Oil groups’ AGM rebels may lose even if they win
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Yawen Chen
LONDON, May 13 (Reuters Breakingviews) -Oil group shareholders are getting ready for their big moment. Shell’s SHEL.L annual investor gathering next week will feature a key vote on the UK group’s energy transition strategy, as well as on a proposal led by climate activist group Follow This requiring it to cut emissions more aggressively. In all likelihood, Shell and Norwegian peer Equinor EQNR.OL, which faces a similar poll on Tuesday, will win convincingly. The real problem is that it’s hardly a climate victory even if they lose.
Since CEO Wael Sawan took charge in 2023, ambitious climate commitments have become even less likely. Sawan’s latest changes include abandoning a 2035 target to reduce Shell’s net carbon intensity, which measures emissions associated with each unit of energy it sells, and watering down a similar target for 2030. But that only seems a logical consequence of Shell’s big focus on liquefied natural gas (LNG) and a lukewarm interest in renewables such as wind and solar power. Shell now rewards annual bonuses on LNG sales instead of low carbon products revenue. Sawan retired a target to reduce oil and gas production by 2030 a year ago.
Follow This has good intentions. But it would be a surprise if the Dutch lobbyist did any better than the 20% support attained last year when it pressed Shell to reduce emissions from its products – by setting so-called Scope 3 targets – as well as from its operations. With scars from a post-Ukraine energy security crisis fresh, oil prices around $80 a barrel, and central banks’ rate hikes reducing the value of long-term businesses like offshore wind, investors have already voted with their feet. Shell’s share price has risen by a third since 2023, while the benchmark FTSE 100 Index .FTSE only gained 16% during the same period. Morningstar recorded net outflows globally from sustainable investing in the fourth quarter.
The real problem is that setting Shell stiffer climate goals wouldn’t automatically help the planet. If Sawan had to cut emissions quickly to meet a 2030 reduction target, he’s likely to do what Shell has done before: a major divestment spree. That’s problematic: it often only transfers the emissions to players less bothered or regulated by climate responsibilities, rather than reducing them in absolute terms. In 2021 Shell sold its oil and gas production in the U.S. Permian Basin to American rival ConocoPhillips COP.N, which just fuelled Conoco’s growth. Earlier this month Shell agreed to sell its “crown jewel” refinery in Singapore to a joint venture of trading house Glencore and an Indonesian chemicals firm. Between 2021 and 2023, Shell has divested the most fossil fuel assets among peers, valued at $16 billion, according to Accela Research.
Even a true green transition believer like the International Energy Agency concedes that it’s messy and fiddly to devise clear reporting on Scope 3 emissions: the question of who should take the lead in dictating how customers use polluting products and address their emissions is still up for debate. Big oil companies tend to think governments and consumers need to pioneer change, but stretched state fiscal coffers, pressure on energy security and a cost-of-living crisis mean politicians and consumers are having cold feet too. Even if the 2024 round of AGM oil voting sees a surprise surge in green enthusiasm, the upshot for the fight against climate change would not be clear-cut.
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CONTEXT NEWS
Shell’s annual general meeting (AGM) is scheduled to be held in London on May 21.
Shell will be asking shareholders to cast an advisory vote at the AGM to approve its energy transition update, as disclosed in its annual report and accounts for the year ended in 2023, and Shell’s Energy Transition Strategy 2024, the first updated version since 2021, when Shell published its Energy Transition Strategy.
Its energy transition update includes changes in reducing its net carbon intensity (NCI) target from 20% by 2030 to a range of 15% to 20% from 2016 levels, and the introduction of a new target to reduce customer emissions from the use of its oil products by 15% to 20% by 2030. Shell doesn’t have a target to reduce the overall emissions of the use of its energy products.
Shell says it “has targets and ambitions that it believes are in line with the more ambitious goal of the Paris Agreement to limit global warming this century to 1.5 Celsius above pre-industrial levels and it is making good progress towards achieving these targets and ambitions.”
Separately, Shell’s shareholders will vote on Resolution 23, proposed by climate activist group Follow This and a group of 27 shareholders. The resolution asks Shell to align its medium-term emissions reduction targets covering the greenhouse gas (GHG) emissions of the use of its energy products with the goal of the Paris Climate Agreement.
Shell’s board says the resolution is against shareholders’ financial interests and believes it would not help to mitigate global warming.
Storebrand Asset Management and KLP, Equinor’s seventh and eighth largest shareholders respectively, told Reuters they would vote in favour of a May 14 motion requiring the Norwegian energy group, which is majority owned by the state, to bring its strategy and capital spending into line with the Paris Agreement on climate.
Graphic: Oil giants’ divestments between 2021 and 2023 https://reut.rs/4bzx4Y2
Graphic: Shell has lowered required returns for oil and gas https://reut.rs/3QDRBCB
Editing by George Hay and Oliver Taslic
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