Recommendation to use the climate criterion to exclude...
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1 Etikkrådet for Statens pensjonsfond utland Postboks 8008 Dep N-0030 Oslo Bergen, 28.03.2017 Recommendation to use the climate criterion to exclude ExxonMobil from the Government Pension Fund Global (GPFG) The Norwegian Climate Foundation welcomes the Council of Ethics focus “on identifying firms with unacceptably large emissions of greenhouse gases” this year, and that it will “recommend exclusions from the portfolio across several industries,” as signalled by chairman Johan H. Andresen in an interview with Reuters in January 2017. 1 The updated, conduct-based climate criterion enables exclusion of companies from Norges Bank Investment Management’s (NBIM’s) portfolio if “acts or omissions (…) on an aggregate company level lead to unacceptable greenhouse gas emissions.” 2 The Norwegian Climate Foundation believes this should include energy companies on the supply side of the global energy system, and asks that the Council on Ethics starts by looking at the US energy company ExxonMobil, the world’s largest publicly traded oil and gas company. ExxonMobil is one of the biggest current and historical contributors to greenhouse gas emissions and damage to the environment. 3 At the end of 2016, NBIM held a 0.82 per cent share in ExxonMobil, valued at $3.07 billion. Based on the best available information on company behaviour, there is reason to claim that ExxonMobil’s business leads to “unacceptable greenhouse gas emissions on an aggregate company level”. The Government Pension Fund Global’s investment timescale combined with the climate criterion and the ethical obligations that accompany the legal principle of intergenerational equity, should 1 Reuters (2017). “Ethics chief of Norway's wealth fund targets excessive greenhouse gas emissions”. Jan 11, 2017. Retrieved from: http://uk.reuters.com/article/ethics-council-of-norways-880-bln-wealth-idUKO9N1DU01F 2 This refers to the Guidelines for observation and exclusion from the Government Pension Fund Global, § 3 section d): “Observasjon eller utelukkelse kan besluttes for selskaper der det er en uakseptabel risiko for at selskapet medvirker til eller selv er ansvarlig for: (...) handlinger eller unnlatelser som på et aggregert selskapsnivå i uakseptabel grad fører til utslipp av klimagasser.” In the English Translation; “Companies may be put under observation or be excluded if there is an unacceptable risk that the company contributes to or is responsible for (...) d) acts or omissions that on an aggregate company level lead to unacceptable greenhouse gas emissions.” Retrieved from https://www.nbim.no/en/the-fund/governance-model/guidelines-for-observation- and-exclusion-from-the-fund/ 3 Heede, R. Climatic Change (2014) 122: 229. doi:10.1007/s10584-013-0986-y
Transcript of Recommendation to use the climate criterion to exclude...
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EtikkrådetforStatenspensjonsfondutlandPostboks8008DepN-0030Oslo
Bergen,28.03.2017RecommendationtousetheclimatecriteriontoexcludeExxonMobilfromtheGovernmentPensionFundGlobal(GPFG)TheNorwegianClimateFoundationwelcomestheCouncilofEthicsfocus“onidentifyingfirmswithunacceptablylargeemissionsofgreenhousegases”thisyear,andthatitwill“recommendexclusionsfromtheportfolioacrossseveralindustries,”assignalledbychairmanJohanH.AndreseninaninterviewwithReutersinJanuary2017.1Theupdated,conduct-basedclimatecriterionenablesexclusionofcompaniesfromNorgesBankInvestmentManagement’s(NBIM’s)portfolioif“actsoromissions(…)onanaggregatecompanylevelleadtounacceptablegreenhousegasemissions.”2TheNorwegianClimateFoundationbelievesthisshouldincludeenergycompaniesonthesupplysideoftheglobalenergysystem,andasksthattheCouncilonEthicsstartsbylookingattheUSenergycompanyExxonMobil,theworld’slargestpubliclytradedoilandgascompany.ExxonMobilisoneofthebiggestcurrentandhistoricalcontributorstogreenhousegasemissionsanddamagetotheenvironment.3Attheendof2016,NBIMhelda0.82percentshareinExxonMobil,valuedat$3.07billion.Basedonthebestavailableinformationoncompanybehaviour,thereisreasontoclaimthatExxonMobil’sbusinessleadsto“unacceptablegreenhousegasemissionsonanaggregatecompanylevel”.TheGovernmentPensionFundGlobal’sinvestmenttimescalecombinedwiththeclimatecriterionandtheethicalobligationsthataccompanythelegalprincipleofintergenerationalequity,should
1 Reuters (2017). “Ethics chief of Norway's wealth fund targets excessive greenhouse gas emissions”. Jan 11, 2017. Retrieved from: http://uk.reuters.com/article/ethics-council-of-norways-880-bln-wealth-idUKO9N1DU01F 2 This refers to the Guidelines for observation and exclusion from the Government Pension Fund Global, § 3 section d): “Observasjon eller utelukkelse kan besluttes for selskaper der det er en uakseptabel risiko for at selskapet medvirker til eller selv er ansvarlig for: (...) handlinger eller unnlatelser som på et aggregert selskapsnivå i uakseptabel grad fører til utslipp av klimagasser.” In the English Translation; “Companies may be put under observation or be excluded if there is an unacceptable risk that the company contributes to or is responsible for (...) d) acts or omissions that on an aggregate company level lead to unacceptable greenhouse gas emissions.” Retrieved from https://www.nbim.no/en/the-fund/governance-model/guidelines-for-observation-and-exclusion-from-the-fund/ 3 Heede, R. Climatic Change (2014) 122: 229. doi:10.1007/s10584-013-0986-y
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leadtotheexclusionofthecompanyfromitsportfolio.Thisletteroutlinesthebasisforthisclaim,andendswitharecommendationtoexcludeExxonMobilfromNBIM’sportfolio.
