Oil giant ExxonMobil's positioning in the climate change debate has left it highly exposed to campaigners who are proving inventive in damaging its reputation - while its dismissive stance on renewable energy is increasingly at odds with growing policy support for the sector.

ENDS environmental report is a leading UK journal of environmental policy and business.

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Cover story, ENDS environmental report, July 2002

Oil giant ExxonMobil's positioning in the climate change debate has left it highly exposed to campaigners who are proving inventive in damaging its reputation - while its dismissive stance on renewable energy is increasingly at odds with growing policy support for the sector. Increasing activism on climate change by institutional investors and an intensifying debate on the issue in the US are also increasing its exposure - but there are no signs yet that it is ready to budge.

Experience suggests that big companies should be wary of using their muscle against environmental organisations - and that resorting to legal action can be a particularly perilous course. Taking an environmental group to court risks creating the public perception that a corporate giant is abusing its power. There is also every prospect of getting tied up in lengthy legal proceedings which may prolong the period of adverse publicity - and of exposing oneself to creative retaliation by the defendant.

ExxonMobil has quickly been given reason to ponder the wisdom of taking proceedings against Greenpeace. In July, its Esso France subsidiary asked a Paris court to ban the group's StopEsso campaign from using the company's name as its logo, with the double S replaced by two dollar signs. Esso invoked trade mark law, but also claimed that the crossed Ss "conjured up" the insignia of the SS - a likeness which had escaped general notice.

Esso won a partial victory. The court ordered StopEsso to cease using the modified Esso name on its website, on pain of a daily penalty of €5,000 - much less than the €80,000 sought by the company.

The court also refused to order the campaign to remove the word Esso from the source code on its website. The company is doubtless infuriated that StopEsso's site comes up first in web searches for Esso. But the court concluded that "the encroachment on the principle of freedom of speech...would be disproportionate."

That, though, is only the beginning of the story. Greenpeace is appealing against the judgement, with a hearing likely in October - guaranteeing further publicity.

Meanwhile, visitors to the campaign's French website will find the offending logo covered with a stamp reading: "Censored by Esso".

Then, in late July, the campaign set up an uncensored French language version of its website on a server near Houston, Texas - in ExxonMobil's heartland.

Brand damage

Esso denies that the campaign has affected its sales - but it must have been feeling bruised to launch the legal action in France. A spokesman declined to say whether similar actions are planned in other countries.

StopEsso was launched in the UK in May 2001. It is now active in France, Germany, Luxembourg, the US and Canada - and may soon extend further.

The campaign is run by Greenpeace, Friends of the Earth and People & Planet, the students' environmental organisation. Its UK supporters include the Royal Society for the Protection of Birds and the Women's Institute, with one million and 240,000 members, respectively. Both have helped StopEsso's campaign for a boycott of Esso outlets by directing their members to its website.

The campaign launched a series of actions around the time of ExxonMobil's annual general meeting in May. Greenpeace activists blocked access to Esso's refinery near Le Havre in France, and draped banners protesting about the group's climate change policy from the roof of its headquarters in Germany.

In the UK, activists leafleted motorists at almost 400 Esso petrol stations - a bigger turnout than on the first Stop Esso day last December.

StopEsso's co-ordinator, Cindy Baxter, believes that the company is unquestionably suffering damage to its brand. ExxonMobil is now regularly quoted in media articles on corporate social responsibility as an example of how not to do it. In the UK, Esso recently advised the National Tree Council to drop its name from the national tree week event which it has sponsored for the past six years.

Ms Baxter also says that younger Esso employees are now confessing to be "embarrassed to be working for this company." Likewise, she claims, Esso petrol station franchisees are saying: "'We don't like what this company's doing about climate change'."

Why target ExxonMobil, rather than BP or Shell? Because, says Ms Baxter, what they are not doing is "feeding climate sceptics or pushing the Bush administration away from the Kyoto Protocol."

