Industry Associations Climate Review
Original Review published by : Royal Dutch Shell plc April 2019
Message from the CEO
Shell’s memberships of industry associations are an important part of how we collaborate with others. Industry associations allow us to exchange knowledge and expertise with different companies. They set industry standards and best practices. They help make our voice heard in discussions with policymakers and regulators around the world on crucial topics such as climate change. It is important that our participation in industry associations is consistent with our views. That means ensuring that the industry associations we belong to do not undermine our support for the Paris Agreement goal to limit the rise in global average temperatures this century to well below two degrees Celsius (2°C) above pre-industrial levels. The need for urgent action in response to climate change has become ever more obvious since the signing of the Paris Agreement in 2015. As a result, society’s expectations in this area have changed, and Shell’s views have also evolved. We must be prepared to openly voice our concerns where we find misalignment with an industry association on climate-related policy. In cases of material misalignment, we should also be prepared to walk away. Greater transparency Shell must remain at the forefront of the drive for greater corporate transparency. We will continue to be more open about what we do and why we do it. This new report demonstrates that drive for more transparency. It responds to requests from institutional investors and non-governmental organisations (NGOs) for information about our memberships of industry associations and their advocacy on policies related to climate change. It builds on our discussions with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), which calls on companies to be more open about climaterelated risks and opportunities. In 2018, we published the Shell Energy Transition Report, which sets out our business strategy as the world moves towards a lower-carbon future. We are clear about our support for the Paris Agreement, and we intend to meet society’s need for more and cleaner energy. Shell’s strategic ambitions — to provide a worldclass investment case, to thrive in the transition to lower-carbon energy and to sustain our societal licence to operate — will help us meet that need. Message from the CEO Industry Associations Climate Review 3 In 2017, Shell was the first international oil and gas company to set an ambition to reduce the Net Carbon Footprint of its energy products, expressed as a measure of carbon intensity. We aim to reduce our Net Carbon Footprint by around half by the middle of the century, in step with society as it moves towards the goal of the Paris Agreement. More recently, following talks with institutional investors, we set a three-year target beginning in 2019 to reduce our Net Carbon Footprint by between 2% and 3% compared to our 2016 level. This target is now linked to our executives’ pay. Reviewing relationships Shell’s future success depends on our ability to navigate the risks and opportunities presented by climate change. This includes how we manage our relationships with industry associations. We have reviewed Shell’s relationships with 19 industry associations. We chose these associations because their positions on climate-related policies have brought them to the attention of investors and NGOs; and because they operate in regions or countries where we have significant business activities. This report shows how we assessed alignment with those 19 associations on climate-related policy, and it outlines the actions we intend to take when we find differences. These actions include working to shape views within an industry association, and eventually ending our membership if we believe that an association’s positions are not compatible with our own policy positions and our support for the Paris Agreement. These are not simple decisions. Sometimes we have supported the same general climaterelated policy as an industry association, like government-led carbon pricing, but have come out on different sides of a debate around a specific legislative proposal. We must also weigh up the wider benefits of our work with an industry association on other important topics such as safety, human rights, taxes and trade. We will continue to be transparent about where we have differences in climate-related policy positions with industry associations, including by publishing this information on our website Shell.com. We will implement new governance principles to improve how we manage our memberships of industry associations on climate-related topics, which we also publish here for the first time. This report will serve as the basis for further conversations with industry associations, investors and civil society so that we can continue to work constructively together. This is one of the many ways Shell intends to contribute to society’s progress towards meeting the goal of the Paris Agreement.
