ExxonMobil investments to be reviewed by shareholders

Corporate Social Responsibility business standards are quite rightly moving to the forefront of active concerns amongst corporate shareholders. It’s an extremely encouraging sign that those with a stake in corporations are demanding more transparency and detailed information about the current and planned agendas for the company in which they play a part. Above all I see it as a lasting indication that the days of profit at all costs are slowly moving into the rear view mirror, perhaps not for all companies yet but certainly more rapidly for those with a high profile and that are very publicly traded. When added to the fact that your primary operations are in an industry as combustible as energy, the worlds leading oil producers are going to find themselves under ever more intense scrutiny from shareholders. In theory at least this will only lead to improved CSR standards and more forward planning, risk aversion and environmental consideration.

ExxonMobil are one such company and news has broken this week that Green Century Capital Management have filed an important shareholder resolution with the oil giant. On the table is ExxonMobil’s substantial invest in Canada’s huge oil sands/tar sands region in Northern Alberta. As a current and more importantly future source for oil reserves the region is considered by oil executives to be energy’s holy grail of sorts, but at what cost?

The price of oil? Alberta forests before and after tar sands projects

What isn’t in doubt is the vast extent of oil in the region, amongst known reserves it lays claim to being the second largest on earth with more than 170 billion barrels in reserve. The issues appear when the act of acquiring the oil come into play. Shareholders feel that the costs and risks need further scrutiny before the entire project moves into inevitable overdrive. The financial bounty of such reserves is not in doubt, global demand continues to escalate and one of the issues that had slowed tar sands production is less a factor now than before – cost. With global oil prices continuing to rise, adding the Canadian source to the market is no longer the hindrance it once was which probably not coincidentally is why ExxonMobil are now looking to ramp up production. Unrelated to the fiscal aspects are the environmental risks and damages and further exploration of those factors are key to the shareholder resolution.

Extracting the oil from the region has two very important considerations, firstly  acquiring access to the land where the oil sits requires clearcutting, or clearfelling, which is an awful environmental practice which entails most or all trees in the area to be uniformly cut down. Associated impacts to climate change and natural habitats are self explanatory. In addition according to studies oil extraction processes needed in tar sands release at least 15% and potentially up to 40% more carbon emissions than in conventional oil sourcing. While these two factors are key the other associated risks of oil spills and long term environmental impact are also part of the disclosure being sought.

While ExxonMobil have been very bold about viewing the region as especially good for the economy and energy no mention is made of the environment. However the case is dressed up the process is not good for the environment. Nor in fact is the prolonged dependence on oil, but perhaps that is a bigger matter entirely. Just this month a sizable leak of 28,000 barrels of oil occurred that was the result of a pipeline leak in a 44 year old section. Over the next decade oil production in the region is expected to triple, common sense suggests that the resultant risks will also inflate by the same amount. Larisa Ruoff, Director of Shareholder Advocacy for Green Century summarised:

“ExxonMobil’s considerable investments in the oil sands expose the company to significant financial and regulatory risks, yet the company fails to provide meaningful disclosure on this important issue. Without transparency, shareholders have no way of knowing how the company is managing and mitigating these potential risks. We believe this strong vote indicates that a substantial portion of the company’s shareholders support increased transparency and accountability related to its oil sands operations and we encourage the company to respond swiftly and fully to its investors,”

I’ll be fascinated to learn what comes of this inquiry in the months ahead. While it would probably be too optimistic to expect the project to be shelved or dramatically slowed, at the very least it should result in ExxonMobil providing better safeguards, improved accountability and a clearer understanding of the risks of the project. Perhaps a more purposeful application of corporate responsibility practices in the early stages will see a complete change of tact, not just in the oil industry but more broadly. Either way such demand for transparency from shareholders at the outset of new investment can only be a good thing.

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