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Investors Have a Choice: Vote for Shell's "Whatever World" or the World of the Church of England

Mark van Baal addresses Shell shareholders.

The climate resolution which will be voted on at the upcoming Shell annual shareholdings meeting on 22 May, is not about Shell alone, writes Mark van Baal, founder of Follow This, the investor group who  introduced it. Van Baal calls on investors to follow the advice of the Church of England to vote for the resolution, and not that of the directors, who are demanding they will be given  “the flexibility to continue to thrive in whatever world society moves towards.”

As I write this, investors are considering their votes for the Follow This climate resolution at the upcoming Shell AGM on May 22nd. Here are the questions we are hearing: Isn’t Shell already aligned with the Paris Climate Agreement? Should we chastise a front-runner? And, if Shell is already aligned, isn’t this shareholder resolution unnecessary?

The Church of England and the Environment Agency Pension Fund answered these questions last week in a joint letter to Chad Holliday, the chair of Shell. They wrote: “The position we take in supporting the Follow This climate resolution at Shell is not one that is targeted at Shell nor is it intended to imply that we see you as a laggard on this issue. Rather, it is based on our belief that we need targets across the whole oil and gas sector and not just at Shell.

In summary, the text of the climate resolution states: “Shareholders support Shell to set targets that are aligned with the goal of the Paris Climate Agreement to limit global warming to well below 2°C.”

Directors’ response

The Directors’ response to the resolution could potentially make shareholders forget the supportive nature of the resolution, which reads “Shareholders support Shell to set targets aligned with the Paris Climate Agreement.”

Instead of embracing this supportive resolution, the directors recommend unanimously that shareholders vote against the climate resolution, thereby showing support for Shell’s current ambition.

Shell’s current net carbon footprint (NCF)ambition, unveiled in November 2017, aspires to relative emission reductions (in CO2 per unit of energy) of around 20% by 2035 and around 50% by 2050. Since energy demand will grow by approximately 50%, a relative reduction of 50% is only an absolute reduction of 25%.

A vote against the climate resolution could lead to complacency about the current inadequate ambitions and stall further action to stop climate change. Not just for Shell but for other oil majors as well

Shell’s NCF ambition is therefore not aligned with leading scenarios for a pathway to a greater-than 2°C reduction, and such an ambition would allow the company to continue business as usual well into the future. IPPC asks for -65%, and IEA asks for -60% by 2050, both in absolute terms. The NCF ambition doesn’t even fit in Shell’s own ‘Sky’ scenario, which predicts net zero emissions not earlier than 2070 and envisages -61% by 2050. For the record: Shell’s net carbon footprint (NCF) ambition is not in line with the Paris Agreement.

A remarkable reason the directors give for their rejection of the climate resolution is that they want the flexibility to be successful in a world that does not achieve the goal of the Paris Climate Agreement. “Shell’s net carbon footprint ambition gives the Company the flexibility to continue to thrive in whatever world society moves towards’”, the directors write (emphasis added).

Mark van Baal, founder of Follow This

Why vote for the resolution?

Since Shell responded to the resolution in 2017, why should investors vote for the resolution in 2018?

  1. Shell is not aligned with Paris.
  2. Shell needs support to take meaningful action.

Shell’s current ambitions (20% emission reduction by 2035, 50% by 2050) effectively allow the company to continue business as usual for decades. Shell’s ambitions follow society. The climate resolution asks for more – for leadership.

  1. Shell’s response to investor support for the same Follow This resolution in 2017 proves that voting for a shareholder resolution can be effective.
  2. The resolution is agnostic as to business model and technology. The resolution does not dictate how management should achieve its goals. Therefore, shareholders are not taking the driver’s seat by voting for the resolution.
  3. At the 2017 AGM, the majority of institutional investors opposed the resolution on the grounds that Shell could not reasonably take responsibility for GHG emissions from customers (Scope 3 emissions). However, since Shell has already taken responsibility for Scope 3 in its November 2017 statement, this objection is no longer valid.

Shell does not take ‘abstain’ votes very seriously, at least not in its communications to investors and proxy advisers nor in the media. Shell continues to communicate that 6.3% voted for the climate resolution in 2017, and 94% against, ignoring the 5% of investors that abstained in order to signal dissent with management.

Your vote

A vote against the climate resolution will create the impression that halving the NCF (Shell’s current climate ambition) is enough for an oil major to be aligned with a more-than 2°C reduction as agreed in the Paris Climate Agreement. This is false.

A vote against the climate resolution could lead to complacency about the current inadequate ambitions and stall further action to stop climate change. Not just for Shell but for other oil majors as well.

A vote for the climate resolution would send a strong signal to society and to all oil majors that investors mean business about climate change and therefore urge oil majors to commit to Paris

Regardless of whether shareholders conclude that Shell’s ambitions are in line with the Paris Climate Agreement, shareholders could still vote for the climate resolution that supports alignment with Paris.

A vote for the climate resolution would send a strong signal to society and to all oil majors that investors mean business about climate change and therefore urge oil majors to commit to Paris. In the Netherlands we expect that at least six of the ten largest institutional investors will vote in favour of the resolution.

Business opportunities

A vote for the resolution is also a signal to the Shell board that investors see business opportunities in the unavoidable energy transition. The Shell board currently seems to see climate policy mainly as an onerous obligation (to be avoided as much as possible) rather than as a business opportunity.

Ben van Beurden, CEO Shell

This specific resolution is about Shell but it is also a test of whether major investors will signal their commitment to decarbonisation of the global energy system, and it is therefore about much more than Shell.

Investors have a choice: vote for Shell’s whatever world or vote for the world of the Church of England, a world in which all companies set targets to limit warming to well below 2°C, in particular the companies that can contribute the most to the failure as well as the success of the Paris Agreement: the oil majors.

Editor’s Note

Follow This is a group of responsible shareholders in Shell that supports Shell to take leadership in the energy transition to a net zero emission energy system.

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