By Michel Reinders and Robert Stiphout on Jan 7, 2020
We are entering a new decade. How do you look back on the last 10 years?
Some people see the last 10 years as a turning point for tackling climate change. I’m not so sure myself, because the results are simply not good enough. At least, not on the scale the world needs. This is simple math. If you add up all the current efforts by countries across the world to reduce national emissions to comply with the Paris Agreement, the so-called nationally determined contributions, the world will not limit the rise of global average temperature this century to two degrees Celsius above pre-industrial levels, let alone 1.5 degrees. So, I wouldn’t say society has jumped on a speeding train in 2019. There is, however, also good news. During the last decade, the world has undeniably started to take climate change far more seriously. This has resulted in the Paris Agreement, tremendous technological progress and more awareness and willingness to tackle climate change. And there is more activism. All this is positive. Something has been put in motion.
Has Shell also changed during the last 10 years?
Absolutely, developments during the last decade have led us to rethink the organisation. The world of the future will be different from the world we know from the past, especially when it comes to energy. This means it is harder to determine our future strategy based on trends from the past, like we were used to. For example, we can no longer ask, will the oil sector grow by 2 or 3%? But: will there be any growth at all? We have also thought well about what Paris really means for us. That took a couple of steps. From “we understand Paris”, and “we embrace Paris” to “our strategy supports Paris”. This has led to a strategy to cut the carbon intensity of the energy products we sell in step with society as it moves towards the goal of the Paris Agreement. That means fewer greenhouse gases emitted on average with each unit of energy we sell – by around half by 2050, and as an interim measure around 20% by 2035. It is a broad ambition. It includes the emissions from our own operations, our energy suppliers’ emissions, and our customers’ emissions when they use the products we sell. Of course, Shell only controls its own emissions. But by changing the mix of energy products we supply, we aim to help others to lower their emissions too. At the same time, our strategy for the future is aimed at financial growth. So, the carbon intensity of our energy products down and shareholder value up.
What does this mean for Shell’s products?
The world will need oil and gas for many years, which means we plan to keep investing in that part of our business. At the same time, we are going to invest in the parts of Shell that help the world with the transition to an energy system that helps to reduce greenhouse gas emissions and improve the air quality and the parts of Shell that are close to customers. Think of natural gas, petrochemicals and above all more and cleaner electricity, which is the part of the energy system where we believe big business opportunities lie.
What did these investments look like in 2019?
Take electricity, for example. We want to be involved at almost every stage of the process, from generating electricity through wind and solar, to buying and selling it, to supplying it directly to consumers. So, in 2019, we invested in many different parts. We acquired electric car charger Greenlots in the USA, but also sonnen, a German leader in smart energy storage. And we bought ERM Power in Australia, to name just a few examples.
What concerns you most when you look back at 2019?
I’m disappointed in our safety results. In 2019, we had more fatalities than in previous years. No matter how good the financial results, that makes it a terrible year. Just think of the people who are close to the victims. Family, friends and colleagues. I know from experience how hard that is as a colleague. When I was working in Chemicals 11 years ago, one of our contractors died in an accident on a construction project in Singapore. He was Malaysian, in his early thirties, with a young family. For a long time, you keep thinking: what could I have done to prevent this? We are taking steps to make sure we continue to strengthen our safety culture, building on the progress we made during the last decade.
You mentioned Shell’s strategy of simultaneously decreasing the carbon intensity of energy products and increasing shareholder value. Is this message getting through?
Not enough yet. Again, this is the result of developments of the last couple of years. Society doesn’t trust the energy sector like it used to. Helping the world see what we do and why we do it has become a much more complicated process than it was. All energy companies must find new ways to tackle this. This includes Shell. We have good, clear ideas on how to accelerate the energy transition. Perhaps we should talk about these with more emphasis.
Do you take this personally?
