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ERC OVERVIEW
The Committee met in person twice in The Hague, the Netherlands, and on other occasions by teleconference. We held meetings with key Shell senior management and other personnel to discuss in detail Shell’s approach to sustainable development and its sustainability reporting.
In reviewing the sustainability report, the Committee concentrated on three main questions:
- Has Shell selected the most important topics for the report?
- How well has the report dealt with these topics and responded to stakeholder interest?
- Did Shell provide sufficient information and access for us to do our job effectively?
Our review did not include verification of performance data underlying the report, or the information on which the case studies in the report were based. In addition to our comments on the company’s reporting, we separately provided Shell with our observations on the company’s strategy and sustainability performance. In recognition of our time and expertise, an honorarium was offered, payable either to us individually, to our organisation, or to a charity of our choosing. We were also offered reimbursement for the expense of our travel and accommodation.
Engagement process
As last year, the External Review Committee (ERC) was engaged early during Shell’s content selection process. The ERC also had two opportunities to engage with members of Shell’s top management and the reporting team during face-to-face meetings in The Hague, as well as via telephone conference calls and email.
We reviewed and commented on successive drafts of the Report. This process was comprehensive and extremely helpful to the ERC, and it informs this letter. In addition, the ERC will meet with Shell’s Executive Committee in mid-2012 to discuss our view of Shell’s performance in sustainable development.
The Committee commends Shell for creating such a unique and thorough engagement process.
Overall report quality
The ERC believes the Report speaks to the material sustainability issues most relevant to Shell and its stakeholders, and finds them to be presented in an objective and accessible manner. The ERC endorses the overall layout and organization of the Report, which gives a good overview of Shell’s activities that support sustainable development. The Report gives Shell’s perspectives as well as the opinions of some external stakeholders.
Overall, the ERC has a positive view of the Report. However, the ERC notes tensions between Shell’s business strategy and actions, as described in the Report, and the emerging environmental and social stresses of the external landscape. For example, even when Shell operates in a responsible manner, it remains a fossil fuel company, and this has consequences for climate change. Therefore, the ERC considers that the Report should play a greater role in explaining more fully Shell’s long-term sustainability strategy to address climate change. The ERC comments in more detail below on the Report’s strengths as well as areas that the ERC would like to see improved.
Climate change
Drawing on Shell projections, the Report indicates that fossil fuels and nuclear energy could meet at least 70% of global energy demand in 2050. The Report also refers to the International Energy Agency (IEA) as saying that without a bold change of policy direction, the world could lock itself into an insecure, inefficient and high-carbon energy system as early as 2017. Shell’s projections for 2050, coupled with the energy sector’s contribution to the accumulation of greenhouse gas emissions, suggests that the IEA’s prediction will be fulfilled.
The Report states that Shell is not waiting for national or international policies to address the situation, but instead taking action in four areas: producing more natural gas, helping develop carbon capture and storage (CCS), producing low-carbon biofuel, and improving energy efficiency in its operations. These actions were covered in Shell’s 2009 and 2010 Reports. The 2011 Report indicates that Shell is making progress in some, but not all, of these areas. The ERC would have liked the Report to describe the internal workstreams that support these four areas, and how they are being effectively managed across the organisation.
The Report would also have been strengthened by a clearer account of the challenges that are preventing greater progress on CCS projects, as well as more information about Shell’s energy efficiency performance. While the ERC notes that energy efficiency has been given a higher profile in this year’s report, the 2011 performance was not as strong as expected. Although Shell has been one of the more vocal oil and gas companies to advocate strongly for market mechanisms and a price on carbon, the ERC would have liked the Report to include a description of further actions planned by Shell to address the challenges of climate change.
Operations in sensitive locations
The Report describes operations in politically sensitive locations, such as Iraq and Nigeria. The situation in Nigeria is given more detailed treatment in the 2011 Report than last year, which the Committee welcomes, in particular the open acknowledgement of the difficulties that exist. The Report also describes the environmental and social concerns that current or planned Shell operations could pose through activities in the Arctic, deep water, fracking, oil sands and biofuels.
The Committee notes the introduction of the Onshore Tight Oil and Gas Operating Principles as an example of an area where Shell is taking steps to differentiate itself from the industry.
The ERC wonders whether the Report sufficiently describes the potential environmental and social impacts of some of these sensitive operations, and the ability of Shell to manage these issues well at both at the outset and throughout the project life. If more space had been available in the Report, the Committee would have liked to have seen more comprehensive discussions on operations in sensitive locations, including their context, the opposing views and faces of the stakeholders behind any opposition, a more tangible sense of the difficulties faced by Shell’s personnel and management, and finally, a clearer indication of Shell’s awareness of future risks in these areas and readiness to face them.
Social performance and investment
The ERC letter in Shell’s 2010 Report looked forward to the development of a more comprehensive social performance strategy against which key metrics would be identified, enabling Shell to strengthen this aspect of reporting. The Committee also suggested that future reports need more information around Shell’s social investment and its impacts. The 2011 Report illustrates good progress made in terms of the development of internal social performance manuals and training of specialists on social performance. Several pilot projects that test grievance mechanisms are described, underscoring Shell’s commitment to respect human rights.
The ERC understands new social performance metrics were developed in 2011 and have been implemented in 2012, and will be reported on in next year’s report. The ERC appreciates these step-wise changes, and looks forward to seeing Shell’s complete social performance strategy and the additional metrics in the 2012 Report. We also look forward to information that provides a stronger sense of the strategic approach to Shell’s social and community investments.
Conclusion
The year 2011 saw strong financial performance by Shell, illustrating the company’s successful management of its complex operations in the midst of global economic turmoil. Strong financial performance enables Shell to create shareholder returns, benefit employees, contractors and suppliers, pay taxes to governments, and make investments for the future.
In the areas of social and environmental performance, Shell made further organisational changes in 2011, to achieve greater clarity and move accountability closer to operations. Shell is hoping to use its impressive track record in the area of safety as a model for other aspects of sustainable development. ERC discussions with Shell’s management indicate that internal discussions on Shell’s strategy are ongoing, to respond to the evolving external landscape and societal expectations. The Committee was encouraged by these internal developments that support Shell’s overall performance in sustainable development.
While Shell is making good progress, challenges and dilemmas remain, particularly in the area of climate change. The Committee commends good progress made so far, and encourages Shell to aim for long-term sustainability performance that is robust across the financial, social and environmental domains.
