ExxonMobil dismisses warning that anti-Kyoto stance risks market value

Last week, ExxonMobil dismissed as ridiculous concern raised in research sponsored by investor groups opposed to its stance, that it risks losing around US$100 billion in longterm shareholder value by continuing its prominent stance on mandatory climate controls.

No comment was made on a paradoxical claim in the same research that the company had more to gain than other oil producers if more aggressive policies to reduce climate change were introduced. This would play to its strengths, such as financial discipline, argued the researcher Mark Mansley of Claros Consulting, who carried out the study on behalf of CampaignExxonMobil, a coalition of religious and environmental groups, the Ceres coalition of environmental investor groups, and Robert Monks, a US campaigner on corporate governance.

Manley, a former chief analyst and director of Chase Investment Bank, who now specializes in ethical investment behaviour, suggests that ExxonMobil could capitalize on its huge gas reserves in the event of pressure on coal usage, and generate revenue from emissions trading schemes.

His report raises the possibility of a future huge round of climate change-related litigation damage similar to that experienced by the tobacco industry, which could expose potential defendants such as ExxonMobil, to damages exceeding US$100 million. In the short term, he estimates risk to reputation could be as much as US$3 billion with a knock-on effect for staff motivation and access to policymakers valued as high as US$50 billion.

Opposition to precautionary action could leave it unprepared for any sudden policy changes on fossil fuels triggered by a sudden climate shift. In contrast, he suggests the potential costs of mandatory emissions control policies are modest. One study has estimated that the impact on equity value of “reasonable policies” would be US$2 billion – less than 1% of the company’s value.

ExxonMobil stated “a mandatory framework that does little to reduce emissions over the long-term does not equate to a lack of concern for the environment or the issue of climate change”. However, where Kyoto is ratified and becomes law, ExxonMobil will comply. The statement added that: “ExxonMobil’s shareholders have supported the management’s decision not to make additional investments in renewable energy by overwhelmingly rejecting proposals on this issue each year, including a vote last year of over 90% voted against a renewables investment.”

ExxonMobil also stated that with earnings of $15.3 billion last year, it was the most profitable company in the US. Annual total returns to ExxonMobil shareholders have averaged 13% over the past five years. In 2001, the annual dividend payment increased for the 19th consecutive year.

Despite being heavily defeated each year, green resolutions are gradually gaining extra support by shareholders. Last year a “no drilling in the Arctic National Refuge” resolution received an 80% increase in support or $28 billion worth of shares. Investing in renewables received more than a 40% increase of shareholder support representing more than $26 billion dollars worth of shares. Executive compensation commensurate with the company’s environmental and socially responsible performance also received more than a 20% increase in support or more than $28 billion worth of shares. This year green investor groups say they have amassed support from 8.6% of shareholders for a motion calling for a change of environmental policy.

Manley says a key test for ExxonMobil is how it responds to the findings, and that denial without debate might lead investors to conclude that the company’s stance on climate change has more to do with an emotional belief in the oil industry than it does with defending shareholder value. He believes that investors “have an interest, or rather more accurately, a responsibility, to do what they can to ensure the issue of climate change is being handled properly”.

Manley is not alone in believing that there are financial benefits to corporate social responsibility. “Companies that take corporate citizenship seriously can improve their reputations and operational efficiency, while reducing their risk exposure and encouraging loyalty and innovation”, concludes a new report by consultants Arthur D Little, on the business case for corporate citizenship. Overall, it adds, they are more likely to be seen as a good investment and as a company of choice by investors, employees, customers, regulators and joint venture partners. The jury is still out on the extent of a company’s moral responsibility for corporate citizenship, but it suggests that the range of possible business benefits “should be enough to persuade any forward thinking company to see increasing corporate citizenship as an integral part of good business management”.

Exxon spokesmen declined to comment to edie on the report.