Exxon Mobil is facing fresh scrutiny from investors over its climate ambitions at its upcoming AGM next month.
Legal and General Investment Management (LGIM) and Christian Brothers Investment Services (CBIS) have co-filed a shareholder resolution, calling on the energy giant to provide more disclosures on potentially stranded assets post-energy transition.
The two investment groups are requesting Exxon’s board reveals whether their asset retirement obligations (ARO) are in line with the International Energy Agency’s (IEA) net zero emissions targets.
Oil and gas companies are legally required to decommission long-lived tangible assets at the end of their useful lives – known as AROs.
As the lifespan of oil and gas infrastructure is being shortened amid the low-carbon transition, there is a growing chance companies risk holding stranded assets with expensive decommissioning costs.
Given the uncertainty around the lifespans of assets in midstream and downstream segments such as refineries, pipelines, and wells, most oil and gas companies have only recognised upstream AROs.
While this is permissible under accounting rules, LGIM and CBIS argue this does not provide investors with the full information to assess the company’s climate plans.
The two parties believe the disclosures they are seeking will provide insight about how Exxon estimates AROs in financial statements and the effects of IEA net zero obligations.
LGIM considers the move to be a natural escalation step for its investment stewardship team, as Exxon’s business model is not aligned with the Paris Agreement climate goals of 1.5 degrees.
Michael Marks, head of investment stewardship and responsible investment integration at LGIM, said: “By filing this proposal, we are seeking greater clarity into the costs associated with the retirement of Exxon’s assets, in the event of an accelerated energy transition. We believe such level of disclosure is imperative for investors to better evaluate long-term risks and economic viability of the business in a carbon constrained future.”
John W Geissinger, chief investment officer at CBIM, noted that a majority of Exxon’s shareholders voted for its resolution last year seeking an audited report assessing the financial impact of the IEA’s net zero assumptions, including future AROs.
He said: “Despite this, the company’s disclosures still give investors little insight into how retirement costs might accelerate, and how large they might be. Exxon may assume an asset can operate indefinitely, but this may not prove out. Investors are simply asking: what is the total cost of meeting these liabilities?”
Shell, one of Exxon’s major rivals, has already disclosed significantly more ARO details.
The UK-based fossil fuel trader has accelerated the assessment of the discount rate from a 30-year term to a 20-year term, with a provision at £26.7bn for the process.
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Exxon is also not the only energy giant facing challenges from investors, with Follow This attempting to convince shareholders to force Total to commit to scope three emission targets.
A spokesperson for Exxon said: “We respect that our shareholders may have viewpoints and perspectives that differ from management and the board, and we always consider their feedback.”
By CityAM
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