Shareholders make ExxonMobil report on fossil fuel writedowns due to climate change

A slim majority of shareholders at ExxonMobil adopted a resolution 25 May that requires oil giant to report on how a net-zero future envisioned by the International Energy Agency (IEA) would devalue the company's fossil fuel investments.

Approximately 52% of the votes were cast in favor of the resolution offered by Christian Brothers Investment Services (CBIS), an investment firm serving Catholic institutions.

The resolution asked ExxonMobil to report by February 2023 on how the IEA's net-zero roadmap would affect the company's "assumptions, costs, estimates, and valuations underlying its financial statements, including those related to long-term commodity and carbon prices, remaining asset lives, future asset retirement obligations, capital expenditures, and impairments."

ExxonMobil's board recommended voting against the CBIS resolution in its March proxy statement, calling it "unnecessary."

CEO Darren Woods also noted that the company has already used the IEA Net-Zero Scenario analysis in its 2022 progress report on Advanced Climate Solutions.

Presenting the resolution at the meeting, however, CBIS Chief Investment Officer John Geissinger said investors are concerned about the new investments that ExxonMobil is making despite the IEA's 2021 scenario analysis revealing that no investment in new fossil fuel supply projects is needed in a net-zero scenario. Moreover, Geissinger noted that the IEA anticipated oil prices dropping as low as $36/b in 2030 and $24/b in 2050.

"Immediate action"

In that analysis, the IEA called for "immediate action" to shelve oil and natural gas production projects yet to be committed to as of 2021 "to begin an unprecedented transformation of how energy is produced, transported, and used worldwide."

And yet, Geissinger said, ExxonMobil is continuing with new fossil fuel investments, while failing to transparently account for the future depreciation for such assets.

ExxonMobil earned $23 billion in profits in 2021, Woods said, making no bones about the company's plans to move forward with oil exploration activities in Guyana, while committing to low-carbon solutions. At the start of the meeting, Woods said the company already has two operational oil fields, two more in development, and has made discoveries that could boost the estimated recoverable resource to nearly 11 billion barrels of oil equivalent.

Moreover, Woods said the company expects to increase its Permian Basin production by at least 550,000 b/d, which would mark a 25% increase over what it added in 2021.

Energy plays a fundamental role

Reminding everyone of the fundamental role energy plays, Woods said: "We have opportunities to play a leading role in helping society achieve its net-zero ambitions and in meeting the world's growing demand for energy and essential products."

He emphasized that ExxonMobil sees its role to be investing in low-carbon technologies, such as hydrogen and carbon capture and storage, and in producing biofuels where it has "a comparative advantage."

ExxonMobil already has announced plans to set up a hydrogen production plant at its Baytown petrochemical facility in Texas. This plant also will be equipped with the ability to capture CO2 and transport it to a storage hub in the Gulf Coast region it is planning with 13 other oil majors, petrochemical and chemical manufacturers, and utilities as part of a $100-billion carbon capture and storage hub.

Without naming the Russian invasion of Ukraine, he added that "recent events have reminded us how globally connected energy markets are. They've also underscored the importance of our role in creating sustainable solutions that improve quality of life, while supporting a lower-emissions future."

In the vote on the CBIS resolution, Geissinger said, shareholders have made clear to ExxonMobil's board it can no longer delay "serious consideration" of the impact on its business of global efforts to address climate change.

"The company must face the reality that nations worldwide are committing to reduce carbon emissions to net zero by 2050, and quantify for investors the potential effects in its financial statements," Geissinger said in a 25 May statement to Net-Zero Business Daily by S&P Global Commodity Insights.

This is the second year in a row that shareholders have spoken, after the proposal received a 49% share of the vote in 2021, he added.

"As the industry and its regulators move towards enhanced visibility of material and systemic risks of climate change, the generalities that ExxonMobil has been providing regarding how the company might manage its assets or shift investments in a Net-Zero analysis are no longer sufficient and gives us no indication if Exxon would be resilient to accelerating decarbonization," he said.

Scope 3 resolution fails

Apart from the CBIS resolution, all other climate-related resolutions were unsuccessful.

A resolution from Amsterdam-based activist shareholder group Follow This received only 28.1% of the vote. This resolution, which the ExxonMobil board did not support, would have seen the Houston-based company set GHG reduction targets across the value chain of its products based on the 2015 Paris Agreement goal to limit global warming below 1.5 degrees Celsius.

Specifically, Follow This wanted ExxonMobil to set reduction targets for scopes 1, 2, and 3 emissions in alignment with the 2015 treaty.

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, transportation, 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.

During a discussion on the Follow This resolution, Woods said ExxonMobil already had committed to investing $15 billion in low-carbon solutions that will not only help reduce emissions across the value chain, but also those of its customers.

"In fact," Woods said, "we are concerned that a target for Scope 3 emissions on individual companies could have the opposite effect."

He said every additional ton of natural gas that ExxonMobil produces replaces coal, which is more GHG intensive than natural gas. Even though ExxonMobil may be increasing its Scope 3 emissions, society as a whole is benefitting from fewer GHG emissions, Woods said.

Also unsuccessful was a resolution seeking an audited report on whether ExxonMobil, which is the largest producer of single-use plastic, would be affected if there's a significant reduction in this product's demand.

Posted 25 May 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.