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Not Ben’s burden

3 Dec 2018 By Liam Proud

Royal Dutch Shell is taking baby steps towards a lower-carbon future. The 226 billion euro energy group says it is going to link executive compensation to targets for emissions that contribute to global warming. That’s laudable, but the outline is too vague to judge whether Shell’s serious.

At least the Anglo-Dutch group is ahead of its fossil fuel rivals. On Monday it committed to setting short-term targets for carbon intensity – a measure of carbon emitted per energy unit. Unlike BP, Shell’s methodology includes all indirect emissions, including transportation of fuel after it has been sold. It’s the first company in the sector to propose incorporating those targets into executive pay. That should do more to focus bosses’ minds than its current long-term aim of reducing carbon intensity by a fifth by 2035 and half by 2050. Any senior executive will be long gone by the time those deadlines arrive.

There’s little else for ecologically motivated investors to cheer, though. Shell won’t put a specific proposal on carbon-linked pay to shareholders until 2020. The company has yet to specify how it will translate its ambitions for long-term emissions into short-term targets; nor has it said whether the new compensation will be a big chunk of managers’ pay packets. About four-fifths of the 8.9 million euros that CEO Ben van Beurden took home last year came from “variable compensation”, mostly linked to traditional metrics like cash flow and earnings per share. In his annual performance assessment “sustainable development”, which covers safety and environmental concerns, carried less than half the weight of “operational excellence”, including maximising oil and gas production.

Even assuming the new plan helps Shell hit its longer-term targets, they’re not necessarily in line with the goals of the Paris Agreement on climate change. Keeping global warming this century “well below” 2 degrees Celsius could mean halving absolute demand for oil and gas by 2040 compared with doing nothing, according to the Carbon Tracker Initiative. That sounds similar to Shell’s ambition of halving its net carbon footprint by 2050. But the company’s target is expressed relative to the amount of energy it produces; it could ramp up output, pollute just as much and still claim success.

Investors like the Church of England and Robeco endorsed Shell’s move on Monday, but they could go further. Shell could incorporate absolute targets for carbon into pay packets, or spend more than its currently targeted 5 percent of annual capital investment on clean energy. As it stands, Shell’s climate pay plan lacks a thermostat.


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