On both sides of the Atlantic, oil and gas majors are currently preparing to hold their annual shareholder meetings. The British-Dutch oil giant, Royal Dutch Shell, held its own annual meeting this past Tuesday, on May 18. It was widely predicted that things might get a little heated, as oil and gas companies have recently faced a backlash from environmentalists and investors who believe the companies are not taking drastic enough actions to combat the climate crisis. Indeed, the oil and gas industry’s operations alone account for approximately 15% of all human-made greenhouse-gas (GHG) emissions. And this does not even include any emissions associated with the consumption of fuel!
Now, these world’s largest emitters are under immense pressure to set concrete short-, medium- and long-term emission targets in order to align with the Paris Agreement to limit global warming to 1.5°C by 2050. Shareholder resolutions declared that Shell’s climate targets were not ambitious enough, even though the company had previously come up with 2050 net-zero targets. Hence, Shell was bracing it’s largest climate rebellion, as shareholder resolutions were, and still are, calling for tougher emission targets.
Even though Royal Dutch Shell has won the backing of shareholders for its own energy transition plan, they are still confronted by growing support for activists’ demands to set more ambitious climate targets. In numbers, Shell’s own resolution plan received almost 89% of all votes while 11% of shareholders voted against the company’s climate plans. The result, while non-binding, ostensibly provides Shell with a shareholder mandate to proceed with its initial plan to reach net-zero emissions by 2050.
Lately, a few shareholder and investor initiatives arised, like the Dutch shareholder activist group “Follow This'' that attracted the support of 30% of shareholders, such as UK boutique RWC and Dutch pension fund Aegon Nederland. They want shareholders to make use of their voting rights and ultimately, make companies change course by creating more comprehensive plans, as well as targets that are aligned with Paris.
We are asking for shareholders to recognize the need for Shell’s climate targets to align with the Paris Agreement.
As for Shell, the oil major aims to become a net-zero emissions company by decarbonising existing fossil fuel businesses and operations. They plan to invest in hydrocarbons for the foreseeable future, while “over time” ploughing more funds into gas, chemicals, cleaner technology and selling power.
In fact, Shell’s energy transition strategy, published earlier this year, outlines its plans as follows:
- Reduce net carbon emissions by between 6% to 8% by 2023 compared to 2016 levels.
- Cut overall “carbon intensity” of the energy it produces by 20% by 2030 and by 45% by 2040.
- Reach net zero emissions by 2050.
While this might sound good on paper, the “plans” do not outline the actual roadmap set up to achieve them. What’s more, Shell has not committed to any Paris-aligned targets for absolute emissions until 2030, an omission that has not gone unnoticed by climate activists and investors.
Shell’s Chief Executive, Ben van Beurden, stated that the company wanted to “accelerate the transition” of the business towards cleaner fuels and, if it does so, it had to do it not just “with purpose” but also “with profit”. This goes along with the observation that big oil companies have been rather slow and steady to address the climate crisis.
Of course, it doesn’t need to be the case — there are oil & gas companies that turned green and never looked b(l)ack again. Everybody has probably heard of Ørsted, for example — the Danish oil & energy giant that has decided to put impact first, is now producing 85% of energy from renewables, and plans to become carbon neutral by 2025.
The role of investor activism
So, what does this imply for both Shell and their investors?
With investor and shareholder initiatives on the rise, as well as climate awareness finally spreading, it seems logical for global investors to induce companies to set out clear plans for tackling emissions and to allow investors to regularly review the emissions’ reduction strategies and vote on them. Investor activists are clearly sending a message out there — which might prompt even more companies to be more transparent about their strategies to reduce and avoid emissions.
As always, there are pros and cons to the approach of investor activism.
Advocates for giving shareholders a say believe it ensures companies to develop more solid plans — and, most importantly, stick to them. Critics, however, argue it is not the shareholders’ job to micromanage businesses. Concerns arise that many investors will blindly sign off on the plans, even if companies are not living up to net-zero emissions goals, which consequently contributes to greenwashing. Investor activism will at least help ensure that investors have the information to assess a company’s performance when it comes to tackling emissions.
For companies like Shell, it is crucial to be “better safe than sorry” and not only listen to a broad mass of investors but also to take the minority’s opinion into account. As a major oil and gas giant, Shell needs to make use of its power and influence: not doing their best will simply be not enough anymore.
This is the perfect example to show that investor activism is important and needs to be put into practice. Investors and shareholders have the power to leverage their agency, use their votes and raise their voices to demand companies to change their course. After all, isn’t it about time?