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ExxonMobil board recommends “no vote”’ on reducing Scope 3 GHG emissions

11 April 2022 Amena Saiyid

ExxonMobil's board is recommending shareholders vote against a resolution at its upcoming annual meeting that requires the oil major set targets for reducing Scope 3 GHG emissions, contending that the current approaches for estimating such releases are "questionable."

Calling the multiple approaches for estimating Scope 3 emissions "questionable," the dozen board members recommended voting against the measure in its 7 April notice of annual meeting and proxy statement.

The board's recommendation drew criticism 11 April from Amsterdam-based Follow This, which represents more than 8,000 shareholders in oil and natural gas companies across Europe and US and offered the resolution at the meeting scheduled for 25 May.

"ExxonMobil can expect a shareholder rebellion," Follow This Founder Mark van Baal warned in an 11 April statement, noting that "more investors do not accept Big Oil's refusal to take adequate action against the climate crisis anymore."

Scope 3 emissions are GHGs generated across the entire value chain of creating an end product, beginning with sourcing the raw materials, and continuing through manufacturing, transporting, and using the product. Scope 1 refers to direct releases from production activity, while Scope 2 refers to the emissions released through purchases of heat and power for its operations.

Medium- and long-term targets

The Follow This resolution called on ExxonMobil to "to set and publish medium- and long-term targets to reduce the greenhouse gas (GHG) of the company's operations and energy products (Scope 1, 2, and 3) consistent with the goal of the Paris Climate Agreement." The global treaty seeks a reduction in GHGs to limit warming below 2 degrees Celsius.

The group's resolution comes in the wake of legal guidance from the US Securities and Exchange Commission last November that it would no longer exclude proposed resolutions from consideration by company shareholders that bring up social issues, such as reporting on GHG emissions.

This year, Follow This launched a public campaign to push ExxonMobil, Chevron, ConocoPhillips, and Occidental Petroleum to disclose Scope 3 emissions. Occidental unsuccessfully tried to block the resolution from coming up for a vote though.

ExxonMobil was the laggard among US oil majors in announcing net-zero emissions goals for its operations in January, but stopped short of setting a target for Scope 3 emissions released from the use of its products. According to S&P Global Commodity Insights' Corporate GHG Emissions Tracker, APA, Occidental Petroleum, ConocoPhillips, Chevron, Devon, Diamondback, EOG, Hess, and Pioneer already have net-zero plans in place.

'Questionable' estimates

However, ExxonMobil's board shot down the resolution's provision dealing with Scope 3, contending that the presently employed multiple methods are "using questionable, often double counted (or more), estimates with widely acknowledged deficiencies and inconsistencies when calculating and reporting Scope 3 emissions."

"In lieu of a universal standard of transparent, objective, high-integrity accounting measures for calculating and reporting global emissions," the board said the present methodology "does not provide the value, and meet the ultimate necessity, of an objective and accurate determination of benefits and emissions across the full product life cycle."

The oil major's dozen board members—which include CEO Darren Woods and three representing activist shareholder group Engine No. 1—said advocating for ExxonMobil to decrease production and supply at present, without any commensurate reductions in corresponding demand, would "result in customers simply choosing other suppliers, which could have unintended consequences."

"If the other producers are less efficient and have higher emissions intensity, society's overall emissions would likely increase," the board added.

Scope 3 dependent on consumer use and demand

Kevin Birn, vice president with S&P Global Commodity Insights, who heads the company's GHG emissions coordination team, agrees with ExxonMobil that quantifying Scope 3 emissions accurately can be challenging.

S&P Global Commodity Insights put out a study in March that provides guidance for estimating the product life-cycle GHG emissions of crude oil which includes aspects of Scope 3.

For instance, the paper finds that Scope 3 emissions for oil and gas companies would typically be dominated by end-use combustion over which they have little control, but these emissions are generally better understood. However, Scope 3 emissions also require an estimate of emissions associated with upstream and downstream supply chains, which can include factors such as GHGs emitted during fabrication, construction of drilling infrastructure as well as transportation and combustion of their products.

As a producer, Birn said, ExxonMobil also seems to be contending that it has little control over consumer preference and demand.

However, Birn told Net-Zero Business Daily, "ExxonMobil may still have a hard time winning this argument [as a public relations matter] even though there may be some technical merits to their argument about estimating Scope 3 emissions."

Follow This is not persuaded by ExxonMobil's reasoning about the complexity of the accounting challenge. "ExxonMobil's directors' response that Scope 3 is not their responsibility is akin to Shell's in 2017, BP's and Equinor's in 2019, and Chevron's, ConocoPhillips', and Phillips 66's in 2021; all five claimed Scope 3 was beyond their management scope. All five reluctantly set a Scope 3 target after investors' votes," it said.

Posted 11 April 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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