Asset owners call out Shell’s LNG expansion plans
Oil giant Shell is putting Liquified Natural Gas (LNG) at the heart of its expansion plans but ahead of its AGM, asset owners warn it is failing to meet Paris targets
It’s a lucrative time to invest in fossil fuels. Oil giant Shell has reported a bumper $7.7bn in earnings for the first quarter of 2024 today, a windfall largely driven by rising profits from its Liquefied Natural Gas (LNG) business. The oil firm positively surprised shareholders with a significant earnings windfall, followed by a $3.5bn share buyback announcement.
However, asset owners caution that this trajectory puts the firm at risk of failing to meet medium-term emissions reduction targets.
Shell's profits were largely driven by the expansion of its LNG business, which accounted for approximately half of all adjusted earnings, the oil giant stated. LNG is also set to become a cornerstone of Shell’s future growth; the firm recently signed a 27-year supply deal with the Netherlands and is expected to play a role in Qatar’s LNG expansion project.
But ahead of Shell’s AGM later this month, some of its largest investors warn that these developments further derail the company from meeting the crucial targets set in the Paris Agreement. While Shell maintains that its energy transition strategy is Paris aligned, investors including Amundi, AXA, London CIV, Brunel, and Nest dispute this claim and urge fellow investors to support a climate resolution they have co-signed.
In an investor briefing released today, to coincide with the publication of Shell’s quarterly earnings, they highlighted that Shell’s 2024 Energy Transition Strategy has lowered its 2030 emissions reductions target from 20% to 15-20%.
Moreover, Shell revealed in a court hearing in The Hague last month that it will not reduce its Scope 3 emissions within this decade, the investors cautioned. Shell contends that the increase in emissions due to rising LNG sales will be offset by a decrease in oil product sales, according to the court documents.
However, investors stress that oil products account for only half of Shell’s total Scope 3 emissions. They emphasise that Shell’s new target will not lead to any further reductions in emissions this decade.
This concern was a key motivation for Climate Action 100+ lead investor MN to support the "Follow This Resolution": “We do not believe that this level of fossil LNG growth [20-30% by 2030] aligns with pathways to the Paris Climate Agreement,” the Dutch investor warned.
UK master trust Nest has cautioned that Shell’s board appears to be in a stalemate with regard to climate change, forcing investors to take matters into their own hands: “This resolution is calling on Shell to align its business activities with the Paris Agreement and play its part in mitigating the impact of climate change. Delaying could cost the company millions of pounds and, in turn, diminish the value of our members’ pension pots,” Nest warned.
This year’s Shell resolution, put forward by Follow This and backed by a record number of 27 institutional investors, will be a crucial litmus test for shareholders' willingness to endorse bolder action on climate. It is the only resolution focused on Paris alignment put forth at an oil major this year, after Follow This was forced to retract its resolution for the upcoming Exxon AGM.
While other oil and gas AGMs, such as the upcoming shareholder meeting for Berkshire this weekend, also include climate resolutions, these tend to focus on improving disclosures rather than implementing emission cuts.
It also represents a change in strategy for Follow This, which has adopted the wording and demands of the resolution in response to investor feedback to maximise support. Last year, the Follow This resolution received the backing of 20% of shareholders as previously reported by Net Zero Investor.
Follow This founder Mark van Baal points out that this coincided with a U-turn on emissions targets. It was, therefore, crucial to increase investor support this year: “These investors stuck out their necks by co-filing and they ask their peers to do the bare minimum: to vote in favour of their climate resolution. If they vote against, Shell will use their votes as their consent for its backtracked climate targets and continue with fossil fuels for as long as possible,” he warned.
