Shell quits
Oil giant moves primary stock market listing - and climate battle - to London
WITH IMPECCABLE TIMING, Royal Dutch Shell - soon to be just Shell - announced its decision to abandon its dual-listing structure, with one foot in the Amsterdam stock market and the other in London, on the first working day after the COP26 climate summit in Glasgow.
The two events were not related, said Shell.
If that meant it would have left the Netherlands anyway, unless the government caved to its demand for the abolition of the Dutch dividend tax, then - sure - the two events are not related. After a torrid couple of years, the oil price is strong and producers are intent on winning investors’ loyalty with a run of rising dividend payments. The Dutch tax is becoming an increasing liability to a dual-listing structure, which now seems to be a more important factor than Shell’s privileged place in the national heritage (and psyche) as the crown jewels of Dutch industry.
But to suggest that climate politics isn’t a factor? That is, at least, debatable.
Shell is unique in the Netherlands, not just in stature - just a few years ago, the Dutch national champion was a serious contender to become the world’s largest listed oil major by market capitalisation; but also in terms of exposure and risk.
Climate risk included.
By moving its primary stock market listing to London, Shell can’t escape the growing pressure from investors to participate meaningfully in the energy transition to renewables. That argument is raging in capital markets worldwide, and will take its toll on (non-state, listed) fossil fuel producers of all stripes and nationalities.
But in the UK stock market, Shell becomes one-of-a-crowd.
Most of all, with BP, one of a pair.
For almost three decades, Shell has claimed with some justification to be best-in-class for its readiness to engage with climate politics. In 1991, it was the first oil major to acknowledge the reality of global heating (in a corporate video, Climate of Concern).
Best-in-class is a difficult place for an oil company to find itself. Unlike, say, Exxon Mobil, which consistently sponsored climate denial and cast doubt on the probable consequences of man-made greenhouse gas emissions, Shell has cast itself in the guise of a company that is preparing seriously for the energy transition.
Renewables: the fact and the fiction
Contrary to their advertising and PR campaigns, that seriousness is doubtful. The commitment of both BP and Shell to investment in renewables has waxed and waned. Historically, they have tended to exaggerate their actual stake in renewables, while retreating quickly from clean energy alternatives whenever those emerging business models hit a bump in the road.
In the wake of the 2015 Paris Climate Agreement, Europe’s listed oil and gas producers have announced numerous “ambitions” to reduce their carbon footprint. As I’ve reported here, none of these claims stands up to scrutiny.
Big Oil is run by people who built their careers turning hydrocarbons into petro-dollars. Every time (as now) margins pick up in the industry they understand, their instinctive reaction is simple. They want to stick to what they do best. This hasn’t changed - yet.
For all the myriad “new” strategies from BP, Shell, Equinor, Total and others, Europe’s oil majors share one thing in common: a determination to be the last man standing in oil and gas. Even at the cost of increasing carbon emissions until at least 2030.
Everything else is detail. Not all greenwash, but still an attempt to say one thing while, fundamentally, doing another. Take recent promises to disclose more information on their carbon footprint, after losing serial battles: for example, by reporting in more detail on their emissions.
Over the past four years, Europe’s oil and gas producers have reluctantly announced a series of U-turns to accept liability for so-called Scope 1 (operations), Scope 2 (suppliers) and Scope 3 (product/customer) emissions. None chose this path voluntarily, but caved instead to pressure from activist investors with support from the world’s largest financial institutions, including Black Rock and State Street.
No European oil major has a definitive or convincing plan that can meet these institutions’ commitments to clean up their underlying assets, in line with the global goal of net zero emissions by 2050. That’s work in progress.
For Shell especially, the work is often frustrating. A big fish in a relatively small sea, Shell is uniquely exposed to pressure from activists at its annual shareholders’ meetings in a seaside theatre in Scheveningen, and in Dutch courts.
The dual nation, Anglo-Dutch configuration of the Koninklijke Nederlandsche Petroleum Maatschappij made Shell a slow-moving target for investors such as Follow This and protest groups including Milieudefensie, Dutch chapter of Friends of the Earth.
No doubt the unequal taxation of dividends in London and the Hague is the decisive factor in Shell’s move to London, but it’s not the whole story.
The Netherlands is simultaneously a big polluter (by European standards) and a legal jurisdiction with a shareholder governance code that is friendly to dissenters and a court system bound by precedents set in the European Court of Justice.
None of these challenges are resolved by moving to London - and the company certainly considered other scenarios. If the Dutch parliament had heeded prime minister Mark Rutte’s promise in 2017 to scrap the 15 per cent withholding tax on dividends, perhaps Shell’s privileged position in the national psyche would have tipped the balance in favour of the Hague.
Instead, Shell will follow the path taken by Unilever, another dual-listed Anglo-Dutch entity that closed its headquarters in Rotterdam to move to London last year (after shareholders voted down a 2018 plan by management to establish itself only in the Netherlands). In a chicken-and-egg type conundrum, Unilever’s decision to flee the dividend tax also sounded a death knell for Rutte’s plan to abolish it.
For the Dutch government, losing Shell’s primary stockmarket listing may diminish its weight on the global stage. After Shell CEO Ben van Beurden called Rutte to inform him of Shell’s plan, the acting prime minister again floated plans with his coalition partners to scrap the tax. Once again, despite Rutte’s last-minute pleas, parliament refused (paywall) to yield.
The moral and the money
From the south bank of the Thames, the new head office of Beurden and CFO Jessica Uhl, the view overlooks a busier city, with a deeper stock market. Among neighbouring corporates are plenty of other polluters, financiers and energy incumbents to cast as villains. Handy.
By escaping the dividend tax, the small team of Dutch executives poised to leave the Hague no doubt hope also to leave some of their company’s uniquely Dutch heritage behind. Even if that unwanted scrutiny could be cast off as historic cultural baggage, however, the ferment among investors is unlikely to let up.
At the COP26 meeting in Glasgow, a new coalition of banks, insurers and asset managers pledged to clean up the greenhouse gas emissions from investments with a market value of more than $130 trillion. Chaired by Sir Mark Carney, former governor of the Bank of Canada and Bank of England, the Glasgow Financial Alliance for Net Zero (GFANZ) announced its goal of cutting emissions from lending and investing to net zero by 2050.
These are just ambitions, of course. As so often, the targets are non-binding. But even if oil majors won’t yield to activists, it’s their own shareholders that Shell and other listed fossil fuel producers - not only in Europe - have to convince of their seriousness in the energy transition.
The moral economy is predictably murky. Many of these institutions want the rising dividends from oil and gas, even as the industry’s share of the total energy ‘mix’ declines in the years ahead. At the same time, the doctrine of fiduciary responsibility for clients’ money requires these institutions to acknowledge and respond to the devastating consequences of the climate emergency.
Like central bankers, capital markets are rising, albeit in uneven and uncertain ways, to the task ahead.
According to the Economist magazine, less than one third (14%-32%) of all greenhouse gas emissions are caused by publicly traded, listed companies. European executives in Big Oil often complain that they take a disproportionate share of criticism, from which bigger state-owned entities (PetroChina, Sinopec, Coal India, Saudi Aramco) are effectively insulated.
That’s a fair comment - and also irrelevant.
Shell and its peers can claim with justification to be best-in-class, when compared with the state producers and privately held fossil fuel interests that are, in the aggregate, the bigger polluters. But unaccountable companies are also, invariably, poor innovators.
This is why the world depends on the listed companies that answer to bankers, fund managers and capital markets - including Big Oil and Gas. Only they have the project know-how, global reach and market-making power to become first movers in the clean, green energy that is our very belated future.
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