Examining climate disclosure through an in-depth look at the upcoming ExxonMobil climate disclosure resolution.

We highlight why PRI signatories are pressing hard for climate disclosure and why it presents fertile ground for the PRI Academic Network.

The US government’s position on climate change is influencing the global policy agenda. This was evident in the March 2017 G20 Finance Ministers and Central Bank Governors’ meeting in the lead up to the July G20 Leaders’ Summit. The G20 Finance Ministers and Central Bank Governors failed to reaffirm free trade and climate change action – previously both key priorities for the G20. Irrespective of politics, investors continue to pursue climate disclosure so that they can better understand potential risks and opportunities in their investments.

Why investors care about climate disclosure

Meaningful company disclosure on climate change matters. Without it investors cannot assess and manage material climate-related risks and opportunities. For low-carbon investments such as green bonds, disclosure on the use of proceeds is essential to investor confidence; investors need to know that such investments offer genuine environmental benefits. For fossil fuel investments, disclosure helps investors to understand how a company is positioned for the transition to a low-carbon economy with risks including impaired profitability and stranded assets.

On one level, climate disclosure should be straightforward; if companies are already managing climate-related risks and opportunities, why can’t they just tell investors? Surely it is easy to tell investors what they are doing now and may do in future.

But on another level, climate disclosure is complicated. Challenges for companies include whether such disclosure should be within regular financial filings, sustainability reports or ad hoc publications; lack of consensus on sector metrics; and no standardised disclosure practice for future, long-term climate-related risks and opportunities.

Globally, investor interest in climate disclosure is high with:

  • more than 130 ratifications of the Paris Agreement, although there are concerns about continued support from the US and other countries such as Saudi Arabia then retreating;
  • persistent shareholder concern about inadequate corporate disclosure manifested in multiple resolutions;
  • mandatory environmental disclosure under development in China;
  • ESG reporting recommendations from the London Stock Exchange;
  • Article 173 covering companies and investors in France; 
  • the final  Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures report, convened by Mark Carney,  due to be presented at the G20 Leaders Summit, in Germany in July.

What is Article 173?

Article 173 of the French Energy Transition for Green Growth Law came into effect on 1 January 2016. It sets out a roadmap to mitigate climate change and diversify the energy mix. It marks a turning point in strengthening mandatory carbon disclosure requirements for listed French companies and institutional investors.

See French Energy Transition Law: Global investor briefing

Future direction of climate disclosure: The FSB Task Force

Investors need forward-looking, consistent disclosures from companies so that they can assess and manage climate-related risks and opportunities in their portfolios. The FSB Task Force on Climate-related Financial Disclosures released its draft recommendations in December 2016 and its final report is due in July.

Broadly, the recommendations are that companies disclose on assessment and management of climate-related risks and opportunities. The recommendations focus on governance, strategy, risk management, and metrics and targets. Supplemental guidance is provided for sectors and on scenario analysis. The guidance on disclosure of scenario analysis includes a 2 degree scenario.

If companies, insurers, banks and investors adopt the Task Force’s recommendations, the climate disclosure landscape could change dramatically. Investors would finally have the information they need to better-position their portfolios for an energy transition. Shareholder resolutions calling for climate disclosure could one day become a thing of the past.

See https://www.fsb-tcfd.org/

Unfinished business – the ExxonMobil climate resolution

The lead proponent of the ExxonMobil resolution in 2017 is the New York State Comptroller, with the group of filers including the Church Commissioners and CalPERS. Last year there was a 38% vote in favour of a climate change proposal at ExxonMobil’s AGM. Notwithstanding this and intensive investor engagement with the company, ExxonMobil has not disclosed or committed to disclose climate scenario analysis. So this year, the filers of the resolution are looking for a majority vote. They want fellow shareholders to be clear that they want the same disclosure from ExxonMobil as they asked for at votes at BP and Shell in 2015, and as recommended by the FSB’s Taskforce on Climate-related Financial Disclosures (TCFD). 

