Investors' petition to Shell to improve oil sands disclosure is a sign of a broader trend
A coalition of over 140 investors wants the opportunity to scrutinize Royal Dutch Shell plc's decision to invest in Alberta's oil sands. The investors succeeded in having a motion added to the agenda for Shell's 2010 annual general meeting that, if passed, will require the company's Audit Committee or Risk Committee to report on the relevant investment analysis in time for the 2011 AGM. While this initiative is uniquely focused on Shell, it is part of a larger trend whereby progressive investors are calling upon large emitters to improve their climate change disclosure. Canadian reporting issuers should consider preparing today for the disclosure requirements of the future.
The Shell motion
The initiative is being co-ordinated by FairPensions, campaigning organisation founded in 2005 to promote responsible investment in the pensions and investment industry. The coaltions 142 supporters include fund managers, pension funds, foundations and faith groups. Major financial players in the coalition include The Co-operative Asset Management (which is also funding legal action by the Creen Nation alleging that Shell's oil sands development infringes their Constitutionally protected rights), the UNISON Staff Pension Scheme and a significant contribution from Rathbone Greenbank Investments clients.
The following is the full text of the proposed resolution:
That in order to address our concerns for the long term success of the Company arising from the risks associated with oil sands, we as shareholders of the Company direct that the Audit Committee or a Risk Committee of the Board commissions and reviews a report setting out the assumptions made by the Company in deciding to proceed with oil sands projects regarding future carbon prices, oil price volatility, demand for oil, anticipated regulation of greenhouse gas emissions and legal and reputational risks arising from local environmental damage and impairment of traditional livelihoods. The findings of the report and review should be reported to investors in the Business Review section of the Company's Annual Report presented to the Annual General Meeting in 2011.
The motion was informed by a general concern about the environmental impacts of the development of the oil sands and specifically by concerns regarding:
In its response, Shell noted that the oil sands account for only 2.5% of its production. "The resolution is basically a request for further information around the economics and other aspects of our oil sands operations. The resolution is submitted by shareholders representing some 0.15% of our total outstanding shares," said the company.
The investor's acknowledged that Shell has provided some disclosure, but believe that more is required. The Co-operative Asset Management's Niall O'Shea said, "given Shell's level of commitment to oil sands there is a greater obligation to shareholders to reassure how it would cope under a number of scenarios. We acknowledge Shell has already done some work in this area but it does not go anywhere near far enough to allay our concerns."
Shell's AGM will be held in the Hague on May 18, 2010.
Shell is not the only entity under pressure to improve environmental disclosure in the public markets. A variety of investor-backed initiatives are calling for more thorough financial reporting and discussion of climate change issues by public companies. Some recent examples include the following:
Despite the lacklustre outcome of Copenhagen, the glacial progress of the Waxman-Markey bill through the U.S. Senate, and Canada's lack of emissions policy at the federal level, we expect that the investment community will continue to call for improved climate change disclosure through 2010. This trend will be facilitated by the introduction of mandatory emissions reporting requirements in many jurisdictions and by the credible threat that the U.S. EPA will regulate greenhouse gases if Congress fails to do so.
Companies may be wary of being the first to provide comprehensive climate change disclosure, as doing so may (fairly or unfairly) cause the market to devalue the stocks of such companies relative to their more tight-lipped peers. However, companies should nevertheless expect that more disclosure will be required in the foreseeable future. Such companies will not be able to understand their climate change risk exposure overnight. They should therefore consider developing systems today to enable them to meet the disclosure requirements of tomorrow.