Targets used by Shell to manage climate-related risks and opportunities and performance against targets

Shell’s material climate-related risks and opportunities are set out in the “Climate-related risks and opportunities identified by Shell over the short, medium and long term” section. Our response to the transition risk focuses on decarbonising our value chain. Our climate targets are focused on reducing our net carbon intensity as well as our absolute emissions.

NCI target-setting

Tackling climate change is an urgent challenge. But only a transformation of the global economy and the energy system that supports it will stop the world adding to the total amount of greenhouse gases in the atmosphere, achieving what is known as net-zero emissions. That is why, for our part, Shell has set a target to become a net-zero emissions energy business by 2050, in step with society’s progress in achieving the goal of the Paris Agreement on climate change.

We believe our targets support the more ambitious goal of the Paris Agreement: to limit the increase in the global average temperature to 1.5°C above pre-industrial levels. Our net-zero target is aligned with the findings of the Intergovernmental Panel on Climate Change (IPCC), which concluded that the world must reach net-zero carbon emissions by around 2050 to limit global warming to 1.5°C and avoid the worst effects of climate change.

As there is no established standard for aligning an energy supplier’s decarbonisation targets with the temperature goal of the Paris Agreement, we have developed our own approach to demonstrate that our carbon intensity targets are aligned with the 1.5°C goal. We set our targets using scenarios taken from a database developed for the IPCC Special Report on Global Warming of 1.5°C. We started with the complete range of IPCC 1.5°C scenarios, then chose scenarios that focused on earlier action and placed less reliance on the use of carbon sinks. We then calculated the carbon intensity of each of the selected scenarios and, after removing outlying values, used the resulting range of intensities to produce the final 1.5°C pathways used to set our targets.

To become a net-zero emissions energy business, we must reduce emissions from our operations, and from the fuels and other energy products such as electricity that we sell to our customers. We must also capture and store remaining emissions using either technology or natural carbon sinks.

Shell will work with our customers to help them accelerate their transition by providing low- and zero-carbon energy products and services. If they are not able to accelerate their transition, we will help our customers in other ways by providing high-quality, nature-based solutions to offset any unavoidable emissions. We know that even though we offer this service, our customers may choose to source offsets from other companies.

Today, it is not possible for energy companies and their customers to jointly account for actions to reduce emissions. We will work with partners towards changing accounting and reporting protocols and developing new systems for suppliers and users of energy to exchange information about steps they are taking to reduce their emissions. These changes will take time to put into practice, and we reflect this in our targets which before 2035 include only mitigation actions directly involving Shell.

Linking Shell’s emissions targets to remuneration policies

We have established remuneration policies which are designed to support us in achieving our short-term climate targets:

• remuneration linked to net carbon intensity targets;
• remuneration included in the 2021 annual scorecard against Scope 1 and 2 GHG intensity targets; and
• remuneration included in the 2021 annual scorecard linked to sustained absolute emission reductions from GHG abatement projects.

See also “Directors’ Remuneration Report”.

Remuneration linked to net carbon intensity targets

We have linked our target to reduce the carbon intensity of our energy products to our 2021 LTIP awards for Executive Directors and senior executives and our Performance Share Plan awards made to around 16,500 employees globally.

The reduction of Shell’s NCI from 79 gCO₂e/MJ in 2016 to 77gCO₂e/MJ in 2021 means that we have achieved our first short-term target of a 2-3% reduction in NCI by the end of 2021. The reduction of Shell’s NCI over this period has largely been driven by a reduction in oil product sales combined with growth in power sales.

Remuneration included in 2021 annual scorecard against Scope 1 and 2 GHG intensity targets

Our annual bonus scorecard for senior management also affects remuneration for almost all of Shell’s employees. Our 2021 scorecard included three GHG intensity metrics covering over 75% of Scope 1 and 2 GHG emissions under operational control. They are summarised below.

We successfully reduced our chemicals emissions intensity to below target intensity, from 0.98 in 2020 to 0.95 in 2021. This was in part driven by sustained good reliability at our Bukom chemical plant in Singapore.

Upstream and Integrated Gas emissions intensity increased from 0.16 in 2020 to 0.17 in 2021. This was partly due to below-plan production at several of our assets. The intensity number for 2021 excludes the Prelude floating liquefied natural gas (FLNG) facility. Refining emissions intensity remained unchanged at 1.05 in 2020 and 2021. The Refining GHG emission intensity was below target partly due to the impact of the February winter freeze and Hurricane Ida on our refineries in the USA. We are taking steps to continue working on measures to drive reductions in GHG intensity.

Remuneration included in 2021 annual scorecard linked to sustained absolute emissions reductions from GHG abatement projects

There was one main absolute target linked to remuneration. This was set out in our 2021 annual scorecard which included a target of 224 thousand tonnes of carbon dioxide equivalent (ktCO₂e) sustained emissions reductions from GHG abatement projects. This was included in our annual scorecard to further emphasise the importance of achieving progress in the energy transition in our own operations.

