Royal Dutch Shell hardly has the best reputation when it comes to social justice and environmental impacts: the dumping of the Brent Spar oil-rig; alleged human rights abuses in Nigeria; its controversial plans to drill in the Arctic Ocean that recently stalled.
In 2000, as corporate social responsibility was gathering pace in the boardrooms at some of the world’s largest companies, Shell decided to chip off $250m from its multibillion-dollar revenues and establish a foundation as part of its sustainability strategy to deliver environmental and social impact linked to energy and globalisation.
“We were part of a sustainability strategy, but not the sustainability strategy,” says Richard Gomes, global policy and advocacy manager at the Shell Foundation, which rarely gives interviews to the press.
The foundation operates independently of its corporate parent, he insists, but it does dip into the oil giant’s expertise.
“We set our own agenda. We’re not in any way affected by Shell’s CSR aims, corporate aims or any geographic footprint,” he says. “This allows us not only the credibility to act and partner with organisations in the development space, but we can also reach back into the corporate structure for expertise, such as IT or human resources.”
Shell Foundation measures success by four metrics: the number of livelihoods improved; jobs created; carbon reduced; and leverage – ie how much private capital its grants attract.
Over the past 13 years, the Shell Foundation has invested in around 10 partnerships that have generated 21,400 jobs and saved 3.4m tonnes of carbon. The endowment has now grown to $400m, and the foundation deploys around $1520m a year from its offices based at Shell’s London headquarters and The Hague.
Since its inception, traditional impact investing has come a long way and the foundation now plugs a gap with its grants, which represent the ultimate “risk capital” for small businesses in the developing world and can catalyse markets.
Simon Desjardins leads the Shell Foundation’s Access to Energy programme which aims to help bring energy to the estimated 1.3bn people who have either no access or intermittent access to electricity. Desjardins says the foundation deploys capital in a model that is closer to traditional venture capital than philanthropy.
“We deploy grant funding as a primary instrument to help for-profit companies get from a seed stage to the point where they can scale. Twelve years ago that was a pretty exotic concept in development. Like venture capitalists, we back teams, not business plans, and we deploy milestone funding in phases to prove out their business and detect failure early.”
The foundation also only invests in innovation, rather than iterations of existing technology. “We’ve seen a lot of failure historically where big multinationals or developed world countries just try to sell a product made for the US or UK into India or an African country, often with dismal results,” says Desjardins.
The endgame is to scale enterprises so they attract private investment. To date, this approach has leveraged $3.3bn in private capital.
Desjardins also says Shell Foundation is careful not to over-deploy capital so that enterprises supply a genuine demand and become financially sustainable by scaling up.
“That way we don’t distort markets,” he says. “There’s significant risk if you’re deploying grant money at scale.”
Shell Foundation’s Access to Energy programme has already chalked up a number of successes.
Envirofit, a spin-off from the Colorado State University, has now sold around 500,000 “clean cookstoves” in the developing world. Indoor stoves burning wood, coal or dung kill almost 2 million people a year, more than half of them children under 5, according to the World Health Organisation.
In partnership with the United Nations, Shell Foundation created the Global Alliance for Clean Cookstoves, which aims to benefit 100 million households by 2020.
D.Light designs, manufactures and distributes affordable solar lighting systems in Africa and Asia. M-Kopa is a mobile technology company that has developed an affordable, pay-as-you-go solar lighting system.
India’s Husk Power Systems (HPS) has also been able to scale with $2.3m in funding from Shell Foundation. HPS brings reliable electricity to rural villages in India generated through the gasification of waste rice husk.
HPS now has around 90 power stations that connect villages through a microgrid carried on bamboo poles in villages without electricity. Customers typically pay customer pay 100 rupees ($2) a month for two light bulbs and a mobile charging point.
“If you can crack a technology that is able to provide energy access to clients in a scalable and responsible way then you can significantly improve the quality of the light, and also the economic output of those countries,” says Desjardins.
However, the deep pockets and global resources of its parent corporation can come with their own price, especially when the founder’s business is engaged with such a politically charged and environmentally problematic industry as oil.
In 2006, the Charity Commission conducted an inquiry into comments about the Sakhalin II made by former Shell Foundation director Kurt Hoffman at a meeting hosted by the UK government’s Investment Climate Facility for Africa. The chairman of Shell UK, James Smith, also attended that meeting, jointly funded by the company and the foundation and first brought to light by campaign group Platform.
But the commission concluded that Hoffman’s comments on the company’s £11bn Sakhalin II project were inconsistent with the charitable goals of the foundation.
Kenneth Dibble, the Charity Commission’s director of legal and charity services, told Hoffman in a letter that activities should “promote the charity’s interests and not the commercial interests of the profit-making entity”.
“In particular the foundation needs to be acutely aware of the potential criticism that it is in effect the corporate social responsibility programme for the Shell Group and part of its public relations strategy,” Dibble wrote.
Gomes says that the incident was regrettable and Hoffman’s comments were personal.
“Both the foundation and Shell had invested in DFID’s Investment Climate Facility for Africa, so the meeting itself was appropriate. But a foundation representative inadvertently expressed a personal view on a Shell project. It was an important lesson for us in our early years.”
Since then, the foundation’s protocols on maintaining independence have been strengthened, he says.
“Questions over our independence risked limiting our ability to collaborate with others and to achieve development impact at scale – so we took it very seriously and tightened our control framework. We’ve since used this learning to help the Charity Commission issue their own guidance on best practice for corporate foundations.”
guardian.co.uk © Guardian News & Media Limited 2010