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Shell (RDS.A) to Quit U.S. Refining Lobby on Climate Dissent

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Royal Dutch Shell plc recently announced that it intends to leave the U.S. refining lobby, American Fuel & Petrochemical Manufacturers (“AFPM”), citing disagreement on climate policies. The energy mammoth stated that AFPM does not give the targets of the Paris climate agreement as much importance as these deserve. As such, after conducting a thorough review, the company decided to let its membership in the AFPM lobby lapse in 2020.

AFPM has approximately 300 members from the United States and abroad. Per its annual report of 2018, these members operate 110 refineries and 229 petrochemical plants. Chevron Corporation (CVX - Free Report) , Exxon Mobil Corporation (XOM - Free Report) , BP p.l.c. (BP - Free Report) and TOTAL are some of its other members.

Review & Findings

The company summarized its relationship with 19 major industry groups on climate change policies. It considered four parameters for the review, namely:

  • Supporting the Paris Agreement targets on climate change
     
  • Following the carbon pricing mechanisms led by the government
     
  • Advocating low-carbon technologies
     
  • Considering natural gas as the cleanest hydrocarbon resource

Findings & Moves: Delving into the four climate-related policy positions, Shell reached the conclusion that it has “some misalignment” with nine of the 19 key associations, including American Petroleum Institute and the U.S. Chamber of Commerce. However, the company intends to engage further with these associations to find out better solutions for emission-related problems. Shell also found “material misalignment” with AFPM, which is beyond repairment, and thus wants to withdraw from the body next year.

Implications

The review marks Shell’s drive to boost corporate transparency and assure investors regarding its stance on climate change issues. The company fully supports 2015 Paris Agreement goals, which focus on restricting global warming through lowering carbon emissions to a net zero by the second half of this century.

This move from Shell further recognizes the pressure on energy companies from investors with regard to climate changes. The growing concern regarding climate change is currently driving the decision-making mechanism in most of the energy companies all over the world. In a move with similar goals, last year, Shell decided to link remunerations of its executives with targets for carbon-reduction initiatives. Notably, fixing high-level employees’ compensations is the first ever move by any energy company to combat climate change. Shell is of the opinion that it is leading the movement against emissions.

Similar Moves From Big Companies

The largest publicly-traded energy company, ExxonMobil made a similar move last year and severed its ties with American Legislative Exchange Council (ALEC) — a U.S. non-profit organization that drafts and shares model state-level legislation for distribution among state governments — due to its conservative climate change moves. A few years back, Shell and British energy major BP had also withdrawn their membership from ALEC, citing similar reasons.

Price Performance & Zacks Rank

Headquartered in The Hague, Netherlands, Shell’s stock has gained 2% in the past month compared with 1.6% collective growth of the industry it belongs to. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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