A comparison between Exxon Mobil Corporation’s and Equinor’s climate reporting shows marked differences

Exxon Mobil Corporation
● Total revenue: $213.9bn (30 June 2020)
● Net income: $7.2bn (30 June 2020)
● CDP climate score in 2019: F
● ExxonMobil targets 2019:
● A 15% reduction in methane emissions by 2020 compared with 2016;
● A 25% reduction in flaring by 2020 compared with 2016;
● A 10% GHG emissions-intensity reduction at Imperial operated oil sands by 2023 compared with 2016.

Shareholders assessing climate risk continue to fumble. To be more useful, the annual reports on which they rely need to be easier to find, comparable across industries, thorough, and future-looking through climate scenarios, as the Taskforce for Climate-Related Financial Disclosures (TCFD) recommends. 

Exxon Mobil Corporation’s annual reports and climate statements are considered the least user-friendly and hard to find online. Report users view the company’s statements as cursory and relatively difficult to read. “It’s considered a laggard in what it discloses on risk,” says Rob Schuwerk, executive director for North America at NGO Carbon Tracker. CDP, the carbon disclosure non-profit, gives the company its lowest rating for not providing data it has requested.

As explained in one of its publication series – the Energy and Carbon Summary – ExxonMobil’s various climate disclosures are spread over eight reports. A web search reveals a summary annual report and two separate reports – the Energy and Carbon Summary and an Outlook for Energy series. The main annual report using form 10-k is accessed directly via the Edgar website of the Securities and Exchange Commission. 

This report acknowledges risks from climate change and greenhouse gas emissions, including cap and trade regimes, carbon taxes, minimum renewable usage requirements, restrictive permitting, increased efficiency standards, and incentives/mandates for renewable energy. In its Energy and Carbon summary, the company considers one scenario – the International Energy Agency (IEA) Sustainable Development Scenario (SDS) – a limited approach. 

Exxon Mobil Corporation shareholders

“ExxonMobil only uses one scenario but the goal of scenarios is to look at a range of future outcomes. Picking one scenario is not that meaningful,” says Lihuan Zhou of the Sustainable Finance Center at the World Resources Institute, a global research organisation. Inconsistencies are perceptible, however, because the company quotes 13 scenarios for a 2°C increase in its Outlook for Energy, a report that is easy to miss. 

These, the company states, mean investment in oil and natural gas is required to replace natural decline from existing production and to meet demand. Statements in the annual report on the Edgar website, however, carry the most weight because this is the only report legally requiring an external audit. 

ExxonMobil’s hard-to-reach approach on sustainability using multiple reports is not uncommon, particularly in the US, owing to reporting requirements. However, since separate narrative in non-financial or sustainability reports on TCFD is optional, it can be overlooked or dismissed by investment analysts in many jurisdictions. 

To counter this problem, TCFD recommends climate-related disclosures in the main audited financial statements, which will draw a bigger audience and regulatory scrutiny. 

Schuwerk says: “Since the more mainstream investors don’t care about climate change, they look at what’s in the mainstream filings. If you only include climate statements in the other reports, a smaller stream of investors will look at it.” 

Scenario analysis, one of the key innovations of TCFD, is not taken to its logical conclusion by many corporations, who tend to reflect a passive view. Many companies observe the scenarios of independent organisations without commenting on the implications of those different scenarios. 

ExxonMobil is not alone in this respect. A complete analysis would use several scenarios and show how potential future carbon or oil pricing affects the business at present. Conversely, it would indicate how present investments affect the future climate. 

Equinor ASA

● Total revenue: NOK477.9bn (30 June 2020)
● Net income: NOK20.09bn (30 June 2020)
● CDP climate score in 2019: B
● Equinor targets 2019:
● Reduce absolute greenhouse gas emissions from offshore fields and onshore plants in Norway: 
● By 40% by 2030;
● By 70% by 2040;
● To near zero by 2050.

Lihuan Zhou finds ExxonMobil’s presentation of scenarios unhelpful compared with Norwegian energy company Equinor, which he rates more highly.

“ExxonMobil doesn’t link its scenario to financial performances. Equinor uses a net-present-value [NPV] calculation but ExxonMobil doesn’t,” he says.

Equinor’s climate disclosures receive top marks from CDP, and the company is viewed as one of the better practitioners of TCFD by WRI. Equinor’s reporting is unusual in that it describes some of its scenario analysis in its annual audited financial filings, and provides more detail than many of its peers. 

“Its descriptions relating to scenarios are more extensive than other companies and it shows what assumptions it has taken and the impact of this on its business,” says Zhou. 

Like ExxonMobil, Equinor spreads its data over several publications, although more detail is provided in its sustainability report than in its annual report. Further commentary is accessible in a climate roadmap and an energy perspectives report.

In its 2019 sustainability report, the company provides information about the significance of future carbon pricing: “Net present value of all future carbon costs represents 7% of total NPV of Equinor. These costs include a carbon price of US$55 (€46)/tonne for all countries from 2020 – except Norway, where CO₂ cost is higher. If we apply a US$100/tonne carbon price instead of US$55/tonne, as a sensitivity, the carbon cost will increase from 7% to 9%.” 

By using sensitivity analysis against a range of IEA scenarios, Equinor also reveals significant implications if the most ambitious clean-energy targets are reached. Displaying a different set of NPV values, it shows they vary from 36% under current policies to -17% in the IEA SDS. 

This scenario is aligned with the Paris Agreement on climate change and outlines a major transformation of the global energy system. However, an error in the Equinor sustainability report reveals a difference in crude oil price for 2040 under the SDS scenario, published by Equinor as US$50 rather than the IEA as US$59. Nevertheless, the viewpoints are useful.

“If a company conducts an analysis showing what happens if we adhere to the Paris Agreement, it pushes directors to think about changes to the business because it shows a reduction in NPV. If all companies were to report on this basis, ESG analysts could factor in that information about the company in a low-carbon world,” says Zhou.

Equinor does, however, deviate from many in its own industry in terms of its views on oil and gas pricing, which are usually higher than those of its peers. Such divergences exist among many of the variables reported across any industry and create difficulties in comparison. For example, scenarios used differ; the IEA SDS is popular but most companies devise their own. Standardisation of TCFD reporting has been proposed as a solution.

Mining company Anglo American features highly in CDP rankings, and is positive about its future owing to greater demand for metals and minerals by low-carbon technologies. The company is unusual in developing its scenarios step by step, moving from qualitative to quantitative scenarios for the first time in 2019 to improve disclosures. 

The company takes a broader view of risk than many fossil-fuel companies, Zhou points out. “It worked out a physical as well as a transitional risk scenario analysis. That is because climate change might affect many facilities because it’s a very water-intensive business,” he says. 

The company recognises that water is a critical issue: “70% of our sites are in water stressed regions and our total water withdrawal in 2018 amounted to 227.5 million cubic metres, compared with 306.3 million cubic metres in 2017,” it explains, describing opportunities to contribute to water conservation.

Heavily ESG-focused asset managers now campaign for better TCFD disclosures, so such improvements will likely continue. 

Emine Isciel, head of climate and environment at Storebrand Asset Management, says: “We are lobbying for stress-testing against climate scenarios. Dialogue on TCFD has brought significant progress in terms of commitments to align with the Paris Agreement and to review that regularly.” That said, only two Norwegian companies report using TCFD.

It is early days but mandatory reporting, if introduced, would iron out some of the inconsistencies.

Equinor ASA shareholders