1. TheethicalguidelinesandtheclimatecriterionTheethicalguidelinesforthemanagementoftheGovernmentPensionFundGlobal(GPFG)wereintroducedin2004,followingtheGovernmentWhitePaper,NOU2003:22Forvaltningforfremtiden(“ManagementfortheFuture”)4.Theguidelineswerefirstrevisedin2009.Asecondrevision,whichledtotheinclusionoftheclimatecriterion,wasinitiatedin2013.InApril2014,theMinistryofFinanceappointedanExpertGrouptoassesstheGPFG’suseofexclusionandownershipstrategiesincoalandpetroleumcompanies.Thiswasbasedonaparliamentaryrequest,andincludedbothanassessmenttodeterminemoreeffectivestrategiesforaddressingclimateissues,andadviceonpotentialexclusioncriteria.TheExpertgroupwasledbyMartinSkancke.5Thereport,publishedinDecember2014,highlightedthattheexistingconduct-basedexclusioncriteriondidnotextendtoclimate-changerelatedconduct.Neitherdidtheenvironmentalcriterion,astheclimateimpactofindividualcompaniesismuchhardertodeterminecausally.Inclusionofthenewcriterion,3c),wasintendedtobridgethisgap.Theexpertgroupnotedthatanewcriterionshould“explicitlyincludecontributiontoclimatechangeorCO2emissionsasacriterion.”6,andthatthisrelatestothe“totalityofacompany’soperations,becauseitisthetotalityofCO2emissionsandimpactonclimatechangethatisatthecoreofthecriterion.”7Theexpertgroupsuggestedawordingthatwouldtiethecriteriatoenvironmentaldamage,through“actsoromissionsthat,onanaggregatecompanylevel,areseverelyharmfultotheclimate”.ThesubsequenttreatmentthroughhearingsandinparliamentledtoarewordingbasedonthesuggestionfromtheCouncilonEthics.Thecriterioninitiallyreferredtoactsoromissionsthatare“severelyharmfultotheclimate”,butnowfocusesonwhethertheyleadtounacceptablegreenhousegasemissions.Thischoiceemphasisesthatresponsibilityfortheemissionsiscentraltothecriterion.AsnotedbytheCouncilonEthicsinitsresponsetotheExpertgroup’sreport8,itis,toacertainextent,possibletoidentifycompanies,installationsortechnologiesthatrelativelyandspecificallyemitlargeamountsofgreenhousegases.ItshouldfollowfromthisthatidentificationofsuchcompaniesalsoqualifiesfortheapplicationoftheclimatecriterionbytheCouncilonEthics,leading4 NOU 2003: 22. Forvaltning for fremtiden— Forslag til etiske retningslinjer for Statens petroleumsfond. Retrieved from https://www.regjeringen.no/no/dokumenter/nou-2003-22/id118914/sec1 5 Ekspertgruppen for Statens pensjonsfond utlands investeringer i kull- og petroleumsselskaper (Skancke et. al.) (2014): Fossil-fuel Investments in the Norwegian Government Pension Fund Global: Addressing climate issues through active ownership. Retrievable from https://www.regjeringen.no/no/aktuelt/dep/fin/pressemeldinger/2014/Rapport-fra-ekspertgruppe-om-investeringer-i-kull--og-petroleumsselskaper/Pressemelding-fra-Ekspertgruppen-for-Statens-pensjonsfond-utlands-investeringer-i-kull--og-petroleumsselskaper/id2342792/ 6 Skancke et. al (2014), p. 50. 7 Skancke et. al (2014), p. 51. 8 ”Det er vår oppfatning at når det gjelder de bransjene som bidrar mest til klimagassutslipp, så er det i noen grad mulig å identifisere selskap, installasjoner eller teknologier som relativt og spesifikt har store utslipp av klimagasser.” Høringsuttalelse fra Etikkrådet i forbindelse med rapporten fra ekspertgruppen for SPU’s virkemiddelbruk og investeringer i kull- og petroleumsselskaper, dated 02.02.2015.
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toexclusionofcompaniesresponsibleforunacceptablegreenhousegasemissions.However,theclimatecriterionhasyettobeappliedtoanyspecificcompany.ByrecommendationoftheexpertgroupandsubsequentdecisioninParliament,theCouncilonEthicsisresponsiblefortheinterpretationandapplicationofthecriterion.Theclimatecriterioncouldandshouldbeputintopracticewithoutdelay,byapplyingittocompaniesthatcanbesingledoutfortheircontributionstoemissionsofgreenhousegases.Itisworthpointingthatwithregardtoclimatechange,aninter-generationaldimensionofgreenhousegasemissionsalsorelatestoSection3d)“otherparticularlyseriousviolationsoffundamentalethicalnorms”.GiventhattheGPFGexiststosecureaportionofourcurrentwealthforfuturegenerations,thereisparticularurgencytoexaminethefund’scurrentinvestmentsinfossilfuel-basedcompanies.TheNorwegianClimateFoundationemphasisesthataninter-generationalperspectiveoninvestmentsnotonlyshouldbeconcernedwiththesizeofthefund,buttheethicalobligationtoleaveasafeclimateforfuturegenerations.Anyomissionorcompromiseregardingtheclimateandcarbonemissionscomesatacostthatwillimpactthosewhowillcomeafterustoamuchgreaterextentthanitaffectscurrentgenerations.Today’sdecision-makersarethereforeethicallyobligatedtowardsthosegenerations,andnotonlythosealivetoday.ThelegalprincipleofintergenerationalequitywasemphasisedbytheWorldCommissiononEnvironmentandDevelopmentin1987(“theBrundtlandCommission”):
