Like many companies in the oil and gas sector, Shell is facing a constant stream of allegations related to environmental issues. Since the start of Robeco’s engagement programs in 2005, we have been in dialogue with this global energy company on several topics.
Specific issues we have engaged on with Shell are arctic drilling, shale gas, Nigerian oil pollutions, remuneration of the Board, gas flaring and, lately, the CO2 challenges Shell is facing.
Over the years, the company has seriously improved its responsiveness, has taken decisive action, and is showing good progress on our engagement objectives. Our engagement with the company continues.
One of the most heard criticisms towards Shell’s exploration operations relates to devastating gas flarings and oil pollutions of the Niger Delta in Ogoniland, Nigeria. Various NGOs including Friends of the Earth and Amnesty International have made allegations of a breach of international norms on environmental pollution, which qualify as a non compliance with the UN Global Compact Principle on Environmental Conduct. The UN Global Compact requires companies to embrace, support and adopt a number of core values within their sphere of influence in the field of human rights, labor standards, the environment and anti-corruption measures.
Systematic and severe breaches of the UN Global Compact constitute financial, operational and reputational risks for a company and its stakeholders (e.g. shareholders). Companies must therefore avoid breaching these principles. If they do commit a breach, they should remedy it and prevent future occurrences.
For breaches of the UN Global Compact Principles we run an enhanced engagement program. This is an intensive, three-year program, aiming to effectuate a change in conduct of companies with severe controversial behavior. In 2010 and 2011, we started the engagement with Shell on two UN Global Compact breaches: oil spills in the Niger Delta and gas flaring in Nigeria.
Key points of this engagement include:
Key points include:
After three years of engagement, Shell has taken responsibility for cleaning up most of the backlog of spills at legacy sites in the Delta. These efforts however are not easily recognized by the world because there is a huge increase in number and volume of spills due to sabotage. While Shell tries to combat thefts on its pipeline with innovative techniques such as optic fibre, the company estimates that fixing the problem goes much beyond Shell’s capabilities. Shell now considers that theft and sabotage have reached an industrial level in Nigeria and they are still growing. Consequently Shell started engaging with the Nigerian, UK and Netherlands governments to find a way to fix the problem.
A hugely complicated factor is that the tremendous pollution in Ogoniland, part of the Niger Delta, still exists and although Shell is willing to play its part and is cleaning its right of way (the area on and around the pipeline), it is the main responsibility of the Nigerian government to clean up the entire area. Shell is leading discussions with the Nigerian government and other groups with the aim of setting up a USD 1 billion fund to clean up the area but the company has limited power in this complicated matter. Due to the ever increasing professional theft of oil from this region, it is currently impossible for the company and the relevant parties to clean up the mess in the Niger Delta. We therefore think that the company is no longer in charge itself to meet our commitment target. It is now in the government’s hands. Consequently, we consider the dialogue with the company successfully closed on this topic.
In addition to these two engagement topics, we also talk to Shell about other issues, such as arctic drilling, remuneration and CO2 emissions.
In 2015, Shell announced to restart drilling in in the Chuckchi Sea in the Arctic area. The environment risks are the most challenging issues. The main point of contention is the oil spill response. As US regulations require the response time to a spill to be only 60 minutes, Shell needs to take every support with them, which means 28 support vessels, 2 helicopters and other equipment as the infrastructure from the mainland is simply not there. Only in 2030 is the exploration site expected to be in production if all challenges have been dealt with. Later in 2015, Shell decided to shut down its drilling activities in the Arctic. Consequently, we have closed our dialogue with the company on this issue successfully.
Within Eumedion, the forum for corporate governance and sustainability, we are the lead investor for the Annual General Meetings of Shareholders (AGMs) of Shell. This means in practice that we speak and/ or make a voting statement at the AGM of Shell, not only on behalf of Robeco but also on behalf of other institutional investors. We use our representation at the AGM as an engagement instrument where we have direct access to the whole board of Shell.
The topics we addressed over the years are a more sustainable remuneration policy and environmental challenges. In 2016, at Shell’s Extraordinary General Meeting, we expressed that we recognize the strategic merit of the acquisition of BG Group and the potential to achieve greater financial results than either company could likely generate on its own in the long term, particularly in the midst of an evolving and challenging energy industry. Our representation at these AGMs continues.
We continue our dialogue with Shell on the risks the company is facing in the light of climate change management and stranded assets. If global warming treaties are actually signed and implemented after COP21, stranded assets will become an unprecedented problem. Research by Nature magazine published in January 2015, suggests that one-third of oil reserves, half of gas reserves and 80% of coal reserves might go unused up until 2050. Divestment, however, is not a solution. For reserves held by corporates, divestment simply means that one institution is buying what another is selling.
A better solution is to encourage carbon companies to change their business models. Such approaches have been echoed in recent shareholder resolutions such as the ‘Aiming for A’ campaign in the UK, which has successfully persuaded Royal Dutch Shell and BP to disclose their climate strategy and the resilience of their operating portfolios to carbon limits. Robeco also voted in favor of the ‘Aiming for A’ shareholder resolutions. We will continue our constructive dialogue with Shell on structural solutions to the carbon challenges the company is facing.
The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).
This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.
This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.