Stakeholder Trends and Insights
Exxon Mobil, Chevron Pressed by Investors on Low-Carbon Strategies, Carbon Asset Risk

Half-a-dozen investors have filed shareholder resolutions with ten fossil fuel companies, including Exxon Mobil and Chevron, seeking an explanation of their strategies for competing as the world moves toward a low-carbon global economy.

The resolutions focus on potential carbon asset risk, or the possibility that these companies’ present and future fossil fuel-related assets will lose value as various market factors — such as energy efficiency, renewable energy, fuel economy, fuel switching, carbon pollution standards, efforts to curb air pollution and climate policy — increasingly threaten demand for fossil fuels and related infrastructure.

The other fossil fuel companies to receive the resolutions include Southern Company, Hess, Anadarko, Devon, Kinder Morgan, Peabody Energy, FirstEnergy and CONSOL Energy.

Equity valuation of some oil producers could drop by 40 to 60 percent under a low-carbon scenario, according to an HSBC report cited by the investors.

Resolution filers include the Connecticut State Treasurer’s Office, the New York State Comptroller’s Office, Arjuna Capital, As You Sow, First Affirmative Financial Network and the Unitarian Universalist Association. These shareholders say fossil fuel companies are not sufficiently disclosing these risks to their investors, even after a coalition of investors managing over $3 trillion of collective assets sent letters last fall to 45 of the world’s largest fossil fuel companies urging them to report on this very same concern.

“Climate-related trends such as carbon-reducing regulations and clean energy growth are a real threat to fossil fuel companies’ future profitability, but most firms have relegated it to the ‘someday’ pile when it comes to corporate priorities,” said Mindy Lubber, president of the sustainability advocacy group, Ceres, and director of the Investor Network on Climate Risk — which helped coordinate the filing of these resolutions.

The letters and resolutions are part of the Carbon Asset Risk Initiative, coordinated by Ceres and Carbon Tracker, with support from the Global Investor Coalition on Climate Change. Through this program, investors are addressing the growing concern that demand for fossil fuels will be less in a low-carbon future and that no more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve its goal of limiting average global temperature increases to 2°C, as outlined by the International Energy Agency.

As part of this initiative, investors have asked fossil fuel companies to assess — under both a business-as-usual scenario and a low-carbon scenario — the viability of capital expenditure plans, the risk of stranded assets, physical risk to operations from climate change impacts, and the effect of these risks on the workforce.

Investors have been much more vocal about climate change in recent years, achieving notable victories during the 2013 shareholder proxy season, with a near-record 110 shareholder resolutions filed with 94 U.S. companies on corporate sustainability challenges such as climate change, supply chain issues and water-related risks.

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