Nobody loves to see a showdown between short-term-minded corporations and long-term-minded shareholders more than I do, but it’s time to call a spade a spade — too many of these battles being fought now have become little more than grandstanding, serving no real purpose for change.
The latest example of these misguided missions? Exxon Mobil Corporation (XOM), which was recently called out by a group of institutional XOM investors that want more details regarding how the company is planning to deal with climate change mandates.
There’s not one thing wrong with expecting, or even demanding, an organization to be socially or environmentally responsible, and plan wisely for the future. Indeed, it’s wise for all companies to protect the planet and its inhabitants for the long haul, because without either, there is no “business” to be done.
On the other hand, it’s unreasonable to expect Exxon Mobil to answer questions there are no relevant, reliable answers to.
The ball got rolling in December when the so-called Paris Agreement was adopted by the world’s nations as a climate change playbook. Since then, some of the biggest XOM shareholders parlayed that premise into a shareholder proposal that would demand Exxon Mobil explain — in detail — how it would fare once that pact was put into motion on its mission of lowering the planet’s average temperature to the tune of 2 degrees.
As Edward Mason, Head of Responsible Investment for the Church Commissioners, explained:
“The resolution is part of a much wider trend following the Paris Agreement for investors to ask companies to improve disclosure on how they are positioned for the risks and opportunities posed by climate change.”
The matter will be put to a vote at the next annual meeting.
Fair enough. Climate change is real — real enough to merit an advanced discussion anyway — and shareholders are ultimately the company owners.
The big question is, though, what do these investors really hope to accomplish?
Reality Check for Exxon Mobil Shareholders
This is a harsh truth the people on either side of the climate change table aren’t apt to like: The energy industry spews a lot of toxins into the environment. Many are reabsorbed into the planet’s ecosystem and remain relatively harmless. Many others, on the flip side, make their way to places we don’t want them to be, including our food and water.
It would be unrealistic to think we can entirely rid ourselves of all toxic materials produced by energy production, but it’s not unrealistic to expect companies to quell the uncaptured toxins doing most of the damage the planet can’t fix on its own.
That’s the long way of saying the truth is somewhere in the middle of the message that both sides of the table are trying to shove down our collective throats.
As for what this has to do with Exxon Mobil, here’s another frustrating reality … the company doesn’t really know how climate change and plans to control it will impact its future performance.
No company knows that.
No company knows it, because the conditions that can and will shape the future will most assuredly change between now and then. At best, XOM would only be able to best-guess a response to the impending shareholder question.
The irony in all of this is that Exxon Mobil has arguably been one of the more forthcoming energy names to acknowledge climate change is a real issue, and then follow that up by doing something about it. Exxon Mobil’s climate change page on its corporate website is rather well featured and informative. It’s also invested in technologies — by choice — aimed at reducing greenhouse gas emissions, and continues to do so.
The company has also been proactive in terms of explaining the risks of greenhouse gases not just produced by it, but by an increasingly populated planet that’s simultaneously reducing its plant life that can remove a great deal of problematic gases from the atmosphere.
In December, for instance, Exxon Mobil made it clear to The Washington Post that global temperatures were likely to rise by 5 (or more) degrees in the foreseeable future, which would undoubtedly lead to alarming repercussions.
Yet, instead of focusing on consumption reduction and legislation that would assuredly address the core problem, at least a handful of shareholders have made a point of approaching Exxon Mobil as if it were an adversary rather than an ally.
It’s time to stop wasting time on demanding mere guesses to “what if?” questions, and start demanding investment in — and usage of — alternatives. That can’t be on Exxon Mobil’s shoulders alone.
That’s when it becomes a matter of money … the real litmus test for the group looking to Exxon Mobil for greater climate change clarity. If the consortium doesn’t like what it sees, is it really going to insist on ramping up investments in alternative energy solutions and start scaling out of the oil and gas business? Or, is it going to decide it would rather have profits now and (maybe) save the planet later? Boiled down to basics, that is the choice.
Sometimes it’s best not to ask a question you don’t really want to know the answer to.
Bottom Line for Exxon Mobil
As for how this latest twist might impact the value of XOM, it likely won’t in and of itself. This latest expectation though (which may not actually do anything of significance) does serve as a microcosm of a mentality that’s starting to affect the energy industry as a whole.
Small requirements are a precursor to larger regulations, and regulations have a tendency to eventually take a fiscal toll. And with the Paris Agreement now bearing down, some sort of new regulation is inevitable.
In other words, it’s yet another reason to look elsewhere for investment opportunities … not that you needed another reason.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
