May 24, 2002
Annual Meeting Focuses Pressure on ExxonMobil
by William Baue
Some shareowners and NGOs claim that ExxonMobil's environmental and social practices are hurting
the company's profitability.
ExxonMobil (ticker: XOM) is facing
increasing resistance from shareowners and NGOs regarding its social and environmental policies.
At its May 29 annual meeting, ExxonMobil shareowners will vote on eight resolutions that concern
issues ranging from human rights abuses to global warming. In addition, several prominent
non-governmental organizations (NGOs), including Greenpeace and the Natural Resources Defense Council (NRDC), have presented
extensive evidence of the destructiveness of ExxonMobil's environmental practices. The effects of
such practices on ExxonMobil's share value have been extrapolated into a new computer simulation
program created by corporate governance watchdog Robert Monks.
Institutional Shareholder Services (ISS) and the California Public Employees Retirement System
(CalPERS), two of the strongest voices of institutional investors, each announced their support for
resolutions at ExxonMobil that concern environmental performance. Both organizations support
proposal number eight on the proxy, which calls on the company to promote renewable energy.
CalPERS additionally backs proposal number six, which links executive compensation to environmental
and social performance.
ISS based its decision in part on a report released on May 2 by
the London-based Claros Consulting entitled "Risking Shareholder Value? ExxonMobil and Climate
Change: An Investigation of Unnecessary Risks and Missed Opportunities." The study, which was commissioned by the
Coalition for Environmentally Responsible Economies (CERES), Campaign ExxonMobil (a coalition of religious
institutional shareowners), and Mr. Monks, identifies reputational risks, litigation risks, and
risks from sudden policy changes. It also points out that ExxonMobil is particularly well
positioned to profit by diversifying into renewable energy, making its refusal to do so all the
NGOs are also pressuring ExxonMobil, both as shareowners and as
activists. Amnesty International is a
co-sponsor of a resolution that asks ExxonMobil to strengthen its human rights policies. Amnesty
also recently published a briefing that correlated strong human rights standards to reduced risk of
damage to corporate reputation. This month, Greenpeace published a report detailing the history
of ExxonMobil's campaign to delegitimize the global warming theory.
on global warming can be summed up in three words: deny, deceive and delay," said Kert Davies,
Greenpeace climate campaign coordinator. "Its propaganda machine has been hard at work for more
than a decade spewing out junk science, fabricating doubts, and buying support of politicians from
the local level all the way to the White House."
NRDC documented ExxonMobil's influence on
the Bush Administration by publishing a secret memorandum sent by the company to the White House.
In it, ExxonMobil appealed for the ouster of the head of the Intergovernmental Panel on Climate
Change (IPCC), the international scientific body that provides impartial research on the global
climate. Dr. Robert Watson, the chair responsible for the IPCC's recent pronouncement that human
activity indeed contributes to global warming, was replaced in April by Dr. Rajendra Pachuari of
India, a non-scientist supported by the Bush Administration.
"It's bad enough that
ExxonMobil controls White House energy and climate policies," said Daniel Lashof, science director
of the NRDC Climate Center. "Now they want to control the science too."
All of this
controversy threatens to erode share value, according to a new computer program that simulates the
effects of corporate misconduct over time. Mr. Monks conceived of Brightline as a way of quantifying the
implications of companies' "externalization" of liabilities--when companies try to dump their
problems on others. Although externalization may result in short term gains, it ultimately ends in
losses through reputation erosion, litigation, and fines.
Mr. Monks conducted a
Brightline simulation on ExxonMobil, and found that it suffered losses due to its negligence, while
the performance of other oil companies, such as BP (BP) and Shell (RD), remained relatively
constant. If accurate, the results carry significant implications for ExxonMobil shareowers, who
risk diminishing returns from their ExxonMobil stock.