Landmark Agreement: ExxonMobil will Disclose Climate Risk
Withdrawal of As You Sow and Arjuna Capital Shareholder Proposal Seeking Disclosure on Stranded Carbon Assets Leads to Agreement with Largest U.S. Oil and Gas Producer
ExxonMobil, the largest U.S. energy company, has agreed for the first time ever to publish a Carbon Asset Risk report describing how it assesses the risk of stranded assets from climate change. The agreement comes in response to a shareholder resolution filed by As You Sow and Arjuna Capital, which has been withdrawn on the basis of Exxon's commitment to publish the report.
This is the first successful withdrawal with an oil and gas producer on the carbon asset risk issue this proxy season. As You Sow has filed similar resolutions with Chevron, Anadarko, Hess, and CONSOL Energy.
Coal, oil, and gas reserves that are claimed as assets on the balance sheets of the top 100 coal, oil, and gas companies contain over three times the total amount of carbon that scientists believe can be released without climate catastrophe. In the 2012 World Energy Outlook, the International Energy Agency states that "[n]o more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 degree Celsius goal," generally recognized as the level beyond which global warming will have dire ramifications.
If laws and regulations are adjusted to recognize this limitation, the vast majority of fossil fuel companies will be left with stranded assets in the form of unburnable reserves and underused infrastructure. Importantly for shareholders, the majority of such companies will be overvalued, presenting the risk of a "carbon bubble." The valuation of these companies are the core of the Dow Jones and many other international financial indexes, so the impact of these stranded assets could ripple through national and international financial markets, just as the overvaluation of housin—or the housing bubble—did, with disastrous consequences.
As You Sow is working to promote transparency and reporting on this issue by filing shareholder resolutions with key fossil fuel companies. Our resolution asks companies to report plans to address global concerns regarding fossil fuels and their contribution to climate change, including an analysis of long- and short-term financial and operational risks to the company and society.
Further, the resolution asks companies to perform an analysis of various scenarios the company deems likely, or reasonably possible, in which a portion of its reserves or infrastructure become stranded due to carbon regulation, and to discuss the impact those scenarios would have on the company's plans to invest resources in continuing to explore or further develop new coal or gas reserves.
This information will enable investors to analyze how companies are positioned to address climate change and carbon restrictions, providing valuable information for investors to make reasonable judgments about the benefits or risks associated with investing in these companies. After the credit and financial crises of 2008, it critical that investors are more attuned to the catastrophic effects of mispriced assets in the financial market.
Our 2013 shareholder proposal asks for a report on the company's goals and plans to address global concerns regarding fossil fuels and their contribution to climate change, including analysis of long and short term financial and operational risks to the company and society.
Investors holding $1.2 billion in CONSOL Energy, or 19.7% of voting shares, supported our resolution. This level of shareholder support is rare for a resolution on a new issue and demonstrates concern from large institutional investors.
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