Fund Divests from Shell over Paris Commitments

UK-based asset manager Sarasin & Partners has offloaded 20% of its shares in Anglo-Dutch Shell, citing the oil and gas major’s failure to adequately address climate change.

In a public letter to Shell’s chairman Chad Holliday dated July 8, it said the company was spending too much on oil and gas production and therefore contributing greatly to rising global temperatures.

As the world moves towards decarbonisation, it said Shell’s $27-28bn of capital expenditure on fossil fuel projects each year, compared with only $2bn in clean energy development, “put shareholders at risk.” Far from weaning itself off oil and gas, the company has said it aims to ramp up production to 4.7mn boe/d by 2030, from 3.7mn boe/d last year.

Sarasin said it had therefore disposed of £34mn ($42mn) of Shell stock held by two of its funds. The move was far from a snap decision, the investor said, noting it had held close talks with Shell for several years on how the producer could adjust its business model.

The asset manager has retained £120mn of Shell shares in other funds, however, “due to the difficulties of replacing Shell’s high yield.” But these investments are also “under review”, it said, owing to “longer term concerns over risks to the dividend.”

Sarasin called on Shell to cut its fossil fuel production moving forward, and spend more on cleaner activities. While lauding some of Shell’s environmental initiatives such as net carbon footprint reduction, and accepting that the company could not bring down fossil fuel consumption on its own, it said more needed to be done to bring the company’s strategy in line with the 2016 Paris Agreement. Once such adjustments are made, the company could consider expanding its investments in Shell once more, it said, expressing hope its sale would spur action.

Oil and gas are set to continue dominating the global energy mix for decades. Shell, as a major producer with producer with declining reserves, therefore has to balance its investments. Gas is expected to be a major source of hydrogen, which may be injected into the grid or used in transport or power.

In a July 9 email, Shell said it was “disappointed” about Sarasin’s decision, but that the news did not come as a surprise. It said that its strategy up to 2025 had received “strong support” from “many” of its investors.

"[The strategy] seeks to balance offering a world class investment case, while also continuing to provide a mix of energy products that match customers’ evolving requirements,” it said. “We are very clear that this requires both sustaining investment in our core upstream businesses as well as growing investment in our customer-facing transition businesses including integrated gas, oil products and chemicals. We also announced that in the coming five-year period we expect to increase our average annual capital investment in the emerging Power business. We will continue to engage with Sarasin as an existing shareholder including on the vital topic of climate change.”