Corporate Social Responsibility (CSR) guidelines for your business

These days it seems that the entire world is talking about the concept of Corporate Social Responsibility (CSR). But what exactly CSR comprises is often unknown and in fact, there is an almost infinite number of definitions for this concept. This blog sheds some light on CSR and sustainability and explains which internationally recognised tools your company can implement.

Having a CSR Manager or a Sustainability Officer has become a standard of our time, and countless companies are publishing CSR or Sustainability Reports. By the same token, publications and business practices around CSR have become so diverging that a comparison is often impossible. I’m not even starting to talk about transparency and verifiability, but for instance simply about the differentiation between CSR and Sustainability. While CSR generally focuses more on employees and other stake- and shareholders (the social aspect), the concept of sustainability refers to (but not exclusively) the environmental pillar. Typically, sustainability refers to the concept of using resources in a way that does not affect the conditions for future generations (see for instance the Brundtland Report from 1987). However, how companies execute CSR and/or sustainability programmes is highly individual and not comparable. This leads all too often to situations where businesses are accused of greenwashing – either if the PR department is more active than the CSR Manager himself or if the public simply does not understand what the company is doing. But here is the good news: there are a good handful of guidelines and initiatives which support companies in becoming good players and which do make approaches and results more comparable.

While the following list is not exhaustive, it does outline the biggest, most famous, and most representative six initiatives, guidelines and principles which might help your company to become an even more responsible actor.

Global Reporting Initiative (GRI)

The GRI is an NGO that helps businesses and governments to control their impacts on climate change, human rights, corruption, and more. The idea behind the GRI is to make sustainability, ESG- and CSR reports clearer, more focused and comparable. According to a KPMG survey, 63% of the Global 100 Companies and 75% of the Fortune 250 are using the GRI reporting framework.

UN Global Compact (UNGC)

As the name implies, the initiative of the Global Compact is “compact”. In fact, they only include ten principles which are derived from the Universal Declaration of Human Rights, the International Labour Organization, the Rio Declaration on Environment and Development, and the Convention against Corruption. With more than 8000 businesses and over 4000 non-business participants, the Global Compact is the largest Corporate Sustainability (CS) Initiative in the world. The UNGC was formed in July 2000 and is one of the longest-serving CSR guidelines.

ISO 26000

The ISO 26000:2010 from the International Organization for Standardization are the perhaps best known CSR guidelines for businesses. They were published in 2010 and aim at providing guidance on how businesses and organisations might operate in a socially responsible manner, rather than imposing requirements. In other words, ISO 26000 is no certification but rather helps to clarify what CSR is and how it can be applied. ISO 26000 can be linked with the OECD guidelines for multinational enterprises and the SDGs, which are both explained below.

OECD Guidelines for Multinational Enterprises

The OECD Guidelines include a range of areas, such as human rights, labour rights, and the environment. This approach takes the supply chain into consideration, covers several business sectors and is backed by governments. While the guidelines are not legally binding for businesses, they are binding for the governments who signed them. The OECD Guidelines are especially interesting for multinational enterprises which get clear recommendations from the OECD (and consequently from the governments) on responsible business conduct. While the first version of these guidelines dates back to 1976 they were revised several times, with the latest version being published in 2011.

UN Guiding Principles on Business and Human Rights (UNGPs)

The UNGPs consist of 31 principles and encompass three pillars: The State Duty to Protect Human Rights, The Corporate Responsibility to Respect Human Rights, and Access to remedy for victims of business-related abuses. This means, that they are not only important for (international) enterprises, but also for the governments to ensure that normative standards are guaranteed within their sovereignty. Although they are rather new (2011), they are widely recognised and especially important when it comes to human rights.

Sustainable Development Goals (SDGs)

The SDGs were set up by the UN in January 2015 and are seen as a “blueprint to achieve a better and more sustainable future for all.” The UN target is that all the 17 SDGs – including 169 targets within them – are achieved by 2030. The goals range from No Poverty, Zero Hunger, Gender Equality, Climate Action, Peace, Justice and Strong Institutions to Partnerships. The SDGs are widely recognised and propose 232 approved indicators to measure compliance.

This list only provides an overview of the most common tools and it is important to understand that there are many other CSR guidelines, declarations, and principles. The International Labour Organization, for instance, published the MNE Declaration (Multinational Enterprises) as their instrument to ensure responsible and sustainable workplace practices. And the European Union published a renewed EU strategy 2011-14 for Corporate Social Responsibility in which they emphasize the multidimensional nature of CSR as well as the role of public authorities and other stakeholders to ensure that business acknowledges its social responsibility.

Europe’s Energy Security and Climate Change: An Opportunity or a Threat? – Part II

Climate change as a catalyst to solve Europe’s energy security problems

This is the second of two blogs written for the University of Westminster discussing Europe’s energy security in times of climate change threats. The first part explains the challenges which occur for the energy sector by the changing climate and compares climate change to other historical challenges of energy security. Part II of the series argues that climate change, in fact, helps Europe to overcome path-dependent stasis and that the changes now implemented, in the long-term, will guarantee better security than the current system.

Read part one of the series.

Climate change as a catalyst to solve Europe’s energy security problems

This chapter argues that climate change, from an energy security perspective, is a huge opportunity for the EU as it forces the Union to commit a quick transition and to finally break out of the fossil fuels path dependency. Before outlining all the energy security benefits of a low carbon society with a high share of renewables, it is important to understand the threat that climate change currently poses on the energy market. With melting glaciers, longer dry periods and less snow, rivers in Europe transport less water in spring (EU Science Hub, 2018). This is perilous for the agriculture sector and residents relying on those resources, but also for energy suppliers. Power plants require a huge amount of cooling water and some countries already experienced times when power plants had to suspend operations due to a lack of cooling water (Klare, 2015). Water scarcity also threatens hydroelectric power plants, which would theoretically produce clean energy. Klare (2015), in what he calls a climate change blowback, also mentions the damage caused on American oil and gas infrastructure during hurricanes Katrina and Rita in 2005, destroying 115 offshore oil platforms and 535 pipeline segments. Similar incidents are expected to happen in Europe, threatening the entire supply chain. The EU energy strategy to address the contemporary issues comprises five dimensions: 1) Energy security, solidarity and trust, 2) A fully integrated internal energy market, 3) Energy efficiency contributing to moderation of demand, 4) Decarbonising the economy, and 5) Research, innovation and competitiveness (European Commission, 2019b). Ensuring energy security is thus a top priority and as will be explained, for energy-importing states emission minimization and a shift away from fossil fuels fit indeed very well into the energy security agenda (Anceschi and Symons, 2012).

We will first have a look at the obvious environmental benefits. Through the electrification of the transport sector, the implementation of renewable energy sources and new policy frameworks – including CO2 taxes, carbon trading schemes etc. – GHG emissions will hopefully stabilize or even decrease before 2050. This will, in theory, slow down global warming and limit it to the 1.5°-2°C target set in the Paris Agreement (UNFCCC, 2019). A low carbon economy, hence, complies with the energy security component of being environmentally friendly. Goldthau (2013) also points out that environmental friendliness includes much more than just tackling climate change: Apart from climate change, fossil fuels and nuclear power plants have directly caused many more environmental problems such as Chernobyl (1987), the oil leak in the Gulf of Mexico (2010), the Fukushima nuclear reactor accident following a tsunami (2011), or a gas leak at the Elgin platform in the North Sea (2012), to name but a few.

Many scholars pointed out that the main barrier for a climate-neutral Europe from a traditional energy security perspective is price-related (Mayer and Schoten in Anceschi and Symons, 2012). Today, fossil fuels may still be slightly cheaper than renewable energy, but it is only a matter of time until that changes and many renewable sources are already highly competitive (Ellsmoor, 2019). Nuclear power, on the other hand, is from an investors’ perspective delicate as the development costs are enormous – The UK currently builds a new nuclear power plant which is estimated to cost £22 billion (Ambrose, 2019). And the political situation is also not resilient. Germany, for instance, forced all energy suppliers to phase out nuclear energy by 2022 – breaking international treaties and binding contracts with the suppliers, which led to long-winding and expensive lawsuits (Bernasconi-Osterwalder and Hoffman, 2012). And talking about the price; the oil price is anything but stable. During the last two decades, it fluctuated between $10 in 1999, $147 in 2008, $35 in 2009 (Anceschi and Symons, 2012) and stands currently at around $60 per barrel. Furthermore, there are also economic side effects to take into consideration. Stern calculated that the externality costs of each ton of CO2 emission lie around $85 (Stern, 2007). The development of shell gas and tar sand may have increased the volume of available fossil fuels, and “clean coal plants” may greenwash coal’s image, but all of this comes with higher extraction and manufacturing costs. A second major energy security component, affordability, will thus also be greatly improved by the energy revolution.

From a political perspective, the reduction of fossil fuels and the increase of clean and local energy offer many benefits. First and foremost, it reduces the dependency on oil-, gas- and coal-exporting countries and offers new job opportunities in the home-grown renewable industry. Or in the words of a realist, the growing home market of renewable energy sources will create thousands of jobs while the layoffs of fossil fuel employees are mostly going to happen abroad. European money will thus be invested within the EU and is consequently strengthening the European single market (European Union, 2019). Decreasing Europe’s energy dependency – a key aspect of energy security – will minimize the risk of being outplayed by political tensions on European borders, as seen during the Ukraine-Russia conflicts in January 2009. Back then, Russia cut off gas pipelines to Ukraine, which, in the middle of the winter, became a threat for many EU countries who were relying on Russian gas (Smith Stegen, 2011).

Stronger storms, periods of drought, rising sea levels and other natural disasters enforced by climate change compels people to leave their homes. This inevitably leads us in a social and even legal direction. The UN Commission on Human Rights has recognized that climate change is the most serious threat to human rights (OHCHR, 2019). Various soft laws and guidelines, such as the United Nations Guiding Principles on Business and Human Rights (UNGP), should ensure that states and companies respect human rights and thus actively protect its citizens from climate change caused threats. The Sustainable Development Goals (SDG) from 2015 even go a step further and explicitly mention the importance of guaranteeing energy security worldwide (United Nations, 2019). While it is difficult to turn soft law into hard law, a recent development gives hope to environmentalists and may scare European governments. Strategic climate change litigation, which understands the strategic suing of countries if the state demonstrably fails to do enough to meet set climate targets, has mushroomed in recent years (see for instance Setzer and Byrnes, 2019). The Netherlands, for example, were successfully sued in 2019 (Khan, 2017) after the plaintiffs were able to credibly demonstrate that the government’s current efforts are not in compliance with the findings of the latest IPCC report. This brings for many European state leaders another aspect into play: Tackling climate change has become a bottom-up approach, with the “bottom” expecting proactive action from their governments. The European elections in 2019 and the “green tsunami” that swept across Switzerland (Rahim, 2019) are clear witnesses to this.

Summary and conclusion

The history of the 20th century has shown that energy security has always had a place in the agenda of European countries but with different prioritization over time. The neo-colonial order which emerged after World War II was very much in favour of Europe’s agenda. The first insecurity crisis arose in the 1970s when, amongst other development, OPEC was founded. A sudden shift of power towards the exporting countries became a threat for importing countries. Europe was able to solve this through various countermeasures such as a better diversification of their energy portfolio and new oil and gas trading partners (mainly Norway). However, anyone who thought that the newly emerged neoliberal order was the solution to all energy security problems was wrong. State capitalism replaced liberal capitalism in the 21st century and Europe faced a second energy security crisis. This time even more serious, though, as in addition to fossil fuel insecurity, the whole climate is at stake.

Although Europe’s answer to climate change is causing some critique, it is, as shown in this work, above all a huge opportunity for solving many energy security-related issues. This essay highlighted that the energy transition, which is at the core of Europe’s agenda to combat climate change, offers numerous advantages. And – hand on heart – without the imminent threats that climate change bears, the energy transition would not have proceeded so quickly. Therefore, it is fair to argue that climate change has been an important catalyst for Europe’s energy strategy. I am concluding by highlighting various policy tools that ensure energy security, as proposed by the International Energy Charter (2015): 1) Diversification, 2) supply expansion, 3) security enhancement, 4) stockpiling, 5) demand control, and 6) trading. Diversification can be achieved with promoting a variety of renewable sources combined with gas plants to compensate variable renewable energy fluctuations. Supply expansion and security enhancement are also promoted by renewable energy, which requires significantly fewer resources from abroad and uses freely available domestic energy such as sun, wind and water. Investments in Europe’s interconnectors will additionally improve supply and security. Future stockpiling policies will be more concerned with electricity storage than with oil and gas stockpiling, which explains why many European countries are heavily supporting R&D in this field (see for instance The Parliamentary Office of Science and Technology, 2014). Demand control will be guaranteed through demand-side responses (Houses of Parliament, 2014; Torriti, 2015; Taibi et al., 2018). What is more, from a European citizens perspective, the energy transition offers cheaper electricity rates and decreases health cost. The rapid execution of the energy system transformation has thus nothing to do with altruistic motives. On the contrary, it combats climate change, solves most of the current energy security threats, and is based on economic considerations. Europe’s energy strategy shows, very simply, a well-reflected understanding of a modern energy security agenda.

