TIDMRDSA TIDMRDSB
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 2021
At 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 AGM
This 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
https://www.globenewswire.com/Tracker?data=tYpeHiLvu3P4MFdFplp4CXDnjxPpIJMnr_WE3yILldHC8vH_eVzVY4GrwSEKE8wTFawDW9MXGdhW6VtunM9mTOy7eitpPNDaOqlJl3ba-xcmSUyHRorLvKl2JCZEhCO-
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
https://www.globenewswire.com/Tracker?data=tYpeHiLvu3P4MFdFplp4CWB3j7b_ihnMR8ANxaMknVcxs0rRl819gOwXUmYE5Rsb6EdptCopXeheCdOcdmsJAA==
www.shell.com/investors to receive the latest AGM news.
Shareholder questions
Our 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
https://www.globenewswire.com/Tracker?data=tYpeHiLvu3P4MFdFplp4CSab_jim11TQ7G376o5Wy3YUhXrf7fCqrSIbh_iKEmE64OCc91lFN5Tdqf4z9kGxYg==
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.
Voting
It 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, London
In 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 Mechanism
In 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 2021
Royal Dutch Shell plc
CONTENTS
1 CHAIR'S MESSAGE
2 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 2050
8 OUR TARGETS: SHORT, MEDIUM AND LONG TERM
12 OUR DECARBONISATION STRATEGY
20 CAPITAL ALLOCATION
24 CLIMATE POLICY ENGAGEMENT
25 A JUST TRANSITION
27 CLIMATE GOVERNANCE
28 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD)
31 OUR TRANSITION TO A NET-ZERO ENERGY BUSINESS AT A GLANCE
32 DISCLAIMER
CHAIR'S MESSAGE
This 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 HOLLIDAY
Chair
CHIEF EXECUTIVE OFFICER'S INTRODUCTION
Tackling 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 1.5degC 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 CUSTOMERS
Most 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 SUPPORT
The 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 EMISSIONS
This 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
1.5degC.
-- 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 STRATEGY
OUR 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 GCO(2) E/MJ
2016 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 2050
We believe total carbon emissions from energy sold peaked in 2018 at
around 1.7 gigatonnes CO(2) e 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 ACTIONS
AVOID
By providing, investing in and scaling up low-carbon energy solutions
for our customers
REDUCE
By limiting emissions as much as possible today
MITIGATE
By capturing and offsetting any residual emissions
OUR 2030 MILESTONES
OPERATIONAL 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 2050
Tackling 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 1.5degC 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 1.5degC 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.
COLLABORATION
Increasing 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 1.5degC 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 1.5degC.
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 CHALLENGE
As 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 EUR200/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 PRODUCTS
Our 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 TERM
We 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 SOLD
gCO(2) e/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 CO(2) equivalent
(gCO(2) e) 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 PARIS
Shell'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
1.5degC scenarios used in the IPCC Special Report on Global Warming of
1.5degC (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 1.5degC scenarios. This is illustrated in the
graphic on the right that demonstrates how Shell's targets are
positioned within the range of 1.5degC 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 TARGETS
gCO(2) e/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 1.5degC.
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 1.5degC
SCENARIOS
gCO(2) e/MJ
OUR PLANS
Shell'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 PERFORMANCE
Shell's carbon intensity in 2020 was 75 gCO(2) e/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 STRATEGY
As 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 SYSTEM
The 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 2degC
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 CHANGE
As 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 POWER
Our 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 COMPANIES
STRATEGIC ALLIANCE WITH MICROSOFT
We 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-ROYCE
Rolls-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 TRANSITION
Our 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 ENERGY
As 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 OPERATIONS
Our 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 Natural gas Low-carbon Low-carbon CCS Natural sinks
efficiency(1) shift power business fuels (biofuels,
hydrogen)
---------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------- ----------------------------------------------------
-- Eliminating routine flaring -- Oil production peaked in 2019, expected to decline -- Doubling electricity sold -- Producing 8 times more low-carbon fuels than today -- Targeting more than 25 mtpa CCS (by 2035) -- Aiming for 120 mtpa of nature-based solutions
-- Maintaining methane emissions intensity <0.2% (2025) 1-2% per annum -- Delivering equivalent of >50 million households with -- Increasing low-carbon fuels sales to >10% of -- High-quality offsets only
-- No new frontier exploration entries anticipated after renewable electricity transport fuels (up from 3% in 2020)
2025 -- Operating 2.5 million electric vehicle charge points
-- Growing gas share of hydrocarbon production to 55%
---------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------- ----------------------------------------------------
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 NATURE
The protection and restoration of natural ecosystems could play an
important role in limiting global warming to below 1.5degC, 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, CO(2) emissions from
the natural environment are reduced and more CO(2) 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 CO(2) .
