USS and Shell: Where’s the transition?

A DivestUSS Factsheet

DivestUSS is a group of members of the Universities Superannuation Scheme (USS), the largest pension scheme in the UK with over £70bn of assets. USS has invested heavily in Shell over many years and argues that its involvement is helping Shell to “transition” to clean energy. The facts, from Shell’s own documents, show little evidence for this:

Summary:

Shell has set no interim targets for the next 27 years for 95% of its emissions (Scope 3); its Reports over the past two years also show a continued primary focus on investment in fossil fuel development combined with little progress towards a transition to net zero, and a significant future reliance on large scale but currently non-existent carbon capture capacity, plus carbon credit schemes which trade continuing pollution for supposed promises by others not to do so in future. Arguments used by investors against divesting from fossil fuel companies are contradicted by Shell itself.

In 2023, Shell’s new CEO Wael Sawan has signaled a clear focus on maintaining production and paying dividends rather than investing in a transition, whilst cutting its low carbon work.

A. 2023 Update: 

Under Shell’s new CEO, Wael Sawan, in the four months from June to October 2023 Shell has:

  • Cut 200 jobs from its low-carbon division [1]
  • Vowed to “aggressively target profitability and bigger dividends for shareholders” [2]
  • Scrapped its $100m carbon offset plan [3], and
  • Called it “irresponsible” to cut oil production now [4]

B. From Shell’s 2022 Annual Report

1. Reducing emissions

  1. 95% of Shell’s emissions are Scope 3 [p97*] but Shell has ruled out setting any intermediate reduction targets for these as it would mean reducing their sales of fossil fuels, thereby affecting their profits [ETPR, p 2,31].
  2. Shell has set a carbon intensity reduction target of 20% between 2016 and 2030 [p 79] They have achieved 3.8% in 6 years and now need 2% per year; they achieved 1.3% in 2022 [p 97]. A significant fraction of their planned reduction is based on carbon credits – ie not reducing their own emissions [p 79]. The carbon intensity of their oil products has actually increased since 2018 [SR p 71].
  3. Shell has a target of a 50% reduction in their Scope 1 and 2 emissions between 2016 and 2030 [p 79] Three-quarters of the 15% reduction between 2021 and 2022 is due to divestments [p 97,98].  This was accompanied by a 12% drop in production [p 29, SR p 60] and 11% drop in electricity consumption [p 105]. Future plans to reach their target rely heavily on carbon credits, carbon capture and divestments, not on reductions in on-going operations [p 100].

2. Transitioning to zero carbon

  1. Shell made record profits in 2022 [p5]. It returned $26bn to shareholders through buybacks and dividends [p4] and spent $5.8bn on developing fossil fuel reserves [p 53]. Total cash capex was $24.8bn [p 8]. Its accounting of $3.5bn cash capex on “Renewables and Energy Solutions” [p 32] includes the marketing and trading of power and pipeline gas, production and marketing of hydrogen, development of commercial carbon capture and storage, and the trading of carbon credits and carbon offset schemes [p 14]. Shell does not separately account for its total investment in solar and wind projects and cites only one investment of $1.6bn [ETPR p17]. It appears likely that the total spend on wind and solar is under 10% of cash capex. No major expansion of capex spend on renewables in planned for 2023: $2-4bn [p 88]. 
  2. The current renewable power capacity of Shell is 2.2GW [p75]. This is 0.4% of the total energy delivered by Shell in 2022 (16.3×10^12 MJ or 510GW, [p97]).
  3. Company use of renewables: only 1% of the energy that Shell used in 2022 came from low carbon and renewable sources [p105].
  4. Research and Development spend on Renewable and Energy Solutions was less than 10% of total R+D spend [p 266]; spend on genuine renewables will be a fraction of this (cf 2a. above).
  5. Shell’s carbon capture plans, underlying their Scope 1 and 2 targets,  assume approximately 4 million tonnes per year [p100], whereas Shell’s equity share of carbon capture in 2022 was one-tenth of this – 0.4 million tonnes, level with 2021 [p 21 ETPR].
  6. Shell’s $40m investment in carbon credits in Brazil is intended to allow it to not account for up to 120 million tonnes its CO2 emissions a year by 2030 [Reuters]. This relies on assumptions about rates of deforestation, with no active emission reductions involved. It is in essence paying someone to promise not to cause environmental damage in order that you can continue to do so yourself.

