Where is investor engagement on climate change going?
We’re only just getting started and more does need to be done. Different approaches are emerging.
With Shell, the framework of continued engagement has five pillars. At the top level, you’ve got a clear set of emissions targets. And you’ve got transparency on Scope 1, 2 and 3 emissions.
Second, there is the connection of that to executive pay.
Third, you’ve got the disclosure of all the metrics that they are using that enable investors to track progress.
The fourth pillar is having built-in points of review. Technology and regulation change; the company has to be able to reassess those developments and reflect on its ambitions.
And then the last pillar, the fifth pillar, is the commitment to ensure lobbying is consistent with Paris. You’re going to see increasing focus on that area from investors.
My sense is that that framework can be extrapolated to any other company. We’re talking across Climate Action 100+ about how we can replicate that. Climate Action 100+ covers a raft of sectors. The cement industry is one of the worst for disclosure and performance assessment on emissions. We also just produced our first assessment of the aviation sector, which has had limited engagement and focus on climate issues.
We’re establishing coordinated investor groups for each sector, to increase the kind of interventions we’ve had in these oil and gas and mining companies in aviation, utilities, cement—you’ll see that roll out in the coming year.
How can companies demonstrate that their lobbying practices are in line with their commitments on meeting the Paris targets?
As investors we’re very clear about what we’re looking for. One, good governance and oversight by the Board of its lobbying practices; two, annual review of memberships to trade associations or other lobbying groups to test them for alignment with their own positions on issues; and three, in the event of misalignment, identify clear steps to address that—including ending memberships.
The OPEC Secretary General recently described the oil industry as suffering from a “crisis of perception.” What do you think oil companies are getting wrong?
Well, if you look at Parliament Square right now, you’ve got thousands of school children who are probably thinking, “Oil and gas companies are not ethically aligned with my future.” There’s a massive challenge there for companies. Does an oil and gas company have a role in the low-carbon transition? Yes, it does. All the scenarios that we base our projections on include oil and gas, but to different degrees.
The oil sector is legitimately challenged right now. For the vast majority of companies, there has not been a collective set of disclosures and strategies that align to 2°C pathways. You’re now seeing the first begin to do that. When you can get to the point that you’ve got that line of sight on all of them, then the sector can have a clearer message. That’s critical, not just to explaining oil’s role but also to retaining the best talent going into the sector, to enable it to manage that transition well.
Change is hard and this transition is a fundamental change of the business model. These are not easy things to do. It’s often the case that the first response is defensive. But being open to the challenge and finding a pathway to address it enables you to have a more robust response. If your company or your sector has only a defensive reaction, it’s hard for people to align with that.
What inspires confidence that society is going to get to where it needs to be?
Partly it’s all those children in Parliament Square right now. This is intergenerational and it’s clear a movement has been united across schools and children will want to see more action. I’m also encouraged by the pace of change that we’ve got going. Just in the space of a year, look at the commitments from companies, the kind of territory we’re now discussing. Two years ago, we weren’t talking about targets or oil and gas companies covering Scope 3 emissions. We’ve now got companies with Scope 3 emissions targets, integrating them into executive pay and corporate reporting. That’s in less than two years.
And now we’ve got to see all of this move quicker. And I think there’s a real possibility of that.