1. Allhumanbeingshavethefundamentalrighttoanenvironmentadequatefortheirhealthandwell-being.
2. Statesshallconserveandusetheenvironmentandnaturalresourcesforthebenefitofpresentandfuturegenerations.
2. ExxonMobil’sconductandattitudetowardsclimatechange
a) Historiccarbonemissionsandcurrentintensity
ExxonMobil’shistoricalresponsibilityforclimatechangeisunquestionablylarge;thecompanywasrecentlyrankedsecondonalistofCarbonMajors,secondonlytoChevron,anotherUSmajor.Thestudyuseddataforcumulativeemissionsfromthe90largestprivateandstate-ownedcompaniesresponsibleforcarbonemissionsintheperiodfrom1854–20109.Accordingtothisstudy,ExxonMobilaloneisresponsiblefor3,22percentofglobalcarbonemissionsin1751–2010.Initself,thisshouldbeenoughtosinglethecompanyoutasasignificantcontributortoclimatechangeonanindividualcompanylevel.ExxonMobil’semissionsarelargenotonlyinabsoluteterms,butalsointermsoftheircarbonintensity,andrecentdatasuggeststheemissionsarenotdecreasing.In2010,thecompany’semissionsrankedat655MegatonsCO2equivalents,higherthananyotherUSorEuropeanoilmajor.
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Moreup-to-datenumbersandcalculationsfromtheClimateDisclosureProjectplaceExxonMobil’sbookedassetsamongtheworstoilcompaniesintheworldintermsofenvironmentalandclimateimpact.Theserankingsarebasedoncriteriaincludingthecompany’sassetmix,greenhousegasemissions,methodsofextraction,climate-relatedgoals(includinginvestmentsinrenewables),efficiency,handlingofwaterandmethane10(seesection3bforfurthercontext).Specifically,ExxonMobilhaslargeinvestmentsincarbon-intensiveandexpensiveoilsands.Inthepastdecade,thecompanyincreaseditsoilsandholdingsfrom17percenttoatotalof35percentofitsliquidholdings11.Allthesefactorscallforfurtherconsiderationandmakethecompanyacandidateforexclusionundertheclimatecriterion.
b) AhistoryofspreadingdoubtaboutclimatechangeFurthermore,ExxonMobil’sresponsibilityforcarbonemissionsextendsbeyondmerelytheaggregateemissionsofCO2fromthecompany’sfossilfuelextractionandtheintensityofitscurrentsources.Inquiryintothecompany’sconductovertheyearshaverevealedahistoryofspreadingdoubtaboutclimatescience,aswellasapastandongoingtendencytorejectshareholderresolutionsonclimatechangeandopenness.Asaresultoftheserevelationsinrecentyears,thereareon-goingfraudinvestigationsintothecompany’sbehaviour(seesection2d).ExxonMobil’shistoryoffundingclimatescepticismcametolightinautumn2015,whentwoinvestigativejournalismprojects,independentlyofeachother,publishedmaterialtoprovehowExxonMobilhadknownaboutthelinkbetweenclimatechangeandpetroleumextractionfordecades,butactedtohidethisknowledgefromthewiderpublicanddiscreditscientificresearchonthetopic.OneoftheprojectswasacollaborationbetweenColumbiaUniversityGraduateSchoolofJournalism’sEnergyandEnvironmentalReportingProjectandtheLosAngelesTimes,theotheraprojectfromInsideClimateNews.TheLATimesjournalistsreviewedhundredsofinternalcompanydocuments,peer-reviewedpublishedmaterial,andcarriedoutinterviewstouncoverhow,between1986and1992,aresearchteamforExxon’sCanadiansubsidiaryresearchedandreportedtoExxonheadquartersaboutpositiveandnegativeeffectsclimatechangewouldhaveontheoiloperations.12TheyfoundthatwhilebothExxonandMobilOilstrategicallyspreadmisinformationtocastdoubtonresearchintoclimatechange,theyweresimultaneouslypreparingtheirinfrastructure–platforms,pipelinesandroads–forthepotentialimpactofrisingsealevels,meltingpermafrost,coastalerosionandincreasingstormseverity13.
10 Carbon Disclosure Project (2016). In the Pipeline: Which oil and gas companies are preparing for the future? Executive Summary. Retrieved from https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/001/327/original/oil-gas-report-exec-summary-2016.pdf?1479834286 11 Kusnetz, N. (2016). “Exxon's Big Bet on Oil Sands a Heavy Weight To Carry”. InsideClimate News 30/09 2016. Retrieved from https://insideclimatenews.org/news/29092016/exxon-mobil-change-change-investigation-oil-sands-tar-sands-alberta-canada-sec 12 Jerving, S., M.M. Hirsch and S. Rust (2015). “What Exxon knew about the Earth's melting Arctic”. LA Times, 09.10 2015. Retrieved from http://graphics.latimes.com/exxon-arctic/ 13 Lieberman, A. and S. Rust (2016). “Big Oil braced for global warming while it fought regulations”. LA Times, 31.12 2015. http://graphics.latimes.com/oil-operations/
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Priortothis,researchbytheUnionofConcernedScientistsestimatedthatExxonspentnearly$16millionbetween1998and2005tofundorganizationsinvolvedinwhattheycall“themanufactureofuncertaintyonclimatechange”,publishingandre-publishingnon-peerreviewedworksand“cherry-picking”argumentstoconvincemediaandthepublicthattherewasstillscientificuncertaintyaboutclimatechange14.ThereportalsodetailshowthecompanyhasinfluencedmembersofCongressandtheUSadministrationbehindthescenes,insomecasesevenshapinghowfederalagenciespubliclyaddressedglobalwarming.Sinceits2014reportandrecentstatementsmadebyformerCEORexTillerson,ExxonMobilnowacknowledgesclimatechangeasarisktosocietyandecosystems.Nevertheless,thegapbetweenacknowledgementandactionremainslarge.
