(Bloomberg) -- Legal & General Investment Management, the UK's largest asset manager, said it wants Shell Plc to explain how it thinks it can still reach net zero emissions by 2050 while ratcheting up investments in fossil fuels.
Shell said Wednesday it intends to devote an ever larger chunk of annual spending to oil and gas, a strategy that's been dubbed “catastrophic” by climate activists. Shell says it can still deliver on its pledge to shareholders to eliminate emissions by mid-century, but didn't say how. At the same time, the company signaled it will restrict spending on renewable energy projects to those it thinks can compete with the returns of its fossil-fuel business.
“There is a sense that oil and gas companies want to keep their options open in case the world misses the net zero by 2050 deadline,” said Stephen Beer, senior manager for sustainability and responsible investment at LGIM. “In our engagements with Shell, following its recent announcements, we will be assessing how it matches with our expectations.”
The comments coincide with an expanded campaign by LGIM to push companies to cut emissions. The firm will divest from assets that pose an unacceptable risk to the environment, Beer said in an interview.
Shell Chief Executive Officer Wael Sawan has said the company intends to approach the energy transition with “flexibility” and “humility,” while concentrating on areas where it can generate profits. The strategy he outlined this week implies more spending on fossil fuels with lower carbon emissions, rather than on green energy, according to an analysis by BloombergNEF.
What BloombergNEF Says:
“Shell's emission intensity targets mean that for each unit of energy it produces, it aims to reduce the level of emissions that unit releases. This keeps the door open to Shell emitting even more CO2 in absolute terms than it does today if it increases the amount of energy it produces faster than it cuts the emissions intensity of each unit.
“To stay on track with Shell's emission-intensity targets, this could mean more joules of energy from technology like wind or solar. But given Shell explicitly highlighted the need for its power division to ‘earn back the right to grow,' it indicates Shell will likely invest in ‘lower-carbon' gas, not ‘no-carbon' renewables.”
——BloombergNEF Head of Oil Research David Doherty
Other high-profile UK investors say Shell's strategy pivot under Sawan has left them considering a total exit.
“The new CEO has set a path that will increase Shell's absolute emissions and goes against the previous path the company was pursuing,” said Laura Hillis, director for climate and environment at the Church of England Pensions Board. “This works against the interests of long-term institutional investors that want an orderly transition.”
The Church of England Pensions Board is now “reviewing our remaining investments in the company,” which amounts to about £1.35 million ($1.7 million) of stock and bond holdings, she said.
In Scandinavia, pension fund Velliv is already in the process of removing Shell and all other upstream oil and gas companies from its $35 billion portfolio. In all, Velliv plans to offload about 200 billion Danish kroner ($3.4 billion) of fossil fuel stocks and some high-emitting utilities.
“A lot of the upstream companies have ambitious targets, but when we then look at what their long-term plans are, we can see that they continue to have expansion plans,” said Sandra Metoyer, head of sustainable investments at Velliv, in an interview. “So we don't see how that is aligned with the Paris Agreement.”
Velliv said it based its decision in part on data provided by Urgewald, a nonprofit that monitors the fossil-fuel industry. Urgewald says more than 260 financial firms currently use its data to assess and manage risks stemming from their fossil-fuel exposure. About 490 ESG-registered funds hold Shell directly, according to data compiled by Bloomberg.
LGIM, which oversees about $1.5 trillion in assets, holds roughly 1.45% of Shell stock making it one of the company's top 10 shareholders, according to the latest regulatory filings compiled by Bloomberg. The asset manager “wants to see oil and gas companies outline clear plans to align with net zero by 2050, with short and medium-term targets set and met before then,” Beer said.
In all, roughly one-third of oil companies currently aren't meeting the minimum standards of LGIM's Climate Impact Pledge, Beer said. Against that backdrop, Shell is actually “one of the better companies, but still has some way to go,” he said.
Climate activists, meanwhile, have slammed Shell's latest adjustments to its energy policy.
“Shell appears deaf to the scientists and experts,” said Agathe Masson, shareholder engagement campaigner at French climate nonprofit Reclaim Finance. “Shell's approach is catastrophic for the planet.”
Other activists warned that Shell's decision to step up investments in fossil fuels will ultimately put the company at a disadvantage.
Mark van Baal, the founder of Follow This and the author of a number of resolutions to push big oil companies to cut their emissions more aggressively, said “Shell's attitude shows a lack of imagination beyond oil and gas, and a failure to understand the concepts of disruptive innovation and stranded assets.”
--With assistance from Carlo Maccioni and Amine Haddaoui.
(Adds reference to ESG funds holding Shell.)
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