Today we voted against the Audit Committee Chair and Financial Statements at Shell’s AGM, while abstaining on the reappointment of their auditor, EY.
You can read more about our rationale here. We believe that AGMs offer shareholders a powerful opportunity to effect change by highlighting areas of concern.
We asked two questions at the AGM this morning, one to Shell’s Audit Committee Chair, and one to Shell’s auditor, EY.
Question to Audit Committee Chair
Shell has stated in its Annual Report that its accounts are not drawn up using assumptions consistent with the Paris goals because it does not see this as a likely scenario. However, shareholders have a legitimate interest in understanding how the world’s transition onto a 2050 Net Zero pathway could impact Shell’s capital strength and performance, not least because this is the pathway that Shell has committed to.
With the publication of the IEA’s Special Report on a 2050 Net Zero pathway this morning, and projections of oil prices falling to $35/bbl in 2030 and $24/bbl by 2050, this visibility becomes even more urgent.
Could you comment on whether the Audit Committee will look again at whether its accounts should use forward-looking assumptions consistent with Paris, or at the very least publish the results of sensitivity analysis showing how a Paris-aligned pathway would impact its financial position in its next Financial Statements?
Question to EY
We welcome EY’s detailed response to the IIGCC Investor Expectations for Paris-aligned accounts in Shell’s Annual Report. We likewise appreciated the clear opinion that Shell’s assumptions are not in line with a Paris-pathway.
EY, however, indicated that “it is neither possible nor appropriate for EY” to provide disclosure of the financial statement consequences of such a scenario.
However, I’d like to make three points:
- Deloitte provided such commentary for BP this year.
- EY does undertake stress testing on critical forward-looking assumptions already, and it is unclear why a scenario aligned with a net zero is not appropriate or possible.
- Finally, in light of the publication this morning of the IEA’s Special Report on a 2050 Net Zero scenario including commodity price trajectories. This would provide an external benchmark to support such stress testing.
Consequently, we would like to know whether EY will provide investors with the visibility they seek on the risks from a 2050 net zero pathway next year?
Response and vote result
In response to these questions, we heard that:
- Paris-alignment depends on all economic actors and governments delivering on their commitments, and these actions so far have fallen short, meaning Shell cannot use this as a basis for drawing up its accounts.
- It is vital that any forward-looking assumptions are supportable.
- The Board has not yet reviewed the IEA’s Special Report so are not in a position to indicate whether the commodity prices projected under the 2050 Net Zero Emissions scenario can be used in their financials.
- Both the Audit Committee and the auditor will continue to focus on this matter in 2021.
No response was given on the question of Shell providing sensitivity analysis in the Notes to its accounts.
Results from the AGM showed that just over 1.5% votes against the Audit Committee Chair and Auditor’s reappointment, with 2.85% vote against the Annual Report and Accounts. In light of the Audit Committee’s failure to set out how it is stress testing for a future consistent with 1.5C – despite this being Shell’s central commitment – it is hard to fathom this level of unquestioning support. For Shell’s Energy Transition strategy to be credible it needs to be rooted in numbers that properly reflect the scale of the economic reset that needs to happen. The IEA’s Special Report on a 2050 Net Zero scenario is clear on this. Until this happens, we are unlikely to see the Paris-pivot that we require. This puts shareholder capital at risk; it also puts all our futures at risk.
Looking forward, we are hopeful that Shareholders will get the disclosures they deserve in forthcoming financial statements from Shell, and Shell offers a model for other energy companies to follow.