StopEsso's key goals are to persuade ExxonMobil to follow BP and Shell in investing in renewable energy and, most importantly, to stop backing the Bush administration in retreating from the Kyoto Protocol and, indeed, actively to support it.

Climate activists get support

In the US, meanwhile, a resolution tabled at ExxonMobil's AGM requesting management to prepare a plan for investing in renewable energy attracted 20.3% of shareholders' votes - a big increase on last year's 8.9%.

The proposal was drafted by Campaign ExxonMobil, an alliance of religious institutional shareholders and environmental groups. This year, they persuaded New York City's pension fund, which holds $80 billion in assets, to co-file the resolution.

A critical factor behind the increased vote was a recommendation by Institutional Shareholder Services that investors back the resolution. ISS is a leading provider of proxy voting and corporate governance services. Pete Altman, coordinator of Campaign ExxonMobil, says ISS is "not a progressive institution...Its only concern is with the bottom line, and persuading them to support the resolution was a testament to the risks ExxonMobil faces."

A perspective of those risks was set out in a report commissioned by Campaign ExxonMobil and CERES, a coalition of 85 investor and public interest groups working to promote corporate environmental responsibility.

Written by UK-based Claros Consulting, the report acknowledges that ExxonMobil has excellent financial management which has delivered good returns to shareholders. However, Claros believes the company has now "marched into a potential minefield of reputation risk, future shareholder losses, exposure to litigation and policy costs on the issue of climate change."

The report argues that, while ExxonMobil has allowed itself to be singled out as the major corporate impediment to political action to address climate change in the US, it is actually better positioned to adapt to policies to tackle greenhouse gas emissions than many of its competitors.

The company has healthy gas reserves which would benefit from policies curbing demand for coal, its business model is less dependent on aggressive growth than those of some major competitors, and its financial discipline gives it greater flexibility to diversify into clean energy. Its cash position could also be enhanced by revenues from emissions trading.

"The real threat to shareholder value," Claros concludes, "comes not from climate change itself, but from how ExxonMobil is responding to that challenge." The report values the potential risks which the company is inviting with its "lose-lose strategy" at tens of billions of dollars of market capitalisation - whereas a "win-win" strategy could protect or even enhance shareholder value.

Climate actions in perspective

ExxonMobil sees things very differently. Its strategy involves a combination of limited voluntary actions in the short term, coupled with research into technologies with the potential dramatically to reduce greenhouse gas emissions some way ahead.

Key components of the strategy are:
Accounting for emissions: Political support for greenhouse gas emissions reporting to a national registry, initially on a voluntary basis, is building in the US. ExxonMobil supports the idea, and is involved in industry efforts to develop reliable measurement and reporting protocols.

Energy efficiency:The company supports cost-effective investments in energy efficiency. It has reduced energy consumption per unit of output in its refineries and chemical works by 37% between 1973 and 1998 - and sees scope for another 15% improvement over the next few years.

Carbon storage: ExxonMobil advocates policies to protect and expand forests and promote soil management practices which sequester carbon dioxide "where economically justified".
Research and development: ExxonMobil believes that the key challenge is to tackle emissions from end users, who account for 87% of the total CO2 emitted from oil extraction, processing and use. Last year, it invested $12 million in research on CO2 reduction. Part of this went on a collaboration with Toyota and General Motors to develop an on-board reformer which converts petrol into hydrogen to power fuel cell vehicles.

ExxonMobil makes much of these policies and initiatives in its publications and dialogue with institutional investors. They do, however, need to be seen in perspective.

Energy efficiency: Dr Frank Sprow, the company's vice-president for safety, health and environment, says that benchmarking exercises carried out annually between major oil companies show very little difference in their greenhouse gas emissions per unit of output.

However, the 37% improvement in energy intensity achieved by the company over 25 years does not appear to be anything out of the ordinary. In the UK, the chemical industry recorded a 61% improvement in energy intensity in the 18 years to 1998, while the energy intensity of UK industry as a whole improved by 62% from 1970 to 1998.

Targets:
While ExxonMobil sees potential for a further 15% improvement in energy intensity, it does not plan to follow BP and Shell in translating this into a target.

