Investor briefing on climate resolution 23 at Shell

This year, after voting in favour in previous years, 27 investors, took a major next step forward by co-filing a climate resolution that supports Shell to align its targets with the Paris Climate Agreement. We trust you will take our briefing into account before you cast your vote for resolution 23 at the Shell AGM on May 21.

This is the only resolution put forth at an oil major this year which requests to align emission reduction targets with the Paris Accord; the votes it receives at Shell’s upcoming AGM will resonate across the industry.

This year’s vote is especially important as Shell has recently backtracked on its climate targets, doubling down on its determination to continue oil and gas extraction. Now is the time to send a strong signal to the industry that investors are determined to reach Paris.

Shell will not further reduce emissions this decade and is therefore not aligned with Paris

We filed the shareholder resolution to support Shell to align its targets with Paris. Their recent Energy Transition Strategy 2024 (ETS24) moves them even further from Paris alignment. The company has decreased its 2030 target from 20% to 15-20%. Further, Shell decided to completely remove their 2035 target, just before it moves into their 10-year planning window and would require a tangible strategy.

Moreover, as per testimony given in the appeal in Dutch court last month, Shell will not reduce its total Scope 3 emissions between now and 2030 due to their growth in LNG (see court filings below).

Shell has set the ambition to reduce customer emissions from the use of oil products (Scope 3) by 15-20% by 2030 (ETS24, page 7, item 7, 2021 reference year). Although we welcome an absolute Scope 3 emissions reduction target, oil products cause only half of Shell’s total Scope 3 emissions. Therefore, it is important to note that their new target will not see further reduction in emissions this decade; decreases in emissions from oil will be offset by the increase in emission from their growing LNG operations.

This is also the main reason that MN, the lead investor on behalf of the CA100+, pre-declared votes in favour of resolution 23. The Dutch investor, with € 140 billion assets under management, states: “We do not believe this level of fossil LNG growth [20-30% by 2030] aligns with pathways to the Paris Climate Agreement.” (full statement below or on the PRI website)

Therefore, Shell’s ‘belief’ that the company has Paris-aligned targets is unfounded.

No third-party source has confirmed that Shell’s medium-term targets are aligned with a 1.5°C warming scenario. If Shell were Paris-aligned, they could advise their shareholders to vote in favour of this resolution.

Climate targets follow climate votes

Shell has set and improved its climate targets three times after votes for climate resolutions increased. After the votes decreased and stalled, Shell lowered and scrapped climate targets. Therefore, the only way for shareholders to compel Shell to improve its targets is to make sure the votes increase again.

Rationale for responsible investors

Responsible investors and financial institutions realize that system players like Shell have to contribute their fair share to climate solutions. London CIV understands “that the planet needs to achieve 45% emissions reduction by 2030 to limit global warming to 1.5°C. We also know that $44 trillion of economic value generation (over half the world’s total GDP) is exposed to risks from nature loss, according to a 2020 report from the World Economic Forum.” And Pension Protection Fund adds the urgency “to work together to help reduce the overall global emissions by almost half this decade”.

As co-filing investors we underline that this climate resolution will protect the long-term value of their entire portfolios of all asset managers, and that achieving the goals of Paris is essential to preserve the health of the global economy. Brunel sees it as part of their fiduciary duty to their beneficiaries: “a reversal of progress on climate at oil and gas majors is misaligned with our and our beneficiaries’ long-term interests.”

Moreover, the 2024 climate resolution at Shell is congruent with the agreement reached at the recent COP28. Swedish pension fund AP3 highlights that the resolution is “part of the necessary energy transition and move away from fossil fuels that was agreed upon during COP28 in Dubai.”

This resolution will help to mitigate risks facing oil majors and their shareholders, including stranded assets, risk of policy intervention, and liability. London CIV acknowledges that the “financial implications of climate change encompass a complex network of physical and inherent risks including, carbon pricing, physical impact, societal consequences, and increasing environmental-related litigation”.

Nest comments that: “With Shell’s board seemingly stuck in a stalemate with climate change, investors are taking matters into their own hands. This resolution is calling on Shell to align its business activities with the Paris Agreement and play its part in mitigating the impact on climate change. Delaying could cost the company millions of pounds, and in turn diminish the value of our members’ pension pots.”

Unique Resolution in 2024

This year’s resolution is significant as it was written by investors, for investors. Drafted from this perspective, it focuses on the key concerns of the investment community, highlighting the key risks to both the company and investors’ portfolios overall.

As the only Paris-aligned targets resolution on the ballot at any of the big five oil majors this year, the voting result will be significant. All oil majors will look to see what happens at Shell. With direction from more shareholders to advance their strategy to Paris-alignment, investors will send a ripple through the entire industry, stating that it is possible for an oil major to be Paris aligned.

Governance

Shell claims that the resolution is against good governance as it “attempts to remove the setting of strategic targets from the Board’s control”. This is not the case: the resolution supports the company to align its existing emissions reduction targets (as set by the board) with the Paris Accord, leaving the strategy entirely up to the board.

In the same paragraph the board claims that the resolution “fails to […] provide the company with a clear course of action”, which is in contradiction with the above.

Is further noteworthy that Shell has never considered climate resolutions to be against good governance in the years 2016 to 2021.

