Exclusive: Shell Took 16 Years To Warn Shareholders of Climate Risks, Despite Knowing in Private All Along

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Series: #ShellKnew

It took oil company Shell more than 16 years to directly warn its shareholders that climate policy posed a financial risk to the company’s business model despite knowing โ€”ย in private and for decadesย โ€” about the relationship between its products and climateย change.

Shell started commissioning confidential work about the impact of burning fossil fuels on the global climate as early as 1981. However, analysis by DeSmog UK and DeSmog found that Shell did not start mentioning the possibility of climate change to shareholders in annual reports before 1991 โ€” 10 years after the company started a research stream to study climateย change.

Analysis of Shellโ€™s annual reports and financial records at the time show the company did not give a clear warning to its shareholders about the financial risks โ€œrelated to the impact of climate changeโ€ and attached to their investments untilย 2004.

DeSmog UK and DeSmog have worked through Shell companiesโ€™ annual reports submitted to the UKโ€™s Companies House and 10-Kโ€™s and 20-F forms filed under the U.S. Securities and Exchange Commission (SEC) throughout the 1990s and early 2000s to compare what the company knew in private at the end of the 1980s and what it told its shareholders about the environmental and financial risks attached to their investment during the followingย decade.

Earlyย Days

What Shell knew about climate change at the end of the 1980s is well-established and revealed in a confidential report commissioned by and for Shell called โ€œThe Greenhouse Effectโ€.

The report was dated 1988 and made public for the first time this year after being uncovered by Jelmer Mommers of De Correspondent and published on Climate Files. It reveals the companyโ€™s examination of climate change had already been ongoing for at least sevenย years.

The 87-page report warned Shell that its own products were responsible for global warming and that โ€œthere is reasonable scientific agreement that increased levels of greenhouse gases would cause a globalย warmingโ€.

Source: ‘The Greenhouse Effect’ 1988ย reportย 

By 1988, Shell knew that its fossil fuel products were contributing to climate change and that dangerous levels of warming could cause parts of the Earth to become uninhabitable. Yet, it took the company another decade, until 1997, to suggest that โ€œenvironmental risksโ€ could affect some of the statements the group made about its business operations.

Until 2005, Shell was registered as two different companies, Royal Dutch Petroleum Company in the Netherlands and the Shell Transport and Trading company in the UK, although both companies operated as a single-unit. The Shell Group also included a U.S.-based subsidiary, Shellย Oil.

This analysis includes information provided to shareholders through Royal Dutch Petroleum annual reports from 1982-1997, Shell Transport and Tradingโ€™s annual reports from 1989 to 2004, filings from Shell Oil from 1993-1998, and Shellโ€™s corporate responsibility reports starting inย 1997.

Early 1990s: Controlling the Climate Change Narrativeย ย 

Despite knowing about the consequences of burning fossil fuels in the early 1980s, Shell made no direct mention of carbon dioxide emissions, global warming, or climate change untilย 1991.

That year, a Royal Dutch Petroleum annual report recognised โ€œthe concern expressed by a number of experts that higher carbon dioxide emissions might increase the possibility of climateย change.โ€


Source: Royal Dutch Petroleum Company’s 1991 annualย reportย 

The UK-based Shell Transport and Trading company first hinted at the impact of burning fossil fuels without using the term โ€œclimate changeโ€ in its 1992 report โ€” the year of the first United Nations (UN) climate talks in Rio de Janeiro,ย Brazil.

Shell group chairman Peter Holmes wrote that the Rio de Janeiro conference had โ€œset the environmental agenda for the coming yearsโ€ and that environmental and development problems โ€œcan only be solved by true international cooperationโ€ and โ€œgovernmentsโ€™ willingness to consult business and industry in drawing up laws and putting the emphasis onย self-regulationโ€.

While Holmes chose not to mention the term โ€œclimate changeโ€ when addressing shareholders about the companyโ€™s financial situation, the same year, Shell was keen to show the public what it knew about the possible catastrophic consequences of globalย warming.

