Study: Exxonmobil Now The Only Giant Oil Co. Failing To Act On Global Warming Risks
ExxonMobil (NYSE: XOM) is now alone among the four "supermajor" oil companies in refusing to take meaningful action to mitigate the growing risks posed by global warming, according to a study released today by Claros Consulting of London, England. The Claros report notes that a host of global warming events and trends converging over the last year have "significantly increased" the climate-related risks to the wealth of ExxonMobil shareholders.
According to the study, three of the four supermajor oil and gas companies - Shell, BP, and ChevronTexaco - are using and exploring a wide array of energy and risk management options to deal with such factors as emerging carbon constraints, greenhouse gas emissions trading and new energy mandates. These strategies include incorporating "carbon pricing" into future planning scenarios and decisions, setting emissions reductions targets, developing emissions trading experience and investing in renewable energy. ExxonMobil is not reporting the use of any of these strategies or other steps to manage the risks of climate change.
With the 2003 annual meeting for ExxonMobil shareholders set for May 28th, 2003, the Claros report recommends shareholder support for proxy resolutions that seek greater disclosure of its strategies to address climate risk and respond to pressures for renewable energy. In 2002, frustrated by ExxonMobil's lack of disclosure on the risks and new business opportunities associated with climate change, shareholders representing over $55 billion in ExxonMobil stock (20.3 percent of those voting) supported a resolution seeking greater disclosure of the company's plans for renewable energy.
Mark Mansley, the head of Claros Consulting and the report's author, concludes: "ExxonMobil is alone among its peers in continuing to deny the risks posed by climate change. It appears to be relying on a 'hope for the best' strategy - one that works as long as the risk of climate change evaporates. ExxonMobil's strategy looks increasingly out of step in a world that is convinced that climate change is real and that carbon emissions should be curbed."
Ceres Executive Director Mindy Lubber said: "It doesn't matter if you 'believe in climate change' if policies are emerging around the world that affect your industry. ExxonMobil's continued denial of this reality demonstrates an impressive lack of sophistication in basic risk management."
Christian Brothers Investment Services (CBIS) Assistant Director of Socially Responsible Investing John Wilson said: "For long-term investors, the reality is this: Regulatory pressure to reduce greenhouse gas emissions and boost non-fossil fuel sources has evolved from theory to fact. The worldwide concern about climate change has begun to reshape the business landscape. It is generally accepted that the most economically efficient way to address the issue is through market mechanisms. These will create opportunities for visionary businesses, but threatens the bottom line of those companies that fail to prepare. This is the long-term risk that ExxonMobil faces today and it is one that is simply intolerable for long-term investors who are concerned about the value of their shares."
Peter Altman, national coordinator of Campaign Exxon Mobil, said: "The bottom line for investors is that to all appearances, ExxonMobil has no plan for managing the risks of climate change. Investors should support disclosure because if ExxonMobil has a plan they should tell shareholders what it is and if they don't its time for shareholders to know that. But even for investors who think ExxonMobil does have a plan, asking for disclosure only makes sense. Why not ask how ExxonMobil plans to protect shareholder value from the risks of climate change?"
The release today of the Claros Consulting study is only the latest in a growing number of steps designed to persuade institutional investors of the need to pressure ExxonMobil to mitigate climate-related risks. On May 12, a half-page ad appeared in Pensions & Investments (to see ad go to www.campaignexxonmobil.org) raising awareness about the resolutions and promoting an investor briefing call at 12:30 CDT/1:30 EDT on Wednesday, May 14, 2003.
Campaign ExxonMobil also published on Monday a full-page advertisement in Nation magazine (to see the ad, go to www.campaignexxonmobil.org/shareholder/silent_partners.html) emphasizing the failure of individual ExxonMobil board members to properly oversee the company's response to global warming and encouraging readers to write them directly to demand they take responsibility for ExxonMobil's actions. Other outreach efforts have included a proxy solicitation mailing to 3,500 key investors representing 60 percent of ExxonMobil shares. The mailing included a cover letter from Connecticut State Treasurer Denise Nappier and Campaign ExxonMobil's new four-page briefing outlining the need for the oil giant to act on climate-related risks.
Key Study Findings
Commissioned by Ceres and Campaign ExxonMobil, the 29-page report is entitled "SLEEPING TIGER, HIDDEN LIABILITIES: Amid growing risk and industry movement on climate change, ExxonMobil falls farther behind." Download the PDF here.
The major findings in the Claros report are as follows:
Increased climate-related risks. According to the Claros Consulting study, several events that have transpired since the ExxonMobil annual meeting in 2002 have "significantly increased" the climate risks facing the energy industry. The report notes: "The regulatory risks associated with climate change have become reality. Carbon caps and fines in Europe begin in 2005. The Kyoto Protocol has 106 signatories, and Russia's statement of intent to ratify means the treaty is likely to come into force soon. Renewable energy mandates are now in force in fifteen countries and thirteen states, and more appear to be on the way ... Climate change litigation appears increasingly likely, with actions taken by several state Attorneys General, and the filing of the first climate-related legal case in the United States.
