NEW YORK, New York, March 24, 2014 (ENS) – In response to a shareholder resolution, ExxonMobil, the largest U.S. energy company, for the first time has agreed to publish a Carbon Asset Risk report on the company website. The report will show investors how ExxonMobil plans for a future where market forces and climate regulations will make some of its oil and gas reserves unburnable.
The shareholders, led by the wealth management firm Arjuna Capital, which encourages sustainability, and the nonprofit advocacy group As You Sow, on Thursday agreed to withdraw their resolution if ExxonMobil would provide information to shareholders on the risks that its stranded assets pose to the company’s business model.
The proposal reflects increasing investor concern about the issue of stranded assets. A stranded asset is one that has become obsolete or non-performing, but must be recorded on the balance sheet as a loss of profit.
Arjuna and As You Sow also want to know how the company is planning for a carbon constrained world and how climate risks affect the company’s capital expenditure plans.
“We’re gratified that ExxonMobil has agreed to drop their opposition to our proposal and address this very real risk,” said Natasha Lamb, director of equity research and shareholder engagement at Arjuna Capital. “Shareholder value is at stake if companies are not prepared for a low-carbon scenario.”
“More and more unconventional ‘frontier’ assets are being booked on the balance sheet, such as deep water and tar sands. These reserves are not only the most carbon intensive, risky, and expensive to extract, but the most vulnerable to devaluation,” said Lamb.
“As investors, we want to ensure our companies’ capital will yield strong returns, and we are not throwing good money after bad,” she said.
“That the largest American oil and gas company is the first to come to the table on this issue says a lot about the direction that energy markets are taking,” said Danielle Fugere, president of As You Sow.
“Companies need to acknowledge that preparing for a low-carbon future is a necessity, not a choice. Companies that prepare early for a future with reduced carbon emissions will likely perform better than those who delay,” said Fugere, “and investors need transparency and disclosure about these company choices.”
This is the first successful shareholder resolution withdrawal with an oil and gas producer on the carbon asset risk issue this proxy season.
It builds on a shareholder initiative coordinated by Ceres, a coalition of environmentalists and investors, to make companies more environmentally responsive.
Under the Ceres initiative, 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.
Shareholders filed proposals at almost a dozen companies. Two-thirds of the companies agreed to respond by this spring, said Andrew Logan, director of Ceres’s oil and gas and insurance programs. But others, including Hess, Kinder Morgan and Chevron, have yet to agree.
Ceres President Mindy Lubber said, “These reserves are not only the most carbon intensive, risky, and expensive to extract, but the most vulnerable to devaluation.”
“A careful and detailed assessment of the potential for stranded assets is an important first step for all fossil fuel companies, and we’re encouraged by ExxonMobil’s commitment to publish this report,” said Logan.
The ExxonMobil agreement follows a similar agreement in January by the electric utility FirstEnergy.
In addition, Connecticut State Treasurer Denise Nappier said Thursday that Peabody Energy, a Missouri-based coal company, has agreed to produce a similar report in exchange for withdrawing a shareholder resolution filed by the Connecticut Retirement Plans and Trust Funds, according to Ceres.
Logan said, “Moving forward, Ceres and its Investor Network on Climate Risk will be looking for concrete commitments by companies to avoid making riskier investments in the most carbon-intensive assets, which would demonstrate the companies’ ability to adapt as the world transitions to a low-carbon economy.”
These proposals demonstrate growing awareness of carbon asset risk. World governments agree that if catastrophic climate warming over 2°C is to be avoided, no more than one-third of current the world’s proven fossil fuel 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.
Yet, the report “Unburnable Carbon” published by Carbon Tracker, calculates that in 2012, 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.
Carbon Tracker is the first project of Investor Watch, a nonprofit British company established by its directors to align the capital markets with efforts to tackle climate change.