Corporate bashing of speculators signals breakthrough in CSR

Oil Multinationals Never Before So Negative

"There is no physical shortage of oil" and "high oil price caused by geopolitics and speculators". Last week [early May] the CEOs of BP and Shell surprised the financial market and politics with these similar statements when presenting record first quarter profits.

The first claim is plain wrong: each student in economics knows that imminent shortages trigger price increases, which result in substitutions and reduced demand. Buyers not able or willing to pay for much more expensive oil products simply disappeared from the market. The price mechanism prevents queues at the pump. Queues only happen when - the more equitable - rationing is practiced, while the free market guarantees supply for those who can afford any price level. Currently many citizens and companies are hurt in Africa, China and other developing countries, but also many with low incomes in Europe, the USA and similar countries (The mid-May downwards adjusted IEA prognosis of oil demand in 2006 is newest proof of the economic law of price-elasticity).

BP's John Browne and Shell's Jeroen van der Veer may reassure - as intended - some politicians considering extra taxation of windfall profits and an accelerated switch to other energy sources and more conservation. Most politicians and citizens, however, will not be misled.

The second claim is remarkable and quite welcome. For the first time, respected corporate leaders assess a category of investors so negatively. After all, speculation is - at least in the business community - a well accepted instrument to keep markets efficient. Criticism usually comes from alterglobalists. Browne and van der Veer are renowned champions of Corporate Social (or sustainability) Responsibility (CSR). This trend in corporate governance for sustainable development is still controversial. A growing number of companies participate, make progress, also show good financial results and become ever more convinced of the benefits for all stakeholders, including shareholders. These companies invest much in the promotion of CSR, hoping to get their free-riding competitors on board and to prevent new regulations. However, the vast majority of companies persist in doing little or nothing - or even actively oppose CSR. In the latter category Exxon is exemplary, even openly criticized by a growing share of its shareholders. In this way, its progress cannot silence the strong doubts if CSR spreads rapidly enough 'to save the planet'.

The accusation of Browne and van der Veer that speculators negatively influence the desired development of the oil market - and consequently the global economy – fits in perfectly with the Principles for Responsible Investment (PRI), made by financial corporations and announced by UN’s Kofi Annan a week earlier. Now, the CSR-community looks with interest for first concrete steps to distinguish 'bad speculation' from 'sustainable investments'. BP and Shell are both member of the World Business Council for Sustainable Development (WBCSD), the leading industry lobby group for CSR, which should now join to make their anti-speculation campaign successful. There is good reason to be optimistic about BP and Shell's sincere intentions. This moment chosen by Kofi Annan and large investors may enable them to give the 'uncontrollable' globalisation process a sustainable and human face - perhaps still just in time for finding a fair exit strategy from oil and for saving the planet and the people, while making a decent profit.