ExxonMobil and climate change

Background

Climate change is the difference in the statistical distribution of weather patterns over an extended period. Global warming denotes a rise in the average temperature of the Earth's climate system. Climate change poses a significant threat to Earth's environmental status-quo. Sea levels are rising, and oceans are becoming warmer. More prolonged, intense droughts threaten crops, wildlife and freshwater supplies. Scientists believe that the primary cause for climate change is the burning of hydrocarbons such as oil.

ExxonMobil is an American multinational oil and gas corporation. It is the largest descendant of John D. Rockefeller's Standard Oil Company. ExxonMobil is the world's second largest company by total revenue and is accountable for approximately 3% of world oil production. The company is the world's largest refiner. ExxonMobil has had a history of lobbying for climate change denial, supporting efforts against building a scientific consensus that the burning of fossil fuels causes global warming. 

Analysis

ExxonMobil shareholders recently rejected a proposal that would create a committee on climate change. Shareholders also defeated a measure that would require the company to report the risks of climate change at chemical plants on America's Gulf Coast. A measure that would force the company to report political contributions and lobbying was also defeated. None of these proposals received over 30% in support. Another plan to separate the roles of CEO and company board chairman also failed to gain shareholder approval.

Under CEO and Chairman, Darren Woods, ExxonMobil has launched large expansion programs to find and produce new reserves of oil and natural gas. The company has also sought to expand the company's refining and chemical capabilities. For example, by 2024, ExxonMobil is expected to produce upwards of 1 million barrels in shale oil at the Permian Basin. Mr Woods argued that global energy demands would keep growing, fuelled by the need for electricity and transportation. ExxonMobil estimates a 1% increase in demand annually.

Mr Woods speaking on climate issues said, "Engagement on climate is important, but working on solutions through fundamental research and development of new technologies is also important." To prove his point, Mr Woods highlighted ExxonMobil's US$ 100 million commitment to partner with the US Department of Energy's labs to research and produce lower-emission technologies. The partnership is aimed at making such technologies commercially viable.

In April 2019, the US Securities and Exchange Commission (SEC) said that ExxonMobil was not required to let investors vote on a shareholder proposal that called for emissions targets to be aligned with goals established by the Paris climate agreement. The Church of England and the New York state comptroller led the proposal that would have forced ExxonMobil to set targets on emissions from burning oil and gas. The SEC accepted the company's objection that the resolution would meddle with ExxonMobil's decision-making authority. 

The proposal to separate the roles of CEO and chairman, despite failing, won a record level of support. About 41% of the vote was cast in favour of splitting the roles. Some activists believe the decision to separate these roles would allow for greater climate accountability and governance. The lack of oversight by an independent chairman they argue prevents the company from appropriately addressing climate change. 

Activist shareholder groups such as the Church of England's fund, have contrasted ExxonMobil's climate performance with rivals including British Petroleum (BP) and Royal Dutch Shell. BP recently supported a shareholder resolution to increase disclosures about its emissions and how its business strategy conforms with the Paris agreement. Shell recently linked executive pay to carbon emission reduction goals. 

Mr Woods has sought to portray ExxonMobil's efforts as supportive of efforts to combat climate change. Mr Woods told investors that the company agreed with the principles underlying some of Exxon's shareholder proposals. However, Mr Woods only disagreed on "the best means of achieving these objectives."

Assessment

Our assessment is that activist shareholders believe that the CEO's role is primarily focused on profit maximisation, while an independent Chairman could direct the company's ethos and policies; conjoining the two could muddles priorities. While this is theoretically true, we believe Exxon's culture of denying climate change is unlikely to be changed by an independent Chairman. This is especially important given that the individual chosen is likely to be a proponent of Exxon's existing policies. We feel that ExxonMobil's shareholders have an essential role to play in forcing the company to undertake measures to protect the environment. These movements are similar to shareholder-driven initiatives in European oil majors such as Shell, BP and Total. We estimate that Exxon's hesitancy in supporting climate change proposals is driven by recent investments in the oil and gas sector, which is expected to boost its margins. 

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Image Courtesy - WhisperToMe [Public domain]