Notice of 2021 AGM and Shell Energy Transition Strategy
London, April 15, 2021
ROYAL DUTCH SHELL PLC
NOTICE OF 2021 ANNUAL GENERAL MEETING AND SHELL ENERGY
TRANSITION STRATEGY
- Virtual attendance and participation enabled for the
Annual General Meeting (“AGM”)
- Shareholders encouraged to vote in advance of the AGM,
but voting is also enabled during the meeting
- Board requests support for energy sector’s first
shareholder advisory vote on an energy transition
strategy
Today, Royal Dutch Shell plc (“Shell”) posted notice of its AGM
(the “Notice”), which can be viewed and downloaded from
www.shell.com/agm. The Notice states that the AGM is
scheduled to be held at Shell headquarters, at Carel van
Bylandtlaan 16, 2596 HR, The Hague, The Netherlands at 10:00 (Dutch
time) on Tuesday May 18, 2021.
In addition, Shell publishes its Energy Transition Strategy
which can also be downloaded in pdf format from
www.shell.com/agm.
AGM 2021At the time of drafting the Notice,
both the Dutch and UK Governments have banned public gatherings
with strict exceptions. We continue to believe that these
restrictions, even if eased ahead of our AGM, significantly
restrict our ability to safely and effectively plan and hold an AGM
with shareholders physically present.
Accordingly, the technical venue of the Company’s AGM will be at
our headquarters location at Carel van Bylandtlaan 16, 2596 HR The
Hague, The Netherlands. However, in order to protect public
safety and prevent the spread of the coronavirus, physical
attendance at the meeting will be strictly limited to the Chair,
the Chief Executive Officer, the Chief Financial Officer and the
Company Secretary. Unfortunately, that necessarily means that
physical attendance will not be allowed for any shareholders,
including their proxy representatives.
Arrangements for the 2021 AGMThis year our AGM
will be webcast, allowing two ways shareholders can follow the
proceedings in the comfort and safety of their homes: i) simply
watching the webcast; or ii) attending and participating in the
webcast by registering through an electronic platform ("virtually
attending"). Shareholders who wish to simply watch the
webcast should log on to
www.shell.com/AGM/webcast and follow the
online instructions. Shareholders that want to vote or ask
questions at the meeting, should access the virtual meeting.
Shareholders wanting to access the meeting virtually should
refer to the materials sent to them. Those holding shares via an
intermediary, should contact that intermediary for further
information.
Shareholders are encouraged to register in the “Keep up to date
with Shell” section of the Shell website at
www.shell.com/investors to
receive the latest AGM news.
Shareholder questionsOur AGM normally provides
an opportunity for shareholders to ask questions about the business
set out in the Notice and to raise other matters about the business
of the Company. This year we are planning a question and answer
session during the AGM with those shareholders attending virtually.
Instructions about how to ask a question will be provided to
shareholders once the meeting has been accessed on May 18,
2021. Further information can also be found on pages 20 and
23 of the Notice of Meeting, available on our website at
www.shell.com/agm.
Shell Board requests support for energy sector’s
first shareholder advisory vote on an energy
transition strategy Today also marks the publication of
Shell’s Energy Transition Strategy, which has been published for
submission to a shareholder advisory vote at the 2021 AGM.
The document is published simultaneously with the Notice of Meeting
and shall be deemed to be incorporated in, and form part of, the
Notice of Meeting.
The publication of Shell’s Energy Transition Strategy follows
detailed conversations with shareholders and describes Shell’s
energy transition strategy as we work towards becoming a net-zero
emissions energy business by 2050, in step with society’s progress
towards the goal of the UN Paris Agreement on climate change,
including our emissions targets. The report aims to help investors
and wider society gain a better understanding of how we are
addressing the risks and opportunities of the energy
transition.
We are the first energy company to submit our energy transition
strategy to shareholders for an advisory vote and will be
publishing an update every three years until 2050. Every year,
starting in 2022, we will also seek an advisory vote on our
progress towards our plans and targets. The vote is purely advisory
and will not be binding on shareholders.
Although the Shell Energy Transition Strategy is included in
this announcement, we recommend you view the online PDF of the
document, which is available at
www.shell.com/agm.
VotingIt is as important as ever that
shareholders cast their votes in respect of the business of the
AGM. We strongly encourage our shareholders to submit their proxy
voting instructions ahead of the meeting. Any advance voting
must be done by completing a proxy form or submitting proxy
instructions electronically. We strongly encourage you vote as
early as possible.
If appointing a proxy, shareholders are strongly encouraged to
appoint the “Chair of the meeting” to ensure their appointed proxy
is present and can vote on their behalf.
Shareholder presentation, LondonIn prior years
we have held a Shareholder Presentation in London, two days after
the AGM. For the reasons outlined in the Notice of Meeting, we have
again deemed it necessary to cancel this event.
We recognise that some of our shareholders value this
opportunity to engage in person with the Board, and like us, they
may consider this news most unwelcome. However, we must
consider safety first, and the changes we are making in these
continuing exceptional circumstances have been made to protect our
people and those that may have attended this event.
We hope that our shareholders who typically attend this
presentation take the alternative opportunity to join our AGM
virtually.
National Storage MechanismIn accordance with
the Listing Rules, a copy of each of the documents below have been
submitted to the National Storage Mechanism and are/will be
available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
- Annual Report and the Form 20-F for the year ended December 31,
2020
- Notice of the 2021 Annual General Meeting
- Shell Energy Transition Strategy
- Notice of Availability of Shareholder Documents
- Proxy Form relating to the 2021 Annual General Meeting
The Annual Report and the Form 20-F for the year ended December
31, 2020 can also be viewed and downloaded from the Company’s
website: www.shell.com/annualreport.
Printed copies of the Notice and associated documents will be
despatched to those shareholders who have elected to receive paper
communications.
SHELL ENERGY TRANSITION STRATEGY 2021Royal
Dutch Shell plc
CONTENTS1
CHAIR’S
MESSAGE2
CHIEF EXECUTIVE OFFICER’S INTRODUCTION
4 SHELL’S
PATH TO NET-ZERO EMISSIONS
5 SUMMARY OF
OUR ENERGY TRANSITION STRATEGY
6 BECOMING
NET ZERO BY
20508 OUR
TARGETS: SHORT, MEDIUM AND LONG
TERM12 OUR
DECARBONISATION
STRATEGY20 CAPITAL
ALLOCATION24 CLIMATE
POLICY ENGAGEMENT25 A
JUST TRANSITION27 CLIMATE
GOVERNANCE28 TASK FORCE
ON CLIMATE-RELATED FINANCIAL DISCLOSURES
(TCFD)31 OUR TRANSITION
TO A NET-ZERO ENERGY BUSINESS AT A
GLANCE32 DISCLAIMER
CHAIR’S MESSAGEThis publication describes Shell’s energy
transition strategy as we work to become a net-zero emissions
energy business by 2050, in step with society’s progress
towards the goal of the UN Paris Agreement on climate change.
It aims to help investors and wider society gain
a better understanding of how Shell is addressing the
risks and opportunities of the energy transition. It shows how
we will navigate the transition profitably and in line
with our purpose – to power progress together with more
and cleaner energy solutions.
We have prepared this Energy Transition Strategy publication for
submission to a shareholder advisory vote at the Annual General
Meeting of Royal Dutch Shell, on May 18, 2021. It follows detailed
conversations with shareholders and describes Shell’s energy
transition strategy, including our emissions targets.
Your Directors recognise their responsibility to set the
company’s strategy. This is unchanged. We consider this
publication, and the strategy it summarises, to be aligned with the
more ambitious goal of the Paris Agreement, to limit the increase
in the average global temperature to 1.5 degrees Celsius
above pre-industrial levels.
Shell is the first energy company to submit its energy
transition strategy to shareholders for an advisory vote. We
will publish an update every three years until 2050. Every year,
starting in 2022, we will also seek an advisory vote on our
progress towards our plans and targets.
The vote is purely advisory and will not be binding on
shareholders. We are not asking shareholders to take
responsibility for formally approving or objecting to Shell’s
energy transition strategy. That legal responsibility lies
with the Board and Executive Committee.
While the energy transition brings risks to the company, it also
brings opportunities for us to prosper and to build on our positive
contribution to society. Our strategy, as outlined in this
report, is designed to minimise those risks while enhancing our
ability to profitably lead as the world transitions to an energy
system that is aligned with the goal of the
Paris Agreement.
It is important for shareholders to have a clear understanding
of the company’s strategy as we work together to meet the goal of
Paris. The Board and management also believe it is important for
all shareholders to have a vehicle to express their views on
whether our strategy is reasonable in the current environment. This
advisory vote is designed to be that vehicle. It does not
shield or abdicate the Board’s or management’s legal obligations
under the UK Companies Act.
The support of our shareholders is critical for us to achieve
our target to become a net-zero emissions energy business by
2050, in step with society. We hope to gain your support for the
approach described in this publication. In addition to your
vote, we invite your continued feedback ahead of the publication of
our next Energy Transition Strategy which will be presented to
shareholders before the Annual General Meeting in 2024.
The Board recommends that you vote in favour of resolution 20,
in support of the energy transition strategy described in this
publication.
CHAD HOLLIDAYChair
CHIEF EXECUTIVE OFFICER’S INTRODUCTIONTackling climate
change is the biggest challenge the world faces today. Our Powering
Progress strategy, which we launched in February 2021, sets out how
Shell can and must play a leading role in helping society to meet
that challenge.
As we transform our business, it is more important than ever for
our shareholders to understand and support our approach. That is
why we are publishing details of our energy transition
strategy and, for the first time, submitting it to shareholders for
an advisory vote at our Annual General Meeting this year.
Our target to become a net-zero emissions energy business by
2050, in step with society’s progress towards the goal of the
Paris Agreement on climate change, is at the heart of our
energy transition strategy. That means continuing to reduce
our total absolute emissions to net zero by 2050.
We have set our net-zero target, and our short- and medium-term
carbon intensity targets, so that they are fully consistent with
the more ambitious goal of the Paris Agreement: to limit the
increase in the average global temperature to 1.5°C above
pre-industrial levels. And our targets cover the full range of our
emissions, Scopes 1, 2 and 3 of all the energy we sell, not just
the energy we produce.
We are asking our shareholders to vote for an energy transition
strategy that is designed to bring our energy products, our
services, and our investments in line with the temperature goal of
the Paris Agreement and the global drive to combat climate change.
It is a strategy that we believe creates value for our
shareholders, our customers and wider society.
WORKING WITH OUR CUSTOMERSMost of our emissions come from
the use of our fuels and the other energy products we sell. So it
makes sense to place our customers at the centre of our energy
transition strategy. It is where we can make the biggest
difference. We will work with our customers to change and grow
demand for low-carbon energy products and services, sector by
sector, using the strength of our business relationships, knowledge
and expertise.
We will increasingly offer low-carbon products and solutions,
such as biofuels, charging for electric vehicles, hydrogen and
renewable power, as well as carbon capture and storage and
nature-based offsets. In this way, we expect to build low-carbon
businesses of significant scale over the coming decade. In
addition, we will drive down emissions from our own operations as
we continue to provide the oil and gas products our customers need
today, while at the same time helping them move to a low-
and zero-carbon future.
To be clear, the best way for Shell to contribute to the energy
transition is to work with our customers to help shape demand for
low-carbon energy products and services. In turn, the increasing
need to supply low-carbon energy products and services will
accelerate Shell’s transition to net zero. Ending our activities in
oil and gas too early when they are vital to meeting today’s
energy demand would not help our customers, or
our shareholders.
