Accounting for negative publicity in project economics

The high-profile publicity generated by the Greenpeace campaign against deep-sea disposal of the Brent Spar demonstrated the power of public opinion to affect corporate image and operational decisions. Regulatory approval is not the only constraint on the granting a ''license to operate,'' and corporations now ignore stakeholder values at their peril. Although quantifying soft issues, such as negative publicity and stakeholder concerns, is difficult, there is an increasing need to integrate conventional economics with public opinion when evaluating different possible development options. This paper seeks to set out a process for incorporating negative publicity directly into project economics. We started with an outline study of the effects of two high-profile incidents of negative publicity: Hoover's ''Free Flights to America'' promotion and the ill-fated launch of Unilever's manganese accelerator soap powder. The results showed two distinct outcomes: the effect on corporate image and the direct effect on a project, such as the launch of a new product. The next step was to identify a number of possible outcomes to an escalating scenario of negative publicity within the oil and gas sector. The economic consequences of each possible outcome are expressed as risk-assessed values (RAV's) that are the product of the probability and the cost of each outcome. To show this, we took a hypothetical case of handling of sour gas in a new field development and looked at the possible outcomes from four options for handling the gas: flaring, gas reinjection, power generation and seawater absorption. The method developed in this paper outlines a process for quantifying stakeholder values and potential negative publicity in the planning stages of potentially sensitive projects. The process provides a logical and transparent framework that encourages the exploration of these softer issues. It is designed to provide indicative, rather than definitive, values to show whether the inclusion of risk-assessed costs would alter the decision on the basis of conventional economics. The process also provides a guide for developing a consistent basis for decision making, checks the sensitivity of the development option to negative publicity, and highlights the cost critical areas.