Shell urges shareholders to accept climate resolution

Shell is set to confront the risk that climate change may pose to its future, after backing a resolution from activist shareholders. The move came on the same day it announced $15bn (£10bn) in cost cutting due to plummeting oil prices and said it wanted to resume drilling for oil in the Arctic.

The resolution, filed by 150 investors who control hundreds of billions of pounds, requires the oil major to test whether its business model is compatible with the pledge by the world’s nations to limit global warming to 2C.

The 2C target means only a quarter of existing, exploitable fossil fuel reserves are burnable, according to a series of recent analyses. That implies trillions of dollars of oil, gas and coal held by investors could become worthless and that continuing exploration for fossil fuels may be pointless.

The resolution, also filed with BP, includes a ban on corporate bonuses for climate-harming activities and a commitment to invest in renewable energy.

“This is a turning point and demonstrates the power of activist strategies to deal with climate change,” said Catherine Howarth, chief executive of ShareAction, which helped coordinate the resolutions.

“We maintain our commitment to engage with shareholders in this area,” said Shell’s executive vice president JJ Traynor, in a letter to shareholders, in which he asked them to back the resolution. “We look forward to implementing the resolution should it be passed at the AGM.” The proposal will need the support of 75% of shareholders to pass in May.

“This is a huge victory for the climate, which demonstrates the power of positive shareholder engagement,” said Elspeth Owens, at environmental legal group ClientEarth, which also helped coordinate the resolutions. “The vast majority of Shell shareholders are now likely to vote in support. This throws down the gauntlet for BP to face up to its climate risk.”

Some investors concerned about global warming have chosen to sell off their fossil fuels stocks in a fast-growing campaign of divestment that seeks to stigmatise the companies. They argue that current business models are unsupportable given that over $700bn a year is spent exploring for new oil, gas and coal, despite three-quarters of existing reserves being unburnable if climate change is tackled.

But other investors argue engaging with companies through shareholder resolutions, for example, has more effect.

“We think our supportive but stretching shareholder resolutions could help focus attention on this increasingly complex challenge for companies, investors and policy makers,” said Helen Wildsmith, at CCLA, a UK-based fund manager for charities, churches and local authorities, many of whom co-filed the BP and Shell resolutions.

“We view Shell’s decision as a potential turning point in investor engagement with the industry on carbon asset risk,” said Andrew Logan, oil & gas program director at the sustainability group Ceres, whose Investor Network on Climate Risk has 110 institutional investors with collective assets of $13 trillion. “However, investors will be closely scrutinizing Shell’s disclosures, particularly in light of its decision today to greenlight drilling in the Alaskan Arctic, one of the highest cost and highest risk projects in its entire portfolio.”

Major funds around the world are becoming increasingly concerned that limits on carbon emissions will harm the finances of fossil fuel companies and lead to investors losing money.

One of the largest institutional investors in the world, the $177bn New York State Common Retirement Fund, issued a new warning on Thursday. “We are obviously very concerned about the wellbeing of the fund, which is heavily invested in energy stocks worldwide,” said Pete Grannis, New York State deputy comptroller, whose office is the sole trustee of the fund, which has one million members.