Sovereign wealth fund urged to engage with local communities to understand full environmental impact.
Norges Bank Investment Management (NBIM) has set three targets for Shell and Eni over the next two years, as the oil and gas firms prepare to withdraw from the Niger Delta region following a series of destructive oil spills.
The world’s largest sovereign wealth fund, which manages US$1.3 trillion in assets, published the latest exclusion decisions for its Government Pension Fund Global in December. NBIM’s executive board said it would extend a ten-year engagement effort with Shell and Eni on oil spills, citing “forward-looking risk of norm violation”.
“We want Shell and Eni to continue to make efforts to reduce the number and volume of oil spills,” Eivind Fliflet, Head of Environmental Initiatives at NBIM, told ESG Investor.
“We want them to continue to ensure immediate and effective remediation of spills, [and] we want them to exit the Niger Delta in a responsible and orderly fashion.”
This includes engaging with the local communities to address past and present oil spills before exiting the region.
The engagement programme thus far has been “constructive”, NBIM’s board claimed in December, adding that the companies have “expressed an ambition to divest the relevant assets in the Niger Delta”.
According to a four-year review commissioned by the Governor of Bayelsa, oil companies have spilled ten to 15 times more oil (110,000 barrels) in the Nigerian state over the course of 50 years than the Exxon Valdez disaster. Ninety percent of these oil spills took place at facilities owned by just five oil companies, including Shell and Eni.
Researchers also analysed blood and tissue samples from 1,600 people across Bayelsa, identifying high levels of heavy metals associated with oil production, the report added.
“[Climate litigation] is absolutely a risk that NBIM acknowledges companies need to understand – it’s complex and ever-evolving,” said Fliflet.
NBIM’s “special exercise of ownership” for Shell and Eni is a tailored engagement programme informed by ethical guidelines set by the Norwegian government. NBIM has met with the two companies on the specific topic of oil spills regularly, engaging through in-person meetings, video conferences and written correspondence.
“It’s very targeted, as there is a specific change we want to see, rather than a broader focus on a company’s overall financial or ESG performance,” Flilflet explained. The fund’s other engagements with Shell and Eni on climate-related themes, such as decarbonisation, are handled separately.
“At the end of the [two-year] period, we will make an assessment of their progress on these three objectives and the executive board will have to make a new decision,” Fliflet said.
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NBIM provided a previous update of its engagement efforts with Shell and Eni on their activities in the Niger Delta region in its ‘2022 Responsible Investment Report’.
The number and volume of spills from pipelines operated by Eni increased during 2022, NBIM said, noting that the company reported that oil theft was at a high level due to high oil prices, unemployment and upcoming elections, which made it harder to both produce oil and prevent spills.
“The company has worked on strengthening its dialogue with the local community and various security forces, and improved its monitoring and response times for spills,” the report said, adding that spills due to operating errors “continued at a low level”.
In comparison, spills from pipelines operated by Shell “decreased significantly” in 2022, due to extended halts in production to avoid spills during periods of high oil theft. NBIM noted that Shell and its partners in Nigeria have implemented various measures, including maintenance, protection of wellheads and collaboration with local communities to clean up affected areas and prevent further oil spills.
Reverend David Ugolor, Executive Director of the Africa Network for Environment and Economic Justice (ANEEJ) and Convener of the Peoples AGM Platform, told ESG Investor that Shell “continues to point the finger at communities, but the lack of maintenance on pipelines and deteriorating infrastructure should be a real concern for investors”.
Last year, prior to NBIM’s decision to extend its engagement efforts, a delegation of Nigerian environmental activists – including Ugolor – met with the sovereign wealth fund to lobby for action against the oil and gas companies. They told the asset owner its engagement efforts had relied on one-sided communication with Shell and Eni, missing out on insights of the local communities impacted.
“NBIM’s decision to extend the [engagement] period with Shell and Eni follows a decade-long of failed engagement wherein NBIM regularly met with these companies, examining the impact of their operations in the Niger Delta as recommended in 2013,” said Ugolor.
“Yet we see little change, experiencing oil spills and gas flaring at an alarming rate.”
Ugolor said NBIM was “very receptive” to information during their meeting, and “showed willingness to work with us to provide further evidence”. But the sovereign wealth fund remained “overly reliant” on information provided by the two oil firms.
“Although NBIM has said that it is now performing an assessment of the situation, we encourage them to visit the Niger Delta to consult with communities and to bring to light the true nature of the situation,” he said.
According to Fliflet, ten years is already the longest NBIM has ever conducted a special exercise of ownership.
“We have to acknowledge that we have spent a lot of time and resources on this case in the Niger Delta, but we also have to acknowledge that there are limits to what investors and even corporates can do with issues such as these that are intertwined with deep societal issues,” he said.
Ugolor said the social and environmental impacts of past pollution had to be addressed before Shell and Eni exit from the Niger Delta region.
“The clean-up of [Nigerian state] Ogoniland alone has been ongoing for years now, and it will take many more years to be concluded. Ogoniland is just a small fraction of Niger Delta – other areas in the region are also heavily polluted.”
Ugolor called for a total clean-up of the entire region before divestment, with NBIM upping its engagement efforts with both companies and considering escalation if they fail to meet their climate commitments.
“We need to see investors like NBIM hold fossil fuel companies accountable for their failure to respond effectively to engagement efforts,” he continued.
“We hope that in this [two-year] period, we can continue our line of communication with NBIM on the materiality of what is happening on the ground.”