Pressured by shareholders, ExxonMobil Corp. agreed Thursday to publish, for the first time ever, a carbon asset risk report describing how it assesses the risks of stranded assets from climate change.
The report, to be published on the producer's website, would provide investors with more transparency into how it plans for a future "where market forces and climate regulation make at least some portion of its carbon reserves 'unburnable,'" the shareholder groups said.
The turnaround comes after ExxonMobil's shareholders defeated similar proposals four years in a row (see Daily GPI, June 3, 2013; May 27, 2011). In reaction to the landmark agreement, some of the groups pushing for disclosure agreed to withdraw shareholder resolutions for ExxonMobil's proxy.
"That the largest American oil and gas company is the first to come to the table on this issue says a lot about the direction that energy markets are taking," said As You Sow President Danielle Fugere. "Companies need to acknowledge that preparing for a low-carbon future is a necessity, not a choice. Companies that prepare early for a future with reduced carbon emissions will likely perform better than those who delay -- and investors need transparency and disclosure about these company choices."
Natasha Lamb, who directs equity research and shareholder engagement at Arjuna Capital of Baldwin Brothers Inc., said the firm was "gratified" by ExxonMobil's decision to drop its opposition.
"Shareholder value is at stake if companies are not prepared for a low-carbon scenario. More and more unconventional 'frontier' assets are being booked on the balance sheet, such as deepwater and tar sands. These reserves are not only the most carbon intensive, risky, and expensive to extract, but the most vulnerable to devaluation. As investors, we want to ensure our companies' capital will yield strong returns, and we are not throwing good money after bad."
In December ExxonMobil and the other biggest majors with huge U.S. operations -- Chevron Corp., ConocoPhillips and Royal Dutch Shell plc -- disclosed that they already use an internal price on carbon dioxide emissions (see Daily GPI, Dec. 5, 2013). Apache Corp., Devon Energy Corp. and Hess Corp. also price their U.S. emissions, as well as Total SA, PG&E Corp., General Electric Co., Ameren Corp., American Electric Power Co. Inc. and Xcel Energy Inc.
ExxonMobil has said that for at least the past seven years it has undertaken concrete steps to reduce emissions from its operations (see Daily GPI, Feb. 14, 2007).
The decision to disclose the carbon asset risks is the first successful withdrawal by a producer in this proxy season, the investment groups said.
"The proposal reflects increasing investor concern about the issue of stranded assets," building on a shareholder initiative coordinated by Ceres, in which shareholders representing $3 trillion in assets under management asked 45 companies for increased disclosures about carbon-related risk, the impact on capital expenditure decisions, and whether they were implementing strategies to avoid stranded assets in a carbon constrained world (see Daily GPI, March 5, 2010). The U.S. Securities and Exchange Commission in early 2010 had approved a requirement that companies publicly disclose the impact of climate change on their businesses, but it was blocked in legislation spearheaded by Wyoming's Republican Sen. John Barrasso.
"A careful and detailed assessment of the potential for stranded assets is an important first step for all fossil fuel companies, and we're encouraged by ExxonMobil's commitment to publish this report," said Ceres' Andrew Logan, who directs the oil and gas program. "Moving forward, Ceres and its Investor Network on Climate Risk will be looking for concrete commitments by companies to avoid making riskier investments in the most carbon-intensive assets, which would demonstrate the companies' ability to adapt as the world transitions to a low-carbon economy."
The resolution by ExxonMobil follows a first-of-its-kind proposal and vote on the risk of stranded assets that was filed by As You Sow at Consol Energy Inc. last year. That resolution went down in a sound defeat with 80% of the shareholders voting 'no,' but the groups accentuated the positive, noting that 20% of the voting shares represented more than $1 billion in assets.
"Investors are the canary in the coal mine and will move their money to avoid material risk," said Lamb. "Forward thinking companies need to reassess how they allocate shareholder capital and act strategically to shift their business models. If Big Oil can't redirect capital to low carbon energy alternatives, investors will."