An Engagement Update from LGPS Central: Shell

20 February 2023

ClientEarth recently announced the filing of a novel legal claim against the Board of Directors at Shell. This derivative claim states that the Board is mismanaging climate risk, evidenced by an insufficient Energy Transition Strategy and a fundamental misalignment with the goals of the Paris Agreement. The claim states that this mismanagement will have a severe and negative impact on the company’s long-term financial viability, and as such the Board are breaching their fiduciary duty to shareholders.

LGPS Central has participated in CA100+ engagement with Shell since 2020, contributing to meetings with Shell’s CEO on various occasions. We applaud Shell for taking strong steps in target setting and increasing transparency related to the energy transition, which is a complex undertaking for both the supply and demand side of the energy industry. However, several concerns remain regarding the Transition Strategy’s alignment with the Paris Agreement and at this point, Shell has not provided sufficient assurance of alignment towards the company’s own net zero by 2050 target. For these reasons, LGPSC voted against Shell’s Energy Transition Strategy at the company’s 2021 AGM and the company’s Energy Transition Progress Update in 2022.

Considering the significant overlap between the points raised in the ClientEarth claim and our own engagement objectives for dialogue with Shell, the RI&E team has undertaken a thorough assessment of potential risks and benefits of supporting the claim. Following meetings with ClientEarth, Shell, our external managers, and several pension fund peers, the decision was taken to offer a copy of a recent engagement with Shell to the Court as evidence of our concerns. This was submitted in acknowledgement of the alignment between the fundamental objectives of the claim and our own engagement expectations for Shell.

This decision was not taken lightly. The energy transition, and investors’ role as stewards to encourage this transition, is complex and nuanced. Despite Shell’s significant carbon emissions, it is also uniquely placed to help deliver the energy transition on a worldwide scale. We are also cognisant of the vital role that sectors on the energy demand side can and must play to facilitate an orderly transition. However, without substantive climate transition plans, including robust decarbonisation targets and capital expenditure plans, which respond appropriately to each element of climate risk, neither energy supply nor demand side sectors will have a solid footing from which to transition. We are therefore ready to uphold this high bar in all our engagements regardless of sector.

Given the increasing urgency of developing, and committing to, meaningful and robust transition strategies, on this occasion we decided that our perspective needed to be included in the legal debate. We hope that the significance of this escalation will be recognised and that it stimulates a genuine improvement in transition strategies both at Shell, in the oil & gas sector more broadly, and in the wider market across sectors.

Until then we will continue to act as responsible stewards, using engagement and escalation as required, to ensure that our investee companies match our own commitment to a meaningful and timely transition to net zero.

Source: LGPS Central