Shell Doesn’t Shock

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    You should know that serving on the board of oil giant Shell is not for the fainthearted. Remember the unsettling scenes from the previous year’s AGM in London? At one point, security staff had to rush on stage to protect the board as the meeting descended into chaos with climate protesters chanting ‘Go to hell, Shell’.

    Yet, the bold members of the board have been nothing but steadfast in their stance, consistently advising their shareholders against adopting more ambitious targets for reducing carbon emissions.

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    Powering ahead, or #PoweringProgress, as the company would have it, earlier this year Shell published its Energy Transition Strategy 2024 (ETS24) that should help it “transform into a net-zero emissions energy business”. The critics were relentless, however, calling the new strategy a “backtracking”, “weakening” or “watering down” of climate ambitions. Only fair, by the way, as the company did lower its emission reduction target from 20% to 15-20% by 2030 and scrapped a previous 45% reduction target by 2035.

    Then, this week, ahead of the upcoming AGM, Shell’s directors showed further resolve to stay on course, responding to a resolution co-filed in January by a group of 27 investors and led by Follow This that calls for aligning the company’s Scope 3 emission reduction targets with the goal of the Paris Agreement.

    Surprise, surprise, the board urges shareholders to vote against it. The proposal, according to them, is “against shareholders’ interests in view of the future of the company as well as the global economy” and is “more harmful than helpful”. The board, therefore, encourages its shareholders to vote for the aforementioned ETS24 instead.

    “Shell believes that its targets and ambitions support the more ambitious goal of the Paris Agreement to limit global warming this century to 1.5°C above pre-industrial levels,” explain the directors. A rather bold statement, verging on the delusional, seen as these targets will hardly threaten the company’s prominent position among the top ten carbon emitters in the world (according to the Carbon Majors database). Were it not for the clever use of the verb “believe”, you might even call it outright false.

    At least, Shell’s directors are completely honest about the reason why they recommend shareholders vote against the resolution. “The supporting statement of Resolution 23 suggests a further reduction of the Scope 3 emissions Shell reports,” they write. “Doing so, without changing demand and the way in which customers use energy, would effectively mean handing over retail and commercial customers to competitors. This would materially affect Shell’s financial strength and limits its ability to generate value for shareholders.”

    The business logic is impeccable. It is not Shell’s fault that the world’s thirst for fossil fuels seems insatiable. And if the company were to abstain from exploring this business opportunity, someone else would certainly oblige, harming profits and threatening the very survival of the business. Why on earth would shareholders want to commit hara-kiri?

    Well, Follow This, for one, is of the opinion that such simple business logic just demonstrates that “the board of Shell lacks the imagination to see that the company has the capital and market-making capabilities to replace fossil fuels with clean energy.” Moreover, several serious institutional investors, including Sweden’s AP3 and AP4, share this view.

    “Now the ball is in the court of other responsible investors,” says Mark van Baal, founder of Follow This. “We expect that they will side with their peers instead of the board of Shell.”

    It makes me wonder what kind of spectacle we are about to witness at Shell’s next AGM on 21 May. Stay tuned!

    Image courtesy of StockSnap from Pixabay
    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.
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