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April 01, 2016
Investors Win Battles for Shareowner Votes on Climate at Exxon
    by Robert Kropp

Resolutions addressing the moral imperative of limiting climate change and the manner in which the company reports oil reserves replacement will appear on proxy ballot following SEC decision.


The science of climate change has been definitive for many years; in fact, by 1977, scientists employed by ExxonMobil had successfully developed climate change models that accurately predicted the crisis conditions that are already underway. Yet, instead of honoring its social license to operate by acting responsibly on the research, Exxon “financed and engaged in a decades-long industry campaign of doubt-mongering about the scientific evidence of climate change in order to avoid regulation of their products,” according to Peter Frumhoff of the Union of Concerned Scientists (UCS).

As a result, 17 state attorneys general thus far have launched investigations into whether Exxon's practice of disinformation constitutes fraud. Furthermore, both Democratic presidential candidates have voiced their support for a federal investigation of Exxon's actions.

Despite the reputational damage inflicted by a growing investigation into potential fraud, Exxon apparently has lost none of the hubris everywhere on display in Steve Coll's book Private Empire: ExxonMobil and American Power. The company challenged before the Securities and Exchange Commission (SEC) at least two resolutions addressing different aspects of climate change. It was recently reported that the SEC found for the shareowners in both cases, and the two resolutions will appear on the company's proxy ballot and be voted on by shareowners at its annual general meeting on May 25th in Houston.

Given its deserved renown as an organization of faith-based investors, it is not surprising to learn that the resolution submitted by members of the Interfaith Center on Corporate Responsibility (ICCR) focuses on the moral imperative of limiting global warming to less than two degrees Celsius. Coordinated by the Tri-State Coalition for Responsible Investment and filed by 34 institutional investors, the resolution requests that the company “adopt a policy acknowledging the imperative to limit global average temperature increases to 2°C above pre-industrial levels, which includes committing the Company to support the goal of limiting warming to less than 2°C.”

“As people of faith attempt to respond to the needs of the world, it is critical and timely that our call for ExxonMobil to acknowledge the moral imperative of limiting global warming to 2˚C will go to their shareholders for consideration,” ICCR member Sister Patricia Daly said. “ExxonMobil and its shareholders now face a choice: acknowledge the untold suffering that climate change will cause and work towards solutions, or remain willfully blind to the impacts of their ‘business as usual’ approach.”

A second resolution,
filed by As You Sow, seeks to compel a more accurate accounting by Exxon and other oil companies of oil and gas reserve replacement. “The current accounting system for oil and gas reserve replacement has inherent limitations that impede ExxonMobil’s ability to adapt to a climate constrained global energy market,” the resolution states.

The current form of accounting, in barrels of oil equivalent, leads to “the production and development of new oil and gas reserves,” the resolution argues. Replacing it with the carbon-neutral British Thermal Units (BTUs) “will create a new measure of successful operation and incentivize a stable transition to a climate appropriate resource mix. It will also help foster better company valuations by investors, creditors, and analysts, thus improving capital allocation and reducing investment risk.”

“Exxon must allow shareholders to vote on this first step on the path toward clean energy,” As You Sow President Danielle Fugere said. “Broad support will give management the latitude to develop a diverse and profitable low carbon business plan, while maintaining 100% BTU energy replacements.”

In 2010, the SEC published interpretive guidance for reporting on climate-related risks by corporations. Yet, in 2015, 62 institutional investors found it necessary to
write to the SEC, stating that “it is crucial that SEC staff closely scrutinize oil and gas companies’ reporting on carbon asset risks under existing SEC rules.”

The investors noted in particular the lack of SEC comment letters to companies on the issue of carbon asset risk. “The risk of reduced demand for oil, uneconomic projects and stranded assets due to the factors discussed above is material to the companies and their investors, as it directly affects the profitability and valuation of the companies.”

It is too early to determine if the Commission under Mary Jo White will increase its regulatory oversight of climate-related corporate activities, but it is to be hoped that allowing the two resolutions is a step in the right direction.

 

 
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