In March 2014 ExxonMobil published a document entitled, “Energy and Carbon – Managing the Risks” in response to a shareholder proposal by Arjuna Capital and As You Sow. The document aimed to assure investors that the company was managing climate related risks. However in this report Carbon Tracker Initiative (CTI) explains that far from assuring investors, we believe that ExxonMobil is underestimating the risks to its business model from action on climate change.

Paul Spedding, lead analyst of the report and advisor to ETA/CTI, said:

“Continuing to invest in high cost, high carbon investments could pressure future returns and – just as important – increase Exxon’s operational gearing to the potential consequences of action on carbon, including higher environmental costs and downward pressure on oil prices. Maybe it is time to consider a “shrink-to-grow” strategy?”


Here the key findings of the analysis:

–        Exxon’s returns have fallen as it has invested in capital intensive, low return projects which include oil sands.

–        Looking at Exxon’s resource estimates, the proportion of such high capital, lower return projects is likely to continue to rise potentially pressuring group returns – unless management changes course.

–        A strategy focusing on lower cost projects, stricter capital discipline and increased distribution to shareholders may boost group returns and lower risk.

–        Exxon’s narrow definition of stranded assets may leave it unprepared for a shift in the oil market and could risk projects delivering an unacceptably low return to shareholders.

–        Exxon’s report does not seem to consider the financial risk to it and other oil producers from the potential for global oil demand to begin declining within the next 10-15 years, even without robust climate policies.

–        Exxon ought to consider more seriously the likelihood of a ‘2°C climate scenario’ and the implications for its business model.

Anthony Hobley, CEO of CTI, said:


“This CTI/ETA analysis suggests that Exxon’s underperformance over the past five years may be associated with its increased investment in lower return, capital intensive assets. These high cost projects include carbon intensive tar sand and arctic assets – high carbon and high cost often go hand in hand.”


Link to the full report and executive summary here.


Background to Exxon’s report

On March 31st 2014 ExxonMobil issued two public reports  following a shareholder resolution (subsequently withdrawn) regarding potential carbon asset risk. This was one of the first of a number of responses by major oil and gas companies that was sparked by the Carbon Asset Risk engagement initiative coordinated by CTI and CERES. Investors with over $3 trillion in assets raised these issues with 45 of the largest fossil fuel companies. More information on the Carbon Asset Risk initiative is available here.

Exxon’s reports were released a month before the think tanks jointly published a major report, entitled Carbon Supply Cost Curves: Evaluating Financial Risk to Oil Capital Expenditures. The study allows investors to identify the highest–risk, highest–cost oil projects, to help them avoid the destruction of shareholder value in the context a range of factors, including potential lower demand for fossil fuels, more ambitious emissions regulation at all levels, technological advances and improved efficiency.


About the Carbon Tracker Initiative

The Carbon Tracker Initiative (CTI) is a team of financial specialists making climate risk real in today’s financial markets. CTI is partnering with Mark Fulton and Paul Spedding of Energy Transition Advisors to produce a global research series on the theme “Carbon Supply Cost Curves”.

For a glossary of key definitions go here