THE ECONOMIST NOTES :
(Royal Dutch) Shell may justifiably fear being on the wrong side of history when it comes to climate change. But it needs shareholders’ support to move in the right direction.
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Though some investors put global warming as their highest priority, most still relish the juicy 10%-plus returns that Shell generates on capital employed in big, risky projects such as oil wells and refineries. They are wary of cleaner-energy ventures such as electricity, where Shell has taken its first steps; returns are steadier, but puny (say 4%). New-energy businesses such as hydrogen and biofuels are seen as financial black holes. So Shell has to coax investors along with a mix of hard cash and prudent investments.
The cash comes from Shell’s legacy businesses, upstream oil and gas, and downstream chemicals and oil products. Last month it laid out a plan to return $125bn—a whopping half of its current market value—to investors, through dividends and share buy-backs from 2021 to 2025. Some analysts worry that it might be planning to drain its hydrocarbon reserves to keep the cash machine running.
Shell insists that is not the case; it has sought to reassure critics by earmarking most of its $30bn annual capital-expenditure budget over the five-year period for fossil-fuel related projects. As for the prudence, it will only ramp up spending on its nascent power business if it can show that returns come close to those of oil and gas.
Investors wanting more ambitious climate strategies can put their cash into clean-tech companies instead.
