Insights

The trouble with net zero

Can Shell really deliver on its net-zero commitment?

Ambitious decarbonisation targets are too often unsupported by business activity.

Last month, Shell announced new emissions targets as part of its plans to reach net zero by 2050. In the same breath, executives revealed a pathway to reach 1.5C by 2100 and claimed global emissions could reach net zero by 2058.

The announcement marked a major shift for the oil & gas titan. A mere six years ago the same executives dismissed the possibility that warming could stay below 2C. In the years since, however, net-zero initiatives have proliferated, peak oil has come and gone, and the business world has woken up to the social and financial -- not to mention environmental -- risks of global warming.

To say something is a tipping point or pivotal moment has become a cliche in the world of sustainability, but the last few months have certainly felt like it. Company after company has come forward with pledges to reach net zero. BlackRock, in this year’s letter to CEOs, urged companies to detail their decarbonisation plans. Sentiment is reaching, excuse the pun, boiling point.

There’s a small problem, though (and no, it’s not only that the relentless flurry of bare-minimum post-Paris Agreement pledges has yielded weary pleas for a zero net-zero initiatives initiative).

The small hitch is that Shell has done net zero to alter its product path.

The company is no stranger to scenario analysis: it announced a similar pathway to 2C in 2018. So similar, in fact, that Carbon Brief concluded the two were “nearly identical”: Shell’s vision of a continued role for oil and gas until the end of the century remains “essentially the same.”

So, what changed to justify a 0.5C difference?

Only an extra Amazon rainforest. That’s right: everything is on track for 1.5C, says Shell, so long as the next few decades witness an “extensive scale-up of nature-based solutions,” specifically, planting trees across “an area approaching that of Brazil.”

Will it be involved in this ambitious horticultural experiment? Not clear. But, as it points out in a legal disclaimer, “ultimately, whether society meets its goals to decarbonise is not within Shell’s control.”

Meanwhile, Shell remains on track to expand its gas business by 20%.

There are two problems with far flung decarbonisation targets. The first is that very few of the executives making promises today will be around to take accountability for their success or failure tomorrow. The second is that they often have very little impact on the company’s business development or underlying product lines and revenue streams. In short, companies like Shell continue with business as usual while paying lip service to the work they do to offset that business.

And why would they do it differently when investors and ratings agencies fall in line?

For its efforts, Shell is likely to get a big tick from traditional ratings agencies and shareholders: just as it did in 2018. But our analytics show a slightly different picture. Since 2015, Shell’s revenue from crude oil and gas has crept up, on average, 1% year on year. Its financial impact on 15 of the 17 UN Sustainable Development Goals approaches -100%. As it has done for the last five years.

Shell is in the business of selling oil. It is not in the business of planting rainforests. Until it makes material changes to its underlying products and services, investors and shareholders should be wary of giving it a pass.

That goes for all companies making bold pledges unsupported by action.