Shell to Tie CEO Bonuses to Greenhouse Gas Emissions

Ben Van Beurden and other directors, including incoming CFO Jessica Uhl, will have 10% of their bonuses determined by the level of carbon dioxide and other gases emitted by the company's facilities.

One of the world’s biggest energy companies has made the unusual move of tying CEO and other executive bonuses to greenhouse gas emissions, in a sign that Donald Trump’s election hasn’t necessarily slowed progress in the business world toward achieving emissions reductions goals.

In its annual report to shareholders released this morning, Royal Dutch Shell said 10% of directors’ bonuses, including for CEO Ben Van Beurden, would be calculated according to the emission levels of gases, such as methane and carbon dioxide, without being more specific. “We are managing Shell‘s carbon intensity as part of the long-term transition to a lower-carbon energy system,” the company said. “Therefore, greenhouse gas measures are now included.”

Shell also announced this morning that it had sold Canadian oils sands interests for $7.25 billion, dramatically reducing its exposure to one of the most expensive and environmentally-damaging forms of fossil fuel to extract.

Although some companies tie bonuses to broader performance measures around corporate social responsibility, it’s rare for them to focus specifically on emissions. Van Beurden had already indicated in December that the Anglo-Dutch company was mulling whether to include such hurdles in its remuneration policy.

“WE ARE MANAGING SHELL’S CARBON INTENSITY AS PART OF THE LONG-TERM TRANSITION TO A LOWER-CARBON ENERGY SYSTEM.”

“We have linked executive remuneration in the past to energy intensity and next year we are going to make it even more specific to the carbon dioxide footprint metrics associated with these energy efficiencies,” Van Beurden said at the time.

Around a quarter (24%) of America’s 613 largest publicly-listed companies linked executive compensation to sustainability performance, according to a report released in 2014 by nonprofit group Ceres. That was up from 15% in 2012, though just 3% linked executive pay to voluntary sustainability performance targets, such as greenhouse gas emissions reductions.

Shell’s move comes as some investors, particularly national pension funds, place more pressure on companies to shrink their carbon footprints, even as freshly-elected governments in the U.S. and UK place less emphasis on environmentalism.

The mood in Washington is certainly more supportive of the oil industry following Trump’s appointment of climate-change skeptic and former Texas governor Rick Perry as his energy secretary. The president also was quick to approve construction of the Keystone XL pipeline, which would transport oil sands from Canada to the U.S. Gulf Coast.

Still, renewable energy sources could still attract money, according to Rob Meaney, a senior investment consultant at Mercer. “Any reduction in funding from political sources represents an opportunity for investors to bridge the gap,” he said. “As a result, Trump’s election and his climate-change-skeptic cabinet could actually increase the role of pension schemes and other institutional investors in this area.”

Last month, Ireland became the first country in the world to introduce rules banning state-sponsored investors from parking money in fossil fuel plays. The move means the country’s €8 billion ($8.5 billion) sovereign wealth fund, the Irish Strategic Investment Fund, will have to fully divest from fossil fuels by 2020. “This is a clear statement of intent and more countries are likely, if not obliged, to follow,” Meaney said.

To be sure, the American oil industry has largely welcomed Trump’s election, hoping that a loosening of regulations will help shale drillers leverage rising oil prices to boost the country’s local manufacturing sector. Exxon CEO Darren Woods, for example, this week confirmed the company intends to spend around $20 billion on new American oil and natural gas processing facilities through 2022.

For information on private company CEO bonuses and how they’ve changed over time, click here.


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