On Tuesday in London, Shell held its annual general meeting, a place for corporate shareholders to hear speeches and vote on the company’s leadership and direction. Climate activists managed to gum up the works for about an hour, protesting Shell’s failure to adopt more stringent climate targets with chants of “Go to Hell, Shell,” sung to the tune of “Hit the Road Jack.” Eighty percent of shareholders nevertheless proceeded to reject a resolution, brought by the Dutch campaign group Follow This, to align the company’s climate targets with the Paris Agreement and commit to achieving concrete emissions reductions by 2030.
In voting down the resolution, investors followed the advice of Shell management. They wrote in advance of the meeting that the Follow This proposal was “unclear, generic, and would create confusion as to Board and shareholder accountabilities.” As they argue, the company is already doing its part: “Shell has a comprehensive energy transition strategy which it believes is in line with the more ambitious goal of the Paris Agreement: to limit the increase in the global average temperature to 1.5°C above pre-industrial levels this century.” It’s an odd line considering that Shell’s own analysis found meeting that goal would require an immediate end to fossil fuel growth. Shell isn’t planning to do anything of the kind, of course. Newly appointed CEO Wael Sawan has said in recent months that cutting oil and gas production is “not healthy.”
In some strict sense, Sawan is right: Cutting oil and gas production—as Shell researchers say is necessary to reach the Paris Agreement goals—would be bad for Shell. That’s thanks to the obvious fact that Shell is an oil and gas company, not keen to torpedo its core business at a time when that business is raking in record profits. But the other reason halting oil and gas production isn’t profitable has to do with something even climate hawks have trouble admitting: There just isn’t as much money to be made off building clean energy.
It’s a view widely shared among the top brass of traditional energy and natural resource companies. Four out of five oil and gas, utilities, chemicals, mining, and agribusiness executives polled by the management consultancy Bain & Company “consider the ability to create acceptable returns on projects a main barrier to decarbonization of the energy system.” While about half of oil and gas executives expect to see some decline in their core business, Bain & Company noted, they aren’t convinced that a pivot into wind and solar is worth their while.
Bloomberg reports that Shell’s renewables and energy solutions division was “responsible for an outflow of $6.39 billion” in 2022, “compared with an inflow of $27.69 billion from the integrated gas business and $29.64 billion from upstream.” The company has already started to jettison poorly performing low-carbon investments. Shell sold off its minority stake in an Australian solar power developer and is now seeking buyers for its offshore wind assets. Its spending on renewables will remain flat this year, and a strategic revamp due to be announced in June could see Shell further downplay its already modest green investments.
Steve Hill, the executive vice president of Shell Energy, spoke last week about the challenges the company has faced making big returns from its low-carbon business, and its willingness to nix such ventures if that continues. “Delivery will be the mandate of the organization going forward,” Hill said at an internal town hall the company held last week. “The things we’ve been less successful with, we need to scale back or stop.”
Investors in the oil and gas industry have little incentive to encourage Shell and its peers to put more money into things that are less profitable. Activist groups are certainly justified in treating shareholder meetings as a chance to put corporate polluters on blast. They should also be clear, though, that such events aren’t a venue for transformation. As fossil fuel executives have been increasingly willing to admit, meeting the Paris Agreement’s goals poses an existential threat to their core business model. Their shareholders aren’t going to vote to make less money. Waiting for decarbonization to become profitable for companies built around hydrocarbons, that is, means it probably won’t happen at all.