Shell’s extreme brand of disaster capitalism

Shell’s net-zero pledge remains, ever more clearly, a fig leaf to enable some policymakers and investors to keep their heads in the sand and delude themselves that they are not enabling the grossest corporate abuse.

Shell’s strategy, which attempts to keep its options open and buy time by investing in fossil fuels while projecting a net zero future, is deeply damaging. SOMO’s report identifies three key elements of Shell’s business model that are indicators of the short-term anti-climate approach:

1. Shell has increased its debt while its investment in energy production capacity has declined over the years. As a percentage of Shell’s sales, total debt rose from 12% in 2010 to 22% in 2022. Annual capital investments, as a percentage of the total stock of productive capital, dropped from 19% in 2010 to 11% in 2022.
2. While reducing investments, Shell has significantly increased its total payouts to shareholders. The company’s total payouts rose from 35% of operating cash flow in 2010 to 60% in 2019. Between 2010 and 2022, Shell’s total payouts accounted for 82% of its net income, resulting in US$ 122 billion in dividends and US$ 48 billion in share repurchases.
3. Shell has not accounted for a strategy aligned with the 1.5°C pathway to reduce carbon emissions. Our report estimates that Shell’s stranded assets are valued at approximately US$ 148 billion, with an annual depreciation cost of around US$5 billion from 2020 to 2050. This amount is 17 times the investment Shell made in wind and solar energy in 2021 (US$ 288 million).

Together, these three indicators clearly underscore the priorities of Shell and what it believes it will (or rather won’t) be required to do in terms of climate justice.

Plundering the global carbon budget

SOMO’s new report,  “Stranded: Why Shell is unable to navigate the just transition trilemma”, exposes how companies like Shell are responding to the complete failure of governments to set boundaries for new oil and gas investment. The IPCC has made clear there is a global carbon budget beyond which we cannot go if we are to keep within 1.5°C. With almost no mandatory requirements in place for businesses, companies like Shell are able to plunder the common carbon budget to create wealth for a small group of investors and executives.

Since the Paris Agreement, Shell has invested US$ 14.4 billion in the exploration of new upstream assets(opens in new window) ^, and it intends to continue to invest up to US$ 1.5 billion(opens in new window)  annually until at least 2025.  These investment decisions reinforce path dependency and are not consistent with a 1.5°C decarbonisation pathway.

The ‘non-system’: a catastrophic governance gap

Shell and its shareholders are relying on the continuation of the current non-system governing greenhouse gas emissions, which allows oil companies to extract as much oil and gas as they wish while they can. Shell is betting that the ‘non-system’, with all its implications (and they include death and destruction on a massive scale), will persist, and they can extract profit within this chaos.

This governance gap essentially results in market self-regulation, leaving the crucial strategic investment decisions in the hands of actors that prioritise the short-term interests of shareholders over the interests of future generations.

The business strategy detailed in our report only makes sense if Shell can assume that it will not be required to limit the extraction of hydrocarbons any time soon and that, if such limits are ever set, the company will be able to substantially pass off the risk of stranded assets to others. The “great investment” that Mr. Sawan is creating for shareholders is merely a form of disaster capitalism at its most extreme.

Need for urgent and immediate intervention

The window to impose an effective rule-based decarbonisation regime and to limit global warming to 1.5°C is closing fast. The longer it takes to close the production gap, the steeper reductions will have to be in future. The political costs are set to increase as governments postpone imposing rules and seek to muddle through.

Our report concludes with clear and fairly obvious recommendations:

• Governments must establish a clear and enforceable decarbonisation regime aligned with the Paris Agreement, incorporating carbon budgets for nations and corporations. This transparent framework should include five-year absolute reduction targets for all greenhouse gas emissions, with annual reviews ensuring accountability and progress tracking.
• Companies like Shell should publish granular data on its RES investments, clearly distinguishing green from brown categories, enabling society and investors to assess the direction the company is taking.
• Auditors should evaluate the impact of effective carbon regulation, including decommissioning costs and just transition expenses, providing investors and society with crucial information.