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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.

This week, 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 more confounding.

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.

"ExxonMobil's stance 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.


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