ExxonMobil to Report Publicly on Carbon Asset Risk

Finally, ExxonMobil is agreeing to publicize the risks that stricter carbon emissions rules and limits will have on its business.

In doing so, the largest publicly traded international oil and gas corporation in the world became the first such company to do this.

It seems like a huge deal for a several reasons: The oil major is publicly acknowledging the potential impact of carbon emissions limits on its business model and revealing how it assesses the “risk of stranded assets” from climate change, and it did so at the behest of two shareholder groups.

The landmark agreement with shareholders was disclosed—without comment from ExxonMobil—in a PR Newswire release from Arjuna Capital and As You Sow. Arjuna is the sustainable wealth management platform of Baldwin Brothers Inc., and As You Sow is a nonprofit that promotes environmental corporate responsibility.

There was a deal involved: Arjuna and As You Sow agreed to withdraw a shareholder resolution in exchange for ExxonMobil “providing information to shareholders on the risks that stranded assets pose to the company's business model, how the company is planning for a carbon constrained world, how climate risks affect capital expenditure plans, and other related issues.”

This is how Al Gore describes stranded assets: “A stranded asset is one that loses economic value well ahead of its anticipated useful life. Stranded carbon assets include fossil fuels, as well as those assets which, given their dependence on fossil fuels, are also CO2-emissions intensive. Not all carbon-intensive assets are created equal, and it is reasonable to assume that in carbon-constrained scenarios the projects with the highest break-even costs and emissions profile (e.g., tar sands and coal) will be stranded first.”

Natasha Lamb, director of equity research and shareholder engagement at Arjuna Capital, said: "We're gratified that ExxonMobil has agreed to drop their opposition to our proposal and address this very real risk. Shareholder value is at stake if companies are not prepared for a low-carbon scenario.” She added that: “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. As investors, we want to ensure our companies' capital will yield strong returns, and we are not throwing good money after bad."

ExxonMobil's agreement to report publicly on carbon asset risk is an important first step in addressing the likelihood that Exxon's reserves are at risk of devaluation in a carbon-constrained future, and how the company is responding to the long-term financial risks climate change poses to its business plans.

For example, oil reserves miles deep in the Gulf of Mexico are highly expensive to extract and become uneconomical if carbon emissions are reduced by as much as 80 percent -- which is a goal proposed by President Barack Obama.

So it becomes, at best, disingenuous and downright misleading for oil and gas companies to value those types of reserve assets in the same way that they count other assets, with no acknowledgment of the potential impacts on their business models and bottom lines.

As Lamb says: “Forward thinking companies need to re-assess how they allocate shareholder capital and act strategically to shift their business models. If Big Oil can't redirect capital to low carbon energy alternatives, investors will.”

And for ExxonMobil, it’s an admission at long last that changes are coming from climate change.

Image credit: Flickr/hythe-eye