Shell, for the fourth successive year, has invited an External Review Committee to assess the content and the process of producing its Sustainability Report.

This is our own assessment of Shell’s 2008 Sustainability Report. We express our views as individuals, not on behalf of our organisations.

OUR FOCUS

We concentrated on three main questions, informed by the AA1000 standard:

1. Has Shell selected the most important topics for the Report?
2. How well has the report dealt with these topics and responded to stakeholder interest?
3. Did Shell provide sufficient information and access to do our job effectively?

OUR PROCESS

In autumn 2008, we commented on Shell’s initial choice of issues to include in the Report. We reviewed and commented on the report outline in late 2008, and on successive Report drafts in January and March 2009. The Committee met in person twice, including meetings with key Shell personnel, and held several teleconferences.

We did not verify the accuracy of performance data underlying the Report. We note also that our review of case studies included in the Report is not based on first hand observation, although we had full opportunity to speak with relevant company executives concerning them. In addition to our comments on the company’s reporting, we have offered Shell our observations on the company’s sustainability performance.

In recognition of our time and expertise, an honorarium was offered, payable to us individually or to a charitable organisation of our choosing. We were also reimbursed for the expense of our travel and accommodation.

SHELL’S REPORTING

Shell’s 2008 Report reflects the company’s continued commitment to reporting on its most material sustainability opportunities and challenges. This year’s Report again focuses extensively on the energy challenge that Shell – and the wider world – faces. While this reduces the Report’s coverage of other important matters, we believe that Shell has prioritised issues well, and produced a report that includes the issues most material to its business and to stakeholders.

This year’s Report is being published amidst fast-changing conditions, including the deep economic recession that took hold towards the end of 2008, extreme volatility in energy prices, and against the backdrop of leadership transitions, including the 2009 change in Shell’s Chief Executive. The Report rightly emphasizes the importance of staying the course – continuing to address the long-term nature of the energy challenge, despite current economic conditions.

Again this year, Shell has demonstrated a very serious commitment to the Committee’s review process. The company has been exemplary in providing us access to information, and to its senior executives, including the Chair of the Board’s Social Responsibility Committee, the Chief Executive, and the Chief Executive-designate. Its reporting team has been very responsive to our comments, including on matters where members of the Committee had different perspectives on content than Shell. We note that our comments this year have again resulted in many changes – and in our view improvements – from initial drafts. There are also several areas where prior years’ feedback has been addressed in this Report, including additional reporting on case studies from developing economies, information on joint ventures Shell does not control, and its approach to managing towards top quartile performance.

THE ENERGY CHALLENGE

The 2008 Report, as last year’s Report, is noteworthy in its clear statement of Shell’s belief that immediate, decisive action is needed to address energy and climate change. The inclusion of “Shell’s Six CO2 Pathways” to progress on climate change provides a clear roadmap that enables readers to understand the company’s strategy for contributing to mitigation efforts. This is a positive step that provides a much more explicit view than in past years about Shell’s forward vision. We applaud Shell for its clear call for the establishment of an international price for emitting carbon, and for action at Copenhagen late in 2009. Shell has restated its commitment to coordinated action, as emphasized in the “Blueprints” scenario discussed in the 2007 report. We also welcome Shell’s update on two substantial carbon capture and storage (CCS) projects, especially given the centrality of CCS to achievement of ongoing reductions in greenhouse gas emissions from its operations.

We also see several areas in which Shell can strengthen its reporting on the energy challenge, including two areas the Committee raised last year.

First, we would like to see more extensive reporting on Shell’s future trajectory and performance on carbon emissions. While we welcome the increased insight into top quartile performance management in this year’s Report, it is not yet clear how this approach, applied on an asset by asset basis, will enable measurement of emissions on a company-wide basis. As such, it remains unclear how Shell will communicate about its overall emissions performance once its last absolute target expires in 2010. Second, the report does not provide sufficient information to enable readers to gauge the anticipated increase in CO2 emissions expected in the coming years, especially given that its strategy includes substantial investments in carbon-intensive fuel sources, including unconventional energy like oil sands, and increasing energy intensity of production.

In addition, the Report could have provided more detailed discussion of the company’s decision to focus its renewable energy investments over the next few years in biofuels, rather than wind and solar energy.

Specifically, we would have liked to see more detail on: (1) the level of investment in renewables, and how this is sufficient to meet the stated urgency of addressing the energy challenge; (2) why Shell has chosen to prioritise biofuels over other forms of renewable energy and (3) the complexities involved in creating a truly sustainable source of biofuels, and Shell’s efforts to achieve this result. Without this, there is a risk of furthering the divide between Shell’s and stakeholder views of what constitutes a prudent level and nature of investment in clean energy.

In some cases, Shell provides factual data that do not provide enough context for readers to judge whether the speed and scope of its progress is sufficient. This arises, for example, in the section on cleaner transport fuels, where various pilots are described without a clear sense of whether they have the potential to be taken to scale. In addition, while Shell notes that it, and the energy industry as a whole, uses less water than industries such as agriculture, it would be useful to provide additional information in future reports on specific operations where water use is significant in local context.

In addition to our observations on Shell’s treatment of the Energy Challenge section, we offer comments below on several other topics Shell addresses in the Report:

INTEGRATION OF LEARNING ON SOCIAL PERFORMANCE

We encourage the company to report more fully in future years on how Shell integrates lessons from past experiences, particularly regarding operations in challenging environments, to ensure continuously improving performance.

HUMAN RIGHTS

We believe that the decision not to include a dedicated human rights section in the Report is appropriate in light of developments in 2008, and because the subject is included in the treatment of topics such as Shell’s Business Principles. We encourage further consideration of how best to report in future years on material human rights issues that may arise.

SOCIAL DEVELOPMENT

We continue to seek more information and analysis of Shell’s impact on the local communities where it operates. The Report provides data on Shell investments, but does not enable readers to understand how effectively these expenditures have improved community well-being or advancement.

CONCLUSION

Shell has again demonstrated leadership in its reporting, providing its perspective on the issues of greatest relevance to the company and the wider world. We encourage the company to develop further its reporting on how it is meeting the energy challenge: providing needed energy while also helping make the transition to a lower-carbon energy mix. Doing so will, we believe, not only benefit Shell, but also catalyse others to act in ways that are essential for creating sustainable energy solutions.