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 CO(2)
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 CO(2) 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.globenewswire.com/Tracker?data=IbFm0X2pnm2MYhgEJiluvVKLQwifDVi9LOv0f_0XnOBY6jc9ySp7NnUpIXSpWkrfsnd7JbI8EyRaaX-7y-Schmd4XOtvxsqWXb5T9Zl9xG4=
https://www.iif.com/tsvcm
HIGH-QUALITY CREDITS
Nature-based solutions have a role to play in reducing the impact of the
CO(2) 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 PORTFOLIO
In 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 CARBON
Most climate scientists are clear that using technology to store carbon
plays an important role in the transition of the energy system. The IPCC
1.5degC 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 CO(2) .
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 CO(2) , 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 CO(2) 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 CO(2) 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 DEMAND
Our 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 ENERGY
REDUCE CO(2) 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 GROWTH
Estimated 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 PROJECTIONS
Million 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 hydrogen
We 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 LEADERSHIP
EUROPE
-- 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 SOLUTIONS
a selection of investments, acquisitions and ventures
YEAR BUSINESS FOUNDED
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
2016 Wind
-- Blauwwind*, NL
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
2017 Mobility Energy solutions Energy access
-- Acquired NewMotion, NL -- Shell Energy Retail, UK (acquired as First Ut -- SolarNow*, Uganda
ility)
-- Connected Freight*, Philippines -- Innowatts*, USA -- SteamaCo*, Kenya
-- Sunseap*, Singapore
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
Trading Hydrogen
-- Acquired MP2 Energy, USA -- Opened hydrogen stations in the UK and USA
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
2018 Solar Wind Energy solutions
-- Silicon Ranch*, USA -- Atlantic Shores Offshore Wind*, USA -- Shell Energy Inside, USA
-- Cleantech Solar*, Asia -- Mayflower Wind Energy*, USA
-- Opened Moerdijk solar farm, NL -- TetraSpar*, Norway
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
Hydrogen Energy access Mobility
-- Opened hydrogen stations in California, USA -- Husk Power*, India -- Ample*, USA
-- HyET Hydrogen*, NL -- SunFunder*, Kenya
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
2019 Mobility Wind Energy solutions
-- Acquired Greenlots, USA -- Acquired EOLFI, France -- Acquired sonnen, Germany
-- Acquired Hudson Energy UK (rebranded to Shell Energy
-- Ravin.ai*, UK -- CoensHexicon*, South Korea Retail in 2020)
-- LO3 Energy*, USA
-- Revel*, USA -- Corvus Energy*, Norway
-- Aurora*, USA
-- Nordsol*, NL
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
Nature-based solutions Energy access Trading
-- Orb Energy*, India -- Acquired ERM Power (rebranded to Shell Energy in
-- Nature-based solutions projects under way in 2020), Australia
Australia, Malaysia, Netherlands, Spain and UK -- PowerGen*, Kenya
-- Acquired Limejump, UK
-- d.light*, Kenya
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
Solar Hydrogen
-- ESCO Pacific*, Australia -- Announced plans to build Rheinland Hydrogen
Electrolyser, Germany
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
2020 Solar Mobility Wind
-- Final investment decision to build Gangarri solar -- Masabi*, UK -- Shell and Eneco awarded tender to build 759 MW
farm, Australia Hollandse Kust (noord) offshore wind farm, NL
-- InstaFreight*, Germany
-- Spiffy*, USA
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
Nature-based solutions Hydrogen Energy solutions
-- Announced plans to build 20 MW green hydrogen -- Palmetto*, USA
-- Select Carbon, Australia electrolyser and refuelling stations, China
-- ZeroAvia*, USA -- GreenCom*, Germany
-- Climate Bridge*, China
---- ------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------
* Minority investments
CAPITAL ALLOCATION
Shell'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 STRATEGY
We 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 FRAMEWORK
We 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 TRANSITION
We 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 GAS
A 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 WIND
Shell 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 ENGAGEMENT
Robust 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 GOVERNMENTS
Our 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 TRANSPARENCY
We 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 TRANSITION
The 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 GOALS
The 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 GOVERNANCE
Climate 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 REMUNERATION
The 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 (CO ) 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 OPPORTUNITIES
Our 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.