Dr Sprow commented: "That is just generally not the way we run the rest of the business," with improvements being secured by management pressure, dissemination of best practice, and regular reviews.

BP met its target to cut its operational greenhouse gas emissions by 10% from 1990 levels by 2010 last year but Dr Sprow drew attention to the fine print of its announcement. This shows that BP feels unable to stick with its pledge to keep emissions at current levels to 2012 without a healthy supply of project-related carbon credits.

Dr Sprow was also scornful of the idea that an emissions target would send an important signal to the outside world. ExxonMobil wants to be judged by "what we've done", not by "a bunch of blustering statements," he said.

Carbon storage: ExxonMobil's advocacy of carbon storage in forests and soils sits uneasily alongside its demands for sound science and accurate carbon inventories. Scientific bodies, including Britain's Royal Society, have expressed substantial concern about both the reliability of current methods of quantifying carbon stocks in trees and soils and the permanence of those stocks.

Research: ExxonMobil's research investments in CO2 reduction amount to 2% of its total research expenditure.

A major advantage of the technology which ExxonMobil is developing with GM and Toyota is that it would dispense with expensive investments in infrastructure to supply alternative fuels for use with fuel cells. However, this technology is competing with several others, including some likely to perform better in greenhouse gas terms. and there is no guarantee that it will become a preferred option.

Dim renewables prospects

For activists, it is ExxonMobil's attitude towards renewable energy which has become the litmus test.
The company was, in fact, one of the oil industry's earliest entrants into renewables, investing $500 million in the sector before deciding in 1993 that it could not develop technologies likely to compete.

That remains its position today. Setting out its arguments against the renewables resolution at this year's AGM, ExxonMobil insisted that investing in renewables ran a greater risk of poor returns than other opportunities, and would dilute shareholder value.

The company contends that renewables face "significant cost and reliability disadvantages", and will give rise to "significant" environmental impacts. It believes that the sector's growth will, "for the foreseeable future", remain "highly dependent" on support from public policies and subsidies.

ExxonMobil foresees solar and wind power together claiming no more than a 0.3% share of the world's energy supplies by 2020. It also cited "a scenario" published by one of its competitors "in which renewables go through a boom and bust phase over the next 20 years" and "do not become truly competitive until after 2040."

Misleading on renewables

There was a sleight of hand about those last remarks which can only have been deliberate. In fact, the scenario - one of two published by Shell last autumn - envisaged renewables growing rapidly to reach 10% of global energy supplies by 2020. Growth then stalls due to environmental, cost and grid reliability constraints - but it recovers towards 2040, with renewables supplying a third of global energy by 2050.

Even odder is ExxonMobil's attitude to developments in renewables policy around the world. To identify a few, these include the UK's target to generate 10% of electricity from renewables by 2010, the EU target to increase electricity supplies from renewables to 22% by the same year, the US Democratic Party's support for a target to generate 20% of electricity from renewables by 2020, last year's report by a G8 task force on how renewable energy could be brought to a billion people in developing countries by 2012 . and similar proposals for the Earth Summit in Johannesburg .

Dr Sprow is scathing about these initiatives, dismissing them as the fruit of "politics" rather than "science and technology". "It would be disingenuous on our part, or on any knowledgeable person's part," he insists, "to suggest that renewables are going to become a large player in the energy area in the next 20-30 years." It is almost as if political decisions have no place in creating new commercial realities for energy businesses.

That said, ExxonMobil maintains that it is "well positioned to consider re-entry" should technology enable renewables to flourish outside niche applications. But that appears unlikely any time soon.

Pat Mulva, vice-president for investor relations, points out that "large institutional investors remain strongly supportive of company management" on the issue. "We stay with what we are committed to do. Shareholders don't want us to take ninety degree turns."

Investor activism
There is, however, a wind of change blowing through the US investment community. The Enron scandal and its aftermath have added impetus to an emerging trend of activism among institutional investors - and it has made its mark on climate change.

