Section 172(1) statement

The Companies (Miscellaneous Reporting) Regulations 2018 (2018 MRR) require Directors to explain how they considered the interests of key stakeholders and the broader matters set out in Section 172(1) (a) to (f) of the Companies Act 2006 (S172) when performing their duty to promote the success of the Company under S172. This includes considering the interests of other stakeholders which may affect the long-term success of the company. This S172 statement explains how Shell’s Directors:

• have engaged with employees, suppliers, customers and others; and
• have considered employee interests, the need to foster business relationships with suppliers, customers and others, and the effects of those considerations, including on the principal decisions taken during the financial year.

The S172 statement focuses on matters of strategic importance to Shell, and the level of information disclosed is consistent with the size and the complexity of Shell’s businesses.

General confirmation of Directors’ duties

Shell’s Board has a clear framework for determining the matters within its remit and has approved Terms of Reference for the matters delegated to its Committees. Certain financial and strategic thresholds have been set, in order to identify matters requiring Board consideration and approval. The Manual of Authority sets out the delegation and approval process across the broader business. More information on Shell’s controls and procedures can be found in “Other regulatory and statutory information”.

When making decisions, each Director ensures that (s)he acts in the way he or she considers, in good faith, would most likely promote Shell’s success for the benefit of its members as a whole, and in doing so has regard (among other matters) to the issues set out below.

S172(1) (a) “The likely consequences of any decision in the long term”

The Directors understand the business and the evolving environment in which we operate, including the challenges of navigating through the energy transition. Based on Shell’s purpose to power progress together by providing more and cleaner energy solutions, the strategy set by the Board is intended to accelerate the transition of our business to net-zero emissions, purposefully and profitably, in step with society. We are building a strong, resilient business by putting customers at the centre of our strategy, innovating the products and solutions customers need on their journey to net zero.

As outlined in “Our context” in the “Shell Powering Progress” section, the rising standard of living of a growing global population is likely to continue to drive demand for energy, including oil and gas, for years to come. At the same time, technological changes, and the need to tackle climate change mean there is a transition under way to a lower-carbon, multi-source energy system with increasing customer choice. Our Powering Progress strategy combines our ambitions under four goals: generating shareholder value, achieving net-zero emissions, powering lives and respecting nature.

In 2021, we continued to navigate the challenges of the COVID-19 pandemic, which has continued to cause unprecedented levels of disruption.

In 2021, the Board announced its move to the next phase of the capital allocation framework, consistent with Shell’s Powering Progress strategy. Shell’s operational and financial delivery and strengthened balance sheet had given it the confidence to increase shareholder distributions by increasing dividends and commence share buybacks, while Shell continues to invest for the future of energy. The key elements of Shell’s strategic direction were highlighted in our 2020 Annual Report and included:

• setting a target to be a net-zero emissions energy business by 2050, in step with society;
• growing our leading marketing business, further developing the integrated Power business and commercialising hydrogen and biofuels to support customers’ efforts to achieve net-zero emissions;
• transforming our refining portfolio from the current 13 sites into five high-value energy and chemicals parks, integrated with Chemicals. Growth in Chemicals would shift to more performance chemicals and recycled feedstocks;
• extending leadership in liquefied natural gas (LNG) to enable decarbonisation of key markets and sectors;
• focusing on value over volume by simplifying Upstream to eight significant core positions, which would generate more than 80% of Upstream’s cash flow from operations; and
• enhancing value delivery through trading and optimisation.

The Directors recognise that there are differing societal views about our operations and that some Board decisions taken today may not align with all stakeholder interests. Given the complexity of the evolving energy transition, the Directors have taken the good faith decisions they believe best support Shell’s strategy.

S172(1) (b) “The interests of the company’s employees”

The Directors recognise that Shell employees are fundamental and core to our business and the delivery of our strategic ambitions. The success of our business depends on attracting, retaining, and motivating talented employees. The Directors consider and assess the implications of decisions on employees and the wider workforce, where relevant and feasible. The Directors seek to ensure that Shell remains a responsible employer, including with respect to pay and benefits, health and safety issues, and the workplace environment. In early 2021, in recognition and appreciation of employee resilience during 2020 when bonuses were suspended, the Board supported a one-off award of shares worth $1,000 to employees below the Executive Committee level.

The Directors recognise that our pensioners, though no longer employees, also remain important stakeholders.

More information on this can be found in “Workforce engagement”.