SEEKING SHAREHOLDER SUPPORTThe decision to seek an
advisory vote on our energy transition strategy follows our
continuing engagement with shareholders, including with Climate
Action 100+, which represents investors with assets of around $54
trillion. This vote does not replace the responsibilities of our
Directors in setting the company's strategy. We have based the
structure of this publication around the net-zero disclosure
standard developed by Climate Action 100+ for the oil and gas
industry.
In the following pages we set out our short-, medium- and
long-term targets, our decarbonisation strategy and how we intend
to allocate capital across our three business pillars of Growth,
Transition and Upstream in the years ahead. We also explain our
approach to climate-related policy and advocacy, an important part
of how we are working with governments and others to accelerate the
transition to low- and zero-carbon energy.
As the world continues to grapple with the impact of COVID-19,
companies also play an important role in powering lives. In this
publication, we describe how we will support livelihoods and
communities as we transform our business.
We also outline our strong governance and a commitment to
transparency. As we continue to implement the recommendations
of the Task Force on Climate-related Financial
Disclosures, we show how we are managing the risks and
opportunities of climate change.
I would like to thank the investor groups we have worked with as
we have developed our energy transition strategy, including
the Institutional Investors Group on Climate Change (IIGCC) and
Climate Action 100+. We must continue our dialogue with investors
as Shell continues to evolve. We will be transparent so that
investors can continue to assess our climate strategy and compare
our progress to that of other companies.
This is a critical time in the world’s efforts to tackle climate
change. It is also a time of tremendous opportunity for
Shell. By transforming our business in line with our energy
transition strategy, we will contribute to achieving a net-zero
emissions energy system, help society reach its climate goals
and create a compelling investment case for our shareholders, today
and in the future. We ask our shareholders to vote for resolution
20 and support the execution of our energy transition strategy.
BEN VAN BEURDEN CEO
SHELL’S PATH TO NET-ZERO EMISSIONSThis is the first time
that Shell has offered investors an advisory vote on our energy
transition strategy. This vote represents the next step in our
continuing dialogue with our investors. It is also one of many
firsts on our path to becoming a net-zero emissions energy
business.
2021
- Launched Powering Progress strategy to accelerate the
transition of our business to net-zero emissions, including targets
to reduce the carbon intensity of energy products we
sell: by 6-8% by 2023, 20% by 2030, 45% by 2035 and 100% by
2050.
- Published the 2021 Industry Associations Climate Review,
extending our coverage to 36 industry associations.
- Offered advisory vote on Shell’s energy transition
strategy.
- Increasing the weighting of the Energy Transition performance
metric in the Long-term Incentive Plan (LTIP) from 10% to 20%.
- Introduced an absolute greenhouse gas (GHG) abatement target to
the annual bonus scorecard, and the total weighting
of measures connected to GHG emissions is increasing from
10% to 15%.
2020
- Announced target to become a net-zero emissions energy business
by 2050, in step with society’s progress as it works towards
the Paris Agreement goal of limiting the increase in the
average global temperature to 1.5°C.
- Published the Industry Associations Climate Review Update,
including Shell’s updated climate-related policy positions and
our payments to key industry associations.
- Energy Transition performance metric extended to around 16,500
employees through the performance share plan (PSP).
2019
- Published the first Industry Associations Climate Review, which
reviewed the alignment between our climate-related policy positions
and those of 19 key industry associations of which we are a
member.
- Announced a programme to invest in natural ecosystems as part
of our strategy to act on global climate change, including
addressing carbon dioxide (CO2) emissions generated by customers
when using our products. This programme contributes to Shell’s
three-year target, beginning in 2019, to reduce our Net Carbon
Footprint by 2–3% by 2021.
- Introduced the Energy Transition performance metric into the
LTIP. The LTIP includes short-term targets linked to our Net
Carbon Footprint target, as well as a number of other strategic
business transformation targets that measure progress
towards achieving our longer-term ambitions. We were the first
major energy company to connect executive pay to the energy
transition in this way.
2018
- Published the Shell Energy Transition Report, describing how we
manage climate-related risks and opportunities, as part of
our response to the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD).
- Promoted the implementation of the TCFD recommendations and
worked with the Oil and Gas Preparers Forum and the World
Business Council for Sustainable Development (WBCSD) to
strengthen our sector’s response to these recommendations.
- Signed a joint statement with leading institutional investors
on behalf of Climate Action 100+ announcing steps that Shell had
decided to take to demonstrate alignment with the goals
of the Paris Agreement on climate change [A].
2017
- Announced ambition to reduce the carbon intensity of the energy
products we sell by around half by 2050 and by around 20% by
2035, measured by our Net Carbon Footprint, including the full
life-cycle emissions from the use of our energy products by
customers.
- Initiated the Methane Guiding Principles coalition, announcing
a methane emissions intensity target.
- Introduced GHG intensity measures to our annual bonus
scorecard.
[A]
https://www.shell.com/media/news-and-media-releases/2018/joint-statement-between-institutional-investors-onbehalf-of-climate-action-and-shell.html
OUR ENERGY TRANSITION STRATEGYOUR GOAL to become
a NET-ZERO ENERGY BUSINESS BY 2050
Aligned with
Paris
In step with society
OUR CARBON TARGETS for ALL ENERGY WE SELL, SCOPES 1, 2
& 3
REDUCING NET CARBON INTENSITY
GCO2E/MJ2016 baseline
- 2-3% by 2021
- 3-4% by 2022
- 6-8% by 2023
- 20% by 2030
- 45% by 2035
- 100% by 2050
Carbon intensity
Absolute carbon
2016 baseline
1.7
gtpa
79 gCO2e/MJ 0 gCO2e/MJ
2018
0 gCO2e/MJ
2050 0 gtpa
REDUCING ABSOLUTE CARBON EMISSIONS: FROM 1.7 GTPA TO NET ZERO
BY 2050We believe total carbon emissions from energy sold
peaked in 2018 at around 1.7 gigatonnes CO2e per annum (gtpa) and
will be brought down to net zero by 2050
WORKING WITH OUR CUSTOMERS ACROSS SECTORS TO ACCELERATE THE
TRANSITION TO NET-ZERO EMISSIONS
OUR ACTIONSAVOIDBy providing, investing in and
scaling up low-carbon energy solutions for our customers
REDUCEBy limiting emissions as much as possible today
MITIGATEBy capturing and offsetting any residual
emissions
OUR 2030 MILESTONESOPERATIONAL EFFICIENCY
- Eliminate routine flaring
- Maintain methane emissions intensity <0.2% by 2025
LOW-CARBON POWER
- Double electricity sold
- >50 million households equivalent renewable power
- 2.5 million electric vehicle charge points
CCS
- Targeting 25 mtpa by 2035
NATURAL GAS SHIFT
- Oil production decline 1-2% per annum
- No new frontier exploration entries after 2025
- Growing gas share to 55% of hydrocarbon production
LOW-CARBON FUELS (BIOFUELS, HYDROGEN)
- Produce 8x more low-carbon fuels
- Increase low-carbon fuel sales to >10% of transport
fuels
NATURAL SINKS
- Aiming for 120 mtpa
- High-quality offsets only
BECOMING NET ZERO BY 2050Tackling climate change is an
urgent challenge. It requires a fundamental transformation of the
global economy, and the energy system, so that society stops adding
to the total amount of greenhouse gases in the atmosphere,
achieving what is known as net-zero emissions.
That is why Shell has set a target to become a net-zero
emissions energy business by 2050, in step with society’s progress
in achieving the goal of the Paris Agreement on climate change. We
believe our target supports the more ambitious goal of the Paris
Agreement: to limit the increase in the average global
temperature to 1.5°C above pre-industrial levels.
It is aligned with the findings of the Intergovernmental Panel
on Climate Change (IPCC) which concluded that the world must reach
net-zero carbon emissions by around 2050 to limit global warming to
1.5°C and avoid the worst effects of climate change.
Becoming a net-zero emissions energy business means that we are
reducing emissions from our operations, and from the fuels and
other energy products such as electricity that we sell to our
customers. It also means capturing and storing any remaining
emissions using technology or balancing them with offsets.
COLLABORATIONIncreasing numbers of countries and
companies have announced targets to achieve net-zero emissions by
the middle of the century, and we are starting to see some changes
in the demand and supply of energy.
Achieving the 1.5°C goal will be challenging but it is
technically possible. The extent of global collaboration required
will be unprecedented. The pace of change will also be different
around the world. The wealthier, more developed countries and
regions must move faster. If they do not, then those countries and
regions that cannot move so quickly will not have the time
they need. The European Union (EU), for example, must achieve
net-zero emissions by no later than 2050 if the world is to
succeed in limiting global warming to 1.5°C.
Shell has built a scenario looking at what the EU might need to
do to decarbonise which gives some insight into the scale of the
significant challenge involved. The scenario identified nine areas
for action.
THE SCALE OF THE CHALLENGEAs an illustration, achieving
net-zero emissions in the EU in the next 30 years could mean:
ACCELERATING CLEAN TECHNOLOGIES
- Double the generation of electricity, triple its share of final
energy
- Shift the electricity mix to 75% renewables, no coal
- Target 10% hydrogen in final energy, including as a fuel for
heating, industry and heavy transport
- Triple the use of biofuels, with a shift to advanced forms
TARGETING BEHAVIOURAL INCENTIVES
- Invest in infrastructure to improve energy efficiency per unit
of GDP by almost 45%
- Incentivise green consumer and business choices in support of
the green economy
- Progressively raise the government-led carbon price in the EU
to more than €200/tonne of CO2 equivalent in 2050
REMOVING EMISSIONS
- Build at least two major carbon capture and utilisation
facilities every month (more than 1 million tonnes each)
- Reforest at least 220,000 square kilometres in the EU (about
half the area of Spain) to remove the remaining 300 million tonnes
of CO2 in 2050
Source: Shell Scenarios Sketch: A climate-neutral EU by 2050
Achieving the goal of the Paris Agreement will require
simultaneous growth in supply and demand for low-carbon energy.
Crucially, it will also require significant changes to the way
our customers use energy, whether they are motorists, households or
businesses.
All parts of society including energy producers, consumers and
policymakers will need to take action. That is why our strategy is
based on working with our customers and others to accelerate the
transition of the energy system. This includes supporting
government policies that will help the world achieve net-zero
emissions by 2050.
We will build on our strengths, our global scale and deep
knowledge of energy markets to help grow demand for low-carbon
energy. In this way, we will continue to build a strong business
while playing an important role in the transition to low-carbon
energy.
NET ZERO FROM OUR OPERATIONS AND PRODUCTSOur net-zero
target includes emissions from our operations, our Scope 1 and 2
emissions, and the life-cycle emissions, including from the end
use, from all the energy products we sell, our Scope 3
emissions.
We will reduce emissions from our own operations, including the
production of oil and gas, by increasing energy efficiency and
capturing or offsetting any remaining emissions.
More than 90% of our emissions come from the use of the fuels
and other energy products we sell, so we must also work with
our customers to reduce their emissions when that energy is
used [B]. That means offering them the low-carbon products and
services they need such as renewable electricity, biofuels,
hydrogen, carbon capture and storage and nature-based
offsets.
Importantly, our target includes emissions not only from the
energy we produce and process ourselves, including oil and gas, but
also from all the energy products that other companies produce
and we sell [C]. This is significant because we sell more
than three times the energy we produce ourselves.
In summary, our targets include all emissions from the energy we
sell, and the majority of the emissions we include in our targets
are not related to our own oil and gas production.
[B] This includes emissions from the use of energy produced and
sold by Shell as well as full life-cycle emissions from energy
produced by others and sold by Shell. Combined, these
are reported under relevant categories of Scope 3 emissions
(https://reports.shell.com/annual-report/2020/).[C]
Sales from retail stations that use the Shell brand but are not
operated or supplied by Shell are excluded.