See also “Annual Report on Remuneration”.

We have exceeded this target with 279 ktCO₂e of sustained emissions reductions, by implementing projects across a range of assets that we operate. We have also delivered around 3.6 million tonnes of other GHG reductions (not included in the scorecard). These reductions include GHG abatement projects and emissions reductions from permanent shutdowns and conversions of our facilities. Examples include flaring reduction and energy efficiency projects. The above reductions do not include 1.05 million tonnes of CO₂ captured and sequestered by our Quest CCS project in Canada in 2021.

Basis of preparation – net carbon intensity

Shell’s net carbon intensity (NCI) provides an annual measure of the life-cycle emissions intensity of the portfolio of energy products sold. The intended use of the NCI metric is to track progress in reducing the overall carbon intensity of the energy products sold by Shell, as described in Shell’s climate target. The NCI is calculated on a life-cycle basis and as such includes GHG emissions – on an equity basis – from several sources, including:

• direct GHG emissions from Shell operations;
• indirect GHG emissions from generation of energy consumed by Shell; and
• indirect GHG emissions from the use of the products we sell.

Emissions from other parts of the product life cycle are also included, such as those from the extraction, transport and processing of crude oil, gas or other feedstocks and the distribution of products to our customers.

Also included are emissions from parts of this life cycle not owned by Shell, such as the extraction of oil and gas processed by Shell but not produced by Shell; or from the production of oil products and electricity marketed by Shell that have not been processed or generated at a Shell facility.

Emissions offset through various measures, such as by working with nature to create carbon sinks – including forests and wetlands – or mitigated by using CCS technology are also taken into account.

Refer to scope of NCI for details of the supply chains and steps in the product life cycles that are included in the Net Carbon Footprint methodology.

The following GHG emissions are not included in the net carbon intensity (NCI):

• emissions from production, processing, use and end-of-life treatment of non-energy products, such as chemicals and lubricants;
• emissions from third-party processing of sold intermediate products, such as the manufacture of plastics from feedstocks sold by Shell;
• emissions associated with the construction and decommissioning of production and manufacturing facilities;
• emissions associated with the production of fuels purchased to generate energy on site at a Shell facility;
• other indirect emissions from waste generated in operations, business travel, employee commuting, transmission and distribution losses associated with imported electricity, franchises and investments;
• emissions from capital goods, defined by the GHG Protocol as including fixed assets or property, plant and equipment (PP&E), and other goods and services not related to purchased energy feedstocks sourced from third parties or energy products manufactured by third parties and sold by Shell.

The NCI calculation uses Shell’s energy product sales volume data, as disclosed in the Annual Report and Sustainability Report. This excludes certain sales volumes such as:

• certain contracts held for trading purposes reported net rather than gross. Business-specific methodologies to net volumes have been applied in oil products and pipeline gas and power. Paper trades that do not result in physical product delivery are excluded; and
• retail sales volumes from markets where Shell operates under trademark licensing agreements.

Important notes on the Net Carbon Footprint methodology

1. The Net Carbon Footprint is not a mathematical derivation of total emissions divided by total energy, nor is it an inventory of absolute emissions.
2. It is a weighted average of the life-cycle CO₂ intensities of different energy products, normalising them to the same point relative to their final end-use. The use of a consistent functional unit, grams of carbon dioxide equivalent per megajoule (gCO₂e/MJ), allows like-for-like comparisons and the aggregation of individual life-cycle intensities for a range of energy products including renewables.

For further information see our detailed NCF methodology documentation.

Basis of preparation – absolute Scope 1, 2 and 3 emissions

We follow the GHG Protocol’s Corporate Accounting and Reporting Standard, which defines three scopes of GHG emissions:

• Scope 1: direct GHG emissions from sources that are owned or controlled by Shell.
• Scope 2: indirect GHG emissions from generation of purchased energy consumed by Shell.
• Scope 3: other indirect GHG emissions, including emissions associated with the use of energy products sold by Shell.

GHG emissions comprise carbon dioxide (CO₂), methane (CH4), nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride and nitrogen trifluoride, with carbon dioxide and methane being the most significant contributors. Our GHG inventory was prepared in line with the requirement outlined in the ISO 14064-1:2018 Specification with Guidance at the Organisational Level for Quantification and Reporting of Greenhouse Gas Emissions and Removals and the GHG Protocol’s Corporate Accounting and Reporting Standard.

In line with external standards, Shell aggregates its emissions of greenhouse gases into tonnes of CO₂ equivalent by applying global warming potential (GWP) factors to each greenhouse gas. The GWP factors used for converting the mass of individual gases to their CO₂ equivalents are shown in the consolidated statement of GHG emissions. These factors are taken from the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4) over a 100-year time horizon, in line with the UK Government GHG Conversion Factors for Company Reporting.