S172(1) (c) “The need to foster the company’s business relationships with suppliers, customer and others”

Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers, governments, national oil companies and joint-venture partners. Shell seeks to promote and apply certain general principles in such relationships. The ability to promote these principles effectively is an important factor in the decision to enter into or remain in such relationships. This standard and others are described in the Shell General Business Principles, which are based upon our core values of honesty, integrity, and respect for people. The Board periodically reviews and approves the Shell General Business Principles. The Directors take account of the General Business Principles and core values when exercising their duties and making Board decisions. When feasible, core value moments are built into Board agendas, so the Board can reflect on the importance of the General Business Principles and core values. The Board also reviews and approves Shell’s approach to suppliers, which is set out in the Shell Supplier Principles. In 2021, relevant Board committees held briefing sessions with the Contracting and Procurement (C&P) team to more deeply engage on Shell’s C&P programme, including its approach, risk management profile and stakeholder engagement. The businesses continually assess the priorities related to customers and those with whom we do business. The Board engages with the businesses on these topics, for example, within the context of business strategy updates and investment proposals.

The Directors also receive updates on a variety of topics that indicate how these stakeholders have been engaged.

These updates include information provided by the Projects & Technology function on suppliers and joint-venture partners, with respect to items such as project updates and supplier contract management. Businesses also provide information, as relevant, on customers and joint-venture partners in relation to business strategies, projects, and investment or divestment proposals.

The CEO provides a comprehensive update to the Board on material business and external developments at each main Board meeting. These include: i) a report on safety performance; ii) significant operational updates relating to each of the business segments, e.g. partnerships, investments, divestments, flagship projects, commercial highlights and achievements; iii) the development of new technologies and innovation via collaborations with partners, suppliers and others; and iv) political or regulatory developments. The CEO also summarises his own external engagements and any changes of senior executive staff.

S172(1) (d) “The impact of the company’s operations on the community and the environment”

This aspect is inherent in our strategic ambitions. The Board receives information on various topics to help it make decisions. The topics can include, for example, the Net Carbon Footprint target, the impact of the continuing COVID-19 pandemic on Shell, country-entry considerations, proposals to invest or divest, and business strategy reviews. The information also goes into Group-level overviews, such as updates on safety and environment performance, reports from the Chief Ethics and Compliance Officer, and reports from the Chief Internal Auditor. In 2021, certain Board committees and Non-executive Directors conducted site visits of various Shell operations and overseas offices and held external stakeholder engagements, where feasible. As in 2020, not all visits could be face-to-face because of continuing restrictions and precautions related to the COVID-19 pandemic. Despite the continued challenges presented by COVID-19, the Board maintained a strong interface with businesses and staff through virtual engagements, making best use of the technology available.

More information can be found in “Understanding and engaging with our stakeholders”, and in the reports of each Board committee.

S172(1) (e) “The desirability of the company maintaining a reputation for high standards of business conduct”

Shell aims to meet the world’s growing need for more and cleaner energy solutions in economically, environmentally, and socially responsible ways. The Board periodically reviews and approves clear frameworks, such as The Shell General Business Principles, Shell’s Code of Conduct, specific Ethics and Compliance manuals, the Ethical Decision-Making Framework, and its Modern Slavery Statements, to ensure that high standards are maintained in Shell businesses and in Shell’s business relationships. This, complemented by the ways the Board is informed and monitors compliance with relevant governance standards, helps to ensure that Board decisions and the actions of Shell companies promote high standards of business conduct.

S172(1) (f) “The need to act fairly as between members of the company”

After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our strategy through the long term, taking into consideration the effect on stakeholders. In doing so, our Directors act fairly as between the Company’s members but are not required to balance the Company’s interest with those of other stakeholders. This can sometimes mean that certain stakeholder interests may not be fully aligned.

Culture

The Board recognises that it plays an important role in assessing and monitoring that our desired culture is embedded in our values, attitudes and behaviours, including in our activities and stakeholder relationships. The Board has established honesty, integrity and respect for people as Shell’s core values. The General Business Principles, Code of Conduct, and Code of Ethics help everyone at Shell to act in line with these values and comply with relevant laws and regulations. The Shell Commitment and Policy on Health, Safety, Security, Environment & Social Performance applies across Shell and is designed to help protect people and the environment. In 2021, after our refreshed approach to safety in 2020, we transitioned from our Life-Saving Rules and implemented the Industry Life-Saving Rules. By doing this, we aim to simplify and standardise, to adopt a broader risk scope that focuses on potential for harm to people, and to create a greater sense of individual and team responsibility to avoid fatalities and life-changing injuries. The change builds on existing strong foundations, with an increased and deliberate focus on human performance, the way people, culture, equipment, work systems and processes interact as a system. It remains our ambition to achieve Goal Zero, no harm and no leaks across all our operations.