WE ADDRESS THE EMISSIONS FROM ALL THE ENERGY WE SELL
OUR TARGETS: SHORT, MEDIUM AND LONG TERMWe believe our
total absolute emissions peaked in 2018 at 1.7 gigatonnes and our
climate target means we will have to bring that down to absolute
net-zero emissions by 2050.
As we work to achieve that target, and to measure our progress
over the next three decades, we have set short-, medium- and
long-term targets to reduce the carbon intensity [D] of the
energy products we sell. Carbon intensity is the total amount of
greenhouse gas emissions associated with each unit of energy
that we sell, and that is used by our customers.
We use carbon intensity targets to measure our progress because
we think they are the clearest way to demonstrate changes to our
mix of energy products over time, as we add and then shift to
low-carbon energy products and services.
We have set specific carbon intensity reduction targets for the
following years. These targets are compared with 2016 and linked to
the remuneration of around 16,500 Shell employees:
- 2-3% by 2021
- 3-4% by 2022
- 6-8% by 2023
We also have medium- and long-term carbon intensity targets, in
step with society:
- 20% by 2030
- 45% by 2035*
- 100% by 2050*
REDUCING THE CARBON INTENSITY OF ALL ENERGY
SOLDgCO2e/MJ
- 2016 baseline
- 2023: -6-8% (Carbon intensity incl. mitigation by Shell (Net
Carbon Footprint))
- 2030: -20% (Carbon intensity incl. mitigation by Shell (Net
Carbon Footprint))
- 2035: -45% (Carbon intensity incl. all mitigation actions
(Shell & customers))
- 2050: -100% (Carbon intensity incl. all mitigation actions
(Shell & customers))
We measure our carbon intensity with our Net Carbon Footprint
methodology [E] which calculates the carbon intensity of the
portfolio of energy products sold by Shell expressed as grams
of CO2 equivalent (gCO2e) per megajoule (MJ) of energy delivered
to, and consumed by, our customers.
* These targets include mitigation actions by our
customers such as carbon capture and storage and nature-based
offsets.[D]Carbon intensity as used in this report refers to net
carbon intensity, which includes offsets and is measured by our Net
Carbon Footprint methodology.[E]
https://www.shell.com/ncfmethodology
Petrochemicals and other products such as lubricants are not
included in our short- and medium-term targets because they are not
burnt and do not produce Scope 3 emissions. Their production and
processing produce emissions, and we include these within our
target to achieve net-zero emissions (Scope 1 and 2) from our
operations by 2050.
ALIGNING OUR TARGETS WITH PARISShell's target is to
become a net-zero emissions energy business by 2050, in step with
society. We also have short-, medium- and long-term targets to
reduce our carbon intensity, measured by our Net Carbon Footprint
methodology. We believe these targets are aligned with the 1.5°C
scenarios used in the IPCC Special Report on Global Warming of
1.5°C (SR 1.5), most of which show the global energy system
reaching net zero between 2040 and 2060.
There is no established standard for aligning an energy
supplier’s decarbonisation targets with the temperature limit goal
of the Paris Agreement. In the absence of a broadly accepted
standard, we developed our own approach to demonstrate Paris
alignment by setting carbon intensity targets using a pathway
derived from the IPCC scenarios aligned with the Paris
goal.
We determined our targets using scenarios taken from a database
developed for the IPCC SR 1.5 [F]. We filtered out certain outlying
IPCC scenarios to ensure that Shell’s targets are aligned with
earlier action, and low-overshoot scenarios. Overshoot refers to
the extent to which a scenario exceeds an emissions budget and
subsequently relies on sinks to compensate for the excess
emissions.
We then take the following steps:
1. The total energy in each of the scenarios is calculated at
the point of delivered energy (energy that is processed by refining
or liquefaction, for example, but before it is used for electricity
generation) using a fossil fuel equivalence approach for
electricity. This more accurately reflects the energy delivered by
an energy supplier like Shell to the market.
2. The total net emissions of each scenario are calculated
taking into account emissions stored using carbon capture and
storage and offset using natural sinks.
3. The carbon intensity for each scenario is calculated by
dividing the net emissions by the total delivered energy. The range
of carbon intensities of the scenarios allows for the construction
of a benchmark range after removing any outliers.
By using the benchmark range produced by this approach to set
our targets, we aligned them with the necessary reduction in carbon
intensity shown in the 1.5°C scenarios. This is illustrated in the
graphic on the right that demonstrates how Shell’s targets are
positioned within the range of 1.5°C pathways. The upper and lower
lines represent the upper and lower boundaries of the benchmark
range derived from the IPCC scenarios.
Until 2035, our calculation of the total net emissions of each
scenario includes only the expected mitigation actions by Shell
such as carbon capture and storage and offsetting using natural
sinks, including any use of offsets included in the carbon-neutral
energy products we offer our customers. After that date, we also
include mitigation actions taken separately by our customers.
Today, we do not include any mitigation steps taken separately
by our customers. That is because the accounting standards to
include those actions do not exist. Under existing protocols,
energy suppliers report the Scope 3 emissions from the use of their
products, which are equivalent to the Scope 1 emissions
reported by the users of those products.
However, when users of energy mitigate their Scope 1 emissions
by use of carbon capture and storage or offsets, there is no
accounting protocol for reflecting the corresponding reduction in
the Scope 3 emissions reporting by the energy supplier.
To account for reductions in emissions across full energy value
chains it is necessary to build on the existing greenhouse gas
reporting and accounting protocols to include mitigation actions by
both energy suppliers and users. Shell is in discussions with
standard-setting bodies such as Greenhouse Gas Protocol, the World
Resources Institute and CDP to develop the accounting protocols and
frameworks to include mitigation actions by energy suppliers and
energy users.
Reporting and accounting for mitigations in this way will also
need new systems for the exchange of data between suppliers
and users of energy. We expect these developments will take
three to five years. Our carbon intensity targets for 2035 and 2050
reflect this expected change in accounting approach.
[F] These scenarios do not include Shell’s Sky 1.5 scenario.
SHELL'S CARBON INTENSITY TARGETSgCO2e/MJ
OUR APPROACH We have set our targets to be in line with
climate science and in step with society’s progress as it works
towards the Paris Agreement goal of limiting the increase in the
average global temperature to 1.5°C.
This progress will depend on whether governments and businesses,
including Shell, provide the right conditions and incentives for
low- and zero-carbon choices, and on whether consumers embrace
these changes.
We must work towards our long-term target of net-zero emissions
immediately. That is why we have set a series of short-term targets
that are reflected in the remuneration of 16,500 employees.
These short-term targets are not conditional on whether society
progresses towards the goal of net-zero emissions; and while
extremely challenging, they are aligned with our current operating
plans.
If we moved too far ahead of society, it is likely that we would
be making products that our customers are unable or unwilling to
buy. That is why we wish to work together with customers,
governments and across sectors to accelerate the transition to
net-zero emissions. Shell cannot get to net zero without society
also being net zero.
For example, if we invested in producing sustainable aviation
fuel, and made it available on commercial terms at all the airports
Shell serves today, the investment would not significantly lower
our or society’s carbon emissions. Most aircraft are not yet
certified to fly on 100% sustainable aviation fuel and the cost of
the fuel is considerably more than traditional jet fuel,
making it an uncompetitive choice for the airlines.
Our strategy instead is to work with partners – including
aircraft manufacturers, airlines, airports, major airline users and
governments – to stimulate and accelerate demand for
sustainable aviation fuel. As demand grows, we will increase
our investments.
WORKING TO MEET OUR TARGETS The transport sector is a
good illustration of how the energy transition is likely to unfold.
As in other sectors, the reductions in carbon intensity will be
slow at first, reflecting the challenge of switching today’s forms
of transport to new technologies. The IPCC Special Report shows
that the energy intensity of fuels in the transport sector has
fallen only slightly in the past 10 years, through the blending of
biofuels with traditional fuels, the increased use of liquefied
natural gas as a transport fuel, and the growth in electric
vehicles. But as the cost of low-carbon vehicles comes down,
for example, they will replace vehicles powered by internal
combustion engines. The IPCC scenarios show the tipping point to be
somewhere between now and 2030, leading to net-zero transport after
2050.
Shell will reduce the carbon intensity of our energy products by
working with our customers, sector by sector, to help them navigate
the energy transition. As we do so, we intend to build even deeper
relationships with our customers and meet more of their energy
needs. We will start by adding more low-carbon products, such
as biofuels and electricity, to the mix of energy products we
sell. Eventually, low-carbon products will replace the higher
carbon products that we sell today. This transformation of our
business will require a fundamental change to energy-related
infrastructure and assets across economies (see box Structural
change on page 14).
We are working with partners – including aircraft manufacturers,
airlines, airports, major airline users and governments – to
stimulate and accelerate demand for sustainable aviation fuel. As
demand grows, we will increase our investments.
For example, in the road freight sector, we are working with
transport companies, truck manufacturers and policymakers to
identify pathways to decarbonisation. In the near term, we will
continue to increase production of low-carbon biofuels. And we will
offer biogas and LNG for trucks to customers in Europe, China and
the USA. In the longer term, we intend to increase our sales of
hydrogen for transport. We are also part of the H2Accelerate
consortium, which looks at ways to create infrastructure for
generating and supplying clean hydrogen to hydrogen trucks as they
become available across Europe.
CARBON INTENSITY RANGE FOR THE TRANSPORT SECTOR IN THE IPCC
1.5°C SCENARIOSgCO2e/MJ
OUR PLANSShell’s operating plans, outlooks and budgets
are forecasted for a 10-year period and are updated every year.
They reflect the current economic environment and how we can
reasonably expect our business to develop over the next 10 years.
Our short-term targets are aligned with our current operating
plans.
However, our operating plans do not yet reflect our long-term
2050 net-zero emissions target, as it is not feasible to make a
30-year detailed operating plan. In the future, as society moves
towards net-zero emissions, we expect Shell’s operating plans,
outlooks, budgets and pricing assumptions to reflect this movement
and continue to be in step with society. This movement will also be
reflected over time in our energy transition strategy that we are
offering for an advisory vote.
OUR SHORT-TERM PERFORMANCEShell’s carbon intensity in
2020 was 75 gCO2e/MJ, a 4% reduction from the previous year and a
5% reduction from the 2016 reference year. In 2020, one of the
major causes of this reduction was lower demand for energy. Demand
for oil products experienced the most significant reduction,
followed by natural gas and LNG. Another important factor
contributing to the reduction of our carbon intensity was the
increase in our power sales in absolute terms as well as in their
share of the energy mix sold by Shell. The power we sold also had a
lower average emissions intensity than in previous years, which
further contributed to the overall reduction.
OUR DECARBONISATION STRATEGYAs a leading energy company,
we serve the transport, industry, built environment and power
generation sectors. Each has different needs. Some sectors are
global while others are highly centralised and local. Some have
assets that are designed to last more than 50 years, others less
than 10 years. Our deep understanding of these sectors and our
customers, and of the opportunities and challenges they face, will
help us transform demand for our products.
Transforming energy demand is the focus of our decarbonisation
strategy. To transform demand, we will work sector by sector across
the energy system. We will change the mix of energy products we
sell to our customers as their needs for energy change.
This is where we can make the greatest contribution to the
energy transition, by increasing sales of low-carbon energy
products and services. Today, we sell around 4.6% of final energy
consumed in the world and produce around 1.4% of total primary
energy. Our share of energy production may decline over the
coming decades, but we intend to grow our share of low-carbon
energy sales.
We are restructuring our company so that we can better identify
opportunities and the role that we can play in each sector to help
transform demand. We are moving from an approach focused
on types of products to one where our customer and
account management is focused on sectors.
