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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 Arctic.


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 Aiming for A, Shell agreed to report on the following climate related risks and opportunities:
1. Ongoing operational emissions management;
2. Asset portfolio resilience to post-2035 scenarios;
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.

The 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.

“Yet,” the 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.

 

 
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