March 19th, 2019 by Joshua S Hill
British-Dutch oil and gas company Royal Dutch Shell published its Annual Report for 2018 last week in which it also revealed the company’s first carbon emissions reduction target of between 2-3% by 2021.
Fossil fuel-driven companies like Shell have been repeatedly in the news of late as, one after another, they all announce variations on promises to reduce carbon emissions or align their businesses with the Paris Agreement. In the past few months Shell has been joined by BP and Chevron, which have all bowed to investor pressure to align their businesses with the Paris Agreement.
Shell has been making significant headway around its December commitment to implement short-term Net Carbon Footprint targets in support of its longer-term ambition to reduce its Net Carbon Footprint associated with its energy products in step with society’s push to meet the goals of the Paris Agreement. Specifically, Shell is aiming to reduce its Net Carbon Footprint by around 20% by 2035 and by around 50% by 2050. In support of this, Shell will set Net Carbon Footprint targets from 2020 for shorter-term periods of three to five years, with a new target to be set each year for the next three- or five-year period.
Importantly, Shell has also promised to link its energy transition to long-term remuneration for its executives. Specifically, the targets will be linked to the remuneration of approximately 150 executives this year, and then expanded to 16,000 employees in 2020.
“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 in December. “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.”
As part of its Annual Report 2018, Shell laid out its first short-term Net Carbon Footprint target — a 2021 target to reduce its footprint by 2% to 3% below the company’s 2016 Net Carbon Footprint of 79 grams of CO2-equivalent per megajoule.
It is also heartening to see that Shell is not looking to divest itself of responsibility for the use of its products, either. Specifically, according to the company’s 2018 Annual Report:
“Our approach to calculating the Net Carbon Footprint covers emissions directly from Shell operations (including from the extraction, transportation and processing of raw materials, and transportation of products), those generated by third parties who supply energy to us for production, and our customers’ emissions from their use of our energy products. Also included are emissions from elements of this life cycle not owned by Shell, such as oil and gas processed by Shell but not produced by Shell, or from oil products and electricity marketed by Shell that have not been processed or generated at a Shell facility.”
Put another way, Shell’s carbon emissions targets cover Scope 1, 2, and 3 emissions, whereas competitors such as BP and Total which have also laid out carbon emissions reduction targets have both chosen not to include Scope 3 emissions — those emissions generated by consumers of their product.
“The calculation of the Net Carbon Footprint includes not only emissions from our own operations and those from third parties in parts of our supply chains that produce and bring energy to the market but also emissions of our customers from the use of the energy products we sell to them,” Shell explained in its Annual Report. “The emissions from our operations are important but those of our customers from their use of the energy products are much larger in proportion.”
Shell’s December commitment was made in partnership with a leadership group of institutional investors on behalf of the global investor initiative Climate Action 100+, an investor-led initiative with over $33 trillion in assets under management.
“Shell are showing progress in answering the call from investors with $33 trillion in assets to make their business consistent with the goals of the Paris Agreement,” said Stephanie Pfeifer, a member of the global Climate Action 100+ steering committee. “Setting the first interim target early and linking it to executive remuneration demonstrates commitment to deliver on the agreement reached with investors as part of Climate Action 100+. We look forward to further steps from both Shell and others in the sector.”
“Following last year’s joint statement between Climate Action 100+ investors and Shell we are pleased that the company has brought forward their plan to introduce targets covering all their emissions,” added Adam Matthews, Director of Ethics and Engagement, Church of England Pensions Board, one of the investors leading engagement with Shell. “This is the first tangible outcome of the agreement reached between investors and Shell. The ball is rolling.”
“Shell is finally beginning to bow to pressure from investors and society to acknowledge the necessary reality of the low carbon energy transition but the pace of change is inadequate and painfully slow,” added Kees Kodde, a Climate & Energy Campaigner with Greenpeace, who spoke to me via email. “Achieving the Paris Agreement objectives will require cutting emissions nearly in half by 2030, in absolute terms, so not in relative terms (per megajoule), but real reductions. The real proof of industry intention isn’t targets, it’s how they plan to spend their money. By 2020 Shell is still directing not even 5% of its capital expenditure on renewable energy. The world of energy needs to change fast – and Shell needs to put their money where their mouth is. “