Footage of a 1991 public film about climate change released by Shellโ€™s film and video unit was rediscovered last year. The half-hour documentary called โ€œClimate of Concernโ€ shows that the company had a deep understanding of global warming 27 yearsย ago.

The film warned that burning fossil fuels was warming the world and would cause extreme weather, floods, famines,ย and climateย refugees.

There is no indication of how many people might have seen the film at the time of its release but the short documentary shows how Shell tried to shape its narrative around climate science and itsย impacts.

DeSmog UK and DeSmog found no evidence of Shell mentioning the film to its shareholders in its 1991 annual reports. A picture of the filmโ€™s DVD case was however included on page 32 of Shellโ€™s 1997 sustainability report under a section titled โ€œliving up to ourย principlesโ€.

In this section, Shell said it was making efforts to encourage โ€œopen communicationโ€ and recognised that its โ€œtraditional corporate culture has not necessarily encouragedย opennessโ€.


Source: The Shell Report/Shell sustainability reportย 1997

The cover of the film โ€œClimate of Concernโ€ was included as an example of the companyโ€™s โ€œaward-winning film and video unit which produces documentaries that contribute to world debates on such issues as deforestation, water, soil erosion, and povertyโ€. Climate change was not mentioned as a theme for the film and video unitโ€™sย work.

1993: โ€˜Possibilityโ€™ of Climate Change but Business asย Usual

The confidential report โ€œThe Greenhouse Effectโ€ shows that Shell had a clear grasp of global warming and its causes by the lateย 1980s.

Yet, throughout the 1990s, the company continued to push mixed messages, acknowledging the โ€œpossibility of climate changeโ€ while emphasising the โ€œscientific uncertaintiesโ€ over the impact of increasing concentrations of carbon dioxide in theย atmosphere.

Shell justified its business-as-usual approach by arguing that the world will continue to depend on fossil fuels โ€œfor years to comeโ€ to meet growing energy demand and ensure โ€œsustainableย developmentโ€.

In its 1993 accounts, the Shell Group acknowledged the โ€œpossibility of climate changeโ€ as โ€œprobably the greatest environmental dilemma facing all of usโ€ while emphasizing that โ€œscientific uncertainty still surrounds the worldโ€™s understanding of climateย behaviourโ€.

For the first time, Shell also recognised that โ€œthere is sufficient indication of potential risk for governments and industry to take prudent precautionary measures which are based on sound science and take account of the economic and social needs and aspirations of developing and developedย countriesโ€.


Source: Royal Dutch Petroleum and The Shell Transport and Trading’s 1993 annualย reportsย 

But despite knowing about the impact of burning fossil fuels on the climate, Shell told its shareholders it had to โ€œcontinue to invest and provide for the future energy needs of society in ways which are environmentally acceptableโ€ while ensuring โ€œthe economic viability of theย industryโ€.

Shell knew of the huge environmental risks attached to its own products. In the 1988 report โ€œThe Greenhouse Effectโ€, Shell mentions โ€œa second generation of studiesโ€ to answer questions about the future accessibility and costs of fossilย fuels.

Yet, in 1993, Shell suggested to its shareholders that investments in the fossil fuel industry will continue to be profitable for years toย come.

That yearโ€™s Shell Transport and Trading annual report filed at the UKโ€™s Companies House stated that environmental expenditures and the carbon cost of new projects were โ€œcomparable to those faced by companies in other similar businessโ€ and that impact on the groupโ€™s future earnings would depend on โ€œthe ability to recover the higher costs on consumers and/or through fiscal incentives offered byย governmentsโ€.

The company concluded that โ€œover time there will be no material impact on the total of [the] Group companiesโ€™ย earningsโ€.

A passage from Shell Oilโ€™s 1993 10-K form filed under SEC in the U.S. told shareholders that Shell โ€œcan comply fully [with existing environmental laws] without material adverse impact on its financialย positionโ€.


Source: Shell Oil’s 1993 10-Kย formย 

Shellโ€™s interpretation of environmental regulation and a growing cost of carbon as an โ€œadverseโ€ factor on its business interests contradicts its own findings in the โ€œThe Greenhouseย Effectโ€.