ExxonMobil sharedholder resolution for 2017 Annual General Meeting

Item 12 – Report on Impacts of Climate Change Policies

RESOLVED: Shareholders request that, beginning in 2018, ExxonMobil publish an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies, at reasonable cost and omitting proprietary information. The assessment can be incorporated into existing reporting and should analyse 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. This 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.

Source: https://www.ceres.org/investor-network/resolutions/exxon-2-degrees-scenario-analysis-2017

What do the ExxonMobil resolution filers want and why?

Below we provide views from the lead proponent of the filing group, New York State Comptroller and co-filers of the resolution, the Church Commissioners for England and CalPERS. They argue that better climate disclosure from the company is needed to enable investors to assess risk and protect their investments.

Principle 2 of our six Principles states that signatories will be active owners and incorporate ESG issues into their ownership policies and practices. As such, we are disappointed when climate resolutions do not win enough support from our signatory base. Asset owners need to have oversight of their managers’ voting and engagement records.

The PRI is actively engaging signatories on climate disclosure, including on this resolution.

Lead proponent, Thomas P. DiNapoli, New York State Comptroller

As the lead proponent of the filing group, what outcome do you want from this year’s climate disclosure resolution at ExxonMobil? 

We want ExxonMobil to be responsive to its shareholders’ concerns that climate risk is a significant investment risk. It’s vital that the company candidly analyse its portfolio and operations in light of the two-degree scenario goal agreed upon at the UN Paris Conference in 2015. As shareholders, we have a right to know how the company will adapt to a changing regulatory landscape

As shareholders, we have a right to know how the company will adapt to a changing regulatory landscape. 

Thomas P. DiNapoli

Why does voting for this resolution matter to all PRI signatories with holdings in ExxonMobil? Why can’t signatories afford to abstain or only engage privately?

PRI signatories have made good faith commitments to responsible investment principles that address environmental and social concerns. Addressing climate risk is a direct extension of that commitment.

The Board of ExxonMobil recommends that investors vote against the proposal, arguing that: “We remain confident in the commercial viability of our portfolio.” What is your view of the company’s response?

It is essential that the company analyse and report back to shareholders on the two-degree scenario. Ignoring this goal makes no sense post-Paris, when there is a global commitment to meet it.

The company already argues that it adequately addresses climate risk through its current reporting policies, but we believe that it clearly has to do more to properly inform investors about the climate-related challenges that it will face in the coming decades.

The company needs to at least recognise the possibility of that goal being achieved, analyse its impact and share that analysis with its shareholders. The New York State Common Retirement Fund has already conducted stress-test analyses of the impact of various climate change scenarios, including the two-degree scenario, on our portfolio and we made the findings public. In my opinion, there’s no reason Exxon, with all of its resources, cannot do the same. 

How does this resolution fit within your corporate governance work, other resolutions and your investment in climate-related opportunities? 

We have long been active in addressing a wide range of environmental, social and governance (ESG) issues affecting our portfolio. The size of our fund has allowed us to have a good degree of success in bringing about improvements in corporate behaviour. I have a fiduciary responsibility as a trustee of a $186 billion fund to assess risk to our investments. Some of those risks are environmental and social that companies would prefer not to address. It’s my job to make sure they do, whether that’s asking Exxon to address the two-degree scenario’s impact on its business or asking Chevron to hire a director with environmental expertise.

ESG factors are integrated into our investments as well. We have committed more than $5 billion to sustainable investments, including a $2 billion Low Emissions index. The Low Emissions index has a carbon footprint 70% lower than our regular equities index, but is designed to perform very closely to it, so there’s minimal tracking error. The best part is that it’s scalable, so we expect to commit additional funds to it as performance allows. 

Co-filer, Edward Mason, Head of Responsible Investment at Church Commissioners for England

You already have a very clear overall public position on climate change. Is the resolution relevant to asset owners that do not have a position on climate change or that may lack beneficiaries sympathetic to it ?

The resolution is relevant to all asset owners who want their investment in ExxonMobil to be financially rewarding. It is indisputable that ExxonMobil’s resilience to the transition to a low-carbon economy will be a very significant driver of future profitability.


