Chair’s message
As we publish this report, the war continues in Ukraine. We are working hard to ensure the safety of our staff and contractors, and to support relief efforts. We have also announced our intention to withdraw from Russian oil and gas.
As well as being a human tragedy, the war has led to rising energy prices and uncertainty about supplies.
This extreme disruption in global energy markets has shown that affordable, secure, and reliable energy cannot be taken as a given. It must be protected and managed, through international co-operation: companies, governments and wider society working together. This co-operation includes working with our shareholders and maintaining their support.
Shell will play a leading role as the world’s energy systems change. We will continue to supply the oil and gas that people need today. As one of the world’s largest suppliers of liquefied natural gas (LNG), we can ship natural gas to where it is needed most. At the same time, we are accelerating the transition to low- and zero-carbon energy, which is at the heart of our strategy.
Essentially, an accelerated transition is the best way to ensure security of energy supplies. It is also the best way to help people in some parts of the world who do not yet have access to energy, which is essential for a better quality of life.
Towards net zero
We firmly believe our climate targets are aligned with the more ambitious goal of the UN Paris Agreement on climate change: to limit the increase in the average global temperature to 1.5°C above pre-industrial levels. The actions Shell takes over the coming years, and our progress against our short- and medium-term targets, will be crucial steps to ensure that we become a net-zero emissions energy business by 2050.
In the first year of our Powering Progress strategy, we have laid the foundations for success. We have taken critical investment decisions in the production of low-carbon fuels, solar and wind power, and hydrogen. We have made significant changes to our Upstream and refinery portfolios, we reshaped the organisation and we simplified the company and its share structure. We have formed partnerships with some of the world’s biggest companies in sectors from aviation to road transport and technology.
In 2021, we added an ambitious new target to halve absolute emissions from our operations and the energy we buy to run them by 2030 (Scope 1 and 2), compared with 2016 levels and on a net basis. We are well on our way with an 18% reduction by the end of 2021.
For comparison, we estimate that global energy- and fossil-related CO2 emissions actually rose by 2.4% in the period between the end of 2016 and the end of 2021, based on International Energy Agency (IEA) and other data.
Change in demand
We believe that for the world to decarbonise, a dramatic change in demand for energy is just as critical as changes to supply. That is why an essential part of Shell’s strategy is working with our customers across different sectors to reduce emissions.
We are helping our customers to identify and use low- and zero-carbon alternatives to the energy products they have used for many decades: renewable electricity and hydrogen to power homes, cars, trucks, businesses, and industry; biofuels for cars, trucks and planes; LNG for power, trucks and ships; and carbon capture and storage and nature-based carbon offsets to deal with any remaining emissions.
This is not only the right approach for the world. It also makes good business sense. We see great business opportunities for Shell in the fast-growing low- and zero-carbon markets where we are well positioned to provide the different products and solutions our customers need.
We are leading the way in new technologies that will help to decarbonise our operations, and to reduce emissions for our customers. Our scientists are developing new ways to store hydrogen safely, including underground, for example, which will be critical to ensure secure, large-scale supplies of hydrogen to our industrial customers in the future. And our engineers are designing LNG projects which are powered by renewable electricity.
Remuneration
We included progress in the energy transition in the calculation of the annual bonus for almost all Shell’s employees in 2021. Now we are going further. From 2022, we have extended how we measure progress to cover three key themes; reducing emissions from our operations, sales of low- and zero-carbon products and partnering with others to decarbonise road transport.
In 2019, we were the first major energy company to include an energy transition performance metric in our Long-term Incentive Plan for senior executives. This has vested for the first time at 180%, reflecting our progress in transforming Shell’s business for a lower-carbon future.
Stronger and more profitable
Last year, 89% of Shell’s shareholders voted in favour of our energy transition strategy. We are implementing that strategy, and this year we are asking shareholders to vote on our progress, as we will do every year until 2050. The next energy transition strategy update for an advisory vote is in 2024 and we will give another update on our progress next year.
Securing shareholder support as we implement our Powering Progress strategy is good governance. The vote on our progress towards our targets and plans is purely advisory and will not be binding on our shareholders. The legal responsibility for Shell’s strategy lies with the Board and Executive Committee.
When I look at what we have achieved in 2021, and our plans for the years ahead, I believe that Shell will become stronger and more profitable by providing the low- and zero-carbon energy products and services that our customers need. That is good for our shareholders. It is good for our customers. It is also good for the world’s climate goals and the planet.
The continued support of our shareholders is critical for us to become a net-zero emissions energy business and a leader in the energy transition. We believe that Shell’s energy transition strategy is in the best interests of our shareholders as a whole and wider society.
The Board recommends that you vote in favour of Resolution 20 in support of the progress that Shell has made in its energy transition strategy over the past year as described in this report.