GHG emissions were aggregated using a bottom-up approach: emission source -> asset -> operating unit -> business -> Group. GHG emissions in this Report include emissions from Upstream, Integrated Gas, Renewables and Energy Solutions, Downstream, Projects & Technology businesses and functions (mainly offices). All operated assets were included in the GHG inventory in the reporting period.

Basis of preparation – Scope 1 emissions

Sources included in Scope 1 emissions comprised:

• combustion of carbon-containing fuels in stationary equipment (e.g., boilers, gas turbines) for energy generation;
• combustion of carbon-containing fuels in mobile equipment (e.g., trucks, vessels, mobile rigs);
• flares;
• venting and emissions from industrial processes (e.g., hydrogen plants, catalytic cracking units); and
• fugitive emissions, including piping and equipment leaks and non-routine events.

Scope 1 emissions – exclusions

Carbon dioxide emissions from biogenic sources (for example, biofuels, biomass) were excluded from our Scope 1 emissions; instead, they were captured separately. Methane and nitrous oxide emissions from biogenic sources were included in our Scope 1 emissions.

Captured carbon dioxide that was subsequently sold or otherwise transferred to third parties was excluded from our Scope 1 emissions.

Carbon dioxide captured and sequestered using CCS technologies was excluded from our Scope 1 emissions. But the emissions from operating CCS were included in our Scope 1 and 2 emissions.

Carbon offset credits were excluded from our Scope 1 GHG emissions.

No material sources were excluded from the Scope 1 inventory.

Basis of preparation – Scope 2 emissions

Sources included in Scope 2 emissions comprised indirect emissions from purchased and consumed electricity, steam and heat. We did not identify any assets with imported cooling or compressed air used for energy purposes.

Scope 2 emissions were calculated using the market- and location-based methods separately as defined by the GHG Protocol Scope 2 Guidance.

No material sources were excluded from our inventory.

Basis of preparation – Scope 3 emissions

This report provides Scope 3 emissions included in our net carbon intensity (NCI). They were consolidated using the equity boundary approach. Under this approach, we reported Shell share of emissions from energy products sold by Shell, including those sourced from third parties. Scope 3 categories included in the total number in this Report include following:

Scope 3, category 1: purchased goods and services

This category includes well-to-tank emissions from purchased third-party unfinished and finished energy products excluding electricity (which was reported separately under Category 3: Fuel and energy-related activities (not included in Scope 1 or Scope 2)).

Emissions in this category were estimated using well-to-tank emission factors for crude oil, natural gas, refined oil products (such as gasoline, and diesel), LNG and biofuels. Because the emission factors includes transport, we did not estimate emissions from transport of purchased third-party products separately.

Emissions from purchased non-energy products were not included in this Report.

Scope 3, category 3: fuel and energy-related activities (not included in Scope 1 and 2)

This category includes well-to-wire emissions from purchased third-party electricity sold by Shell, calculated using the market-based method. Emissions were not adjusted for any potential double-counting of sold natural gas that may have been used for generating this electricity.

This category does not include:

• indirect emissions from generation of imported energy (steam, heat or electricity consumed by our assets). These emissions were reported separately as Scope 2 emissions; and
• well-to-tank emissions from purchased electricity, steam and heat consumed by our assets (i.e. Scope 3 emissions from extraction, refining and transport of primary fuels before their use in the generation of electricity or steam).

Scope 3, category 9: downstream transport and distribution

This category includes estimated emissions from transport and distribution of energy products produced or refined by Shell. It does not include the emissions associated with transporting third-party products, which are included in Scope 3, Category 1. In order to avoid double counting the emissions from transport, Scope 1 and 2 emissions from transport included in our equity emissions were subtracted from the total in this category.

Scope 3, category 11: use of sold products

This category includes estimated emissions from the use-phase of sold energy products, such as LNG, GTL, pipeline gas, refined oil products and biofuels. The emissions consist of two separate sub-categories: products manufactured and sold by Shell and third-party products sold by Shell.

This category does not include non-energy products that may have been combusted during the use-phase (for example, lubricants).

Biogenic CO₂ emissions from combustion of sold biofuels

Biogenic CO₂ from combustion of sold biofuels were estimated and reported separately outside of scopes. Methane and nitrous oxide have been included in Scope 3, Category 11 in line with the ISO 14064-1:2018 and GHG Protocol requirements.

We did not estimate CO₂ from combustion of biogenic emissions in other Scope 3 categories. It is assumed that the presence of biogenic emissions in other categories is negligible at present.

Other Scope 3 categories

As noted above, this Report only covers Scope 3 GHG emissions included in our net carbon intensity metric. Other Scope 3 GHG emissions can be found on our website: www.shell.com/ghg.