Shell will be asked to justify its involvement in the controversial Tar Sands oil extraction project later this year following the involvement of 142 investors who have co-filed a shareholder resolution for the company's AGM in May.

The oil sands are the second largest oil resource in the world comprising some 173Bn barrels in reserves. Converting it into usable form of fuel produces on average 3 times the greenhouse gas emissions compared to conventional oil extraction.

The resolution and accompanying supporting statement raise "concerns for the long-term success of the company arising from the risks associated with oil sands", specifically pointing to expected carbon price rises, oil price volatility, expected fluctuations in demand, regulation of greenhouse gas emissions, and the legal and reputational risks arising from environmental damage and impairment of traditional livelihoods. 30% of Shell’s total reserves are in oil sands which also have particularly high operating costs.

The resolution’s 142 co-filers include fund managers, pension funds, foundations and faith groups. Major backers from the investment world include The Co-operative Asset Management, the UNISON Staff Pension Scheme and a significant contribution form Rathbone Greenbank clients. The initiative is co-ordinated by FairPensions, which is urging investors to vote for the resolution and to engage with other energy companies with similar operations to address the financial and other risks involved.

During 2009, The Co-operative Asset Management worked with 44 institutional investors representing $3 trillion of assets to send a letter to 19 oil sands companies arguing that the industry had failed to justify the financial prudence of oil sands developments, given present costs and externalities soon to become additional costs, like carbon and land remediation. The investors spelt out concrete steps companies should adopt to mitigate these risks.

Niall O’Shea, Head of Responsible Investing at The Co-operative Asset Management said: “Given Shell’s level of commitment to oil sands there is a greater obligation to shareholders to reassure how it would cope under a number of scenarios. What if carbon capture and storage proves too costly in the oil sands? What if sustained high oil prices and carbon regulation combine to lead to switching away from marginal, high-cost, high-carbon sources? And then there’s the cost of cleaning up the locality. Companies must be more rigorous and transparent with their investors. “We acknowledge Shell has already done some work in this area but it does not go any where near far enough to allay our concerns.”

The Shell action is being co-ordinated through FairPensions. Commenting on the resolution, Catherin Howarth, FairPensions CEO said: "All are united in registering concern with the risks involved in Canadian oil sands, and this reflects rising public concern not just with oil sands but with companies' impact on climate change. We expect that Shell's 2010 AGM could prove a watershed in the history of corporate accountability."

Shell's reaction to the resolution has been low key so far, however  the company’s new chief executive, Peter Voser, has said that expansion in Canada’s controversial tar sands will be “very much slower” than in recent years as the group makes a strategic shift away from high-cost “unconventional” oil production. In a statement to the Financial Times, Voser, who took over at Europe’s second-largest oil and gas group in July, said that Shell now planned to rely more on conventional oil and gas reserves for its future growth.

Links

FairPensions >>

Dirty Oil Sands >>

Tar Sands Watch >>