The 1988 report concluded that climate changeโ€™s โ€œpotential implications for the worldโ€ were โ€œso large that policy options would need to be considered much earlierโ€ than the end of the century ย โ€” or within seven years ofย 1993.

Instead, in 1993, Shell Transport and Trading Company argued that to meet growing energy demand โ€œsociety will have no option but to use all available energy sourcesโ€, citing โ€œplentifulโ€ coal, the โ€œvast potentialโ€ of natural gasโ€, and oil reserves โ€œthat have never beenย higherโ€.


Source: The Shell Transport and Trading’s 1993 annualย reportย 

The following year, in 1994, the Shell Group accounts stated that its companies โ€œfirmly intend to build on their significant strength in upstream and downstream oil, natural gas, and chemicals and their much smaller, but nevertheless significant, position inย coalโ€.

Shellโ€™s commitment to coal overlooked confidential warning in โ€œThe Greenhouse Effectโ€ report that burning coal was causing more carbon dioxide emissions than other fossil fuels. At the time, the report recommended โ€œa swing from coal towardsย gasโ€.

1996: Precautionary Measures to Tackle Climateย Change

Three years on, the Shell group was still emphasising โ€œuncertaintiesโ€ about climate science but told its shareholders in its companiesโ€™ annual reports that it would take โ€œprudent precautionary actionโ€ to tackle theย issue.


Source: Royal Dutch Petroleum and The Shell Transport and Trading Company’s 1996 annualย reportsย 

That year, Shell also cemented its commitment to โ€œsustainable developmentโ€ which the company defined as โ€œmeeting the needs of the present generation without compromising the ability of future generations to meet their own needsโ€ through economic development, environmental protection, and socialย responsibility.

1997: โ€˜Possibility of Human Climate Changeโ€™ and Cautionaryย Statement

In 1997, Shellโ€™s language when referring to climate change remained muchย unchanged.

The group companiesโ€™ reports continued to describe the issue as โ€œthe possibility that human activities are causing damaging climate changeโ€. The same year, a majority of countriesย signed the Kyoto Protocol, the first international agreement on climate change which committed countries to set internationally binding emission reductionย targets.

Source: Royal Dutch Petroleum and The Shell Transport and Trading’s 1997 annualย reports

The UK-listed Shell Transport and Trading Company added a cautionary statement to its annual report which identified โ€œenvironmental risks, fiscal and regulatory developmentsโ€ as variables which could affect the risk factors associated with โ€œthe oil, gas, chemicals, renewable resources, and coalย businessesโ€.

This was the first time the Shell Group mentioned the potential impact environmental risk could have on shareholdersโ€™ investment in the companyโ€™s fossil fuel products, according to DeSmog’sย analysis.


Source: The Shell Transort and Trading Company’s 1997 annualย reportย 

The same year, Shellโ€™s sustainability report made the case for the intensification of the companiesโ€™ oil and gas operations, blaming coal for being a โ€œmuch larger carbon intensiveย resourceโ€.

Shell claimed that โ€œall the worldโ€™s estimated resources of conventional oil and gas could be consumed without raising atmospheric carbon concentration above the limits suggested by even the most pessimisticย observersโ€.


Source: The Shell Report/Shell sustainability reportย 1997ย 

This is in direct contradiction with Shellโ€™s own findings more than a decade earlier in the 1988 โ€œThe Greenhouse Effectโ€ report which identified the carbon dioxide emission share of each of the companyโ€™s fossil fuelย products.

At the time, the report concluded that of โ€œthe total emission of 5.3 GtC, 44 percent came from oil, 38 percent from coal, and 17 percent from gasโ€ โ€” correctly suggesting that burning oil and gas would generate fewerย carbon dioxide emissions than coal but would still contribute to the global warmingย effect.


Source: ‘The Greenhouse Effect’ 1988ย reportย 

Between 1993 and 1998, Shell Oil filed 10-K annual reports, available through the SECโ€™s public records archives in the U.S. DeSmog found no evidence that any of the filings mentioned the terms โ€œclimate changeโ€, โ€œglobal warmingโ€, or โ€œgreenhouseย gasโ€.