3. Further issues 

  1. Shell includes emission reductions arising from portfolio changes (such as divestments) in assessing progress towards targets; but some investors rule out divestments as a tool for reducing emissions towards its targets.
  2. Some investors argue that divesting makes no difference as others will buy the shares. But Shell explicitly states the opposite: “Certain investors have decided to divest their investments in fossil fuel companies. If this were to continue, it could have a material adverse effect on the price of our securities and our ability to access capital markets. Stakeholder groups are also putting pressure on commercial and investment banks to stop financing fossil fuel companies. Some financial institutions have started to limit their exposure to fossil fuel projects. Accordingly, our ability to use financing for these types of future projects may be adversely affected. This could also adversely affect our potential partners ability to finance their portion of costs, either through equity or debt ” [p 16].
  3. Oil and gas [“Upstream”] is the most profitable sector in Shell [ETPR p 24] and they note that “Upstream delivers the cash and returns needed to fund our shareholder distributions and the transformation of our portfolio” [p 89]. They can only transition by continuing to sell dirty energy, currently with diminishing returns.

C. From Shell’s 2021 Annual Report:

1. Shell spent just 1.4% of its total cash capital expenditure on solar and wind  ($0.29bn out of $19.7bn). (p. 304). For comparison, they spent $5.3bn on developing new reserves (p. 58).

[this is obscured by their reporting: Shell’s spending on “Renewables and Energy Solutions” rose to ~12% of total capex in 2021, but this includes spending on marketing, selling and trading gas and power, and hydrogen and carbon capture.]

2. Shell’s total CO2e emissions were 1,367m tonnes in 2021 – essentially unchanged from the 1,376m tonnes in 2020. Their Scope 1 and 2 emissions were 68m tonnes in 2021 (cf 71m in 2020). Half of this reduction was due to divestments from high emissions assets (note that while some investors argue against doing this, the companies they invest in are doing it) [p. 91-92].

References:

2023

[1] The Guardian, 25th October 2023, “Shell boss set to cut jobs from low-carbon division: Wael Sawan ready to axe 200 roles from division as part of plan to grow profits” https://www.theguardian.com/business/2023/oct/25/shell-boss-set-to-cut-jobs-from-low-carbon-division

[2] The Standard,  21st October 2023, “Shell cuts hundreds of contractors amid ‘ruthless’ shake-up by new CEO”, https://www.standard.co.uk/business/shell-cuts-hundreds-contractors-ruthless-shakeup-ceo-wael-sawan-oil-gas-b1114869.html

[3] Carbon Credits, 31st August 2023, “Shell Scraps Its $100M Carbon Offset Plan”, https://carboncredits.com/shell-scraps-its-100m-carbon-offset-plan/

[4] AP News, 6th July 2023, Shell CEO calls it ‘irresponsible’ to cut oil production now, https://apnews.com/article/shell-oil-gas-climate-change-wael-sawan-23c95d455df55a7003bc32f262e5508f

2022

The following Shell documents are cited in the above and are available from https://www.shell.com/about-us/annual-publications/annual-reports-download-centre.html

* Page references  are to the Annual Report unless otherwise indicated.

AR: Powering Progress: Annual Report and Accounts 2022

SR: Responsible Energy: Sustainability Report 2022

ETPR: Our progress towards net zero: Energy Transition Progress Report 2022; 

IAU: Industry Associations Climate Review Update 2022.

Reuters: Reuters, July 11th 2022; https://www.reuters.com/business/energy/shell-invests-38-million-carbon-credit-projects-brazil-2022-07-11/

2021

Page references are to

Shell Annual Report and Accounts 2021; https://reports.shell.com/annual-report/2021/

DivestUSS

Updated October 30th 2023