“Trust has been eroded to the point where it is an issue for our long-term future.”
—Ben van Beurden, Royal Dutch Shell CEO, at CERAWeek in March 2017
Royal Dutch Shell holds its Annual General Meeting (AGM) tomorrow in the Netherlands, and like other major fossil fuel producers the company is under pressure from its investors to do more to address climate risks.
UCS took an in-depth look at Shell’s climate-related positions and actions for The Climate Accountability Scorecard last year. We found a few bright spots, and we made several recommendations for improvement. Here are three steps company decision makers could take at tomorrow’s AGM to signal that Shell wants to earn the trust of investors, the public, and policy makers.
1) Stop supporting disinformation
A 1991 video recently unearthed by The Guardian shows that Shell clearly recognized the risks of climate change decades ago. The film, titled “Climate of Concern,” warned of climate change “at a rate faster than at any time since the end of the ice age—change too fast perhaps for life to adapt, without severe dislocation.”
Yet despite this knowledge, Shell funded—and continues to fund—trade associations and industry groups that spread climate disinformation and seek to block climate action.
For a decade, Shell was part of the Global Climate Coalition, which presented itself as an umbrella trade association coordinating business participation in the international debate on global climate change. As we now know, its real purpose was to oppose mandatory reductions in carbon emissions.
Shell was also a member of the American Legislative Exchange Council (ALEC), a US-based lobbying group that peddles disinformation about climate science and tries to roll back clean energy polices. In announcing its decision to leave ALEC in 2015, the company said that ALEC’s stance on climate change “is clearly inconsistent with our own.” In an interview aired last week, CEO van Beurden reiterated that “we could not reconcile ourselves” with ALEC’s position.
Indeed, in The Climate Accountability Scorecard UCS scored Shell “advanced” for its own public statements on climate science and the consequent need for swift and deep reductions in emissions from the burning of fossil fuels.
However, Shell has not applied the same standard to other trade associations and industry groups that it did to ALEC. Shell still plays leadership roles in the American Petroleum Institute (API), the National Association of Manufacturers (NAM), and the Western States Petroleum Association (WSPA)—all of which take positions on climate science and/or climate action that are inconsistent with Shell’s stated position. Shell has not taken any steps to distance itself from climate disinformation spread by these groups.
2) Set company-wide emissions reduction targets consistent with 2°C
Shell scored “fair” in The Climate Accountability Scorecard in the area of planning for a world free from carbon pollution. The company was ahead of most of its peers in expressing support for the Paris Climate Agreement and its goal of keeping warming well below a 2°C increase above pre-industrial levels.
Since the Scorecard release, Shell has made a couple of positive moves in this area:
- In March, the company announced plans to sell most of its production assets in Canada’s oil sands in a deal worth $7.25 billion. Oil sands are among the most carbon-intensive fuel sources to extract and refine, and thus clearly disadvantaged in the transition to a low-carbon energy future. (Shell will maintain an interest in the Athabasca oil sands project, directly and via its proposed acquisition of Marathon Oil Canada Corp.)
- Also in March, Shell announced that climate-related metrics will be factored into executive pay: 10% of bonuses will be based on how well the company manages heat-trapping emissions in its operations.
Some shareholders, however, don’t believe these steps go far enough. The Dutch organization Follow This has filed a shareholder resolution calling on 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.”
Shell’s directors unanimously oppose the resolution, arguing it would have a detrimental impact on the company. While affirming Shell’s support for the Paris Climate Agreement, they maintain that “in the near term the greatest contribution Shell can make is to continue to grow the role of natural gas.” Yet as my UCS colleagues have demonstrated, there are tremendous risks to our growing over-reliance on natural gas.
Meanwhile, the UK responsible investment charity ShareAction is urging shareholders to reject Shell’s proposed remuneration policy in a binding vote, and engage with the company over the need to make a clearer commitment to the low-carbon transition. Among other arguments, ShareAction notes that “Shell fails to include indicators that meaningfully focus executive attention on transitioning the firm’s business model for <2°C resilience. The 10% weighted GHG metric focuses on operational emissions, rather than long-term strategic changes required in the context of the transition.”
3) Stand up for full disclosure of climate-related risks
Shell lagged behind other major fossil fuel companies in disclosing climate-related risks to investors, scoring “poor” overall in this category. For example, the company generally acknowledges physical risks—such as weather—to its operations, but does not include discussion of climate change as a contributor to those risks.
Recognizing the potential systemic risks posed by climate change to the global economy, the Task Force on Climate-Related Financial Disclosures (TCFD) is recommending consistent, comparable, and timely disclosures of climate-related risks and opportunities in public financial filings. UCS participated in the TCFD’s public consultation process, through which a broad range of respondents were generally supportive of its recommendations.
Unfortunately, several of Shell’s competitors (BP, Chevron, ConocoPhillips, and Total SA) funded a report attacking the TCFD’s recommendations, which was rolled out last week at an event hosted by the US Chamber of Commerce.
Shell has an opportunity to demonstrate leadership on transparency and disclosure by publicly supporting the TCFD’s recommendations—including transparent discussion of the business implications of a 2° Celsius scenario.
I’ll be keenly awaiting the results of Shell’s AGM tomorrow to see whether the company rises to these challenges. And I look forward to discussing developments at recent and upcoming annual shareholders’ meetings of fossil fuel producers at an event in Houston on Wednesday night, organized by UCS in collaboration with Rice University faculty concerned about climate change.
Climate Change and Climate Risk: Critical Challenges for Fossil Fuel Companies and Their Investors will feature a distinguished panel of scientists, public health experts, investment experts, and community leaders exploring the fossil fuel industry’s role in transitioning to a carbon-constrained future. The event will be live-streamed and available for viewing at this link.
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