Royal Dutch Shell is the first of the oil and gas majors to set targets for lowering carbon emissions.
Oil companies are conflicted, to varying degrees. Charged with delivering value to shareholders, they must balance commercial ambition with social responsibility amidst the hard realities of climate change. Many pledge a commitment to sustainability, but struggle to resolve the apparent conflict between lowering carbon emissions and growing revenue.
On December 3, Royal Dutch Shell announced a new plan for energy sector sustainability with unprecedented steps. The British-Dutch firm said it will set specific targets for reducing carbon emissions every three to five years. By setting targets, Shell goes farther than its pledge last year to cut carbon emissions in half by 2050. Shell also wants its executives to be held accountable for managing the transition to cleaner energy. It hopes to incentivise them by asking shareholders to reward them on this basis.
Shell’s plan includes curbing emissions not only from its own oil and gas production, but from all of the vehicles, planes and factories that burn it. The company will use sales of its products to estimate their subsequent emissions, The Economist explained. It also plans to revisit its ties to lobbying groups that oppose actions on climate change. In the U.S., the oil and gas industry spent $126 million on lobbying last year.
Oil majors continue to figure prominently in investment portfolios, and with good reason, but shareholders are also conflicted by matters of social responsibility. This is apparent from the number of climate resolutions submitted at annual shareholder meetings in the energy sector. They are starting to move the needle. Last year a group of investors, who collectively manage a mammoth $32 trillion, launched the Climate Action 100+ initiative. Its purpose is “to engage systemically important greenhouse gas emitters” and other companies that “have significant opportunities to drive the clean energy transition and help achieve the goals of the Paris Agreement.” Also focused on the Paris Agreement is the Oil and Gas Climate Initiative (OGCI), a voluntary group formed in 2014 and led by oil and gas executives.
Of course, opinions differ amongst oil executives on the speed and scale of change. BP, for example, spent nearly $13 million this year to defeat a carbon tax in the U.S. state of Washington. And while Shell and other companies have divested most of their holdings in oil sands, ExxonMobil remains invested in this highly carbon-intensive source. BP, Shell and, as of September, ExxonMobil are all OGCI members.
Until its recent announcement, Shell itself took a more conservative stance towards climate action. In July, CEO Ben van Beurden said it would be “foolhardy” to set hard targets to reduce carbon emissions. Now there appears to be a renewed commitment on Shell’s part, prompted by input from investors, to set short-term goals in the interest of long-term global and commercial sustainability.
