procent

OMV Petrom

15 mil

0,14%

13.02 mil

0.45%

11.65 mil

0.28%

Lukoil Romania

2  mil

3,98%

2,2 mil

4,75%

2,1 mil

3,95%

Rompetrol

2,16 mil

 1,45%

2,16 mil

-no profit

2,16 mil

1,33%

Table 3.1 Comparison between the oil companies in Romania regarding the investment in CSR

This table shows the three major companies in the Romanian oil industry, their profit, the budget allocated to social responsibility projects, and the percentage of profit allocated to them.

We can see that the amount allocated to social responsibility projects for the company OMV Petrom is very volatile, and the last reported amount is 11.65 million RON, about 5,5 times higher than the budget of the company Lukoil or Rompetrol. The previous two companies invest approximately the same amount of money annually for social responsibility projects, respectively, 2 and 2,16 million RON.

As I mentioned earlier, from the community point of view, the amount allocated to CSR projects is more important than the percentage, because they need the highest financial resources to achieve their goals. From this point of view, we can say that OMV Petrom it is more responsible for the CSR projects than the other oil companies from Romania.

On the other hand, the percentage of profit allocated to CSR projects shows the sincere devotion of the companies in this field. Regarding the percentage, Lukoil is a company with an average of 4% of the profit allocated to CSR projects. The second place is Rompetrol, with an average of 1.4% and OMV Petrom in the last place, with an average of 0.29 % of profit for social responsibility projects.

A case study by Shachi Rai and Sangeeta Bansal (2014)  analysed the percentage that the largest companies allocate to the following fields: health, education, community development, and environment. This analysis reflects the financial year 2013. After a detailed report, the two authors found that the percentage allocated to the environmental causes is higher for the developed countries while developing countries such as India allocate more money for community development and education.

After all, this is a logical phenomenon because the developed countries already have a high-quality education and a developed community that does not need funding, so it can focus on the current environmental problems and face the challenges created by climate change.

Developing countries are focusing on solving the most prominent problems: community, rural development and education. In the oil industry, the two authors found that large companies allocate 35.29% for education, 29.41% for community development, 23.5% for health, and 11.76% for the environment. Therefore, the oil sector is directing its spending towards the area of community development and rural areas, with a particular focus on improving education.

Usually, the companies invest in the areas where they carry out their operations because these areas are most affected by the negative externalities of their actions. Therefore, oil companies are financing these communities by reducing the negative effects of their production activities.

Usually, oil companies organize health camps, which offer free sanitized controls for the inhabitants of the areas where they carry out their production activities.

Another reason why these companies choose to invest in these areas is to create a good image for the locals and to become familiar with these areas but especially with their needs.

 I calculated the percentage that the three big oil companies in Romania allocate for the domains: health, education, community development, and environment, and I created the following table:

                Field

Company

Education

Health

Community development

Environment

Total

OMV Petrom

24.28%

5,08%

68,37%

2,27%

 100%

Lukoil Romania

32,42%

25,67%

-

41,91%

100%

Rompetrol

-

50%

-

50%

100%

Table 3.2. Percentage of expenses allocated to major CSR areas

As you can see, there are significant differences between the three major oil companies in Romania, regarding the areas for which they allocate their Social Responsibility expenses.

According to the analysis of Shachi Rai and Sangeeta Bansal (2014), the oil sector in the underdeveloped countries, such as Romania, is focusing on solving the problems of community development and education. According to my calculations, however, only OMV Petrom has allocated part of the Social Responsibility budget for community development. Not only is it the only company that has assigned a portion of the budget for community development, but this is the highest percentage: 68.37%.

This budget dedicated to community development represents the following actions: the development of local infrastructure, investments in the modernization of the electricity network, investments in modernizing the drinking water system, rehabilitation of the public space, community centers, and building playgrounds for children.

In terms of investments in education, Rompetrol is in the last place with 0%, OMV Petrom is in the second place with 24.28%, and Lukoil Romania spends the most on education with 32.42% of the total expenses. The education projects of the two companies vary between entrepreneurship education and training, scholarships for students, scholarships for mentoring teachers and projects that promote young talents. In terms of health investments, all three companies finance health-related projects. These projects vary between facilities and facilities for the sanitized infrastructure with specialized equipment, water treatment, and filtration solutions and programs for the health of children with disabilities and chronic diseases. In this area, Rompetrol invests the most, with 50% of the total CSR expenses dedicated to health. On the second place is Lukoil Romania with 25.67%, at the last place we find OMV Petrom with only 5.08%

Regarding the environment, all three companies finance projects related to reducing the effects of climate change. These projects range from planting and afforestation actions. In this area, Rompetrol is in the first place, half of the projects it sponsors are those of environmental protection Lukoil Romania stands at 41.91%, while OMV Petrom stands at 2.27%

The results of this study define the characteristics of companies with a truthful profile towards CSR. Therefore, the study may be useful to different users of sustainability reports to understand the managers’ real commitment to CSR reporting.

