Green vs. Black — Mixed Messages at Shell

The Circustheater in The Hague was a fitting venue today for a delicate balancing act by executives under pressure from green shareholders in Shell.

At its AGM this morning, the Anglo-Dutch oil giant successfully opposed a resolution which would have required Shell to lead the industry by setting emissions targets in line with the 2015 Paris Climate Agreement.

Just one day earlier, chief executive Ben van Beurden struck a very different chord when he warned that United States’ withdrawal from the Paris Agreement “would be unhelpful on a number of fronts”.

If that looks like a contradiction, it’s not the only one.

Resolution 21, submitted by the Follow This group of shareholders, proposed to “support Shell to take leadership in the energy transition” by committing to emissions targets consistent with the Paris accord. That’s ambitious, but a significant body of investor opinion was on side.

Prior to the vote, proxy organizations representing €200bn in assets had indicated their support for the resolution. Dutch institution MN, with assets under management of €114bn, called it a “fair ask”.

On paper at least, the careful phrasing of the resolution satisfied public commitments made by Eumedion, an association of institutional investors representing 25% of the Dutch stock market. Given that only half of shareholders actually vote at Shell’s AGMs, Eumedion’s members alone could – in theory – have carried the motion at the Netherlands’ biggest company.

Mark van Baal, founder of Follow This, worked closely with institutional investors including Eumedion on early drafts. Resolution 21 was “agnostic” on business models and strategy, he said. Its language fitted “seamlessly” with Eumedion’s position, that “Participants of Eumedion urge companies to provide an overview of the efforts to help deliver the goals of the Paris Agreement.”

In the event, the motion secured just 6% of votes at the AGM. Perhaps that is a poor result. Few observers would expect a campaigning group of retail investors to rally enough support to defeat Shell’s management. Eumedion’s advice is not binding for its membership. Institutions are anxious to preserve their private influence for face-to-face meetings with executives.

An alternative interpretation is that 6% can be described as a pyrrhic defeat, a victory that looks on first sight like a loss. More than double the support attained last year, for a more prescriptive proposal to invest all Shell’s profits in renewables, the resolution created a green dilemma for shareholders.

Fund managers who claim one thing in public but do another thing at the ballot box are vulnerable to charges of “greenwashing”. The case for closer scrutiny of investment principles has been advanced. What (and who) should their clients believe? How to reconcile the public statements with the private act?

Enter Shell’s CEO.

A day before the AGM, Mr van Beurden warned in a newspaper interview that US withdrawal from the Paris Agreement “would weaken its own hand by basically uninviting itself from a number of [negotiating] tables”. A decision from the Trump Administration could be announced as early as June 2017, following a G7 summit of industrialized countries.

This takes a moment to decipher. A cynical observer might expect incumbents in the oil industry quietly to welcome President Trump’s inclination to pull out of the Paris Agreement. Although more equivocal now than during his presidential campaign, the president recently confirmed his position to Huffington Post as “leaning towards withdrawal”.

Instead, Mr van Beurden is worried. At a time when other countries, including China, are committed to Paris, he cautioned that American withdrawal would jeopardise its future in clean energy.

“The US has a major crop of companies that deliver technologies that are going to be relevant in the energy transition, and one way or another they will also find themselves probably more disadvantaged than advantaged by the US pulling out,” he told the FT. In a nutshell: “I cannot see where the upside is”.

Hypocrisy? Maybe. Not. The competitive landscape will be Shell’s future too. The question of whether Shell, its expertise deeply rooted in extractive industries, can meet the high tech challenge of a clean energy transition is moot. While it’s entirely normal that executives resist pressure from pesky shareholders to set the pace, internally it may be a different story.

From 2018, ten percent of executives’ bonus payments will be linked to greenhouse gas management. Shell claims to be an industry leader in planning to reduce emissions. Institutional shareholders stopped short of forcing the hands of management, at least for today, but the obligations set by the Paris accords are a real and present driver of green innovation.

Something in this evolving bargain recalls a famous comedy sketch in Monty Python’s Flying Circus, The Argument Clinic, in which a man pays to have an argument. Shell’s green shareholders have done just that. To paraphrase Monty Python, the mixed signals coming from Shell are not contradiction but argument. An argument long overdue, itself a measure of difficulty, but at the same time incremental proof of change.

[Disclosure: I own Shell stock, and also support Follow This.]

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