Vice President – Investor Relations
5959 Las Colinas Boulevard
Irving, Texas 75039
Dear Mr. Mulva,
As an investor in ExxonMobil we are interested in learning more about the company’s
strategies to address the risks and opportunities arising from the potential for climate
This year 20.3% of ExxonMobil shareholders supported a resolution asking for a report
on the company’s plans with regard to renewable energy, which indicates a significant
and widely shared concern that ExxonMobil’s strategies are not sufficiently clear to
The concern regarding renewables extends as well to the broader issue of global
warming. We are very interested to gain a better understanding of how ExxonMobil
intends to protect shareholder value from the threat of global warming itself as well as the
public policies that may be engaged to curb it.
We recognize that ExxonMobil does have a number of broad statements on the topic and
some specifics. However, we see a significant contrast between ExxonMobil’s disclosure
on the issue and that of its competitors.
This letter asks a number of questions about areas where additional information from
ExxonMobil would help to compare the company’s performance and planning with that
of its competitors.
General Response to Climate Change
Information provided in the company’s annual report, proxy statements and the
Citizenship Report indicate several broad areas of response by the company. However,
these are in general very short on detail. For instance,
• ExxonMobil has made impressive sounding progress in curbing energy use and
holding emissions from operations flat. Unlike its peers, however, ExxonMobil
does not indicate its future targets for emissions reductions, or timetables for
achieving those targets. How will ExxonMobil manage emissions in the future
given the chance that limits will be placed on carbon use by many of the nations
where the company operates?
• We were intrigued to learn that ExxonMobil supports emissions reporting and has
been working with peers to develop a global system for reporting. However, it is
not clear when such reporting might commence, or whether ExxonMobil plans to
wait to provide more details on its own emissions until the global system is in
effect. What is ExxonMobil’s plan for full disclosure of greenhouse gas
emissions, including timeline and the expected level of detail it intends to
provide? Will the system be compatible with the various trading regimes that are
being adopted around the world?
• Does the company support mandatory reporting, and if so, for which industries?
• We are pleased to learn that the company is working with automobile
manufacturers to reduce emissions. The annual report indicates projects with
General Motors and Toyota on a fuel cell partnership that will allow gasoline to
be used with the next generation of fuel cell cars. Additional information would
be very helpful to evaluate this undertaking. When does the company expect that
such technologies will be introduced to consumers? What kind of expectation
does the company have for consumer uptake and its contribution to emissions
reductions? Does ExxonMobil have other automotive technology research in
progress that will reduce emissions?
In addition to the questions above, we are interested to learn about other ways
ExxonMobil will meet the climate change challenge. We are concerned that we do not
have adequate information regarding how the company will limit the risks posed by
existing and potential policies that require emissions reductions and/or implementation of
renewable technologies. Also unclear is how the company is handling the risks associated
with missing key opportunities – such as assuring the company is the leader in new areas
of energy technology, or to take advantage of emissions trading.
• BP and Royal Dutch/Shell Group have set public targets for emissions reductions and
timetables for achieving those reductions. Will ExxonMobil take similar steps?
• BP and Royal Dutch/Shell Group have made use of external auditors to verify
emissions levels and reductions achieved. Does ExxonMobil have external auditors
for its reduction programs and other appropriate climate work, and if so are those
• BP has taken the additional step of reporting emissions of their power suppliers.
Although these emissions are external to the company’s operations they are created in
the process of meeting BP’s demand. Will ExxonMobil include emissions created
externally as a result of company operations when it initiates regular emissions
Emissions Reductions Projects
• ExxonMobil is harnessing cogeneration at its refineries as a way to reduce emissions
and energy costs. While the company has reported on past reductions there is no
indication of the company’s future plans. What are the targets, timelines and
emissions reductions expected for additional co-generation projects?
• Competitors indicate additional ways they are working to reduce operating emissions,
including addressing flaring, leaks, and compressor efficiency. ExxonMobil has been
less specific about other emissions reduction strategies. What additional initiatives are
planned by ExxonMobil to reduce emissions, and what are the targets, timelines and
• ExxonMobil also reports that it is working with General Motors and Toyota to create
on-board reformers that would allow gasoline to serve as fuel for fuel cell powered
vehicles. This appears to be ExxonMobil’s sole effort to develop technologies to
reduce the emissions from product end-users. Given the difficulty of predicting which
energy source will prevail over the next 50 years, we have some concerns that the
company is putting all its eggs in one basket, so to speak. ExxonMobil’s competitors
are working with several technologies that will allow end users to reduce emissions,
including solar power, wind power, biomass, and hydrogen-based fuel cells. What are
ExxonMobil’s plans to assure that whatever technologies break through, the company
will be able to maintain its leadership position?