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Europe’s Energy Security and Climate Change: An Opportunity or a Threat? – Part I

Placing Europe’s energy strategy in the historical context of energy security

This is the first of two blogs written for the University of Westminster discussing Europe’s energy security in times of climate change threats. The first part explains the challenges which occur for the energy sector by the changing climate and compares climate change to other historical challenges of energy security. Part II of the series argues that climate change, in fact, helps Europe to overcome path-dependent stasis and that the changes now implemented, in the long-term, will guarantee better security than the current system.

Read part two of the series.

Introduction

Climate change is shaking up the energy market and with this also the conventional concept of energy security. Heavier storms, droughts and other natural disasters threaten energy infrastructures such as drilling platforms, pipelines and the grid (Klare, 2015). Ironically, those means of energy are now threatened by the climate change which have been identified as the main culprit of the anthropogenic impact on the climate (Goldthau, 2013) – “a blowback” as Klare (2015) puts it. This implies that to actively combat climate change and to guarantee energy security in the future, an energy transition is needed. Based on scientific forecasts about the anthropogenic influence on the climate, 195 states agreed to reduce greenhouse gas (GHG) emissions and to limit global warming to well below 2°C by signing the Paris Agreement under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC). A driving force behind those climate change negotiations is the European Union (EU) which, for themselves, set even more ambitious targets. In the eyes of some European states, those targets, namely a climate-neutral economy by 2050 (European Commission, 2018), bear an even greater threat to their energy security than climate change itself (Pérez, Scholten and Stegen, 2019). Phasing out of domestically extracted coal as well as phasing out of nuclear power stands high on the agenda in many European countries. As a result, a gap in supplies may occur which subsequently means that more energy needs to be imported. This would further increase dependency on other countries – a dependency that has already increased in recent years, from 47% of the consumed energy imported in 2000 to 55% in 2017 (European Commission, 2019a). Russia thereby plays an important role as it is by far the biggest supplier of oil, gas and solid fossil fuel (Katona, 2017). This is in itself another energy security threat for the EU as Russia’s state capitalism in the 21st century is not favouring energy importing countries agenda. This essay sets Europe’s current understanding of energy security in the historical context and shows, how the EU has mastered previous threats. At the heart lies the question of whether climate change as a catalyst for the energy transition poses a major threat for Europe, or if it offers, in fact, the greatest opportunity ever to solve most of the historical challenges associated with energy security.

Europe’s energy security from a historical perspective

As described by Anceschi and Symons (2012), energy security is a “dynamic socially constructed phenomenon” which results in endless individual meanings and implications for governments. Buzan (1998), sketching on a social constructivist perspective, says energy security is “an arena where different voices seek to securitize their particular understanding of key risks and threats.” It is often defined with 1) a noninterrupted access to the modern energy market, 2) a price that promises economic growth, and 3) energy that is as environmentally sustainable with as few externalities as possible (e.g. health costs). For the EU energy security is generally understood as energy efficiency, sustainability and security of energy supplies (Winzer, 2012). Perhaps the most important distinction can be drawn between security for energy independent, energy exporting, and energy importing countries. For the latter, energy security is particularly delicate as their economies and citizens are directly dependent on foreign states (International Energy Charter, 2015). The level of risk varies, in turn, on many factors (Anceschi and Symons, 2012). This chapter demonstrates how energy importing countries have responded to changing parameters in the last century.

Energy security, although not necessarily linked to the oil age, entered the limelight of policymakers during and after the first World War (Dannreuther, 2015) where uninterrupted access to fuel was decisive to win the war. Especially after world war II, the 20th century was marked by an unprecedented economic boom in the western world (DeLong and Bradford, 2000). One of the key factors behind this was the supply of cheap oil, which lubricated the factories, provided warm homes and found an almost universal use all over the value chain (plastic products, drugs, fertilizers, paint, etc.) (Dannreuther, 2017). For European countries, oil was almost exclusively supplied by Middle Eastern countries and it had to be ensured that the “black gold” flew into the West without interruption. The former colonial powers Great Britain and France and, amongst all, the USA, established themselves as hegemons in the region and guaranteed secure access and transportation (Dannreuther, 2015). The bulk of global oil extraction and production was done by seven western oil companies, also known as the seven sisters (described in Oil: A Cultural and Geographic Encyclopedia of Black Gold, 2014). This neo-colonial form of energy security worked from the perspective of an energy importing country excellent until, in the late 1960s, resistance formed. This was bundled in particular in the formation of the Organization of Petroleum Exporting Countries (OPEC), which suddenly controlled over 50% of the world’s oil supply. It got worse in the early 1970s when many oil-producing countries began to nationalize Western oil companies (Dannreuther, 2015). The European understanding of energy security was visibly at risk and when the oil price quadruplet within a short time, Europe faced its first serious energy security challenge. To respond to the threat, energy diversification was pushed forward with nuclear energy, for instance in France, experiencing a boom (Anceschi and Symons, 2012). Also, investments in the gas market were made and new pipelines developed – and renewables, too, were seen as valuable supplementation to oil (Dannreuther, 2017). Possible war interventions were also being considered, especially in the United States (Dannreuther, 2017), and the International Energy Agency (IEA) was set up as a counterweight to OPEC (International Energy Charter, 2015). Western International Oil Companies (IOC) were sent out to search for new oil wells aiming at reducing the dependency on Middle Eastern oil – and they delivered. New findings in the North Sea and the Gulf of Mexico meant that part of the oil could now be sourced from Norway (compare with statistics from European Commission, 2019a) and other parts of the world. OPEC, as became obvious soon, had structural weaknesses which could not be concealed in the long run and consequently enabled Western energy importing countries to re-establish their desired neo-liberal order (Dannreuther, 2015).

Neo-liberalism worked well in the 1980s and 1990s and some experts already rejoiced that energy security issues were a matter of the past (Dannreuther, 2015). However, this was a fallacy that became apparent in the new millennium. Under leaders such as Hugo Chávez and Vladimir Putin, a re-nationalization wave hit the extractive industry (Chernykh, 2011). This resource nationalization led to a dwindling influence of IOC and National Oil Companies (NOC) were now dominating the oil and gas market (Dannreuther, 2015). Liberal capitalism gave way to state capitalism and additionally, the demand for energy in developing countries such as China and India rose sharply (International Energy Charter, 2015). The power shift in both supply and demand led to a sharp rise in the oil price culminating at $147 for a barrel in June 2008. Oil was no longer cheap and the old threat of energy insecurity was back, for the second time, energy security became the narrative of Europe’s political agenda (Dannreuther, 2015). The peak of the threat was not yet reached, though. These days, there is a clear consensus that climate change is at least accelerated by mankind and that fossil fuel combustion is the main driver (compare with various reports, such as IPCC, 2017). Decarbonizing our way of living thus seems to be the only option to face the climate challenge and Europe is eager to take the lead towards a climate-neutral future (European Commission, 2018; Goldthau, 2013). Decarbonizing, however, means abandoning coal-fired power plants, promoting electrification with clean energy sources, and limiting oil and gas consumption as much as possible. Simultaneously, many concessions for nuclear power plants are about to expire in the next decade and some European states do not intend to further push a nuclear energy agenda (for instance Germany, described in Appunn, 2018). All those issues combined inevitably raises the question if Europe’s energy security is existentially threatened. The EU answers with a range of plans and strategies. The Energy Union aims at providing secure, affordable and clean energy, the Clean Energy for all Europeans package sets a new legal framework to facilitate the clean energy transition, and the 2050 Long-Term Strategy requests for a climate-neutral economy by 2050 (European Union, 2018). If those plans will work out has to be seen in the future, one thing is already clear, though: Europe has entered into a new energy security era.

Is a climate change caused energy transition a threat to Europe’s energy security?

While the prior chapter explained the need for an energy transition, there is also criticism questioning the feasibility of a climate-neutral economy in the EU. This chapter outlines and challenges potential barriers towards and threats of a low carbon economy, taking into account energy security aspects from an economic, environmental, social, and political point of view.

An often-mentioned argument against renewable energy sources is the unreliable production of electricity. Most renewables only produce variable energy (intermittent energy sources), which means that they need to be supplemented with flexible and reliable conventional power plants such as gas plants in order to constantly match electricity supply and demand (Dannreuther, 2017). These days, subsidized renewables tend to financially outperform conventional power plants which makes gas investments uninteresting for investors (Winkler et al., 2016). If no investor invests in gas plants anymore, though, energy supply is at high risk. A counter-argument here is that interconnectors, linking the European grid system, will help to erase the risk of intermittent energy (Ofgem, 2019). From a neoliberal perspective, an intertwined European grid also ensures that the cheapest rates are applied to all clients in the EU and it offers more stability and improved cooperation amongst the EU countries (Pérez, Scholten and Stegen, 2019).

Renewable energy sources are also not the holy grail when it comes to a zero-impact-idea for the climate. Although renewable energy sources indeed have a much smaller impact on GHG emissions, they still cause damage to the environment. Their construction often involves a lot of minerals which need to be conventionally extracted (see for instance Business & Human Rights Resource Centre, 2019) and as the first generation has not yet reached the end of their life cycle, it is unclear what environmental impact their decommissioning will bear (Shellenberger, 2018). The raw material used in renewable plants mainly comes from developing countries and some of these minerals are scarce (Bloomberg News Editor, 2017). Also, windmills are responsible for the death of thousands of birds and bats every year and hydropower requires the flooding of entire valleys, which is why many environmentalists are not in favour of wind and water energy (Goldthau, 2013). It is therefore not possible to claim that renewables will erase dependency on other nations, nor that the proposed low carbon economy has no environmental impact. To counter those points one can argue, though, that already today a big share of the materials used in renewables are recycled and that further R&D will help to minimize the environmental impact further (Vekony, 2019). Furthermore, decommissioning a nuclear power plant, just as a comparison, takes between seven and 60 years (Gospodarczyk and Kincer, 2017). And whilst windmills bear some risk for birds and bats, the impact seems to be minuscule compared to road traffic, buildings, and natural predators such as cats (compare with Dienste, 2019).

Dannreuther (2017) points out that the energy transition particularly affects the coal industry. While for a climate-neutral economy phasing out of coal-powered plants seems to be elementary, it is precisely this source that is vastly available in Europe. From an energy security perspective, this is a big threat as many people working in this industry will lose their jobs and filling the supply gap that coal leaves will, at least in the medium term, have to be covered with foreign energy, most probably Russian gas. Poland for example heavily relies on its coal resources for which also up to 100.000 employees are at stake (Pérez, Scholten and Stegen, 2019), consequently Poland has little interest in phasing out coal. And while the overall oil-dependency may decrease during the energy transition, it is not the case for gas (Deign, 2018). New pipelines, for instance Nord Stream 2, express that many European countries still believe in Russian gas for decades to come. The energy transition, hence, will not decrease dependency on foreign energy and believing that energy security means the same for all EU countries, is naïve, too. While there is an EU-wide approach of fighting climate change and realising the energy transition, each of the 28 EU countries also follows an own national energy agenda (Pérez, Scholten and Stegen, 2019). Whereas Malta obtains 95% of its energy from abroad, Estonia and Denmark import less than 15%. And while Germany has a comparably high share of gas imports, Sweden and Cyprus are dominated by imports of oil (European Commission, 2019a). To say that Europe’s climate change caused energy transition is a blessing, hence, is wrong. Nevertheless, I would also counter this paragraph, arguing that renewables overall will create more jobs per energy unit produced than it is currently the case with fossil fuels, the number of jobs is indeed expected to rise fourfold (Pérez, Scholten and Stegen, 2019). And for Poland, it is to say that caused by their coal consumption they account for 33 of Europe’s 50 most polluted towns (Diaz, 2019). This increases health costs that Poland’s’ citizens need to pay for and it surely does not align with the energy securities’ idea of causing as little externalities as possible.