We are introducing sector-based businesses accountable for
driving the decarbonisation of the sectors they cover such as
aviation, commercial road transport, passenger transport, shipping,
technology and industry. We will build on our existing
relationships across each sector, with consumers, infrastructure
owners, other suppliers and policymakers to help to accelerate
change.
TRANSFORMATION OF THE ENERGY SYSTEMThe transformation of
the energy system to net-zero emissions will require simultaneous
action in three areas – an unprecedented improvement in the
efficiency with which energy is used, a sharp reduction in the
carbon intensity of the energy mix and the mitigation
of residual emissions using technology and natural sinks.
While it is difficult to predict the exact combination of actions
that will deliver the net-zero goal, scenarios help us to
understand the direction and pace of the transition needed.
The diagrams on the next page use data from the International
Energy Agency’s Sustainable Development Scenario (IEA ETP 2020).
They show how the energy mix and carbon dioxide emissions
could change between 2019 and 2050.
A fundamental shift is needed in the way energy is used and
produced. For example, it will require a deep electrification of
most energy end-uses and decarbonisation of that electricity. By
2050, most of the residual emissions come from energy use, while in
comparison energy supply is far more decarbonised. Low- and
zero-carbon energy, including hydrogen and biofuels as well as
CCUS, will be needed to mitigate most emissions in
hard-to-abate sectors, such as parts of transport and
industry.
While the Sustainable Development Scenario is a well-below 2°C
scenario reaching net-zero emissions by 2070, it helps to show
the scale of the transformation of the energy system needed.
The IEA’s Faster Innovation Case, which builds on the
Sustainable Development Scenario, demonstrates how the
transformation can be accelerated to achieve net-zero
emissions by 2050. For example, compared to the Sustainable
Development Scenario, it would need a 55% increase in hydrogen use,
25% more energy from electricity and 20% more bio-energy use. The
use of CCUS will also need to be 50% higher, reaching 8 gigatonnes
a year by 2050.
GLOBAL ENERGY EMISSIONS: 2019-2050
STRUCTURAL CHANGEAs well as changes to the supply of
energy products, decarbonising the energy system requires
structural change in the end use of energy as well. It requires
energy users to improve, update or replace equipment so that they
can use carbon-based energy more efficiently, or switch to low- and
zero-carbon energy. For example, in the transport sector,
decarbonisation includes replacing internal combustion engine
vehicles with electric and hydrogen vehicles.
In industry, replacing oil- and coal-fired furnaces with
electrical furnaces would be one solution, carbon capture and
storage is another. And in buildings, replacing gas heating systems
with electric heating systems would also contribute to
decarbonisation.
Such structural changes will help to trigger transitions along
the supply chain of individual sectors and across sectors,
including the production of energy and emissions over time. The
International Energy Agency suggests that these changes in the end
use of energy will require substantial investment. Of the more than
$1.5 trillion extra annual spending on energy-sector
investment which is required under the IEA’s Paris-aligned
Sustainable Development Scenario, 55% will need to be spent on end
use or what is more commonly known as demand-side
investment.
RENEWABLE POWEROur sector-based business model reinforces
the place of customers at the heart of our strategy. It allows us
to work together to identify opportunities for immediate carbon
reductions, including low-carbon fuels, as well as for longer-term
solutions that will help customers get to net zero. For example, in
the Netherlands we have entered into an agreement to provide
renewable power to Amazon from an offshore wind farm being
constructed off the coast of the Netherlands, enabling Amazon
to power more of its business with clean energy.
The guaranteed demand from Amazon helps us to invest further in
the production of green hydrogen and CCS through the creation of a
green energy hub in the port of Rotterdam. Shell aims to produce
green hydrogen there using electricity generated by wind power,
hydrogen that will be used at the Shell refinery in Pernis to
decarbonise the production of fuels.
Through its air cargo fleet, Amazon also has a growing interest
in aviation. Shell has one of the world’s most extensive aircraft
refuelling networks. We have agreed to supply Amazon with up to six
million gallons of blended sustainable aviation fuel for its cargo
aircraft. This biofuel, produced by the company World Energy using
agricultural waste fats and oils, has lower life-cycle carbon
emissions than conventional jet fuel. In December 2020, Shell and
Amazon also announced minority investments in ZeroAvia, a company
in the USA with ambitions to decarbonise aviation with
hydrogen-powered planes.
OUR PARTNERSHIPS WITH OTHER COMPANIESSTRATEGIC
ALLIANCE WITH MICROSOFTWe have formed a strategic alliance with
Microsoft which includes us working together on digital
technologies that help Shell and our customers manage and reduce
our carbon footprints. Shell is also supplying Microsoft with
low-carbon energy products and services, including renewable
energy.
ROLLS-ROYCERolls-Royce and Shell have collaborated for
more than 100 years, pioneering technology, fuels and
infrastructure that have shaped commercial aviation. Today, Shell
and Rolls-Royce are working together to test Rolls-Royce engines to
show they can run on 100% sustainable aviation fuel.
CLEAN SKIES FOR TOMORROW In the aviation sector, Shell is
a founding partner of the Clean Skies for Tomorrow Coalition, an
initiative with the Mission Possible Platform. This platform was
launched by the World Economic Forum and the Energy Transitions
Commission to achieve net-zero carbon emissions by the middle of
the century from a group of traditionally hard-to-abate industry
sectors.
The Clean Skies for Tomorrow Coalition consists of airlines,
airports, fuel providers and engine manufacturers. It is working to
reduce emissions from the aviation sector by making sustainable
aviation fuel more widely used and available. The Clean Skies for
Tomorrow Coalition has jointly developed and published policy
proposals which it has put to the European Union to promote debate
on how to accelerate the transition to climate neutrality and
increase the uptake of sustainable aviation fuels [G].
[G]https://www.weforum.org/reports/joint-policy-proposal-to-accelerate-the-deployment-of-sustainable-aviation-fuels-in-europe-a-clean-skies-for-tomorrow-publication
SHARING INSIGHTS INTO THE TRANSITIONOur strategy includes
participating in coalitions of companies and organisations to
accelerate the transition to net-zero emissions. We will help to
develop paths to low-carbon energy in different sectors, identify
opportunities for low-carbon solutions, and advocate government
policies and financial market regulations that support the
transition.
In the shipping and road freight sectors, for example, we have
partnered with Deloitte to explore paths to reducing emissions
[H].
[H]https://www.shell.com/energy-and-innovation/the-energy-future/decarbonising-shipping.html;
https://www.shell.com/energy-and-innovation/the-energy-future/decarbonising-road-freight.html
SIX LEVERS TO HELP DECARBONISE ENERGYAs Shell works with
our customers to identify the best paths to decarbonisation, we
seek to avoid, reduce and only then mitigate any remaining
emissions.
We have six levers to help Shell and our customers decarbonise
energy in the short, medium and long term:
- Pursuing operational efficiency in our assets;
- Shifting to natural gas;
- Growing our low-carbon power business;
- Providing low-carbon fuels such as biofuels and hydrogen;
- Developing carbon capture and storage; and
- Using natural sinks.
ENERGY EFFICIENCY IN OUR OPERATIONSOur production sites
are increasingly using lower-carbon energy sources. For example, we
are installing eight new cracker furnaces at our Moerdijk
petrochemicals complex in the Netherlands, replacing 16 older
units. This is expected to reduce the site’s
energy consumption, and to lower greenhouse gas emissions
by around 10% compared with 2019.
In the USA, we are building a 250 MW co-generation plant at our
Pennsylvania chemicals facility that will also supply
electricity to local homes. The chemicals plant has been
designed with an energy-efficient gas cracker that will also
use hydrogen as a fuel source.
As we implement our strategy, we are aiming for milestones which
are supported by our business plans and planned capital
investment.
EXAMPLES OF ENERGY TRANSITION MILESTONES BY 2030
Operational efficiency1 |
Natural gas shift |
Low-carbon power business |
Low-carbon fuels (biofuels, hydrogen) |
CCS |
Natural sinks |
- Eliminating routine flaring
- Maintaining methane emissions intensity <0.2% (2025)
|
- Oil production peaked in 2019, expected to decline 1-2% per
annum
- No new frontier exploration entries anticipated after 2025
- Growing gas share of hydrocarbon production to ~55%
|
- Doubling electricity sold
- Delivering equivalent of >50 million households with
renewable electricity
- Operating ~2.5 million electric vehicle charge points
|
- Producing 8 times more low-carbon fuels than today
- Increasing low-carbon fuels sales to >10% of transport fuels
(up from 3% in 2020)
|
- Targeting more than 25 mtpa CCS (by 2035)
|
- Aiming for ~120 mtpa of nature-based solutions
- High-quality offsets only
|
Milestones for 2030 unless otherwise stated. This chart is
illustrative of the potential impact across these levers.
1 For assets we operate EV charge points include
charge points at Shell forecourts and new locations as well as
operated charge points owned by customers and third parties.
INVESTING IN NATUREThe protection and restoration of
natural ecosystems could play an important role in limiting global
warming to below 1.5°C, while bringing additional environmental and
social benefits, according to the IPCC [I].
Nature-based solutions, or natural climate solutions, are
projects that protect, transform or restore land. In this way, CO2
emissions from the natural environment are reduced and more CO2
emissions from the atmosphere are absorbed. These projects can lead
to the marketing, trading and sale of carbon credits. Each carbon
credit represents the avoidance or removal of 1 tonne of CO2.
The market for nature-based solutions and the number and type of
projects which are being developed to meet this market demand is
growing rapidly. McKinsey Nature Analytics estimates that there is
the potential for nature-based projects to store an additional 6.7
gigatonnes of CO2 every year by 2030. Based on current net-zero
commitments from more than 700 of the world’s largest companies,
there have already been commitments of carbon credits of around 0.2
gigatonnes of CO2 by 2030 [J].
The Taskforce on Scaling Voluntary Carbon Markets (TSVCM),
sponsored by the Institute of International Finance (IIF),
estimates that the market for carbon credits could be worth more
than $50 billion in 2030 [K].
[I] IPCC, 2019: Summary for Policymakers. In: Climate Change and
Land: an IPCC special report on climate change, desertification,
land degradation, sustainable land management, food security, and
greenhouse gas fluxes in terrestrial
ecosystems[J]https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Why%20investing%20in%
20nature%20is%20key%20to%20climate%20mitigation/Nature-and-net-zero-vF.pdf
[K] https://www.iif.com/tsvcm
HIGH-QUALITY CREDITSNature-based solutions have a role to
play in reducing the impact of the CO2 emissions from the
energy products that we sell.
Shell will use high-quality nature-based solutions,
independently verified to determine their carbon impact and their
social and biodiversity benefits. In line with our approach of
avoid, reduce and only then mitigate, we expect to offer our
customers nature-based solutions to offset around 120 million
tonnes per annum of our Scope 3 emissions by 2030.
Today, for example, we offer customers carbon-neutral driving
using nature-based carbon offsets in seven countries. We also
offer carbon-neutral liquefied natural gas cargoes, which use
nature-based carbon credits to offset full life-cycle emissions,
including methane.
BUILDING OUR PORTFOLIOIn 2020, we invested around $90
million in the future development and purchase of nature-based
offsets, and we expect to invest around $100 million a year.
In 2020, we acquired Select Carbon in Australia, which runs
more than 70 carbon farming projects that span an area of
around 10 million hectares. We are also working with project
developers to invest in and develop new projects based on
reforestation, agroforestry and mangroves.
In 2030, we expect our own portfolio of nature-based projects to
supply most of the credits for our customers. Our trading business
will purchase the rest from project developers that we screen to
ensure the credits meet the same independently verified high
standards. In 2020, we purchased more than 4 million tonnes of
credits on behalf of our customers sourced from projects around the
world.
