The Division of Corporation of Finance issued advice to Exxon Mobil in early March on three different shareholder proposals dealing with environmental issues, and indicated that the oil giant must include two of the three in its 2017 proxy materials. The company was able to exclude the third proposal only because a substantially similar proposal is already being included in the company’s proxy materials.
Methane emissions. Park Foundation submitted a proposal asking Exxon to report to shareholders on the company’s actions beyond regulatory requirements to minimize methane emissions, particularly leakage, from Exxon’s hydraulic fracturing operations. The proponent noted that methane emissions contribute significantly to climate change, with an impact of roughly 87 times that of carbon dioxide over a 20-year period.
In addition, Park Foundation cited a recent study indicating that methane emissions from the oil and gas sector are 20 percent to 60 percent higher than previously thought. The proponent noted that the International Energy Agency has identified minimizing methane emissions from upstream oil and gas production as one of four key global greenhouse gas mitigation opportunities to keep the world below a two-degree Celsius temperature increase.
Exxon argued in its letter that the proposal could be omitted from its proxy materials as relating to its ordinary business operations because it deals with the company’s choice of technologies, its products and services, and seeks to micromanage the company. The staff disagreed. In its opinion, the proposal transcends ordinary business matters and does not seek to micromanage Exxon’s operations.
Exxon also contended that the proposal could be omitted because it has already received a proposal from the New York State Common Retirement Fund that asks for a company report on the impacts of technological advances and global climate change policies, including a possible reduction in demand that could result from carbon restrictions related to the globally agreed upon two-degree target. The staff was not persuaded, advising Exxon that the other proposal does not substantially duplicate the one that was submitted by Park Foundation.
Low carbon economy. Exxon received a shareholder proposal from co-filers Arjuna Capital/Baldwin Brothers Inc. and Zevin Asset Management seeking a report that summarizes strategic options or scenarios for aligning the company’s business with a low carbon economy. The proponents suggested altering the company’s energy mix by separating or selling some of its highest carbon-risk assets, divisions, and subsidiaries, buying or merging with companies with assets in low carbon or renewable energy, or internally expanding its renewable energy portfolio.
In this instance, the staff agreed with Exxon’s argument that the proposal duplicates a proposal that the company already intends to include in its proxy materials, and so allowed its exclusion under Rule 14a-8(i)(11). The proposal in question is the one submitted by the New York State Common Retirement Fund on the impact of global climate change policies on the company’s operations.
Stranded carbon assets. The third recent shareholder proposal on environmental issues received by Exxon also was submitted by Arjuna Capital/Baldwin Brothers Inc. The proponent asked Exxon to commit to increasing the total amount authorized for capital distributions to shareholders as a prudent use of investor capital in light of the climate change related risks of stranded carbon assets.
The proponents noted that Exxon’s unburnable fossil fuel reserves could amount to over $100 trillion in stranded assets by 2050 if the global community meets its two-degree commitment. Companies may not be adequately accounting for downside risks from lower-than-expected demand, they noted, and analysts estimate that the equity valuation of oil producers could drop 40 percent to 60 percent under a low carbon scenario. The proposal is intended to protect shareholders in the face of such eroding shareholder value.
In its letter to the Commission, Exxon argued that it did not have to include this proposal in its proxy materials because it requests that the board commit to increasing capital distributions, which can only be read to mandate regular and indefinite increases to capital distributions. Implementing such a restriction on the authority of a New Jersey corporation’s board to manage the affairs of the corporation would force the company to amend its certificate of incorporation in violation of New Jersey law, according to Exxon. The staff again was not persuaded by Exxon’s argument and advised the company that the Arjuna Capital/Baldwin Brothers proposal must be presented to company shareholders for a vote.
Companies: Exxon Mobil Corp.
MainStory: TopStory Proxies
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