Royal Dutch Shell special resolution: one year on

Rathbone Greenbank’s Matt Crossman delivers a statement at the Royal Dutch Shell AGM on behalf of the Aiming for A coalition and institutional investors with some $5 trillion of assets under management.

Following last year’s groundbreaking special resolution, which attracted over 98% of votes from shareholders as well as being endorsed by Shell’s board, Matt addressed this year’s AGM on 24 May 2016.

This transformational call for increased transparency about the company’s carbon asset risks and the resilience of its business model has acquired greater urgency in the wake of the Paris Agreement on climate change.

While commending Shell’s efforts in the last 12 months – including the publication of a report recognising the significance of the challenge posed by climate change – the statement questioned the company’s progress in addressing the five key reporting demands of special resolution 21 in the intervening period.

  • Ongoing management of operational emissions

Unlike its peers, Shell has yet to state why clear targets have not been set for reducing the carbon intensity of its whole business or key assets. The Paris Agreement reflects a level of political will which the company previously claimed was necessary to make such targets meaningful. Shell’s aim of achieving top quartile carbon emissions performance is welcome, but the adoption of public targets would create a sense of accountability and provide visibility to investors.

  • Asset portfolio resilience to International Energy Agency (IEA) scenarios

Shell has published an analysis of the resilience of its business model against the IEA 450 scenario, as well as a recent additional supplement for investors. However, modelling should address the fundamental issue of reduced future demand more clearly. Current assumptions focus too narrowly on the effects of carbon pricing and do not adequately analyse demand risks, such as those posed by the rapid uptake of electric vehicles, improvements in energy efficiency or distributed renewable power generation.

  • Low-carbon energy research and development and investment strategies

The proposed creation of a renewable energy division (‘New Energies’) provides some clarity on how Shell plans to develop low-carbon business opportunities.

  • Relevant strategic key performance indicators and executive incentives

Clarification is urgently required as to how strategic considerations around the company’s preparedness to manage a period of increased uncertainty are reflected in key performance indicators and long-term executive remuneration policy over the coming year.

  • Public policy positions relating to climate change

As a founding member of the Oil and Gas Climate Initiative (OGCI), Shell’s decision not to renew its membership of the controversial US lobby group ALEC (the American Legislative Exchange Council) was acknowledged. Details of the OGCI’s post-Paris strategy are still awaited.

The statement concluded by recognising that “every transition creates winners and losers”. However, for Shell to fulfil its commitment to the 2015 resolution, more detailed analysis and strategic planning is required to ease shareholders’ concerns over the resilience of the company’s business model to the serious challenges presented by climate change and the risk of stranded assets.

With this in mind, Shell’s board was asked to provide assurances that these concerns will continue to be addressed, including formally through its annual report.

Rathbone Greenbank’s leading role in the Aiming for A coalition continues to highlight our commitment to collaborating with fellow investors in engaging on environmental and social issues.

(The Times also published an article on this subject on Monday 23 May ahead of Matt’s statement to the AGM the following day).