By Joanna Wrighton and Rob van’t Wel on Jan 7, 2019
How do you view the geopolitical shifts taking place in the world?
In 2018, we saw political, military, trade and social tensions. This is, of course, very worrying. But you can also look at the facts… which paint a different picture.
On the whole, the world has never been as prosperous as it is today. The number of people dying because of conflict has never been as low. We are in a better place which shows that somehow society gets many things right. And it makes me hopeful that common sense will prevail.
My biggest worry is that trust is being eroded – trust in governments, trust in companies, even trust in the truth.
Especially in the western world, where some people feel left behind, and fear or find they will have a worse life than their parents. That creates discontent.
Without trust, common sense and cool heads may not prevail. We need to restore trust in governments and in companies.
Why is trust so important for Shell?
We can see that trust in our company among some parts of society is being eroded in countries like the UK, the Netherlands and the USA.
Some people are putting Shell under pressure in ways we think over-simplify the issues. We are not always managing to have a proper dialogue with civil society, and that concerns me.
I see three ways of restoring trust in Shell – getting the basics right, which means doing no harm to people or the environment and dealing with the problems of the past and present, like oil leaks in Nigeria or earthquakes linked to gas production in Groningen, the Netherlands; providing the energy products people need and want; and being a good corporate citizen.
How will you know when you have restored trust?
It’s a gut instinct. I feel an attack on Shell as an attack on my personal integrity. It’s something I feel deeply, probably at least once a day. If I can reduce that to once every other day, I’ll know that we are making progress.
Of our three strategic ambitions – to become a world-class investment case, to thrive through the transition to lower-carbon energy and to have a strong societal licence to operate – I’m confident that we can achieve the first two.
But I can’t see a sure path towards strengthening our societal licence to operate just yet. We need to change people's perceptions through better performance and behaviours. And we need to have a better dialogue with civil society in some parts of the world.
Deep down, I am an engineer who would like to sketch out the problem and design a solution. I can't do that in this case.
"I feel an attack on Shell as an attack on my personal integrity. It's something I feel deeply, probably at least once a day"
You talked in 2018 about your humble upbringing. How has this shaped your thinking today?
I grew up in a modest family in Roosendaal in the southern Netherlands. My father worked in a biscuit factory. He never knew his father, who died just before he was born.
My mother left school at 12 years old to work in a chocolate factory. I always felt that we couldn’t do things because of our financial situation. We never went on holiday. My parents saw that as something too luxurious, not for families like us.
The way I grew up gave me a tremendous drive to achieve. I wanted to show people that I could succeed. It also taught me the importance of setting goals, of persevering, of not taking the easy way out.
The first battle I fought was over my education. My cousin and I were the first ones in our family to stay at school after the age of 16 years old. When I wanted to go university, my father said no. For him, university meant unemployment because jobs were scarce for graduates, and debt because I would not be earning money. My mother supported me. She said, "Let the boy try". In the end, I struck a deal with my father – I could go but I had to prove myself by getting top grades.
I worked extremely hard during my first two years at university. I didn’t have much fun in those early years of my study, but I persevered because I believed that studying was the path to happiness, to travel and seeing the world.
Have those lessons served you well at Shell?
Yes, because the difference between success and failure often comes down to whether you are willing to keep trying, not be swayed.
When I became head of our Chemicals business in 2006 it was one of our worst-performing divisions. At the time, Shell was making an average 7% return on investment from chemicals. ExxonMobil was making 21%. I set us the target of beating ExxonMobil.
Once we found the right way forward, we needed the willpower to keep going. It would have been much easier to sell the business. We reduced operations in underperforming areas, focused hard on costs and restructured many of our assets.
Today, Chemicals is one of Shell's two growth priorities, which means that we invest heavily in it, with great confidence in its ability to produce strong cash flow and returns in the near future.
The acquisition of BG in 2016 is another example. It was the biggest global energy deal in more than a decade, in one of our industry’s worst downturns. That acquisition grew our positions in liquefied natural gas (LNG) and deep water and helped transform our financial performance.
Sometimes you have to say, "we need to do this", and then suddenly you find a way, or other people find a way for you.
It’s incredibly important that we set ambitious goals for what we want to achieve as a company. Of course, it must be something we know we can deliver… perhaps with a few sleepless nights for some people.
"Growing up taught me the importance of setting goals, of persevering, of not taking the easy way out"
What are you most proud of when you look back at 2018?
I'm especially pleased with our progress towards becoming a world-class investment case. We have demonstrated strong capital discipline and made tremendous improvements in capital efficiency, so we can build more projects with less money.
There is a perception that we have been over-optimistic in the past, and not delivered on what we said we would. In 2018, we bucked that trend.
We have completed the $30 billion divestment programme we pledged to deliver over three years, improving the quality of our portfolio. We launched our share buy-back programme, as promised to investors.
And we are on track to generate between $25 billion and $30 billion of organic free cash flow by 2020. That’s the money we have available after investments to give to shareholders and reduce debt. It puts us in the final stages of what is the biggest financial transformation in the history of our company.
What could Shell have done better?
I’m still unhappy with our safety performance. In 2018, sadly two people died on our watch – one at a refinery in Germany and another at an onshore well in the USA.
