Engagement Case Study: Exxon Mobil

 

Progress on climate change

Engagement objective: Low carbon economy – Articulation of how the company’s long-term strategy takes account of climate change, oil and gas demand and public policy scenarios and how it stress-tests assumptions and develops contingency plans

Exxon Mobil is the largest publicly quoted oil company in the world. This makes it one of the largest greenhouse gas emitters globally. Moreover, the use of its products is responsible for substantially more greenhouse gas emissions than its own direct activities. It is therefore a very important actor in the battle against climate change.

Our engagement on climate change
In the past few years, Hermes EOS has encouraged the company to explain its climate change strategy more clearly and we are pleased with the company’s considerable efforts to address this. We co-signed the Institutional Investors Group on Climate Change carbon asset risk letter in 2013. The company wrote a public, detailed response to the letter which has moved forward the debate on what oil and gas companies should do in response to climate change. Alongside this written response, the company facilitated two lengthy meetings for interested investors, in which we participated, on the issue in 2013 and 2014. These have increased the mutual understanding of the company’s and investors’ ideas on climate change. Hermes EOS also had a one-to-one meeting at Exxon’s headquarters on climate change at which we were able to explore some of the challenges the company faces at great depth.

These interactions have been supplemented with other written and telephone exchanges, including discussions arising from shareholder proposals on climate change.

Exxon’s position on climate change
Exxon’s greater willingness to engage so deeply in the debate on climate change is a significant step forward for the company and the industry. We are pleased that the company has been so publicly open on its position on climate change and willing to discuss it in detail. It has rejected emissions reduction and intensity targets across its business – as have most of the oil and gas majors – but has explained that each business unit has efficiency targets. In certain cases these will for now not include reductions and the company has been able to persuade us that this is legitimate at least for the moment.

Exxon has certainly helped us and other investors understand the issues facing the oil and gas industry. For example, we agreed with the company that switching from coal to gas is one of the most important actions that can be taken quickly to reduce greenhouse gas emissions and, as a significant bi-product, improve air quality. Like the International Association of Oil & Gas Producers (IOGP), Exxon believes that a revenue-neutral, market-based carbon pricing system is the best mechanism to reduce carbon emissions but like the IOGP it falls very slightly short of publicly advocating a carbon price. We have recently encouraged the company to support carbon pricing publicly and explicitly and to use its influence on the IOGP to follow suit. Some of the other oil and gas majors have made such a public commitment and we believe that it should be at the edge of evolving best practice in the industry.

We support the shift towards a meaningful and progressive carbon price globally. We further argue that the oil and gas industry should work hard to support such a move. This will help the industry reduce the risk of more draconian and disruptive public policy action in the future. It will also pave the way for investment in carbon capture and storage and other technology that will reduce the industry’s own direct emissions and those of its customers, reducing the long-term risk to asset owners.

We look forward to continuing our dialogue with Exxon Mobil and its oil and gas peers, as well as with other important players in the climate change debate. We seek to encourage changes in public policy to develop meaningful and progressive carbon pricing internationally to reduce greenhouse gas emissions.