Royal Dutch Shell Sets Carbon Footprint Reduction Targets Tied to Executive Pay

December 3, 2018 – In an announcement today Royal Dutch Shell (Shell), The British-Dutch energy company with headquarters in The Netherlands committed to Net Carbon Footprint targets for all of its energy products. These targets will look at the carbon intensity of each of its products as well as the full life-cycle emission footprint of each. The 2035 target is a 20% carbon output reduction. the 2050 target will reduce carbon emissions by 50%.

Earlier this year Shell’s CEO, Ben Van Beurden, had stated it would be foolhardy for the company to set hard carbon emission reduction targets because of the risk exposure to legal challenges from investors, business partners, and environmentalists. He described such actions as the company sticking its neck out without any assurances that it wouldn’t be sued by individuals and organizations for its complicity in contributing to climate change and the damaging of infrastructure from its effects.

The pressure of institutional shareholders likely precipitated today’s announcement. At shareholder meetings, Shell’s board of directors and executive have faced investors’ questions about climate risk and carbon emissions. The latest annual meeting had the board and executive fielding questions for four hours in which half were related to climate change. At the time a resolution on emission targets failed to be passed in a shareholders’ vote even though seven of the company’s 10 largest asset holders supported it. But a lot seems to have changed since the summer with the Shell executive committing to reducing the company’s carbon footprint and revising their remuneration to link pay and bonuses to meeting the 20% and 50% targets. The new commitment includes carbon emissions from oil and gas burned by Shell’s customers. That means drivers of internal combustion engine vehicles.

Shell has signed a statement along with 310 investors committing to target goals and a review process to measure results over the timeframe. The investors represent $32 trillion US in assets under management and have formed the Climate Action 100+ to exert investor pressure on public companies contributing to carbon pollution.

Climate Action 100+ represents an investor initiative focused on greenhouse gas emission reductions to achieve the goals of the Paris Climate Agreement. Launched in December 2017, it includes investor representatives from AustralianSuper, California Public Employees’ Retirement System (CalPERS), HSBC Global Asset Management, Ircantec, and Manulife Asset Management. At the time of its formation, the group issued a statement recognizing the risks presented to investors and the necessity to transition to a low-carbon economy while enabling society to adapt to the physical impacts of climate change. The statement went on describing how the lack of, the gaps, the weaknesses, and the delays by companies in developing clean energy and climate change policies would lead to the need for more radical policy measures jeopardizing investments and the retirement savings of millions. The statement called for stronger political leadership and a commitment to additional investments in clean energy alternatives of at least $1 trillion US between now and 2050.

The mobilization of the investment community to hold energy companies like Shell to account represents a positive step. Shell committed to the publishing of its progress in its annual report to shareholders with review by an independent academic benchmarking tool developed by the Transition Pathway Initiative (TPI) developed at the London School of Economics.

In Shell’s press release today it quotes Adam Matthews, Director of Ethics and Engagement of the Church of England Pensions Board, and Board Member of the Institutional Investors Group on Climate Change, who states that Shell “sets a benchmark for the rest of the oil and gas sector and shows the benefit of engagement – aligning institutional investors’ long-term interests with Shell’s desire to be at the forefront of the energy transition.”