c) Ahistoryofrejectingclimate-relatedshareholderresolutions
Overthepast25years,Exxonhasrejectedmorethan60resolutionsfromtheirshareholdersonclimatechange15.Atthe2016AGM,theBoardrecommendedtorejectallnineclimateresolutionsbroughttothemeetingbyshareholders,includingthosesupportedbytheGPFG,askingExxonMobiltoreportontheimpactofclimatechangepoliciesonitscurrentandfuturebusiness16.Alltheresolutionsfell,whereasotheroilandgasmajorssuchasBP,RoyalDutchShellandtheNorwegiancompanyStatoilhavesupportedclimateresolutionsandgreaterdisclosureatrecentAGMs.Basedonthishistory,furtherattemptstoinfluencethroughactiveownershipareunlikelytobearfruit.ExxonMobilarguesopenlythatitscurrentbusinessstrategyisbasedonastrongconvictionthattheworldwillnotmanagetodecarbonizetheenergysystemsinaccordancewiththetargetssetoutintheParisAgreement.Thisiswhattheboardwroteinastatementaheadofthe2016AGM17:
ExxonMobilbelievesthatproducingourexistinghydrocarbonresourcesisessentialtomeetinggrowingglobalenergydemand.Weenableconsumers–especiallythoseintheleast-developedandmost-vulnerableeconomies–topursuehigherlivingstandardsandgreatereconomicopportunity.Webelievealleconomicenergysourceswillbenecessarytomeetthegrowingdemand,andthetransitionoftheenergysystemtolowercarbonsourceswilltakemanydecadesduetoitsenormousscale,capitalintensityandcomplexity.Assuch,webelievethatnoneofourprovenhydrocarbonreservesare,orwillbecome,stranded.Thisisfurtherdetailedintheaforementionedreport.
14 Union of Concerned Scientists, (2007). Smoke, Mirrors & Hot Air: How ExxonMobil Uses Big Tobacco’s Tactics to Manufacture Uncertainty on Climate Science. Retrieved from: http://www.ucsusa.org/global_warming/solutions/fight-misinformation/exxonmobil-report-smoke.html#.WJh2omWwGYU 15 Douglass, E. (2015). Exxon's 25 Years of 'No': Timeline of Resolutions on Climate Change. Retrieved from https://insideclimatenews.org/content/exxons-25-years-no-timeline-resolutions-climate-change 16 NBIM (2015). Support for three shareholder proposals in ExxonMobil. Retrieved from https://www.nbim.no/en/responsibility/our-voting-records/voting-intentions-published-ahead-of-general-meetings/support-for-three-shareholder-proposals-in-exxon-mobil/ 17http://cdn.exxonmobil.com/~/media/global/files/investor-reports/2016/2016_proxy_statement.pdf
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d) OngoinginvestigationsWhentheNewYorkAttorneyGeneralEricT.SchneidermanlaunchedafraudinquiryintoExxonMobil’sbehaviourinlate2015,theunveilingofthecompany’sroleincausingclimatechangethroughcarbonemissionsandspreadingdoubtonthescientificcertaintyofclimatechangeplayedaroleinbringingthemattertohisattention.Schneiderman’sinvestigationisstillongoing,andwillstudyExxonMobil’spastandthecompany’srecentpositionandfailuretodisclosethebusinessrisksthatclimatechangeposes.Thesedocumentsarenotcurrentlypublic,butifExxonMobilcomplieswiththesubpoena,theAttorneyGeneralwillgainaccesstodocumentsdetailingthein-houseknowledgeExxonhadonclimatechangeandwhatthecompanychosetodisclosetoitsshareholders.18.ExxonMobil’sresponsehaslargelybeenlegalactionstoavoidhandingoverdocuments,citinginfringementtofreedomofspeechandsuspicionofpoliticalmotivation19.Inautumn2016,theU.S.SecuritiesandExchangeCommissionlaunchedaninvestigationintohowExxonMobilvaluesitsassetsinrelationtotheincreaseintheworld’sclimateregulations20.OtherAGs,includingtheAttorneyGeneralofMassachusetts’,havefollowedSchneiderman’sexample.