BEN VAN BEURDEN, CHIEF EXECUTIVE OFFICER
Executive summary
In line with our desire to provide greater transparency around our activities related to climate change, and in response to requests from institutional investors, we have reviewed our memberships1 of 19 industry associations in Australia, Europe and North America. We looked at the stated positions of these associations in relation to four of Shell’s key climate-related policy positions: supporting the goal of the Paris Agreement on climate change; government-led carbon pricing mechanisms; policy frameworks for low-carbon technologies; and the role of natural gas in the energy system. This review aimed to identify differences in climate-related policy positions between Shell and the industry associations over the past five years. We found that we were aligned with nine of the 19 industry associations; that there was some misalignment with nine; and that there was material misalignment with one industry association, American Fuel & Petrochemical Manufacturers (AFPM). We have decided not to renew our membership of AFPM in 2020 as a result. This review is a first step towards greater transparency around our activities with industry associations on the topic of climate change. We have developed a set of governance principles to improve how we manage our memberships of industry associations on climate-related topics in the future, which we will start to implement in 2019. These principles include increased transparency about our own climaterelated policy positions and about differences with our industry associations, through the publication of this information on our website Shell.com.
Review of Shell’s memberships of industry associations Methodology
Shell companies are members of hundreds of industry associations around the world. In 2018, we made an initial selection of 19 industry associations for an internal review. We selected these associations because their positions on climate-related policy have brought them to the attention of investors and non-governmental organisations (NGOs); and because they operate in regions or countries where we have significant business activities. This review aimed to identify differences in climate-related policy positions between Shell and the industry associations over the past five years. It did not consider broader activities of the associations in areas such as the environment, health and safety, and industry standards.
Shell companies are members of hundreds of industry associations around the world. In 2018, we made an initial selection of 19 industry associations for an internal review. We selected these associations because their positions on climate-related policy have brought them to the attention of investors and non-governmental organisations (NGOs); and because they operate in regions or countries where we have significant business activities. This review aimed to identify differences in climate-related policy positions between Shell and the industry associations over the past five years. It did not consider broader activities of the associations in areas such as the environment, health and safety, and industry standards.
The four climate-related policy positions we used as the basis of the review are:
1. The goal of the Paris Agreement on climate change Shell supports the goal of the Paris Agreement to limit the rise in global average temperatures this century to well below 2°C above preindustrial levels. We support the aim to achieve net-zero emissions in the second half of the century. Shell advocates governments create and implement policy frameworks aimed at reducing greenhouse gas emissions in line with the goal of the Paris Agreement.
2. Government-led carbon pricing mechanisms Shell has long supported government-led carbon pricing mechanisms as an effective tool that gives choices to energy consumers and producers, stimulates the development of low-carbon technologies and helps to drive energy efficiency. Governments can implement carbon pricing through various mechanisms, including capand-trade systems, which set a cap on the total amount of emissions and allow companies to trade emissions allowances with each other, and carbon taxes. To be effective, we believe that governmentled carbon pricing mechanisms must include measures to prevent certain industries from shifting to states or countries that do not put a price on carbon, so-called carbon leakage. We believe that revenues from carbon pricing should be used to promote development and deployment of low-carbon technologies, to reduce other taxes, or be returned to people in other ways.
3. Policy frameworks for low-carbon technologies Shell believes innovation is key to achieving the transition to a low-carbon economy. Industry and governments both have a role to play in enabling innovation in low-carbon technologies. We advocate different levels of government support, depending on the technical and commercial maturity of low-carbon technologies. For example, Shell calls for technology-neutral carbon pricing and targets to reduce emissions intensity for commercially viable sources of energy such as oil, natural gas, wind and solar. We also advocate targeted government support of low-carbon technologies before they are commercially viable, such as advanced biofuels, electric and hydrogen-powered vehicles, carbon capture and storage (CCS) and carbon capture and utilisation (CCU). (See chart on page 12.)
4. The role of natural gas in the energy system Shell supports the use of natural gas — the cleanest-burning hydrocarbon — in helping society make the transition to lower-carbon energy. Gas is an important source of lowercarbon energy in the transport, industrial and building sectors. It can replace coal in power generation, and can work efficiently alongside renewable energy such as wind and solar. Realising the benefits of natural gas requires careful management of life-cycle emissions, especially methane emissions. In 2018, Shell set a target to maintain the intensity of methane emissions below 0.20% by 2025 for all production sites operated by our Upstream and Integrated Gas businesses. We support government regulations to address methane emissions, including technology standards and accurate quantification and verification systems.
For the results of Shell’s review and the document in its entirety: Industry Associations Climate Review