SCENARIOS
Our 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 CO(2) 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 ASSETS
Every 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 REQUIREMENTS
Disclosure 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 TRANSPARENCY
We 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 RECOMMATION DISCLOSURE
-------------------------------- -------------------------------------------------------
GOVERNANCE:
Disclose the organisation's governance around climate-related risks
and opportunities.
a) Describe the Board's Annual Report: (pages 96/97) "Our governance
oversight of climate-related of climate change"; (pages 143/144) "Governance
risks and opportunities. -- Safety, Environment and Sustainability
Committee", and (pages 186/187) "Risk management
and controls"
b) Describe management's Annual Report: (page 96/97) "Our governance
role in assessing and of climate change"
managing climate-related
risks and opportunities.
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 Annual Report: (pages 18-21) "Strategy and
risks and opportunities outlook", "Powering Progress"
the organisation has identified Annual Report: (page 98) "Climate-related
over the short, medium, risks and opportunities"
and long term. CDP 2020 Climate Change submission: sections
C2.2/2.3/2.4
Risks and Opportunities
b) Describe the impact Annual Report: (pages 98/99) "Impact of climate-related
of climate-related risks risks and opportunities on strategy, planning
and opportunities on the and business"
organisation's businesses, Annual Report: (pages 94/95) introduction
strategy, and financial of "Climate change and energy transition",
planning. "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 Annual Report: (pages 98/99) "Impact of climate-related
of the organisation's risks and opportunities on strategy,
strategy, taking into planning and business"
consideration different Annual Report: (page 99) "Our climate target"
climate-related scenarios, Corporate webpage: How are Shell scenarios
including a 2degC or lower used?
scenario.
RISK MANAGEMENT:
Disclose how the organisation identifies, assesses, and manages climate-related
risks.
a) Describe the organisation's Annual Report: (page 97) "Climate change risk
processes for identifying management process"
and assessing climate-related Annual Report: (page 101) "Impact of physical
risks. risks and adaptation measures"
Sustainability Report: (page 17) "About this
report"
b) Describe the organisation's Annual Report: (page 96/97) "Our governance
processes for managing of climate change",
climate-related risks. "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 Annual Report: (pages 186/187) "Risk management
for identifying, assessing, and controls"
and managing climate-related Sustainability Report: (page 7/8) "Our approach
risks are integrated into to sustainability"
the organisation's overall
risk management.
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 Sustainability Report: (page 98-103) "Greenhouse
used by the organisation gas and energy data"
to assess climate-related Annual Report: (page 100) "Our net carbon
risks and opportunities intensity targets"; (page 164/165)
in line with its strategy "Annual Report on Remuneration"
and risk management process. Sustainability Report: (page 13/14) "Executive
remuneration"
b) Disclose Scope 1, Scope Corporate webpage: Performance data on Scope
2, and, if appropriate, 1, 2, and 3
Scope 3 greenhouse gas Annual Report: (page 29) "Risk Factors"
(GHG) emissions, and the
related risks.
c) Describe the targets Annual Report: (page 99) "Shell's absolute
used by the organisation emissions and carbon intensity targets",
to manage climate-related (page 105-107) "Our performance"
risks and opportunities Annual Report: (page 45) "Performance indicators:
and performance against safety and environment"
targets. 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 BUSINESS
OUR 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 NOTE
The 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
ENQUIRIES
Shell Media Relations
International: +44 20 7934 5550 Americas: +1 713 241 4544
LEI number of Royal Dutch Shell plc: 21380068P1DRHMJ8KU70
Classification: Additional regulated information required to be
disclosed under the laws of a Member State.
(END) Dow Jones Newswires
April 15, 2021 02:15 ET (06:15 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
Shell (LSE:RDSA)
Historical Stock Chart
From Aug 2024 to Sep 2024
Shell (LSE:RDSA)
Historical Stock Chart
From Sep 2023 to Sep 2024