3. FinancialRiskThroughthecompany’soilsandsassetsanditsplanstobringnewoilandgasprojectsontothemarket,ExxonMobil’sbusinessplanincludesexposuretoresourceswhich,onanaggregatelevel,exceedthepossibilityoflimitingglobalwarmingtolessthantwodegreesorascloseto1.5degreesaspossible(inaccordancewiththeParisAgreement).Thisisnotonlyethicallyproblematic–italsoposesasignificantfinancialriskforthecompany.Thisyear,ExxonMobilwasforcedtoreduceitsCanadianoilsandassetsby3.5billionbarrels–19percentofthecompany’stotalreservesofoilandgas.ThisisthesecondyearinarowthatExxon’sreportedreserveshavedecreased.21
a) RepeatedfailuretoassessthecarbonriskofassetsNBIM’s2015reportAnsvarligforvaltning(“ResponsibleManagement”)detailssomeofitsworkonclimateriskandhowassetsin73companieshavebeensoldasaresultofenvironmentalandsocialriskswithinthosecompanies.Aspartoftheserisk-basedassessments,exposuretocarbonpricingled
18 Barret, P. and M. Philips (2016). Can ExxonMobil Be Found Liable for Misleading the Public on Climate Change? Bloomberg Businessweek, 07.09 2016. Retrieved from https://www.bloomberg.com/news/articles/2016-09-07/will-exxonmobil-have-to-pay-for-misleading-the-public-on-climate-change 19 Letter from ExxonMobil: https://www.documentcloud.org/documents/2801448-Response.html See also: Hasemeyer, D. (2016). Mass. AG Appeals Exxon Ruling, Asks New Judge to Toss Oil Giant's Case. InsideClimate News, 12.12 2016. Retrieved from https://insideclimatenews.org/news/08122016/exxon-climate-change-research-investigation-maura-healey-attorney-general 20 Olson, B. and A. Viswanatha (2016). SEC Probes Exxon Over Accounting for Climate Change. Wall Street Journal, 20.09 2016. Retrieved from http://www.wsj.com/articles/sec-investigating-exxon-on-valuing-of-assets-accounting-practices-1474393593 21 Crooks, Ed (2017) ”ExxonMobil forced to make cuts to reported oil and gas reserves” Financial Times 23.02.2017. Retrieved from: https://www.ft.com/content/0145de6a-f957-11e6-9516-2d969e0d3b65
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tothesaleofassetsin5companiesoperatingintheoilsandsinandbefore201422.Consequently,thisperspectivewasalreadypartofNBIM’smanagementstrategybeforethenewclimatecriterionwasincludedintheethicalguidelines.Inthesameperiod,ExxonMobilpublishedareportonenergyandcarbonrisks,wheretheyclaimedtobe“confidentthatnoneofourhydrocarbonreservesarenoworwillbecome‘stranded.’”23.Thisstrategyisatoddsnotonlywithinternationalclimategoals,butalsotheactualdevelopmentontheglobalenergymarket.Thecompanyoperateswithaverynarrowdefinitionof“stranded”,understandingittomeanstrictly“unburnable”orreservesthatareshutdown.However,asCarbonTrackerInitiativepointsoutinitsresponsetoExxonMobil’sreport24,thisdefinitionsignificantlydownplaystheriskofpolicychangewithrespecttocarbon.TheInternationalEnergyAgency(IEA)definestrandedassetsas:
thoseinvestmentswhicharemadebutwhich,atsometimepriortotheendoftheireconomiclife(asassumedattheinvestmentdecisionpoint),arenolongerabletoearnaneconomicreturn,asaresultofchangesinthemarketandregulatoryenvironment.25
CarbonTrackeralsohighlightshowExxonMobil’sreturnshavedecreasedwithitsinvestmentsincarbon-intensive,low-returnprojects,includingtheoilsands.CarbonTracker’snewreportonrenewableenergyshowsthatevenwithoutanyfurtherclimatepoliciesbeyondthecommitmentsmadeinParis,thefallinpricesofSolarPVandEVmightbemuchmoredisruptivetothefossilfueleconomythanpreviouslyassumed26.Thestudy,carriedoutincollaborationwiththeGranthamInstituteatImperialCollegeLondon,foundthatfossilfuelscouldpeakmuchearlierthanexpectedinBusinessAsUsual(BAU)ofoilmostmajorcompanies(suchasExxonMobil)andposeasignificantthreattobothcoalandoilafter2020.ThereportrecommendsenergycompaniestomovebeyondtheBAUscenarioof4degreeswarming,and“articulatehowtheyareadjustingtothelow-carbontransitionandpubliclyquantifytherisks”.Thusfar,ExxonMobilhasfailedtodoso.Inafootnotetothe2014reportonEnergyandCarbonrisks(detailedabove)27,ExxonMobilgivestwostatementsworthyoftheattentionoftheCouncilonEthics,astheyrevealExxonMobil’sstanceontheIPCCscenariocompatiblewithlimitingglobalwarmingwithin2degrees28.First,ExxonMobilnotesthat“wedonotforecastpotentialclimateimpactsaspartofour[Energy]Outlook”29.Andsecondly,“inassessingtheeconomicviabilityofprovedreserves,wedonotbelieveascenarioconsistentwithreducingGHGemissionsby80percentby2050,as
22 NBIM (2015). Ansvarlig forvaltning. 23 ExxonMobil (2014). Energy and Carbon: managing the risks. Report, p. 1. Retrieved from: http://cdn.exxonmobil.com/~/media/global/files/energy-and-environment/report---energy-and-carbon---managing-the-risks.pdf 24 Carbon Tracker Initiative (2014). Responding to Exxon: a strategic perspective. Retrieved from: http://www.carbontracker.org/report/response-to-exxon-an-analytical-perspective/ 25 IEA, World Economic Outlook 2013, 436 Box 13.4. 26 Carbon Tracker Initiative (2017). Expect the Unexpected: The Disruptive Power of Low-carbon Technology http://www.carbontracker.org/report/expect-the-unexpected-disruptive-power-low-carbon-technology-solar-electric-vehicles-grantham-imperial/ 27 ExxonMobil (2014) Energy and Carbon: managing the risks. Report . Footnote p.6. 28 IPCC. 5th Assessment Report, Summary for Policymakers. Retrieved from http://www.ipcc.ch/report/ar5/wg1/ 29 ExxonMobil (2014) Energy and Carbon: managing the risks. Report. p. 6.