During the same period, the Shell group annual reports filed at Companiesโ€™ House in the UK all included references to โ€œclimate changeโ€ and set out the companyโ€™s response to environmental and developmentย challenges.

Late 1990s and Early 2000s: Corporate Spin and Peddling Back Climateย Science

In 1999, the Shell Group strengthened its language and told its shareholders about opportunities in the clean energy sector linked to โ€œthe need to respond to the threat of globalย warmingโ€.

It added that Shell companies were cutting their greenhouse gas emissions and considering the potential carbon costs of itsย products.

Shell Transport and Trading also announced that a decision was taken in August 1999 for the company to divest its coalย business.

But over the following years, the company appeared to back-peddle over how much it was ready to tell shareholders about the risks attached to theirย investments.

In 2000, the Shell Transport and Trading Company annual report stated that the Shell Groupโ€™s commitment to sustainable development justified the company supplying China with โ€œcoal gasification technologyโ€, which it described as using โ€œcoal more efficiently andย cleanlyโ€.

Coal gasification is a technology that involves chemically transforming the coal into synthetic natural gas rather than burning itย directly.

Laszlo Varro, former head of gas, coal, and power markets at the International Energy Agency (IEA) and now its chief economist, previously told the BBC that coal gasification is actually more carbon intensive than coal mining and is โ€œnot attractive at all from a climate point ofย viewโ€.

In 2001, Shell labelled the issue โ€œthe perceived threat of global warmingโ€ and added that the โ€œworldโ€™s dependency on hydrocarbons will remain for decades toย comeโ€.

In 2003, neither Royal Dutch Petroleum’s nor Shell Transport and Trading Companyโ€™s annual report explicitly mentioned โ€œclimate changeโ€, โ€œglobal warmingโ€, or โ€œgreenhouse gasesโ€. Instead, the companiesย shuntedย discussion of the topic to that yearโ€™s sustainability report called The Shell Report, a supplement that focuses on environmental and social issues, sent to investors alongside the annualย report.

In that yearโ€™s Shell Report, the company stated its concern about man-made climate change and added โ€œaction is needed nowโ€. That strong language was yet absent from the companyโ€™s financialย statement.


Source: The Shell Report/ Shell sustainability reportย 2003

2004: Climate Change Identified as a Financial Risk forย Investment

In 2004, the Shell Group madeย a significant shift in the way it talked about climate change to itsย shareholders.

For the first time, Shell included a clear statement in its companiesโ€™ annual report about the financial risk attached to investments in the companiesโ€™ย operations.

It warned shareholders that โ€œgovernment actionโ€ to reduce carbon dioxide emissions was leading to challenges to future oil and gas developments. Shell acknowledged that the risks attached to the delivery of new fossil fuel projects โ€œcould have an adverse impact on the groupโ€™s operational performance and financialย positionโ€.

ย 

Source: The Shell Transport and Trading Company’s 2004 annualย reportย 

This was the first time Shell issued a clear warning to it shareholders about the financial risks attached to their investments โ€” 16 years after it was first warned in detail about the role its own products played in contributing to dangerous globalย warming.

Responding to the findings, aย Shell spokesperson toldย DeSmog:

โ€œShell has long acknowledged the climate challenge, an issue that has been part of public discourse for many decades, and our position on climate change has been publicly documented for more than two decades through publications such as our annual report and sustainabilityย report.โ€

โ€œWe take seriously our responsibility to report clearly and transparently on financial risks, which includes complying with U.S. Securities and Exchange Commission regulations.ย โ€œ

DeSmog’s anlysis shows Shellโ€™s financial statements and corporate documents filed between the early 1990s and 2004 give an insight into how the company shaped and controlled its own narrative around global warming and its impact over theย decades.

While Shell was comfortable using The Shell Report, sustainability reports, and its film and video unit to promote its clear understanding of climate science in the 1990s and early 2000s, it took the company much longer to overtly tell its shareholders of the financial risk climate policy and the impacts of global warming posed to their investments.ย ย 

Main image: A black and white pictureย of the Shell Group’s managing directorsย publishedย in The Shell Transport and Trading Company’s 1997 annualย report.ย 

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