Pre-AGM decryption and post-AGM reaction ↓
On the 24th of May, investors will called to vote upon Shell’s Energy Transition Progress Report (1). This report follows-up on Shell’s Energy Transition Strategy voted last year, with almost no improvements compared to past commitments. Although the company sets decarbonization targets (2), Shell’s climate action is far from aligned with 1.5°C: by 2050, the company will overshoot its 1.5°C carbon budget by 40.9% (3). While climate scientists have made it very clear that we have three years left to make drastic cuts in global emissions and avert worsened impacts, Shell’s plan for this decade focuses too heavily on developing new oil fields, and delays much needed immediate action. As a result, Shell will have spent its entire 1.5°C carbon budget as soon as 2034. Ahead of Shell’s Annual General Meeting (AGM), shareholders who have pledged to align their portfolios with 1.5°C must a) vote against Shell’s flawed climate plan, b) vote for the alternative resolution filed by shareholders demanding Paris-aligned targets, and c) sanction the companies anti-climate oil & gas expansion plans by voting out incumbent Directors.
Shell’s strategy is not aligned with a 1,5°C pathway
In May 26, 2021, the Hague District Court ordered Shell to reduce its worldwide CO2 emissions by 45% by 2030 compared to 2019 levels. More than a year later, 95% of the company’s emissions are still left without any absolute target, as the company covers only emissions related to its operations and ignores those coming from the use of its sold products (4).
In its 2022 Energy Transition Progress Report (5), the company confirms its decarbonization strategy mostly relies on decreasing the carbon intensity of its sold energy products, regardless of how discutable this metric is (6). Shell’s strategy is still far from being compatible with a 1.5°C pathway. The only improvement consists in a new decarbonization target aiming to cut its Net Carbon Intensity (7) by 9 to 12% by 2024 (versus 2016 levels). By 2030, the company still aims for a 20% reduction of its carbon intensity (versus 2016 level), less than half of what is needed according to the International Energy Agency (IEA) Net Zero scenario to keep global warming below 1.5°C (8). As a result, by 2030, 80% of Shell’s carbon budget will have gone up in smoke as soon as 2030 (9).
To achieve its – already inadequate - targets, Shell heavily relies on offsets, with 120 MtCO2e per annum coming from so-called nature-based solutions (NBS) by 2030 and with 26 MtCO2e per annum through Carbon Capture and Storage (CCUS) by 2035. These goals would require Shell to plant enough trees to cover an area three times the size of the Netherlands and to increase by more than 64% the current number of operating CCUS units worldwide (10).
Shell is Europe’s second biggest developer of new oil & gas
Shell is currently the biggest European oil and gas producer and the second biggest European developer of new oil and gas projects. It is currently developing 3779 Million Barrels of Oil Equivalent (MMBOE) of new oil and gas fields (11), enough to increase its total producing assets by 17% in the next few years. More than 40% of new developments will take place in unconventional sectors (12) carrying high environmentally risks: 20.9% in ultradeep offshore, 3.7% in Arctic, a particularly sensitive ecosystem and critical area for climate regulation (13), and the remaining 15.5% will come from fracking whose practice is likely linked to methane – a potent greenhouse gas (GHG) – leakages far above the industry standards (14).
As a result, the group’s fossil fuel production will remain too high in the coming decade. Although Shell announced its oil production peaked in 2019 and is expected to decline at a 1-2% per annum rate by 2030, it is aiming for an increase of its gas production. Overall, its upstream fossil production in 2030 could drop by as little as 8.4%, compared to recent levels (15). This is grossly insufficient considering the United Nations (UN) Production Gap Report highlighted the need for oil and gas production to decrease by 4% and 3% each year to keep global warming below 1.5°C (16).
Shell’s ongoing focus on oil and gas production is reflected in its CAPEX allocation choices. The company plans to direct 11.4% of its annual CAPEX to its Renewable and Energy services business line “in the near term”(17). Although this will double the share of renewable investments (from 5% in 2020), this will not be enough for Shell’s energy mix to transition away from fossil fuels in the near and medium term. In 2030, assuming the company meets its targets, renewable energy sources will account for approximately 22% of Shell’s energy mix (18).
As other majors, Shell argues it is in the process of “diversifying” its energy mix. However, for the time being, this diversification strategy only amounts to adding renewable energy capacity on top of oil and gas production, instead of replacing it. As long as the company sustains high levels of fossil fuels production, it will not achieve the deep emission cuts required to keep climate change in check.
How to vote for the climate at Shell’s AGM?
For the second time, Shell will consult its shareholders on its climate strategy, through an advisory “Say on Climate” vote (resolution n°20, asking to approve Shell’s Energy Transition Progress Report for 2021). One has to note this vote is focused on the implementation of a strategy that was already approved by 89% of shareholders in 2021, rather than on a new improved strategy with more ambitious targets.
As the analysis above clearly demonstrates, Shell’s so-called climate strategy is very far from being aligned on a 1.5°C pathway. Results from the CA100+ “Net Zero Company Benchmark” confirm this finding (19): the oil & gas major’s transition plan only complies with three out of the nine criteria assessed in the benchmark. What is more, Shell fails on the most important criteria (short-, medium-, and long-term GHG reduction targets, CAPEX alignment, etc.). Faced with the risk of rubber-stamping an incomplete and unambitious climate plan, Shell’s shareholders should vote against resolution n°20 and oppose its fake “Say on Climate”.
This vote against the company’s in-house climate resolution should be completed by a vote for resolution n°21, filed by a group of shareholders coordinated by Follow This and asking Shell to set Paris-aligned climate targets. The company’s decision not to support this resolution is based on weak arguments (20).
However, voting against Shell’s climate plan and for a more credible alternative one is not enough. Investors must also send a more direct message to the company regarding the urgency of stopping oil and gas expansion. In accordance with the United Kingdom (UK) Corporate Governance, Shell’s entire Board is set to resign and be reelected each year. Since only one member of the board will step down at this occasion, the AGM will be asked to reelect 10 of Shell’s 11 Directors, who are directly accountable for the company’s failing climate strategy. As Directors, they share a direct responsibility in the company’s fossil expansion policy. Therefore, climate-conscious investors should vote against their reappointment, as an escalation strategy for their failure to make the company stop developing new 1.5°C-incompatible oil and gas projects.
The table below provides a summary of our voting recommendations.
| Resolution | Issue | Our recommendation | Vote results on May 24th |
|---|---|---|---|
| Resolution n°20 – Advisory vote on the company’s climate strategy | Shell’s plan is neither complete nor aligned on a 1.5°C pathway. | Vote against | Approved |
| Resolution n°21 – (filed by shareholders) – Publish and set Paris-aligned climate targets | As a logical complement to a vote against resolution n°20, it is important to put Shell on a more ambitious climate path. | Vote for | Rejected |
| Resolutions n°4 to 13 – Reelection of 10 Directors | Sanction the incumbent Directors’ failure to have the company commit to stopping oil & gas expansion | Vote against | Approved |