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suggestedbythe‘lowcarbonscenario,’lieswithinthe‘reasonablylikelytooccur’rangeofplanningassumptions,sinceweconsiderthescenariohighlyunlikely.”30.Inotherwords:thecompany’sriskassessmentsandbusinessplansconsiderithighlyunlikelythatcarbonpricingorothereffectiveclimatepolicieswillcomeintoeffect.Thecompanyalso,asdetailedinsection3bofthisletter,increasesitsexposuretotheoilsandsinthesameperiodthattheGPFGstartedsellingassetsinoilsandcompanies.ExxonMobilremainsindenialofthefinancialrisktotheirbusinessposedbythestrengthenedclimatecommitmentsmadeatCOP21inParis.Iftheworldfollowsthescience-basedoutlooksonthelimitstoemissions,evena50percentchanceoflimitingtemperatureriseto2or1.5°Ccausessignificantriskforthecompany’sportfolio.ExxonMobilhasalargeproportionofassetsatriskofbecoming“stranded”–and,moreimportantly,shouldExxonMobil’sbusinessplanssucceed,theoverallemissionstotheatmospherewillhavesurpassedthosecompatiblewithameaningfulreductionofglobalwarminginaccordancewiththeParisAgreement.
b) LossofvalueafterfailuretoassesscarbonexposureintheoilsandsAsnotedabove,ExxonMobilhaslargeinvestmentsinthecarbonintensiveandexpensiveresourcesintheoilsands,andhaveincreaseditsholdingsfrom17–35percentoftheliquidholdingsinthepastdecade31.ExxoninvestsinCanadathroughitsaffiliate,ImperialOil.In2015,ExxonMobilandImperial’soilsandsreserveswereestimatedat5.1billionbarrels,whichismorethandoublethanin2008.ImperialOilwerefamiliarwiththeriskofclimatechangeandpoliciestorestrictemissionsatleast15yearsago,perhapsasearlyas199132.Despitethis,constructionoftheKearlLakeprojectbeganonly8yearsago,in2008,andwascompletedatacostof13billiondollarsin2013.ExxonMobil’sofficialwebsitestillclaimsthatoilsandswillaccountfor25percentofthetotalliquidssupplyinNorthandSouthAmericain2040,andthatoilwillaccountfor1/3oftheenergysupplyin2040,risingby30percentcomparedto201033.However,inafinancialdisclosuredatedOctober2016,thevalueofExxon’soilsandassetswasreducedby70percent.Thismeansbillionsofthecompany’splannedbarrelsofoilfromtheoilsandswillbe“stranded”unlessoilpricesincrease34.TheKearlLakeassetswerede-bookedby3.5billion
30 ExxonMobil (2014) Energy and Carbon: managing the risks. Report, p. 16. 31 Kusnetz, N. (2016). “Exxon's Big Bet on Oil Sands a Heavy Weight To Carry”. InsideClimate News 30/09 2016. Retrieved from https://insideclimatenews.org/news/29092016/exxon-mobil-change-change-investigation-oil-sands-tar-sands-alberta-canada-sec 32 Kusnetz, N. L. Song and N. Banerjee (2016). With Oil Sands Ambitions on a Collision Course With Climate Change, Exxon Still Stepping on the Gas. InsideClimate News, 13.12 2016. Retrieved from https://insideclimatenews.org/news/12122016/exxon-climate-change-investigation-tar-sands-oil-development-canada 33 ExxonMobil.com: Canada’s oil sands. Retrieved from http://corporate.exxonmobil.com/en/current-issues/oil-sands/canadian-oil-sands/overview?parentId=c3ebc0ca-65e0-4116-9506-3c2ba8c4a568 34”Quantities that could be required to be de-booked as proved reserves on an SEC basis amount to approximately 3.6 billion barrels of bitumen at Kearl, and about 1 billion oil-equivalent barrels in other North America operations. (...) We do not expect the de-booking of reported proved reserves under SEC definitions to affect the operation of the underlying projects or to alter our outlook for future production volumes.” News release, ExxonMobil dated 28.10 2016. Retrieved from https://www.sec.gov/Archives/edgar/data/34088/000003408816000093/f8k3q991.htm
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barrelsofbitumeninlateJanuarythisyear35.ThoughExxonMobilhopestore-bookthematalaterdate,thislooksincreasinglyunlikelyinacarbon-constrainedworld.ItisalsoworthnotingthattheprovinceofAlberta,wheretheoilsandsarelocated,hasrecentlysetacaponemissions.Theprovincehasyettodecidehowthiswillbemonitoredorenforced36,butthecapmayaffectthevalueofExxonMobil’sresourcesinawaythatisnegativeforthecompany.
