A Dutch court’s decision yesterday to force Shell to reduce its emissions has prompted questions about the efficacy of current shareholder stewardship efforts.
In a landmark ruling from the district court in the Hague, the oil major was ordered to decarbonise by 45% by 2030, based on its 2019 emissions. This is five years earlier than Shell had planned.
Fiona Reynolds, Chief Executive of the Principles for Responsible Investment, told RI that the court ruling was “the latest example” of an acceleration of legal and regulatory developments on climate and carbon, which she said “investors need to understand and get ahead of”.
The ruling, which Shell plans to appeal, comes just a week after shareholders threw their weight behind the company’s climate strategy. For the first time, Shell asked investors for their official verdict on its climate ambition at its annual meeting – part of a growing trend to give shareholders a ‘Say on Climate’ – and secured 89% support.
Shell has been working closely with investors involved in the shareholder network Climate Action 100+ to come up climate transition plans that are palatable to investors. Writing in RI, Adam Matthews, Chief Responsible Investment Officer at the Church of England Pensions Board and a coordinator of that engagement, said that – while the Church would support the climate plan – “there are legitimate questions about the path to achieving it”.
The Dutch court went further in its verdict, stating that Shell’s climate policy was “not concrete, has many caveats and is based on monitoring social developments rather than the company's own responsibility for achieving a CO2 reduction. The court finds that there is an imminent breach of the reduction obligation.”
The ruling highlights a split among investors over whether corporate climate strategies should be assessed against scientific criteria, or whether they should be benchmarked relative to peers in order to reward industry leaders.
Speaking to RI today, Matthews said the Church of England expects Shell to “review its strategy in light of the new International Energy Agency Net Zero scenario and … fully align to the Climate Action 100+ net zero company benchmark by 2023 at the latest. Otherwise we will disinvest.”
Responding to the court’s decision, Pablo Berrutti, Senior Investment Specialist at Stewart Investors, said on social media: “Good stewards should never be behind the courts. By definition if you need to be forced to do the right thing, you have acted too slowly. Yet here we have a court ruling that a plan which was approved by a majority of shareholders is inadequate.”
“Investors who stay invested need to show that their actions are proportionate and adequate, [and] even now, in the din of net zero commitments, this is not the case” he added.
Mark van Baal, head of Dutch campaign group Follow This, said the court’s decision meant that “the staunchest supporters of Shell’s current (not Paris-aligned) targets are not as influential anymore”. Follow This submitted a shareholder resolution at Shell’s AGM last week, asking it to set clearer climate targets, but it secured much lower backing than the company’s own proposal.