“If Big Oil can’t redirect capital to low-carbon energy alternatives, investors will.” —Natasha Lamb
Oil Giant: 'Assess' Climate Risks? OK; 'Leave It In the Ground?' Never
ExxonMobil to disclose carbon emissions risk
international community and the U.S. government place a heightened
emphasis on reducing carbon emissions as a way to combat global climate
change, shareholders have convinced the oil-and gas giant ExxonMobil to
publicly disclose the risk that strengthened regulation could pose to
The Texas-based company announced its intentions last
week and agreed to publish a carbon asset risk report on its website by
the end of the month.
shifts that they’re concerned about,” Danielle Fugere, president of As
You Sow, an advocacy group that spearheaded shareholder pressure on the
issue, told IPS.
“Those range from the potential for carbon regulations to what
happens if the world actually gets smart and works to limit carbon in
order to prevent global warming. The investors are looking at increasing
cost curves for non-conventional fuels.”
Activist shareholders hope that publicly assessing and disclosing the
financial risk associated with certain carbon-intensive operations will
dissuade Exxon and other energy companies from extracting oil and
natural gas in high-risk, environmentally sensitive areas like deep
water and tar sands.
Exxon’s decision was largely due to pressure from As You Sow and a
key shareholder, Arjuna Capital. In return, Arjuna Capital and As You
Sow dropped a shareholder resolution that would have put the issue to a
vote at Exxon’s annual shareholder meeting.
“If we are going to avoid catastrophic climate change, we can only
burn one third of [known] carbon reserves,” Natasha Lamb, the director
of equity research and shareholder engagement at Arjuna Capital, told
IPS. “So the big question is, if regulation market forces prevent oil
companies from burning that other two-thirds, why are they spending so
much in shareholder value exploiting more?
“As investors, we want to understand what kind of scenario analyses
they’re running taking these huge risks into account, and if they’re
profitably allocating shareholder capital."
Investors ultimately hope that a combination of increased regulations
on carbon emissions and subsequent shareholder concerns will prompt
large energy firms to diversify their assets and invest in more
sustainable forms of energy.
“Forward-thinking companies need to re-assess how they allocate
shareholder capital and act strategically to shift their business
models,” said Lamb. “If Big Oil can’t redirect capital to low-carbon
energy alternatives, investors will.”
Lamb also believes that Exxon’s decision will set a precedent and
encourage other companies to similarly disclose their carbon asset
risks, lest they alienate their investors.
“There are 10 other shareholder proposals this year asking companies
to report on carbon emissions risks,” Lamb said. “I would expect that,
after Exxon’s announcement, you’ll see increasing disclosures from
fossil fuel companies.”
The move also signifies that Exxon, which has a history of lobbying
against climate change legislation, may start to take the issue more
seriously in public – particularly as shareholders become concerned
about the effects of carbon emissions regulations on the energy giant.
“I think it’s important that Exxon has questioned whether climate
change is occurring, and I think the company’s finally saying, ‘Yes,
climate change is real,’” said As You Sow’s Fugere.
While Exxon initially challenged the resolution with the Securities
and Exchange Commission (SEC), the country’s main corporate regulator,
the SEC overruled the challenge. Although the SEC had instituted a
requirement compelling companies to publicly report on the impacts of
climate change on their businesses, Congress passed legislation that
blocked that mandate in 2010.
Along with the rest of the international community, the United States
and European Union have agreed to limit the average increase in global
temperatures to two degrees Celsius above pre-industrial levels.
Yet climate scientists calculate that if humans burn more than a
third of the world’s current proven carbon reserves between 2000 and
2050, there is a 20 percent risk that the global temperature will rise
beyond this level. Non-profit advocacy groups like the Carbon Tracker
Initiative have thus coined the term “unburnable carbon” to describe the
excess reserves that would raise the global temperature by more than
two degrees above pre-industrial levels.
Nonetheless, in 2012, the 200 largest publicly traded fossil fuel
companies invested approximately 674 billion dollars to discover and
develop new carbon reserves. Because companies cannot utilise new
reserves without breaking the international community’s agreed-upon
standards, some shareholders consider the exploration and development of
additional carbon reserves to be a “stranded asset”, an asset that is
obsolete and must therefore be recorded as a loss on a company’s balance
The Carbon Tracker Initiative’s 2013 report on
unburnable carbon and the large amount of shareholder money invested in
new carbon reserves prompted Ceres, a group of 70 international
investors with more than three trillion dollars in assets, to pressure
the top 45 energy companies to assess and report on the risks that a
global decrease in carbon demand could pose.
Such initiatives are already starting to have a public impact. Last
January, for instance, Ceres’s shareholders successfully pressured
FirstEnergy, an Ohio-based utility company, into studying and reporting
on what it could do to reduce carbon emissions in line with President
Barack Obama’s goal of reducing total U.S. carbon emissions by 80
percent by 2050.
Additionally, last year As You Sow filed a vote with shareholders at
CONSOL Energy, a natural gas and coal firm, requesting that the company
report on the risk of stranded assets derived from carbon emissions.
While CONSOL was resistant to the request on the grounds that it already
produces a corporate social responsibility report, nearly 20 percent of
CONSOL shareholders voted in favour of the proposal, a figure that
Fugere deems significant.
“Over a billion dollars in investor
assets voted in favour of that,” said Fugere. “That was about a 20 to
22 percent ruling, depending on who you ask. When you have over 20
percent of your shareholders indicating it’s a concern, companies are
going to take note.”