Shell will likely face one of its most acrimonious annual meetings next week as it struggles to balance investor pressure to capture profits from oil and gas and a vocal minority saying it must move faster to tackle climate change.
Big Oil firms posted record profits last year amid soaring energy prices following Russia's invasion of Ukraine.
The energy crisis temporarily eased pressure on the companies' efforts to slash greenhouse gas emissions as the focus shifted to securing more oil and gas supply.
Shares of European energy firms such as Shell, BP and TotalEnergies, however, underperformed U.S. rivals Exxon and Chevron, in large part due to the European firms' greater focus on renewables and low-carbon businesses that deliver lower profits than oil and gas.
Executives at both Shell and BP have told Reuters in recent months that a growing number of major investors have pressed them to focus on returns, rather than energy transition plans, in the wake of the energy shock.
In response, BP scaled back plans to cut its oil and gas output this decade, while Shell's Chief Executive Wael Sawan, who took office in January, indicated the British firm was reviewing a pledge to reduce oil output by 1-2% a year by 2030.
The shift has alarmed many climate-focused investors, who have issued rare public rebukes. In some cases, investors are getting personal, voting against the re-appointment of directors after largely supporting in recent years their efforts to gradually shift their century-old operations towards renewables.
Many of the funds, which make up a small but increasingly vocal part of BP, Shell, and TotalEnergies' shareholder bases, will also support - against the boards' recommendation - a shareholder resolution filed by activist group Follow This calling for tougher emission reduction targets by 2030. That resolution echoes a ruling by a Dutch court telling Shell to adjust its climate targets, which Shell has appealed.
If Shell loses, it could be forced to shrink its hydrocarbons business. Asset manager Federated Hermes' climate stewardship, which advises clients with around $1 trillion in assets, has recommended its members support the Follow This resolution at Shell's annual general meeting (AGM) on May 23, according to a document seen by Reuters. Hermes Federated declined to comment.
The Church of England Pensions Board, Britain's Local Authorities Pension Funds Forum, pensions manager Nest and shareholder adviser PIRC have said they would vote - or recommend a vote - against the re-appointment of Shell Chairman Andrew Mackenzie or other board members to protest against what they view as insufficient progress on the energy transition.
For the first time, two funds supporting the Follow This resolution, Dutch firms PGGM and MN, are leading engagement with Shell on behalf of the world's largest climate-focused investor group Climate Action 100+, representing $68 trillion in assets.
They also co-lead on engagement with TotalEnergies. While the complaints are unlikely to translate into a wider shareholder revolt or the ouster of board members, they pile pressure on Sawan, who is set to unveil in June an update to Shell's strategy.
Shell has said it disagrees with the voting stance of PIRC, the LAPFF, PGGM, MN, and the Church of England Pensions Board, pointing to the need to supply energy while reducing social costs. It also said it was pleased that proxy advisers ISS and Glass Lewis had recommended votes against the Follow This resolution. The former, though, acknowledged the proposal had merits.
At BP's AGM last month, support for the Follow This resolution reached 17%, while support for the reappointment of Chairman Helge Lund dipped markedly from previous years to 90%.
Legal & General, a top five BP shareholder according to Refinitiv Eikon data, explained its vote against Lund on the basis that BP had slashed its climate targets less than a year after shareholders had approved its previous, more ambitious climate plans, without offering a new vote on the changes.
While the caricature of shareholder meetings is a rubber-stamping exercise attended by elderly retail investors enjoying a free lunch, attendees at BP's AGM last month were greeted by tight security.
This included repeated body searches for some visitors and security personnel physically stopping a Reuters reporter from swiftly walking towards CEO Bernard Looney to join his chat with other guests after the meeting, arguing she posed a risk to him.
The measures, however, did not prevent climate activist participants from heckling and disrupting proceedings before being escorted out, some carried by security staff.
Shell has opted to hold its AGM at the same venue as BP, moving from a central London location last year which attracted dozens of protesters.
The valuation gap - https://tmsnrt.rs/3LWsuZU
(Reuters - Reporting by Shadia Nasralla and Ron Bousso; Edited by Simon Webb, Dmitry Zhdannikov and Mark Potter)