LAPFF urges member funds to oppose Shell climate strategy

The Local Authority Pension Fund Forum (LAPFF) has recommended that member funds vote to oppose Shell’s Climate Change Strategy and vote in favour of the resolution from Follow This, which would see climate targets aligned with the Paris Agreement.

Royal Dutch Shell will put its climate change strategy to a vote in its 2021 Annual Meeting in the form of an advisory vote on the company’s energy transition strategy.

However, LAPFF argued that whilst it supports the principle of a ‘say on climate’, whereby companies put their climate change approach to a vote, it "cannot support Shell’s strategy”.

In particular, the forum warned that the group’s strategy does not sufficiently address the challenges Shell faces, arguing that competition from renewable energy is potentially putting fossil fuel businesses out of business on cost grounds along.

It also noted that the net-zero strategy is “couched” in terms that Shell would decarbonise “in step with society”, describing this as a “recipe for being left with stranded assets”, with Shell not taking the lead.

In addition to this, it highlighted plans to rely on very large amounts of carbon capture storage (CCS), clarifying however that it is unclear for what products, and that CCS doesn’t work without subsidy and does not result in net zero.

The forum also flagged that whilst the strategy has made reference to nature-based solutions, including very large amounts of tree planting by 2030, it could not reconcile these very large amounts to credible areas of land in the short timescale it would entail.

Furthermore, and more fundamentally, it stressed that such nature based solutions are expected to be needed for difficult to abate sectors, such as cement, chemical manufacturing and aviation.

Considering these concerns, it has recommended that other shareholders and member funds vote in favour of the Follow This Shareholder resolution, which calls for climate targets aligned with the Paris Agreement.

Commenting in response, a Shell spokesperson said: “The Follow This resolution is redundant given Shell has chosen to publish its own resolution which comprehensively details its energy transition strategy.

"It includes well defined and measurable short, medium and long-term targets which go further than that requested by Follow This, so our shareholders can be absolutely clear on what Shell is committing to deliver.

“The company recommends that shareholders vote against the Follow This resolution, and focus attention instead on the more detailed proposal from Shell which will help move the company forwards.”

Despite the concerns from LAPFF, pension fund members of Climate Action 100+ (CA100+), including the Church of England (CofE) Pension Board, have previously expressed support for Shell’s Climate Change Strategy, arguing that investor engagement with the group had delivered "tangible outcomes".

In particular, CofE Pensions Board and co-lead for CA100+ engagement with Royal Dutch Shell, Adam Matthews, highlighted Shell as being the first oil and gas company to “break ranks” and acknowledge their responsibility to address scope 3 emissions.

He also noted that the group was the first to set targets to reduce these emissions, and to include performance indicators for achieving these targets in their executive remuneration.

In light of the progress made, and Shell's commitment to continue to meaningfully engage, Matthews confirmed that the Church of England Pensions Board is likely to vote to support the energy transition plan.

“A vote in support will be contingent on evidenced progress and recognising that along with other shareholders we have an ongoing opportunity to hold Directors to account on the delivery of the plan, to vote on progress on an annual basis, and to vote on future plans," he stated.

“All of this is in addition to continued in-depth engagement by CA100+.”

As reported by Reuters, Glass Lewis has also recommended that shareholders vote in favour of the company’s plan, and vote against the Follow This resolution, stating that the company “lays out a robust plan”.

Although the group also clarified that it would consider revising its approach should it become apparent the company is not meaningfully responding to shareholder concerns.

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