Oil Companies Accountable for Environmental Damages?

This blog highlights accountability cases with Chevron in respect of the Amazon and the second part refers to the BP Oil spill in respect of compensation from a fund rather than legal action.

Externalities is an economic term for pollution and other negative consequences caused by business entities but external to them. It is often called social costs. Legal action in forcing companies to pay compensation ineffect internalises externalities which takes companies down the path of accountability and raises their internal costs. Although some corporate executives may calculate that the profit as a result of negative externalities may be much higher than compensation therefore given they are profit maximising entities, the payoff would be to not change behaviour. So it is important that legal costs to companies are much higher than potential profits gained by undertaking the negative behaviour. In addition, the negative publicity may accumulate in a groundswell, particularly in environmental matters (global commons) which may adversely affect the company’s Corporate Social Responsibility reputation and hence profits, as people choose to boycott the company’s products.

Psychologically in business there is considerable detachment of corporate executives from the environmental impacts personally. I have noted when people identify strongly with their role, they see their personal feelings as irrelevant and they compartmentalise their judgements rather than integrating their feelings and tapping into ethics and values as humans-being. As shareholders want profits, they see this as their responsiblity divorced from social responsibility, their role is accountable to shareholders. Of course this is a blindspot and the reality is that corporations/businesses do interface with the community and environment. They are intimitely involved, yet when we use the word ‘professional’ it is a salient signal given to executives to be impassive and emotionally shutdown in relation to the deeper social/ecological issues, they stick to the facts and their objectives. In addition, many live in cities and few have been raised on farms or with natural systems where they went fishing or grew their own vegetables, hence living off nature. This synthetic life in cities is another blindspot where executives do not feel any conscious emotional connection to the enviornment, they feel separate and hence, it is not their responsibility, it is the responsibility of governments they would argue. Over the years they are used to regarding nature as an input to production, with rights over what is deemed exploitable resources. These mindsets are exemplified by loggers who would see the trees but not the forest. To see the forest means to be aware of canopies, biodiversity, microorganisms, oxygenation, transpiration, healthy soils which interweave into a unified ecosystem that is not a pine forest. The trees is just the wood, a commodity to be extracted. The complex interrelationships are far more enmeshed than realised. Natural systems across the planet are deeply interconnected and sensitive to even the slightest changes.

Legal action may, in the first instance, raise awareness in decision making, at least through penalties making them accountable for damage. The concept of using a fund, whilst minimising legal fees, sidesteps the legal process where issues of negligence or criminal activity could be addressed. A fund keeps the compensation side private and can contact those seeking compensation and have them agree to not undertake legal action in the future. Moreover, it can be an interest bearing account, so they make money from the fund. So deeper thought, in the absence of an emotional sense of connectedness and responsibility, must be applied to how externalities are settled. The exchange of money is not a shift in consciousness, it is reduced to a business transaction rather than a just outcome where we all learn how we impact and how that can be redressed and learned from.

A severely damaged natural ecosystem undermines the survival of other life forms and ultimately our families, the latter, many would claim, they are working for. More broadly it adds to multiple tipping points for our civilisation and life on earth. Through this process of accountable change overtime, society and those in power start to reflect on what world they leave behind for their children and grandchildren.

I think it would be interesting, in the first instance, of disputes perhaps when legal action is being taken, or conflict is occuring, to legally mandate mediation not as a bargaining tool, but as a way to help parties hear each other. To bring corporate executives (without lawyers) into a room with those perceived as affected or representing wild life, inclusive of a professional mediator, to help each other hear the other and generate creative solutions and mutual understanding. I think that doesn’t happen, often it is adversarial and the other deemed the enemy. It could be enlightening for divergent views to inform the other and who knows maybe a symbiotic relationship is the outcome rather than money transactions that do not change fundamental beliefs or behaviour. Something to consider.

Below highlight two articles of disputes with oil companies and damages.

http://www.earthday.org/blog/2012/01/04/appeals-court-ecuador-upholds-95-billion-ruling-against-chevron

CHEVRON

A class action lawsuit of 30,000 Ecuadorians living in the Amazon rainforest has reached a major milestone in its litigation. An appeals court has upheld a 2011 ruling that the oil company Chevron pay 9.5 billion dollars for damage caused to the environment. The President of Ecuador, Raphael Correa is said to be pleased with the ruling.

The latest verdict is the culmination of a process that began as far back as 1993. Throughout the years the legal proceedings have gained a global following and has even been featured in a documentary directed and produced by Joe Berlinger. In 2008, two Ecuadorian attorneys Pablo Fajardo and Luis Yanza won the prestigious Goldman Prize for their work on the Chevron case. In addition Pablo Fajardo was also named a CNN Hero.

As the Miami Herald now reports:

In its ruling late Tuesday, the court found the company liable for the shoddy environmental practices of its predecessor, Texaco, that included pumping millions of gallons of oil-tainted water in to creeks and streams. Texaco operated in the Ecuadorian Amazon from 1960 to 1992 and the two companies merged in 2001.

As it stands now Chevron has no property in Ecuador so it will be difficult to seek compensation from the company.

http://www.guardian.co.uk/business/2011/feb/03/bp-gulf-spill-fund-not-independent-rules-court

BP

BP’s Gulf oil spill compensation fund is not independent, rules Louisiana court

Victims compensated by BP oil spill fund could now reopen cases, warns lawyer

Kenneth Feinberg

The administrator of BP’s Gulf oil spill compensation fund, Kenneth Feinberg. Photograph: Amanda Mccoy/AP

BP can no longer call the administrator of its $20bn (£12.5bn) Gulf spill claims fund “independent”, a US federal judge ruled last night, which could hamper the company’s attempts to cap its liabilities following the Deepwater Horizon disaster.

Judge Carl Barbier, of the federal court of Louisiana, said that BP must spell out in all future communications that the claims fund and its administrator, Kenneth Feinberg, are acting on behalf of BP in fulfilling its legal obligations under the Oil Pollution Act.

One US lawyer warned that the ruling could invalidate the promise made by 87,000 claimants who have received a lump sum payout from the fund that they would not seek further damages from BP in the courts.

Feinberg, who was appointed last summer by the White House to take over the claims process, has advised individuals and businesses seeking compensation that they do not need their own lawyer to agree a payout. In television interviews and town hall meetings across the Gulf, he has repeatedly said that claimants would be better off receiving a lump sum payment from the fund rather than seeking compensation through uncertain and lengthy legal action.

He, the US government and BP have all described the fund he administers, the Gulf Coast Claims Facility (GCCF), as “neutral” and “independent”.

But in a 15-page ruling, Judge Barbier said: “While BP may have delegated to Mr Feinberg and the GCCF independence in the evaluation and payment of individual claims, many other facts support a finding that the GCCF and Mr Feinberg are not completely ‘neutral’ or independent from BP.”

BP also is now obliged to tell claimants that they have the right to consult a lawyer and add their names to the many US lawsuits being prepared to seek damages independently of the fund.

One attorney representing spill claimants said that the ruling could result in the 87,000 settlements being re-examined.

Kevin Dean of Motley Rice in South Carolina told Bloomberg: “It’s not a can of worms. It’s a 55-gallon drum of worms.” He added his firm would start to contact clients who had accepted settlements from the claims fund to “tell them of their rights”.

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Mohandas Gandhi

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