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Royal Dutch Shell’s chief executive has warned that replacing long-term shareholders with hedge fund investors risked derailing the energy sector’s transition plans at a critical moment in the climate crisis.
The comments by Ben van Beurden follow a decision this week by one of the world’s largest pension funds to sell its entire holdings in fossil fuel companies and come a day after it was revealed that Daniel Loeb’s activist fund Third Point had called for Shell’s break-up.
“It is disappointing [and] actually I don’t think this makes any positive difference for the energy transition,” van Beurden said of the divestment announcement from ABP of the Netherlands, adding that Shell had not been informed of the decision in advance.
“We prefer to have long-term investors in our share base with whom we can talk about our strategy, who we can dialogue with on how to tune it up,” he said. “Replacing long-term thoughtful investors by, say, hedge funds is not necessarily for the benefit of the energy transition either, because they typically do tend to have a different philosophy when it comes to owning us.”
Chief financial officer Jessica Uhl said Shell’s investor relations team had held “very preliminary discussions” with Third Point over the past year but had no further information about the hedge fund’s intentions.
Third Point, which has built a stake in Shell over the past 12 months, said in a letter to shareholders this week that it had urged the energy major to split into “multiple companies” to deliver better value through the energy transition. Those separate companies could include, for example, a legacy oil, refining and chemicals business, and a gas, renewables and marketing business, it said.
Speaking after the release of Shell’s third-quarter results, in which earnings fell to $4.1bn from $5.5bn in the previous quarter, van Beurden stressed that Shell believed its integrated business model offered the best chance of success.
“Without companies like us, with our skills, scope and scale to convert the energy system to a cleaner and lower-carbon energy system, I think you can safely say the energy transition is going to be a whole lot more difficult,” he said.
Record prices for natural gas and multiyear highs for oil were expected to drive energy companies’ profits even higher. Shell said its lower than anticipated earnings, even as cash flow from operations hit a record $17.5bn, reflected the “adverse impact of Hurricane Ida and lower contributions from trading and optimisation”.
Uhl said that the lower contributions from the marketing division, which is central to Shell’s energy transition plans, were “not structural issues” but the result of supply problems in its LNG business that had forced it to buy from the spot market as gas prices reached record highs.
Shell published a new strategy in April to become an integrated energy provider with net zero emissions by 2050 by focusing on the customer and working backwards to deliver the low-carbon solutions its clients need.