In 2021, Shell announced its Powering Progress strategy. This has four goals: generating shareholder value, achieving net-zero emissions, respecting nature and powering lives. At its heart is our target to become a net-zero emissions energy business by 2050, in step with society’s progress towards the goal of the Paris Agreement on climate change. We also have medium- and long-term targets to reduce our net carbon intensity, compared with 2016 levels, by 20% by 2030, 45% by 2035, and 100% by 2050, in step with society. To achieve our strategic goals, we need to adapt our mindset and behaviours as we navigate the increasing complexity in the world around us. At Shell we seek to have a culture that encourages the attitudes and behaviour that we believe will help us succeed. We seek to encourage:

• applying a learner mindset: everyone has the ability to grow, learn from mistakes and successes, and speak up openly in a safe environment. We encourage curiosity, humility, openness, helping each other to make better decisions and create more value;
• maximising our performance: we collaborate across boundaries and speak up when we see things that can be improved. We enable people to deliver, and we work in an integrated way with discipline, clear focus on priorities, and tangible outcomes in order to reach our full potential;
• increasing trust in Shell: we aim to be a valued member of the communities in which we operate, and to make a positive contribution to society. We seek to listen carefully and with humility and we have a strong desire to understand, and, where possible, adapt to the changing needs and expectations of society, especially as they relate to the environment. We build strong and trusted relationships with customers and partners which are fundamental to our collective success;
• living by our values and Goal Zero: we live by our values and do the right things with respect to ethics, safety, and the environment; and
• inspiring and engaging: we aspire to a situation where everyone feels connected to what we stand for. We build trusting and effective teams where everyone feels ownership and has a voice in how work gets done. We strive to maintain a diverse and inclusive culture.

The Board considers the Shell People Survey to be an important tool for measuring employee engagement, motivation, affiliation, and commitment to Shell. It provides insights into employee views and has a consistently high response rate. It also helps the Board understand how the survey’s outcomes are being used to strengthen Shell culture and values. The Board has noted that although staff surveys offer insight, limitations exist. In 2021, a review was launched to enhance Board oversight of culture. Due to the significant developments and challenges affecting Shell in the second half of 2021, that review was paused. The plan is to resume the review in 2022. It is intended that the review will be informed by the results of the Shell People Survey from 2021 and if available 2022, various staff engagements, relevant context from the 2022 external Board evaluation process, and the Board’s 2022 Strategy Days.

Stakeholder engagement (including employee engagement)

The Board recognises the important role Shell has in society and is deeply committed to public collaboration and stakeholder engagement. This commitment is at the heart of Shell’s strategic ambitions. The Board strongly believes that Shell will only succeed by working together with customers, governments, business partners, investors, and other stakeholders.

Working together is critical, particularly at a time when society, including businesses, governments, and consumers, faces issues as complex and challenging as climate change.

We continue to build on our long track record of working with others, such as investors, industry and trade groups, universities, governments, non-governmental organisations (NGOs) and, in some appropriate instances, our competitors through our joint-venture operations or industry bodies. We believe that working together and sharing knowledge and experience with others offers us greater insight into our business. We also appreciate our long-term relationships with our investors and acknowledge the positive impact of ongoing engagement and dialogue.

The guidance on preparing information, proposals or discussion items for the Board asks for these materials to include considerations of the views, interests, and concerns of stakeholders and how management addressed them. This helps to strengthen the Board’s knowledge of how the broader business undertakes significant levels of stakeholder engagement. Board minutes have also reflected key points on stakeholder considerations, where appropriate. The Terms of Reference for our Safety, Environment and Sustainability Committee also include, within the Committee’s remit, the review and consideration of external stakeholder perspectives and how major issues of public concern that could affect Shell’s reputation and licence to operate were or are being addressed.

The Board also engaged with certain stakeholders directly, to understand their views. The Board draws upon Shell’s substantial in-house expertise by periodically receiving input from economics and policy experts on key political and economic themes, with some updates being presented to the Board each quarter. More on this engagement is provided in “Understanding and engaging with our stakeholders”.

Information on how the Directors have engaged with employees can be found in “Workforce engagement” and in the “Our people” section. The tables below include examples of how Directors have considered the interests of Shell employees and the resulting outcomes.

Principal decisions

In the table below, we outline some of the principal decisions made by the Board over the year. We explain how the Directors have engaged with or in relation to key stakeholder groups and how stakeholder interests were considered in decision-making.

To remain concise, we have categorised our key stakeholders into seven groups. Where appropriate, each group is considered to include both current and potential stakeholders. The groups are:

• investor community;
• employees/workforce/pensioners;
• our customers;
• regulators/governments;
• NGOs/civil society stakeholders/academia/think-tanks;
• communities; and
• suppliers/strategic partners.

Principal decisions

We define principal decisions taken by the Board as decisions taken in 2021 that are of a strategic nature and significant to any of our key stakeholder groups. As outlined in the UK Financial Reporting Council (FRC) Guidance on the Strategic Report, we include decisions related to capital allocation and dividend policy.

How were stakeholders considered

We describe how regard was given to the likely long-term consequences of the decision, including how stakeholders were considered during the decision-making process.

What was the outcome

We describe which accommodations or mitigations were made, if any, and how Directors have considered different interests, and what factors they took into account.