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From Securities Regulation Daily, June 02, 2017

Exxon shareholders push climate change proposal as U.S. signals retreat from Paris Agreement

By Mark S. Nelson, J.D.

Exxon Mobile Corporation’s shareholders gave their backing to a proposal led by the New York State Common Retirement System and The Church of England asking Exxon to report on climate change risks. News of the Exxon shareholder vote comes as shareholders and states vow to keep pressing for limits on carbon emissions despite the Trump Administration’s plans to retreat from the Paris Agreement on climate change. Exxon remains the target of a New York investigation that has spurred a renewed effort by the state’s attorney general to subpoena the company’s internal documents on climate change.

SEC staff had previously indicated that Exxon could not exclude the climate proposal, which several major Exxon investors had supported, by invoking multiple provisions in Exchange Act Rule 14a-8. New York City Comptroller Scott M. Stringer praised the vote: "Today’s vote sends a clear message — the Exxon Board needs to take a hard look today at what a greener tomorrow looks like. Continuing to rebuff investors is no longer an option." Likewise, Edward Mason, The Church of England’s Head of Responsible Investment for the Church Commissioners, hailed the "historic" vote as an "unequivocal signal" to Exxon.

In advance of Exxon’s annual meeting, the company had touted its engagement with investors holding 25 percent of its outstanding shares, including discussions with stakeholders about its Energy & Carbon Summary. The company noted its support for the Paris Agreement, but also said that it believed its existing programs maintain shareholder value and industry leadership.

In another filing, Exxon disputed claims made by proxy advisory firms Institutional Shareholder Services and Glass Lewis about the latest shareholder proposal on climate change. According to Exxon, even assuming a two-degree Celsius goal, hydrocarbons will continue to serve a large market segment for decades. Exxon also recited how it reduces greenhouse gases itself and through services offered to its customers. As a result, Exxon reiterated its recommendation against approval of Item 12 – Report on Impacts of Climate Change Policies.

The Exxon shareholders’ proposal was largely based on the two-degree principle that is at the heart of the Paris Agreement. Article 2(1)(a) states, among other things, a temperature goal of:

Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change[.]

Article 4 urges signatories to achieve global peaking of greenhouse gases soon, with future "rapid" cuts using the best available science. Signatories that are developed countries are further urged to demonstrate leadership by fixing targets for emissions cuts.

President Trump recently announced the U.S. will withdraw from the Paris Agreement but also said the U.S. could either negotiate its re-entry or seek a new agreement on "fair" terms. The president also claimed that signatories may fall short of the Paris Agreement’s two-degree goal. Former Exxon CEO and Chairman Rex Tillerson is currently U.S. Secretary of State.

The Office of the New York State Comptroller said that global markets remain committed to lower carbon emissions and characterized the Trump Administration’s plans to withdraw from the Paris Agreement as evidencing "willful ignorance of climate change." The New York Comptroller cited the Exxon shareholder vote as a sign that markets remain focused on the Paris Agreement. California Governor Jerry Brown issued a statement in which he pledged the state will continue to pursue its climate change goals: "California will resist this misguided and insane course of action. Trump is AWOL but California is on the field, ready for battle."

Meanwhile, New York Attorney General Eric Schneiderman has asked a court to compel Exxon to comply with a subpoena requiring the company to produce witnesses and documents regarding the company’s practice of disclosing "proxy costs" it uses to calculate that its projects and assets would not be impacted by future climate change regulations. The attorney general’s brief went so far as to imply that Exxon’s method may be a "sham." Exxon has argued that the New York subpoena lacks justification, is overly broad (requests documents over a 12-year period), and treads on federal rules issued by the SEC that define how proved reserves are reported and related asset impairment determinations are made.

Companies: Exxon Mobile Corporation

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