Legal & General Investment Management, Britain’s biggest asset manager, said it wants Shell Plc to explain how it believes it can still reach net zero emissions by 2050 while increasing investments in fossil fuels.
Shell said on Wednesday it intends to devote an ever-increasing share of annual spending to oil and gas, a strategy climate campaigners have described as “disastrous”. Shell says it can still meet its promise to shareholders to eliminate emissions by mid-century, but did not say how. At the same time, the company signaled that it will restrict spending on renewable energy projects to those it believes can compete with the returns from its fossil fuel business.
“There is a sense that oil and gas companies want to keep their options open in case the world misses net zero by the 2050 deadline,” said Stephen Beer, senior director of sustainability and responsible investment at LGIM . “In our engagements with Shell, following their recent announcements, we will assess how they measure up to our expectations.”
The comments coincide with an expanded campaign by LGIM to push companies to reduce emissions. The company will divest assets that pose an unacceptable risk to the environment, Beer said in an interview.
Shell chief executive Wael Sawan has said the company intends to approach the energy transition with “flexibility” and “humility”, while focusing on areas where it can generate profits. The strategy he outlined this week involves spending more on lower-carbon fossil fuels than on green energy, according to a BloombergNEF analysis.
What BloombergNEF says
“Shell’s emissions intensity targets mean that for every unit of energy it produces, it aims to reduce the level of emissions that unit emits. This leaves the door open for Shell to emit even more CO2 in absolute terms than it does today if it increases the amount of energy it produces faster than it reduces the emission intensity of each unit.
“To keep up with Shell’s emissions intensity targets, this could mean more joules of energy from technology like wind or solar. But given that Shell explicitly highlighted the need for its division of ‘energy to “reclaim the right to grow”, indicates that Shell is likely to invest in “low-carbon” gas, not “carbon-free” renewables.
——BloombergNEF Head of Oil Research David Doherty
Other high-profile UK investors say Shell’s strategic pivot under Sawan has left them considering a total exit.
“The new CEO has set a path that will increase Shell’s absolute emissions and goes against the company’s previous path,” said Laura Hillis, Director of Climate and Environment at the Church Pensions Board. ‘England. “This works against the interests of long-term institutional investors who want an orderly transition.”
The Church of England Pensions Board is “reviewing our remaining investments in the company”, which is about 1.35 billion pounds ($1.7 billion) of stocks and bonds, he said.
In Scandinavia, pension fund Velliv is already in the process of exiting Shell and all other oil and gas companies from its $35 billion portfolio. In total, Velliv plans to offload about 200 billion Danish kroner ($3.4 billion) of fossil fuel stocks and some high-emitting utilities.
“Many of the companies above have ambitious goals, but when we look at what their long-term plans are, we can see that they continue to have expansion plans,” Sandra Metoyer, head of sustainable investments at Velliv, said in an interview. “So we don’t see how this is aligned with the Paris Agreement.”
Velliv said he based his decision in part on data provided by Urgewald, a nonprofit organization that monitors the fossil fuel industry. Urgewald says he knows of more than 260 financial firms, including asset managers and banks, that are currently using his data to assess and manage the risks arising from their exposure to fossil fuels.
LGIM, which oversees about $1.5 trillion in client assets, owns about 1.45% of Shell’s shares, making it one of the company’s top 10 shareholders, according to the latest regulatory filings compiled by Bloomberg. The asset manager “wants to see oil and gas companies outline clear plans to align with net zero by 2050, with short- and medium-term targets set and achieved before then,” Beer said.
In total, about a third of oil companies currently do not meet the minimum standards of LGIM’s climate impact pledge, Beer said. In that context, Shell is actually “one of the best companies, but it still has a way to go,” he said.
PGGM, MN and Phoenix Group, the three asset managers leading the engagement with Shell on behalf of a $68 trillion investor group, Climate Action 100+, said they welcomed transparency from Shell in its planned fossil fuel production and low carbon investments. But they also expect the company to “further accelerate efforts to reduce CO2 emissions,” according to a joint statement.
Climate activists, meanwhile, have criticized Shell’s latest adjustments to its energy policy.
“Shell seems deaf to scientists and experts,” said Agathe Masson, a shareholder engagement campaigner at the French non-profit organization Reclaim Finance. “Shell’s approach is catastrophic for the planet.”
Other climate activists warned that Shell’s decision to step up investments in fossil fuels will ultimately put the company at a disadvantage.
Mark van Baal, the founder of Follow This and the author of a series of resolutions to push big oil companies to cut their emissions more aggressively, said: “Shell’s attitude shows a lack of imagination beyond oil and gas, and a failure to understand the concepts of disruptive innovation and stranded assets.”
