The Local Authority Pension Fund Forum (LAPFF), a voluntary association of UK pension investors with combined assets of over £300bn (€345bn), has recommended its members vote against Royal Dutch Shell’s energy transition strategy and support a shareholder resolution from Dutch NGO group Follow This.
The group also recommended support for the Follow This resolution at Shell last year, after having in previous years advised a vote against.
This year is different because Shell has set out an energy transition strategy that it will put to the vote at its AGM on 18 May. It has pledged to give shareholders an annual opportunity to vote on progress made in delivering the strategy, and to publish an update to its energy transition strategy publication every three years until 2050.
According to Councillor Doug McMurdo, chair of the LAPFF, although the Forum supported the principle of companies putting their climate change approach to the vote, it could not support Shell’s strategy.
In a statement, LAPFF said the strategy as stated “does not sufficiently address the challenges Shell faces with competition from renewable energy potentially putting fossil fuel businesses out of business on cost grounds alone”.
It also said Shell’s net-zero strategy did not amount to “taking a lead” but was instead “a recipe for being left with stranded assets”, as it was “couched in such terms that Shell will decarbonise ‘in step with society’”.
LAPFF, which is advised by corporate governance consultancy Pensions and Investment Research Consultants (PIRC), also took issue with “references to relying on very large amounts of carbon capture and storage (CCS)”, saying it was “unclear for what products, and CCS doesn’t work without subsidy and it does not result in ‘net zero’”.
According to a PIRC spokesperson, LAPFF considers that CCS technology “at best is 90% CO2 extraction”.
The association’s statement also criticised the role of nature-based solutions in Shell’s strategy, saying there were “references to very large amounts of tree planting by 2030”.
“We could not reconcile these very large amounts to credible areas of land in the short timescale that would entail,” LAPFF said in the statement. “But more fundamentally, nature based solutions are expected to be needed for difficult to abate sectors, such as cement, chemical manufacturing and aviation.”
Shell is recommending shareholders support its energy transition strategy and vote against the Follow This resolution.
According to the Follow This group, Shell’s emission reduction targets are not consistent with the goals of the Paris climate change agreement – Shell says it believes they are aligned with the 1.5°C scenarios used in the IPCC Special Report on Global Warming of 1.5°C, most of which show the global energy system reaching net zero between 2040 and 2060.
Shell also argues the Follow This resolution is redundant because Shell had published its own resolution that “comprehensively details” the company’s energy transition strategy.
A spokesperson also told IPE that the resolution “includes well defined and measurable short, medium and long-term targets which go further than that requested by Follow This, so our shareholders can be absolutely clear on what Shell is committing to deliver”.
“The company recommends that shareholders vote against the Follow This resolution, and focus attention instead on the more detailed proposal from Shell which will help move the company forwards,” the spokesperson added.
Shell is one of the target companies investors are engaging with as part of the Climate Action 100+ initiative, which has 575 signatories representing $54trn in assets. Some LAPFF members are also members of CA 100+, which does not advise its members on shareholder voting.
Adam Matthews, chief responsible investment officer at Church of England Pensions Board (CEPB) and co-lead for the CA100+ engagement with Shell, has said the pension fund was likely to vote in favour of Shell’s energy transition strategy because of the progress the company had made and its commitment to “meaningfully engage” on CA 100+ expectations, such as that absolute emission equivalent targets sit alongside short- and medium-term intensity targets.
CEPB was likely to vote against the Follow This resolution at Shell but consider supporting its demands at other oil and gas majors where progress “is not so obvious”, Matthews explained. He attributed the progress Shell had made to investor engagement.
In late February a group of civil society organisations called on CA 100+ investors to vote against Shell’s energy transition plan, saying it fell short of what was needed to keep warming to 1.5°C.
One of their criticisms was that Shell’s emission reduction targets are intensity-based rather than absolute. Shell has an absolute net-zero emissions target for 2050, but the interim targets are intensity-based.
On a panel discussion organised by Follow This recently, billionaire investor Chris Hohn, who is behind the ‘Say on Climate’ initiative and head of the Children’s Investment Fund, said shareholders should support the Follow This resolutions. Mark van Baal of Follow This has said that votes in favour of shareholder climate resolutions are “the only thing boards listen to”.