Exxon Mobil considering cutting net-zero emissions to zero

Exxon Mobil considering cutting net-zero emissions to zero

Exxon Mobil Corp. is considering a pledge to reduce its net carbon emissions to zero by 2050, according to people familiar with the matter, in what would amount to a significant strategic shift by oil company

In March 2020, Exxon Chief Executive Darren Woods described ambitious carbon reduction targets which were made by some European rivals as nothing more than a beauty competition, saying the pledges lack tangible plans to achieve them.

Woods and other people on Exxon's board are now giving the same idea serious debate, said the people. Woods is facing pressure from investors to demonstrate a bolder path to reducing emissions. An activist hedge fund this year elected three new members of the board following a bruising proxy fight.

The Irving, Texas, company hasn't made a final decision on net zero pledge, according to the people. It plans to unveil a series of strategies on environmental and other issues before the end of the year, the people said.

Exxon spokesman Casey Norton said the company is committed to working at decarbonizing high-emission sectors and supports regulations that will spur that.

As the Board goes through its deliberations regarding future plans related to the company's energy transition activities, we routinely evaluate our work and commitments and will update our shareholders and the public as those plans evolve, Norton said.

Woods has said Exxon is committed to the goals of the Paris Climate Agreement, an international accord that aims to limit the increase in global average temperature to less than 2 degrees Celsius above preindustrial levels and pursue efforts to limit the increase to 1.5 degrees. He has stopped short of committing Exxon to a net-zero plan.

To date, Exxon has instead pledged to reduce its so-called carbon intensity or emissions as a proportion of total energy produced. It is unclear exactly what a new net-zero pledge would entail, but what is currently being considered would apply to the emissions directly generated by Exxon's assets and stemming from the energy that the company uses, the people said. That is known in climate disclosure as scope 1 and 2 emissions.

There is no one standard definition of how companies define net-zero emissions and specifics often vary, which has led some to dismiss the pledges as exercises in modern-day image management. Such goals generally aim to reduce a company's carbon footprint to neutral in the future.

Exxon lost three seats on its board of directors in May at its annual shareholder meeting to the hedge fund Engine No. 1, which argued that the energy company needed to act faster to invest in clean energy.

Senior executives within the company now believe it needs to refine its strategy to navigate the energy transition, and some of Exxon's biggest shareholders have told executives recently that they need to set more ambitious targets on climate change or risk further alienating investors.

Meanwhile, some people on Exxon's board have expressed support for a carbon neutrality pledge, according to the people. In particular Alexander Karsner, one of the Engine No. 13. A candidate elected to the Board of Directors and an executive in Alphabet Inc.'s Innovation Lab has pressed Woods to reposition the company to address climate change, the people said.

In a virtual board meeting in July, Woods suggested to Karsner that Exxon had not acted quickly enough to reduce its emissions, in an exchange that some of the people described as contentious.

Some of the other new directors said oppose Exxon, people familiar with the matter said. There were two people who have focused on trying to bring the new board members into the fold and having candid discussions about what needs to change, certain of them said.

Exxon has evaluated investments in renewable energy, biofuels and other technologies like carbon capture and storage. In recent conversations with the board, Woods shared Exxon's energy transition plans, including its evaluation of each option and the path to net zero, according to a person familiar with the matter.

After the new proxy fight, Exxon is releasing five historic directors in total. In addition to the three engine no. : Exxon appointed two new directors in a separate settlement with the hedge fund D.E. In the first in-person board meeting since the first directors joined the board last week, Exxon held its first Board Meeting since February 2, 2012. Woods described the meeting during an analyst call on Friday, when the company reported earnings.

Beginning in the last year, several large European oil companies including BP PLC and Royal Dutch Shell PLC made public commitments to reduce emissions from their operations and from assets they own but don't operate. Shell also set a net-zero emission target for its products.

How can companies actually achieve such targets? BP and Shell have begun selling renewable energy emissions and investing more in higher production of fossil fuels. In February, Exxon formed a new business unit to invest in low-emission energy technologies. It will initially focus primarily on carbon capture and storage projects that collect CO emissions from industrial processes or directly from the air and deposit them underground.

The announcements are occurring as Biden Administration focuses on how businesses respond to threats linked to climate change. The Securities and Exchange Commission is preparing to require public companies to disclose more information on the matter. Biden Administration officials said that poor reporting on climate change will improve investments in green companies, which helps governments reach the Paris Agreement's goals.

Woods announced in March 2020, at Exxon's annual investors day that companies would be required to sell oil and gas assets to accomplish net-zero targets, an exercise he said would simply move the emissions to a new operator.

All you're doing is moving from one company or one country to somewhere else, Woods said at the time. Instead, Exxon said in December it would reduce its methane emissions intensity by 40% to 50% and reduce its flaring intensity by 35% to 45% by 2025, which it said would reduce total emissions from production by 30%. Chevron Corp. and many other large U.S. oil producers have also made net-zero commitments.

Kevin Holt, senior portfolio manager of Invesco Ltd., says net zero pledges for scope 1 and 2 emissions are becoming the industry norm. As of March, Invesco owned nearly 400 million in Exxon stock according to S&P Global Market Intelligence.

It's table stakes at being in the business, Holt said. It's something you can go through if you want to be a responsible company.