Shell Case

ShellÐ'Ò's Environmental Responsibility in Vila Carioca, Sao Paulo, Brazil

by

Jose Antonio Puppim de Oliveira

Associate Professor

Brazilian School of Public and Business Administration - EBAPE

Getulio Vargas Foundation - FGV

Praia de Botafogo 190, room 507

CEP: 22250-900, Rio de Janeiro - RJ, Brazil

phone: (55-21) 2559-5737

fax: (55-21) 2559-5710

e-mail: puppim@fgv.br

Introduction:

Shell defines its aim as “to meet the energy needs of society, in ways that are economically, socially and environmentally viable, now and in the future.” Shell was one of the pioneers in the movement for Corporate Social Responsibility. The company says it is committed to sustainable development and human rights: “Our core values of honesty, integrity and respect for people define how we work. These values have been embodied for more than 25 years in our Business Principles, which since 1997 have included a commitment to support human rights and to contribute to sustainable development.” The case in Vila Carioca (SÐ"Јo Paulo City) below illustrates a tough decision the company must make in order to keep its commitments, especially when the company’s past actions occurred in a different institutional and regulatory environment.

Vila Carioca is a neighborhood in the southern part of SÐ"Јo Paulo, the largest city in South America. Greenpeace and the Union of Workers in the Mining and Petroleum Sector (Sinpetrol) alleged in the 1990s that the region had its soil, air and water contaminated by several pollutants from industrial activities that took place in the area. The pollution may have contaminated approximately 30,000 people residing in the area. Shell is accused of being one of the main sources responsible for the pollution among companies operating in the region. One national newspaper (Folha de SÐ"Јo Paulo) considers that Vila Carioca may be the most contaminated area in SÐ"Јo Paulo, if this accusation is true. Shell has been in the area since 1951 and has disposed large amounts of residues in the soil for decades, which may ultimately be the source of soil, air and underground water contamination. The liability can reach significant values, as some specialists conclude that part of the land should be expropriated for cleanup and those populating the area should be relocated and compensated. However, the company claims that it followed all existing environmental laws and used the best technologies available. Actually, most of the material was disposed of long before the new environmental laws were passed. The regulations applicable at the time were followed, and Shell used worldwide standards and the best available technology. Sometimes the company even did more than the law asked. There were also other industrial companies with environmental problems in the region that may have contributed to the problem. Shell argues that many perceptions of people involved are based on rumors and non-scientific facts. The company says that it worked with scientific information and the problem is not as terrible as the media portrays. Therefore, to what extent is Shell responsible for solving the problem? Should the company be liable for the problem? Can the behavior of Shell in the case be considered ethical and acting according to its principles of social and environmental responsibility?

Vila Carioca

Vila Carioca is a typical working class neighborhood that could be found around many industrialized areas in developing countries (DC). The region grew as a mix of industrial and residential areas with little planning for separating the population from risk activities, such as oil tanks and pipelines (see Figure 1 at the end of the case). Initially, in the 1950s, Vila Carioca was only an industrial zone, but as the city of SÐ"Јo Paulo grew at a fast (and unplanned) pace, people started to move in and establish their residences around the industrial plants. After the 1970s, many plants closed down or moved due to the de-industrialization of parts of the city of SÐ"Јo Paulo. This significantly increased the proportion of residential settlement in SÐ"Јo Paulo. The settlements were both formal (titled and licensed) and informal (slums or favelas, and unlicensed housing built on untitled land).

The environmental history of Shell in Vila Carioca started in 1951, when the company built a storage tank and a terminal in the area. These facilities were upgraded several times and the plant was still operating in 2004. Shell also had a plant which produced pesticides. However, this plant moved out of Vila Carioca in the 1970s. Shell’s facilities have always had the best available technology and had followed the current environmental regulations as well as world standards.

The Discovery

In March of 2003, the city government announced that an area of 180,000 square meters (approximately 25 soccer fields) around the Shell plant in Vila Carioca was contaminated with various toxic pollutants, including heavy metals and “drins.” The city attorney sued Shell and the State Environmental Agency (CETESB), which were respectively accused as a source of the pollution and negligence in enforcing the environmental laws.

However, the case was criticized much earlier than the 2003 lawsuit. In 1993, Greenpeace and the Union of Workers in the Mining and Petroleum Sector (Sinpetrol) filed a joint court complaint against Shell. The case was left to the State Environmental Agency (CETESB), who took only minor measures before the city officially entered in the case.

For decades, industrial plants in the region discharged toxic pollutants in the soil and air, and in doing so they had also contaminated the underground water. Initially, six wells in the region were closed. Although there was only one officially registered well in the region, there were others that were “unofficial” or clandestine. In one of the wells, whose water was used for human consumption, the level of dieldrin (one of the “Drins”) in the water was 0.327 micrograms per liter, more than one hundred times the permitted limit of 0.03 micrograms per liter. A report from the public attorney (Ministerio Publico) estimated that