I conclude this chapter with a pure opportunistic view on climate change and fossil fuels in Europe. Path dependencies in the energy sector are closely linked to the fossil fuel industry. The current infrastructure and technological lock-ins as well as a very strong oil, gas and coal lobby (Dannreuther, 2017) make it very tough for policymakers to achieve a turnaround. We shall not forget that neither gas nor renewables are a new invention. Whilst they have been around for a long time, they did not manage to break the monopoly of oil or coal. And last but not least, climate change brings many positive externalities to Europe. Thanks to a milder climate and less snow, more agriculture land will be available in the summer months and less heating will be needed in the winter (Klare, 2015). Melting perm frost and ice caps will additionally help to find and exploit new mineral fields and even opening up new sea routes in the artic (Frederiksen, 2019).

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Opportunities and threats of transparency in the extracting industry

Why you should be transparent – and why not

This Article was published first on reputationaffairs.com.

The Internet made the world more transparent, transparency creates credibility, credibility increases reputation – and a good reputation is the essence in todays’ age of the internet. The formula of this cycle is easy to understand. But is it also correct? What if transparency complicates business, what if published information is misunderstood, and what if your stakeholders prefer to withhold information? Will transparency suddenly become a curse rather than open, good intention? This article shows the importance but also the consequences of transparency in the often-criticized extractive industry.

Transparency is the “Swiss army knife of policy tools”. A description that is often made – and not without good reason. Transparency challenges the privacy of companies and state sovereignty over and over again. Invoked in many highly critical areas such as security, financial policy, economics, corruption, human rights, and the environment, to name but a few. Thus, industries involved in all these areas are the most challenged. This applies, among other sectors, to the raw materials industry – regardless of whether gold and diamonds are extracted, oil drilled, or gas shipped to foreign countries: this is about safety for employees and the environment, about technological leadership, about human rights – and about money. A lot of money.

Being a winner thanks to transparency

Particularly in developing countries and emerging markets, the management of natural resources can generate revenues that are important for economic growth and social development. However, failure to disclose information on these revenues can lead to mistrust, weakening of administrative and governance standards, or even conflict. If it leads to conflicts or disregarded human rights standards, bad publicity is awaiting around the corner for the companies involved; damaging their reputation, followed by financial losses. Transparency with regard to the management of raw materials is an important prerequisite for ensuring that a country’s natural resources benefit the population. Because publicly accessible information promotes an informed debate on the management and use of natural resources. This way, the citizens of a country may hold accountable those being responsible in politics and businesses. Local politicians may show how they deal responsibly with the environment, international companies show that they behave legally, economically and (hopefully) morally correct, and the home countries of the involved companies may check that international standards are being observed.

Many companies are pro-transparency…

When it comes to transparency, involved companies often have to balance interests, because many of them advocate disclosure of the money flows to promote their own credibility, especially in their countries of origin – mostly OPEC countries – where commodity traders often have to listen to a lot of criticism. Transparency helps to reduce prejudices, correct misinformation and fight fake news. The own employees stand behind the company, and the cooperation with NGO’s becomes easier and more fruitful for both sides. At Exxon Mobil for instance, this is expressed as follows:

“We are committed to sincere and ethical behaviour and to fighting corruption by promoting transparency initiatives. In the countries where we do business, we are actively committed to signing transparency agreements to disclose government revenue. In detail, these are: Azerbaijan, Chad, the joint development zone of Nigeria/São Tomé and Príncipe, Kazakhstan and Nigeria.” ExxonMobil, 2019

ExxonMobil proved that these are not just empty words when back in 1998 they led a consortium of Western oil companies asking the World Bank to jump on board for a planned pipeline project in Chad and Cameroon. The idea was that the Bank’s involvement offset the reputational risk posed by investing in a conflict-prone, undemocratic country through a project drawing high levels of NGO attention. The bank agreed to draft a plan on how Chad should manage its future returns. In addition to protections of the environment and local communities, the resulting legislation required transparent and development-focused revenue expenditures monitored by oversight bodies which included civil society, legislative, and international members (Gillies, 2010).

… but are being slowed down by governments

Yet, implementing transparency does not always achieve its desired outcomes. Studies have found that despite the EITI auditing requirement (I’ll explain this later), member states (and companies) may not produce complete and reliable data (Van Alstine, 2014).Also, the lack of a strong and educated domestic civil society that can actually understand “transparency” may hinder the effectiveness of revenue transparency. In many countries, residents do not even know which rights they actually have. Thirdly, there is no scientific evidence that a transparent cash flow actually contributes to better and more resource-oriented growth. And finally, there are also quite trivial reasons why governments have little interest in transparency: corruption, money laundering and self-enrichment occur again and again. In order to counteract these unpleasant aspects, global initiatives have been in place since the late 1990s to achieve greater transparency – By the way: at the same time, the term CSR (Corporate Social Responsibility) became increasingly popular.

International initiatives

The Extractive Industries Transparency Initiative (EITI) is probably the best-known and largest global initiative for greater financial transparency and accountability in the collection and disclosure of revenues from natural resource extraction. The standard is implemented in some 50 countries around the world by governments in collaboration with business and civil society. Information on tax payments, licenses, production volumes and other important data relating to the extraction of energy and mineral resources must be disclosed. Many large corporations are active members of the initiative, including Swiss based Glencore for example:

“Glencore is committed to high standards of corporate governance and transparency and welcome increased transparency around the redistribution and reinvestment of such payments. We seek to maintain long-term, open, transparent and cooperative relationships with tax authorities in our host countries.” Glencore, 2019

Of course, there are countless other organizations and social movements promoting more transparency. For example, Transparency International, which fights corruption worldwide. And “Publish what you pay” (PWYP), founded from an alliance of London-based NGOs, including Global Witness, Open Society Institute, Catholic Agency for Overseas Development (CAFOD), Oxfam GB, Save the Children UK, and Transparency International UK, now includes more than 650 civil society organisations in over 50 countries.

In summary: Transparency yes, but…

Ironically, some companies are afraid that too much transparency will make them vulnerable because their value chains are complicated. This can lead to public shaming, which in turn creates complex reputational dynamics. For instance, a company could perceive that bad press scares off consumers, attracts legal investigations, lowers employee morale, and threatens shareholder confidence. Nevertheless, the benefits of transparency clearly outweigh and will become even more important in the future. Because “not to inform” is much more likely to cause negative publicity. And in the age of the Internet, a multinational company can simply no longer afford this.

Sources

Gillies, A. (2010) ‘Reputational Concerns and the Emergence of Oil Sector Transparency as an International Norm’, International Studies Quarterly. Oxford, UK: Blackwell Publishing Ltd, 54(1), pp. 103–126. doi: 10.1111/j.1468-2478.2009.00579.x.

Van Alstine, J. (2014) ‘Transparency in Resource Governance: The Pitfalls and Potential of “New Oil” in Sub-Saharan Africa’, Global Environmental Politics, 14(1), pp. 20–39.

International Investment Treaties: Curse or Blessing for the Energy Revolution? – Part II

This article was written for the University of Westminster.

International law on the protection of foreign investment may impose excessive constraints on the freedom of states. But without international treaties, global companies may not invest in foreign countries – think about security, change in political administrations, shift in public perception, etc. This applies especially for the energy industry where contracts are signed for long-term periods. So: Are International Investment Treaties (IITs) a curse or a blessing for the governments and their plans for the energy revolution?

Read part one to learn more about the history and function of International Investment Treaties.

Why IITs are essential for foreign investors

It is understandable that a private company needs certain securities when making new investments. As described in the first chapter, this security is provided by national laws in its own country. However, if the investment is made abroad, other levers must be used. Of course, the company can also sue abroad directly at the national court if it feels unfairly treated. However, this is often regarded as too little objective – because ultimately even the most objective national court still represents the interests of its country. For this reason, IITs have been developed which guarantee the foreign investor greater security, fair and equitable treatment and the protection of expropriation – and at the same time define the framework conditions for an appeal. Most IITs give the investor the right to sue the host country directly at an international arbitration court – often the ICSID in Washington. As an independent body, this should serve to ensure a fairer arbitral award. In the energy industry, very large investment sums are often required to build up the sector. This applies equally to the oil industry, nuclear energy, and for renewable energy sources (e.g. on- and offshore wind farms). These high sums mean that the break-even point lies in the far future. For this reason, contracts in the energy sector are usually very long-termed and often guarantee rights for several decades. The companies are thus profiting very strongly from IITs, as they minimize the threat of a large economic loss due to changed political conditions. In Europe, this usually proceeds under the responsibility of the ECT. The next paragraph describes a concrete case which is currently pending at ICSID and involves two European parties: The Swedish energy company Vattenfall AB and the Federal Republic of Germany.

In 2011, Japan was struck by a tsunami that caused a nuclear catastrophe at the Fukushima reactor. For weeks, newspapers were full of new articles about this nuclear accident and the public perception about the “dangerous nuclear energy” manifested itself. In Germany, this debate led the government to add the 13th Amendment to its Atomic Energy Act. The 13th amendment stated to phase out nuclear power until 2022 and to shut down the oldest reactors in the country immediately (The Federal Office for Radiation Protection (Bundesamt für Strahlenschutz – BfS), 2013), although the official runtime was not yet over. This had consequences for some German energy operators and also for a foreign investor. Vattenfall AB, the national Swedish energy group, held large shares in two nuclear power plants which were asked to shut down immediately (Bernasconi-Osterwalder and Dietrich Brauch, 2014). For Vattenfall, this decision meant severe cuts in its business activities. This becomes obvious when analysing the company’s key figures for the German market, Vattenfall employs over 6,000 workers and achieved a turnover of € 6.19 billion in 2016. In addition, nuclear energy is responsible for over 40% of the company’s energy production matrix. While the German companies had to sue at the Bundesverfassungsgericht (national court), Vattenfall was able to choose a different path and submitted a request for arbitration at ICSID in May 2012. Vattenfall invoked three provisions in the Energy Charter Treaty (Bernasconi-Osterwalder and Hoffman, 2012):

  1. The provisions for protection against expropriation without compensation
  2. The obligation on fair and equitable treatment and the non-impairment through unreasonable or discriminatory measures
  3. The duty to observe any obligations vis-à-vis an investor or investment (umbrella clause)

The secretary-general of ICSID registered the request and agreed to be responsible for this issue (ICSID, 2019). Case No. ARB/12/12 was set up and now deals with the claims arising out of Germany’s enactment of legislation to phase out nuclear power plants in the country by 2022. The claimed sum is estimated to be around € 4.8 billion, however, since most negotiations are taking place behind closed doors only little is known and the claim, in reality, could be substantially higher. According to the arbitration rules of the ICSID convention, both parties, the claimant (Vattenfall AB) and respondent (Germany) appointed one arbitrator each and agreed jointly on a president (Albert Jan van den Berg). Over the next few years, the court gathered evidence and held negotiations with both parties, with the first official arbitration attempts finally taking place in Washington in October 2016. This, as a matter of fact, was broadcasted live. Apart from that, the public is in the dark and although it was expected that the arbitration would be swift, the court has not yet come to a decision. This is mainly caused by Germany, which repeatedly tried to delay the court’s decision (application to have all arbitrators disqualified) and even tried to withdraw jurisdiction from the ICSID (based on the ACHMEA verdict by the Court of Justice of the EU). All those attempts failed, though, but it shows how uncertain Germany is about the outcome of the tribunal.

This case study displays in what a difficult situation a foreign investor in the energy sector can find itself in if host countries make short-term changes to legislation due to changing environmental situations. Although this specific case may only be linked to the energy revolution to a limited extent (nuclear energy is rather clean), it becomes clear what a dilemma both parties can find themselves in. In addition to a large financial loss for Vattenfall, there is more at stake. For instance job security and general uncertainty about future investments, and also their general reputation in Germany. It is difficult for a company to explain to its customers in the host country why they are suing the host country for damages, which would consequently be paid with taxpayers’ money. The next chapter shows the advantages and disadvantages of IITs from the point of view of the host country and will again use the Vattenfall AB vs Federal Republic of Germany case to illustrate the impact.

