Another Shell climate resolution bites the dust

A pressing concern for Shell is the result of its appeal against a controversial 2021 Dutch climate ruling.

WHAT: Shell shareholders have overwhelmingly voted against a climate resolution filed by an activist group.

WHY: The UK major said the result showed that shareholders trusted its energy transition strategy.

WHAT NEXT: Shell is awaiting the result of its appeal of a Dutch climate ruling. Failure would result in Shell having to cut its emissions drastically over the next six years.

Shell’s shareholders have overwhelmingly rejected a climate resolution put forward by an activist group that called for the company to align its energy transition strategy with Paris Agreement objectives

The UK major scaled back its climate commitments in March, citing a greater need to focus on energy security in the wake of the global energy crisis. Many of the world’s leading oil and gas companies have likewise watered down their emissions and renewables targets, instead placing greater emphasis on increasing profit and shareholder value.

The resolution was filed by activist shareholder Follow This, which accused Shell’s management of failing to understand how to make money from clean energy and instead sticking to what they knew: oil and gas. It had the support of a group of 27 investors with a combined $4 trillion under management. The focus was getting Shell to align its medium-term emissions reduction targets with the 2015 Paris Agreement, including for Scope 3 emissions from fuels used by its consumers.

The resolution got only 18.6% support from shareholders in a vote on May 21, compared with just above 20% last year. Shell’s board had called on investors to vote against the proposal, whose supporters included Amundi, Scottish Widows, Rathbones Group and Edmond de Rothschild Asset Management. A separate resolution filed by Shell’s board on its climate strategy gained 78.2% support.

“I’m pleased that we have seen the Follow This resolution get an even lower share of the votes compared to previous years,” Shell CEO Wael Sawan told reporters, according to Reuters. “That’s a sign of growing trust and confidence in our ability to navigate the energy transition.”

In March Shell announced it would aim to cut the net carbon intensity of its energy products by 15-20% by 2030, using the level in 2016 as a baseline. Previously it had targeted a 20% reduction. The company also abandoned a 2035 objective, while affirming it would still strive to achieve net zero by 2050.

Shell also added a new “ambition” to curb overall emissions from oil products such as gasoline and diesel sold to customers by 15-20% by 2030, versus the level in 2021. These Scope 3 emissions account for around 95% of Shell’s greenhouse gas emissions.

The company may be seeking to achieve this simply through divestments, which would cut the company’s emissions but not emissions . In May, Reuters reported that Shell was looking at a potential sale of its network of 950 filling stations in Malaysia to Saudi state oil company Saudi Aramco, for a potential $1bn.

“Shell believes continued investment in oil and gas will be needed,” the company’s chairman, Andrew Mackenzie, told the meeting.

Under Sawan, Shell scrapped plans to scale back oil production earlier this year and instead keep liquids supply stable while expanding its natural gas business.

The Dutch ruling

A more pressing concern than activist resolutions for Shell is a 2021 Dutch court ruling, which ordered the company to cut its absolute greenhouse gas emissions by 45% by 2030 from 2019 levels. This would include its Scope 3 emissions, which could only be reduced to such an extent through divestments.

Shell appealed the ruling in April, arguing that it obstructed rather than supported the energy transition. Urgent action on climate change is needed but “where we have a different view is in how that goal should be achieved,” the company said at the time. “We are appealing [against] the ruling because we do not believe it is the right solution for the energy transition.”

“It is ineffective and even counterproductive to addressing climate change, and there is no legal basis for it under Dutch law,” the company said.

Shell’s 2021 defeat in court triggered a number of copycat cases. Most recently, French oil producer TotalEnergies and one of the country’s leading banks BNP Paribas have been sued for their climate policies. Should Shell lose the appeal, this will likely galvanise environmental groups to take more companies to court.

However, critics of such cases have noted the potentially limited impact on emissions. Divestment is the fastest route for a company to achieve Scope 3 targets, but the assets being sold will continue producing those emissions. Shell’s fuel retail network, for example, will continue selling gasoline and diesel regardless of whether it is still owned by the major or not.

Furthermore, Shell and Western oil and gas majors score comparatively well in terms of environmental social and governance (ESG) performance, in response to calls from increasingly climate-conscious investors. The buyers of their divested assets may not hold up so well to scrutiny. In the case of Shell’s fuel business, the company plans to equip more of its filling stations with charging points for EVs. If these assets are divested, the new owner may view this as less of a priority.