CBIS encourages investors to vote FOR ExxonMobil Item 6 – Report on Scenario Analysis resolution text.  Our rationale for a vote in favor is outlined below and the proxy exempt solicitation.

As evidence of the severe impacts from climate change mounts, policy makers, companies, and financial bodies are increasingly focused on the economic impacts[1] from driving greenhouse gas (GHG) emissions to well-below 2 degrees Celsius below pre-industrial levels (including 1.5° C ambitions), as outlined in the Paris (climate) Agreement.

This energy transition focus has led many of ExxonMobil's peers (including BP, Eni, Equinor, Repsol, Royal Dutch Shell, and Total) to commit to substantial GHG reductions, including setting “net zero emission” goals by 2050 of various types. [2] [3] Because time is running out to drastically cut global emissions by 2030 to avoid key natural tipping points in emissions' impacts, investors are increasingly calling for high-emitting companies to test their financial assumptions and resiliency against substantial fossil fuel reduced-demand climate scenarios,[4] and to provide investors insights about the potential impact of that demand reduction on their financial statements.[5] [6] [7]

Under the leadership of Sarasin & Partners, another PRI signatory, CBIS was part of the engagements with BP, Total, and Royal Dutch Shell where the companies made tangible progress during 2020 to better reflect the reality of the low-carbon energy transition into their financial reporting and accounts. But we have yet to see North American oil and gas companies make the same commitment. As of 30 November 2020, ExxonMobil had neither committed to net-zero emissions by 2050 across its value chain, nor disclosed how its financial assumptions would change from doing so. It has refused for many years to set targets for the emissions stemming from its products, and it does not disclose its Scope 3 footprint, among other lagging practices. It trails its oil supermajor peers on investments and diversification in renewables and low-carbon projects, and it does not disclose many of the underlying energy price and related assumptions that make up its financial forecasting and spending plans--unlike some of its rivals-- leaving investors in the dark.

In contrast, the audit reports for other high GHG-emitting companies clearly discuss the connection between accounting assumptions and the impacts on them from climate change:

• BP: notes how climate change and a global energy transition impacted the capitalization of exploration and appraisal costs and risks that oil and gas price assumptions could lead to financial misstatements;
• Shell: how long-term price assumptions impacted by climate change could affect asset values and impairment estimates;
• National Grid: noted estimates inconsistent with 2050 "net zero" commitments.

In 2020, BP, Shell and Total reviewed their 2019 financial accounting practices in light of the accelerating low-carbon energy transition. All three subsequently adjusted critical accounting assumptions, resulting in material impairments, and disclosed how climate change affected the adjustments;

Additionally, in October 2020, the International Energy Agency (IEA) issued a new “Net Zero 2050” scenario which describes what it would mean for the energy sector globally to reach net-zero GHG emissions by 2050. This more aggressive global action to curtail climate change is consistent with a 1.5°C temperature increase globally[8] but poses significant challenges to the oil industry in readying itself for a similar transition.

On March 9, 2021 the U.S. Securities Exchange Commission upheld CBIS’ proposal, striking down ExxonMobil’s attempt to block this shareholder vote at its 2021 annual meeting.  Within this past week of May 2021 the proxy advisory firms Pensions & Investment Research Consultants (PIRC), Glass Lewis, and Institutional Shareholder Services (ISS) have all recommended that their clients vote IN FAVOR of CBIS’ resolution.  This highlights how the disclosures requested from ExxonMobil are a reasonable expectation of the company and its industry peers and will provide important, potentially material information to shareholders’ investment decisions. 

About ExxonMobil ISS writes: “A vote FOR this proposal is warranted because the company lags its peers in setting targets aligned with Paris-type goals and is involved in multiple controversies related to climate change. In light of the regulatory developments and recent volatility in oil demand and prices, shareholders would benefit from an audited report on the financial impacts of International Energy Agency (IEA)’s Net Zero 2050 Scenario".

Backing CBIS’ proposal is Climate Action 100+, the coalition of 545 investors with $54 trillion AUM. CA100+ has flagged CBIS’ resolution for support and issued its own assessment of Exxon’s publicly disclosed climate information finding the company falls short on more than half of its criteria. The respected independent think tank Carbon Tracker has also found the company deficient across six of seven categories in its latest climate report card related to its climate assumptions, accounting and audit practice.

Investors need to know how a significant reduction in fossil fuel demand envisioned in a truly rapid global response (IEA Net Zero) would alter Exxon’s assumptions such as future commodity prices, changes to useful lives, and asset retirement obligations. CBIS is therefore asking ExxonMobil to disclose how a Net-Zero industry scenario would impact it and its core financial assumptions and reporting outcomes, so that investors and the company can plan for greater resiliency.

[1] https://www.cftc.gov/sites/default/files/2020-09/9-9-20%20Report%20of%20the%20Subcommittee%20on%20Climate-Related%20Market%20Risk%20-%20Managing%20Climate%20Risk%20in%20the%20U.S.%20Financial%20System%20for%20posting.pdf

[2] https://www.reuters.com/article/climate-change-carbon-targets/factbox-big-oils-climate-targets-idUSL8N2HO1B4

[3] https://carbontracker.org/reports/fault-lines/

[4] https://www.iigcc.org/news/investor-groups-call-on-companies-to-reflect-climate-related-risks-in-financial-reporting/

[5] https://www.unpri.org/sustainability-issues/accounting-for-climate-change

[6] https://www.iigcc.org/download/investor-expectations-for-paris-aligned-accounts/?wpdmdl=4001&masterkey=5fabc4d15595d

[7]  https://cdn.ifrs.org/-/media/feature/news/2019/november/in-brief-climate-change-nick-anderson.pdf?la=en

[8] https://www.iea.org/reports/world-energy-outlook-2020/achieving-net-zero-emissions-by-2050