Environmental Risk Management at Chevron Corporation

Environmental Risk Management at Chevron Corporation

1. Chevron positioned itself as a responsible steward of the natural environment, interconnecting responsibility with the improvement of company financial performance against its’ strongest competitors (Environmental risk Management at Chevron Corporation 1999). This focus bears trade-offs between the environmental investments of risk management with short-term cash flow and competes with other company investments.

First, problems arose with respect to environmental expenditures in 1997; did they spend too much or not enough? Chevron, a publicly traded corporation, has to be sensitive when spending money on uncertain investments because it affects its’ position in the market.

Second, assessment of performance and operating expense per barrel was difficult making other sound investments more attractive to company stakeholders. If results or measurements are unsure then support for large capital investments are not going to present.

Finally, concerns with implementation and incentive design were sure to arise bringing more obstacles for Chevron. However, Keller was convinced that effective risk management would reduce accident and overall cost, not conflict with financial performance and improve upon it. Therefore, “his immediate concern was with the future prospects of analytical risk management tools” (pg. 67).

2. One specific environmental risk management tool Chevron currently uses is Policy 530, which is applied company wide. Policy 530 consists of monitoring and reporting, manager self-evaluations, and employee training and education programs. In a sense, Policy 530 was meant to be an all-encompassing guiding principle for environmental risk management. Policy 530 is the most important risk management tool at Chevron, as Chevron did not make much use of other formal internal risk management tools.

Chevron also managed environmental risk through an incentive program. However, the primary incentive system, Success Sharing, was minimally linked to the attainment of safety or environmental objectives. To enhance incentives related to safety and environmental initiatives, Chevron integrated environmental performance into the promotions process. Additionally, Chevron uses environmental performance as a criterion in the individual evaluations of senior management.

Finally, Chevron mitigates external risk through insurance. Chevron self-insures up to a certain level, and purchases insurance for levels above that. The purchased insurance helps Chevron to cover the expenses of a catastrophic event, such as the 1989 Exxon Valdez oil spill. The purchase of third-party insurance is necessary as the costs associated with the clean up of a catastrophic event are unknown and can continue for decades into the future.

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