CAPTURING CARBONMost climate scientists are clear that
using technology to store carbon plays an important role in the
transition of the energy system. The IPCC 1.5°C scenarios show that
even when the energy system reaches net-zero emissions, there will
be residual emissions because some sectors and end users will not
be able to eliminate the use of hydrocarbons. Some of these
residual emissions will need to be stored.
Today, carbon capture and storage (CCS) facilities around the
world can capture and store around 40 million tonnes per annum
(mtpa) of CO2. Accelerating the pace of CCS deployment requires
continued collaboration between governments, industry and
investors, among others, to help unlock financing capacity,
accelerate technology development and encourage public
support. We recognise the scale of the challenge in developing
CCS globally as quickly and as widely as needed.
Today, Shell is involved in seven of the 51 large-scale CCS
projects globally, listed in 2019 by the Global CCS Institute.
These seven projects store around 5 mtpa of CO2, or around 12.5% of
global CCS capacity. By the end of 2020, for example, our Quest CCS
project in Canada (Shell interest 10%) had captured and safely
stored more than 5.5 million tonnes of CO2 since it began
operating in 2015.
In Norway, Shell, our project partners and the Norwegian
government have taken the final investment decision on the Northern
Lights CCS project. This transformative project aims to become the
first carbon storage facility with capacity to transport and store
CO2 from industrial facilities in Norway and potentially from
across Europe.
In 2020, Shell invested around $70 million in CCS. This included
progressing opportunities and operating costs for CCS assets in
which Shell has an interest. We seek to have access to 25 mtpa of
CCS capacity by 2035 – equal to 25 CCS facilities the size of our
Quest project, or around 20% of the capacity of all CCS projects
being studied around the world today.
STRUCTURING OUR BUSINESS TO MEET DEMANDOur business has
three pillars: Growth, Transition and Upstream. Within each
pillar, we expect the underlying businesses to evolve
and transform as demand for our products changes, driven
through our sector-based businesses.
Our Upstream pillar delivers the cash and returns needed to fund
our shareholder distributions and the transformation of our
company, and provides vital supplies of oil and natural gas which
the world needs today.
Our Transition pillar comprises Integrated Gas, and our
Chemicals and Products business, and it makes the products needed
to enable the energy transition. It produces sustainable cash flow
and gives us the asset infrastructure to support our investments in
our Growth business.
Our Growth pillar includes our service stations, fuels for
business customers, power, hydrogen, biofuels, charging for
electric vehicles, nature-based solutions, and carbon capture and
storage. It focuses on working with our customers to
accelerate the transition to net zero and is the foundation
for the future businesses in Shell.
In our Upstream pillar: We will focus our portfolio on
nine core positions that generate more than 80% of Upstream’s cash
flow from operations. These core positions will attract around 80%
of Upstream’s capital spending. They are positions where we have
superior capabilities, the potential for growth and access to
strong integration with our Integrated Gas and Trading
activities.
The rest of our positions will be run on a leaner operating
model. They will be tasked with either maximising cash
generation or becoming core positions. In some cases, such as
onshore Egypt and the Philippines, we will simply divest. We will
reduce annual spending on exploration from around $2.2 billion in
2015 to around $1.5 billion between 2021 and 2025. We have
attractive exploration opportunities in the first half
of this decade. But after 2025, we do not anticipate
entries into new frontier exploration positions.
In our Transition pillar:We intend to extend our
leadership in LNG volumes and markets, with selective investments
in competitive LNG assets to deliver more than 7 million tonnes per
annum (mtpa) of new capacity on-stream by the middle of the decade.
We will continue to support customers with their own net-zero
ambitions, with offers such as carbon-neutral LNG, which
uses nature-based carbon credits to offset full life-cycle
emissions, including methane. Our petrochemical business will
continue to grow and provide products that enhance the efficiency
of energy use.
We intend to reduce the number of refineries from 13 sites today
to six high-value chemicals and energy parks, and reduce
production of traditional fuels by 55% by 2030, from around 100
mtpa to 45 mtpa. We intend to grow volumes from our chemicals
portfolio and increase cash generation from Chemicals by $1-2
billion a year by 2030. We will produce chemicals from
recycled waste, and by 2025 aim to process 1 million
tonnes a year of plastic waste.
LNG DEMAND TO GROW AS GAS PROVIDES MORE AND CLEANER
ENERGYREDUCE CO2 AND IMPROVE AIR
QUALITY
- Natural gas emits between 45% and 55% less GHG than coal when
used to generate electricity and less than one-tenth of the air
pollutants
- More than 750 million tonnes of CO2 savings as a result of
coal-to-gas switching over the last decade
- In 2020, for the first time on record, the number of coal-fired
power stations decreased
LNG NEEDED TO CONNECT NATURAL GAS SUPPLY AND DEMAND
GROWTHEstimated LNG trade volume in 2040, million tonnes
In our Growth pillar: Our Marketing business is our
single largest customer-facing business. In 2020, Marketing
delivered more than $4.5 billion in net earnings and, by 2025, we
expect it to generate more than $6 billion. We will achieve this by
improving the market-leading position of our lubricants business,
and by increasing the number of retail sites and daily customers we
serve from 46,000 and 30 million respectively today, to 55,000
and 40 million by 2025. We will also achieve this by growing
non-fuel sales at our retail sites and sales of electricity.
This growing number of customers, made up of large and small
businesses as well as individual consumers, will be looking to
decarbonise their energy consumption over the coming decades. We
intend to provide them with the options to do this, from
low-carbon solutions such as clean electricity, hydrogen and
biofuels, to carbon sinks or offsets for any remaining
carbon emissions.
Shell is increasing the number of electric vehicle charging
points globally – for homeowners and businesses and for use on our
forecourts – from more than 60,000 today to more than 500,000 by
2025 and to 2.5 million by 2030. By comparison, that is
around 7% of the total number of public and private charge
points expected in Europe alone by 2030, according to
research by Bloomberg.
As the need for biofuels grows, in line with customer demand and
policies to reduce transport-related emissions, we expect to extend
our leading biofuels production and distribution business, which in
2020 sold 9.5 billion litres of biofuels. Our joint venture
Raízen, which produces low-carbon biofuels from sugar cane in
Brazil, recently announced the acquisition of Biosev. This is
set to increase Raízen’s bioethanol production capacity by 50%, to
3.75 billion litres a year, around 3% of global
production.
We aim for our power business to sell around 560 terawatt hours
of electricity a year by 2030, which is twice as much electricity
as we sell today, and for the electricity we sell to have lower
carbon intensity than the grid average within the markets where we
operate. We are growing our power businesses with a focus on
Europe, the USA, Australia and Asia.
CLEAN HYDROGEN GLOBAL DEMAND PROJECTIONSMillion tonnes
per annum
|
2020 |
2030 |
2040 |
2050 |
Low case |
>1 |
10 |
50 |
186 |
High case |
>1 |
40 |
190 |
696 |
Source: Bloomberg NEF Hydrogen Economy Outlook (2020), IEA
low-carbon hydrogen production data, IEA Sustainable development
scenario 2030, Shell analysis
Building clean hydrogenWe intend to build on Shell’s
leading position in hydrogen by developing integrated hydrogen hubs
initially to serve industry and heavy-duty transport. We will begin
by producing and supplying hydrogen for our own manufacturing
sites, especially refineries. For example, we are developing a
hydrogen electrolyser at our refinery in Rheinland, Germany, which
produces hydrogen from renewable sources. We will also continue to
extend our network of hydrogen retail stations, with an increasing
focus on heavy-duty transport.
The clean hydrogen market is still in the early stages and the
volumes are still modest [L]. But we see strong potential for
growth especially in hard-to-abate sectors of the economy. We aim
to achieve a double-digit market share of global clean hydrogen
sales by 2030.
[L] Shell’s definition of clean hydrogen includes hydrogen made
from renewable sources (usually referred to as green hydrogen) and
hydrogen made from natural gas with carbon capture and storage
(usually referred to as blue hydrogen).
RENEWABLES AND ENERGY SOLUTIONS: INTEGRATED POWER STRATEGY
FOCUSED ON REGIONAL LEADERSHIPEUROPE
- In top three electric vehicle charging operators by volume
Energy solutions
- Around 1 million customers of integrated home energy solutions
(Shell Energy Retail)
- More than 80,000 operated electric vehicle charge points
(primarily through NewMotion)
- Intelligent home battery energy storage (60,000 sonnen battery
customers worldwide)
- Sustained growth of the commercial and industrial portfolio
with more than 10,000 customers across key markets
Trading and optimisation
- Growing power trading business across Europe
- A leading player in the UK distributed energy market
(Limejump)
Renewable assets
- The Netherlands: 160 MW of renewable generation capacity in
operation and 1.6 GW in development across solar and wind*
- Germany: 10 MW hydrogen electrolyser (RefHyne) expected to
start production in the summer of 2021
- Ireland: 300 MW floating wind farm (Emerald) in early-stage
development, Shell share 51%
Shell is increasing the number of electric vehicle charging
points globally for homeowners and businesses.
* Renewable generation capacity figures are gross. Source:
Shell
RENEWABLES AND ENERGY SOLUTIONSa selection of
investments, acquisitions and ventures
YEAR |
BUSINESS FOUNDED |
|
|
2016 |
Wind
|
|
|
2017 |
Mobility
- Acquired NewMotion, NL
- Connected Freight*, Philippines
|
Energy solutions
- Shell Energy Retail, UK (acquired as First Utility)
- Innowatts*, USA
|
Energy access
- SolarNow*, Uganda
- SteamaCo*, Kenya
- Sunseap*, Singapore
|
Trading
|
Hydrogen
- Opened hydrogen stations in the UK and USA
|
|
2018 |
Solar
- Silicon Ranch*, USA
- Cleantech Solar*, Asia
- Opened Moerdijk solar farm, NL
|
Wind
- Atlantic Shores Offshore Wind*, USA
- Mayflower Wind Energy*, USA
- TetraSpar*, Norway
|
Energy solutions
|
Hydrogen
- Opened hydrogen stations in California, USA
- HyET Hydrogen*, NL
|
Energy access
- Husk Power*, India
- SunFunder*, Kenya
|
Mobility
|
2019 |
Mobility
- Acquired Greenlots, USA
- Ravin.ai*, UK
- Revel*, USA
- Aurora*, USA
- Nordsol*, NL
|
Wind
- Acquired EOLFI, France
- CoensHexicon*, South Korea
|
Energy solutions
- Acquired sonnen, Germany
- Acquired Hudson Energy UK (rebranded to Shell Energy Retail in
2020)
- LO3 Energy*, USA
- Corvus Energy*, Norway
|
Nature-based solutions
- Nature-based solutions projects under way in Australia,
Malaysia, Netherlands, Spain and UK
|
Energy access
- Orb Energy*, India
- PowerGen*, Kenya
- d.light*, Kenya
|
Trading
- Acquired ERM Power (rebranded to Shell Energy in 2020),
Australia
- Acquired Limejump, UK
|
Solar
|
Hydrogen
- Announced plans to build Rheinland Hydrogen Electrolyser,
Germany
|
|
2020 |
Solar
- Final investment decision to build Gangarri solar farm,
Australia
|
Mobility
- Masabi*, UK
- InstaFreight*, Germany
- Spiffy*, USA
|
Wind
- Shell and Eneco awarded tender to build 759 MW Hollandse Kust
(noord) offshore wind farm, NL
|
Nature-based solutions
- Select Carbon, Australia
- Climate Bridge*, China
|
Hydrogen
- Announced plans to build 20 MW green hydrogen electrolyser and
refuelling stations, China
- ZeroAvia*, USA
|
Energy solutions
- Palmetto*, USA
- GreenCom*, Germany
|
* Minority investments
CAPITAL ALLOCATIONShell’s financial strength and access
to capital give us the ability to reshape our portfolio as the
energy system transforms and demand changes. They also allow
us to withstand volatility in oil and gas markets. This strong
financial framework is based on sector-leading cash flow,
continued capital discipline, capital flexibility and a strong
balance sheet.
