Last week, Shell walked away from 170 million barrels of oil off the coast of Shetland, declaring the “economic case for investment” too weak. As might be expected with such a politically sensitive venture, there has been much speculation about what other factors might have been at play, whether pressure from Nicola Sturgeon or from Whitehall. But let’s try another question: how did Shell ever decide that there was an economic case? After all, the energy giant does not deny that its entire business will have to change. It advertises its “target to become a net zero emissions” company by 2050, publishes a “sustainability report” and partners with environmental organisations around the world. Yet little of this environmental awareness shows up in the hard numbers.
The company’s latest accounts features this disclaimer: “Shell’s operating plans, outlooks, budgets and pricing assumptions do not reflect our net zero emissions target.” In other words: whatever the oil giant says is not what it thinks.
This is not an accusation of corporate hypocrisy, of saying one thing and doing quite another. Here is something far more troubling: the multinational is openly admitting that its core assumptions have not changed to reflect the greatest single threat to our planet, our economy – and its business model. It operates on the premise that oil prices will remain high at $60 a barrel, even though working towards net zero would force them to drop, as industries and consumers shift to alternative sources of energy. The International Energy Agency has issued a net zero scenario that projects the price of a barrel of oil will slump to $36 by the end of this decade and $24 by 2050. Prices so low might deter Shell from all kinds of exploration and drilling projects. It might also wipe millions off the value of the firm.
Company reports are audited and Shell’s auditor is another giant, EY. Yet EY does not quibble with Shell’s assumptions – it simply says “it is neither possible nor appropriate” for it to challenge them. This is, frankly, nonsense. EY is one of the biggest financial firms on the planet and is as capable as the Guardian of looking at the independent forecasts for what green transition means for oil prices. Moreover, the regulator for auditors has demanded they “address, and where relevant report” on climate change.
This isn’t to single out Shell; it is just one obvious example. In a recent review, the thinktank Carbon Tracker recently found that 70% of companies and 80% of auditors failed to disclose climate risk in their financial reports. The government is consulting on reforms to the often scandal-hit audit industry. This would seem an obvious issue for Kwasi Kwarteng to take up. Let’s value companies according to hard limits being imposed on us by the planet, rather than according to the fictions dreamed up by fossil fuel industries.