February 23, 2015
Shell Demonstrates Tunnel Vision Version of Climate Change
by Robert Kropp
The oil and gas company endorses a shareowner resolution requesting a sustainable approach to
stranded assets, but signals that it will resume costly and ineffectual drilling for oil in the
In what was aptly described by the Interfaith Center on Corporate Responsibility (ICCR) as “an unusual move,” Shell's board of
directors recently endorsed a shareowner resolution requesting that the company report on several
critical business risks associated with climate change, including stranded assets.
By endorsing the resolution, which was co-filed by As You Sow and the UK-based investor coalition
A, Shell agreed to report on the following climate related risks and opportunities:
Ongoing operational emissions management;
2. Asset portfolio resilience to post-2035
3. Low carbon energy R&D and investment strategies;
4. Strategic KPIs and
executive incentives; and
5. Public policy interventions.
By applying the scientific
consensus described in the most recent report of the Intergovernmental Panel on Climate Change
(IPCC), proponents of an assessment by fossil fuel companies of stranded assets point out that the
overwhelming majority of fossil fuel reserves already counted as assets will have to stay in the
ground if the worst effects of climate change are to be avoided. Furthermore, corporate exploration
for new reserves increasingly focus on high-risk technologies, among which is certainly included
drilling for oil in the Arctic.
So the skeptic asks: why, if by endorsing the resolution
Shell demonstrates a leadership role in addressing climate change, has the company signaled that it
plans to return to the Arctic to continue its attempts to drill for oil there? According to a
recent report, Shell has already spent in excess of $6 billion in its attempts to drill in the
waters of the Arctic, with nothing to show for it but often embarrassing failures.
report, entitled Shell and the US
offshore Arctic, was prepared by Oil Change International, Greenpeace, and Platform. “The US
Arctic Ocean presents almost a perfect storm of risks,” the report states. “These include a
requirement for a long-term capital-intensive investment for uncertain return, a uniquely
challenging operating environment, a lack of extraction and spill response infrastructure, and
intense media and public scrutiny.”
Included in the report is a section entitled Repeated
Mishaps, where Shell's numerous failed attempts in the Arctic are documented.
report continues, “despite announcing cuts to capital expenditure, Shell remains committed to its
intensely scrutinized and high-cost, high-risk Arctic program.”
“Investors should be
concerned that many of those issues which lay at the heart of Shell’s 2012 setbacks remain
unresolved and that new independent research challenges Shell’s claims on oil spill response
capability,” the report concludes. “While the risks of such projects are many and identifiable, the
potential returns from such projects remain highly uncertain – doubts over the level of
commercially recoverable reserves; no substantial extraction likely before 2035; and profitability
likely to require unsustainably high oil prices.”
When Shell's board announced its
endorsement of the resolution calling for climate change reporting, Julie Tanner of Christian
Brothers Investment Services said, “Shell has one of the highest carbon footprints in the FTSE100.
If it takes carbon reduction goals seriously as this announcement suggests it will, its ability to
serve as a model and a catalyst for positive change in the fossil fuel industry could be
tremendous.” Yet it remains to be seen how Shell's report will address unconventional oil
exploration such as drilling in the Arctic, if indeed it chooses to address the issue at all.
Given that the company reported as recently as last year that “we do not believe that any of
our proven reserves will become ‘stranded’,” the investor coalition that was so successful in
winning the corporate board's endorsement of its resolution should ensure that unconventional means
of exploration are included in its engagement with the company. Unless Shell's report acknowledges
the urgency of action on climate change starting now, it could turn out to be another delaying
tactic that the world can ill afford.