CSA Assignment

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Feb 20, 2024

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The three material sustainability issues related to the energy industry are climate physical risk, climate change, and energy efficiency. Climate transition is a material sustainability issue that is vital to both parties. When an energy company decides to generate oil or gas, toxic chemicals like carbon monoxide will arise during refining. Public health is affected and become a social issue. As such, stakeholders, including the government, will urge energy companies to lower greenhouse gas emissions (GHG). Energy companies’ action is primarily affected by the government’s attitude and policies launched. For instance, the Canadian government launched a policy to reduce fossil fuel production by cutting subsidies (Bourque, 2023). The above shows that non-renewable energy affects public health, and the government will adopt policies or regulations to reduce greenhouse gas emissions. The second martial sustainability issue identified is energy efficiency. When the pollutants from non-renewable energy harm society, the government and citizens will not support it. They will seek more renewable energy by providing economic benefits or legislation to companies. For example, investment tax credits will be launched by the Canadian government as an economic incentive to encourage companies to switch to renewable and clean energy (Shipley, et al., 2023). It shows that the adoption of renewable and clean energy depends on government’s stands. Climate physical risk is the last material sustainability issue in this paper, that is crucial to both Shell and other stakeholders. Shell is an international energy company that mainly conducts business in oil and gas. While performing oil and gas activities, it increases the extreme weather including flooding and increasing sea level in high- risk location. It will damage property and facilities in high-risk locations, which affects the public. It is interesting to note that the climate physical risk will also affect Shell. When there is extreme weather appears, company is forced to stop operating. It may even lead to loss or maintenance, which increases their expenditure. Furthermore, it will surge the energy price due to shortage and damage the marine system. The oil leakage in Louisiana in 2005 is an example. Hurricane Katrina, a category 5 storm existed, leading to a spilt of 8 million gallons of oil (Jacobo, 2021). The oil company Murphy Oil paid over $50 million to victims after the oil leakage (nbcnews, 2006). The above explains that climate physical risk is important to both companies in the energy industry and the public. The above illustrated the three-material sustainability issue that is crucial to energy industry. Since Shell is the target company is this company sustainability assessment. In the following, various criteria and strategies will be provided to evaluate the sustainability performance of Shell.

Climate transition The purpose of Shell’s sustainability report is for marketing and build good reputation. From the report, Shell use half of the page to illustrate the number of operation spills in 2022. It stated that there is a 0.06 thousand tonnes increase in spills compared to 2021 (Shell plc, 2022). Although the company did report negative issues in the sustainability report. Also, one-tenth of the report was spent on illustrating the engagement with stakeholders and how Shell upholds the social value—the remaining part of the report illustrating the reduction in Greenhouse gases and how to achieve net zero. Shell is trying to build a reputation that it is a sustainable company. For the metrics and performance, Shell did provide the statistics for the past 7 years. For example, the report stated that there is a 15% decrease in Scope 1 and 2 emissions when compared to 2021, and 30% declination when compared to 2016 (Shell plc, 2022). It is worth mentioning that absolute number was provided, making the percentage meaningful. Also, Shell adopts standard measurements like global warming potential to calculate GHG. From this aspect, readers can see the trend and know how each number is calculated. As such, it can determine whether Shell is performing well in absolute emissions. For future commitment and progress, Shell have link with global goal but need to illustrate progress to achieve the goal. According to United Nations, the global goal for emission is to reach 45% by 2030 (United Nations , n.d.). Shell has entered into the Paris Agreement and aim to reduce Net Carbon Footprint by 20% by 2030 (Follow this, 2023). It shows that Shell is connected to global target. However, it is worth mentioning that it is not aligned with the Paris agreement. It shows that Shell is adopting the defensive strategy. It partly responds to global issues and contributes the least to the environment. The inconsistency shows that Shell wants to remain in the normal business and do not aim at reducing GHG emissions. Also, Shell needed to provide substantial direction or plans in achieving the goal. It is hard for people to evaluate how the company can achieve it in future. The act can be explained by normative force. Since environmental advocates sue Shell to court on abandon gas and countries take initiative to solve GHG emission in 2015 (Worland, 2020). Shell is forced to respond to this issue and tries to shape an environmental- friendly image to avoid troubles. From the above, it is apparent that due to the alteration of market patterns, company are forced to change its value. Shell needs to take initiative to retain sustainable. For legitimacy, Shell did employ third-party agencies to verify the data. Use the net carbon intensity as an example. Shell illustrates a 1.3% drop when compared to 2021, and 30% declination from 2016 (Shell plc, 2022). The data stated above has been verified by external parties before. According to report, Shell will employ assurance company LRQA to verify the data and ensure it is correct (Shell plc, 2022). In short, Shell shows a reduction in GHG emission. However, the rationale behind this is due to external pressure and changes in market patterns. It can be treated as a defensive strategy.

