At the end of last year, oil major Royal Dutch Shell agreed to set carbon emissions targets linked to executive pay. The ground-breaking move broke the mould amongst oil majors and marked true alignment with the companies’ long-term investors who’d played a key role in pushing for the dramatically different approach. Speaking at PRI in Person in Paris, Sylvia van Waveren, director, active ownership at Robeco, and Adam Matthews, director of ethics and engagement at The Church of England’s Pensions Board sat down with Ben van Beurden, CEO of Royal Dutch Shell to chart their journey of dialogue and evolution.
Shell measures its carbon footprint across its entire operation from exploration through to refining and the cars that run off its petrol and diesel to “holistically measure the company’s impact on society,” explained van Beurden. The company aims to reduce its footprint to 40 grams of CO2 per megajoule from current levels of 80 grams per megajoule by 2050, with 20 per cent reduction targets for 2035 on route. That journey will, in turn, be broken up by specific net carbon footprint short-term targets of three or five years starting from 2020 running to 2050 to create an efficient and flexible transition.
“We need to halve our net carbon footprint,” said van Beurden. Linking the pledge to remuneration still needs shareholder sign off at the company’s Annual General Meeting in 2020.
Delegates heard how meeting those targets involves multiple strands. The company needs to ensure the scope of its products and business model evolves towards green industries. It means spending more capital on electricity infrastructure for car charging, green energy and nature-based solutions, and investing more in carbon capture and storage.
Under investor pressure, the company also pledged to review its membership of industry lobbying groups, criticised for undermining the goals of the Paris deal. Now the focus is on looking at “how well we are aligned with what they put out publicly,” said van Beurden.
Much of Shell’s success and progress depends on changing patterns of behaviour within its customer base. “We can’t get there if our customers don’t get there. If we sell products people don’t want, we have a problem. We have to work with the economy, society and our customers to decarbonise the use of energy,” he said.
Getting that message across is one reason why it’s important to work with the wider industry. Following Shell’s own introduction of targets linked to remuneration, van Beurden told delegates he wrote letters to industry peers, urging collective action. “We didn’t want to differentiate. It’s a wider thing and we should hold hands together,” he said. Today he reports “a lot of interest,” but other oil groups have yet to follow suit. “Peers say I can’t be accountable if someone comes in old car and fills up with petrol,” he said.
Van Beurden told delegates of the importance of an enabling policy environment to encourage the transition. The company has a robust public policy position that has advocated, for example, a price on carbon for the last 20 years. But, he said, it falls on deaf ears. “We have to be louder to the point of obnoxious. If it’s not orderly, it will be disorderly,” he said, referencing the PRI’s work on an Inevitable Policy Response IPR.
He also urged that government policy be more precise, stressing that good policy involves more than just putting a price on carbon. In a sector by sector approach, policy needs to list the specific steps to decarbonisation. Moreover, if policy “is too high level” and “generic” it doesn’t work. Instead it leaves a gap between a festival of opinions, and coherence. “We have witnessed this ourselves. I can get very frustrated,” he said, concluding that better policy would facilitate action. “We don’t need more time, we need more action,” he said.