Investor briefing on five climate targets resolutions

Your votes for climate targets resolutions will never be ‘unnecessary’

5 May 2020 (updated on 6 May 2020 to reflect Total’s new ambition)

This briefing is to bring you up to date on five climate targets resolutions, all with the exact same request, coming to a vote this AGM season.

We are sharing the context and history of directors’ advice at each company to help shareholders make an informed voting decision at the forthcoming AGMs of Equinor (14 May), Shell (19 May), and Total (29 May).

In 2018 Shell’s board advised shareholders to vote against a climate targets resolution, calling Paris-aligned targets ‘unnecessary’ (directors’ response). Thanks to investors who did not agree and insisted on Paris-aligned targets – in particular the ‘Supporting Six’ group of Dutch institutional investors *, Shell published an improved climate ambition on April 16. Evidently, a climate targets resolution had not been ‘unnecessary’ after all.

In 2020, five climate targets resolutions, all with the exact same request, will be put to a vote at Santos, Woodside Petroleum, Equinor, Shell, and Total. All five propose that: “Shareholders support (or request) the company to set and publish Paris-aligned targets for all emissions (Scope 1, 2, and 3), and invest accordingly”.

Last month in Australia, similar resolutions secured massive shareholder support at oil company AGMs: 43% at Santos, and 50.16% at Woodside Petroleum.

In advice ahead of AGMs this month, May 2020, the boards of Equinor and Shell still advise shareholders to vote against climate targets and reject these resolutions as ‘unnecessary’ (Shell, directors’ response, 16 April 2020). We expect that Total, probably, will take a similar stance.

Shell’s advice refers to the company’s own climate ambitions, revised on the same day 16 April 2020.

The current climate ambitions of Equinor, Shell, and Total are not in line with the Paris Climate Agreement (see our analyses below). But even if investors were to accept that they are, we believe that every oil major needs shareholder support to set and retain Paris-aligned targets and – more important – to invest accordingly.

To date, BP is the only oil major to acknowledge in public that shareholder support is an imperative to drive the energy transition that the world urgently needs. In view of this position, Follow This has withdrawn the climate resolution we had proposed for BP’s 2020 AGM. BP and Follow This have agreed – in a joint public statement – to work together on drafting a climate resolution for 2021.

In five years since the Paris Climate Agreement, oil majors have moved too slowly to adopt renewables. Total investment in renewable energy by BP, Equinor, Shell and Total is around 5% of their investment pipelines – nowhere near what is needed to have any chance of reaching the Paris goals.

We believe that only concrete targets for all emissions will lead oil majors to the necessary shift in investments from fossil fuels to renewables.

Only the biggest industry incumbents have the technical know-how, financial muscle, and market-making opportunities to rapidly scale an energy transition to renewables.

We, the shareholders, have the opportunity to compel them to do so.

The recent AGMs in Australia demonstrate that owners increasingly see climate resolutions as integral to their fiduciary responsibility as stewards of both investee company’s future and a world economy wracked by climate breakdown.

Your votes for these climate targets in Europe will never be ‘unnecessary’.

* The Supporting Six who voted for Follow This climate targets resolutions in recent years are Actiam, Achmea, Aegon, MN (for PME and PMT), NN-IP, and Van Lanschot Kempen.

 


Proxy Advisors

A growing body of investor opinion accepts a fiduciary duty to stop the devastating effects of climate change. This year, proxy advisors ISS and Glass Lewis recommended that shareholders vote FOR the same climate targets resolutions at Santos and Woodside Petroleum, Australia’s two biggest oil companies.

In view of this important signal to shareholders, Follow This expects that ISS and Glass Lewis will act consistently by asking shareholders to vote in favour of the same climate targets resolutions at Equinor, Shell, and Total.

In the case of Equinor, ISS has done so by recommending shareholders to vote for the climate targets resolution:


ISS advise for the climate targets resolution at Equinor

“A vote FOR this proposal is warranted as the setting and publication of targets would aid shareholders in understanding the company’s assessment of how it could reduce its carbon footprint in alignment with greenhouse gas reductions necessary to achieve the Paris Agreement goal of maintaining global warming well below 2 degrees Celsius.”

Total’s new ambition (announced on 5 May 2020), is reflected in this analysis.

 


Five resolutions with identical requests

 

Paris-aligned targets for all emission (Scope 1, 2, and 3; short-, medium-, and long-term)

 


Company: Equinor

Date of the AGM: 14 May

Climate Targets resolution: “Shareholders support Equinor to set and publish targets that are aligned with the goal of the Paris Climate Agreement (Scope 1, 2, and 3; short-, medium-, and long-term; and to be reviewed regularly in accordance with best available science). You have our support.”

Read Follow This resolution including supporting statement

Filed by: Follow This (lead-filer) and ACCR (co-filer)

Board’s voting recommendation: Against.

