Shell, Europe’s largest oil company, has unveiled plans to link a slice of executive bonuses to its performance in curbing greenhouse gas emissions in response to shareholder pressure for it to better prepare for the low-carbon transition.
Shell’s chief executive Ben van Beurden announced the move in an interview with Reuters and said the firm is also planning to conduct more active screening of future investments as a further way to reduce its carbon footprint.
The proposal, initially discussed in an investor call last week, will see 10 per cent of executives’ annual bonus linked to “greenhouse gas management”, although it remains unclear which precise operational targets will be set.
The scheme will have to be approved by shareholders at the next Annual General Meeting, expected to take place in April 2017.
However, a presentation from the investor call shows the new executive pay strategy replaces the 10 per cent of annual bonuses previously linked to water use, oil spill volumes and energy intensity, leaving the proportion of pay linked to environmental performance overall the same. Eighty per cent of the bonuses remain reliant on “cash flow from operations” and “operational excellence”, while the remaining 10 per cent is linked to safety.
The news comes as oil firms face increasing pressure to decarbonise in the wake of the Paris Agreement last December, which promises to oversee a radical reduction in the use of fossil fuels to achieve net zero carbon emissions by the end of the century. Meanwhile, investors are becoming increasingly concerned that demand for oil could level off in the next decade as low-carbon technologies – such as electric vehicles – begins to grow.
In response, some oil companies are diversifying their portfolios. Earlier this year, Shell created a new green energy division to bring together its existing hydrogen, biofuels and electrical activities as well as drive new investment into wind power. Rivals including Total and Statoil have also made significant investment in clean energy.