Robeco's Active Ownership realizes success with Shell

The Anglo-Dutch oil major has agreed to set short-term targets for cutting carbon emissions and will link executive pay to meeting these objectives for the first time. Robeco has engaged with Shell for many years to try to reduce the impact of the company, and that of other oil majors, on climate change.

Together with the Church of England Pensions Board, Robeco led the investor engagement activities on behalf of Climate Action 100+, an initiative spearheaded by investors with more than USD 32 trillion in assets under management, and the Dutch corporate governance platform Eumedion

“This is a significant achievement, something that has never happened before in the field of engagement: a company and its shareholders acting together on climate change,” said Carola van Lamoen, Head of Robeco’s Active Ownership team. “This shows that dialogue does work, and is an effective way to bring about change.”

Shell was already the first oil and gas company to introduce an ambition to reduce its carbon footprint, stretching out to 2050.

Meeting the challenge of tackling climate change requires unprecedented collaboration and this is demonstrated by our engagements with investors,” said Shell Chief Executive Officer Ben van Beurden. “We are taking important steps towards turning our Net Carbon Footprint ambition into reality by setting shorter-term targets. This ambition positions the company well for the future and seeks to ensure we thrive as the world works to meet the goals of the Paris Agreement on climate change.”

In a joint statement with investors, the company added: “Shell aims to reduce its Net Carbon Footprint by around half by 2050 and by around 20% by 2035 as an interim step. To operationalize this long-term ambition, Shell will start setting specific Net Carbon Footprint targets for shorter-term periods (three or five years). The target will be set each year for the next three- or five-year period. The target setting process will start from 2020 and will run to 2050.”

“Taking into account the perspectives gained through its engagements with shareholders and other relevant stakeholders, Shell will incorporate a link between energy transition and long-term remuneration as part of its revised Remuneration Policy, which will be subject to a shareholder vote at the 2020 Annual General Meeting (AGM).”

“If approved at the AGM, the policy will include a Net Carbon Footprint-related measure, as well as other measures, to have a balance of leading and lagging performance metrics over a three-or five-year performance period. The measures for each performance period will be set on an annual rolling basis at the time of the award and will be subject to the annual remuneration target-setting process as well as to the final plan design. The measures and targets will evolve as time progresses over the years to 2050.”

“The final plan design is being discussed with shareholders, including details relating to the appropriate remuneration structure and appropriate measures and metrics.”

Investors welcomed the historic move. “We applaud the joint statement by Shell and lead investors for Climate Action 100+,” said Anne Simpson, the inaugural Chair of the Climate Action 100+ Steering Committee and Director of Board Governance and Strategy at the California Public Employees’ Retirement System (CalPERS). “The commitment by Shell to fully respond to the engagement shows the value of dialog and global partnership to deliver on the goals of the Paris Agreement on climate change. Shell is setting the pace, and we look forward to other major companies following its lead.”

Peter Ferket, Chief Investment Officer of Robeco, added: “When it comes to meeting the demands of the Paris Agreement on climate change, we believe it is necessary to strengthen partnerships between investors and their investee companies to accelerate progress towards reaching such an ambitious common goal. This joint statement is an example of such a partnership. As institutional investors in Shell we continue to support Shell on its journey in the energy transition, aiming for other companies to follow suit.”

The moves follow engagement activities that go back as far as 2005. Earlier this year, Robeco was signatory to an appeal from 60 investment firms appearing in the Financial Times that encouraged all companies in the oil and gas sector to clarify how they see their future in a low-carbon world. Robeco also spoke at Shell’s 2018 shareholder meeting on behalf of a large group of institutional investors.

“Only committing Shell to a climate scenario puts the company at a disadvantage in many respects,” said Van Lamoen. “Our engagement must be much broader, so we encourage other companies in this sector to take responsibility in preparing for the energy transition."

The stocks mentioned are for illustrative purpose only and this do not constitute any investment recommendation.