Argument board: “The board is of the opinion that the company’s climate strategy is supporting a sustainable and balanced transition to a low carbon society. Consequently, the board of directors recommends the annual general meeting to vote against the proposals from the shareholders.” (the same response to as to five other, prescriptive, shareholder proposals (item 9-14))

Company’s Climate ambition:

  • reduce the net carbon intensity, from initial production to final consumption, of energy produced by at least 50% by 2050 [Scope 1, 2, and 3]
  • grow renewable energy capacity tenfold by 2026, developing as a global offshore wind major, and
  • strengthen its industry leading position on carbon efficient production, aiming to reach carbon neutral global operations by 2030 [Scope 1 and 2].

Full text on company website

Vote recommendations:

ISS: For
Rationale:
“A vote FOR this proposal is warranted as the setting and publication of targets would aid shareholders in understanding the company’s assessment of how it could reduce its carbon footprint in alignment with greenhouse gas reductions necessary to achieve the Paris Agreement goal of maintaining global warming well below 2 degrees Celsius.”

Glass Lewis: Against

Rationale: not seen by Follow This


Company: Shell

Date of the AGM: 19 May

Climate Targets resolution: “Shareholders support the company to set and publish targets that are aligned with the goal of the Paris Climate Agreement (Scope 1, 2, and 3; short-, medium-, and long-term; and to be reviewed regularly in accordance with best available science). You have our support.”

Read Follow This resolution including supporting statement

Filed by: Follow This (lead-filer) and ACCR (co-filer)

Board’s voting recommendation: Against.

Argument board: “unnecessary and potentially counter-productive […] Shell has a clear ambition to help decarbonise the energy system, in line with the Paris Agreement […] This approach provides […] flexibility.”

Company’s Climate ambition:

  • seeking to be net zero on all the emissions from the manufacture of all our products by 2050 at the latest [Scope 1 and 2]
  • to reduce the Net Carbon Footprint of the energy products we sell by 65% by 2050 [Scope 1, 2, and 3]
  • working with our customers to address the emissions which are produced when they use the fuels they buy from Shell [Scope 3]

Full text on company website


Company: Total

Date of the AGM: 29 May

Climate Targets resolution: the resolution aims to have the bylaws amended as follows:

“The management report will contain […] the strategy of the Company as defined by the Board of Directors to align its operations with the objectives of the Paris Agreement, and in particular with Articles 2.1 (a) and 4.1 thereof, specifying (i) an action plan with interim milestones to set absolute reduction targets for the medium and long term that incorporate direct or indirect greenhouse gas (GHG) emissions from the Company’s operations relating to the production, processing and purchase of energy products (Scopes 1 and 2), and the end- use by customers of products sold (Scope 3) and (ii) how the Company intends to achieve these objectives.”

Full text on the website of Meeschaert

Filed by: Meeschaert (lead-filer), Actiam and group of investors

Board’s voting recommendation: Not published yet.

Company’s Climate ambition:

Three major steps to get Total to Net Zero:

1. Net Zero across Total’s worldwide operations by 2050 or sooner (scope 1+2)

2. Net Zero across all its production and energy products used by its customers in Europe by 2050 or sooner (scope 1+2+3)

3. 60% or more reduction in the average carbon intensity of energy products used worldwide by Total customers by 2050 (less than 27.5 gCO2/MJ) – with intermediate steps of 15% by 2030 and 35% by 2040 (scope 1 + 2 + 3)

Total currently allocates more than 10% of its Capex to low carbon electricity [and 20% in 2030], the highest level among the Majors.

Full text in CA100+ statement

Companies: Santos and Woodside Petroleum

Dates of the AGMs: 3 April (Santos), 30 April (Woodside Petroleum)

Climate Targets resolutions:Shareholders request the Board disclose, in annual reporting from 2021:

  1. Short-, medium- and long-term targets for reductions in our Company’s Scope 1, 2 and 3 emissions (Targets) that are aligned with articles 2.1(a) and 4.1 of the Paris Agreement (Paris Goals);
  2. Details of how our Company’s exploration and capital expenditure, including each material investment in the acquisition or development of oil and gas reserves, is aligned with the Paris Goals; and
  3. Details of how the Company’s remuneration policy will incentivise progress against the Targets.

Filed by: ACCR

Board’s voting recommendation: Against

Vote recommendations:

ISS: For
Glass Lewis:
For

Votes: 43% (Santos), 50.16% (Woodside).

 


Analyses of current climate ambitions


Summary, why your votes for climate targets matter:

  • Equinor, Shell, and Total do not have medium- or long-term targets, and they advise against setting targets in line with the Paris Climate Agreement,
  • companies’ long-term ambitions are not in line with the Paris Climate Agreement,
  • companies’ investments are not in line with a well-below-2°C-pathway, and
  • even if these companies were to have Paris-aligned targets, they need your support to stay committed to these targets in the decades to come.

Net absolute emissions reduction according to IPCC scenarios:

The goal of the Paris Climate Agreement is to limit global warming to well below 2°C above pre-industrial levels, to aim for a global net-zero emissions energy system, and to pursue efforts to limit the temperature increase to 1.5°C.