Conclusion:

In conclusion, corporate social responsibility is not simply about reducing the amount of waste the business produce or using less energy but is worried about developing processes that will lead to businesses becoming completely sustainable in the future.

I consider that all companies, regardless of their field of activity, should be involved in such projects to contribute to a healthier life of the entire ecosystem.

OMV Petrom and the other oil companies have every reason to be the initiator of Social Responsibility projects, given that the problems created in the environment are extremely important, the emission of gas being one of the causes of global warming, a problem now on the agenda of high-level international meetings, because of its seriousness.

For a company, being environmentally responsible means not accepting a higher risk than the generally accepted one, ensuring the protection of employees and the safety of consumers, not polluting, recycling, and designing the production process and products so that part more materials can be recyclable. In the case of environmental risk, corporations must follow sustainable development strategies, identify profit strategies that take into account the long-term community interests, to have the experience, expertise, capacity, technologies needed to control the negative consequences of their activities.

In recent years, in Eastern markets, environmental responsibilities have become increasingly important. Ecological risk management involves not only a reactive approach but also a proactive one, which means that if the risk can be reduced, then companies have to do everything possible to reduce it. If the risk is unavoidable, companies must minimize the negative consequences, and to this end, assume the highest ethical standards and invest in the best technologies available on the market.

References:

  • Doh, J.P. , Littell, B. and Narda, R. Q. (2015)’CSR and sustainability in emerging markets: Societal, institutional, and organizational influences’, Organizational Dynamics , pp . 112-120
  • Available at:  file:///C:/Users/toshiba//Doh%20(2015)%20CSR%20and%20sustainability%20in%20emerging%20markets-%20societal,%20institutional,%20and%20organisational%20influences%20(2).pdf (Accessed on 10/11/2019)
  • Ernst & Young (2013), CSR Trends and Realities in Romania 2013 edition,
  • http://www.slideshare.net/EYRomania20/ey-csr-survey-2013-en (accessed 11/11/ 2019)
  • Feijoo , B.F, Romero, S. and Ruiz, S. (2014) ‘Commitment to Corporate social responsibility measured through global reporting initiative reporting: factors affecting the behavior of companies’, Journal of Cleaner Production, pp. 243-248
  • Gaspar, J.E. (2014), Introduction to global business: understanding the international environment and global business functions, pp. 30-40
  • Harrison, A.L.. (2014), Business environment in a global context, Second Edition
  • Idowu, S.O., Vertigans, S.A. and Burlea, A.S.(2013) Corporate Social Responsibility in Times of Crisis, pp. 23-30
  • Kerr, W.A. (2014), A guide to the global business environment: the economics of international commerce, pp. 35-38
  • Yıldız, A & Ozerim, G. (2014) Corporate Social Responsibility in European Context, pp.40-70, Available at: https://www.researchgate.net/publication/294428397_Corporate_Social_Responsibility_in_European_Context ( Accessed on 10/11/2019).
  • Morrison, J. (2017), The global business environment: challenges and responsibilities, 4th edition, pp. 50- 53
  • OMV Petrom Annual Report (2016) https://www.omvpetrom.com/pbd_download/190/533/Annual_report_2016_en,0.pdf
  • (Accessed on 08/11/2019)
  • OMV Petrom Annual Report (2017) https://www.omvpetrom.com/pbd_download/723/624/Annual_report_2017_print_en%20(1).pdf
  • (Accessed on 08/11/2019)
  • OMV Petrom Annual Report (2018)
  • https://www.omvpetrom.com/pbd_download/766/809/1.Annual%20Report_2018_EN_Bookmarks.pdf
  • (Accessed on 08/11/2019)
  • Popescu, C. (2017) How to manage sustainable development in oil industry: the case of OMV Petrom;
  • Rai S., Bansal S. (2014), Factors Explaining Corporate Social Responsibility Expenditure in India, Economic and Political Weekly
  • Available at: https://journals.sagepub.com/doi/abs/10.1177/0974929215611578;(Accessed on 08/11/2019)
  • Sustainability Report for OMV Petrom (2018) Our Energy for a sustainable future, Available at:
  • https://www.omvpetrom.com/services/downloads/00/omvpetrom.com/1522170965327/omv-petrom-sustainability-report-2018 (Accessed on 08/11/2019)


 

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