ExxonMobil alone in its denial. Three of the four "supermajor" oil and gas companies -Shell, BP, and Chevron Texaco - have moved to address global-warming risks, according to the Claros study. As the report notes: "Rather than wasting time and resources on attacking the science of climate change, these three are moving aggressively to deal with the reality of related market changes." By contrast, ExxonMobil is sitting idly on the sidelines and not getting into the climate-change game, thereby jeopardizing its own future and the wealth of its shareholders.
Growing business acceptance of climate risks. Mansley notes that leading companies and investors have begun to take serious stock of the risks and opportunities posed by climate change in the past year. The report states: "Three of the four supermajor oil and gas companies - Shell, BP, and Chevron Texaco - have moved to address these (climate) changes, seeking flexibility, agility, and opportunity in new markets and trading.
Risk management failure is a governance failure. On this key point, the Mansley report notes: "... the board of directors of ExxonMobil is failing to manage climate change-related risk. The board appears to have delegated extraordinary responsibility for this critical issue to the Chair and CEO, Lee Raymond. However competent he may have been at delivering value in other areas, ignoring a key risk can bring down a company, as recent history demonstrates only too vividly."
Recommendations for Shareholders
The Claros study recommends that ExxonMobil investors vote on May 28, 2003 as follows:
FOR the resolution calling for a report on the risks presented by climate change and how ExxonMobil will mitigate those risks (Item 14 on the Proxy Card);
FOR the resolution calling for a report on how the company will respond to the regulatory, competitive, and public pressure to develop renewable energy (Item 15 on the Proxy Card);
FOR the resolution calling for the Board to create greater balance on the board by separating the roles of Chairman and Chief Executive Officer (Item 9 on the Proxy Card); and
AGAINST the re-appointment of the Chair of the Public Issues Committee, Philip Lippincott, in view of the committee's failure to manage the climate change issue (Item 1 on the Proxy Card).
About Exxon Mobil's Likey Response
ExxonMobil claims that it has widely communicated its strategy on climate change. However, the company's disclosure on climate change is missing where investors need it the most - in the Form 10K and other reports involving financial disclosure. Instead, the company presents fragmented and scattered information throughout a number of different publications and presentations.
Altman said: "Shareholders should be able to find all the relevant information in one place. ExxonMobil should clearly discuss the risks associated with a changing regulatory and competitive landscape and make clear to investors its comprehensive strategy for protecting shareholders from those risks."
As the Claros report notes, ExxonMobil did take some actions over the last year on climate change. The company is funding a research project at Stanford, is investing in fuel cells and energy efficiency, and supports mandatory emissions reporting. While these are laudable efforts, they do not address the need to evaluate the potential financial risks from climate change or describe to shareholders how the company will mitigate those risks. They also do not explain the company's strategy for renewable energy.
About the Report Author
Author Mark Mansley is head of the London, England-based Claros Consulting. He has over 15 years of investment experience, including seven years advising on the topic of how social and environmental issues can impact on investment risk and returns. He has worked at leading financial institutions such as Schroders, ANZ Merchant Bank and Chase Manhattan, where he was chief analyst and a director of Chase Investment Bank. In 2001, Mansley published "Climate Change - A Risk Management Challenge for Institutional Investors" (with Andrew Dlugolecki) for the Universities Superannuation Scheme, which the third largest pension fund in the United Kingdom. In 2000, he authored the reference work "Socially Responsible Investment - a Guide for Pension Funds and Institutional Investors". He was the lead author of the financing chapter of the IPCC special report on Technology Transfer. In 1995, he published "Long Term Financial Risks to the Carbon Fuel Industry from Climate Change" for the Delphi Group.
About the Sponsors
Ceres is a coalition of 85 investor and public interest groups working with major companies to increase corporate environmental responsibility worldwide. Investor members include the Interfaith Center on Corporate Responsibility, the New York City Comptroller's Office, and the Social Investment Forum, together representing more than $300 billion in assets. Since its founding in 1989, Ceres has persuaded dozens of companies to endorse the Ceres Principles and co-founded the Global Reporting Initiative (GRI). Ceres is now launching the Sustainable Governance Project that is bringing together the sustainability and corporate governance movements to improve corporate policies on climate change and other social, environmental and governance issues. For more information, visit www.Ceres.org.
Campaign ExxonMobil is a shareholder campaign to convince ExxonMobil to take a responsible position on climate change. Campaign ExxonMobil was founded by faith and environmental groups and works with institutional investors, corporate governance activists and financial analysts to highlight the financial risks to shareholders of ExxonMobil's current position. For more information, visit www.campaignexxonmobil.org.
The full text of the Claros study and a streaming audio replay of a related May 13, 2003 news event at which the Claros Consulting report was released is available onwww.campaignexxonmobil.org.