Opportunities and threats for countries’ energy transition plans

Foreign Direct Investment (FDI) can provide a great service to a country in both the short and long term. Of course, this applies to different sectors of the economy, but it is of high importance to the energy sector. Especially energy-exporting and developing countries, which do not have the necessary capital themselves, may benefit as foreign investors can boost the energy sector, improve the economic performance, create jobs and thus improve welfare. But energy-importing countries, too, are dependent on investors who often do not come from their own countries. Think, for example, about expensive gas pipelines, the operation of nuclear power plants and, more recently, the development of renewable energy sources such as wind farms, solar and thermal power plants, or also hydroelectric power plants. Last but not least, investors often bring with them urgently needed knowledge and technologies that are simply not available in the host country. As explained in the previous chapter, contracts with investors are usually concluded on a very long-term, ensuring that the business is worthwhile for the investor. And this is where the challenges for the host country begin. Political, economic, ecological or social situations may change quickly, and the host country must adapt its framework conditions. While the local companies have to adapt to these changed conditions and have to resort to the national court in case of replacement claims, the foreign investor can invoke international law under the conditions described in the previous chapters. The next paragraph takes up again the case study of Vattenfall AB v. the Federal Republic of Germany and shows this time the perspective of the host country.

Nuclear energy has always had a hard standing in Germany as Appunn (2018) describes. 28.000 people occupied the construction site of a new reactor in Wyhl in 1975, 200.000 people demonstrated in Hannover and Bonn in 1979 after the Three Mile Island accident in the USA. The Chernobyl catastrophe in 1986 further fuelled the fear of a nuclear catastrophe in Germany. And in the 1990s, there were more demonstrations devoted mainly to final storage sites. As we can see from a political point of view, nuclear power plants have been a hot potato for a long time. The Fukushima catastrophe in 2011 consequently brought back the fear of a nuclear accident in Germany. At the same time, intensive discussions took place on how to achieve the energy revolution and how to move the best towards a low-carbon economy (Appunn, 2018). Having all this background, the Bundestag (German parliament) decided in the same year to carry out a radical nuclear phase-out, whereby eight plants were ordered to shut down immediately as well as all others until 2022. Over 80% of the parliamentarians voted for this request, which was added as the 13th Amendment to the Atomic Energy Act. Various newspaper polls showed that a large majority of the population agreed with this policy, too. In the industry, on the other hand, this decision was controversial, especially of course among the participating energy operators, who accused the federal government of breaching existing contracts. Those national energy companies subsequently sued the Federal Republic of Germany at the Bundesverfassungsgericht (German Federal Constitutional Court) and, some four years later, in December 2016, were partially justified. The court ruled that the 13th amendment was at least partially unconstitutional, but not an expropriation (Bundesverfassungsgericht, 2016). However, the court also found that “accelerating the nuclear energy phase-out and thereby limiting the residual risk associated with nuclear energy was a legitimate objective. Furthermore, setting fixed end dates and striking the previously granted additional electricity output allowances were suitable means to fulfil this objective” (Gesley, 2016). As already described in detail in chapter two, a foreign investor, Vattenfall AB, decided to file a complaint before the ICSID. The officially known claim amounts to € 4.8 billion, which is an extremely high sum even for an economically strong country like Germany. The outcome of this case is elementary for the country on several levels. In addition to the financial outlay, politicians will have to explain why they neglected or oversaw contracting rights of private companies while voting for the 13th amendment. Also, the question is raised as to what extent international law takes precedence over German law, which allows Germany to carry out its energy revolution in a self-determined manner. In the future, Germany would like to separate itself not only from nuclear power but also from coal power and may run into similar issues. If ICSID should rule against Germany, the verdict may have a significant influence on how Germany will administer its energy policy in the upcoming years. And not only Germany is concerned by it, the other signatories of the ECT, too, wait for the judgement, fearing that they may have to deal with similar complaints soon. Italy, as an example, announced to withdraw from the ECT and literature identifies the recent wave of ECT arbitrations and the fear of lawsuits as one of the reasons (Iacob and Cirlig, 2016). However, Italy does not get off easily as the ECT, as many other BITs and MITs, contains a so-called sunset clause. Article 47(3) states that “the provisions of this treaty shall continue to apply to investments made in the area of a contracting party by investors of other contracting parties or in the area of other contracting parties by investors of that contracting party as of the date when that contracting party’s withdrawal from the treaty takes effect for a period of 20 years from such date.” This widespread clause was established to safeguard investors right in a fast-changing political climate and means that Italy will still have to face potential legal claims for almost the next two decades (Iacob and Cirlig, 2016).

Conclusion

Does international law on the protection of foreign investment impose excessive constraints on the freedom of states to regulate their energy sector in the national interest? And are IITs more of a curse or blessing for the Energy Revolution? This essay has attempted to shed light on those two questions while analysing different perspectives and also highlighting the interests and fears of the parties involved. For foreign investors, disputes usually involve financial losses and security aspects. Points that have been assured to them contractually, and often in the long term. And for their country of origin, it is a matter of ensuring that national companies can also be protected abroad to the best of their ability. For the host country, one might argue, there is much more at stake. With increasing frequency, they have to justify themselves before international arbitration tribunals and more often they have to pay out high awards. The outcome of the described case study is also eagerly awaited by other nations because it can have a fundamental influence on their energy revolution strategies, too. If Germany is found guilty, the planned energy transition could be postponed by years. This puts developed countries, in particular, in a dilemma because they have signed internationally binding agreements such as the Paris Agreement and committed themselves to reducing greenhouse gas emissions and to working towards a low carbon economy with appropriate measures. In the current situation, it can, therefore, be argued that IITs such as the ECT have a negative impact on the energy transition and thus stand in sharp contrast to the climate change debate. However, one can also argue the other way around and say that it is IITs that make global investments in renewable energy sources possible and thus taking a central role in a rapid energy turnaround.

In my view, the answer to the opening question is “yes”: International law, linked with the signing of IITs and potential ISDS cases, can indeed represent a major hurdle for states, especially in the energy sector and in the context of climate change. The implementation of set climate targets can actually be slowed down by international law, and the question arises whether the well-being of multinational companies should take a higher priority than the well-being of the planet earth. Finally, companies may also be accused of having been passive about the energy revolution for too long and of actually having had the chance to prepare for legislative changes a long time ago. Moreover, it is legitimate to ask how “fair and equitable” international arbitration tribunals are for local companies which cannot appeal to these courts. And last but not least, it is difficult to have to explain to the public that under international law their taxpayers’ money is invested in awards for foreign multi-million dollar corporations. The growing criticism on the impact of ISDS claims from the point of view of the host country is therefore justified, so yes, international law on the protection of foreign investment imposes excessive constraints on the freedom of states. And yet I believe that IITs are important for the economic development, for supporting developing countries, for the energy revolution, and that it can increase overall welfare. They provide a clear framework, increase security for investors and define the rules of the free market (Iacob and Cirlig, 2016). They make it easier for knowledge, technology, and capital to be available worldwide, and for several decades IITs have been relatively uncontroversial and very useful. The fact that international arbitration courts are responsible for dealing with those claims rather than national courts, and hence apply international law, is also justified. National courts can hardly judge objectively in such important cases, especially since in some countries of the world there is no classical separation of powers, as is customary in democratic countries. It is also a fallacy to believe that a country can simply withdraw from treaties and then lull itself into a sense of safety from international lawsuits. As this essay showed, sunset clauses often oblige countries to comply with existing treaties for a further 20 years.

I would like to conclude this essay with a final look at climate change and the energy revolution, which is so important for it, arguing that while international law can generally restrict national governments, it is still a blessing. Because just as the ECT is subject to international law, so was the UNFCCC, the Kyoto Protocol and now the Paris Agreement. In my view, international law will play a major role in the future in achieving jointly formulated climate targets and sustainable development goals. Schrijver (2011) describes climate change as one of the greatest challenges currently facing international law. As early as 2008, the UN published a report stating that global warming may have implications for human rights. The rise in sea levels may also shift maritime borders and several island states risk losing their entire land. Last but not least, climate change also entails high costs and the question arises as to what extend the main perpetrators of climate change can be fined for these costs. All these issues will ultimately have to be regulated by international law if we want to tackle the climate challenge together.

Bibliography

Appunn, K. (2018) The history behind Germany’s nuclear phase-out, Clean Energy Wire. Available at: https://www.cleanenergywire.org/factsheets/history-behind-germanys-nuclear-phase-out (Accessed: 6 May 2019).

Bernasconi-Osterwalder, N. and Dietrich Brauch, M. (2014) ‘The State of Play in Vattenfall v. Germany II: Leaving the German public in the dark’, Internation Institute for Sustainable Development, (December).

Bernasconi-Osterwalder, N. and Hoffman, R. T. (2012) ‘The German Nuclear Phase-Out Put to the Test in International Investment Arbitration? Background to the dispute Vattenfall vs. Germany (II)’, Internation Institute for Sustainable Development, (June 2012), pp. 1–8. Available at: http://www.tni.org/sites/www.tni.org/files/download/vattenfall-icsid-case_oct2013.pdf.

Brower, C. N. and Tepe, J. B. (1975) The Charter of Economic Rights and Duties of States: A Reflection or a Rejection of International Law? 9 Int’l Law.

Bundesverfassungsgericht (2016) Leitsätze zum Urteil des ersten Senats vom 6. Dezember 2016. Germany: BVerfG. Available at: https://www.bundesverfassungsgericht.de/e/rs20161206_1bvr282111.html.

ECT’s dirty secrets (2019) An explosion of cases, Energy Charter Dirty Secrets. Available at: https://www.energy-charter-dirty-secrets.org/ (Accessed: 6 May 2019).

Energy Charter Treaty (1994) The Energy Charter Treaty (With Incorporated Trade Amendment) and Related Documents. Lisbon.

Gesley, J. (2016) Global Legal Monitor, The Law Library. Available at: http://www.loc.gov/law/foreign-news/article/germany-compensation-to-utilities-for-acceleration-of-nuclear-energy-phase-out/ (Accessed: 6 May 2019).

Hobér, K. (2010) ‘Investment Arbitration and the Energy Charter Treaty’, Journal of International Dispute Settlement. Oxford University Press, 1(1), pp. 153–190.

Iacob, I.-G. and Cirlig, R.-E. (2016) ‘The Energy Charter Treaty and settlement of disputes – current challenges’, Juridical Tribune Journal = Tribuna Juridica. Bucharest: Societatea de Stiinte Juridice si Administrative (the Society of Juridical and Administrative Sciences), 6(1), pp. 71–83. Available at: http://search.proquest.com/docview/1806413582/.

ICSID (2019) ICSID Case No. ARB/12/12, Worldbank. Available at: https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/12/12 (Accessed: 6 May 2019).

International Energy Charter (2019) The Energy Charter Treaty, Energy Charter. Available at: https://energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/ (Accessed: 5 May 2019).

Ricupero, R. (2000) Bilateral Investment Treaties 1959-1999. Geneva. Available at: https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=195.

Schrijver, N. (2011) ‘The Impact of Climate Change: Challenges for International Law’, in From Bilateralism to Community Interest. Oxford University Press.

Suavant, K. and Sachs, L. (2009) The effect of treaties on foreign direct investment bilateral investment treaties, double taxation treaties and investment flows. Oxford: Oxford University Press.

The Federal Office for Radiation Protection (Bundesamt für Strahlenschutz – BfS) (2013) ‘Act on the Peaceful Utilisation of Atomic Energy and the Protection against its Hazards ( Atomic Energy Act )’, 13, pp. 1–33.

United Nations (1974) Charter of Economic Rights and Duties of States. Geneva: United Nations.

International Investment Treaties: Curse or Blessing for the Energy Revolution? – Part I

This article was written for the University of Westminster.

International law on the protection of foreign investment may impose excessive constraints on the freedom of states. But without international treaties, global companies may not invest in foreign countries – think about security, change in political administrations, shift in public perception, etc. This applies especially for the energy industry where contracts are signed for long-term periods. So: Are International Investment Treaties (IITs) a curse or a blessing for the governments and their plans for the energy revolution?

By signing the Paris Agreement at the United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties 21 (COP21) in 2015, the majority of states committed themselves to actively combat climate change and to limit global warming to a maximum of 2° Celsius above pre-industrial levels. To achieve this goal, most signatories agreed that renewable, clean energy sources should be promoted while the use of hydrocarbon products ought to be reduced. This impacts energy producers who will have to reshape their business model if they seek to maintain their market position despite the planned energy turnaround. However, not all players seem to be affected equally. While domestic companies have to implement national laws immediately, foreign investors are to a certain extent subject to international laws. The only requirement is that both the host country and the investor’s country of origin signed bilateral or multilateral investment treaties, so-called IITs (international investment treaties). For government and national courts, this is a tough nut to crack, considering that the investments rely on long-term contracts that legitimize current business practices and guarantee security. Hence, the energy transformation can either become a very expensive undertaking or may be implemented with severe delays. This can be very unsatisfactory for states and implies that the international law on the protection of foreign investment imposes excessive constraints on the freedom of states. The most recent developments show that the concern of states is indeed justified; the number of claims from foreign investors has risen steadily during the last decade, the outcome of court cases is uncertain, and the potential awards are exorbitantly high. This essay discusses this proposition and is therefore split into four parts. The first chapter tells the story of bilateral investment treaties (BITs) and multilateral investment treaties (MITs) and illuminates the most important treaty in the energy industry; the Energy Charter Treaty. The second chapter looks at the securities and options for the foreign investor, while the third chapter explains the opportunities of foreign direct investment and the implications of BITs and MITs for the host country. Those two chapters are accompanied by a prominent case study, the case “Vattenfall AB against the Federal Republic of Germany”. The last chapter discusses the essay question and argues that international law indeed imposes constraints on the freedom of states – but that there are a number of arguments why this will not change soon.

