The Motley Fool

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

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.

New Ways of Investing - Hands Only Using Smart Phone
Image source: Getty Images

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. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

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. 

Our 5 Top Shares for the New “Green Industrial Revolution"

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special "Green Industrial Revolution" presentation now

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.