// REENERGIZE EXXON
February 22, 2021
Board of Directors
Exxon Mobil Corporation
5959 Las Colinas Boulevard
Irving, Texas 75039
Attention: Darren Woods, Chairman & CEO
Ladies & Gentlemen,
We believe that for Exxon Mobil Corporation (“ExxonMobil” or the “Company”) to avoid the fate of other once-iconic American companies and reposition itself for long-term, sustainable value creation, the Company needs a more disciplined capital allocation strategy, improved long-term strategic planning, more shareholder-aligned management compensation, and a Board of Directors (the “Board”) with the skills, experience, and independence to make these goals a reality. As many long-term investors have also made clear, this will require ensuring a future for ExxonMobil in a rapidly changing world, including by putting the Company on a path to net zero total emissions by 2050. This is not just a climate issue but a fundamental investor issue – no different than capital allocation or management compensation – given the immense risk to ExxonMobil’s current business model in a rapidly changing world. We believe that realizing a path to net zero emissions in a way that is sustainable, transparent, and profitable over the long- term will require directors with successful track records across the energy spectrum and a diversified set of insights into the evolving trends, technologies, markets, and policies shaping the industry’s future.
In an apparent acknowledgment of investor sentiment, ExxonMobil has now gone from dismissing emissions reduction goals as a “beauty competition” to claiming repeatedly this month that its emissions reduction plans are “consistent” with the Paris Agreement.1 We have therefore reviewed the Company’s claims with a number of experts, including Professor David Victor at the University of California San Diego, who was a convening lead author for the Intergovernmental Panel on Climate Change (IPCC), which provides the analysis that underpins the Paris Agreement. After doing so, we believe it is clear that, as detailed below, the Company’s true trajectory is nowhere near Paris consistency, and that a clear understanding of ExxonMobil’s claims underscores the long-term risk facing the Company in a decarbonizing world. None of the Company’s new claims change its long-term trajectory, which would grow total emissions for decades to come. This is not consistent with, but rather runs directly counter to the goals of the Paris Agreement. We also continue to believe that without new members of the Board with the necessary expertise and experience, ExxonMobil will have little choice but to continue seeking to create the appearance of transformative long-term change, rather than working to make it a reality.
Narrow Definition of Emissions Inconsistent with Paris Goals. The Company stated this month that its greenhouse gas (GHG) emissions have declined by 6% since 2016, that it plans for an 11-13% decrease by 2025, and that such reductions are “consistent” with the Paris Agreement.2 We estimate, however, that this figure excludes ~90% of ExxonMobil’s total emissions.3 While ExxonMobil is unfortunately not the only company that relies on a methodology that excludes much of its total emissions, such exclusions are not consistent with the Paris Agreement and a full accounting of the Company’s emissions makes the long-term risks to its business clear.
Shortsighted View of Paris Alignment. ExxonMobil only sets emission reduction plans for 2025, whereas policies aligned with the Paris Agreement target net zero emissions by 2050.
Putting Carbon Capture into Proper Context. It is true as ExxonMobil says that the IPCC and International Energy Agency (IEA) have noted that carbon capture is critical for a 2° C pathway. However, these bodies have made clear that carbon capture is not a substitute for dramatically reducing conventional fossil fuel usage, but instead is required alongside such reductions.8 As a result, there is little, if any, chance that carbon capture will enable ExxonMobil or any other oil major to avoid transforming its business over the long-term should the pace of global decarbonization accelerate in accordance with the Paris Agreement goals.
We have also reviewed ExxonMobil’s claims regarding its repositioning efforts with our nominees:
We believe that these nominees, each of whom brings skills and experiences that are unique to them yet directly relevant to ExxonMobil, would have been unlikely to sign off on such claims regarding the Company’s progress in transforming its business. We say this not only because we believe they would have recognized how these claims would appear when scrutinized, which the current Board either did not or did but approved regardless, but also because these nominees understand what true energy industry transformation looks like and how far ExxonMobil is from achieving it. Likewise, while such transformation will not happen overnight and will be immensely challenging, we believe that without the necessary Board expertise such transformation will be close to impossible. While the Company has pointed to the frequency with which the Board refreshes itself, we believe it is telling that such refreshment over the years has not been accompanied by a new direction or material progress on these issues. We believe that enhancing the Company’s long-term future requires a clean break with the past, and we look forward to continuing to make the case for real change at ExxonMobil.
Engine No. 1 LLC
1See, e.g., Press Release, ExxonMobil, A Message from Darren Woods to Employees (Feb. 12, 2021) (“ In the fourth quarter, we announced new emissions reductions plans for 2025 that are consistent with the goals of Paris.”)
2ExxonMobil, Fourth Quarter 2020 Earnings – Webcast Presentation Materials, at page 24 (Feb. 2, 2021).
3Scope 1 & 2 emissions represent an estimated ~17% of the Company’s total emissions (see footnote iv) and we estimate based on Rystad data from 2018 (see footnote vii) that operated production represents approximately 50% of total production. Capturing 17% of emissions on ~50% of production would amount to ~10% of total emissions.
4ExxonMobil, 2021 Annual Energy & Carbon Summary (Jan. 5, 2021). 120 million tons of 2019 CO 2 – equivalent Greenhouse gas Scope 1 & 2 emissions, at page 38. 570 million tons of Upstream Scope 3 emissions, at page 43.
5Press Release, ExxonMobil, ExxonMobil announces emission reduction plans (Dec. 14, 2020).
6See, e.g., Robert G. Eccles & Colin Mayer, Can a Tiny Hedge Fund Push ExxonMobil Towards Sustainability, Harvard Business Review (Jan. 20, 2021) (“[ExxonMobil’s] poor capital allocation decisions are based on decades of denial about climate change on the company’s strategy.”). See, also, Elliott Negin (Oct. 22, 2020). ExxonMobil Claims Shift on Climate But Continues to Fund Climate Science Deniers. Union of Concerned Scientists (“All told, ExxonMobil has spent more than $37 million on climate science denier organizations from 1998 through 2019.”)
7Rystad Energy (2018). We note that ExxonMobil does however include its attributable percentage of such non-operated assets in its reported production and reserves. We also note that while not included in its emission reduction plans, the Company does track its Scope 1 & 2 emissions from non-operated assets, as disclosed in its 2021 Energy and Carbon Summary.
8IEA. Going carbon negative: What are the technology options? (Jan. 30, 2020)
9For example, the cost of the recent Northern Lights project to capture carbon from industrial processes launched by Equinor, Shell, and Total is expected to reach approximately $2.7 billion. (Bojan Lepic (Sept. 21, 2020). Norway to launch $2.7 billion Longship carbon capture and storage project. Offshore Energy).