To reach that goal, the IPCC special report Global Warming of 1.5°C (2018) indicates that net absolute energy-related emissions should be reduced by approximately 70% * (2°C) to 100% ** (1.5°C) by 2050, relative to 2016.

* 2°C: the median pathway of the IPCC Lower-2°C pathway group (54 pathways limiting peak warming to below 2°C during the entire 21st century with greater than 66% likelihood) indicates an absolute emissions reduction of CO2 from fossil fuels and industry (net) of approximately 70% by 2050, relative to 2016 (IPCC special report Global Warming of 1.5°C, 2018, table 2.4. page 119).

** 1.5°C: the IPCC emphasized that climate-related risks are significantly higher at 2°C than at 1.5°C, and that limiting warming to 1.5°C would require CO2 emissions to reach net zero by 2050 (IPCC special report Global Warming of 1.5°C).

Net absolute emissions reductions resulting from companies’ net relative reductions ambitions:

Introductory remark: from relative to absolute emissions

Equinor, Shell, and Total have net relative emissions reduction ambitions, whereas Paris demands net absolute emissions reductions. To calculate absolute emissions, we need to know the growth of energy demand. While the companies do not offer an expected growth rate of the energy demand, we use Shell’s Sky scenario, which predicts a growth of 40% by 2050.

Equinor

  • Equinor’s ambition is to reduce the net carbon intensity by at least 50% by 2050. However, halving the net carbon intensity in a growing energy system will not lead to a level of absolute net emissions reduction necessary to actually achieve the goal of the Paris Climate Agreement, and this is therefore not on a well-below-2°C pathway.
  • Equinor’s ambition to reduce the Net Carbon Footprint by 50% combined with a growth of 40% results in an absolute net emission reduction of around 30%, whereas 70-100% is required (as set out above).
  • With the climate targets resolution, shareholders support Equinor’s first crucial step to include the reduction of the emissions of its products (Scope 3) in its ambition and support Equinor to take the next steps: advance this ambition to short-, medium-, and long-term targets that are aligned with a well-below-2°C-pathway, and invest accordingly.


Shell

  • On 16 April 2020, Shell’s ambition and narrative changed to the following: Shell aspires to reduce its Net Carbon Footprint by 65% by 2050 and help customers to offset the remaining emissions, leading the company to claim to be a net zero emissions company by 2050. This ambition is more ambitious than the ambitions of Equinor and Total.
  • Shell’s ambition to reduce the Net Carbon Footprint by 65% combined with a growth in global energy demand of 40% (Shell’s Sky scenario) would result in a net absolute emissions reduction of around 50%, whereas 70-100% is required (as set out above).
  • Even if the growth were to be smaller, we can assume that energy demand is to grow in the coming decades (as a result of a growing population with increasing prosperity). Therefore, the net relative emissions reductions should be significantly higher than net absolute emissions reductions required by the IPCC. Thus, a net relative emissions reduction of 65% is not enough to reach a net absolute emissions reduction of 70-100%.
  • Shell’s customers have to offset the gap between Shell’s ambitions and Paris’s requirements by, for example, building massive and complex industrial infrastructure for carbon capture and storage factories and by massively planting forests. Depending on the growth of energy demand, these offsets need to have the size of 35% (no growth of global energy demand) to around 50% (40% growth of global energy demand) of the emissions in 2017.
  • The non-committal ambition to work with customers to help them offset excess emissions is in our view even more non-committal than the company’s own ambitions and will not give investors the clarity and confidence that the goal of the Paris Climate Agreement will actually be achieved.
  • Our support for Paris-aligned targets for all emissions (Scope 1, 2, and 3) remains unchanged, allowing the company to meet an increasing demand for energy while reducing GHG emissions to levels compatible with the global intergovernmental consensus specified by the Paris Climate Agreement.


Total

  • Total’s ambition to reduce its carbon intensity by 60% (a relative metric) combined with an estimated growth of energy demand of 40% results in an absolute net emission reduction of around 44% by 2050, whereas absolute emissions reduction of 70-100% is required according IPPC scenarios.
  • Total’s pledge to allocates more than 10% of its investments to low carbon electricity [and 20% in 2030] means little, while ‘low carbon’ most of the time equals ‘natural gas’ in Total’s dictionary.


Medium-term ambitions

There are no realistic IPCC scenarios * that allow for growth in oil and gas production in this decade, because all scenarios call for a substantial reduction in absolute energy-related CO2 emissions: a reduction in absolute emissions (gross as well as net).

* Values of median and interquartile range (from 25th and 75th percentile) of available IPCC scenarios (varying from 1.5°C-low-OS to Higher-2°C) all show significant lower gross CO2 from fossil fuel and industry in 2030 compared to 2019 (IPCC special report Global Warming of 1.5°C (2018), table 2.4. page 119).


Conclusion

The current medium-term and long-term emissions reduction ambitions of Equinor, Shell, and Total are not only non-committal (lacking concrete targets) but also insufficient to reach the goal of the Paris Climate Agreement.

 

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