Shell to link exec pay to carbon footprint

Royal Dutch Shell has responded to shareholder pressure to meet climate change goals, and is to set specific net carbon footprint targets which will be linked to executive remuneration, the oil giant has announced

The move follows intense lobbying by institutional investors, including Robeco asset management, the Church of England Pensions Board, the European Institutional Investors Group on Climate Change (IIGCC) and other European investor groups, as well as Environment Agency Pension Fund (EAPF) and the Universities Superannuation Scheme (USS).

To meet the goals of the Paris agreement on climate change, Shell says it aims to reduce its net carbon footprint by around half by 2050 and by around 20% by 2035 as an interim step.

To operationalise this long-term ambition, Shell will start setting specific net carbon footprint targets for shorter-term periods (three or five years). The target will be set each year for the next three- or five-year period, with the process starting from 2020 and running to 2050.

Shell will incorporate a link between energy transition and long-term remuneration as part of its revised remuneration policy, which will be subject to a shareholder vote at the 2020 annual general meeting (AGM).

If approved at the AGM, the policy will include a net carbon footprint-related measure, as well as other measures, to have a balance of leading and lagging performance metrics over a three-or five-year performance period.

The measures for each performance period will be set on an annual rolling basis at the time of the award and will be subject to the annual remuneration target-setting process as well as to the final plan design. The measures and targets will evolve as time progresses over the years to 2050.

The final plan design is being discussed with shareholders, including details relating to the appropriate remuneration structure and appropriate measures and metrics.

Each year, Shell will publish an update on its progress towards lowering its net carbon footprint. In the initial years, this disclosure will be made in the sustainability report, but with a commitment, in line with task force on climate-related financial disclosures (TCFD) best practice, to integrate this into the annual report.

Shell will seek third-party assurance of its reported net carbon footprint and assurance statements will be published on the company website.

Every five years, Shell will review the updated nationally determined contributions (NDCs) in line with the Paris Agreement mechanism, the updated scenarios on decarbonisation trajectories and any other developments to assess societal progress in the energy transition. The outcome of this review will be used to calibrate Shell’s ambition and pace of change. The first such review is currently anticipated to take place after 2022.

In a statement the institutional investors said: ‘In developing its net carbon footprint ambition, we believe Shell has taken a significant leadership position within the oil and gas sector. As investors, we are strongly supportive of this approach.’

Shell said: ‘Shell appreciates the long-term relationship with its institutional investors and acknowledges the positive role that can be played by ongoing engagement. The dialogue with, and input from, investors has always been very constructive.

‘Shell acknowledges and agrees with the importance attached by its investors to the issue of climate change, and also agrees that Shell’s future success is contingent on its ability to effectively navigate the risks and the opportunities presented by climate change.’

Report by Pat Sweet

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