International treaties and agreements protecting foreign investors

If companies are to invest for the long term, they need a guarantee that they can actually make their business a success. However, what at first glance sounds elementary quickly turns into a very complex situation, especially if the investment takes place in a foreign country. In that case, the protection and interests of the own country disappear, and one is dependent on the host country, hoping that it pursues the same political, economic and social goals. Question marks may arise quickly when thinking about a change in political leadership or changing environmental conditions. If the risk is perceived as too high, the investor will not be willing to set up business or, if the operation is already ongoing and gets tough, may think about leaving the country. For the host, this implies that the investment and foreign knowledge will either never reach its country or that it will be deducted at unfavourable times. For the company, in contrast, this often comes with an (existential) financial loss. This is where international law steps into the game; for more than a century, countries have been trying to mitigate this threat through mutual agreements.

Historically, the development of international agreements and treaties can be divided into three phases. As Kenneth J. Vandevelde writes in “Brief history of international investment agreements”, published by (Suavant and Sachs, 2009), the first agreements were already in place in the 18th century, for example the bilateral treaties of “Friendship, Commerce and Navigation”, which were applied by the United States to guarantee “special protection” for national companies working in the territory of a host country. Interesting to note; already these first contracts contained a clause for “compensation for expropriation”, which plays a central role in today’s treaties. This first phase, the so-called Colonial Era, was followed by the Postcolonial Era after the Second World War. The General Agreement on Tariffs and Trade (GATT) was established by the Allies in 1947 to liberalize world trade. This shifted the focus of legal frameworks from the previous bilateral agreements to multilateral agreements (Suavant and Sachs, 2009). A new challenge arose in the early 1970s. During the UN General Assembly 1974, socialist and developing countries demanded the right to expropriate foreign companies without having to pay compensation or an appropriate acquisition price. These states were in the majority. Consequently, and in the same year, the Charter of Economic Rights and Duties of States (CERDS) was adopted. The Charter declared that each state has the right “[t]o nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the state adopting measures, taking into account its relevant laws and regulations and all circumstances that the state considers pertinent” (United Nations, 1974). This statement contained two key elements; the wording “should be paid” instead of “must be paid” and the fact that national law was responsible for the definition of the compensation rather than an international court (Brower and Tepe, 1975). In order to counter the risk of expropriation, the developed countries decided to conclude further BITs to protect their national companies. Those treaties dealt exclusively with investments and were largely negotiated between a developed and a developing country. Between 1959 and 1989, 386 such agreements were concluded (Ricupero, 2000). The fall of the Soviet Union, global market liberalization and rising powers in Asia signalled a further tipping point with a major impact on BITs. The number of bilateral investment treaties exploded, increasing from less than 400 treaties to over 2800 by the mid-2000s (Suavant and Sachs, 2009). Along with a number of other trade agreements, such as the North American Free Trade Agreement (NAFTA) between Mexico, Canada and the US, agreements for industry-specific topics popped up such as the European Energy Charter (EEC) which was signed in 1991. The EEC, however, was a political declaration only and did not constitute a binding international treaty. Yet, it paved the way for another highly influential treaty; the 1994 Energy Charter Treaty (ECT). As this essay deals with the energy industry, the general focus lies – especially in the following paragraphs – on explaining the ECT as well as outlining the implications this treaty has for its signatories.

The ECT is a multilateral framework which is currently ratified by 52 parties, amongst which the European Union and Euratom. It is worldwide the only multilateral framework covering exclusively the energy sector, was developed in 1994 in Lisbon and entered into legal force in April 1998. One of its main goals was to integrate the energy markets of the former Soviet Union states into the world market. In summary, the Treaty covers four key areas: 1) The protection of foreign investments, based on the extension of national treatment, 2) Non-discriminatory conditions for trade in energy materials, products and energy-related equipment, 3) the resolution of disputes between investors and host states, and 4) the promotion of energy efficiency and attempts to minimise the environmental impact of energy production and use (International Energy Charter, 2019). The framework is set up according to the rules of GATT (today World Trade Organization) in order to cover trade aspects, but it is also responsible for foreign direct investment (FDI) issues.

Under what circumstances an investor may pose a claim is defined in Part III of the ECT, which explains the investment promotion and protection. An investor thereby is defined as a “natural person having the citizenship or nationality of, or is a permanent resident in, a contracting state in accordance with its applicable law, or a company or other organization organized in accordance with the law applicable in that contracting state” (Hobér, 2010). Article 10(1) of the ECT explains the minimum standard of investment protection after the post-investment phase and sets out basic principles.

  • The first principle says: “Such conditions shall include a commitment to accord at all times to investments of investors of other contracting parties fair and equitable treatment” (Energy Charter Treaty, 1994) ,whereby “such conditions” are defined as an environment that encourages and create stable, equitable, favourable and transparent conditions for Investors (Energy Charter Treaty, 1994). Hobér (2010) describes that despite the fact that fair and equitable treatment (FET) are frequently applied in BIT tribunals and NAFTA arbitrations, the exact scope is not clearly defined and may lead to a flexible standard. This challenges both arbitrators and counsels in order to establish a source for good-government conduct – and not being alleged to decide on an individual perception of what is fair and equitable (Hobér, 2010).
  • The second principle says that “investments shall also enjoy the most constant protection and security” (Energy Charter Treaty, 1994) which, again, is not clearly defined. Academic literature argues that, amongst other things, it shall protect the investment against physical attacks.
  • The third principle is the discrimination clause, which is defined by the ECT (1994) as followed: “No contracting party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such investments be accorded treatment less favourable than that required by international law, including treaty obligations.” This principle sometimes overlaps with the principle of FET.
  • The fourth principle is the so-called umbrella clause which tells each party to “observe any obligations it has entered into with an investor or an investment of an investor of any other contracting party” (Energy Charter Treaty, 1994). This principle refers to pacta sunt servanda which is often applied in international treaties.

One of the most important substantive rules of the ECT is addressed in Article 13; expropriation. The ECT determines that “investments of investors of a contracting party in the area of any other contracting party shall not be nationalized, expropriated or subjected to a measure or measures having an effect equivalent to nationalization or expropriation […]” (Energy Charter Treaty, 1994). If expropriation occurs nonetheless, states are requested to compensate with the fair market value of the investment. Hobér (2010) notes that Article 13 does not differentiate between a “lawful” and “unlawful” expropriation as in a “lawful” case compensation would be seen as a precondition in order to be lawful, whereas in the latter case “compensation is equivalent to damages for the loss suffered by the investor” (Hobér, 2010). In case of a dispute, article 26 provides the arbitration rules for the investor-state dispute settlement (ISDS). Article 26, paragraph 4(a) defines the International Centre for Settlement of Investment Disputes (ICSID) as arbitration court for investor-state disputes, if both the contracting party of the investor as well as the contracting party are members of the ICSID Convention. Paragraph 4(b) claims that the dispute may also be submitted to “a sole arbitrator or ad hoc arbitration tribunal under the rules of the United Nations Commission on International Trade Law (UNCITRAL) or an arbitral proceeding under the arbitration institute of the Stockholm Chamber of Commerce” (Energy Charter Treaty, 1994). ICSID was established as an entity of the World Bank in 1966 and has become the world’s leading institution devoted to international investment dispute settlement.

In conclusion, this chapter presented the history of foreign investment law and outlined the framework of the ECT in depth. It showed the most important substantive rules which are treated in Article 10 and Article 13, as well as the dispute settlement provision which is defined in Article 26 and 27. A major takeaway is to understand that both BITs and MITs give foreign investors the right to bring claims directly against the host state, which is called investor-state dispute settlement (ISDS). While many ISDS cases are dealt under ICSID rules, it is not a must and there are other rules and institutions which could be applied. Vice-versa, the host state cannot claim its rights against a foreign investor in front of international courts but has to sue an investor at the own national court. The reason for this is that BITs and MITs are signed by countries only and not by the companies, which means that firms are protected by the treaties but are not a party of them. This has recently led to critical voices arguing that the ECT, for instance, does not guarantee an equal treatment but rather supports foreign investors. Critics also point out that only 19 claims were registered between 1998 and 2008, but that the number of claims has risen sharply since 2012, surpassing 110 claims by the end of 2017 (ECT’s dirty secrets, 2019). The next two chapters discuss the implication of the ECT for the signatories of the treaty (countries) and foreign investors under the perspective of climate change and energy transition. The theoretical description will be illustrated with the Vattenfall AB and others v. Federal Republic of Germany II case which started in 2012 and was still pending in April 2019.

Read blog II to learn more about why IITS are essential for foreign investors and what opportunities and threats they may bring for the countries energy transition plans.

Bibliography

Appunn, K. (2018) The history behind Germany’s nuclear phase-out, Clean Energy Wire. Available at: https://www.cleanenergywire.org/factsheets/history-behind-germanys-nuclear-phase-out (Accessed: 6 May 2019).

Bernasconi-Osterwalder, N. and Dietrich Brauch, M. (2014) ‘The State of Play in Vattenfall v. Germany II: Leaving the German public in the dark’, Internation Institute for Sustainable Development, (December).

Bernasconi-Osterwalder, N. and Hoffman, R. T. (2012) ‘The German Nuclear Phase-Out Put to the Test in International Investment Arbitration? Background to the dispute Vattenfall vs. Germany (II)’, Internation Institute for Sustainable Development, (June 2012), pp. 1–8. Available at: http://www.tni.org/sites/www.tni.org/files/download/vattenfall-icsid-case_oct2013.pdf.

Brower, C. N. and Tepe, J. B. (1975) The Charter of Economic Rights and Duties of States: A Reflection or a Rejection of International Law? 9 Int’l Law.

Bundesverfassungsgericht (2016) Leitsätze zum Urteil des ersten Senats vom 6. Dezember 2016. Germany: BVerfG. Available at: https://www.bundesverfassungsgericht.de/e/rs20161206_1bvr282111.html.

ECT’s dirty secrets (2019) An explosion of cases, Energy Charter Dirty Secrets. Available at: https://www.energy-charter-dirty-secrets.org/ (Accessed: 6 May 2019).

Energy Charter Treaty (1994) The Energy Charter Treaty (With Incorporated Trade Amendment) and Related Documents. Lisbon.

Gesley, J. (2016) Global Legal Monitor, The Law Library. Available at: http://www.loc.gov/law/foreign-news/article/germany-compensation-to-utilities-for-acceleration-of-nuclear-energy-phase-out/ (Accessed: 6 May 2019).

Hobér, K. (2010) ‘Investment Arbitration and the Energy Charter Treaty’, Journal of International Dispute Settlement. Oxford University Press, 1(1), pp. 153–190.

Iacob, I.-G. and Cirlig, R.-E. (2016) ‘The Energy Charter Treaty and settlement of disputes – current challenges’, Juridical Tribune Journal = Tribuna Juridica. Bucharest: Societatea de Stiinte Juridice si Administrative (the Society of Juridical and Administrative Sciences), 6(1), pp. 71–83. Available at: http://search.proquest.com/docview/1806413582/.

ICSID (2019) ICSID Case No. ARB/12/12, Worldbank. Available at: https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/12/12 (Accessed: 6 May 2019).

International Energy Charter (2019) The Energy Charter Treaty, Energy Charter. Available at: https://energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/ (Accessed: 5 May 2019).

Ricupero, R. (2000) Bilateral Investment Treaties 1959-1999. Geneva. Available at: https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=195.

Schrijver, N. (2011) ‘The Impact of Climate Change: Challenges for International Law’, in From Bilateralism to Community Interest. Oxford University Press.

Suavant, K. and Sachs, L. (2009) The effect of treaties on foreign direct investment bilateral investment treaties, double taxation treaties and investment flows. Oxford: Oxford University Press.

