Will climate change send the Royal Dutch Shell share price to zero?

The climate’s changing and the Royal Dutch Shell share price could suffer if claims against the company start to increase.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Royal Dutch Shell (LSE: RDSB) share price used to be a staple holding for income investors. That was until the company cut its dividend last year for the first time since the Second World War. 

Volatile oil prices have always been a risk for the enterprise. In the past, the group’s size and diversification has helped it manage this uncertainty. However, I think the threat of climate change now presents an even more considerable risk for the company and one that could jeopardise its very existence. 

Could the Royal Dutch Shell share price fall to zero?

In theory, any investment can go to zero, but this rarely happens, especially with blue-chip companies. For a stock to drop that far, the underlying business would have to be insolvent. Its liabilities would have to exceed assets. 

It might seem silly for me to suggest Royal Dutch Shell could ever end up in this position. Nevertheless, it’s something we need to consider, especially taking into account the group’s contribution to climate change.

Oil companies are one of the biggest producers of emissions globally. In some cases, groups are starting to face lawsuits regarding their impact on the environment. This reminds me of the fight against Big Tobacco and, more recently, opioid producers in the United States. In both cases, a tidal wave of lawsuits resulted in hundreds of billions of dollars of claims being awarded against these operations. 

While there is no evidence to suggest Shell and its peers will face the same kind of financial penalties right now, it’s not something I’m going to rule out. 

To get some idea of the sort of financial penalties the company might have to pay, we only need to look at the money BP had to hand over in the wake of its Gulf of Mexico disaster. In the decade after the disaster, BP and its partners paid out $71bn in fines and clean up costs. That was around 40% of its market value before the spill. 

Change is afoot 

These are the reasons why I think there’s a chance the Royal Dutch Shell share price could fall to zero at some point in the next few decades if claims against the company start to grow. 

However, there are also reasons to be optimistic. The company is already starting to change. It’s investing billions in renewable energy technology and diversifying away from oil & gas. The group also has a robust balance sheet and $400bn of assets it could borrow against, or sell-off. With this level of financial flexibility, I think it’s unlikely the stock could fall to nothing.

Still, it isn’t something I want to gamble on. It’s clear the climate is changing, and this is going to affect the whole world. Some companies may suffer more than others, and I don’t want to own any stocks in my portfolio that may struggle to adapt to the new normal.

I think the Royal Dutch Shell share price will struggle, which is why I’m not a buyer of the stock right now. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »

Investing Articles

3 ways Labour could impact the Rolls-Royce share price

Labour have swept to power on a pro-worker, pro-business ticket. But how could the new government influence the Rolls-Royce share…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings at 35? I’d use Warren Buffett’s method to try and build massive wealth

Warren Buffett made most of his multi-billion-dollar fortune after turning 50. So what was his trick to building enormous wealth…

Read more »