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Shell court loss points to tougher emissions targets

Shareholders at US majors Chevron and ExxonMobil also backed more action, with an activist getting its own nominees onto Exxon board and Chevron owners demanding tougher targets
Shell court loss points to tougher emissions targets
  • A court in The Hague has ordered Shell to cut emissions by 45 per cent by 2030, a big step up from current intensity-based goals
  • The energy giant will likely appeal, although a consultancy firm said the goal could be hit "quite easily"
IC TIP: Sell at 1,353p

A Dutch court has ordered Royal Dutch Shell (RDSB) to drastically cut its emissions after a years-long challenge to its operating model by the Dutch wing of Friends of the Earth. 

The judge said Shell had to commit to more concrete climate action and set a net reduction in carbon emissions of 45 per cent compared to 2019, by the end of the decade, as the new target. 

The oil and gas major said it expected to appeal the “disappointing court decision”. Shell’s share price was down 2 per cent in early trading in London. This wasn’t the only seismic event in the oil and gas industry on Wednesday. 

Campaigning fund Engine No. 1 had two of its nominees onto ExxonMobil’s (US:XOM) board, while Chevron (US:CVX) will have to consider customer emissions after shareholders backed the idea in a vote. 

Earlier in May, Shell and BP (BP.) shareholders showed strong support for tougher emissions goals through resolutions proposed by Follow This, but they did not get close to winning the 75 per cent support needed to become company strategy. 

Shell’s existing emissions reduction plan would see carbon intensity fall by 20 per cent by 2030 compared to 2016 levels, although this could still result in higher overall emissions owing to customer energy usage. In a new report, Carbon Tracker puts Shell behind Eni (Ita:ENI), Total (Fr:FP) and BP in terms of emissions goals, because of its intensity focus and reliance on customers cutting their own emissions from 2035. 

The head of shale research at consultancy Rystad Energy Artem Abramov said Shell could hit the 45 per cent target through asset sales. 

“If we are to hypothesize that Shell is set to deliver on the court decision, this can be done quite easily by portfolio optimisation and a dedicated divestment program for high-emission assets,” he said. 

There is still some question about whether a district court in The Hague has the ability to determine company policy, according to Jefferies analyst Giacomo Romeo. Friends of the Earth Netherlands’ lawyer Roger Cox said this ruling could set a precedent. 

“This case is unique because it is the first time a judge has ordered a large polluting company to comply with the Paris Climate Agreement,” he said. “This ruling may also have major consequences for other big polluters."

We have previously highlighted Shell’s intensity reduction plans as being weaker than BP’s targets, and although this case was launched before the big climate plans were announced, the Anglo-Dutch company has clearly had an opportunity to quash the action by committing to doing more. Even if an appeal succeeds, the pressure is on for Shell. Sell at 1,353p. 

Last IC View: Sell, 1,413p, 12 May 2021