Shell’s move to London: a strategy for sustainability

On Sunday 14 November, Royal Dutch Shell informed the Dutch government of its intention to move its headquarters to London from The Hague. A shareholder meeting on 10 December  will determine the final decision. Shell notes that this move is intended as a way to simplify its share offering, and thereby increase flexibility in regards to raising capital and acquisition efforts. As such, the company will not be moving its entire operation abroad. Rather, only about twelve of the company’s top managers, including the CEO and CFO, are going to be making the physical transition. Nevertheless, this move has far-reaching consequences, both economic and political, leaving many to question why the oil and gas giant has made this decision.

A major concern regarding Shell’s departure from the Netherlands is related to the economic impact of such a large company leaving Dutch territory. However, the limited scale of the transition in terms of staff means that only time will tell what the long-term impact will be. Naturally, another primary concern of the demissionary cabinet was the dividend tax, which was introduced two years ago. On Monday 15 November, Parliament discussed the possibility of scrapping the dividend policy, in reaction to Shell’s announcement. This is not the first time that the cabinet has brought the proposal to abolish this left-leaning policy before Parliament. However, yet again, the idea of doing away with the tax was dismissed almost immediately. GroenLinks MP Tom van der Lee found the idea of scrapping the tax ridiculous, considering the number of jobs actually moving to the UK and the two billion euros in fines that Shell is liable to pay as a ‘vertrekboete’, or departure fine. This fine was introduced in 2020 to prevent multinationals leaving the Netherlands without paying tax on unpaid dividends. This has, however, not been properly debated in Parliament for this case, and attempts to do so have been quickly pressed aside. Subsequently, it remains uncertain if this departure fine will even be applied in this case.

On a more cultural note, Shell has also proposed changing its name by dropping the ‘Royal Dutch’ prefix in ‘Royal Dutch Shell’ alongside the move. Considering the pedigree of the company, which began in 1907 through the amalgamation of the Royal Dutch Petroleum Company and Shell Transport and Trading Company Limited, this change makes sense. The amalgamation of Dutch and British companies created a rather complicated share structure, which this move hopes to simplify by becoming a single British entity. Thus, leaving the name as it is would create an added layer of unnecessary confusion. On the other hand, Shell remains adamant that it will remain very closely connected with the Netherlands, and CEO Ben van Beurden has claimed that the move is a strategic decision for the benefit of the company’s positioning in the process of energy transition.

This statement, however, brings up more questions about the move: how does this move advantage Shell in the energy transition processes? The strategy that Shell has endeavored to take in the pursuit of net-zero emissions follow three base ambitions: the aim to be a world-class investment case, the desire to thrive in the energy transition to a lower-carbon future, and to maintain a strong societal license to operate. The second ambition specifically may be an important motivating factor here. The 2015 Paris agreement, which committed to limit temperature rises to 2 °C is a commitment to which Shell is bound, as CEO Van Beurden acknowledged in an April 2020 speech. Shell has developed the so-called Sky scenario, that lays out its contributions to this aim that it deems technically possible. However, the EU has committed to the aim of restricting warming to 1.5 °C or less, by no later than 2050. Shell’s Sky scenario is designed only to stimulate its management to consider plausible events. The scenario is intended as a hypothetical case, but does not actually provide any real call to action on the part of the company. However, considering the recent environmentalist concerns that Shell is facing, the inability to adhere to regional goals on the climate front may endanger its third aim, to maintain a strong societal license to operate. As such, leaving the EU may limit the negative public perception of Shell’s environmentalist actions, or lack thereof.

Written By Maurits Seijger