Earlier this year, multinational oil and gas company Royal Dutch Shell published its 2017 Annual Report, which came with the necessary attendant pros and cons of any oil and gas company, but it was only this week that international environmental organization 350.org highlighted Shell’s concern over the global fossil fuel divestment movement and potential climate litigation.
Published back in the middle of March, Shell’s ‘Annual Report and Form 20-F’ didn’t make a lot of waves. However, comments buried deep within the Strategic Report section have been highlighted this week by 350.org, describing the report as identifying “divestment and climate litigation as material risks to the company’s bottom line.”
The global divestment movement has been waged all across the world and across a variety of sectors, not least of all the oil and gas industry. According to 350.org, the global divestment movement has resulted in 688 institutions and 58,399 individuals across 76 countries committing to divest assets worth well over $6 trillion. Paired with the move to divest from fossil fuel assets is the increasing legal and regulatory risk which, beyond the simple economics of the matter, will only hasten the fossil fuel industry’s irrelevance and natural end.
These larger trends have not gone unnoticed by Shell, which raised the specter of these issues impacting its profit margins and business practices in the “Risk factors” section of its Annual Report. Specifically, the company noted that “Rising climate change concerns have led and could lead to additional legal and/or regulatory measures which could result in project delays or cancellations, a decrease in demand for fossil fuels, potential litigation and additional compliance obligations.” Shell points to the adoption of the Paris Agreement at the end of 2015 — a move the company hastens to add it “fully support[s].”
Shell highlighted three specific issues that it believes could impact its company — greenhouse gas emission regulation, fossil fuel divestment, and legal challenges. Shell expects that a “growing share” of the company’s greenhouse gas emissions “will be subject to regulation, resulting in increased compliance costs and operational restrictions.” Additionally, the company highlights that “some groups are pressuring certain investors to divest their investments in fossil fuel companies.” Finally, the company noted that “in some countries, governments and regulators have filed lawsuits to hold fossil fuel companies liable for costs associated with climate change.”
Reading Shell’s language leaves the impression that the only thing on the company mind is the bottom-line, but this is natural considering that it is an Annual Report. We can’t really see behind the language to pry open the reasons for Shell’s decision-making — whether or not it is being motivated purely by the Almighty Dollar or whether it is genuinely concerned about the environment and the planet. But as Yossi Cadan, 350.org’s Global Divestment Senior Campaigner, explained to me via email, it doesn’t really matter either way:
“We don’t know what is happening in Shell’s corridors and there is no value in trying to guess if they are motivated by their bottom lines or because they care for the future of humanity,” he explained. “In fact it doesn’t really matter. Sometimes companies make good decisions because they care for their public profile or they have concerns about their long-term profits. The fact that the divestment movement was able to create impact on the long-term financial viability of fossil fuels and to inflict real damage to the reputation of the fossil fuel industry is a great achievement in and of itself.”
In highlighting Shell’s admissions, May Boeve, Executive Director of 350.org said: “This is a clear sign the fossil fuel divestment movement is winning and the age of fossil fuels is coming to an end. Take it straight from Shell: the time to get out of fossil fuels is now.” She continued, adding:
“Protests, divestments, litigation, and regulatory efforts will only increase over the coming years, putting Shell and fossil fuel companies on ever more precarious footing. Just this month the American Medical Association divested from fossil fuels and the Pope said we must keep coal, oil and gas in the ground — this movement isn’t going away.
“Shell should be particularly worried about climate litigation since investigations show that Shell, like Exxon, knew about the risks of climate change years ago and lied to the public about it. Just like Big Tobacco, Big Oil perpetrated a cover-up of epic proportions and must be held accountable.”
There’s certainly truth to the threat to Shell’s business, and similar truth to the idea that Shell, like Exxon, knew about the risks of fossil fuel emissions and lied or covered it up in an effort to propagate business as usual.
What is less helpful, in my opinion, is continuing to harangue the company for the misdeeds of Executive-level administrators in the past, over working with the company to mitigate and eradicate damage being done now. In much the same way that the divestment movement presents investors with two stark choices — show their displeasure with such companies by dumping all their shares, or remaining invested but use their shareholder power to change the situation — campaigners and governments have an opportunity to work with fossil fuel companies to modify, in good faith, their business practices, rather than hope that punishment and discipline will reap the same outcome.
Shell’s decision-making can be called into question, and the reasons behind acknowledging these threats to their business could be driven by their bottom line, or by genuine social justice concerns, or by a bit of both. What is important, however, is to place the pressure where it is most needed, and that is on governments around the world to implement strict and swift regulations. As we’ve seen recently, finances drive the largest decisions — which, in part, led to 36 of the world’s biggest banks funneling $115 billion into the fossil fuel industry in 2017, according to a report published in March. This level of funding was an 11% increase over 2016 levels, despite it being the costliest year on record for weather disasters, which highlights the fact that we cannot rely on the goodwill and altruism of corporations and financial institutions.
“We always believed that making a significant dent in fossil fuel financing was possible, but that that alone would take too long for it to have a substantial impact on the timescale we are dealing with,” explained Yossi Cadan, when I asked him what explained the divergent trends at play.
“The window of opportunity to mitigate some of the worst impacts of climate change is very narrow: we can’t rely only on market forces to get us where we need to be. The only viable option for a timely and swift transition away from fossil fuels is for politicians to start putting in place laws and regulations that will put an immediate halt to any fossil fuel expansion and phase out existing fossil fuel activities.
“Four out of the ten richest corporations in the world are fossil fuel companies. They also hold a vast amount of liquid assets that banks cannot ignore in our current, deregulated economic reality. To change this reality, politicians must send clear signals that will make all these loans too risky for any lender, including banks. Corporations tend to respond to regulations rather than regulate themselves: that’s why we need political action and real climate leadership.”
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