ExxonMobil seeks energy access for the world’s poorest. Does better corporate climate disclosure conflict with developing country goals?

The world’s development agencies are clear that dangerous climate change will hurt the world’s poorest hardest. The more the world’s largest companies engage with the goals of the Paris Agreement – including the ‘well below 2 degrees’ goal – the better off the world’s poorest will be.

The more the world’s largest companies engage with the goals of the Paris Agreement – including the ‘well below 2 degrees’ goal – the better off the world’s poorest will be.

Edward Mason

ExxonMobil just added an environmental expert to its board; doesn’t this mean that the company is very likely adequately assessing climate-related risks and opportunities?

Certainly we hope that the appointment of an atmospheric scientist, Dr Susan Avery, to ExxonMobil’s board will enhance the company’s ability to manage climate risk and opportunity. But if ExxonMobil doesn’t disclose its resilience to different climate change scenarios, investors will be none the wiser.

Can the present incumbents, such as ExxonMobil, adapt fast enough to technological advances and disruptive new technologies?

ExxonMobil and its peers are all increasingly focusing their portfolios on gas and lower cost oil, but the extent to which they are playing in renewable energy, biofuels and carbon capture and storage varies. This is to be expected; there are different routes to resilience in a lower carbon world. But if investors are to be able to evaluate potential risks and returns associated with different approaches, scenario analysis is essential.

Co-filer, Anne Simpson, Investment Director, Sustainability, CalPERS

Why are you seeking disclosure on scenario analysis for oil and gas reserves and resources, including for a 2 degrees scenario?

Scenario analysis on climate change is important because it allows for the complexity and uncertainty that companies and investors face. We need to see that companies have stress tested their assumptions against the goals of the Paris Accord, which includes a target of ultimately limiting global temperature rise to no more than 2 degrees centigrade. The current round of commitments in the Paris Accord rolls up to something around 3 degrees, and has embedded in the text, an aspiration to bring the target down to 1.5 degrees. We think it makes sense for companies to model their strategy for resilience within these ranges so that we can be sure that capital expenditure, risk management, and even, executive compensation is tied to viable long-term options.

Is it reasonable to expect US companies to respond to climate change if the US administration is considering pulling out of The Paris Agreement?

The US political position on the Paris Accord will not alter the science around climate change. If the US pulls out, sea levels will still continue to rise. Companies with coastal properties or assets will need to address these risks, regardless of the administration’s position. The science is increasingly reflected in the economics. Science plus economics is a powerful combination for driving business decisions. We also see that the momentum behind the Paris Accord continues to be strong, and US companies operate in global markets. It’s notable that Exxon issued a statement in support of the Paris Accord, on the day it came into effect, which was the same week as the US election. That’s a sign of the business logic behind Paris.

If companies provide the information you want, how will you use it  in your investment decisions? Will you view company management more favourably or reallocate capital based on such disclosures?

Disclosure on climate change has been improving in recent years. However, in both quantity and quality it is lacking. For that reason, investors have not been able to use the scattered data in an effective manner. An example is carbon footprinting. When CalPERS signed on to the PRI’s Montreal Pledge, we were only able to find carbon emissions data for less than half of our portfolio of 11,000 companies. The new FSB Taskforce recommendations on climate risk and opportunity reporting will change this. Their framework requires reporting on governance, strategy, risk management, metrics and targets, including scenarios to include the 2 degrees Paris Accord goal. The constraint will be the lack of mandatory requirement, so it will be up to investors to request and require that companies use the Taskforce framework, and for regulators to integrate this into required filings. With this new flow of information, investors will be in a position to assess the climate competence of company boards, the robustness of strategy, rigour of risk management, and the value of scenarios presented. Such information will drive both capital allocation and stewardship decisions, which in turn will bring financial markets to full force in the transition to a low carbon economy.

How do you see asset owner and manager voting on climate disclosure resolutions in relation to implementation of the six Principles?

The rise of shareowner proposals on climate change, particularly in the US, reflects investor concern with risk and opportunity for the long term. It also reflects the poor level of current reporting.

