Chevron commits huge resources to tackle environmental risks; this report studies the viability of doing so. We find that (1) it is using a right combination of internal and external tools to increase workers’ awareness, diversify environmental risks and mitigate moral hazard at the same time; and (2) the Decision Making (“DEMA”) system is valuable to the company in providing a systematic framework to quantify environmental risks.
Chevron operates in the business of petroleum and natural gas exploration, production, refining and marketing, and as such faces huge environmental risks such as oil spills and exhaust emissions. Throughout the years Chevron has honoured its claim in “Protecting People and the Environment” by committing a higher proportion of revenues to environmental spending than its competitors. However, environmental risks and the benefits of managing them are by nature hard to be quantified, while the costs are obvious and substantial. This report studies the viability of Chevron’s investments in two steps. First, it examines the tools Chevron uses to manage environmental risks, and explains why they are different from those used to manage other risks. Second, the report will analyse the pros and cons of the novel DEMA system, an attempt by Chevron to systematically quantify environmental risks.
What tools is Chevron currently using to manage environmental business risk?
We have categorized the tools currently adopted by Chevron as follows:
1. Internal command and regulation - Policy 530
Because of highly decentralized culture of Chevron Corporation, it is better to have a clear internal policy for managing different operating units to comply and deploy corresponding responsibilities. Attendant management practices are also strictly followed by managers to conduct self-evaluations for ensuring compliance.
2. Employee training and education programs
Chevron believes skills and attitudes of...