Published on March 25th, 2016 | by Sandy Dechert17
ExxonMobil Cannot Dodge Climate-Friendly Accounting
March 25th, 2016 by Sandy Dechert
It’s corporate annual meeting time again. Last year marked the start of some corporate responsibility and pro-renewable action in oil and gas company stockholder gatherings. This spring, green shareholders of ExxonMobil, arguably the most contrary of the petro-giants, have just won a victory for clean energy and transparency in the boardroom wars.
The company recently received an innovative shareholder resolution. It asks ExxonMobil to augment the traditional “barrels of oil equivalent” standard by reporting its energy resources in an energy-neutral metric–BTUs, originally called British Thermal Units.(One BTU is equal to the amount of energy used to raise the temperature of one pound of water one degree Fahrenheit.)
The reasoning behind the measure is to establish a climate-friendly and unbiased way to report energy reserves. Proponents believe that a universal measure will incentivize markets and managers to support the increasingly popular transition to diversification and a clean energy economy. Exxon moved to defeat the resolution.
However, Securities and Exchange Commission authorities ordered the company to stop in its tracks. Danielle Fugere, President and Chief Counsel for the Oakland-based non-profit corporate responsibility group As You Sow, explains what happened:
“In a rapidly decarbonizing economy, fossil fuel companies must develop climate change-responsive business models…. We are pleased the SEC sided with shareholders concerned with climate risk. Exxon must allow shareholders to vote on this first step on the path toward clean energy. Broad support will give management the latitude to develop a diverse and profitable low-carbon business plan, while maintaining 100% BTU energy replacements.”
As You Sow pointed out that the BOE accounting measure discourages decarbonization. The expression “BOE” ties calculation of a company’s asset calculations, and hence its value, to a carbon-based standard. In advocating neutral reporting, the resolution would ensure that solar, wind, biofuels, geothermal, and other renewables will be measured on the same yardstick as oil and gas.
The proponents add:
“This metric decouples Exxon and its shareholders from oil’s declining profitability, its escalating climate damage, and Exxon’s decreasing ability to economically replace its oil reserves.”
Shareholders have also asked ExxonMobil to prioritize capital returns to shareholders in light of the company’s increasingly risky investments. These may soon become stranded carbon assets due to clean energy’s rapid ascendance and the climate problems raised by continuing exploration, production, distribution, and use of oil and gas.
Last year, the company nixed a similar proxy, telling the SEC that its dividend had been increasing—despite declining capital distributions and the lack of a realistic climate strategy. Today, however, the SEC ruled in favor of the measure, citing three years of consecutive drops in Exxon capital distributions and management’s unwillingness to address the stranded asset risk. Chevron is involved in a similar struggle.