c) FailuretostresstestthecompanyportfolioIftheworldtakesthecarbonbudgetseriously,ExxonMobil’sportfolioisatriskandhasnotbeenstresstestedbythecompany,asdemonstratedbythreerelativelyrecentpapersandreports.InaNaturepaperfrom2015byMcGladeandEkins,theirmodel,basedonacost-efficiencyanalysisofwhichcarbonreservesmustremainundevelopedinaworldthatstayswithinthecarbonbudgetforlimitingglobalwarmingtoamaximumof2degrees37,findsthattheexploitationofCanada’soilsandsmustfallto“negligible”levelsafter2020tostaywithintwodegrees,andthatnoArcticoilandgascanbedevelopedwithoutgoingbeyondthislimit.ThisbudgethasbecomesignificantlytighteraftertheParisAgreement.AccordingtoareportmadebyclimatescientistandprofessoratBjerknesCentreforClimateResearch,EysteinJansen,theagreementleavesverylittleroomforbringingnewsourcesoffossilfueltothemarketinthiscentury38.AnotherstudyfromOilChangeInternationaluseddatafromRystadEnergitocalculatehowmuchcarboncanbeextractedandusedwithoutcrossingthethresholdof2degreesand1.5degrees,respectively.39Withoutlarge-scalecarboncaptureandstoragethereisalreadyenoughcarbonintheworld’scurrentlyoperatingfieldstotakeusbeyondatwo-degreewarming,sothatnotonlycoal,butalsooilandgasfieldswillhavetoclosebeforefullyexploitedtostaywithinthetemperaturelimits.Othermodels,suchastheIEA’sWorldEnergyOutlook201640,allowforgreatermarginswithCCS,butarealsoonasignificantlytighterbudgetthanExxonMobil’spredictionscitedabove.AlthoughExxonMobilhascalledforaglobalcarbonpriceasaresponsetoclimatechange41,theabovesectionsdetailshowthecompanyhasfailedtoassesstheimpactcarbonpricingorotherlegal
35Crooks, Ed (2017) ”ExxonMobil forced to make cuts to reported oil and gas reserves” Financial Times 23.02.2017. 36 Giovanetti, J. (2016). Alberta bill would cap oil sands greenhouse gas emissions. The Globe and Mail, 01.11 2016. Retrieved from http://www.theglobeandmail.com/news/national/alberta-bill-would-cap-oil-sands-greenhouse-gas-emissions/article32638790/ 37 McGlade, C., & Ekins, P. (2015). The geographical distribution of fossil fuels unused when limiting global warming to 2 [deg]C. Nature, 517(7533), 187–190. Retrieved from http://dx.doi.org/10.1038/nature14016 38 Jansen, E. (2016). Klimaendringer og klimarisiko. Kunnskapsstatus 2016 Klimafaglig bakgrunnsnotat. Norsk Klimastiftelse: Rapport nr. 05/2016. Can be retrieved from http://klimastiftelsen.no/publikasjoner/ 39 Oil Change International (2016). The Sky’s Limit: Why the Paris Climate Goals Require a Managed Decline of Fossil Fuel Production. Retrieved from http://priceofoil.org/2016/09/22/the-skys-limit-report/ 40 International Energy Agency (2016). World Energy Outlook. Executive Summary. Can be retrieved from http://www.iea.org/newsroom/news/2016/november/world-energy-outlook-2016.html?utm_content=buffer7b149&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer 41 ExxonMobil. Corporate Citizenship report 2015. Retrieved from: http://corporate.exxonmobil.com/en/community/corporate-citizenship-report/download-the-full-ccr-report-and-highlights
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andinstitutionalframeworkstolimitgreenhousegasemissionsmighthaveonitsresourcesandassets.Itsrejectionofadviceonclimateriskalsoextendsbeyondoilsandandcarbonpricing.AslateasSeptember2016,ExxonMobil’sVicePresidentofPublicandGovernmentAffairswrotethatcancellingArcticoffshoreleasinginAlaskawouldunderminelong-termenergysecurityintheUSandurgedto“keeptheArcticintheplan"42.Suchstatementsdirectlycontradictwhatiscurrentlyknownaboutthecarbonbudgetandtheamountofknowncarbonresourcesthatcanbeburnediftheworldistolimitglobalwarmingtotwodegrees.Italsoreflectsbadlyonitsfinances:Thefinalquarterreportof2016,whichbrokethenewsinearly2017,showsthatExxonMobil’squarterprofitsfell40percentafteritwrotedownsomeofitsnaturalgasassets43.ExxonMobildoesnotclaimenvironmentalreasonsforthesereductions,butratherthelowoilprices,whichtheyhopewillincreasetomaketheresourcesviablewhenpricesgoup,showingitslackofbeliefinmeaningfulactiononclimatechange.
4. ConclusionandrecommendationsAclimatecriterionhasbeenincludedintheGovernmentPensionFundGlobal’sEthicalguidelinesafteralongandextensivepoliticalprocess.Theclimatesituationmustbedescribedasdramatic.ItisfarfromcertainthatthegoalsintheParisAgreementofkeepingtemperaturechanges“wellbelow”2degreesorcloserto1.5degreescanbereached.Bytheendofthecenturytheaveragetemperaturemayhaveincreasedfarmore,possiblyaround4degrees.Evena2-degreeincreaserepresentsadangerousdevelopment,withmajorharmfuleffects.Withoutpromptandefficientaction,weareheadingtowardsafutureclimatecatastrophe.Todaythisknowledgeiswidelyavailable.Theheadsoftheoilcompaniesknowthis.ThemembersoftheCouncilonEthicsknowthis.When“oursharedassets”areinvestedincompaniesthatovertheyearshavesignificantlycontributedtothiscatastropheandcontinuetodoso,thisishighlyobjectionableandethicallyunacceptable.Givenwhatwenowknowaboutthestatusofclimatechange,anoperationalisationoftheclimatecriterionmuststatethatagentswhohavemadeandcontinuetomakeindependentandsignificantcontributionstowhatmayturnintoacatastropheformankind,andalsohelppreventthenecessaryremediarymeasuresfrombeingmade,areviolatingfundamentalethicalnorms.Thesenormsarealsoexpressedinourforemostsourceoflaw,theNorwegianConstitution.AccordingtotheConstitution§112–whichisbasedonbothethics,naturallawandhumanrights–everyone,includingourdescendants,hastherighttoliveinahealthyenvironmentandinanature
