ExxonMobil for the first time ever has agreed to publish a Carbon Asset Risk report on its website describing how it assesses the risk of stranded assets from climate change. The report will provide investors with greater transparency into how ExxonMobil plans for a future where market forces and climate regulation makes at least some portion of its carbon reserves unburnable.
The move came in response to a recent resolution filed by Arjuna Capital, the sustainable wealth management platform of Baldwin Brothers Inc., and As You Sow, a nonprofit shareholder advocacy group promoting environmental corporate responsibility. The two parties have agreed to withdraw their shareholder resolution in exchange for ExxonMobil providing information to shareholders on the risks that stranded assets pose to the company's business model, how the company is planning for a carbon constrained world, how climate risks affect capital expenditure plans, and other related issues.
This is the first successful withdrawal with an oil and gas producer on the carbon asset risk issue this proxy season, As You Sow says. The proposal reflects increasing investor concern about the issue of stranded assets and builds on a shareholder initiative coordinated by Ceres, in which shareholders representing $3 trillion in assets under management, asked 45 companies for increased disclosure about whether they are addressing carbon-related risk, the impact on capital expenditure decisions, and whether they are implementing strategies to avoid stranded assets in a carbon constrained world. Carbon Asset Risk proposals were filed at 10 fossil fuel companies this year.
As You Sow says these proposals highlights a growing awareness of carbon asset risk. World governments agree that if catastrophic warming over 2°C is to be avoided, no more than one-third of current proven carbon reserves can be burned. These reserves, currently on the balance sheets of the 200 largest coal, oil, and gas companies are valued at $20 trillion. However, a recent Unburnable Carbon report calculates that in 2012 alone, the 200 largest publicly traded fossil fuel companies collectively spent an estimated $674 billion on finding and developing new reserves – reserves that cannot be utilized without breaking the world's carbon budget.
ExxonMobil's agreement to report publicly on carbon asset risk is an important step in addressing the likelihood that Exxon's reserves are at risk of devaluation in a carbon-constrained future, and how the company is responding to the long-term financial risks climate change poses to its business plans.
"Investors are the canary in the coalmine and will move their money to avoid material risk," said Natasha Lamb, director of equity research and shareholder engagement at Arjuna Capital. "Forward-thinking companies need to re-assess how they allocate shareholder capital and act strategically to shift their business models. If Big Oil can't redirect capital to low-carbon energy alternatives, investors will. "
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Founder & Principal Consultant, Hower Impact
Mike Hower is the founder of Hower Impact — a boutique consultancy delivering best-in-class strategic communication advisory and support for corporate sustainability, ESG and climate tech.
Published Mar 25, 2014 2am EDT / 11pm PDT / 6am GMT / 7am CET