• Shell, BP, ChevronTexaco, Statoil, Suncor, and other oil companies established a
joint project to develop methods of carbon sequestration, an important strategy to
address climate change (www.co2captureproject.org). Why has ExxonMobil chosen
not to participate? What plans does ExxonMobil have to develop expertise and
methods for capturing greenhouse gas emissions, and what are the goals and
timetables for such efforts?
Emissions trading is already active at the international level and within some countries. It
is highly likely that any international or national efforts to reduce greenhouse gas
emissions will involve trading. BP and Royal Dutch/Shell Group report that they have
developed internal trading schemes and are participating in external trading groups. Both
companies report that the internal and external trading efforts are providing valuable
information they will apply once widespread international trading begins. Furthermore,
Shell is developing experience on the financial side as an emissions trade broker. What
plans does ExxonMobil have to acquire experience and leadership in using and
participating in emissions trading regimes, and what are the goals and timetables? What
plans does ExxonMobil have to engage in emissions trading directly?
Renewable energy, while a small portion of energy supplies today, is emerging as one of
the energy sources with potential to meet substantial needs over the next fifty years.
While predictions of the role of renewable energy differ broadly, many suggest that
renewable energy could be quite a significant player in the coming years. Royal
Dutch/Shell Group’s latest scenarios indicate that renewable energy could supply 30% of
global energy needs by 2050. s that the market for renewable
Public policy is certainly moving renewable energy along quickly. Several U.S. states
have renewables requirements, including Texas (3%) and California the United Kingdom
adopted a binding 20% goal for renewables by 2020, and six other countries have
proposed or implemented mandates. In addition, the European Union has a 22% by 2010
goal, and six Eastern countries have goals rangim 3% to 100%. The European binding
and non-binding goals are particularly troubling as ExxonMobil derives roughly one-
quarter of its downsturopean markets.
As a result of public policy as well as technological advances, renewable energy is
growing at a rate in excess of 20% a year and has been doing so for several years. All of
ExxonMobil’s major competitors have investments in renewable energy. Given that
renewable energy could play a very substantial role in energy supplies, and the risks of
ExxonMobil not being prepared for that, we would like to see more discussion of the
company’s decision to continue avoiding renewable energy.
• One concern is the company’s oft-repeated statement that it has invested $500
million in renewables already. This sounds as though the company should be able
to provide fuller description of the experience. When did ExxonMobil’s previous
experience with renewable energy take place? What was the nature of the
company’s previous commercialization efforts? What failed to work in previous
attempts? How are the attempts of the past relevant to where renewable
technologies are today?
renewable energy It may be expensive or impossible for XOM to buy market share in
the industry if the company waits too long. In the solar sector, ExxonMobil’s competitors
(BP and Shell) and other large companies like Sharp and Kyocera dominate. BP and
Shell are unlikely to sell their businesses to XOM, and Sharp and Kyocera would likely
require a huge premium to do so.
The “solar only” companies that are left (e.g. Evergreen Solar), could be bought at a
reasonable price but have small market share. In the wind sector, large, well-established
companies also dominate. For instance, General Electric bought the wind energy assets of
Enron soon after they became available. So XOM faces the unappealing prospect of
buying a smaller company with low market share, or offering a huge premium to a
company like Sharp or GE to give up its share in the industry.
Also, if the company waits too long, it may not have the market valuation to afford a
major acquisition. The airline industry provides a good example- the major airlines
ignored low-cost carriers like Southwest, assuming that if they ever became too
successful, the big carriers could simply buy them out. It would have sounded absurd to
suggest that the upstart would ever outweigh the established airlines. But now the market
cap of Southwest exceeds the combined market caps of Delta, USAir, United, American,
American West and the rest of the full-fare airlines.
The idea that ExxonMobil might buy into renewables when it can no longer avoid doing
so is also complicated by the company’s emphasis on hiring senior management from
within. Currently, ExxonMobil does not appear to be developing any institutional or
personnel experience with renewable energy. If ExxonMobil were to buy a renewable
energy asset, who would run it? It seems that the company’s choice would be between an
outsider who is experienced in renewables but new to the company or an ExxonMobil
executive who has long experience with the company but none with renewable energy. In
either case, ExxonMobil would pay a price for its delay.
Assuming that ExxonMobil will eventually have to diversify its energy supplies to
include renewable energy, we are concerned about the lack of information as to why the
company’s current approach protects shareholder value sufficiently.
• How will ExxonMobil avoid paying a premium for technology once acquisition
• How will ExxonMobil develop the necessary experience and understanding of
renewable energy markets and technologies?
• Where will ExxonMobil find leadership for this new division given the company’s
tradition of hiring senior management from within?
We look forward to your written response to the questions raised in this letter, and would
gladly review any additional information you provide. In addition, we would be more
than happy to arrange a direct meeting to discuss these issues.