Shell is aiming to be a net-zero emissions energy company by 2050. In order to realize this objective, Shell has tightened its climate targets for the short and medium term. These important topics were on the agenda of Shell's shareholders’ meeting on May 18th.
Reduction of CO2 emissions is an important element in the Responsible Investing policy of APG’s pension fund clients. APG, on behalf of its clients and together with other major investors, has therefore had many intensive discussions with oil and gas producers, including Shell, throughout the years. Partly because of these discussions, Shell has tightened its targets and has linked them to the remuneration of top managers. Based on these positive steps, APG has voted in favor of a resolution submitted by Shell at the shareholders’ meeting, in which Shell offered its shareholders the possibility to directly express their support or criticism with regard to the company’s energy transition strategy. At the same time, APG will continue to critically monitor Shell's progress in this area.
What (tightened) climate goals is Shell proposing?
In early 2021, Shell took further steps by announcing its objective of becoming a net-zero emissions energy company by 2050. This is an absolute CO2 target, which includes all emissions: not just the emissions by Shell itself, but also the emission released when customers use the company’s energy products (such as petrol). The company also tightened its intermediate short and medium-term CO2 intensity targets. In order to achieve these, Shell is looking to cooperate with customers to reduce their dependence on fossil fuels and, with that, also lower its own total emissions. This is the way for Shell to truly have a global impact: it's not just the supply of fossil fuels that will have to be lowered, it’s also demand.
In addition, Shell increases the weight of climate goals in the remuneration of its top management. Lastly, and this is new for oil and gas companies, Shell has announced that, as of 2021, it will offer its shareholders the possibility to cast an advisory vote on its energy transition strategy. Although a lot of work still needs to be done by the entire oil and gas industry – including Shell – the company assumes a leading role within the industry.
What does APG require from Shell?
During our discussions, we have asked the company to give climate goals a larger weight in the remuneration structure. Here we notice the result of our efforts. The same goes for the emissions reduction targets and asking shareholders for an advisory vote. All of the above shows the value of the constructive discussions of the past years between Shell and shareholders united in the Institutional Investors Group on Climate Change (IIGCC) and Climate Action 100+, of which APG is a member on behalf of its pension clients.
Previous strengthening of Shell's ambitions has been followed by other oil and gas companies. This is something APG again wants to achieve in the discussions with the other companies in the industry. We hope this announcement will once again create a domino effect.
We also see that a lot still needs to be done. We want Shell to anchor its climate policy better within the investment plans for the energy transition, such as investments in hydrogen, infrastructure for charging electric cars, and bioplastics. We also have questions about the feasibility of compensating measures, such as the planting of trees and the capture and storage of CO2. Shell will have to demonstrate that the execution of its strategy leads to results. As a critical shareholder of Shell and other oil and gas companies, APG will be monitoring this process closely.
Like in previous years, the agenda of Shell's shareholders’ meeting included a resolution of Follow This. This is a group of shareholders also urging oil companies to contribute to the implementation of the Paris climate agreement. At the shareholders’ meetings of US oil companies ConocoPhillips and Phillips 66, APG recently voted in favor of the Follow This resolutions, which were adopted by a majority of votes.
At Shell’s shareholders’ meeting, APG abstained from voting on the Follow This resolution: we didn't cast a vote in favor nor a dissenting vote. On the one hand, we agree with the underlying goal of the Follow This resolution, which is that Shell sets objectives in line with the Paris climate agreement and adjusts its operations accordingly. On the other hand, we have a different perception of how this should be accomplished.
There are several roads leading to Paris
The Follow This shareholders are of opinion that Shell's strategy is not in line with ‘Paris’. They require Shell to set targets of which it can prove that they will lead to a specific, absolute reduction of emissions in the short and medium term. This is one interpretation of the path towards climate-neutral operations. In practice, there are several roads leading to Paris. We believe this specific elaboration of ‘Paris’ should not be imposed on Shell. Shell has set targets in line with the Paris climate agreement for the short, medium and long term and we continue to monitor them critically.