ExxonMobil: Financial Statement Assumptions & Climate Change

3 members

Summary

On May 25, 2022 shareholders will vote on a resolution asking ExxonMobil for an audited report to assess the impact of the IEA’s Net Zero by 2050 climate scenario on assumptions costs, estimates, and valuations underlying its financial statements. A similar 2021 proposal received 49.4% in support. CBIS and 22 co-filers seek shareholder votes in favor.

Business case

Investors are encouraged to vote FOR ExxonMobil Item 8 – Report on Scenario Analysis resolution. Rationale for such a vote of support is outlined below and, in the Proxy Exempt Solicitation.

Many policymakers, investors and companies have converged on goals including the need to limit global temperature increase to 1.5° C and to reach net zero global greenhouse gas (GHG) emissions by 2050, if not sooner.

The International Energy Agency’s Net Zero 2050 Roadmap (NZE) describes an energy sector path for net-zero GHG emissions. According to the IEA, no investment in new fossil supply projects is needed in a net zero scenario and the IEA anticipates oil prices dropping as low as $36/barrel in 2030 and $24/barrel in 2050, projecting a negative trend for a fundamental input in developing ExxonMobil’s cash flow projections for oil and gas production assets.

Yet ExxonMobil continues development of new fossil fuel resources, even while acknowledging that climate change scenarios pose uncertainties that may lead to impairments. Investors are concerned that the continued development of new fossil fuel resources increases the risk of such future impairments. ExxonMobil’s existing, audited annual disclosures do not provide investors with sufficient insight into stranded asset risk related to the energy transition. “If climate change impacts the entity, the auditor needs to consider whether the financial statements appropriately reflect this,” according to the International Auditing and Assurance Standards Board.

An independent September 2021 concluded that the financial statements of ExxonMobil lack the requisite transparency about climate-related assumptions and estimates, and company disclosures do not appear to use Paris-aligned assumptions and estimates. In contrast, peers (Royal Dutch Shell, bp, TotalEnergies) released more transparent disclosures in their audited financial statements, articulating the extent of consideration of climate change contingencies and risks.

Given the importance of the proposal, Climate Action 100+ has flagged the resolution. In addition, Climate Action 100+ climate accounting and audit alignment assessment provides further analysis regarding ExxonMobil. A 2022 Carbon Tracker Initiative Independent Analysis found that ExxonMobil’s disclosures fail to address the potential financial impact of the IEA NZE on the Company’s existing oil and gas assets (and related liabilities) — which are its core business and the focus of the Proposal.

Both Glass Lewis and ISS mainstream have recommended IN FAVOR of this proposal. ISS states: "A vote FOR this proposal is warranted because shareholders would benefit from greater disclosure about the company s risk of stranded assets, given its planned spending plan and business strategy".

Christian Brothers Investment Services, CBIS, as lead proponent of a group of 20 co-filers, has submitted a shareholder proposal for the 2022 ExxonMobil shareholder meeting in May requesting the Company to issue an audited report assessing the impact of the IEA’s NZE on the assumptions costs, estimates, and valuations underlying its financial statements. We have submitted the Proposal because ExxonMobil’s financial statements lack the requisite transparency of assumptions and estimates and those used do not appear to be aligned with the Paris Agreement, and the Company lags international peers in its lack of transparency and sensitivity analysis.

A similar proposal in 2021 received 49.4% support from shareholders. Despite publishing an updated report in 2021, the Company’s existing disclosures do not fulfill the requests of the proposal.  We seek your support for ITEM ## to encourage the Company to improve its climate risk reporting.

Collaboration details

Type
Shareholder resolution
Status
Active: seeking support
ESG theme
  • Environment
Created on
Deadline
Geography
Global
Attachments
  • proxy_exempt_solicitation_issue_brief_xom_tem_8_-_report_on_scenario_analysis_cbis.pdf Download