Royal Dutch Shell Searches for a Purpose Beyond Oil
This article summarises an original piece from the Financial Times, part of an FT series exploring the risks and trade-offs businesses encounter when defining a broader purpose.
Navigating an Uncertain Future
In May 2017, Ben van Beurden, CEO of Royal Dutch Shell, convened a meeting with top executives in The Hague to discuss the company’s long-term future. The company was facing numerous challenges, including falling oil prices, a $53 billion takeover of natural gas giant BG Group, and scrutiny over a controversial Nigerian deal.
At the heart of the discussions was a pressing dilemma: how should Shell, one of the world’s largest oil and gas companies, navigate a future where political and public sentiment is turning against fossil fuels?
Reevaluating Purpose
As companies across industries reassess their role in society, Shell executives debated the implications of the Paris Climate Agreement, the impact of reducing oil and gas production, and whether the company should take responsibility for customer emissions.
The outcome of these discussions was a strategy that embraces low-carbon energy while still relying heavily on oil and gas, which remains Shell’s primary source of profit.
Shell’s Energy Transition Strategy
Shell has pledged to cut the carbon intensity of its products by 50% by 2050, taking inspiration from corporate sustainability efforts at companies like Mars. The company has invested in:
- Natural gas (as a lower-carbon alternative to oil)
- Renewable energy (wind, solar, and hydrogen fuel projects)
- Electric vehicle infrastructure
- Home energy storage solutions
Despite these initiatives, two-thirds of Shell’s cash flow still comes from oil. While CEO van Beurden hopes to eventually balance oil, gas, and renewables, there is no clear timeline.
Balancing Profit and Sustainability
Shell faces criticism from multiple sides:
- Investors expect high returns, making an aggressive transition to renewables risky.
- Environmental activists accuse Shell of greenwashing.
- Industry peers question whether Shell truly wants to move beyond fossil fuels.
According to Adam Matthews of the Church of England Pensions Board, Shell’s investment in renewables remains disproportionately small compared to its continued focus on oil and gas.
The Challenges of Change
Shell executives acknowledge that the transition away from oil will take time. Van Beurden himself has stated that the company cannot afford to abandon fossil fuels prematurely, emphasizing that the profitability of low-carbon businesses must improve before significant capital shifts can occur.
The article notes that Shell is not alone—many energy giants face similar dilemmas as they attempt to balance financial sustainability with increasing pressure to embrace a low-carbon future.
Looking Ahead
Shell’s ability to maintain shareholder value while transitioning toward sustainability will be a test of its leadership and strategy. As van Beurden puts it:
“We have to find a way to preserve our dividend-paying capacity while growing the value of the company and changing its makeup.”
Whether Shell can successfully reposition itself as a clean energy leader while maintaining profitability remains to be seen.