Church of England takes aim at Shell boss

The clergy’s pension fund will vote to oust Wael Sawan after accusing him of backtracking on climate

THE Church of England is pushing to oust the chief executive of Shell following a row over green investments.

The clergy’s Pension Board is preparing to vote to oust Wael Sawan and chairman Sir Andrew Mackenzie at Shell’s upcoming shareholder meeting later this month. It comes amid claims that the oil and gas giant has backtracked on net zero commitments.

The pension board, which manages the clergy’s £3bn retirement pot, is concerned that London-listed Shell has rowed back on promises to switch to clean power after the Ukraine war sent oil and gas prices soaring.

Writing in The Daily Telegraph, Adam Matthews, chief responsible investment officer for the Church of England Pension Board, said it was “with genuine regret” that he was preparing to vote against Mr Sawan and Sir Andrew but claimed closed-door talks on climate issues had ground to a halt.

Mr Matthews said: “We have lost confidence in the direction of the company.” The Church’s retirement fund accused Mr Sawan of downplaying the importance of renewables and prioritising short-term profits since he took over as chief executive in January.

Shell reported an annual profit of $40bn (£32bn) last year, the biggest in its 116-year history. The Church accused the company of refusing to use the cash windfalls to ramp up investment in renewables and instead handing $12bn to shareholders. Mr Matthew said this “may provide short-term dividends” but risked making the global switch to green energy “less likely and more unstable”.

A spokesman for Shell said it “strongly disagrees with the pension board’s changed position” and said: “Our strategy remains unchanged – to become a net zero energy company by 2050 or sooner.”

Shell argued that it is ramping up production of climate-friendly energy sources faster than the world is adopting them. The company has set a target of reducing its own emissions by 50pc by 2030 and recently announced that it was already over halfway towards meeting that goal.

Climate targets for oil and gas companies have proved a flash point on both sides of the net zero debate. Two years ago, Daniel Loeb, a Wall Street activist investor, called for Shell to be broken up, claiming its investments in renewable energy were being undermined by its larger oil and gas operations.

The public intervention from the Church of England represents a change of approach. It has until now threatened to sell down investments if management failed to make climate commitments.

The votes against Mr Sawan and Sir Andrew will be largely symbolic given the Church of England Pension Board’s relatively miniscule investment in Shell. It is understood that the pension fund has sold down its stake in Shell from £6.5m to £1.2m since 2018.

However, the activism could prompt other investors to put pressure on the company. The Church is part of the Climate Action 100+ group, which pressures companies responsible for the most greenhouse gas emissions – including oil companies such as BP and Shell – to gradually switch to renewables. Other members include Blackrock, Legal & General and Aviva.

Shell’s rival BP is also grappling with a backlash for scaling back its climate commitments. The Church pension board plans to vote against Shell’s proposed green energy strategy and will instead back an alternative proposed by climate campaign group “Fol- low This”, which led a similar rebellion at BP’S AGM last month.

A Shell spokesman said: “Shell and the Church of England Pensions Board have worked together as partners on the energy transition for almost a decade, with an emphasis on changing the use of energy as much as its supply. We continue to believe that is the right approach and strongly disagree with the pension board’s changed position.

“In the last year we’ve made very good progress in reducing emissions and investing in low carbon energy.”

The oil and gas industry in Europe is at a crossroads. The decisions the sector makes on where to allocate capital could make or break our collective efforts to limit global warming to 1.5C, with massive implications for the economy, for communities and in particular the poorest and most vulnerable.

The recent announcements by BP that it is weakening its climate targets, and the none too subtle hints from Shell being read by the market that it is likely to do something similar, signals that the lure of short-term profit maximisation is trumping the long-term sustainability of these companies and of our planet.

A disorderly climate transition caused by delayed action will not only miss the goals of the Paris climate agreement but directly work against the financial interests of pension funds and other long-term investors and their beneficiaries. The pivotal role of the sector is why the Church of England Pensions Board, alongside many other investors, has engaged intensely for many years with European oil and gas companies.

It is fair to recognise that we have seen genuine leadership from some of these companies, in no small part thanks to the dialogue with investors.

Companies have set targets and developed detailed strategies to navigate the energy transition.

While none of the major European players’ targets and commitments are ambitious enough, they did set companies on a path that aligned more clearly with long-term investors.

Importantly, they also signalled the companies were seeking to be constructive actors in shaping a low-carbon future and that it was in their interests to do so.

As a fund and along with the rest of the market, we are receiving the signals from Shell’s new chief executive of a return to the pursuit of maximising short-term returns.

Of course, we along with many investors recognise the war in Ukraine has implications for energy security – in the short term.

But the concern is that the short term is now influencing longer-term horizons as enormous profits do not translate into significantly scaled investments in the transition, compared with continued investment in oil and gas production.

While this thinking may provide short-term dividends, it increases medium to long-term risk for pension funds by making the transition less likely and more unstable. Most importantly, this shift means Shell is moving away from being an actor seeking to positively shape the future in favour of the transition.

Taking this path is a risky strategy for Shell and any other company given the regulatory and policy trends in Europe and North America, and the growing public and consumer concerns about climate change.

The widespread move to electrification is happening at pace alongside rapid growth in demand for electric vehicles.

These are positive trends and are only going in one direction.

At Shell’s 2021 AGM, we welcomed the progress that had been made, but clearly stated that we were prepared to sell our shareholding unless the company strengthened its targets in particular in the short and medium term.

As we approach our July 2023 engagement deadline and the end of the first phase of Climate Action 100+ engagement, we have lost confidence in the direction of the company.

As such we will be voting against Shell’s chairman and directors and the transition plan update, and voting for the “Follow This” shareholder resolution, which calls for more ambitious targets.

We do this with genuine regret at the short-term path the company appears to be choosing.

But this is not just about Shell, BP and the other oil and gas companies. The fact that the long term is not being prioritised in the same way means we as investors need to rethink our approach and focus on the demand side, not just the supply side.

More than 60pc of demand for oil comes from the transportation sector, while most gas is used by property and industrial companies.

Therefore, we must pivot our engagement to these other sectors on their use of oil and gas and encourage them to transition to alternative energy sources.

Furthermore, we need a new dialogue with governments to support a phased moratorium on oil and gas.

Informed by the pace at which the demand side can transition, investors should explore with governments how phasing out usage as quickly as possible can be achieved in line with the Paris agreement and informed by the International Energy Agency.

But in a fair way that does not penalise developing and emerging economies.

Through our vote at Shell’s AGM we are sending a signal about the importance we assign to the lowcarbon transition.

Through a focus on rapidly changing demand for oil and gas and supporting increased regulation, we hope this may encourage and incentivise companies in the oil and gas sector to follow a path aligned with the future society wants and not the short term.