The Federal Office for Radiation Protection (Bundesamt für Strahlenschutz – BfS) (2013) ‘Act on the Peaceful Utilisation of Atomic Energy and the Protection against its Hazards ( Atomic Energy Act )’, 13, pp. 1–33.

United Nations (1974) Charter of Economic Rights and Duties of States. Geneva: United Nations.

The fear of reputational loss – A case study on climate models

Reliability issues and the consequences for scientists, policy makers and the media

This Article was published first on reputationaffairs.com.

 

Global Climate Models (GCM) play a crucial role in understanding climate change in general and anthropogenic climate change specifically. With growing importance, their reliance is key to predict manmade climate change and to deduce consequential actions. This is where a considerable debate over fidelity and utility starts. If GCM’s fail due to a lack of information, calculation errors or natural anomalies in the climate system, climate change deniers instantly use this momentum to criticize governments approaches towards a low or even zero carbon future. For international organizations such as the Intergovernmental Panel on Climate Change (IPCC), part of the UN and responsible for reports about climate change, but also for policy makers who have to deduce actions and finally the media who has to inform the public, there is a lot at stake, especially the potential of a reputational loss.

Reliability issues of global climate models

Constructing a climate model means selecting thousands of different parameters which need to be assessed and weighted individually. Understandably these highly sophisticated models are fragile towards errors since just one wrongly weighted variable will result in an unprecise outcome. And there are more difficulties: The models are only capable of taking into account 20th century observations and are therefore unable to calculate with a decadal-to-century timescale. Criticism is not new as Spencer and Christy (1990) argued almost 30 years ago that the tropical troposphere temperature, measured by a satellite, did not show a similar warming to that of the tropics surface temperature. They saw this as proof that no global warming took place and hence the so-called greenhouse effect was in fact non existing. Not surprisingly those findings were picked up immediately by a conservative radio show (Rush Limbaugh) and were used as proof against climate change. Today, various researchers also point out that there is evidence that climate models are exaggerating the effect of global warming due to increased atmospheric carbon dioxide – one of the measures for anthropogenic climate change. Despite the criticism, though, GCM’s are undoubtedly important for various actors and, by the way, GCM’s are backed up by a majority of researchers. So, who has to deal with GCM’s and what are the risks they deal with?

“I don’t believe it” Donald Trump on the Fourth National Climate Assessment

Impact for international organizations and policy makers

First and foremost: International organizations and policy makers. One of the most prominent examples are the reports produced by the Intergovernmental Panel on Climate Change (IPCC), which are responsible for the knowledge used in the Paris Agreement in 2015. Needless to say, that the IPCC is therefore keen not to make any mistakes and relies on exact models. This is where the issues outlined in the previous paragraphs play a significant role, because the IPCC had to deal with a potentially negative finding: Some researchers noted that the IPCC’s Fifth Assessment Report (AR5) was formulated less precise than the Forth Assessment Report (AR4) which was published several years earlier. This basically means, that the IPCC had to admit that the real impact of humans on climate change is not as well-known as they had thought.

Putting the critics aside, the IPCC is by no mean casual when setting up new reports and is eager to work with a huge variety of scientists from all over the world in order to write the most precise assessments. When asked to write a new report, the IPCC usually starts with a scoping phase. This includes drafting an outline and developing the most suitable experts who are nominated by governments and observer organizations. Once the panel and the outline are approved, authors are nominated and at a later stage selected by the IPCC. The authors are then asked to prepare a first draft which is reviewed by an expert’s panel. The second draft is accompanied by an extended Summary for Policymakers (SPM) and both documents will be reviewed by governments and experts. From this point onwards, the draft papers go back and forth between the expert’s panel and the involved governments until a final draft is set up. This final draft will then be approved and accepted by all involved parties and is prepared to be published as an official IPCC report. (IPCC, 2017)

Challenge for the media

Once the reports (e.g. IPCC) are published, they do not only affect policy makers but also public perception about (anthropogenic) climate change. Hence, it is fair to say that the way the media construct scientific knowledge influences the public opinion strongly (Antilla, 2010). Google, for instance, lists more than half a million findings for the IPCC’s last assessment report, and newspapers all over the world covered those findings. Yet, for newspapers and other outlets climate change is still a bit of a hot potato due to several reasons. Writing about risks in the future, based on climate change models and reports, is not the same as an objective report about something that has already happened and for which there is proof. This results in a situation, where climate change friendly journalists may be accused as sensationalist, while climate change deniers are seen as non-scientific, too industry friendly or even conspiracy driven. Yet, many journalists realized the significance of media coverage on climate change issues, since coverage is of great importance to support politicians and NGO’s in their attempt to implement new rules, laws, and recommendations.

“There’s a risk that writing about risks in the future will end up being sensationalist or exaggerated. But frankly the public is better served by information about future risks that they can do something about than about those that have already played out” Nicholas Kristof, New York Times columnist

Symbiotic systems need trust, and trust is reputation

The danger that just one of the involved parties does a foul play – resulting in unforeseeable reputational damage for all actors – is not to be dismissed and should, for as good as possible, be eliminated. For the scientific part, this means that findings should be backed up as good as possible by regulations, frameworks and peer reviews. For governments and international organizations, the challenge is to make sure that the deduced action is in the best interest of everyone and not just for the own or associated countries. And last but not least, journalists must be careful that they speak as objectively as possible about climate change, so that their message is not categorised as either too sensational or too much of climate denying.

Scientists, international organizations, policy makers and the media. Those four involved parties are heavily dependent on each other and live, at least to some extent, in a symbiotic system, which means that trust amongst the partners is crucial. Trust, in this case, means having a clean reputational sheet – and an honest and transparent handling of the data amongst all players.

References and further reading

Antilla, L. (2010) ‘Self-censorship and science: A geographical review of media coverage of climate tipping points’, Public Understanding of Science, 19(2), pp. 240–256. doi: 10.1177/0963662508094099.

Curry, J. (2017) ‘Assignment 1 Curry-2017 Climate Models .pdf’, GWPF, GWPF Brief, pp. 1–12.

Douglass, D.H & Singer, S. F. (2005) ‘Climate Data Disagree with Climate Models Policy Dilemma: Should We Believe in Atmosphere or in Models?’, American Geophysical Union.

IPCC (2013a) ‘Appendix A to the Principles Governing IPCC Work’, (February 2003), pp. 15–18.

IPCC (2013b) Summary for Policymakers. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group 1 to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Available at: https://www.ipcc.ch/pdf/assessment- report/ar5/wg1/WG1AR5_SPM_FINAL.pdf.

IPCC (2014) Climate Change 2014: Synthesis Report; Chapter Observed Changes and their Causes, Ipcc. Edited by F. Pachauri, Rajendra K Meyer, Leo Van Ypersele, Jean-Pascal Brinkman, Sander Van Kesteren, Line Leprince-Ringuet, Noëmie Van Boxmeer. doi: 10.1046/j.1365-2559.2002.1340a.x.

IPCC (2017) ‘The IPCC and the Sixth Assessment cycle’, IPCC Leaflets, p. 4. Available at: http://www.ipcc.ch/pdf/ar6_material/AC6_brochure_en.pdf.

Lloyd, E. A. (2012) ‘Confirmation and Robustness of Climate Models’, Philosophy of Science, 77(5), pp. 971–984. doi: 10.1086/657427.

Lynn, J. and Zabula, W. (2006) ‘outcomes-of-cop21-and-ipcc @ public.wmo.int’. IPCC. Available at: https://public.wmo.int/en/resources/bulletin/outcomes-of-cop21-and-ipcc.

Nisbet, M. and Mooney, C. (2006) ‘The Next Big Storm: Can Scientists and Journalists Work Together to Improve Coverage of the Hurricane-Global Warming Controvery?’, Commitee for Skeptical Inquiry. Available at: http://www.csicop.org/scienceandmedia/hurricanes.

Parry, M. L. et al. (2007) Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Available at: https://www.ipcc.ch/site/assets/uploads/2018/03/ar4_wg2_full_report.pdf.

Spencer, R. and Christy, J. (1990) ‘Precise monitoring of global temperature .pdf’, Science, 247, pp. 1558–1562.

Weatherhead, E. C. et al. (2017) ‘Designing the Climate Observing System of the Future’, pp. 80–102. doi: 10.1002/eft2.267.

Winsberg, E. (2012) ‘Values and Uncertainties in the Predictions of Global Climate Models’, Kennedy Institute of Ethics Journal, 22(2), pp. 111–137. doi: 10.1353/ken.2012.0008.

Putin and Chávez: Oil and gas strategies in Russia and Venezuela in the 21 Century

This Blog was written for the University of Westminster.

Introduction

During the beginning of this millennium, the energy sector in various countries has experienced a renationalization wave of strategically important companies. Two of the most prominent examples are the nationalization of the entire sector in Venezuela under the Hugo Chávez administration (1998 – 2013) and the renationalization of formerly private owned oil and gas companies in Russia under the politics of Vladimir Putin (2000 – present). Russia and Venezuela; two countries based on the world’s opposite side with different sizes, different background, different political systems and different challenges, and yet intertwined with a remarkably comparable story since the beginning of this millennium. Two decades, formed by two politicians, both coming from a low-income family and sharing a military background. Both “Putinism” and “Chavinism” work(ed) with a strong state role, even to the extent of a de facto one-party state in Russia, and a general anti-American attitude. And despite coming from the opposite sides of the political spectrum, both Putin’s and Chávez’s political agenda reveals surprisingly many similarities especially when analysing the oil and gas sector (Boucher, 2014). Both countries heavily rely on commodities; They belong, at least in theory, to the world’s heavy weights in raw material abundance and oil and gas exports and, hence, are supposed to be wealthy countries. And beneficiary for the two leaders: They both came to power at a time that was defined by an increased oil and gas price which would become the backbone of their power or as Bohm (2013) put it in the Moscow Times: “Both used their huge oil windfalls to subsidize handouts and buy political support among the large segments of the population that are dependent on the state”. This essay describes the politics and strategies of the two long-term presidents, analyses the implication and importance of the oil and gas sectors, outlines the key players in the extraction of raw material within those two countries, and critically discusses success and failure of their politics.

Russia’s oil and gas politics under the Putin administration

Russia was and is a real heavyweight in the energy industry. It is the largest country in the world in terms of surface area, comprising the world’s largest gas, second largest coal, and eighth largest oil reserves. It is the world’s largest gas and the second largest oil exporter (EIA, 2017). About 40% to 50% of the Russian national revenue is generated by oil and gas businesses. Literature, hence, often define Russia as a “Petrostate” or an “Energy superpower” – a term that is also favoured by Vladimir Putin (Rutland, 2014). Clearly, the oil and gas sector is the driver of Russian’s economy and this is exactly were the country’s vulnerability starts: It depends (too) heavily on hydrocarbon products (Garrison and Song, 2018). If commodity prices rise, the Russian economy is doing well, if they decline, the country suffers. In addition, there is a strong dependence on the most important importers, who can cause lasting damage to the Russian economy through sanctions as seen after the annexation of the Crimean Peninsula. This chapter discusses Russian’s oil and gas strategy under the Putin administration and addresses the key players in the extraction of raw material.

When Vladimir Putin succeeded Boris Yeltsin as president of the Russian Federation, he did this with clear campaign pledges. Amongst all, he wanted to restore Russia’s reputation as a super power and bring back national pride (Dolgov, 2000). But during his presidency he also promised to raise living standards, keeping unemployment and inflation rate down, and to build a technological counterweight to the Silicon Valley (Bremmer, 2018). These pledges would come at a price, though, and the price was high. And Putin never hid that in his view raw materials are elementary to become an economic heavy-weight and consequently to reach his campaign pledges. In his dissertation which is not accessible publicly anymore, Putin emphasized that a tougher state regulation together with other market mechanisms are the way to go. But having said that, he also acknowledged the need of foreign investors (Jack, 2005). Jack (2005) describes this as the “blueprint for his subsequent economic policy”. Having this in mind it may not come as a huge surprise that his administration continuously increased its influence in the energy sector. But in order to understand Russia’s and Putin’s strategies and challenges in the oil and gas sector, one has to go back to the year 1990.

