Shell Shocked: Shell’s Decision to Slow Down Carbon Reduction

A more gradual approach to reaching climate targets

Shell shareholders have largely backed the oil major’s decision to weaken its climate targets. This move, supported by 78% of shareholders, signals a slower approach to emissions reductions than previously planned, delivering a blow to efforts aimed at combating climate change.

Shareholder votes reflect diminished ambition

On Tuesday, Shell’s revised energy transition strategy, which proposes a more gradual reduction of emissions, was approved by the majority of its shareholders. The 22% opposition to this strategy, although significant, is consistent with the dissent seen in 2022 and 2023 when 20% of investors opposed Shell’s earlier plans. Additionally, a resolution filed by the activist group ‘Follow This’ and 26 other investors, which called for more stringent climate targets, was rejected, with only 19% of shareholders in favor—a slight decrease from the previous year’s 20%.

These votes illustrate a concerning trend among Shell shareholders, indicating a reluctance to embrace more aggressive climate action. This stance was further reinforced in March when Shell weakened its 2030 emissions-reduction target and completely scrapped its 2035 target.

Shell’s revised strategy and its implications

Shell chair Andrew Mackenzie, in his opening remarks, reiterated the company’s commitment to achieving net-zero emissions by 2050. However, he emphasized that substantial investments in hydrocarbons, particularly liquefied natural gas (LNG), are necessary during the transition. This perspective reflects a cautious approach to climate action, focusing much more on short-term economic interests than long-term environmental goals.

Under the UK corporate governance code, a resolution opposed by at least 20% of shareholders obliges the company to report on actions taken to address these concerns within six months. Shell has promised to meet this requirement by continuing to engage with shareholders, explaining why the revised strategy will purportedly keep the company on the right path.

However, this explanation does little to mitigate the disappointment among environmental groups. The recent annual general meeting, although less disrupted by activists compared to previous years, highlighted the growing concern among shareholders about Shell’s climate commitments. Almost all questions during the three-hour meeting centered around climate-related issues, underscoring the urgency of the matter.

The reality behind carbon intensity

When Shell initially set its energy transition strategy in 2021, the goals were ambitious: a 20% reduction in net carbon intensity by 2030, 45% by 2035, and net zero by 2050. These targets were widely supported by 89% of shareholders at the time. However, the revised plan now aims for a modest 15-20% reduction by 2030 and has eliminated the 2035 target altogether.

Rather than committing to absolute reductions in emissions from burning fossil fuels, Shell’s focus on carbon intensity allows it to offset the carbon produced by its oil and gas operations against its increasing sales of lower-carbon products. This accounting method provides Shell with flexibility but does not translate to a meaningful reduction in overall emissions.

A step back in climate leadership

The revised targets reflect CEO Wael Sawan’s strategy to expand LNG sales while selectively growing low-carbon energy solutions, such as biofuels, hydrogen, and renewable power. Sawan defended the decision to retire the 2035 target by citing uncertainties around the pace of the energy transition. He emphasized the need for Shell to make strategic investments where it can create the most value, suggesting a cautious approach to reducing sales of oil products like petrol and diesel.

While Shell’s share price remained steady at £28.06 by late Tuesday afternoon, the company’s decision to slow down its carbon reduction efforts poses significant risks. It not only undermines the global fight against climate change but also raises questions about Shell’s long-term sustainability as the world increasingly shifts towards cleaner energy sources.

In conclusion, Shell’s decision to dilute its climate targets is a step backward in the fight against climate change. It highlights a critical disconnect between the company’s strategic direction and the urgent need for more robust climate action. As the world grapples with the escalating impacts of climate change, companies like Shell must prioritize substantial and immediate emissions reductions to safeguard the planet for future generations.