Exxon Mobil Corporation | Report on asset retirement obligations under IEA scenario at Exxon Mobil Corporation

Status
15.98% votes in favour
AGM date
Previous AGM date
Proposal number
12
Resolution details
Company ticker
XOM
Lead filer
Legal & General Investment Management (Holdings)
Resolution ask
Report on or disclose
ESG theme
  • Environment
ESG sub-theme
  • Net Zero / Paris aligned
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Energy
Company HQ country
United States
Resolved clause
Resolved: Shareholders request that the Board provide an audited report estimating the quantitative impacts of the IEA NZE scenario on all asset retirement obligations. The report should disclose, as the Board deems appropriate, the estimated undiscounted costs to settle, in aggregate, related upstream and downstream AROs, and separately, identify both recognized and unrecognized amounts, as applicable. The Board should publish the report by February 2024 at reasonable cost and omitting proprietary information. Alternately this information could be disclosed in the 2023 consolidated financial statements.
Whereas clause
“Report on the Impact of the Energy Transition on Asset Retirement Obligations

Last year 51% of ExxonMobil shareholders supported a proposal asking for an audited report on how the International Energy Agency Net Zero by 2050 pathway (IEA NZE) would affect the assumptions, costs, estimates, and valuations underlying its financial statements, including Asset Retirement Obligations (AROs). Despite the majority vote, investors continue to lack the requisite transparency to assess the financial impact associated with the energy transition and the potential for accelerated remediation and closure obligations.

Oil and gas companies are legally required to decommission long-lived tangible assets at the end of their useful lives. However, given uncertainty around lives of assets in midstream and downstream segments (e.g., refineries, pipelines, and wells), most oil and gas companies have only recognized upstream AROs (presented on a discounted basis). For example, ExxonMobil has generally not recognized the relevant liabilities or disclosed estimated costs for downstream and chemical facilities, maintaining that ‘these sites have indeterminate lives based on plans for continued operations and as such, the fair value of the conditional legal obligations cannot be measured, since it is impossible to estimate the future settlement dates of such obligations.’1

As companies are not disclosing estimated undiscounted costs or discount rates used and/or the payment schedule of those obligations, investors also have limited insight into the estimates and assumptions that underpin reported AROs, making it difficult for them to analyze the impact of the energy transition on these obligations and to formulate their own risk-adjusted values. However, peers such as bp2 have disclosed the estimated undiscounted ARO [‘decommissioning’] amounts and estimated timing thereof. Shell3 has also noted that some previously unrecognized AROs [‘decommissioning and restoration’ provisions] would have to be recognized, given the energy transition. Ideally, corporate disclosures would include discount rates, asset types, the range of potential settlement dates and probabilities associated with those dates given potential accelerated timing of the energy transition.
Supporting statement
Supporting statement: The Proponent recommends the report be supported with reasonable assurance from an independent auditor. In the Board and management’s discretion we recommend such report also disclose quantitative key assumptions used to estimate the AROs and whether, based on known information, it is reasonably possible that assumptions and estimates will change in the near term.

How other organisations have declared their voting intentions

Organisation nameDeclared voting intentionsRationale
Christian Brothers Investment Services, Inc.ForDespite the majority vote, it is the opinion of the Proponents, backed by independent analysis from Carbon Tracker Initiative , that Exxon’s disclosures , including its Advancing Climate Solutions Progress Report 2023, do not fulfill the requests set out in the current Proposal, nor the intent of the 2022 proposal, for a report to make visible how using IEA NZE inputs would impact the financial statements, on a dollar and timing basis.

Why Support Item 12:
• Accounting treatment of AROs is one of the key indicators of an oil and gas company’s understanding and acknowledgement of climate risk;
• Disclosure on AROs and how Exxon manages and mitigates risks stemming from the global energy transition is material information to shareholders;
• Exxon’s financial statement and sustainability disclosures provide insufficient information and lack quantitative data, confirmed by independent analysis;
• Exxon lags peer disclosures; and
• The Proposal asks only for a report, with flexibility provided to the Board on its contents.
British Columbia Investment Management CorporationForWe support this shareholder proposal asking the company to incorporate climate risk assessments in its audited financial statements. We believe climate change poses a range of material risks, especially to companies in high-emitting sectors. As such, enhanced disclosure on potential financial impacts would provide investors with additional information to assess related risks and opportunities.
Anima SgrForAs shareholders could benefit from additional disclosure on the potential impacts that transitioning to a low carbon economy may have on the company and its operations. Such information would allow shareholders to better assess the company's efforts to manage and mitigate those risks.
VidaCaixaFor
Irish Life Investment ManagersFor
Rothschild & co Asset ManagementFor

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