Overall it is equally if not more crucial

Overall review of the
CDP report, the annual report and the sustainability report shows that Shell
has made progress year over year in limiting GHG emissions and tying
sustainability to company performance through ensuring accountability, KPI
tracking and modifying the scorecard structure. However, this must be built on
and expanded to incorporate Scope 3 emissions, develop quantifiable low carbon
strategy and link capital allocation to a long-term portfolio vision that’s
heavy in renewables instead of gas.

Shell has significant
investment in Deepwater projects and has taken multiple steps to reduce operating
costs enabling the projects to be viable in a low oil price environment. While
this is laudable, it could expose the company to safety and environmental risks
if cost cutting measures resulted in lower safety and operating standards.
Also, Deepwater projects are capital intensive, limiting the company’s ability
to swiftly respond to shift in energy demand and policy changes to curb GHG
emissions.

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Another area of
concern is that Shell doesn’t have a significant capital allocated for New
Energies. Even though the annual report talks about transition to low carbon
assets, less than 5% of Capital is allocated to development of the green energy
assets. It would be beneficial if the company shared the likely portfolio it
will be operating with in the next 10-20 years given the capital allocation. While
it is informative to share the impacts of current assets, it is equally if not
more crucial to understand how future investments will shape the company. Specially
to comprehend whether renewables and cleaner energies will make a major share
of the portfolio.

As part of the annual
report, Shell must also highlight the impact of carbon pricing on the demand of
its products and how it aligns with its current portfolio of assets. In the
last few months, Shell has divested its Heavy Oil assets as part of post BG
acquisition divestments, which should reduce the company’s footprint. However,
it would be helpful if the annual report had a detailed analysis on the
resilience of Shell portfolio of assets such that the goals of the Paris
Agreement are met. There must also be evidence of capital allocation that
supports the transition to cleaner energy and allows for measurement against quantifiable
milestones. These milestones could be captured in KPIs that impact performance
scorecard, tying the monetary incentives to a plan that meets the goals of
Paris Agreement.

When providing
absolute targets, Shell only lists Scope 1 emissions whereas Galp Energia anticipates
changes in both Scope 1 and Scope 2 emissions based on undertaken initiatives. To
consider total lifecycle emissions Scope 1, Scope 2 and Scope 3 emissions
should be considered as part of the low-carbon transition strategy. Based on the
reports published thus far, Shell has not set out a holistic strategy that
addresses the total lifecycle emissions.

Shell recognizes that
given its scale and nature of business, it is a significant GHG emitter; however,
the company has placed several initiatives in place to reduce the impact and measure
the performance. While the company integrates sustainability into its strategy
and has put in place committees, initiatives, targets and incentives to achieve
the goals and fulfil commitment, there are no plans to get to a zero emissions
stage. There is also a considerable uncertainty associated with measuring Scope
2 emissions, which could be off by as much as 20%. In comparison, Galp Energia,
a leader in CDP reporting, estimated the level of uncertainty between 2% to 5%
for Scope 1 and Scope 2 emissions.

Shell engages in
activities that could either directly or indirectly influence public policy on
climate change by direct engagement with policy makers and trade associations. In
addition, Shell funds research organizations. Shell prefers emissions trading
schemes (ETS) including cap and trade. However, where not feasible or accepted,
Shell supports carbon pricing instruments.

Shell uses an
internal price of carbon to make investment decisions. Since 2008, all projects
have been screened assuming a $40 per tonne of price on carbon emissions. This
allows the company to either eliminate projects that have a higher footprint or
to alter the project design to reduce environmental footprint. While $40/tonne
is a base case assumption, Shell runs price sensitivities and scenarios to
consider the impact of higher GHG prices, especially for projects in countries that
are more likely to impose a stringent carbon tax.

Shell recognizes the
importance of sustainability and incorporates it in its business strategy,
which is focused on financial returns, operational excellence and sustainable
development. Commitment to sustainability is reflected not only in the business
strategy but also in the rewards and incentives offered. Shell Sustainability
Report 2016 states that sustainable development continued to account for 20% of
the company scorecard, which helps determine the annual bonus levels for all
employees, including members of the Shell Executive Committee. Sustainable
development focuses on Safety (10%) and Environment (10%). Safety encompasses
both people and process safety whereas Environment focuses on GHG management
(refining, chemicals and flaring). Previously, environment scorecard focused on
fresh water use, spills and energy intensity. However, based on feedback from
the Corporate and Social Responsibility Committee, it was revised to focus on
GHG management.

Royal Dutch Shell is an
Energy company that is taking significant measures to provide energy in a responsible
manner that respects people, their safety and the environment. Shell CEO (Chief
Executive Officer) and the Executive committee are accountable for the climate
change actions.  EVP (Executive Vice
President) S&E (Safety and Environment) is responsible for climate actions
and is nominated as the risk owner. There is a separate committee called Group
CO2 that evaluates climate change related groups, helps develop GHG
emissions management strategies, and oversees the implementation programme. The
group is lead by VP CO2, who reports to the EVP S&E.

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