More broadly, the safety performance at our facilities has improved, but our performance on personal safety is worse than the previous year. We have to step up our efforts to keep people safe.
You have taken significant strategic steps since you became CEO of Shell in early 2014. What’s next?
We are in the end-game of the transformation of our free cash flow that was driven by our acquisition of BG. But we are also at the beginning of the next big strategic phase, one that will play out over the five years ahead.
I don’t know what the next big move will be. But we live in a world with a lot of change and our products will also need to evolve as the world works to reduce emissions and meet the climate goal of the Paris Agreement.
We need to be financially ready for that change. It would be a real pity to pass up the next big opportunity when it comes along because we have our back up against the wall financially.
Shell has set the ambition to reduce the net carbon footprint of the energy products it sells by 50% by 2050. How will the company achieve this?
We are improving the efficiency of our plants and reducing methane emissions from oil and natural gas production. We are investing more in gas, the cleanest-burning hydrocarbon.
We have taken the decision to invest in an LNG project in Canada, for example, which will be the most energy-efficient project of its kind.
These are all important steps. But they will not be enough to achieve such a big ambition with a long range. The most powerful changes will come from more renewable power like wind and solar in our portfolio, more biofuels and the removal of carbon dioxide from the atmosphere through investments in, for example, reforestation.
We are already making moves in these areas, but we need to go much faster and much further.
In 2017, we set the ambition to halve the net carbon footprint of the energy products we sell, expressed as a measure of carbon intensity, by 2050.
Now we are building on that long-term ambition with a commitment to setting short-term targets, for periods of three or five years, to reduce the net carbon footprint of our energy products. We plan to link these targets to our executive remuneration, subject to shareholder approval.
Achieving our ambition by the middle of the century will mean reshaping our portfolio and the products we can offer customers. It is possible, but it will take a great deal of effort and perhaps a few bold moves.
How important is it to restore forests?
The United Nations' Intergovernmental Panel on Climate Change (IPCC) report and our own Sky scenario were published in 2018 and show how the world might limit global warming to 1.5 degrees Celsius.
Sky illustrates a rapid transition to net-zero emissions in the energy system by 2070. In addition, in order to achieve the 1.5°C goal, reforestation will have to play an important role by removing significant amounts of carbon dioxide from the atmosphere. To be clear, that would mean reforesting a total area the size of Brazil.
At Shell, we are just beginning to understand how to contribute to this reforestation. We need commercially viable solutions, which means devising a business model that makes it attractive for our customers to help us plant or preserve forests, effectively removing later the carbon they are emitting today.
When is the right time for Shell to invest more in low-carbon energy?
In 2019, we must start proving that we are making progress towards our ambition to thrive through the transition to lower-carbon energy. We can do that by showing that the companies we have acquired, and the businesses we are building, can be profitable.
For now, we are still testing our theories. In the period to 2020, we plan to invest between $1 billion and $2 billion on average a year in our New Energies business, which focuses on new fuels and power.
It's a lot of money, but it’s not enough if we want to meet our long-term ambition to reduce the net carbon footprint of our energy products.
The bottom line is that we need to show our Board of Directors and our investors that these are good businesses to invest in. Can we do that in 2019? We probably need a bit longer to show sufficient profits in New Energies.
"We live in a world with a lot of change and our products will also need to evolve as the world works to reduce emissions"
The latest IPCC special report calls for an accelerated transition to lower-carbon energy. Can society meet this challenge?
I’m optimistic that society has the capability to provide energy with lower greenhouse gas emissions, both technically and economically. The big question is whether the world has the drive to tackle climate change.
Of course, society wants to reduce emissions, but it doesn’t like the consequences, which could mean lifestyle changes. That’s the biggest obstacle to limiting global warming.
Politicians have an important role to play in creating the right conditions to encourage lower-carbon energy. Governments could put a price on carbon, for example, and give the money back in other ways so that people are not financially worse off while they still change their behaviours.
But it will take courage. Government-led reform of power markets is one way to encourage investment in low-carbon electricity. It’s also one of the fastest ways to be voted out of office if politicians get it wrong.
You have said you want Shell to supply electricity to 100 million people in Africa and Asia by 2030 who currently do not have it. Why is this important to you?
I want Shell to be the best company in our industry – which means number one for our investors, number one for our customers and number one for society.
If we want to be number one for society, we must do something that society really needs and values. I want Shell to be the biggest contributor to addressing one of the biggest societal problems we have on this planet – providing access to reliable energy for the 2 billion people who do not have it today.
Providing energy to the underserved is a logical next step for Shell, but it’s also hard to make this ambition commercially successful.
This is about more than doing the right thing for society. It's also a major growth opportunity for Shell. We are potentially creating future customers who I hope will remember us for helping bring the convenience of affordable energy into their lives, improving their livelihoods, allowing them to complete their schooling or do something more meaningful than collecting firewood.
Who do you turn to for advice and support?
My wife, Stacey. It's important to have someone I trust and who will give an honest opinion of how I’m doing. My wife is my best life coach and she is deeply involved in how I approach things. She’s critical and good at tough love.
When I have doubts, or I’ve felt things didn't work out, she always offers constructive comments. I don’t think I could do this job without her support.