Royal Dutch Shell received shareholder approval on Friday to simplify its archaic corporate structure, which arose out of the merger over a century ago of a British company that once traded in exotic shellfish and an oil company in the Netherlands.
The changes will mean a single seat in London and one share class, instead of two, which Shell says will create faster payments to shareholders and boost its switch to renewables amid criticism that it has been slow reduce carbon emissions.
It comes as management resists pressure from some investors to split the business into one focused on renewables and one focused on traditional fossil fuels.
The tensions illustrate the challenges oil companies face as they move from a business model that generated huge profits and reliable dividend payments to a more uncertain future linked to wind, solar and biofuels . As returns from new companies are unknown, investors demand quick returns from existing assets, said David Elmes, an energy expert at the UK’s Warwick Business School.
“They are walking a very difficult tightrope in keeping shareholders happy with the level of dividends and buyouts today rather than getting permission from shareholders to switch investments from fossil fuels to low carbon energy.” , Elmes said. “And it looks like at the moment, they still have to pay shareholders a heck of a lot today to get their support for the transition.”
Until now, Shell had two separate share classes, one for its Dutch branch and one for its UK branch, which together made up Royal Dutch Shell Plc, one of the largest oil companies in the world.
Shell says its new corporate structure will allow it to speed up share buybacks. The company has already pledged to return $ 7 billion to its shareholders as it completes the sale of assets in Texas and New Mexico to ConocoPhillips this year.
At least one investor asks Shell to go further and split into two companies. Third Point LLC, a New York hedge fund, says it would both operate more efficiently, return more money to shareholders and accelerate progress on climate change.
Shell’s stock price has risen 16% in the past 12 months, trailing the 31% gain in Chevron shares and the 46% jump in ExxonMobil.
âYou can’t be everything to everyone,â Third Point CEO Daniel Loeb said in a letter to investors. “In trying to do this, Shell has ended up with disgruntled shareholders who have been deprived of returns and a disgruntled company that wants to see Shell do more to decarbonize.”
Shell said it has had preliminary conversations with Third Point and will continue to do so, but wants its fossil fuel business to fund the transition.
Other European energy companies have chosen to part with their renewable activities. In October, Rome-based Eni said it was planning a first public offering of the company. Spain’s Repsol is reportedly considering a similar move for its low-carbon assets.
The pressure for oil companies to move away from fossil fuels has grown rapidly since the 2015 Paris climate agreement set a target of limiting the increase in global temperature to 1.5 degrees Celsius from above. at pre-industrial levels.
Shell CEO Ben van Beurden has made it clear that he wants the company to remain competitive in a world that derives more of its energy from renewable sources. Last year, the company set a goal of achieving net zero carbon emissions from both its operations and the products it sells by 2050.
To achieve this goal, Shell has announced plans to expand its electrical business, invest in renewable energy and build more charging stations for electric vehicles. It also invests in carbon capture and storage and in ânature-based solutionsâ such as restoring forests and wetlands to offset carbon emissions.
“The board believes that the simplification will strengthen Shell’s competitiveness and accelerate both shareholder distributions and the implementation of its strategy to become a net zero emissions energy company by 2050, in line with the company, “President Andrew Mackenzie said in a statement.
Shell’s net zero commitment has done little to quell critics so far.
In May, The Hague District Court ordered Shell to reduce its carbon emissions by 45% by 2030, saying the company’s net zero target “is not concrete, has many stakes. warning and is based on monitoring social developments rather than on the responsibility of the company to achieve a level of CO2 reduction. “
Shell said it was attractive. The new shareholding structure will have no impact on the deal, the company said.
Meanwhile, Follow This, a group of investors who are pressuring oil companies to act faster on climate change, supports Shell’s new structure and makes it a single entity as it would allow management to focus on reducing carbon emissions, said founder Mark van Baal.
Staying a business means Shell could use the cash flow from declining fossil fuel sales to invest in renewables, said van Baal, whose group includes 8,000 investors and owns less than 1% of Shell’s shares. . The split of the company would benefit short-term investors at the expense of reducing emissions, he said.
Shell is already moving too cautiously, with a report suggesting its emissions could actually increase by 4% by 2030, van Baal said. Long-term investors want change, fearing that floods, fires and other damage exacerbated by climate change will hurt the profits of other companies in their portfolio.
âInstitutional investors are really losing patience,â van Baal said. âThe global economy is under threat from climate change.