Activist investor prepares to take on Shell over climate targets
Shell is bracing itself for a shareholder showdown at its upcoming general meeting later this month, with an activist investor group calling for the energy giant to commit to more stringent environmental targets.
Follow This has warned shareholders that Shell’s current transition plans are not aligned with the Paris Agreement, the international treaty signed between nations in 2015.
The agreement pledges to limit global temperature rises to below two degrees from pre-industrial levels.
It has consequently filed a motion – resolution 21 – calling for the oil and gas major to publish targets that cover short, medium and long term emissions in both its operations and the use of its energy products.
This is to ensure the energy giant is “consistent with the goal of the Paris Agreement.”
The group’s stake in the energy giant is less than one per cent, but City A.M. understands its position is backed by multiple Dutch institutional investors.
McKenzie Ursch, head of legal at Follow This, argued Shell was acting like a lot of companies, seemingly wanting “to be left alone” after committing to net zero emissions by 2050 – and using the long-term pledge to put off immediate plans to reduce emissions.
However, he suggests that there are strong business reasons for wanting to begin the process of meeting the goals of the Paris Agreement.
Ursch told City A.M.: “What we’re requesting is companies really start to take action now and set a meaningful target in the medium term. Without the necessary interim reductions, you keep postponing the need to take action, and if it gets to be 2040 and we’re still more or less emitting the same amount of greenhouse gas that we are now, it’s going to be cost prohibitive to get to net zero by 2050 in 30 years.”
The activist group has based its concerns on independent analysis from Global Climate Insights, which warns that Shell’s current plans would see a four per cent increase in gas trading by the end of the decade, and that two thirds of the company’s capex is not compatible with a two-degree limit on temperatures.
Shell has made record quarterly profits this year amid spiralling oil and gas prices, increasing its shareholder buyback to $8.5bn.
It has also pledged to spend £25bn on the UK energy sector by the end of the decade, with a focus on low and zero carbon energy to fund the country’s renewable transition.
This follows the company ditching its The Hague headquarters last year and moving to London, scrapping its dual-share structure and Royal Dutch title.
During its time based in Netherlands, Shell faced continued pressure from the Dutch legal system, culminating last April in a court ordering the energy giant to cut its carbon emissions 45 per cent by the end of the decade.
Energy boss hits back at ‘unrealistic’ proposals
Earlier this week, Shell chief executive Ben van Beurden presented to investors the company’s annual ESG update, urging them to vote against resolution 21.
He argued Follow This’ proposal goes “much further than even the most progressive pathways to net zero in our sector.”
The energy boss argues the proposals go beyond the routes proposed by both the Intergovernmental Panel on Climate Change (IPPC) and the International Energy Agency (IEA), while requiring Shell to reach targets in isolation.
van Beurden said: “IPCC and IEA pathways include actions by all parts of society. Follow This suggests we should reach these targets on our own, which is unrealistic for Shell as a single company to achieve.”
He also criticised the Follow This resolution for depending too much on bolstering renewables in the short-term, which would require Shell to “abandon” customers and “shrink” its business.
The energy boss concluded: “We believe that a dramatic change in demand for energy is just as critical as the required changes to supply for the energy transition to take place. This means working together with governments, society and crucially our customers.”
North Sea oil and gas exploration remains a key feature of the UK government’s energy strategy, featuring prominently in the supply security strategy published last month, as the country looks to reduce its reliance on overseas energy supplies.
Shell are pushing for shareholders to instead back resolution 20 – which is an approval of the energy giant’s energy transition plans.
The firm is currently committed to reducing net carbon intensity by 20 per cent before the end of the decade, alongside a net zero target of 2050.
Carbon intensity refers to the number of grams of carbon dioxide that it takes to make one unit of electricity – a kilowatt per hour.
It believes its absolute emissions peaked in 2018 at 1.7 gigatonnes, and has committed to significant ramp ups in renewables such as wind, solar and hydrogen, alongside boosting biofuel production over the coming decades.
Shell regards these plans to be in line with the Paris Agreement, and backed by its shareholders after extensive consultations.
The company has also pledged to engage with investors if resolution 20 does not pass, or receives more than 20 per cent of votes against the motion.
In response to the most recent speech from Shell’s boss, Ursch disputed the suggestion Follow This’ proposals went beyond IPCC and IEA pathways to net zero.
He said: “Our proposal is very simple, straightforward. It’s non prescriptive. We don’t come up with a strategy. We don’t tell the company how to do it. We very simply request the company to set targets to reduce their emissions for both their operations and products, in a way which is aligned with the goal of the Paris Agreement.”
Both resolutions will be voted on at the annual general meeting on May 24.
Analysis: Climate target disputes are a sign of the times
The intervention from Follow This is likely to draw polarising reactions from analysts and environmental groups, reflecting the key role of Shell in the global transition to renewables.
Andy Mayer, energy analyst at the Institute of Economic Affairs, described the proposals from Follow This as an “annual stunt.”
He told City A.M. :”Follow This is running a naïve campaign to stop further development of the North Sea, on the pretext oil and gas can be easily replaced by renewables. In reality, all that happens in the near term is that the UK replaces taxable domestic supplies with imports, increasing our exposure to high prices, and empowering the Russian war machine. “
By contrast, Rianna Gargiulo, campaigner at Friends of the Earth, suggested such motions were necessary to combat greenwashing in the energy sector.
She said: “The science is clear: investment in new fossil fuel infrastructure must end, today, if we want to secure a liveable and sustainable future. Any credible, future-proof climate plan by a fossil fuel company would see the end to new oil and gas projects, alongside the steady winding down of those still active.”
“Shell’s climate ambitions amount to very little under the squeaky clean, green public image it’s masterfully pushing.”
Laith Khalaf, head of investment analysis at AJ Bell, believes disputes between activist investors and energy giants are here to stay.
He suggested companies will continue to grapple with climate commitments, wanting to take bold action that also maintains the viability of their businesses and ensures a sustainable energy transtion.
Khalaf said: “ESG is high on the agenda of UK corporates right now, but clearly there is a grey area a mile wide when it comes to energy companies like Shell. Precisely how much they should be doing to shift away from fossil fuels is a matter of opinion, especially given that we also need them to balance investment in renewables with keeping the lights on and the wheels turning through existing fossil fuel extraction.”
“This isn’t going to go away though, and the oil giants are facing a multi-year reputational battle which will involve regular skirmishes with activists pushing for more decisive action.”