Shareholders of Royal Dutch Shell voted almost unanimously on Dec. 10 to streamline the oil and gas major’s corporate structure and relocate its headquarters from the Netherlands to London. The company will also drop the “Royal Dutch” from its name.
The company said the changes (pdf), which will take effect in early 2022, will make it easier for Shell to distribute dividends and other benefits to shareholders, and to make changes in its business model to prepare for climate change and the energy transition. Previously, the company had to comply with tax and corporate law in both the UK and the Netherlands, and had long chafed against the Dutch tax regime; now it will deal only with the UK government.
Shell executives have said the move is unrelated to an October ruling by a Dutch court that orders the company to reduce its greenhouse gas emissions (Shell is appealing the decision). But some analysts say the relocation will mitigate the company’s exposure to future climate litigation, given that the Netherlands has a particularly powerful legal precedent for holding companies and its own government liable for climate damages.
“The Netherlands has a unique legal regime on climate liability,” said Andrew Logan, senior director for oil and gas at the sustainable investment advocacy group Ceres. “Shell faces legal pressures that none of its peers do, so by moving its headquarters it will be harder to sue them in the same way.”
On the other hand, the changes could make it easier for activist shareholders to pressure the company on climate issues. UK law gives more power to minority shareholders than most countries, including the Netherlands. And there are plenty of rich targets, said Mark van Baal, founder of Follow This, an activist shareholder group focused on Shell. These include the company’s relatively weak emissions reduction targets; a proposal to split the company’s clean energy efforts into a separate business from its legacy fossil fuel activities, which activists say would reduce internal conflicts of interest and speed up climate investment; and the question of what to do with revenue from the sale of oil and gas assets.
Last week, Shell completed the $9.5 billion sale of its shale gas operations in the Permian Basin to ConocoPhillips. That sale was precipitated in part by the Dutch court ruling: One of the easiest ways to cut emissions is to sell them, a practice that is gaining popularity with oil majors even though those emissions, rather than being eliminated, are usually just transferred to a less scrupulous owner. ConocoPhillips, for example, is rated by Bloomberg as a laggard on climate action relative to Shell. Exxon Mobil, meanwhile, announced on Dec. 6 that it will take the opposite approach, by retaining its Permian assets but working to reduce their carbon intensity.
Still, the sale could have worked to the climate’s benefit, van Baal said, if the revenue was reinvested in clean energy rather than disbursed to shareholders, as Shell said it plans to do. Moving to London won’t take Shell out of the crosshairs of activists, van Baal said.
“Returning money back to shareholders constitutes a lack of imagination about new business models,” he said. “And climate litigation risk is increasing all around the world. Nobody who contributes to the climate crisis will be safe.”