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Royal Dutch Shell: All investors are now sustainable investors

  • Low-carbon transition presents a transformational challenge and opportunity to Royal Dutch Shell (Shell). So, a strategy that maximises the opportunities is central to the investment case of the company.
  • This strategy around climate needs therefore also to be communicated to both 'mainstream' and 'specialist sustainability' investors … because all investors are sustainable investors today.
  • Shell uses a variety of different investment communications channels to reach all investors with its transformation messages. thanks Andreas Bork from Shell's Investor Relations Team for his help in writing this case study.

Background: sustainability strategy

Shell has plans to transform the energy system by offering energy users products with low or zero carbon emissions. These plans are supported by a combination of short, medium and long term carbon targets:

  • Over the longer-term, Royal Dutch Shell aims to become a 'net-zero' emissions energy business by 2050 in line with society by “offering customers more zero and lower carbon products including gas, renewable electricity, biofuels and clean hydrogen."
  • In the medium term, the company has a goal to reduce carbon intensity by 20% by 2030.
  • In the shorter term, Shell aims to reduce its carbon intensity by 2 - 3% by end of 2021 and achieve 6-8% lower intensity by 2023 both compared to the 2016 performance
All three pathways decarbonise - the issue is speed


Reaching sustainable investors - through annual ESG updates

The centrepiece of the Shell sustainable investor communications programme is traditionally the Annual ESG Update.

At the April 2021 event, the company focused on key sustainability topics for the company including energy transition, onshore operation in Nigeria, respecting nature and powering lives. In April 2020, the company had used the event to update investors on its low carbon strategy. Shell has, in recent years, noticed that these events are increasingly attended by key shareholders and sell side analysts.

An annual event to discuss sustainability is however increasingly insufficient. It is changing as energy transition today – especially for an integrated energy company – is a topic that is part of every roadshow, quarterly result announcement and capital markets day. Sustainability becomes part of every shareholder engagement irrespectively of whether this is hosted by members of the Board, executive management or investor relations.

"Sustainability is not an afterthought. It needs to be integrated into the strategy, operation and culture of a company.  Investor relations needs to present sustainability as part of the investment case of a company."
Andreas Bork, Shell IR Team

Reaching 'mainstream investors' - through strategy days

The nature of the climate change challenge is such that all shareholders need to be engaged to understand it and to evaluate how the company is responding to it. For this reason, Shell hosted a live Q&A webcast at its 2021 Strategy Day in February 2021.

The strategy day comprised four events:

  • A media session followed by…
  • …an investor session in the afternoon
  • The next day, an ESG influencer group and panel discussion
  • A repeat of the strategy day for staff, with some 20,000 staff tuning in
Pace of decarbonisation
pace of decarbonisation

The investor session was led by Ben van Beurden (CEO) and Jessica Uhl (CFO) and explained how Shell's new strategy geared the company towards a low carbon future involving a gradual change to the current business model.  Notably, the CFO spelled out how the energy transition commitment would be supported by capital allocation - an important message given shareholders interest in both energy transition and how cashflow will grow.

Managing relationships with investor interest groups - through dialogue

Shell is collaborating with Climate Action 100+, the Transition Pathway Initiative and Science Based Target Initiative.

The company believes that it has found common ground with these investor initiatives around their respective focus on science - which forms a basis for the way it addresses the climate change.  Shell has also together with Climate Action 100+ being a leader in the energy transition in the energy sector:

Addressing AGM resolutions - through management-proposed resolutions

In recent years, one resolution on climate change has been presented annually at the AGM by a group of small shareholders.  The Board has advised voting against these resolution, as it believes that the company is already proposing significant carbon reduction targets.  In 2020, 14% of votes were cast in support of the shareholder resolution.

"Accept you will not be able to please everyone, but stay transparent about your choices and build trust over time."
Andreas Bork, Shell IR Team

Shell believes, however, that it is important for all shareholders to have a mechanism through which they can express their views on whether the company's climate change strategy is reasonable in the current environment. This should be based on a narrative that the company can support. So, from 2021 onwards, the company will propose its own resolution on climate change to allow shareholders an opportunity to vote on the energy transition topic based on a proposal supported by Board and management.

Importantly this advisory vote is designed in such a way that it does not shield or abdicate the Board’s or management’s legal obligations under the UK Companies Act.

The discussion continues…

The 'net zero' carbon agenda has made the job of communicating strategy within the energy sector harder but more important.  Shell and its peer companies will need to continue to communicate with all investors on this subject and use multiple different channels to achieve this.