Room for Improvement in Social SustainabilityTue, 01/22/2013 - 12:20
The observance of the Ministry for the Environment regulations and guidelines by Pemex has been an important factor in helping the Mexican oil and gas industry to raise its performance in environmental protection. Nevertheless, an in-depth assessment of the social impact that projects have on local communities is not mandated in this regulatory framework. According to Manuel Ortiz Monasterio, Director General of Environmental Resources Management Mexico (ERM), this is where Pemex has room for improvement, in order to better align its operations with international best practices, an issue that will become even more critical as new operators become involved in the Mexican oil and gas sector.
Despite working across a range of industries, including the mining and metals, power, manufacturing, chemical, and pharmaceutical industries, ERM provides a good part of its services to the oil and gas industry based on the good fit between its portfolio of services and the needs of the industry. “This is the sector where our most important clients operate,” Ortiz Monasterio says. ERM prides itself in providing technical services based on a deep expertise in sustainability protocols based on global industry best practices, which include a strong social management component alongside the usual environment, safety, health, and environmental aspects of corporate responsibility strategies. According to Ortiz Monasterio, community development, stakeholder engagement, and other social risk management strategies are areas where the Mexican oil and gas industry could obtain the greatest potential gains. “ERM assesses the environmental and social dimensions of projects throughout the full value chain of activities related to exploration and production,” Ortiz Monasterio explains. “We first assess the probable risks and impacts, and then provide management plans to avoid, mitigate, or compensate them.”
Although social impact assessments are not required by Mexican law, ERM’s clients in the country still invest in these services because they make business sense. Ortiz Monasterio explains that typically these clients have international operations and understand the positive effects of working with communities throughout the lifecycle of a project. “Based on their experience, they know that social risks need to be properly addressed and managed for projects to be successful, regardless of whether this is required by Mexican law,” he adds.
“In Mexico, the permitting process for a new project is more related to its environmental impact,” Ortiz Monasterio emphasizes. “In many other countries, companies also need to consider the social impact that a project might have, as this aspect also requires authorization.” This might be the missing link to streamline the starting phases of a project, and a necessary step to accommodate the arrival of international companies. However, in this regard, Pemex has made an effort by establishing some social requirements for private companies interested in the integrated service contracts.
When asked who should be in charge of establishing these guidelines for oil and gas projects, Ortiz Monasterio expresses the view that a government entity such as the Ministry of Social Development could be charged with the task. Requiring social assessments for projects in the oil and gas industry should be the responsibility of a government agency other than the Ministry for the Environment and the Energy Ministry, since both of these entities already have many other functions, and the task would require an agency with more resources to dedicate to the issue.
“The first step has already been taken at Chicontepec, where Pemex worked with the United Nations Development Programme (UNDP) to include a chapter on social development and local environmental sustainability, which contains an annex that ERM helped to write in the contract for hydrocarbons production in the area. This has been working well, and is starting to be used widely across new projects,” Ortíz Monasterios explains. “They are aware of the problems Pemex has had in the past, and want to do things differently and strengthen the social focus in sustainability programs.”
ERM continues to lobby for the inclusion of more social components in the permitting process. “We can see a significant shift happening soon, with companies proactively asking for these changes to take place in order to make their operations simpler and more efficient. One example of this, is the work we have been doing at Etileno XXI, by helping the companies to comply with very strict international environmental and social standards.” More and more, multinational companies are proactively seeking for the so-called ‘social license to operate’, in addition to official permits and contractual obligations.
Ortiz Monasterio believes this is an extraordinary opportunity for companies operating in the Mexican oil and gas industry optimize the social, environmental, and also financial sustainability of their operations in Mexico.