Report
Expert Corporate Governance Service (ECGS)
EUR 500.00 For Business Accounts Only

Royal Dutch Shell - AGM 22 May 2019

Item 2: Approve the Remuneration Report

The structure is unsatisfactory, though it is sufficiently weighted toward the long-term.  Nevertheless, the bonus exceeds guidelines, qualitative criteria exceed our limits, and the severance provisions exceed guidelines. Although the pension contribution for the year was within guidelines, the accrual rate used to calculate the pension contribution is not disclosed. There is overlap between the performance conditions used for the STI and LTI with cash flow from operating activites accounting for 30% of the bonus and 25% of the LTI.  Actual and potential incentive pay is grossly excessive with total incentive pay for the year more than 2.8 times ECGS guidelines limit. We recommend shareholders oppose.

 Item 22: To request that the Board set and publish targets aligned with the Paris Climate Agreement

Shareholders are asked to approve a shareholder proposal submitted by Follow This, a Dutch group representing shareholders that collectively hold 645,314 shares in Shell.  We were the only proxy advisors to recommend support for similar resolutions at the 2017 and 2018 AGM, which received the approval of 5.54% of shareholders (total FOR votes and abstentions reached 13.9%) in 2018.

The shareholders request that the Board set and publish Company targets that are aligned with the goal of the Paris Climate Agreement to limit global warming to well below 2°C. The Board does not support the proposal, declaring that it is not in the best interests of the Company and its shareholders. It is the Board’s opinion that the Company is already making adequate efforts to achieve the same goal as is set-out in this proposal.  Unusually, the Company has released a letter stating that Follow This would withdraw the proposal, but it remains on the agenda. 

We believe that oil majors such as Shell should play a fundamental role in promoting a low-carbon future and this starts by honoring the commitments under the Paris Agreement.  Total emissions of oil and gas producers are 80-90% Scope 3 emissions caused by using their fuels.  For this reason, energy companies are reluctant to be held responsible for Scope 3 emissions, which makes it highly commendable that Shell is willing to incorporate targets including Scope 3.

This positive action notwithstanding, ECGS supported this proposal and continue to support it because we consider that this kind of shareholder proposal is a powerful tool to make companies more responsible or even leaders in energy transition, as is currently the case with Shell.  ECGS has never viewed this proposal, or the similar proposals made in previous years, to be overly prescriptive.  We consider it fundamentally important for energy companies to set and publish carbon targets including Scope 3 emissions and to continue to work toward a sustainable level of emissions in accordance with the Paris goals.  Support of this proposal indicates continued support for and encouragement of Shell’s progress toward these goals.  We therefore recommend shareholders vote in favor.

Underlying
Royal Dutch Shell A

Royal Dutch Shell is a holding company. Through its subsidiaries, Co. is engaged in the oil and gas industry. Co. reports its business through four segments: Integrated Gas, which engaged in the liquefaction and transportation of gas and the conversion of natural gas to liquids to provide fuels and other products; Upstream, which engaged in the exploration for and extraction of crude oil, natural gas and natural gas liquids; Downstream, which engaged in oil products and chemicals manufacturing and marketing activities; and Corporate, which comprising Co.'s holdings and treasury organisation, its self-insurance activities and its headquarters and central functions.

Provider
Proxinvest
Proxinvest

Founded in 1995, Proxinvest is an independent proxy firm supporting the engagement and proxy analysis processes of investors. Proxinvest mission is to analyse corporate governance practices and resolutions proposed at general meetings of listed firms.

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Analysts
Expert Corporate Governance Service (ECGS)

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