Exxon and Chevron face resolutions on stranded carbon assets

As Exxon and Chevron face increasingly serious climate change headwinds, the US Securities and Exchange Commission (SEC) has cleared the way for shareholders to weigh in on the strategic direction of the beleaguered oil giants. Climate-related resolutions filed by investment managers Arjuna Capital and Baldwin Brothers Inc., have survived challenges mounted by both companies at the SEC.

This is the first year that a shareholder proposal asking ExxonMobil to prioritize returning more capital to shareholders in light of increasingly risky investments in potentially stranded carbon assets will be put to the ballot. In 2015, Exxon was able to dodge the proxy measure at the SEC, arguing that its dividend had been increasing, despite a precipitous decline in total capital distributions and a lack of a serious climate strategy. But the SEC ruled in favor of the proponents, given three years of consecutive drops in Exxon capital distributions and an unwillingness to address the risk of unburnable carbon at the companies.

For the second year, the ballot measure will be put to a vote at Chevron. The shareholder proposals call on Exxon and Chevron to protect investor value by committing "to increasing the total amount authorized for capital distributions (summing dividends and share buybacks) to shareholders as a prudent use of investor capital in light of the climate change related risks of stranded carbon assets."

Natasha Lamb, director of research and shareholder engagement at Arjuna Capital, a division of Baldwin Brothers, said, "Exxon and Chevron have been outright recalcitrant on climate, denying it will have any meaningful impact on their business. The oil majors are in the business of selling carbon, so how can they possibly be insulated from carbon asset risk? The SEC has done its job, upholding investors right to weigh in on an issue so critical to Big Oil's future, yet so blatantly absent from Exxon and Chevron's agenda."

In 2014, ExxonMobil wrote a report in response to Arjuna Capital/Baldwin Brothers and As You Sow on the potential for unburnable stranded carbon assets, following a landmark negotiation with the shareholders. ExxonMobil has maintained that none of its carbon assets will be stranded, based on their internal projections of unabated global energy demand and a belief that global governments will not take meaningful action to curb global warming.

"Exxon and Chevron are pushing up against a shifting tide," Lamb said. "Denial is no longer a credible business plan. Smart fossil fuel companies focus on value over growth this century. Growth for growth's sake is a fool's errand when society can't burn all the carbon we already have. If they continue down that path, they will end up like the coal companies."

HSBC has warned the equity value of oil producers could drop 40–60% under a low carbon scenario. And Citigroup notes that 40% of current oil investments are stranded at prices below $75 per barrel.



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