After the collapse of the Soviet Union, the Jeltsin administration started a large-scale privatization process in the early 1990s. The goal of this approach was to attract (foreign) investors, boost the economy, and to start a healthy competition between the now privately-owned companies. The privatization process, however, did not go as smooth as intended and critics also claimed that Jeltsin had used revenues of the privatization to finance his own election campaign. As a result, a few Russian’s got very rich in the early 1990s but overall, this process did not lead to a higher prosperity. And a second issue arose quickly: the most valuable assets were gathered by a few oligarchs who suddenly played a dominant role in Russia’s economic system. Chernykh (2011) points out that Russia’s five biggest companies accounted for more than 20% of the country’s GDP and the top 100 companies, together, for up to 60% of the GDP. This situation was neither pleasing for the newly elected president, Vladimir Putin, nor for the Russian population. As Chernykh (2011) says: “Privatization in Russia, especially privatization of the national champions and a concentration of wealth in the hands of the few well-connected individuals, has not been accepted as legitimate or fair by a large part of the population”. After becoming president for the first time in 2000, Putin took over a country that had faced a “dark decade” and that was hoping for a change. The new strong man instantly tried to restore national pride. Rutland (2015) names the comeback of the Tsarist uniforms for the Kremlin guard, the return of the Soviet national anthem, or the revitalization of the Russian orthodox church as examples. Unfortunately, those examples were only the more peaceful approaches. Putin did not hesitate to demonstrate Russia’s strength by forced arms. “Putin’s victory in the second Chechen war, and his assertive presence on the international stage, helped to restore Russians’ sense of their country as a great power” Rutland (2014) says. Putin’s politics consequently required two main ingredients: a lot of money and the assurance that his administration had the power over all strategically important sectors – and not private individuals. And private individuals, in this case, meant Oligarchs, people to whom Putin had an ambiguous relation for a long time. On the one hand, they could be useful in bringing foreign capital to Russia and helping to restore the economy. They could also be very helpful during election campaigns. On the other hand they could also support Putin’s political opponents and sign contracts with foreign companies or even states, which was much to the displeasure of Putin. The solution for this balancing act: As long as the oligarchs danced according to the government’s whistle, they were tolerated, but if they played against Putin, they had to be prepared for consequences. The most sensational act in this relationship took place in 2003 and marked the beginning of the renationalization of strategically important companies: The takeover of a major part of Yukos and a year later the destruction of the same company. The official reason for this acquisition was to settle tax debts for alleged tax evasion. The acquired production unit was immediately integrated into the state-owned Rosneft. As suggested by Balzer (2005) the destruction of Yukos was “not inevitable” if their chairman Mikhail Khodorkovskiy, a well-known oligarch, had played according to Putin’s rules. This had consisted of an approval by the government of Yuko’s intended pipeline deal with China (the government had preferred to see a deal with Japan) and, perhaps, it had also included a less strong political role of their chairman. As said, this just marked the beginning of the renationalization of oil and gas companies. According to Chernykh (2011) the OECD Economic Survey found 29 major state acquisitions of private assets by 2006. The two most prominent actors in this game: The state-owned Gazprom and Rosneft.

The case of Gazprom, Russia’s biggest gas company, show how the administration proceeded. It was run as a privately-owned company until 2005 when the government increased its shares from around 40% to 51%. This changed the management structure of the company – most managers had now ties with the Putin administration – and transformed Gazprom into a state-run business (Yang et al., 2011). In the same year, Gazprom took over Sibneft, Russia’s third biggest oil company that was privatized in 1996 and renamed it “Gazprom Neft”. Today, Gazprom holds 95% of Gazprom Neft’s shares. Gazprom played and still plays an elementary strategic role in the relationship between Russia and Europe. Due to its geographical position, Russia was the easiest and cheapest partner to solve Europe’s energy deficit. And Gazprom was responsible for 58% of all gas imports to the EU in 2005. However, this relationship is risky for both sides. If Russia closes the gas tap, Europe will have a major energy supply problem. If Europe is no longer dependent on Russian gas, Russia will lose its most important trading partner. And this threat became real with the development of Liquified Natural Gas (LNG), because, according to literature, gas tankers offer a cheaper possibility for Europe to import gas for a distance of more than 1000km (Yang et al., 2011). Russia’s strategy for tackling this problem included new long-term contracts and new pipelines linking Russia and the EU directly with the goal of avoiding third party countries like the Ukraine, as it had been the case in the past. Examples for this are the Nord Stream I pipeline which opened in 2011. The second approach is a diversification of customers. China, for example, is becoming increasingly important. A $400 billion contract between the two countries was signed in 2014 and guarantees Russia another source of income for the next 30 years. In return, Gazprom will supply 38 billion cubic meters of liquid gas to the land of the rising sun (BBC, 2014).

As this essay shows later in the case of Venezuela, the high dependence on oil and gas revenue in combination with NOCs which do not have to compete in a free market environment, as well as no or not enough investment in the energy sector, will cause severe troubles as soon as the oil and gas prices stagnate or decline. This rule also applies to Russia. During Putin’s first two terms, international commodity prices rose constantly. But in 2008, the the economic crisis came and prices fell or stagnated. Due to the lack of diversification, Russia was hit particularly hard. While Russia recorded an annual Gross Domestic Product (GDP) growth of approximately 8% between 2000 and 2008, it collapsed completely in 2009 (The World Bank, 2019a). In 2009, Russia had to cope with a negative growth of -9% and since 2010 the growth has fluctuated between 0% and 6%. This had a significant impact on the Gross National Income (GNI). While the GNI per capita was $2,000 in 2000, it increased to $16,000 in 2013 (The World Bank, 2019b). In the last five years, though, it fell and is currently close to $10,000 – the lowest mark in ten years. Gazprom, extracting about 66% of Russian’s natural gas, had to face a declined productivity on its top-producing fields and strong monetary fluctuations in the home market during the last years – making it difficult to fulfil its obligation in Russia itself (Lunden et al., 2013). And then, in 2018, Putin had to announce that the government is raising the retirement age. As a consequence of all those happenings, several polls indicated that the trust in the administration had fallen to a 13-year-low (Roache, 2019). And yet, despite all this negative development there is good news for Russia: They are still much better off than Venezuela, as the next chapter will outline.

Venezuela’s oil politics under the Chávez administration

Venezuela underwent a huge political shift after Hugo Chávez was elected as president in 1998. Until his death in 2013, Chávez’ political agenda is often summarized as the Bolivarian revolution or the Bolivarian Process, named after the national hero Simón Bolivar who guided the country through the wars of independence. At the very core of this approach stood the idea of a broad social and political transformation in order to help the poor raising through the depression they have suffered in the decades before (Strønen, 2017). He also promised to reduce corruption and to bring the money back to the people (Wiseman and Béland, 2010). This socialist approach helped Chávez to become very popular amongst the poor population but was clearly against the agenda of the upper classes who had “enjoyed a near hegemonic position in Venezuelan society” as described by Strønen (2017), and it also heavily burdened the relations to the country’s most important export partner USA. Not surprisingly, Chávez ambitions where only doable with a lot of capital. And, as in Russia’s case, this capital would have to come from oil exports. This seemed to be reasonable having in mind that it is expected that Venezuela has the world’s largest oil reserves. As a result, controlling the oil industry was of crucial strategic importance and in Venezuela this meant that, apart from controlling the state owned Petróleos de Venezuela, SA (PDVSA), Chávez had to renationalize the entire oil sector. At this point it is worth mentioning that the government also nationalized cement, telephone, and power industries and implemented land reforms (Flores-Macías, 2010). He did this by passing 49 laws by decree in 2001, enabling him to take full control over the mentioned sectors (Tinker, 2015). This essay, however, only focuses on the development of the energy sector and its main actor, the national oil company PDVSA.

PDVSA was created in January 1976 as the result of the nationalization of the petroleum industry and is responsible for exploration and refining oil as well as petrochemicals and natural gas, including the export of those products (Encyclopaedia Britannica, 2019). The nationalization process was accompanied by “a significant increase in state income” (Mähler, 2011), resulting in higher salaries, import subsidies – but, unfortunately, also corruption. Mähler (2012) points out that the public sector grew between 1950 and 1981 from 6.7% to 24.4% and that a big share of the population was satisfied by those results (Koivumaeki, 2015). The 1990s started with a new system, though, the era of the Washington Consensus and neoliberal reforms. For Venezuela this meant that multinational corporations (MNCs) were welcomed again and various bilateral investment treaties (BITs) were signed (Koivumaeki, 2015). Wiseman and Béland (2010) describe that during the “apertura” (oil opening) by 1997 the royalties were lowered and that even PDVSA was allowed to partially privatize itself, leading foreign capital back into Venezuela. The goal of this idea was to develop crude oil in the Orinoco Belt with the help of foreign investment and it seemed to be successful as the country’s oil production rose to 3.5 million barrel per day (BPD) by 1998 – the highest peak Venezuela had reached since the early 1970s (Rapier, 2019). Yet, this was clearly not in the spirit of Venezuela’s socialists and just a year later, in 1998, Hugo Chávez came to power and made clear from the very beginning on that he intended to substantially change PDVSA, describing it a “black box” and a “state within a state” (Chávez Frias, 2005).

Despite the fact that the oil market was not the major topic of Chávez presidential campaign in 1998 nor that he seemed to be interested in attacking MNCs, it became obvious that he did understand the importance of the sector (Koivumaeki, 2015). He hosted an OPEC meeting in September 2000 and told PDVSA to respect the quotas defined by OPEC in order to increase the global oil price. His intentions became even clearer after passing the new Organic Hydrocarbon Law in 2001, claiming a 51% state ownership in all hydrocarbon companies and a 30% share for the government in all projects in this sector, and after appointing a befriended person as board member of PDVSA (Koivumaeki, 2015). This development, however, caused strong criticism amongst the old elites – and amongst PDVSA itself. In April 2012, Chávez became aware of this himself when a military coup tried to get rid of him. This coup led to nationwide demonstration in favour of Chávez and within 3 days he was back in office, but it hurt the relationship with one of the most important export countries: The United States. Chávez blamed them to have supported the coup and even though George Bush distanced himself from it, documents proved that the CIA at least knew of the attempt (Macias and Imbert, 2019). In December 2002, just eight months after the failed coup, a general strike broke out which was lit by the political opposition, trade unions, and several managers of PDVSA with the intention to force Chávez’ resignation (Nelson, 2013). It included a lockout of the employees and an interruption of the shipping lines, damaging Venezuela’s economy badly (GDP in 2003 decreased by 9.2%). The strike failed its main goal of getting rid of Chávez, but it took several months until finally all activities were resumed. As a consequence, the Chávez government dismissed 18,000 employees at once and appointed governmental-loyal employees instead (Mähler, 2011).

After those first five years of constant change and ambiguities, Chávez was finally able to take advantage of the oil prize that constantly rose. Venezuela’s GDP rose significantly in 2004 (17.9%) and 2005 (9.3%), enabling Chávez to increase social spending’s and reducing poverty rate from 49.99% in 1999 to 43.7% in 2005 (Wiseman and Béland, 2010). Based on the Bolivarian Mission, Venezuela’s government was now also able to support befriended countries such as Cuba (cheap oil in exchange for doctors) and they felt strong enough to end a military relationship between them and the United States. Unsurprisingly, this led to even bigger tensions in the US-Venezuelan relations despite the fact that still 50% of all oil exports were delivered to the US (Council on Foreign Relations, 2019). The increased oil revenues entailed another opportunity for Chávez, as suggested by Koivumaeki (2015); they empowered the government to renationalize the entire sector while being able to face the legal fines which would consequently follow. This process began with a new oil program implemented in October 2004, raising royalties on extra heavy oil projects from 1% to 16.67%. That was just the beginning, though. Between 2006 and 2007, operating agreements with MBCs were terminated by the administration and the associations were forced to sign joint ventures. This reversed the privatization process of the 1990s and established the old status quo, with PDVSA as the only remaining actor. Seeing their BITs being breached, Eni, ExxonMobil, and ConocoPhillips thus headed to arbitration courts. In 2011, international arbitration courts penalized Venezuela with a $ 908 million fine as a damage payment for ExxonMobil and a year later ConocoPhillips was awarded $ 66.8 million against PDVSA. Both fines were paid immediately which gained Venezuela a reputation of being a respectful player. (Koivumaeki, 2015)

Unfortunately, renationalizing the oil sector resulted in a number of drawbacks. First of all, foreign expertise left the country and could not be replaced adequately, and PDVSA was run by governmental friendly executives who did not have much knowledge about the industry. And secondly, all the money was invested in Chávez’ social programs rather than being reinvested in the industry. This led to a constant decline of oil production, reaching less than 50% of its 2006-outcome in 2018 (Rapier, 2019). In combination with an oil price that had decreased, Venezuela suddenly had to accept a significant loss of revenue. Considering that oil accounted for 95% of all exports and almost 50% of all revenue generated, the outlook was not promising (The World Bank, 2019c). And then, on 5 March 2013, Chávez died and left the task of overcoming those problems to his successor. This burden, though, as it currently becomes apparent, has already become too big. Egan (2016) names five main reasons why the industry finally collapsed. First of all, Chávez (and later Maduro) failed to invest into the industry but rather pressed all money out of it. This resulted in a situation where the facilities became outdated and could not adopt to the naturally deterioration of the oil fields. The second issue are blackouts or power shortages which have become frequently in Venezuela and affected the capacity of the energy companies. While the government blames low water levels for this problem, the opposition rather points at corruption and mismanagement. Thirdly, with an inflation rate of more than 500%, both, oil companies and suppliers, are not capable of coping with the costs. The fourth reason, more generally, is also linked to the inflation rate: International companies (Mondelez, Pepsi, e.g.) stopped accounting for Venezuela’s sales. And the fifth reason mentioned by Egan (2016) but also by other analysts (Gramer, 2017) is the fact that Venezuela is so broken, that the cash shortage leads to a situation where they cannot even blend its very heavy crude oil with third party crude oil nor run the oil vessels and export oil to other countries. Gramer (2017) summarized this situation as “a vicious circle”.

