The Shell (LSE: RDSB) share price has been sliding this week, despite the rising price of oil. Since Monday, the stock is off nearly 5%, compared to a positive return of 0.5% for the FTSE All-Share Index.
Over the past 12 months, excluding dividends, the stock has returned just 1.6%. That’s compared to a 17% return for the FTSE All-Share.
It seems as if shares in the company have underperformed this week following a ruling from a court in the Hague. The court issued a landmark order against the group to cut its global carbon emissions by 45% by the end of 2030, compared to 2019 levels.
Landmark ruling
The case was brought against the company by Friends of the Earth and over 17,000 co-plaintiffs. The Dutch court found Shell’s sustainability policy to be insufficiently “concrete“.
Furthermore, the group was told it had a “duty of care”, and the level of the company’s emissions’ reductions should be bought in line with the Paris Climate Agreement.
There’s no denying this was a massive development for the business. Moreover, the case itself is likely to have enormous repercussions for the oil and gas industry. It’s the first time a judge has ordered a big polluter to comply with the Paris agreement.
The company is planning to appeal the case, but it’s clear the ruling has already impacted the Shell share price.
But to give the company credit, it already has an emissions reductions plan in place. In February, the group said it would accelerate the transition of its business to net-zero emissions. These plans include targets to reduce the carbon intensity of energy products by 20% before the end of the decade. It was previously targeting a 45% reduction by 2035.
Risks to the Shell share price
So what does this mean for investors? Unfortunately, it isn’t easy to tell. As noted above, Shell is planning to appeal the ruling. As such, the business isn’t yet committed to any new goals.
That said, the world is generally moving away from hydrocarbon energy sources. Shell needs to make sure it’s not left behind. Whatever happens, the company will need to invest in the future.
Therefore, I think the ruling is likely to have a limited impact on the Shell share price in the long run.
It was a landmark court decision. Nonetheless, whatever happens in the appeal, it’s clear the company will have to spend tens of billions of euros on renewable energy projects over the next few years.
The court’s decision may even benefit Shell if the company changes its plans, invests more green energy, and gains an edge over slower-moving peers.
Still, after considering all of the risks facing the company, I wouldn’t buy the stock at current levels. Even though the dividend yield of 3.8% on the Shell share price looks attractive, I think the headwinds facing the stock far outweigh the potential for returns.