THE FINANCIAL FRAMEWORK THAT SUPPORTS OUR STRATEGYWe look
to achieve the right balance between shareholder distributions and
investing for the future, laying the foundation for both increased
distributions and share price appreciation.
While our net debt is above the level of $65 billion, we plan to
invest $19–22 billion a year across our portfolio. This will
sustain our core businesses while funding moderate growth.
Once we have reduced net debt to $65 billion, we will look to
further increase total shareholder distributions. Through
progressive dividend and share buybacks, we are targeting total
distributions to shareholders of 20-30% of our cash flow from
operations. We will also seek to increase capital spending in a
disciplined way. With this approach we expect that we will:
1) Limit our investments in Upstream. Our oil production peaked
in 2019 and we expect that it will gradually decline by 1-2% a
year through to 2030.
2) Maintain our investments in our Transition businesses. We
expect to see the share of gas rise to 55% of our hydrocarbon
production in 2030.
3) Increase investments in our Growth businesses to build
material low-carbon businesses of significant scale by the early
2030s.
As Shell progresses towards being a net-zero emissions energy
business our cash flows will increasingly come from our Growth
pillar, becoming less exposed to oil and gas prices with a stronger
link to broader economic growth. As one of the largest commodity
traders in the world, we expect additional opportunities to enhance
cash delivery through integration and optimisation.
The characteristics of our Growth pillar mean that levels of
capital investment are likely to be a poor proxy for the scale of
the transformation of our business. Instead, we believe the best
way to measure our progress towards our targets is through the
carbon intensity of the energy products we sell, and the cash flows
delivered by our business pillars. This is because our Growth
pillar is likely to be less capital intensive than
our Upstream and Integrated Gas businesses.
OUR CARBON FRAMEWORKWe will take the same approach to
managing and reducing our emissions as we have done for managing
our financial framework, that is by setting constraints, or
budgets.
We will be setting carbon budgets for all our businesses and
these will help to drive investment decisions which will in
turn drive down our emissions. In this way, we will decouple
our business growth from carbon, transforming what we sell and what
we produce.
By assessing our investments and resources on the basis of our
financial performance, and on the carbon intensity of our revenues,
we will decide what changes to make to our business portfolio.
The carbon emissions constraints we place on our businesses will
tighten over time, in line with our carbon intensity targets and as
demand for low-carbon products increases.
We are setting carbon budgets for all our businesses and these
will help to drive investment decisions which will in turn drive
down our emissions.
TRACK RECORD OF SECTOR-LEADING CFFO$ billion
Peer range comprises ExxonMobil, Chevron, BP and Total, CFFO
for
SHELL CORRECTED FOR INTEREST RECEIVED (IN CFFI) AND INTEREST
PAID (CFFF).
FUTURE-PROOFING OUR CASH FLOWS%
|
Historical 5-year average |
Net debt >$65billion |
Beyond 2025 |
Growth |
11% |
~20% |
~25% |
Transition |
48% |
~45% |
~45% |
Upstream |
41% |
~35% |
~30% |
CASH CAPEX EVOLUTION
|
2020 |
Beyond 2025 |
Growth |
16% |
35-40% |
Transition |
43% |
30-40% |
Upstream |
42% |
25-30% |
CAPITAL ALLOCATION THROUGH THE ENERGY TRANSITIONWe are
shifting capital from our Upstream business to our Transition and
Growth businesses as the energy transition accelerates and we sell
more low-carbon energy products.
We aim to find the right balance between managing our Upstream
assets – which will produce the returns needed to help us fund the
transition – and investing in our Transition and Growth businesses.
These businesses are essential to identify, build and scale up
profitable projects that offer low-carbon energy solutions for
our customers. Our investments in our three business pillars are
characterised by several factors including:
GROWTH:
- Compared with our conventional Upstream assets, investments
in low- and zero-carbon solutions can require lower amounts
of capital.
- The levels of capital investment needed to maintain a renewable
energy business are also likely to be lower than in
capital-intensive complex engineering projects common in the oil
and gas industry, with their ongoing need for asset renewal
and resource replenishment.
- We can grow our sales of low-carbon energy without
necessarily investing in producing it ourselves by buying it
from third parties and selling it to our customers. This model is
part of our business today, we sell more than three times the
energy we produce ourselves.
- We can enter into different types of financial arrangements
that enable renewable generation capacity to be built, without
bearing the full capital cost of the project. For example,
developing renewable production as part of joint ventures
allows us to reduce the capital investment needed, while
giving us access to valuable expertise from other partners. It also
gives us the opportunity to secure a substantial portion of the
energy produced, allowing us to grow customer sales (See box
Offshore wind).
- Our investments in our Marketing business will help decarbonise
the energy system by increasing the provision of charging for
electric vehicles and increasing the use of biofuels and low-
and zero-carbon lubricants.
TRANSITION:
- Our investments in natural gas can help to decarbonise
energy use when it replaces energy with a higher carbon
intensity such as coal and fuel for shipping.
- Restructuring our refinery business into energy parks will
transform our business away from our traditional oil-based energy
products.
UPSTREAM:
- Most of our investments in our Upstream business are in
maintaining assets and sustaining the value of the portfolio.
- Our existing Upstream assets are critical to delivering
near-term cash flow and to enabling moderate growth.
- Our investments to improve the efficiency of our oil and
gas facilities can help reduce our operational emissions.
INVESTING IN OIL AND GASA natural decline in production
happens in oil and gas reservoirs at a rate of around 5% a
year across the oil and gas industry. It takes constant
reinvestment to sustain production and extract resources.
Our planned capital investment of $8 billion in our Upstream
business in the near term is well below the investment level
required to offset the natural decline in production of our oil and
gas reservoirs, and will not sustain current levels of
production.
As a result of this planned level of capital investment, we
expect a gradual decline of about 1-2% a year in total oil
production through to 2030, including divestments.
Powering lives by providing energy to homes.
OFFSHORE WINDShell is part of the Blauwwind Consortium
that was awarded the right to develop, construct and operate the
Borssele III and IV wind farm off the Dutch coast. Shell entered
with a 40% share in 2016 and Shell Energy Europe Limited
secured a contract to sell 50% of the power produced. We sold half
of our joint venture partnership in 2018 when we brought on
board an additional partner. The wind farm is now fully operational
and has a total installed capacity of 731.5 MW, equivalent to
powering 825,000 Dutch households. We still sell 50% of the
power produced.
Shell is part of a consortium that has developed a wind farm off
the Dutch coast. We sell 50% of the power produced.
CLIMATE POLICY ENGAGEMENTRobust and sustainable
government policies will be critical to help the world achieve the
goal of the Paris Agreement and net-zero emissions by 2050. These
must include policies that accelerate the move to low-carbon energy
in industries that are hard to decarbonise, sector
by sector.
Shell’s Powering Progress strategy includes working with
governments to support the policies and regulatory frameworks
to accelerate the transition to net zero.
We are seeing a growing number of countries aiming for net-zero
emissions and enhancing their nationally determined contributions
(NDCs). The USA has recently rejoined the Paris Agreement, for
example, China has set out its plans to reach net zero by 2060, and
the European Union (EU) has committed to climate neutrality, or
net-zero emissions, in 2050.
ENGAGING WITH GOVERNMENTSOur expertise in providing
energy can help to shape effective policy, legislation and
regulation, and we engage with governments, regulators and
policymakers directly and indirectly, including through industry
associations. We are also working with other companies, governments
and investors through coalitions to identify the policies needed in
sectors such as aviation, shipping and road freight to help change
demand and enable faster decarbonisation.
We are members of the Mission Possible Partnership sectoral
coalitions for aviation, shipping, road freight and steel.
Each of these coalitions works to help accelerate decarbonisation
pathways, including through policy engagement. For example, we are
a member of the Clean Skies for Tomorrow initiative, which has
developed a joint policy proposal for a sustainable
aviation fuel mandate in the EU which would require airlines
to use an increasing ratio of sustainable aviation fuel.
Shell is also a member of the Jet Zero Council (JZC) in the UK,
a partnership between industry and government. JZC aims to deliver
zero-emission transatlantic flight within a generation, and to
drive new technologies and innovative ways to cut aviation
emissions. Shell is also a member of the European Round Table
for Industry (ERT) which has called on the EU institutions to
introduce sectoral roadmaps to net-zero emissions [M].
GREATER TRANSPARENCYWe aim to be at the forefront of the
drive for greater transparency around political engagement. We set
out our approach, including our principles for responsible
lobbying, in our statement on corporate political engagement which
is published on our website [N].
Our principles for participation in industry associations govern
how we manage our relationships with industry associations on
climate-related policy. They build on the Shell General Business
Principles and the Shell Code of Conduct, and have been
incorporated in the Shell Control Framework, which sets the
requirements for how all Shell entities operate. The principles aim
to ensure our memberships of industry associations do not undermine
our support for the Paris Agreement and that they support the
development of government policies that could help the world
achieve net-zero emissions by 2050.
In 2019, we published our first Industry Associations Climate
Review, and were one of the first companies to report this
information [O]. The review assessed our climate-related
policy alignment with 19 industry associations against
our 2019 climate-related policy positions. The following
year we published an update to our review.
In 2020, we updated Shell’s climate-related policy positions and
published them on our website [P]. These positions include support
for the goal of the Paris Agreement and for the development of
policies to help the world to achieve net-zero emissions by 2050.
They also include support for carbon pricing, carbon capture
utilisation and storage and nature-based offsets.
In the newly published 2021 Industry Associations Climate
Review, we have reviewed 36 associations. We plan to publish
our next update in 2022.
We will continue to work with governments, other companies,
investors, non-governmental organisations, coalitions and industry
associations to help society achieve the goal of the Paris
Agreement and net-zero emissions. We will also continue to work
towards greater transparency around climate lobbying and
reporting.
[M]https://ert.eu/wp-content/uploads/2021/02/2021-02-25-Statement-on-Sectoral-Approaches.pdf[N]www.shell.com/advocacy[O]2019
Industry Associations Climate Review www.shell.com/advocacy[P]
https://www.shell.com/sustainability/transparency/advocacy-and-political-activity.html
A JUST TRANSITIONThe energy transition will create
employment and opportunities for people to learn new skills. It may
also adversely affect workers and communities, for example in areas
where traditional products, business activities or jobs
are phased out.The Paris Agreement refers to the importance of
a just transition, recognising that governments must take into
account the workers affected by the shift to a low-carbon economy,
and create “decent work and quality jobs”. The UN Framework
Convention on Climate Change, the parent treaty of the Paris
Agreement, has defined decent work as “jobs that provide adequate
incomes and social protection, safe working conditions, respect for
rights at work and effective social dialogues”.
Our Powering Progress strategy seeks to support livelihoods,
communities and an inclusive society as we transform our business
to meet our target of becoming a net-zero emissions energy
business by 2050, in step with society.
One of the strategy’s four main goals is powering lives, which
sets out how we support livelihoods and communities. As we
transform, we will continue to provide jobs, encourage local
businesses to be part of our supply chain, promote entrepreneurship
and offer skills training in communities where we operate.
We are working to help find viable ways to provide low-carbon
energy that can support successful local economies. To do this we
will work with governments, local communities, customers,
employees, employee representative bodies, suppliers and industry
groups.
We seek to work with contractors and suppliers who contribute to
sustainable development and are economically, environmentally and
socially responsible.
