By Ron Bousso
LONDON (Reuters) – Investors are pushing oil giant Royal Dutch
Shell to explain the finer details of its plan to link
executives’ bonus pay to lowering carbon emissions, urging more
transparency as the world shifts away from fossil fuels.
Shell was hailed by investors as a pioneer among the world’s
biggest fossil fuel producers when it announced the policy to tie
10 percent of executives bonuses to cutting greenhouse gas
emissions, which will be voted on at a May 23 annual general
meeting in the Hague.
But scrutinizing the small print, some investors want Shell to
show how it will calculate the targets for lowering emissions in
the new bonus scheme rather than provide the information
retrospectively in its annual report.
“This is a good move by the company but we would like to see
more,” said Bruce Duguid, director in the stewardship team at
Hermes Investment Management, which holds shares in Shell. He
declined to say how he would vote next week.
Shell has been criticized for developing projects such as
Canadian oil sands, one of the most energy intensive and
polluting forms of exploration, although it has reduced its
exposure to those developments this year.
“We would prefer to see public, pre-set greenhouse gas reduction
targets using a methodology appropriate to the type of an
emission,” Duguid said.
“It could be an intensity target rather than an absolute
emissions number but ideally set over a long period of time that
is part of a long-term efficiency and carbon reduction plan,”
Investors also urged Shell to include 100 percent of emissions
from its operations in its remuneration policy. They note that
the calculation does not encompass emissions from oil and gas
production and only factors in polluting gases from refineries,
chemical plants and gas flaring, accounting for roughly 60
percent of the total emissions.
“We would love to see that metric be expanded to cover the
trickier issue of upstream emissions, from exploration and
production. The more difficult issue of the carbon intensity of
its reserves hasn’t been addressed,” said Matt Crossman of
Rathbone Greenbank Investments, also a shareholder in Shell.
A Shell spokeswoman said the company was “working hard on
reducing carbon intensity”, adding it planned to disclose
emission reduction targets retrospectively at the end of each
year, the same as with annual bonuses. She declined to comment on
why oil and gas production was not included in targets.
Shell, along with several of its peers including BP have called
for a global pricing of carbon which it believes will help the
transition to cleaner energy.
Shell is also facing longer-term pressure to increase
transparency of its emissions reporting which will allow
shareholders to compare it with peers.
The Institutional Investors Group on Climate Change, which
includes 137 investors managing $13 trillion in assets, has urged
Shell to stress test its business model against a sharper growth
in electric cars and renewable power which could be spurred by an
international deal to cap global warming.
Shell last year reported a 3 percent reduction in greenhouse gas
(GHG) emissions from direct and indirect operations, known as
scope 1 and 2, to around 81 million tonnes of CO2.
The figure however dwarfs overall emissions from the burning of
oil and gas products that Shell sold to end consumers, known as
scope 3, which totaled 600 million tonnes.
A group of climate-activist shareholders – called Follow This –
will ask the AGM to vote on a resolution forcing Shell to widen
its targets to include scope 3 emissions.
The company’s board has opposed the move and a number of
shareholders, including Hermes’ Duguid, and proxy advisors have
also rejected it as going too far.
But Adam Matthews, Head of Engagement for the Church
Commissioners and Church of England Pensions Board, said he would
support the resolution.
“This is the kind of resolution we’d imagine would grow in
support in the coming years if there isn’t a response from the
company that reassures long-term shareholders,” Matthews said.
(Reporting by Ron Bousso; Editing by Dmitry Zhdannikov and Susan