Exxon: Is business as normal the right strategy?
(Mar 2014) Earlier this month, 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.
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.