Shell unveils new climate targets, links them to executive pay

British-Dutch oil and gas megalith Royal Dutch Shell, more commonly known simply as Shell, announced on Monday that it was seeking to develop new public short-term Net Carbon Footprint targets that it would tie to executive remuneration.

Shell says its new policy is intended to build on and solidify the company’s existing long-term ambition to reduce its energy products carbon footprint  in step with the goals of the Paris Agreement. Currently, Shell has set a target to reduce its Net Carbon Footprint by around 20 per cent by 2035 and by around 50 per cent by 2050.

The company’s new policy will see it start implementing short-term targets, beginning in 2020, for shorter periods – around three or five years – and the company will set a new target for the subsequent three- or five-year period.

But Shell also revealed that these new short-term targets and other measures will be linked to its new executive remuneration policy – which will be put to shareholders for approval at the company’s Annual General Meeting in 2020 – as “part of a drive to increase transparency around the topic of climate change, and to create clear benchmarks for performance.”

“Meeting the challenge of tackling climate change requires unprecedented collaboration and this is demonstrated by our engagements with investors,” said Shell Chief Executive Officer Ben van Beurden.

“We are taking important steps towards turning our Net Carbon Footprint ambition into reality by setting shorter-term targets. This ambition positions the company well for the future and seeks to ensure we thrive as the world works to meet the goals of the Paris Agreement on climate change.”

The new policies were developed in partnership with a leadership group of institutional investors on behalf of Climate Action 100+, an investor-led initiative with over $32 trillion in assets under management.

The leadership group published a joint statement with Royal Dutch Shell parallel to the company’s new policies, in which they explained how they “believe climate change to be one of the greatest systemic risks facing society today.”

“As institutional investors and in the context of the Climate Action 100+ initiative, we have engaged with Shell to further build on its ground-breaking Net Carbon Footprint ambition by setting short-term Net Carbon Footprint targets consistent with this ambition and integrating these targets into executive remuneration,” the leadership group wrote.

“As long-term investors, we share the desire of the Board and management of the company to seek a positive future for the company which is aligned to the goals of the Paris Agreement on climate change. This has been our motivation for this engagement.”

Shell has set itself three strategic ambitions it intends to act upon as a means to play a more important role in responding to the need for more and cleaner energy. They include:

• To provide a world-class investment case by growing free cash flow and increasing returns, all built upon a strong financial framework and resilient portfolio;
• To thrive through the energy transition by providing the mix of products its customers need as the energy system evolves;
• To sustain its societal license to operate by being a responsible energy company that operates with care for people and the environment.

“We applaud the joint statement by Shell and lead investors for Climate Action 100+,” said Anne Simpson, the inaugural Chair of the Climate Action 100+ Steering Committee and Director of Board Governance and Strategy at the California Public Employees’ Retirement System (CalPERS).

“The commitment by Shell to fully respond to the engagement shows the value of dialogue and global partnership to deliver on the goals of the Paris Agreement on climate change. Shell is setting the pace, and we look forward to other major companies following its lead.”

“Investors like ourselves will be able to track Shell’s performance through the Transition Pathway Initiative (TPI), an independent academic tool at the London School of Economics which is supported by funds with $11 trillion in assets,” added Adam Matthews, who served as the Co-lead of the Climate Action 100+ dialogue with Shell and is Director of Ethics and Engagement of the Church of England Pensions Board, and Board Member of the Institutional Investors Group on Climate Change.

“This joint statement is the first of its kind, 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.

“Shell have also made important commitments to review the corporate climate lobbying of trade associations in line with the investor expectations we had developed with Sweden’s AP7 and the Institutional Investors Group on Climate Change. The review will be published early next year and Shell should be applauded for this step.”