Our employees and their well-being are critical to the success
of our business. During the energy transition, Shell will continue
to respect workers’ rights in line with the 1998 Declaration of the
Fundamental Principles of Rights at Work published by the UN’s
International Labour Organization (ILO). We will continue to comply
with ILO occupational health and safety standards and applicable
laws and practices.
As portfolio changes affect our assets during the energy
transition, we will seek to:
- continue to engage with employees, employee representative
bodies and relevant government bodies at a local level, keeping
them informed about our plans and listening to any concerns;
- provide wages and benefits that meet or exceed the national
legal standards; and
- provide equal opportunity in recruitment, career development,
promotion, training and rewards.
DEVELOPING SKILLS FOR THE FUTURE As our portfolio
changes, we will seek to help employees develop skills for the
future. This will strengthen their long-term employment prospects
and enable them to seize opportunities created by the energy
transition.
For example, the Pulau Bukom manufacturing site in Singapore
will be affected by organisational changes and job reductions as it
becomes one of our energy and chemicals parks. We aim to
significantly reduce Bukom’s carbon dioxide emissions as the site
produces fewer crude-oil, fuels-based products, instead favouring
lower-carbon alternatives that may include biofuels. But over the
course of three years, staff numbers will go from the current
level of around 1,300 to around 800.
We have partnered with the Singapore Shell Employees’ Union to
launch a Joint Capability Council (JCC) to help staff acquire new
skills that will enable them to succeed in future roles. The JCC
will help develop courses for employees in areas such as digital
literacy and data analytics.
The JCC builds upon the UpSkill ShellSG initiative for all staff
in Singapore. The UpSkill initiative allows our Singapore staff to
access training in a wide range of subjects including digital
skills, tech-enabled services, advanced manufacturing, leadership
and project management. The initiative was developed in
collaboration with local authorities who shared the aim of helping
workers acquire skills that will enable them to succeed in the
economy of the future.
SUPPORTING THE UNITED NATIONS SUSTAINABLE DEVELOPMENT
GOALSThe UN Sustainable Development Goals (SDGs) seek to
address the world’s biggest challenges, including ending
poverty, improving health and education, and tackling climate
change. Governments are responsible for implementing approaches
that meet the SDGs, but success will require unprecedented
collaboration and collective action involving businesses and civil
society.
As a leading energy company, we will play our part in supporting
the SDGs. Energy plays a critical role in enabling economic and
social development and improving people’s livelihoods. The supply
of affordable, reliable and sustainable energy is crucial for
addressing global challenges, including those related to poverty
and inequality. That is why we are working to provide energy
to those who do not have it today.
According to the International Energy Agency, in 2019 there were
around 770 million people in the world who lacked access to
electricity. Hundreds of millions more are estimated to have an
unreliable energy supply. One of our ambitions is that by 2030 we
will provide reliable electricity to 100 million people in Africa
and Asia who do not yet have it.
To help achieve this, we are developing market-based programmes
that provide access to clean and affordable energy for some of the
world’s most remote and vulnerable people. We are investing in
companies that specialise in solar home systems, mini-grids, and
other innovations that improve access to energy. As well as
managing our existing portfolio, we are also seeking to
develop large-scale power projects in key markets and to use
our global partnerships to improve access to energy.
POWERING LIVES THROUGH OUR ACTIVITIES Managing the impact
of our activities on people living near our operations is essential
to being a responsible organisation. Many of our operations are
located close to communities, and we work with them to understand
their priorities and concerns. In doing this we use international
standards as our benchmark, including the International Finance
Corporation’s Environmental and Social Performance Standards – as
well as our own rigorous standards.
We employ people in more than 70 countries, providing income and
benefits such as health care and pensions. Every year, we spend
tens of billions of dollars on goods and services in the
communities where we operate. Our activities generate revenues
for governments through the taxes and royalties we pay and the
sales taxes we collect on their behalf. This helps fund health
care, education, transport and other essential services.
We strengthen local economies and employment opportunities
through enterprise development programmes such as Shell LiveWIRE.
The overall goal of these programmes is to enable communities to
participate in and benefit from the stimulation of social and
economic development. In 2020, 19,319 people participated in our
programmes, which also supported 1,017 businesses. This helped
create 1,805 jobs. In 2020, 99 businesses supported by Shell
LiveWIRE entered our supply chain.
CLIMATE GOVERNANCEClimate change and risks resulting from
greenhouse gas (GHG) emissions are a significant risk factor for
Shell. They are managed in accordance with other significant risks
through the Board and the Executive Committee.The Board
committees play an important role in assisting the Board with
regard to governance and oversight of management of climate change
risks and opportunities, as described in the Annual Report. The
Safety, Environment and Sustainability Committee (SESCo) assists
the Board in reviewing the practices and the performance of
the Shell Group of companies, primarily with respect to safety,
environment including climate change, and sustainability.
When reviewing these areas and deciding how to advise the Board,
SESCo takes into account the Shell General Business Principles,
Code of Conduct, and HSSE & SP Control Framework. SESCo’s
duties include reviewing Shell's progress towards meeting our
climate targets and the energy transition. SESCo also advises the
Remuneration Committee (REMCO) on metrics relating to sustainable
development and energy transition.
INCENTIVES AND REMUNERATIONThe Remuneration Committee is
responsible for determining the Directors’ Remuneration Policy, in
alignment with our business strategy.
Starting in 2021, we are increasing the weight associated with
GHG emissions management in the annual scorecard, which helps
determine the annual bonus levels for all our employees, including
members of the Executive Committee. The GHG emissions intensity
metric and its weight (10%) will remain unaltered, but we will add
a new metric that measures the execution of GHG-abatement projects
with a weight of 5%.
Performance Share Plan and Long-term Incentive Plan
[Q]For 2021 awards made under the Performance Share Plan (PSP),
the weighting of the energy transition condition has doubled
from 5% to 10%. For 2021, the weighting of the energy
transition condition in the Long-term Incentive Plan (LTIP)
will also double from 10% to 20%. The target range is a
6-8% reduction in net carbon intensity by 2023 against the 2016
baseline NCF of 79 grams of carbon dioxide (CO₂) equivalent per
megajoule.
The other targets linked to our strategic ambitions will also
evolve, with the metric connected to commercialising advanced
biofuel technology broadening to a measure of growing new cleaner
energy product offerings. The targets for the leading energy
transition measures are commercially sensitive and will be
disclosed retrospectively. The energy transition condition was
included again in the 2020 LTIP awards for Executive Directors and
Senior Executives and was also incorporated into the
Performance Share Plan awards made to around 16,500 employees
globally.
[Q]Executive Directors and Executive Committee members
participate in the LTIP. Around 150 Senior Executives participate
in the same plan. The measures and metrics for that plan also apply
to 50% of the Performance Share Plan (PSP) awarded to around 16,500
employees.
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES
(TCFD)This publication and the description of our energy
transition strategy are part of our continuing work to
implement the recommendations of the Task
Force on Climate-related Financial Disclosures
(TCFD).
We assess our portfolio decisions, including investments and
divestments, against the risks and opportunities associated with
climate change and the energy transition. These include for
example, policy actions such as higher regulatory costs linked to
carbon emissions and demand changes which lower demand for oil and
gas.
MANAGING CLIMATE-RELATED RISKS AND OPPORTUNITIESOur
approach to assessing and managing the risks and opportunities
associated with climate change includes considering different time
horizons. The time horizons and their relevance to risks,
opportunities and business planning are as follows:
- Short term (up to three years): we develop detailed financial
projections and use them to manage performance and expectations on
a three-year cycle.
- Medium term (generally three to 10 years): most of our expected
production and earnings in this period come from our existing
assets.
- Long term (generally beyond 10 years): for this period, it is
expected that the current Shell portfolio will change and evolve
with the energy transition. Decision-making and risk identification
on the thematic structure of the future portfolio are guided by the
pace of society's progress and the aim of being in step with
society as it moves towards the goals of the Paris Agreement.
The overall climate change risk consists of four components,
based on the nature of our exposure and the options for our
mitigation responses. The four components are regulatory risks,
commercial risks, physical risks and societal risks. We provide
more details about how we manage these in our Annual Report.
SCENARIOSOur portfolio and strategy have been assessed
against a wide range of outlooks. These include the potential
impacts of various possible energy transition pathways, and
changes in societal expectations around climate change. Our
latest set of Shell scenarios [R] was one of the many
variables used in guiding our updated strategy which
we announced in February 2021.
SENSITIVITY TO OIL PRICES We estimate that a $10 per
barrel change in oil prices would have an impact of roughly $6
billion per year on our cash flow from operations. Of this, $4
billion would come from Upstream and $2 billion from our Integrated
Gas business. Cash flows from our Growth pillar and Chemicals and
Products businesses have limited exposure to commodity prices and
so are not included in this calculation. This is an indicative
estimate and not a prediction.
Based on this assumption, if the oil price sustainably increased
by around $15 per barrel, as it did in January and February 2021,
that would be expected to create an additional $9 billion in
medium-term cash flow per year from operations from our Upstream
and Integrated Gas businesses. Similarly, a $15 fall in the oil
price would be expected to result in a $9 billion reduction in cash
flow from operations per year in the medium term.
[R]
https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/the-energy-transformation-scenarios
SENSITIVITY TO GOVERNMENT-LED CO2 PRICES
Shell views carbon pricing as a key policy tool for meeting the
temperature goal of the Paris Agreement as it helps to increase
demand for low-carbon energy and creates incentives for
investment in low-carbon technologies and infrastructure.
Shell’s annual carbon cost exposure is expected to increase over
the next decade because of evolving carbon regulations. This
expected increase is based on forecasts of Shell’s equity share of
emissions from operated and non-operated assets, and real-terms
carbon cost estimates which range from $5 to $110 per tonne of GHG
emissions in 2030. This exposure also takes into account the
estimated impact of free allowances as relevant to assets based on
their location. The regulatory carbon cost estimate is refreshed on
an annual basis as part of the development of our business
plan.
RISK OF STRANDED ASSETSEvery year we test our portfolio
under different scenarios, including prolonged low oil prices. In
addition, we rank the break-even prices of our assets in the
Upstream business to assess their resilience against low oil and
gas prices. At December 31, 2020, we estimate that around 75%
of our current proved oil and gas reserves will be produced by
2030 and only around 3% after 2040. We also estimate that
around 70% of our proved plus probable oil and gas reserves,
known as 2P, will be produced by 2030, and only 5% after
2040.
EVOLVING REGULATORY DISCLOSURE REQUIREMENTSDisclosure
requirements related to climate-related risks and opportunities are
evolving and may result in more stringent disclosure mandates.
Several regulatory bodies, including in the EU, the UK and the USA,
are exploring frameworks and guidance for increased disclosure and
creating uniform criteria for how economic activities score on
environmental sustainability. Shell continues to monitor regulatory
developments in this area, including progress on the EU Taxonomy
and the adoption of the EU Delegated Acts for the technical
screening criteria and disclosure methodology. We will develop
responses as appropriate.
INCREASING TRANSPARENCYWe are implementing the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD) in our reporting. We are also engaging with
others including the investor group Climate Action 100+ and the
Science Based Targets initiative as they develop new reporting,
accounting and target-setting frameworks for the oil and gas
industry. The Science Based Targets initiative is a partnership
between CDP, the United Nations Global Compact, the World Resources
Institute and the World Wide Fund for Nature.
The structure of this report outlining our energy transition
strategy is based on our continued engagement with Climate Action
100+ and on the net-zero disclosure standard developed by that
group for the oil and gas industry.
The table below shows where to find Shell’s disclosures that
respond to the recommendations by the TCFD in our 2020 reports,
publications and websites.
