Exxon Mobil needs to do better at documenting the valuation risk its assets face as the economy moves toward lower-emitting energy sources, according to shareholders including Legal & General Investment Management.
LGIM, together with Christian Brothers Investment Services, said on Monday it’s filed a shareholder resolution that would require the US oil major’s board to disclose the “quantitative impact” of the International Energy Agency’s net zero emissions scenario on its so-called asset retirement obligations.
The company needs to address “concerns around costs associated with the decommissioning” of its assets in the event of a rapid energy transition, the investors said.
The adjustment required to achieve a net zero economy will mark the greatest economic overhaul of modern times, creating countless risks and opportunities for investors. But the potential for productive assets in a fossil fuel-based economy to become stranded has yet to be fully grasped by the market.
“We are seeking greater clarity into the costs associated with the retirement of Exxon’s assets, in the event of an accelerated energy transition,” Michael Marks, LGIM’s head of investment stewardship and responsible investment integration, said in a statement. “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.”
A spokesperson for Exxon said the company respects “that our shareholders may have viewpoints and perspectives that differ from management and the Board, and we always consider their feedback,” in an emailed comment.
Retiring assets is “particularly significant” for the oil and gas sector, yet Exxon currently doesn’t provide such disclosure on its downstream assets because its says these obligations can’t be reasonably estimated, said LGIM and CBIS.
“The company’s disclosures still give investors little insight into how retirement costs might accelerate, and how large they might be,” said John W. Geissinger, chief investment officer at Christian Brothers Investment Services. “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?”
LGIM said last month the energy transition “is one of the most important and underrated drivers of future asset prices.” The speed and nature of the move away from fossil fuels pose significant potential volatility for portfolios, LGIM’s head of climate solutions, Nick Stansbury, said at the time.
The UK fund manager, which oversees $1.5 trillion of assets, said last week it will support shareholder resolutions asking America’s biggest banks to phase out financial support for fossil fuels.
It plans to back proposals that would require Bank of America, Citigroup, Goldman Sachs Group, JPMorgan Chase & Co, Morgan Stanley and Wells Fargo to adopt a “time-bound policy to phase out lending and underwriting for fossil fuel exploration and development.”
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