Oil and gas is one of the major industries that is impacted by climate change, though it plays a pivotal role in influencing climate change as well. In this post, I will discuss the impact of climate change on Exxon Mobil, one of the largest oil and gas companies in the world.
A. Impact of climate change on Exxon Mobil
Exxon Mobil faces major implications of climate change, especially :
- Physical asset failure:many existing plants and equipment have been designed on the basis of historic climatic conditions and may not withstand changing environmental conditions. Fluctuating temperatures can affect efficiency and performance of physical assets leading to transport disruption, damaged buildings and increased operational delays and costs.
- Employee health and safety risks:volatile working conditions in extreme environments and physical assets not suitable for changing climatic conditions may potentially impact the health and safety of employees; hence, compromising Exxon’s employer and public liability insurance covers
- Drop in value of financial assets: Potential investors and stakeholders are placing greater importance on the business impacts as insurance costs could potentially rise because of greater chances of physical plant damage and the current reported value of proved reserves is also affected
- Damage to corporate reputation:failure to monitor and report the impacts of climate change is increasingly likely to harm Exxon’s reputation with stakeholders as the risk of turning to litigation increases
- Increased pressure on water resources: changing rainfall patterns, water shortages, poor water quality, drought and flooding are significantly increasing the demand for water. Growing competition for available resources could create operational problems and create conflicts with local communities for Exxon in locations where they rely heavily on water for production.
One example that crystallizes few of the aforementioned threats (especially 1,2, and 4) 
- In September 2016, The Conservation Law Foundation filed a complaint in U.S. District Court of MA, alleging that Exxon Mobil has failed to comply with its National Pollutant Discharge Elimination System permit and the U.S. Clean Water Act at the Everett facility (i.e. claiming that Exxon did not prepare the oil storage Massachusetts terminal for the impacts of climate change.).
- “Because Exxon Mobil has not taken climate change impacts into account in its storm water pollution prevention plan, spill prevention, control and countermeasures plan, and facility response plan, CLF and its members are placed directly in harm’s way and have no reasonable assurance that they will be protected from pollutants released and discharged from the Everett Terminal”
B. Mitigation action steps by Exxon Mobil
Exxon Mobil has been reacting to the threats of climate change in two ways:
- Addressing the root cause of the problem (i.e., climate change). ExxonMobil is taking action by reducing greenhouse gas emissions in its operations, helping consumers reduce their emissions, supporting research that leads to technology breakthroughs and participating in constructive dialogue on policy options. 
- Mitigating the direct impact threats of climate change on its operations :
- Engineer facilities resilient to extreme events: local climate, as well as potential changes in local conditions over the life of the investment (such as changes to sea level or permafrost) are carefully assessed and considered. Given the spatial and temporal uncertainties of many extreme weather events, particularly with respect to future changes in climate, facilities are generally engineered to be resilient to extreme event “tails”
- While assessing capital investment opportunities, Exxon considers the potential for future climate-related controls, including the potential for restriction on emissions, through the use of a proxy cost of carbon.
C. Additional steps that can be taken by Exxon Mobil
In a shift in 2014, Exxon Mobil agreed to report on climate change’s effect on business model and its fossil fuel assets. However, it was put on the spotlight recently for allegations of improper disclosure. For example:
- In Oct 2015: calls for a U.S. Justice Department (DOJ) for investigation to determine whether Exxon Mobil should face federal charges under the Racketeer Influenced and Corrupt Organizations Act for knowingly misrepresenting scientific knowledge regarding global climate change and its impacts 
- In Sept 2016: New York Attorney General claimed Exxon might have misled investors about the impact of climate change on its reserve valuation. The U.S. SEC is reportedly looking into Exxon Mobil’s accounting practices and how the company evaluates the potential impact of climate regulation. 
Exxon Mobil has very good clarity on the threats of climate change, and is doing a good job in addressing the potential threats and implications. However, I believe the most important action step is for them to focus on doing a better, more diligent job in enhancing transparency with investors, shareholders, and regulators on their research and findings on climate change, and the impact of climate change on its (a) its business model and (b) the value of its assets (e.g., reserves).
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 “Global Oil & Gas – The Adaptation Challenge” report backed by IBM- based on the Carbon Disclosure Project’s annual request for investor information that was sent to the world’s largest 128 oil and gas companies globally (based on market capitalisation). Analysed using the Acclimatisation Index™