42 McCarron, Suzanne, 2016. ”Keep the door open for Arctic energy” ExxonMobil Perspectives blog, 26.09 2016 https://energyfactor.exxonmobil.com/perspectives/door-open-arctic-energy/ 43 Scheyder, E. (2017). ExxonMobil quarterly profit drops after asset write-down. Reuters, 31.01 2017. Retrieved from: http://www.reuters.com/article/exxon-mobil-results-idUSL1N1FK1JJ
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wherebiodiversityandtheearth’sreproductiveabilityissafeguarded.Thegovernmenthasalegalobligationtocarryoutmeasurestoensurethis.Theon-goingandfutureclimatechangesposeamajorthreattocurrentgenerationsandtoourdescendants.Acknowledgementofthegravityofthesituationintensifiesthedemandsmadeonallagentsinsociety,includingtheGovernmentPensionFundGlobalanditsCouncilonEthics.ItistheCouncil’stasktodevelopapracticeinlinewithParliament’sintentions,andthechallengethestateoftheclimaterepresents.Theclimatecriterionmustbeoperationalised–theprovisionshouldbeimplemented.Apracticeshouldbedevelopedthatisapplicableacrossmanysectors,wherethedecisionsmadeattheinitialstagesetaprecedentfortheCouncil’sfuturework.BasedontheGovernmentPensionFundGlobal’ssizeandposition,thepracticedevelopedbytheCouncilonEthicswillalsobeimportanttomanyotherminorandmajorinvestors.Majoroilcompanieshaveindisputableresponsibilityforsubstantialgreenhousegasemissions,andthereforerepresentonegroupofcompaniestheCouncilshouldfocusitsattentionon.Withinthiscategory,itwillbeappropriatetostartwithacompanythat:
- haveagreathistoricalresponsibilitythroughtheiractualemissionsandthroughtheiractionshavehelpeddelaythetransitionprocessthatclimateresearchershaveclearlystatedthatweneedtoacceleratefordecades.
- havelargereservesofexpensiveandcarbon-intensivepetroleumresources,andbasetheirbusinessmodelonthefailureofclimatepoliciesandtheaimsoftheParisAgreement.
- Rejectshareholderinitiativesthatseektoenterintodialoguewiththecompany’sBoardofDirectorsandmanagementtoachievegreaterawarenessoftherisksintensifiedpoliciesagainstclimatechangehaveforthecompany’soperations,andpromoteadjustmentsthatbringthecompany’sbusinessmodelinlinewiththedemandsofclimateresearch.
ExxonMobilisthistypeofcompany.ItisthereforesuitableforassessmentagainsttheclimatecriterionwhentheCouncilonEthicsoperationalisesthenewprovision.Aswehavedemonstratedabove,therearemanyreasonstobecriticalofExxonMobil’scurrentandfutureinvestments.Insection2a–d,weshowthatExxonMobil’sactionsshouldcauseseriousconcern:
- ExxonMobilhassignificantresponsibilityforhistorical,currentandfuturegreenhouseemissions,andhaveahighlycarbon-intensiveportfolio.
- ExxonMobilhasdeliberatelyattemptedtomisleadpublicopinionanddecisionmakersregardingthegravityofclimatechange.
- ExxonMobilrejectsallattemptsfromshareholders(andothers)whowishtoinfluencethecompanytotakeenvironmentalconcernsmoreseriouslyandadaptitsoperationsinaccordancewiththeaimsoftheParisAgreement.
- ExxonMobilisunderinvestigationforhavingmisledinvestorsandthepublic,butshowlittlewillingnesstocooperatewiththegovernment.
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Insection3a–cwedemonstratehowmeasurestoreducegreenhousegasemissionsinlinewiththeParisAgreementposeasignificantthreattoExxonMobil’sassets,thevalueofwhichmaybeseriouslyreduced.Theoilsandoperationsinparticularareatseriousrisk,asevidencedbythefactthatthecompanyrecentlyhadtoremove3.5billionbarrelsfromitsreportedreserves.Competitionfromlesscarbon-intensivepetroleumreservesandincreasinglycheaprenewableenergycouldreducethevalueofExxonMobil’soperations.IfExxonMobilcontinuesitsbusinessaccordingtothesamepattern,thecompany’soperationswillcontributegreatlytothefailureofallscenariosthatallowthelimitingofglobalwarmingtotwodegrees.FortheGovernmentPensionFundGlobalitisparticularlyrelevant–andworrying–thatExxonrejectsproposalsandresolutionsthatcallforgreatertransparencyandawarenessofclimaterisks–thatis,thequestionofhowthecompany’soperationswillbeaffectedinasituationwherestricterclimatepoliciesandtechnologicalchangeaffectthecompany’sbusiness.TheNorwegianClimateFoundationasksthattheCouncilonEthicsapplytheprovisionsinsection3d)oftheethicalguidelinestoExxonMobilandexcludethecompanyfromtheGovernmentPensionFundGlobal’sportfolio.Thiswillhelpsetaprecedenttoexcludealsoothercompanies,acrosscarbon-intensivesectors,that:
- havebeen,arecurrentlyandwillcontinuetoberesponsibleformajorgreenhousegasemissions.
- haveworkedorareworkingtopreventorimpedepoliticaleffortstoreducegreenhousegasemissions,includingbyactivelyspreadingmisinformationaboutthegravityofclimatechange.
- buildtheirfuturebusinessontheexpectationthattheaimsoftheParisAgreementwillnotbereached.
- Rejectinitiativesbyshareholdersandotherscallingforgreatertransparencyaroundclimatereportingandclimaterisks.
WehopethattheCouncilonEthicswillconsiderourrecommendations.Sincerely,TheNorwegianClimateFoundation
PålW.Lorentzen Lars-HenrikPaarupMichelsenChairman Director