Fair ask

The above arguments demonstrate that both fiduciary duty and climate science indicate that it is a fair ask to request Shell to align its medium-term emissions reduction targets with the Paris Climate Agreement. Responsible shareholders practicing active ownership are key to this process.

Despite continuous engagement by the wider investor community over the years, Shell has recently backtracked from climate targets in their Energy Transition Strategy 2024. As stewards of the global economy, investors should use their voting power to back engagement activities that yield limited results.

This approach to active ownership has already been taken by some of the world’s largest and leading investors. As NBIM stated, “Our goal is to reduce risks and promote long-term value creation at the companies we invest in through active ownership. We do this through dialogue with companies and voting at their shareholder meetings.”

Summary

We would like to reiterate to all investors who want to ensure the company’s long-term health and protect the value of their entire investment portfolios the necessity of voting in favour of Resolution 23. Without increasing votes, Shell will not reduce emissions in this crucial decade. Moreover, without increasing votes for climate resolutions, the fossil fuel sector as a whole will not heed their investors’ calls for emissions reductions. This will endanger these companies’ long-term health as well as your entire investment portfolios.

Next steps

A record 27 institutional investors have already shown leadership by taking the escalation step to co-file the climate resolution this year. In this briefing, it is made clear that this resolution is not only about the imperative of addressing climate change, but also about preserving investors’ financial bottom line and upholding their fiduciary responsibility to their beneficiaries.

A vote in favor of the climate resolution at Shell is therefore warranted by all other investors who share this concern.

Amundi, AXA IM, Scottish Widows, Degroof Petercam Asset Management (DPAM), Groupama AM, Edmond de Rothschild Asset Management (EDRAM), Mandarine Gestion, Pro BTP Finance, London CIV, NEST, Pension Protection Fund, Brunel Pension Partnership, Greater Manchester Pension Fund, Ethos Foundation, representing six of its pension fund members, and Follow This

While all co-filing investors share concerns with regards to the climate strategy of Shell and took the step to escalate their concerns by co-filing the resolutions, detailed analysis may differ from one investor to another. Some of the points presented in the briefing may therefore not necessarily entirely reflect the views of all co-filing investors.

List of co-filing investors

The group of 27 co-filing investors from Belgium, France, the Netherlands, the UK, the USA, Sweden, and Switzerland consists of (Assets Under Management (AUM) between brackets)

Amundi (€1,973 billion)
AXA (€ 844 billion)
Scottish Widows (€200 billion)
Candriam (€140 billion)
Rathbones Group (€100 billion)
Groupama AM (€95 billion)
Edmond de Rothschild Asset Management (EDRAM) (€71 billion)
London CIV (€52 billion)
Degroof Petercam Asset Management (DPAM) (€51 billion)
Brunel Pension Partnership (€44 billion)
AP3 (€44 billion)
AP4 (€43 billion)
NEST (€40 billion)
Pension Protection Fund (€38 billion)
Greater Manchester Pension Fund (€37 billion)
Pro BTP Finance (€13 billion)
Mandarine Gestion (€4 billion)
Ethos Foundation (€4 billion assets under advice)
Emmi-Vorsargestiftung (€1 billion)
Ethos Foundation also represents five of its pension fund members.

Four more investors may make public announcements later.
Total assets under management of the 27 is € 3.9 trillion.
Not all co-filers were able to approve the text of the investor briefing at this time.

Text Climate Resolution 2024

Shareholders support the Company, by an advisory vote, to align its medium-term emissions reduction targets covering the greenhouse gas (GHG) emissions of the use of its energy products (Scope 3) with the goal of the Paris Climate Agreement: to limit global warming to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C.

The strategy for achieving these targets is entirely up to the board.

You have our support.

Link to the Shareholder resolution including supporting statement.

Shell Court Filings 

In written response to questions from the judges’ panel in Shell’s appeal to the Dutch court (available here), Shell stated on page 25 under section 8.2.3: 

English translation: “Shell expects total Scope 3 emissions to remain more or less flat until 2030, with growth in emissions from increased LNG sales offset by a decline in oil product sales, in line with Shell’s new Scope 3 category 11 ambition for oil product sales”. 

Original text in Dutch: “Shell verwacht dat de totale Scope 3-emissies tot 2030 min of meer gelijk zullen blijven, waarbij de groei in emissies als gevolg van de toegenomen verkoop van LNG wordt gecompenseerd door een daling in de verkoop van olieproducten, in lijn met de nieuwe Scope 3 categorie 11-ambitie van Shell voor de verkoop van olieproducten.”

Full text of MN’s statement

“We will vote FOR this advisory resolution, the responsibility for determining the strategy lies with the executive committee and the board of the company. The advisory resolution filed by 27 shareholders, supports our goal to align our portfolio with the Paris Climate Agreement. We share the company’s new ambition to lower scope 3 emissions from the oil products the company sells with 15-20% by 2030. However, the scope 3 reductions will be offset by growth in fossil LNG production of 20-30% by 2030. We do not believe this level of fossil LNG growth aligns with pathways to the Paris Climate Agreement.”

MN statement on the PRI platform: Adopt Scope 3 GHG Targets (1.5C Aligned) at Shell PLC | PRI (unpri.org)