Conclusion

Two countries, two presidents, two decades, one idea: (Re)nationalizing the energy sector in order to match the own agenda (Flores-Macías, 2010). For Chávez this included the nationalization of ExxonMobil, Chevron and other foreign companies, while Putin shattered Yukos and nationalized Gazprom and Rosneft (Bohm, 2013). Both leaders used the oil and gas money to fuel their political plans and to fix or enhance their economies – while for Venezuela this included mainly social welfare programs, Russia invested in national pride, a pension scheme, an infirm infrastructure left by the Soviet Union, and the development of the service sector. And now, almost 20 years later, both countries are in severe troubles which is to a large extend caused by their energy politics. Phrases such as “the oil curse” and “the Dutch disease” were applied for both countries. With a declined oil price and an old-fashioned and inefficient NOC, Venezuela is not capable of keeping its level of oil production (Reuters News Agency, 2017), ran completely out of money (Gramer, 2017), faces malnutrition, a huge emigration wave, demonstrations and an unclear political situation (Human Rights Watch, 2018). Despite the fact that Russia was not hit as hard as Venezuela, problems are similar: A declining oil and gas price in combination with sanctions after the annexation of the Crimea Peninsula has resulted in a stagnated economy, forced the government to increase the retirement age, and led to financial insecurity.

Is it fair to say then that a nationalized oil and gas sector is generally the wrong approach? In my opinion it is not. Other countries such as Norway (Equinor) or Saudi Arabia (Saudi Aramco) have proven that NOCs may indeed benefit the welfare of a country, making everyone better off. But this requires that those companies are not just seen as piggybank which can be squeezed out as much as desired. It is also essential that those companies are run by experts and not just politically befriended managers. And finally, governments need to diversify its economies in order to reduce the impact of a stagnating oil and gas price. Unfortunately, in Venezuela’s case, all of the given suggestions were neglected. Oil revenues accounting for 95% of all exports, throwing out foreign knowledge (Lerrick, 2018), no investments in the industry, and managers with no energy-related background have caused the collapse of the country with the world’s largest oil reserves. Despite many similarities between Russia and Venezuela there is one massive difference between the two leaders, though, as described by Bohm (2013). While Chávez left the political scene at the height of this popularity (although not on his own will) and does not have to face the collapse of his system, Putin does.

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The Facebook-Cambridge Analytica Scandal – Part II

This article was published first on reputationaffairs.com

The scandal erupts

The rise of Facebook seems to be one of the most successful stories ever. What began in 2004 as a platform for Harvard students became popular and conquered the world in a very short period of time. Within 15 years, Facebook has become one of the most powerful corporations in the world, playing a major role in shaping the online environment. Although the company has had to deal with criticism again and again, nothing hit it as hard as the (un)voluntary cooperation with Cambridge Analytica. Most likely the most famous data scandal the world has ever seen, the aftereffects and reputational damage are still very difficult to assess.

2018 did not start well for Cambridge Analytica and its CEO Alexander Nix. In February – just one month before the bomb dropped – Mr. Nix told the British parliament that CA did not receive data from Facebook, which very soon turned out to be a lie. Only days later, several news outlets published a secretly taken film where Nix talked about “beautiful Ukrainian girls” to discredit political opponents in Sri Lanka. This was not the first secret recording in which Nix boasted about CA’s (illegal) activities.

A few days later, on March 17, 2018, the scandal was about to fully hit the fan when The Guardian and The New York Times simultaneously published a story, based on insider information received from a whistle-blower, about how a British consultancy firm helped the Ted Cruz presidential campaign in 2015. Within a week, the story became the perhaps biggest scandal about data mining to date, with newspapers worldwide writing about data misuse on Facebook and the manipulative activities of CA. The two main protagonists saw themselves, at least at the beginning, in the role of the victims. It took both companies several days before they finally broke their silence. CA denied to have broken any laws and also denied using the data during the US presidential election in 2016. Facebook, on the other hand, apologised to users with a letter in various newspapers but only called the scandal a “breach of trust”.

The apology came too late, though, and it didn’t address the issue in detail. As a consequence, it wasn’t perceived as honest. The public outrage was immense – Google alone listed 129 million findings addressing the term “Facebook data scandal” and 1.92 million results for “Cambridge Analytica data scandal”. The bosses of both companies felt compelled to take a public stand for the second time. Alexander Nix’s was suspended from Cambridge Analytica on March 20. Next up was Facebook’s CEO Mark Zuckerberg. In early April 2018, he stated that Facebook would undergo a reform in its policy to prevent a similar breach. Facebook also decided to implement the new EU data protection regulations (GDPR) in all areas of operations worldwide on a voluntary basis. Ye,t the reputational damage was severe and as it turned out not just for the short run. On April 10, 2018, Mr. Zuckerberg had to endure an uncomfortable testimony before the US Congress and one month later, he also had to stand trial before the EU Parliament.

2018: The aftermath

In late April, Facebook had to reveal its first quarterly report after the scandal broke out. Despite an immense fall in Facebooks stock prices between March and April 2018, the report showed that Facebook has had the second strongest quarter in its history, generating a revenue of $11.97 billion in the first quarter of the year. Shareholders seemed to be relieved about the fact that the share price not only stabilized, but it even reached a new all-time high in July 2018. However, the joy was short-lived when, on July 26, it became public that 3 million European users had deleted Facebook as a consequence of data abuse. Facebook was caught up by its recent past for a second time and the share price literally collapsed and plummeted by $109 billion – with no end in sight. Still in July, UK’s “watchdog”, the ICO (Information Commissioner’s Office), announced to fine Facebook with £500,000 for the data scandal, which was the maximum fine possible under the old data protection rules. “Even after the discovery of data misuse in December 2015, Facebook did not do enough to ensure that those who continued to hold the data had taken adequate and timely remedial action, including deletion,” was the verdict of the ICO. Cynics might argue that this fine was a modest price to pay – a mere  0.05% of the company’s free cash flow.

While the consequences for Facebook seemed to be very unpleasant, Cambridge Analytica and its mother company SCL Group,  were hit even harder. Within the first days of the scandal, both companies lost many clients who left as a response to the public pressure. The reputational damage was perceived as too heavy to continue operations. On May 1st, 2018, just about 40 days after the data scandal peaked, CA and the SCL Group both had to announce the closing of their doors with immediate effect. Neither Cambridge Analytica nor the SCL Group were legally convicted at this point. Once again, history seemed to prove that restoring a damaged reputation – regardless of whether a moral or legal problem arises – is in the best case a long-winded project and in the case of untrue statements and bad crisis management, a thing that often ends with the demise of the company.

Facebook-Cambridge Analytica data used

  • 2014 involvement in midterm elections
  • 2015 presidential campaign Ted Cruz
  • 2016 presidental campaign Donald Trump
  • 2016 Brexit vote
  • 2018 Mexican general election

Read Part I of the Facebook and Cambridge Analytica Data Scandal

The Facebook-Cambridge Analytica Scandal – Part I

This Article was published first on reputationaffairs.com.

Timeline of a reputational disaster

The rise of Facebook seems to be one of the most successful stories ever. What began in 2004 as a platform for Harvard students became popular and conquered the world in a very short period of time. Within 15 years, Facebook has become one of the most powerful corporations in the world, playing a major role in shaping the online environment. Although the company has had to deal with criticism again and again, nothing hit it as hard as the (un)voluntary cooperation with Cambridge Analytica, which is most likely the most famous data scandal the world has ever seen – resulting in an unprecented loss of trust and reputation.

When extensive Wikipedia pages are dedicated to a “breach of trust”, and Google displays 2,690,000 results for this “breach”, it is a safe bet to say that something definitely has gone (very) wrong. And that, perhaps, there was more than just a breach of trust. In this specific case, though, it took almost three years after the first articles were published until the big media scolding and the resulting consequences occurred. Three years in which one would have had the chance to actually prevent reputational damage. This is the story behind the Facebook-Cambridge Analytica data scandal and its implications for the reputation of two of the world’s most influential companies.

2013: How it all began

“This is Your Digital Life”is the innocent name of an app which Aleksandr Kogan developed in 2014 at the Cambridge University. An app that was different than others, though. It was designed to vacuum up the data of the people using it. And the data of their friends – including the data which they hadn’t intended to share publicly. Mr. Kogan provided the app to a young British political consulting firm called Cambridge Analytica (CA), which combined data mining, data brokerage and data analysis with strategic communication in electoral processes. The London-based agency had developed a profiling system using online data, such as Facebook interactions and smartphone data. As a political consulting agency, CA mainly focused on voters demographics, consumer behaviour, internet activity and other private and public sources. Cleverly combining strategic advice and new newly acquired technological capability, CA was quickly able to run a Facebook survey that silently aspirated the data of people participating – and their friends. The entire operation was mainly orchestrated and run by two key people: Alexander Nix, Director of the SCL Group – CA’s mother company – and CEO of Cambridge Analytica, and Steve Bannon, vice president of Cambridge Analytica, executive chairman of Breitbart News and former chief strategist of president Donald Trump.

2014 – 2015: Data misuse and first newspaper articles

In 2014, CA actually started harvesting data on Facebook. Data which was used in the 2014 midterm elections in the US and in 2015 for the presidential run of Ted Cruz.While Cambridge Analytica later admitted to collecting 30 million Facebook user profiles, Facebook itself estimated that around 87 million profiles were affected by Mr. Kogans App.

A Bloomberg article reported in November 2015 that CA was hired by the pro-Brexit campaign group Leave.EU, headed by Nigel Farage. As it turned out, Alexander Nix and Nigel Farage were friends, and this operation was done pro bono. It was the first time microtargeting was raised to a public level and used to influence an election campaign.

On 11 December 2015, the Guardian first published an article on Cambridge Analytica and its methods. The journalist Harry Davies was already able to show that the election campaign of the Republican presidential candidate Ted Cruz was driven forward by data from Cambridge Analytica. It was also known at the time the data was being collected via an application of Facebook, which led to the first time that Facebook had to take a public position on the issue. Their comment on this article was very general: “[M]isleading people or misusing their information is a direct violation of our policies and we will take swift action against companies that do, including banning those companies from Facebook and requiring them to destroy all improperly collected data,” a Facebook spokesman said. However, nothing in this direction was actually undertaken by Facebook – apparently this simple intervention was enough and no further media outlets caught on to the story at this stage.

2016 – 2017: Ongoing operations

2016 and 2017 was a busy year for the SCL Group and Cambridge Analytica. After the Ted Cruz campaigning team lost against Donald Trump, CA was hired by Donald Trump’s presidential campaign in 2016 to help them win the national election against Hillary Clinton. Meanwhile in Europe, another firm with close ties to the SCL Group, AggregateIQ, helped the second pro-Brexit group “Vote Leave”.

During that time, media attention lay almost exclusively on the surprising election results and not on CA and its Facebook data. The calmness continued until December 15, 2017, when CA was again mentioned in the media, this time in a Wall Street Journal report, stating that Robert Mueller, the American Special Counsel to investigate potential Russian interference in the US presidential election, had requested files from Cambridge Analytica. Once again, however, this did not get the attention of other media and neither Cambridge Analytica nor the SCL Group nor Facebook had to face any further negative press. This was about to change drastically, though, in early 2018.

Facebook-Cambridge Analytica data used:

  • 2014 involvement in midterm elections
  • 2015 presidential campaign Ted Cruz
  • 2016 presidental campaign Donald Trump
  • 2016 Brexit vote
  • 2018 Mexican general election

Read Part II of the Facebook and Cambridge Analytica Data Scandal