Shell Faces Calls For Climate Action By Institutional Investors

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Oil companies are used to individual shareholders pressing their boards of directors to become more focused on reducing their greenhouse gas emissions, but those people are usually gadflies — dogooders who don’t know the first thing about how corporations actually work. Their puny efforts are easily swatted away by those boards, who then settle back into the business of making money. But this year, 27 institutional investors are challenging the board of directors of Shell to align its activities with the stated goals of the 2015 Paris climate accords, something Shell has refused to do over for the past 18+ years.

The issue is so-called Scope Three emissions. Oil company execs beat their breasts and crow about how they are working hard to reduce emissions from extraction, transportation, and office operations, which fall under the heading of Scope One and Scope 2 emissions, but ignore the emissions created when their products are burned or used to make plastics and other byproducts. Those are Scope Three emissions and they represent a large part of the climate warming gases that are threatening to turn the Earth into a boiling cauldron too hot for humans to survive.

The Origins Of Follow This

Most of us are familiar with the words of anthropologist Margaret Mead, who said, “Never underestimate the power of a small group of committed people to change the world. In fact, it is the only thing that ever has.” More than 20 years ago, Mark van Baal decided to become a journalist after seeing the documentary An Inconvenient Truth. “I became increasingly convinced that the fossil fuel industry would have to change. Renewable energy holds enormous opportunities for these companies, and making the switch to a sustainable energy company is the only chance that they have to survive.”

Unfortunately, writing about the need for change did not have the desired effect. “After ten years I came to the conclusion that Shell does not listen to journalists, nor to activist groups, nor to governments. The only ones who can convince Shell to choose another course are its shareholders. I knew that one small shareholder can change the course of a company,” he says. The thinking was, if you can buy enough shares to submit a resolution to the shareholders’ meeting, then I will only have to convince the other shareholders. He called his idea Follow This.

Gearing Up For The 2024 Shell Annual General Meeting

This year, Van Baal’s efforts are being supported by twenty seven institutional investors who have agreed to back a resolution filed by Follow This that calls for Shell to align its medium term emissions reduction targets with the 2015 Paris agreement. The investor coalition together owns about 5% of Shell’s shares and includes the government-backed National Employment Savings Trust (Nest), which manages the pensions of almost a quarter of the UK’s workers.

The resolution has also won the backing of the French asset management firm Amundi, which holds almost €2 trillion (£1.7tn) in assets, as well as Candriam, Scottish Widows, and Rathbones Group. Diandra Soobiah, the head of responsible investment at Nest, told The Guardian, “We urge Shell to set a credible scope 3 absolute emissions target.”

Matt Crossman, stewardship director at Rathbones Group, said, “With 2023 being the warmest year on record, and COP28 signalling ‘the beginning of the end of the fossil fuel era’ we are more aware than ever that climate change will create winners and losers. Through our engagement with Shell and other companies at the forefront of the energy transition, we hope to create incentives for senior management to align business strategies with net-zero scenarios that will help the world thrive.”

Faith Ward, chief responsible investment officer at Brunel Pension Partnership, said, “We are escalating our engagement by co-filing this resolution led by Follow This, as it is essential that companies demonstrate credibility in their climate ambitions in alignment with the Paris Agreement. We believe that a reversal of progress on climate at oil and gas majors is misaligned with our and our beneficiaries’ long term interests.”

Shareholders will be asked to vote on the Follow This resolution at the Shell annual general meeting in May. Van Baal said, “This escalation of 27 leading investors puts the call for emissions reductions by energy companies front and center for all institutional investors.”

Keep On Pushing

Follow This has gained support for its climate campaign in recent years, although the group has yet to win a majority vote in favor of its resolutions. Its latest shareholder resolution has dropped a reference to 2030 in response to criticism from Shell that its demands are too unrealistic. Shell is expected to face growing opposition from ethical investors and climate activists after abandoning its plans to reduce its oil and gas production before the end of the decade.

Last year, the Shell annual general meeting in London descended into chaos as climate protests delayed the start of the meeting by an hour, after the board rejected shareholder calls for new targets for carbon emissions cuts. A Shell spokesperson told The Guardian, “The 2024 resolution from Follow This is broadly unchanged from their 2023 submission, which was rejected by shareholders (as its variations have been every year since first being submitted in 2016). Shell’s board has previously advised shareholders that the Follow This resolution was unrealistic and simplistic, that it would have no impact on mitigating climate change, have negative consequences for our customers, and was against the interests of the company and our shareholders.”

Unreasonable and simplistic? This coming after the hottest year yet recorded in human history? To reprise an old joke: Q. How do you tell a spokesperson is lying? A. His lips are moving.

Shell And Net Carbon Intensity

According to Morningstar, Shell plans to decease its Net Carbon Intensity, a measure of emissions per unit of energy 20% by 2030 and 45% by 2035 compared to a baseline of 2016. It says by the end of 2022, its NCI had decreased by 3.8%. A Shell spokesperson said the firm believes its climate targets are “aligned with the more ambitious goal of the Paris Agreement.” CleanTechnica readers may find it hard to see how a reduction or 3.8% over 6 years amounts to significant climate action or comes anywhere near honoring the intent of the Paris climate accords.

In fact, Follow This says Shell does not sufficiently demonstrate how it will reach its targets, leaving a lack of clarity over how its approach will contribute to a significant reduction in global emissions this decade. At its New York capital markets day in June, Shell announced it had dropped its plan to reduce oil production by between 1% to 2% each year until 2030. The company declared victory, stating the target was reached eight years early after it sold off oil fields to others, which will extract that oil instead.

This is clearly corporate level legerdemain designed to bamboozle the weak minded. The same amount of crud is going to wind up in the atmosphere. The only difference is another company will extract the oil from fields that Shell developed. Clearly Shell thinks we are all a bunch of idiots who cannot add 2 and 2 and get 4.

Van Baal said the record number of institutional investors who have agreed to support the Follow This shareholder initiative this year can be attributed to the perception that Shell has in fact backtracked on some of its climate commitments. It surpasses the 17 institutions which backed a similar Follow This resolution at the annual general meeting for France’s TotalEnergies last year. That resolution secured 30% of votes cast, which can be considered a sizeable shareholder revolt.

Regarding Shell, he said, “We expect votes to increase as more investors follow their leading peers by voting for change at Shell, which is the bare minimum they can do. Large shareholders hold the key to tackling the climate crisis with their votes at shareholders’ meetings. Shell will only change if more shareholders vote for change. The resolution is designed to give Shell a shareholder mandate to drive the energy transition.”