The Carbon Tracker Initiative, the UK-based non-profit organization which has done much to put ‘stranded assets’ on the investment agenda, has published a detailed assessment of Royal Dutch Shell’s letter to shareholders on carbon risks.
Shell, prompted by a 75-member, $3trn investor coalition called the Carbon Asset Risk initiative – led by US advocacy group Ceres and Carbon Tracker – set out its views in a May 16 letter in which it rejected the stranded assets/carbon bubble notion.
The campaign, which is targeting 45 of the world’s largest fossil fuel companies to address the financial risks posed by climate change, had earlier elicited a response from Shell’s peer ExxonMobil in March, although it ultimately proved underwhelming for investors.
Shell said the whole notion of stranded assets had “fundamental flaws”. There was a danger, it said, of interest groups using it to “trivialize” rising levels of CO2.
It led Al Gore, the former US Vice President and co-founder of sustainable investment firm Generation Investment Management (whose foundation is a funder of Carbon Tracker) to brand Shell as “contemptuous of reality”. Shell had highlighted the role carbon capture and storage (CCS) might play in mitigating emissions – which Gore termed “ludicrous”.
Now Carbon Tracker and research partner Energy Transition Advisors have published a 50-page analysis of Shell’s missive, welcoming its level of detail – while accusing it of ‘double think’ straight out of George Orwell’s ‘1984’.“In the spirit of furthering the dialogue between investors and companies on carbon asset risk, this note analyzes and responds to what we view as the most important points that Shell makes,” the report says.
“A case of Orwellian double think”
Responding to another criticism from Shell, it adds: “Rather than aiming to be alarmist, CTI is highlighting the very real financial risk to shareholders as a result of a transition to a low-carbon world.”
Arguing that its analysis links the debate on climate change to financial risk for investors and companies, CTI suggests that oil companies returning cash to shareholders “may be the best way to add value for shareholders” amid falling oil demand.
And it argues that the lengthening time it takes to deliver projects may threaten shareholder value as it means the “non-carbon bet is merely rolled forward”.
Carbon capture, the analysis argues, offers “limited protection” against potential demand and price risks for fossil fuel production in a carbon-constrained world.
Carbon Tracker Chief Executive Anthony Hobley said Shell’s “combative stance” meant it had “missed an opportunity to explain to its shareholders how its capital expenditure plans are resilient to the impending energy transition”.
He continued: “Acknowledging the seriousness of the climate challenge whilst at the same time asserting no effective action will be taken until the end of the century is as classic a case of Orwellian double think as you are likely to find.”