TCFD RECOMMENDATION |
|
DISCLOSURE |
GOVERNANCE:Disclose the organisation’s governance around
climate-related risks and opportunities. |
a) Describe the Board’s oversight of climate-related risks and
opportunities. |
|
Annual Report: (pages 96/97) “Our governance of climate change”;
(pages 143/144) “Governance – Safety, Environment and
Sustainability Committee”, and (pages 186/187) “Risk management and
controls” |
b) Describe management’s role in assessing and managing
climate-related risks and opportunities. |
|
Annual Report: (page 96/97) “Our governance of climate change” |
STRATEGY:Disclose the actual and potential impacts of
climate-related risks and opportunities on the organisation’s
businesses, strategy, and financial planning where such information
is material. |
a) Describe the climate-related risks and opportunities the
organisation has identified over the short, medium, and long
term. |
|
Annual Report: (pages 18-21) “Strategy and outlook”, “Powering
Progress”Annual Report: (page 98) “Climate-related risks and
opportunities”CDP 2020 Climate Change submission: sections
C2.2/2.3/2.4 Risks and Opportunities |
b) Describe the impact of climate-related risks and opportunities
on the organisation’s businesses, strategy, and financial
planning. |
|
Annual Report: (pages 98/99) “Impact of climate-related risks and
opportunities on strategy, planning and business”Annual Report:
(pages 94/95) introduction of “Climate change and energy
transition”, “Shell’s absolute emissions and carbon intensity
targets”, “How we plan to deliver”, and “Transparency and
collaboration”Annual Report: (page 221) “Climate change and energy
transition”CDP 2020 Climate Change submission: section C3 Business
Strategy |
c) Describe the resilience of the organisation’s strategy, taking
into consideration different climate-related scenarios, including a
2°C or lower scenario. |
|
Annual Report: (pages 98/99) “Impact of climate-related risks and
opportunities on strategy, planning and business”Annual Report:
(page 99) “Our climate target”Corporate webpage: How are Shell
scenarios used? |
RISK MANAGEMENT:Disclose how the organisation identifies,
assesses, and manages climate-related risks. |
a) Describe the organisation’s processes for identifying and
assessing climate-related risks. |
|
Annual Report: (page 97) “Climate change risk management
process”Annual Report: (page 101) “Impact of physical risks and
adaptation measures”Sustainability Report: (page 17) “About this
report” |
b) Describe the organisation’s processes for managing
climate-related risks. |
|
Annual Report: (page 96/97) “Our governance of climate change”,
“Reorganisation in line with updated strategy” Annual Report: (page
98) “Climate change risk management at project level”Annual Report:
(pages 101-105) “Our portfolio and climate change”, “Natural gas”,
“Methane emissions”, “Methane initiatives and collaborations”,
“Renewables and energy solutions”, “Power”, “Low-carbon fuels”,
“Carbon capture and storage”, “Nature-based solutions”
Sustainability Report: (pages 36-60) “Achieving net-zero
emissions” |
c) Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation’s
overall risk management. |
|
Annual Report: (pages 186/187) “Risk management and
controls”Sustainability Report: (page 7/8) “Our approach to
sustainability” |
METRICS AND TARGETS:Disclose the metrics and targets used to
assess and manage relevant climate-related risks and opportunities
where such information is material. |
a) Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with its strategy
and risk management process. |
|
Sustainability Report: (page 98-103) “Greenhouse gas and energy
data” Annual Report: (page 100) “Our net carbon intensity targets";
(page 164/165) "Annual Report on Remuneration"Sustainability
Report: (page 13/14) “Executive remuneration” |
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3
greenhouse gas (GHG) emissions, and the related risks. |
|
Corporate webpage: Performance data on Scope 1, 2, and 3Annual
Report: (page 29) “Risk Factors” |
c) Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance against
targets. |
|
Annual Report: (page 99) “Shell´s absolute emissions and carbon
intensity targets”, (page 105-107) “Our performance”Annual Report:
(page 45) “Performance indicators: safety and
environment”Sustainability Report: (page 10/11) “Performance
highlights”; (page 36-60) “Achieving net-zero emissions”; (page
95/96) “Our Powering Progress targets” Annual Report: (page 156)
“Evolving remuneration in line with strategy”Corporate webpage: Our
climate target: frequently asked questions |
OUR STRATEGY TO ACCELERATE THE TRANSITION TO A NET-ZERO
ENERGY BUSINESSOUR GOAL: Net zero by 2050, in
step with society, aligned with Paris
OUR CLIMATE TARGETS:
- ALL ENERGY SOLD SCOPES 1, 2 & 3
- REDUCING NET CARBON INTENSITY
- ABSOLUTE EMISSIONS REDUCTION FROM 1.7 GTPA
TO NET ZERO
ALIGNING OUR BUSINESS WITH PARIS: CHANGING HOW WE
WORK
WHAT WE OFFER OUR CUSTOMERS
- Low- and zero-carbon products and solutions to avoid, reduce
and mitigate emissions from energy use
- Introducing sector-based businesses accountable for driving
decarbonisation
HOW WE OPERATE
- Reducing Scope 1 & 2 emissions to net zero by 2050
- Operational efficiency: methane intensity target and
eliminating routine flaring
HOW WE INVEST
- Limit investment in Upstream, maintain investment in
Transition, increase investment in Growth
- Build material low-carbon businesses of significant scale by
the early 2030s
HOW WE MAKE DECISIONS
- Carbon budgets to steer business decisions
- Carbon targets tied to staff and executive incentive
structures
- The Board and Executive Committee have accountability for
energy transition strategy
IN STEP WITH SOCIETY
CUSTOMERS AND PARTNERS ACROSS SECTORS
- Partner with customers to identify and pilot decarbonisation
solutions
- Participate in sectoral coalitions to accelerate
decarbonisation pathways
INDUSTRY PEERS
- Working with Science Based Target initiative, Climate Action
100+ and Transition Pathways Initiative on industry standards
- Transition Principles developed with other energy
companies
GOVERNMENTS & POLICYMAKERS
- Responsible lobbying
- Disclose climate-related policy positions
- Industry Associations Climate Review
INVESTORS
- Support consistency in disclosures including TCFD and WEF
standards
- Transparency through Annual Report, Sustainability Report and
advisory vote on energy transition strategy and progress
POWERING LIVES RESPECTING
NATURE GENERATING SHAREHOLDER VALUE
DISCLAIMER
CAUTIONARY NOTEThe companies in which Royal Dutch Shell
plc directly and indirectly owns investments are separate legal
entities. In this report “Shell”, “Shell Group” and “Group”
are sometimes used for convenience where references are made to
Royal Dutch Shell plc and its subsidiaries in general. Likewise,
the words “we”, “us” and “our” are also used to refer to Royal
Dutch Shell plc and its subsidiaries in general or to those who
work for them. These terms are also used where no useful purpose is
served by identifying the particular entity or entities.
“Subsidiaries”, “Shell subsidiaries” and “Shell companies” as used
in this report refer to entities over which Royal Dutch Shell plc
either directly or indirectly has control. Entities and
unincorporated arrangements over which Shell has joint control are
generally referred to as “joint ventures” and “joint operations”,
respectively. Entities over which Shell has significant influence
but neither control nor joint control are referred to as
“associates”. The term “Shell interest” is used for convenience to
indicate the direct and/or indirect ownership interest held by
Shell in an entity or unincorporated joint arrangement, after
exclusion of all third-party interest.
This report contains certain following forward-looking Non-GAAP
measures such as adjusted earnings. We are unable to provide a
reconciliation of these forward-looking Non-GAAP measures to
the most comparable GAAP financial measures because certain
information needed to reconcile those Non-GAAP measures to the most
comparable GAAP financial measures is dependent on future
events some of which are outside the control of the company, such
as oil and gas prices, interest rates and exchange rates. Moreover,
estimating such GAAP measures with the required precision necessary
to provide a meaningful reconciliation is extremely difficult
and could not be accomplished without unreasonable effort.
Non-GAAP measures in respect of future periods which cannot be
reconciled to the most comparable GAAP financial measure are
calculated in a manner which is consistent with the accounting
policies applied in Royal Dutch Shell plc’s consolidated financial
statements.
As used in this report, “Accountable” is intended to mean:
required or expected to justify actions or decisions. The
Accountable person does not necessarily implement the action or
decision (implementation is usually carried out by the person who
is Responsible) but must organise the implementation and verify
that the action has been carried out as required. This includes
obtaining requisite assurance from Shell companies that the
framework is operating effectively. “Responsible” is intended to
mean: required or expected to implement actions or decisions. Each
Shell company and Shell-operated venture is responsible for its
operational performance and compliance with the Shell General
Business Principles, Code of Conduct, Statement on Risk Management
and Risk Manual, and Standards and Manuals. This includes
responsibility for the operationalisation and implementation of
Shell Group strategies and policies.
This report contains forward-looking statements (within the
meaning of the U.S. Private Securities Litigation Reform Act
of 1995) concerning the financial condition, results of operations
and businesses of Shell. All statements other than statements of
historical fact are, or may be deemed to be, forward-looking
statements. Forward-looking statements are statements of future
expectations that are based on management’s current expectations
and assumptions and involve known and unknown risks and
uncertainties that could cause actual results, performance or
events to differ materially from those expressed or implied in
these statements. Forward-looking statements include, among other
things, statements concerning the potential exposure of Shell to
market risks and statements expressing management’s expectations,
beliefs, estimates, forecasts, projections and assumptions. These
forward-looking statements are identified by their use of terms and
phrases such as “aim”, “ambition”, “anticipate”, “believe”,
“could”, “estimate”, “expect”, “goals”, “intend”, “may”,
“milestones”, “objectives”, “outlook”, “plan”, “probably”,
“project”, “risks”, “schedule”, “seek”, “should”, “target”, “will”
and similar terms and phrases. There are a number of factors that
could affect the future operations of Shell and could cause those
results to differ materially from those expressed in the
forward-looking statements included in this report, including
(without limitation): (a) price fluctuations in crude oil and
natural gas; (b) changes in demand for Shell’s products; (c)
currency fluctuations; (d) drilling and production results; (e)
reserves estimates; (f) loss of market share and industry
competition; (g) environmental and physical risks; (h) risks
associated with the identification of suitable potential
acquisition properties and targets, and successful negotiation
and completion of such transactions; (i) the risk of doing business
in developing countries and countries subject to international
sanctions; (j) legislative, fiscal and regulatory developments
including regulatory measures addressing climate change; (k)
economic and financial market conditions in various countries and
regions; (l) political risks, including the risks of expropriation
and renegotiation of the terms of contracts with governmental
entities, delays or advancements in the approval of projects
and delays in the reimbursement for shared costs; (m) risks
associated with the impact of pandemics, such as the COVID-19
(coronavirus) outbreak; and (n) changes in trading conditions. No
assurance is provided that future dividend payments will match or
exceed previous dividend payments. All forward-looking statements
contained in this report are expressly qualified in their entirety
by the cautionary statements contained or referred to in this
section. Readers should not place undue reliance on forward-looking
statements. Additional risk factors that may affect future results
are contained in Royal Dutch Shell plc’s Form 20-F for the year
ended December 31, 2020 (available at www.shell.com/investor and
www.sec.gov). These risk factors also expressly qualify all
forward-looking statements contained in this report and should be
considered by the reader. Each forward-looking statement speaks
only as of the date of this report, April 15, 2021. Neither Royal
Dutch Shell plc nor any of its subsidiaries undertake any
obligation to publicly update or revise any forward-looking
statement as a result of new information, future events or
other information. In light of these risks, results could
differ materially from those stated, implied or inferred from the
forward-looking statements contained in this report.
Past performance cannot be relied on as a guide to future
performance. The content of websites referred to in this
report do not form part of this report and are provided only
for the convenience of the reader.
Linda M. Coulter Company Secretary
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