Absolutely. This is true for trust from society as a whole, but also from specific groups. Look at our share price for example. Shell provides competitive returns for our shareholders, in a time of negative interest rates. But investors wonder whether we can keep up our financial discipline. Whether we can really make the transition to lower-carbon like we say we will. Whether we are really the best energy company. I take this lack of trust very personally. In fact, it could lead me to conclude investors don’t have the same confidence in me that I have in myself. And since this is what my job entails, building trust in Shell, it makes me feel I need to do better. Not just to gain more trust from investors, but from society, from everyone.
What did you do last year to increase trust in Shell?
Let me first say that trust is tricky. You cannot simply say, “just trust me”, and expect everything to be fine. I think people trust you for two reasons. First, legitimacy. So, we don’t claim to be something we’re not. Like I just said, oil and gas will remain part of Shell and part of society for a long time to come. This is for very good reasons and we are not going to apologise for that. So we must be transparent about what we do. About the associations we are part of, for example. This is why we published the Industry Associations Climate Review, which assessed for the first time Shell’s alignment with 19 industry associations on climate-related policy. And we decided to end our membership in 2020 from one because it didn’t align with our position on climate change. It also means being transparent about taxes. This is why we published a report on tax payments towards the end of the year.
And what is the second reason for people to trust you?
Taking responsibility. You need to do what you promised and take a leadership position. For Shell, for example, that means showing we truly embrace the transition to a lower-carbon energy system with our Net Carbon Footprint ambition and investments in cleaner energy. Like in wind and solar, hydrogen and biofuels, and in ways to mitigate emissions through capturing and storing carbon dioxide safely underground, or by planting and protecting natural ecosystems. We must show financial responsibility as well. There are, for example, huge opportunities in electricity and the customer-facing parts of our business. This means we really are, as we call it, a world-class investment case. And yes, this is starting to get noticed. And I’m glad about that.
You mentioned climate change activism among some of the positive developments of the past decade. And you have said that you joined political protests when you were young. How does it feel to be on the receiving end of protest by environmental activists?
Actually, I find it hopeful. Many young people protest out of idealism, which is good. Better than good, because from idealism comes inspiration and progress. In fact, without idealism the world would be a cynical place. But you must connect idealism to realism and pragmatism. The world needs all three – idealism, realism and pragmatism. Shell needs all of it. If I were not an idealist, the organisation I lead would make no progress. But at the same time, I must be a realist, a pragmatist. I must know what works and what does not work for this company.
Do you ever agree with climate activists?
Yes, certainly about our shared goals. We want the same thing for society and for our planet. People can find that hard to believe. They think I’m doing rhetorical judo. That’s because we don’t see eye to eye on how to achieve these goals. But that’s something different. Same goals, not the same methods. For example, I believe big organisations like Shell have a critical role to play in the transition to a lower-carbon energy system. This simply cannot be done by new, small start-ups alone. We need success at scale. That means a role for big companies with financial strength, talented staff and a worldwide reach. I think awareness is starting to grow that we all have to work together and that this includes big business. It cannot be done without us.
That sounds positive for Shell. Is that also how you see the next decade?
Without a doubt. The next decade must be ground-breaking for Shell in three ways. Of course, financially, but this is not the only, and perhaps not even the most important ground-breaking area for Shell. Because Shell must also show success in the energy transition during the next decade – with a reduction of the carbon intensity of the energy products we sell and an evolution to a lower-carbon energy portfolio for the future. And we must meet the expectations of society: being trusted, valued and supported by people in return. Meeting society’s expectations means making a real contribution to the lives of people, which can secure a strong societal licence to operate for our businesses. This brings us back to trust and acting responsibly. This means being safe and responsible operators for the environment and for people. It means making products that people need and want. And it means being respected for what we do in society. And if we do all that, I think the next decade could be a golden age for Shell.
When you go home, can you let go?
I find that fairly difficult. As I said, I often take things personally. I’ve always been like that and I don’t think I can change. But this is also a strength, a motivator. If I didn’t care so much, I couldn’t do my job properly. I don’t let things slide. I do something.