Tar sands: a sticky situation for Shell

Royal Dutch Shell will face scrutiny on its controversial investments in the Canadian tar sands at its next Annual General Meeting.  A shareholder resolution announced this week calls on Shell to have an external review carried out of the business risks associated with its huge investments in oil extraction from the tar sands.  The motion will be debated and voted on at the company’s AGM in May.

The resolution was filed by a coalition constituting over 140 fund managers, mutual funds, pension funds and individual investors, in exercise of their legal rights.

Read the Guardian’s coverage of the resolution here.

Globally, the use of resolutions by shareholders to raise environmental or social concerns with companies is not new.  Shareholder resolutions have been an effective and widely-used tool in the United States for many years.  Resolutions are used to raise awareness of company impacts amongst shareholders, and push companies to better consider the long-term financial implications of poor environmental and social practices.  They are used to push businesses to better consider the potential for aligning business interests with the interests of the environment and society.

Until now, however, we have seen little use of these legal tools to drive better corporate environmental and social practice in the UK and Europe.  Hopefully this is the start of much more to come.

Tar sands

Tar sands are deposits of an extremely dense, tar-like substance called bitumen.  They are a very low-grade resource, meaning that a very small proportion of the sands are made up of bitumen, which then still needs to be heavily processed to get the final desired product: oil.  This means a lot of processing is required, and a lot of waste is created.

Oil extraction from the Canadian tar sands has long been a source of controversy for Shell because of its significant environmental and social impacts.

– Greenhouse gas  (GHG) emissions emitted during tar sands extraction are significantly higher than when oil is extracted from conventional sources, because the process is very energy intensive.

– Tar sands extraction involves ‘strip mining’, a form of surface mining whereby the entire top layer of earth is removed, sometimes as deep as 200 metres.  In practice, this means the destruction of thousands of square miles of Boreal forest, wetlands, and wildlife.

– The amount of fresh water used by tar sands extraction and processing is huge.

– Indigenous peoples’ ways of life have been disrupted by the operations, with law suits being brought against the Alberta state government on that account

– The end product of this inefficient and destructive process is oil, the burning of which contributes to anthropocentric climate change.

Environmental and social issues as business risks

All of these factors, and more besides, play a part in why so many people are concerned about what Shell and other companies are doing in Canada. But these issues also create potential business risks for the company, which is what this resolution relates to. The coalition wants the company to make a frank assessment of its business case for being invested in such damaging practices. The text of the resolution calls for the company to commission:

“a report setting out the assumptions made by the Company in deciding to proceed with oil sands projects regarding future carbon prices, oil price volatility, demand for oil, anticipated regulation of greenhouse gas emissions and legal and reputational risks arising from local environmental damage and impairment of traditional livelihoods.”

Environmental and social issues have business repercussions for any company, particularly extractive companies such as Shell.  It remains to be seen whether the company will embrace the call for transparency on these risks to the business, or whether they will seek to press on with their strategy while shareholders remain in the dark.

For more information, please refer to the FairPensions website.

Further reading:

Text of the coalition’s resolution

The coalition’s supporting statement for the resolution

The Guardian – ‘Indigenous people in legal challenge against oil firms over tar sand project’

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