Shell’s moving to London to help it with share buybacks. It should be investing in aligning with the Paris accords

The company is under pressure to clean up and green up. The location of its HQ, and its buyback programme, are of scant importance when compared to the climate crisis. Unfortunately, as James Moore writes, its executives are still struggling with that

Shell is moving its HQ from the Netherlands (Bloomberg News)

It says a lot about the desperate state of British politics that business secretary Kwasi Kwarteng was trumpeting Shell – an oil major – moving its HQ and tax residence to London as a “vote of confidence in Britain” just a day after the deeply disappointing end to the Cop26 climate conference.

In reality, the move wasn’t motivated by confidence, real or in the politician’s fevered imaginings, so much as it was by a desire for corporate modernisation and simplification, leavened with a little cynicism.

The company, which will drop the “Royal Dutch” part of its name as a result of the move, started the process of simplifying its unwieldy dual headed Anglo-Dutch structure in 2005, following the scandal over its misstatement of reserves in 2004, which landed it with some chunky fines and cost former CEO Sir Philip Watts his job.

However, it still has A and B shares, as well as a primary London listing and a Dutch HQ. The A shares are subject to the Netherlands’ dividend withholding tax of 15 per cent. The Bs are not. This can come as an unwelcome surprise to investors who buy the wrong ones and is a cause of considerable irritation to the business lobby in a country that has otherwise been indulged with low corporate taxes.

The structure complicates share buybacks, and oil majors like Shell are very keen on share buybacks as a means of returning cash to investors, much keener than they are on investing money in making their businesses compliant with the Paris climate accords.

With just one class of shares, buybacks get a lot easier. So does using Shell paper to buy other companies.

Where it gets interesting is the question of whether the move will have any impact on the jurisdiction of the Dutch courts. You may recall that they have ordered Shell to get its skates on with respect to reducing its carbon emissions.

Shell, which will continue to have a share listing and signifiant operations in the Netherlands, has said it won’t, perhaps with an eye on a nasty PR squall that could be whipped up if the reorganisation were to be seen as a means of ducking a climate ruling.

Analysts at broker Jeffries beg to differ. “We believe that a clearer separation from the Netherlands could also have positive implications for the Milieudefensie case on Shell’s carbon emissions as it would make it harder to claim that the Dutch Court has jurisdiction,” they said.

It is notable that Shell, which is currently appealing the case in the Hague, wants this done with considerable speed. A vote on the plan is scheduled for early December.

But even if Shell reverses, or escapes, a tough ruling, its climate related issues aren’t going to go anywhere.

Shareholder rights are stronger in the UK than they are the Netherlands, so Follow This, the activist group that buys shares in oil majors with a view to submitting motions demanding they clean up their acts, will continue to be able to exert pressure. It has pledged to do just that.

Another kind of activist also threatens Shell in the form of Third Point, a hedge fund which is pressing the company to break itself up into legacy Shell – an oil driller and chemical company that would hand most of its free cash to investors – and “clean” Shell, which would use the revenues from its gas fields to fuel investment in clean energy and service stations.

Whether the latter really satisfies the definition of “clean” is open to question, although its strategy would at least be a little clearer than it is now.

The current programme involves Shell claiming that it is cleaning up and aligning with Paris while at the same time pumping much more money into new fossil fuel projects than it is into renewables. This satisfies no one and is best described as cynical. There’s that word again.

Variations of this strategy are in place at most of the oil majors.

Forget Mr Kwarteng’s silly and nationalistic tub thumping. The fuss over the oil giant’s HQ is little more than an example of fiddling while Rome burns. Except that it’s not just Rome.

Third Point has the financial clout to make life awkward for Shell. But Follow This has the moral high ground and is much the more important activist so far as the climate is concerned. Shell needs to engage with it.