Shareholder engagement for aligning SHELL with the Paris Climate Agreement

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On the 23rd of May 2017, SHELL Shareholders will be asked to approve a shareholder proposal submitted by Follow This to request the board to set and publish targets for reducing greenhouse gas emissions that are aligned with the goal of the Paris Climate Agreement

Follow This is a Dutch group representing shareholders that collectively hold 388,980 shares in Shell. The group is sponsored by several organisations, including the smart thermostat producer, Quby, and sustainable infrastructure consultants APPM Management Consultants. Their modo is “Change the world, buy Shell shares“.

The shareholders have submitted the following proposal: “Shareholders support Shell to take leadership in the energy transition to a net-zero-emission energy system. Therefore, shareholders request Shell to set and publish targets for reducing greenhouse gas (GHG) emissions that are aligned with the goal of the Paris Climate Agreement to limit global warming to well below 2°C. These GHG emission reduction targets need to cover Shell’s operations as well as the usage of its products (scope 1, 2, and 3), they need to include medium-term (2030) and long-term (2050) deadlines, and they need to be company-wide, quantitative, and reviewed regularly. Shareholders request that annual reporting include further information about plans and progress to achieve these targets.” For further information, the full text of the proposal is found in the Company’s Notice of Meeting, which is available here: .

The Board of Directors do not recommend support for the proposal. They state that the Company is already working toward the goals of the Paris Agreement and that it ‘has a clear strategy, resilient in a 2°C world, which sets a clear and competitive path forward, participating alongside and in step with global efforts to create a low-carbon future’. In its response to the resolution, Shell noted how setting specific GHG emissions targets would ‘weaken and limit its flexibility to adapt’ and that ‘to impose targets on a single supplier in this complex system does not only fail to address the actual challenge (as it will not reduce system emissions overall because customers will simply turn to alternative suppliers) it would also undermine our ability to play an active role in the transition and would hinder long-term value creation for the Company and its shareholders’. Moreover, the Company explicitly reiterated the need for comprehensive government policies that would create the certainty needed for investments in low-carbon projects and that would shift demand toward low carbon forms of energy. It believes that the most effective way to trigger a shift in demand towards low carbon energy is through ‘economy-wide carbon pricing mechanisms’ and ‘end-user regulation’. Shell currently has a strategy in place to reduce GHG emissions, but it is not based on achieving specific targets. Its current emissions breakdown as follows: downstream (refineries and chemical plants) 45%; production of oil, gas and gas-to-liquids products 50%; shipping activities 2%. The Company’s direct GHG emissions (Scope 1) fell from 72mt to 70mt CO2-equivalents during the year. As a signatory of the World Bank’s “Zero Routine Flaring 2030” initiative, Shell reduced flaring activities to 7.6mt CO2-equivalents in 2016, from 11.8mt CO2-equivalents in 2015. However, the acquisition of BG increased indirect GHG emissions (Scope 2; due to purchases in electricity, heat, and steam) from 9mt to 11mt CO2-equivalents. Total GHG emissions therefore increased from 80mt to 81mt CO2-equivalents. Additionally, Shell estimated that CO2 emissions from the use of its refinery and natural products by others (Scope 3) totalled 600mt in 2016, representing less than 2% of world emissions. In its Sustainability Report, Shell disclosed how it plans to reduce its GHG emissions: reduction in flaring; Carbon Capture Storage (CCS) in the Canadian oil sands (1mt CO2-equivalents); Divestments (ex: in Nigeria and the UK); Operational improvements across facilities. In March 2017, the Company sold its 60% interest in the Athabasca Oil Sands project (AOSP), 100% interest in the Peace River Complex, and several other oil sands assets in Alberta, Canada. The Company continues to invest in R&D to support its energy transition through its Shell Technology Ventures (STV), Shell TechWorks (STW), and Shell GameChanger. In 2016, it invested just over $1 billion in these initiatives related to energy transition , which pales in comparison to its total non-GAAP capital budget of $26.9 billion (excluding BG) and total capital employed of almost $281 billion at the end of the year. It is abundantly clear that the strategy to reduce its carbon footprint rests heavily on the transition towards natural gas, especially after the BG acquisition. Shareholders should note that Shell does quantify some metrics related indirectly to GHG emissions: achieving a Refinery Intensity level below 92.2 (Refineries Energy Index). Shell’s refining intensity has remained stable over the last three years and is currently at 95.4. This was due to operational issues and improvement initiatives not fully delivering against plans.

As with the resolution to invest in renewable energy brought forward by Follow This at the 2016 AGM (2.78% of shareholders voted in favour), this proposal is admirable but lacks detail. Here is clearly one of the main issues: while shareholders would need more details, many proxy advisors and investors, like the biggest one Blackrock, voted against the shareholder proposal last year because theyy deem ed it overly prescriptive and seen as an attempt to micro-manage the company.  While more intensive shareholder engagement is needed according the new Shareholder Right Directive to better assess risk and discuss key long-term issue, many investors systematically opposed any shareholder proposals considering that this is an exclusive Board responsibility. This way of thinking led to the biggest disasters in the past: lack of risk control, poor governance practices, excessive remuneration, business models not in line with the long-term needs of our planet. 

The Company does present a compelling argument when it noted the lack of certainty regarding the transition to a low-carbon economy from a regulatory perspective. We believe that it is incumbent upon governments to coordinate their efforts and set their nationally-determine contribution (NDCs) as agreed upon at COP21. In this vein, a letter signed on 8 May 2017 by 217 institutional investors representing more than $15 trillion in assets called on the G7 and G20 nations to uphold their commitments at the Paris Agreement and to ‘achieve their NDCs with utmost urgency’. The signatories, who include inter alia CalPERS, the New York City comptroller, some Proxinvest clients and ECGS partner Ethos, urged global leaders to:

  • Continue to support and implement the Paris Agreement’s NDCs and 2050 climate plans;
  • Drive investment into the low carbon transition;
  • Implement climate-related financial reporting frameworks;


  • Proxinvest opinion :

We do believe that it is of paramount importance for oil majors such as Shell to play a fundamental role in a low-carbon future by honouring and implementing the commitments under the Paris Agreement. Shell has made some progress towards reducing its GHG emissions in recent years and given that it has set some emissions-related targets such as refining efficiency, we believe SHELL is capable of defining a global range of possible emissions reductions and has to be aligned with the goals of the Paris Climate Agreement as intended by this resolution. Moreover, we believe that the Company has the resources and balance sheet capacity to increase investment in renewable energy from current low levels to complement its strategic focus on natural gas. Accordingly, we recommend shareholders approve this resolution.

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