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The oil major's 15-year decarbonisation strategy is not going to satisfy green groups or activist investors, writes Oliver Balch. Meanwhile Danish pension fund PKA has moved to exclude oil and gas companies
The weeks prior to the annual general meetings of "big oil" firms are rarely quiet affairs these days. Shell’s AGM late next month is no exception. Among the campaigners pointing the finger at the Anglo-Dutch oil giant is Friends of the Earth Netherlands, which is threatening legal action if the company doesn’t bring its business into line with the Paris Climate Agreement, which aims to keep global temperatures from rising above 1.5Co. A group of Dutch activist investors, Follow This, has tabled a motion to this effect as well.
Identified by the environmental disclosure organisation CDP as one of the 10 largest corporate fossil fuel emitters in the world, Shell is also facing litigation from various private and public bodies, including New York city, for its historic contribution to climate change. Adding fuel to the campaigners’ demands are recent revelations, published by the Climate Investigations Center, a US based non-profit group, that the oil major had extensive knowledge of climate change and its effects as far back as the late 1980s.
With five weeks still to go until its next AGM, Shell has surprised its critics by coming out with a 15-year decarbonisation strategy. The details of the plan, revealed in its Energy Transition Report, indicate that it intends to invest between $1-2bn each year in its New Energies electricity business, which includes renewables, until 2020. Shell confirmed that it would only invest in projects that were financially viable without subsidies. The company, which usually looks for equity returns of 8-12% when investing in power projects, has its eye on the wind power, hydrogen and electric mobility sectors, among others.
Environment groups will be mindful that Shell’s greenhouse gas emissions increased by 3m tonnes in 2017, to 73 million tonnes
The high-profile announcement has won plaudits in business circles, but climate groups are unlikely to be putting away their campaign banners quite yet. Shell says it will continue to sell all the oil and gas that “society needs” and will move to lower carbon energy “when this makes commercial sense”. The oil major anticipates exploiting 80% of its proven oil and gas reserves before 2030, leading it to judge the risk of being stuck with so-called stranded assets as “low”. Environment groups will be mindful that Shell’s greenhouse gas emissions increased by 3m tonnes in 2017, to 73 million tonnes, as revealed in its most recent sustainability report.
BP released a similar plan this week, saying it would reduce CO2 emissions by 3.5m tonnes by 2025 (a 6.8% decline from 51.2m tonnes in 2015) through higher production of gas, reducing leakage of methane, and by investing up to $500m per year on solar and wind energy and power storage.
Shell's offshore wind farm in the North Sea (Credit: Aerovista Luchtfotografie/Shutterstock)
The unhurried embrace of renewable fuels by the oil majors needs to be seen within a wider, pro-hydrocarbon political economy. A study released earlier this month by the US advocacy group Oil Change International, for example, points out that the International Energy Agency’s forward-looking scenarios all anticipate the Paris Agreement targets being exceeded by 2040 or before. The IEA’s most widely accepted pathway would see the world’s carbon budget for 1.5Co used up by as early as 2022. Oil Change International claims that the agency’s recommended upstream investment in oil and gas of up to $13.8trn between now and 2040 is “incompatible with the Paris goals”.
In the US, meanwhile, environmental groups note that investors have become bullish about hydrocarbon investments since Donald Trump entered the White House. A recent assessment of 35 global banks found that financing for tar sands, Arctic oil, coal mining and similar “extreme” high-carbon projects went up by $11bn to $115bn in 2017. An avowed critic of climate legislation, Trump announced last June that the US would pull out of the Paris accord in late 2020.
So is there hope for those fighting for a fossil fuel-free future? Campaigners take heart from the ongoing global divestment movement, which received a shot in the arm late last year when the World Bank said it would end its financing of upstream oil and gas projects after 2019. The announcement marked the reversal of a pro-fossil fuel policy that resulted in over $1bn in loan finance for hydrocarbon projects between 2014 and 2016.
In a more recent move, Danish pension fund PKA last week announced its exclusion of 35 oil and gas companies from its portfolio owing to their failure to seriously account for the Paris climate targets. The move follows a previous decision by the fund to exclude 70 coal companies. PKA has around $46bn worth of assets under management. Its pension-holders are around 90% female.
For more CSR news analysis see CSR Cheat Sheet: UK retailer Iceland ditches palm oil over deforestation fears