Shell ties in bonuses to emissions strategy

Royal Dutch Shell plans to link part of its executive bonuses to greenhouse gas emissions and conduct more active screening of future investments to further efforts to reduce the energy group’s carbon footprint, its CEO said. The new initiative by the Anglo-Dutch group comes in response to mounting pressure from investors to adapt to an expected flattening in oil consumption within as little as five years and international plans to phase out fossil fuels by the end of the century to combat global warming.

“We have to be at the forefront of the transition. By the middle of the century you want to look at a portfolio that is really fit for that future,” Chief Executive Ben van Beurden ( pictured) said.

Shell sharply increased its oil and gas reserves through the $54 billion acquisition of BG Group this year, but the company will focus on renewable energy, particularly wind and solar, as well as low-carbon biofuels and hydrogen as a key growth engine beyond 2020.

“If you make new investment decisions that you have to live with for the next 30 or 40 years, why don’t we screen these for long-term carbon intensity?” Van Beurden said.

“In the past we didn’t do this. The only thing we did was put a shadow price for carbon in them... now we have to take it one step further.”

Many oil and gas companies include a shadow carbon price, usually about $40 a tonne, in calculations for potential investments to help to assess potential costs and profitability. The more robust investment screening is in addition to the company’s proposal on executive bonuses.

The company said in an investor presentation last month that 10 per cent of bonus payments to executives including the CEO and chief financial officer would be linked to “greenhouse gas management”, though it was unclear what targets would be set.

“We have linked executive remuneration in the past to energy intensity and next year we are going to make it even more specific to the CO2 footprint metrics associated with these energy efficiencies,” said Van Beurden, whose total direct remuneration was £5.1 million ($6.4 million) last year, including a £3.5 million bonus.

Shell, which has been ratcheting up efforts to reduce carbon emissions alongside rivals such as BP, Total and Statoil, will seek shareholder approval for the three-year scheme at its next annual general meeting, likely to be held next April. Shareholders have been increasingly vocal in recent years over climate change, calling on the company to report regularly on the likes of emission management and related investment strategies.

Shell has dismissed the idea that some of its oil and gas assets could be unuseable, or stranded, but the new focus on the carbon intensity of oil fields, gas liquefication plants or petrochemical facilities could mean that some assets will never be developed.