SEC Forces Exxon Climate Disclosure Vote

Guest essay by Eric Worrall

The U.S. Securities and Exchange Commission has ruled that Exxon must allow a shareholder vote, on whether Exxon should include information about specific risks posed by climate change in company reports. Exxon claims that the proposal is too vague to properly address.

The Securities and Exchange Commission has ruled Exxon Mobil must include a climate change resolution on its annual shareholder proxy, a defeat for the world’s largest publicly traded oil producer, which had argued it already provides adequate carbon disclosures.

In a Tuesday letter to Exxon XOM -0.43% seen by Reuters, the SEC said the oil producer cannot keep a proposal spearheaded by New York state’s comptroller from a full shareholder vote at the company’s annual meeting in May.

If approved, the proposal would force Exxon to outline specific risks that climate change or legislation designed to curb it could pose to its ability to operate profitably.

Exxon had argued that the proposal was vague and that it already publishes carbon-related information for shareholders, including a 2014 report on its website entitled, “Energy and Carbon – Managing the Risks.”

The SEC found those reports do not go far enough.

“It does not appear that Exxon Mobil’s public disclosures compare favorably with the guidelines of the proposal,” Justin Kisner, an attorney-adviser with the SEC, wrote to the oil producer.

Read more: http://fortune.com/2016/03/23/exxon-climate-change-vote/

The proposal;

Shareholders request that by 2017 ExxonMobil publish an annual assessment of long term portfolio impacts of public climate change policies, at reasonable cost and omitting proprietary information. The assessment can be incorporated into existing reporting and should analyze the impacts on ExxonMobil’s oil and gas reserves and resources under a scenario in which reduction in demand results from carbon restrictions and related rules or commitments adopted by governments consistent with the globally agreed upon 2 degree target. The reporting should assess the resilience of the company’s full portfolio of reserves and resources through 2040 and beyond and address the financial risks associated with such a scenario.

Read more: http://www.ceres.org/investor-network/resolutions/exxon-carbon-asset-risk-2016

I’ve got to say Exxon has a point. They are being asked to assess the impact of the legally non binding Paris agreement, and climate change, on their business, based on models which have so far failed to demonstrate predictive skill, and they are also being asked to speculate about what politicians might do in response to these hypothetical future changes.

How can speculation about future regulatory frameworks possibly be in any way meaningful? Nobody knows what the US government is likely to do next week, let alone 10 to 20 years from now. The next US President might rule Exxon’s business model is illegal – US Presidents these days seem able to rule by decree. Overnight Exxon’s value could drop to zero. On the other hand, the next President might open public lands to oil exploration, which might cause Exxon’s value to soar.

Either way, one thing is clear – America’s over mighty, interventionist government is doing untold damage to the stability of the American business environment.

Britain has paid a high price for such government meddling in energy markets. Britain tried to tilt their energy market in favour of renewables, but current generation renewables are not a viable replacement for fossil fuels. Britain still needs fossil fuel infrastructure investment. But as Energy Secretary Amber Rudd recently admitted, that We now have an electricity system where no form of power generation, not even gas-fired power stations, can be built without government intervention.

Despite a desperate need for new capacity, few private investors dare to put their money into British energy projects, because their investments might be rendered worthless at any time, at the stroke of a politician’s pen. Britain is on the brink of economically damaging power shortages – but hardly anyone is investing. The few Investors who are willing to risk investing in British energy markets demand iron clad guarantees of massive government support – support which in most cases the British government is unwilling or unable to provide, support which would have been completely unnecessary a decade ago.

If American politicians continue to pointlessly meddle with US energy markets, American markets will likely end up as dysfunctional as British energy markets.

Update: slight rewording of the first paragraph