Scope 3 Reduction Support Slips at Shell
AGM results show receding commitment to cutting emissions, as investors told to “put their vote where their mouth is”.
Institutional investors have expressed concern over oil and gas firms’ lack of resolve to reduce environmentally harmful activities following shareholder vote results from Shell’s 2024 AGM this week.
The AGM featured a proposal to align the company’s medium-term Scope 3 emissions targets with the Paris Agreement goal of limiting global warming to well below 2°C above pre-industrial levels.
While 20% of shareholders supported a similar proposal during last year’s AGM, this time, only 18.6% of shareholders voted in favour. This is of particular concern given Scope 3 accounts for approximately 95% of Shell’s greenhouse gas (GHG) emissions.
Shareholders also voted on the oil and gas major’s updated 2024 energy transition strategy, with 22% voting against – up from 20% last year. Though some investors welcomed some progress in the strategy, many noted shortfalls.
“The result is disappointing as the climate resolution received less support than last year while, and in the meantime, the company backtracked on its climate targets,” Ethos Foundation CEO Vincent Kaufmann told ESG Investor. “This will bolster Shell and the fossil fuel industry in general in their current position of pursuing the development of new oil and gas fields at the expense of the environment and the climate.”
Ethos was one of the €4-trillion-in-AUM-strong (US$4.3 billion) group of 27 institutional investors who co-filed the resolution under the lead of Dutch campaign group Follow This. This represented the largest group of investors to ever co-file a climate resolution at Shell.
Other noteworthy shareholders, however, did not back the resolution. One of them was Norges Bank Investment Management – one of the world’s largest sovereign wealth funds with US$1.3 trillion in assets.
“We need to understand why the support for this resolution was not more significant,” said Kaufmann. “Investors who loudly claim their commitment to fighting global warming but did not support this resolution must also be confronted about their position. It is now time for them to really walk the walk.”
Investor scrutiny
Ahead of the AGM, Shell’s board had qualified the climate resolution as “more harmful than helpful”. In previous years, the board had already described similar resolutions as “unnecessary”, “unrealistic”, and “against shareholders’ interests”.
“Every year, the oil majors find different ways to dismiss our fair ask to align emissions with Paris,” Follow This Founder Mark van Baal told ESG Investor. “We thought we had heard it all, but during today’s AGM, Shell’s CEO Wael Sawan called our resolution ‘bad for the environment’ – which goes to show how disconnected the company is from any notion of real-world emissions reductions.”
An 18.6% vote represents a shareholder rebellion at Shell, van Baal explained, given 99% of shareholders typically vote with management. Yet – the company continues to ignore investors’ requests on climate.
In March, the oil major weakened its 2030 carbon reduction target and scrapped its 2035 carbon intensity reduction objective, citing expectations of strong gas demand and uncertainty as reasons for its decision.
Alongside Shell, other oil and gas majors have come under increased scrutiny from investor over their decarbonisation efforts. In February, environmental charity ClientEarth filed a case against Shell with the UK High Court, arguing that its continued investment in fossil fuel projects breached directors’ duties to promote a company’s best interests. The case was supported by investors holding more than 12 million shares in Shell on their decarbonisation efforts.
“Institutional investors who want to hold Shell accountable for harmful emissions should put their vote where their mouth is,” van Baal urged. “Back up your extensive engagement with a vote for our climate resolutions, and speak out publicly about your intension to do so.”
AGM bonanza
This AGM season, Shell was the only one of five global oil majors to face a resolution on Paris-aligned emission targets. For the first time since 2019, Follow This did not file a climate-related proposal at BP’s AGM last month.
TotalEnergies, which will hold its AGM this Friday, will only be subject to a consultative vote on a sustainability and climate progress report it published in March.
ExxonMobil’s AGM will be next, on 29 May. In February, the company decided to sue US investment firm Arjuna Capital and Follow This over the resolution they had filed on GHG emissions reduction – but this has exposed it to threats of a strong response by some of its investors.
“The resistance and the means employed by Total and ExxonMobil to fight against legitimate request from their shareholders is worrying [in relation to] the willingness of their boards and management to reduce emissions and fight the dramatic consequences of climate change,” said Kaufmann.
A report published this week by research group Oil Change International reviewed the climate and sustainability pledges of the eight largest US- and European-based international oil and gas producers against ten criteria – including ambition, integrity, and people-centred transitions.
All eight firms – which included BP, Exxon, Shell and Total – displayed plans that were rated as “grossly insufficient” or “insufficient” against most of the criteria. Oil Change International said none of them had pledged to do even the “bare minimum to prevent climate chaos”.
“Responsible investors must keep on pushing fossil fuel companies to reduce their GHG emissions by reviewing business models and redirecting investment and activities towards renewable energies,” said Kaufmann. “This is their fiduciary duty as institutional investors towards beneficiaries and future generations.”
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