Shell becomes the largest global energy company to commit to a net-zero emissions goal by 2050

Energy giant Royal Dutch Shell said Thursday it would aim to reduce its emissions to net-zero by 2050, making it the largest global oil and gas company in the world so far to sign on to the target. It’s a commitment that will fundamentally shift the nature of its business.

The target will cover emissions from the manufacture of its products, the company said. A net-zero goal means to reduce all possible emissions, while offsetting those that can’t be cut entirely; the 2050 target coincides with guidelines under the Paris climate change accord.

In a statement, the company’s CEO, Ben van Beurden, said that even during the COVID-19 epidemic, Shell must “maintain the focus on the long term,” and attributed the target to broader societal change.

“Society’s expectations have shifted quickly in the debate around climate change. Shell now needs to go further with our own ambitions, which is why we aim to be a net-zero emissions energy business by 2050 or sooner. Society, and our customers, expect nothing less,” he said.

In a statement, Adam Matthews, director of ethics and engagement at the Church of England Pensions Board, which leads engagement with Shell for Climate Action 100+, an investor climate-action group that encompasses more than $40 trillion in institutional investors, including BlackRock, said the move showed Shell’s confidence. Matthews added that Shell’s announcement sets the focus on laying out a pathway for companies in the energy sector to follow.

Shell is No. 3 on Fortune’s Global 500. Before committing to the net-zero target, the Dutch-Anglo giant was one of the fastest-moving companies in the sector to commit to disclosing emissions—not just from its own operations, but from those produced by its customers. That made Thursday’s commitment a logical next step.

“The fact that Shell announced the move now underlines its commitment to make the shift from Big Oil to Big Energy,” wrote Luke Parker, vice president of corporate research at Edinburgh-based energy consultancy Wood Mackenzie, in a comment. “Coronavirus and its fallout doesn’t change that…If anything, it adds greater weight to the argument. Despite immediate cash flow constraints, Shell (and its peers) will emerge from this period more determined to make the shift.”

Shell’s commitment follows net-zero targets announced by BP, the British energy giant which is No. 7 on the Global 500, in February, and Spain’s Repsol—No. 200—late last year. It also marks a further widening of the gap between European energy giants, which have openly acknowledged the mounting pressure to lower emissions from governments and the public, versus U.S. energy companies, which analysts and experts from both sides of the Atlantic say have not felt the same direct pressure—or made the same commitments.

In February, the company’s U.K. country chair said at an International Petroleum Week panel on oil and gas and climate change that the company had already set ambitious targets to reduce its emissions, noting that as much energy as possible must be clean, but adding that “oil and gas will also need to play a role, and so society’s use of oil and gas will not necessarily reduce at the pace many might like.” Shell and Equinor, the Norwegian state energy giant, were the only two energy companies to appear on the panel.

However, Shell will now face hard questions about the specifics of how it will meet this target—a goal that even experts in reducing emissions say is currently difficult to map out, particularly for energy companies whose very existence is owed to fossil fuels. BP, after committing to the net-zero target, said it would update investors later in the year on how it would actually meet such a goal. On Thursday, Shell said that its operating plans and budget do not yet reflect the 2050 target.

The announcement also comes as the oil and gas sector appears to be entering free fall, with even agreements by OPEC+ and other producers earlier this week to limit oil production doing little to stabilize global oil prices, which hit a fresh 18-year low on Wednesday as WTI dipped below $20 per barrel. That has already resulted in widespread furloughs, layoffs, and even early bankruptcies across the sector, putting the future of cities and regions relying on oil revenues in question—and appearing to put climate change, which until earlier this year was dominating debates about the future of the industry, on hold.

That worries analysts and experts who work on oil and gas and climate change. They’re concerned that commitments to lower emissions could fall by the wayside as a result of the financial hit and strain on executives’ resources in managing the COVID-19 crisis.

On Wednesday, Fatih Birol, executive director of the International Energy Agency, said that emissions were likely to fall in 2020 as a result of the crisis, but warned that it would be the result of economic meltdown—not meaningful policy changes. In March, Birol noted that the coronavirus crisis was likely to provide a “test” for governments and companies on whether they are serious about committing to lowering their emissions.