Energy efficiency For metrics and performance, the company’s measurement is exaggerated. In sustainability report, Shell proposed that they have spent $3.5 billion dollars in Renewable and Energy Solutions from a total of $25 billion (Shell plc, 2022). However, the actual investment is exaggerated. According to Global Witness, they discovered that merely 1.5% of capital expenditure was used for renewable related issues (Milman, 2023). The remaining 2% was used for fossil fuel development. The exaggeration of numbers in the sustainability report will let readers misunderstand that Shell is sustainable in terms of investing in renewable energies. Apart from that, readers may need to pay more attention to the details of indicators. For example, the sustainability report stated that the scope 3 emissions were 1,174 million tonnes CO2e. Readers think that Shell has put huge effort in reducing non- renewable energy and become more sustainable. If readers carefully investigate the report, they will discover that outsiders or distribution channels produced 60 percent of Scope 3 emissions. it shows that Shell, on the one hand, is promoting itself as environmentally friendly. On the other hand, the proportion invested in renewable energy is low, and they continue to adopt non-renewable energy in their business operations. For future commitments, the company still needs to show plans or concrete targets for achieving renewable energy. It only stated that the revenue and return they earned during the year. For example, in the energy transitional program, it stated that Shell serves over 2 million customers with renewable energy (Shell plc, 2022). However, CEO of Shell saying that whether they will continue the strategy on energy transition depends on profit earned. He is stating that the company will spend more on fossil fuel and low carbon emission simultaneously, instead of green energy (Baal, 2023). From the stand it provided, it shows that Shell is in a defensive strategy. They admitted the importance of environmental sustainability but focused more on profit generation. In this situation, cognitive force can be seen. As company will only focus on profit, sustainability is not their priority. As such, when company have more revenue from traditional energy like fossil fuel, it is understandable that they will prefer to keep fossil fuel but not renewable energy. Climate physical risk The purpose of the sustainability report is to build a good reputation and marketing. In the section of safety, it illustrates the safety approach Shell used to ensure the worker’s safety. Also, actions prepared for unexpected accident have been developed. For example, Shell will routinely practice on how to react to an oil leakage or fire (Shell plc, 2022). It shows that Shell is trying to show to public that they value safety and precautions measures and not solely focus on earning profit. For the metrics and performance, Shell take reference to the guideline from International Association of Oil and Gas Producer for Tier 1+2 operational process events. It drops from 246 events from Tier 1 in 2013 to 51 events in 2022 (Shell plc, 2022). Also, the report states that Shell works closely with suppliers to reduce the emissions by spending $41.5 billion (Shell plc, 2022). It shows that the company is

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not using vague measurements, which enhance the credibility of data. Apart from that, the data is comparable to the past, which makes the data meaningful. For future commitment and progress, Shell did not provide any substantial policies to reduce the oil and gas activity. The only proposition is to install steel cage to protect wellheads. They did not propose a future for preventing oil leakage and protecting the high-risk locations. Shell avoids mentioning the reduction of oil and gas activity to solve the problem fundamentally. The act done by Shell needs to be revised to tackle the extreme weather arising in high-risk locations while performing oil and gas activities. Shell is performing the defensive strategy. They clearly noticed the consequences of conducting business activities in high-risk locations. Still, they didn’t plan or implement any policies to improve the situation and prevent extreme weather from occurring. All in all, the purpose of the sustainability report is to shape the company that is environment friendly and sustainable. It provides data that is not related to Shell’s core business. In terms of metrics and performance, Shell adopted international standards for reporting. However, exaggeration of data occurs which will mislead readers. For future commitment and progress, Shell did not provide any detailed action plan to implement the proposed goal, like reduce global emissions by 20%. It makes audience hard to trace their progress. From the three-material sustainability issue above, Shell is using defensive strategy to react to sustainability issue. Their goal for reducing emissions is not consistent with the target set by the Paris Agreement, and the reason for participating in sustainability issues is due to changing market patterns and external forces. Thus, Shell will only make incremental changes to their business model and try to maintain their normal business pattern.

References Baal, M. v. (2023, June 17). the japan times . Retrieved from Shell challenged on climate goals after fossil fuel investment boost: https://www.japantimes.co.jp/news/2023/06/17/business/shell-fossil-fuel- investments/ Bourque, J. (2023, July 24). Phasing out fossil fuel subsidies aligns Canada’s economic policy with its climate goals . Retrieved from Canadian Climate Institute: https://climateinstitute.ca/news/phasing-out-fossil-fuel-subsidies-canada-economic- policy/ Follow this. (2023, Feburary 2). At most 14% of Shell’s investments to renewables in 2022 despite windfall profits . Retrieved from Follow this : https://www.follow-this.org/at- most-14of-shells-investments-to-renewables-in-2022-despite-windfall-profits/ Jacobo, J. (2021, September 29). Risk of oil spills may rise as climate change creates more monster storms . Retrieved from abc news: https://abcnews.go.com/US/risk-oil-spills- rise-climate-change-creates-monster/story?id=80038873 Milman, O. (2023, Feburary 1). Shell’s actual spending on renewables is fraction of what it claims, group alleges . Retrieved from The Guardian : https://www.theguardian.com/business/2023/feb/01/shell-renwable-energy- spending-sec-global-witness? CMP=Share_iOSApp_Other&mc_cid=e54654d7fd&mc_eid=UNIQID nbcnews. (2006, January 13). Oil company: Katrina spill victims got $50m . Retrieved from nbcnews: https://www.nbcnews.com/id/wbna10838641 Shell plc. (2022). Energy Transition Progress Report 2022. Shell . Shell plc. (2022). Shell Sustainability Report 2022. Shell. Shipley, et al. (2023, September 20). Renewable Energy Laws and Regulations Canada 2024 . Retrieved from ICLG: https://iclg.com/practice-areas/renewable-energy-laws-and- regulations/canada United Nations . (n.d.). Climate Action . Retrieved from United Nations : https://www.un.org/en/climatechange/net-zero-coalition Worland, J. (2020, January 16). The Reason Fossil Fuel Companies Are Finally Reckoning With Climate Change . Retrieved from Time : https://time.com/5766188/shell-oil- companies-fossil-fuels-climate-change/

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