This year, according to the Investor Responsibility Research Centre, 18 companies received resolutions on climate change. Eleven of these were withdrawn after the firms agreed to enter into dialogue about their emissions and reporting practices.

For the seven resolutions put to a vote, the average vote in favour was 18.6% - double that in 2001. There was also a new individual record, with 29.7% of Eastman Chemical's shareholders backing a proposal that it report on its emissions.

With this year's results, IRRC says, "global warming has gone from the middle of the pack in terms of shareholder support for social issues proposals to being one of the standout performers."

Pat Mulva is aware of the trend - but does not believe there is any inevitability that it will continue. But Campaign ExxonMobil is upbeat about next year's AGM. A spokeswoman commented: "We expect to see more new faces among institutional investors brought into our ranks in 2003 and beyond."

Perfect storm brews
The pressure on US investors to take climate change risks seriously is being fed by a steady stream of reports from the environmental and socially responsible investment communities.
In April, CERES issued a report which saw a "perfect storm" brewing on the issue, stirred up by a "convergence of the corporate transparency, shareholder activism and sustainable development agendas."

Multi-billion dollar losses are distinctly possible as a result of climate change, the report warned. "Unfortunately, US corporate directors and institutional investors are, virtually without exception, in a state of double denial. First, they are in denial about the very existence, much less the magnitude, of the threat itself. Second, and paradoxically, they also seem oblivious to both the practicality and the affordability of early mitigation measures."

The report set out a prospectus for action for both groups. Measures urged on investors included portfolio-wide assessments of risk exposures, incorporation of climate change considerations in investment strategies, and demanding disclosure of information on climate risks from firms seeking consideration as investment candidates.

A portent of things to come came in May, when 30 investors controlling almost $5 trillion of assets wrote to the FTSE Global 500 asking for information on their greenhouse gas emissions and the costs of meeting specific abatement scenarios. ExxonMobil has responded by forwarding its new corporate citizenship report - which lacks most of the requested information.

Value of climate risks

Another contribution to the debate came in July in a report by the World Resources Institute. This reviewed the potential impact of climate change policies on 16 major oil and gas businesses.

The report estimates that the most likely financial impacts of a range of climate policy scenarios will vary between a 5% loss in shareholder value to a slight gain for different companies.

Intriguingly, ExxonMobil performed comparably to BP and Shell. The projected impact of climate policies on all three was a reduction of about 2% in their asset values.
This may seem surprising in view of BP's and Shell's emission reduction targets, internal emissions trading schemes and investments in renewable energy. But the latter, WRI's report points out, remain "an almost insignificant component of these companies' asset bases from the perspective of fundamental analysis."

This may seem reassuring to ExxonMobil - but that is not the end of the analysis. The report notes that much will depend on the weight investors attach to the qualitative aspects of company performance. BP and Shell's renewables investments may be small, but they may signal a corporate preparedness for policy changes. Likewise, the StopEsso and Campaign ExxonMobil movements pose a reputational risk to ExxonMobil which is not borne by others in the sector.

US debate intensifies

The political tide is also turning in favour of action on climate in the US, according to a report published in June by the Pew Centre on Global Climate Change. The report documents unprecedented levels of activity on the issue - in Congress, where twice as many climate change measures were introduced in the past year as in the previous four combined, at state level, and by major businesses setting themselves emission targets.

All this activity does not amount to a good short-term prospect for major emission reduction measures, according to the Pew Centre - but "a genuine debate over US climate policy has begun."

ExxonMobil's Frank Sprow says that shifts in US climate politics should not be confused with support for the Kyoto Protocol. The overwhelming body of US political thought remains, he says, that mandatory controls of the kind embodied in the Protocol "is just not something that washes in this country. I don't see that changing at all."

Maybe so. But despite their confidence in their company's financial excellence, technological prowess and political access, ExxonMobil's executives must just occasionally be reflecting that all the pointers suggest they are in for an increasingly rough ride without a fundamental rethink of their climate change strategy.

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