Shell does not fulfill agreements and focuses again on fossil fuels: “Shareholders must intervene”

Oil and gas company Shell made a lot of money last quarter through its “core business”: fossil fuels. The company had actually promised to focus more on green energy, but those plans have now been cancelled.

In 2021, Shell came up with a target: CO2 emissions must be reduced by 20 percent by 2030. But in March of this year, this target was already reduced to 15 percent. Ultimately, less money goes to the energy transition.

During the epidemic

This makes sense, says associate professor of energy and climate policy Matthieu Blundell of the Institute of Environmental Affairs. To make it clear, we need to go back to 2021, when the goals were initially set. “These promises were of course made in the context of the pandemic, where demand for oil and gas was at a very low level because economic activity globally was very low.”

As a result, Shell’s profits also declined. “So they made this calculation at that moment: Maybe we should focus more on renewables, because that’s where the high demand is going to come from when the economy starts to recover.”

Green deal

In addition, the company, especially in Europe, had to deal with the Green Deal to reduce greenhouse gases. “A context in which there is a lot of political ‘good will’, in terms of the energy transition and climate policy. So oil and gas companies are also feeling a little bit at that moment: maybe there is a fundamental shift happening here, away from fossil fuels.” Renewable fuels.

But the situation changed quickly, which also affected the goals. “The invasion of Ukraine sparked a global energy crisis that sent oil and gas prices soaring again and profits skyrocketing. And that made those companies realize again: Maybe there’s a little more music to this fossil fuel activity than we have.” “Expected.” According to Blundell, this brought about a strategic change.

“Return on investment”

According to Blundell, it is also easy to explain that the company makes more money from drilling activities. This relates to the ‘return on investment’, i.e. the profit made from the investment. “If you invest in a traditional oil and gas field, your return on investment is more than 10 percent.”

He continues: “But if you invest in a renewable project, such as offshore wind farms, you will make a profit of 6 to 8 percent. This is actually a very simple calculation that shows that there is simply much more money available today than in fossil investments.” renewable.” So it basically comes down to the fact that the company makes the most profits from fossil fuels.

Active shareholders

But not everyone is happy with the steps taken by Shell. A group of shareholders sent a letter urging the company to align its activities with the Paris Climate Agreement. This message comes from Follow This, a group of investors who believe the oil industry must become greener faster. “Shell’s leadership wants to continue using fossil fuels for as long as possible and not invest in clean energy,” says Mark van Baal of Follow This.

“Shareholders must then step in, because they have a much bigger interest than Shell: the global economy, which is at risk from climate change.” According to Van Baal, Shell has already responded to the letter based on the shareholder meeting agenda. “Shell says, like every year: shareholders have to vote against this. So they are saying they don’t want to work in line with the Paris Agreement.”

Movements for sustainability

On May 21, an annual shareholders’ meeting is held where shareholders can also put forward resolutions for the company, which can be adopted by other shareholders. “In recent years, there have been several resolutions put forward by shareholders to force the company to act more on sustainability, greening and energy transition.”

But now that there are such large profits to be made from fossil fuels, passive shareholders are less likely to agree to these proposals, says the university lecturer. “That’s why the company’s management is demanding: Let’s put some limits on these greening and sustainability movements.”

Back to “core business”

According to Blundell, it is clear what the near future looks like. “It is very clear now, in the very short term, that the ambition is indeed to return to the ‘core business’, to return to focusing on fossil activities, because they can guarantee and generate the greatest percentage of profit.” But in the long term, the company’s current strategy may be in question, says the university lecturer.

It also takes a look at the climate litigation currently taking place in the Netherlands against Shell. “This could have a huge impact on Western oil and gas companies, not just on Shell, but also on BP, Total Energy, and perhaps in the longer term also on the Americans. And so, in the long and medium term, you are really faced with a political context and politics.” climate change and an accelerating energy transition.”

Long term vision

In the short term, he says, oil and gas companies like Shell need not worry. “But in the long term, those companies have to basically think: What are we going to do, and in what direction are we going? Because now they’ve made real strategic leaps every two or three years. And I can also imagine that investors don’t really like to see that either.”

So there must be a clear plan. “At some point, they have to establish a long-term vision that they stick to. It will be important for them to effectively articulate that vision in the near future.”