There are encouraging signs of the impact that investor voting can have. Chevron has produced its first detailed report on climate risks, following historic levels of support for a proposal last year. Exxon has appointed its first climate scientist to the board, following shareowners winning a proposal to allow long-term owners to propose candidates. Conoco Phillips saw a shareowner proposal withdrawn after successful negotiations with the proponents.

Major funds like CalPERS are now engaging, co-filing with other investors, and carrying proxy solicitations to engage fellow shareowners and call for their support. Last year this rise in investor activity led to an overall doubling of votes in support of climate risk reporting. Key to those results was new interest and support in the investment management community. State Street Global Advisers updating its own voting guidelines to give support to 40% of climate risk proposals. Others, like BlackRock, have signalled their commitment to engaging companies on climate risk reporting, although they do not typically vote in support of these proposals. 

We do see them increasingly holding boards accountable, notably voting against two directors at Exxon last year, as a concern that the company policy does not allow shareowners to engage directly with board members. Investors are increasingly working across borders to jointly engage companies, which will provide the ultimate solution to the collective action challenge that has stymied engagement in the past. This is where the PRI network is invaluable, as investors come to the table with a shared commitment to the 6 Principles.

Investors are increasingly working across borders to jointly engage companies, which will provide the ultimate solution to the collective action challenge that has stymied engagement in the past. 

Anne Simpson

Better climate disclosure is inevitable

Global investors are savvy; they can see that climate policy may be reversed in the USA, but overall the energy transition will move forwards. Technological innovation impacts significantly on falling costs and the pace of transition. According to the Carbon Tracker Initiative, the cost of solar has fallen 85% in seven years and solar could supply 29% of global power generation by 2050, phasing out coal and leaving natural gas with a 1% share. Electric vehicles could make up two thirds of the road transport market by 2050, displacing 25 million barrels of oil per day. China is already leading in green bonds and will invest $360 billion in renewable energy, creating 13 million more jobs by 2020. To make sense of material risks and opportunities associated with energy transition, investors need decision-useful information from companies. This is a sensible, moderate and reasonable investor requirement.

We therefore see two possibilities for the 2017 ExxonMobil resolution; higher global investor support compared to last year or the same level of support.  Given investors want climate disclosure for good reasons, the PRI expects record high global investor support for the 2017 ExxonMobil resolution. In other words, this is the year that ExxonMobil will need to demonstrate how it responds to a reasonable global investor request on climate disclosure.

The PRI’s future work: climate disclosure will be a priority

In response to investor interest, the PRI’s Collaboration Platform now enables investors to consider and pre-declare votes on upcoming climate resolutions. The PRI will shortly publish an RI Blueprint, its ten-year strategy for responsible investment, prioritising active ownership and climate change. In September 2017, at the annual PRI in Person conference, a new project will be launched to accelerate implementation of the FSB Task Force recommendations.  In March 2018, the PRI Reporting Framework will be modified to enable investor disclosure on assessment and management of climate change.

Call to action for academics: Get in touch with your research ideas

Investors’ immediate focus is the final FSB Task Force report and the upcoming ExxonMobil and Chevron Corporation resolutions, but climate disclosure presents opportunities for longer-term academic research.

The PRI is interested in examining the following research areas:

  • Does active ownership on climate disclosure result in more meaningful strategic responses from boards on climate change?
  • Does better disclosure lead to further reallocations of capital by companies within their balance sheets, such as investing in renewables or other low carbon technology?
  • What are appropriate investor metrics for transitioning to a low carbon economy?

Please contact the PRI  with:

  1. A brief research idea – how  it addresses the question(s) above, including the broad methodology (450 words)

Please note that PRI is seeking a global outlook with a North American case study/studies

  1. How it is placed as a contribution within the literature and practice thus far (300 words)
  2. What  the benefit is to the PRI and investors (200 words)

Deadline: 9 June 2017

Send to: [email protected]

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    RI Quarterly vol. 11: Proxy season 2017

    June 2017