UK’s biggest asset manager LGIM challenges Exxon’s climate plans

Legal & General Investment Management is joining forces with a US investor to challenge ExxonMobil’s climate plans over concerns the oil and gas major is failing to disclose the cost of transitioning to meet green targets.

The UK’s largest asset manager, which manages £1.3tn in retirement money and savings, has filed a resolution with Christian Brothers Investment Services ahead of Exxon’s annual meeting next month, calling on the board to publish details on the transition costs.

The joint action by the top shareholders is a sign of mounting pressure on the US oil company’s board to go further on its climate change plans.

The move could pave the way for a shareholder battle as several large companies are expected to come under the spotlight at their annual meetings over the next couple of months in relation to their energy transition.

LGIM, a top 20 shareholder, said the concerns were based on the cost of Exxon decommissioning its assets to meet net zero agreements, noting that the gas major had not provided details — even though many of its peers have revealed this information. Exxon has a market value of about $470bn.

The UK asset manager said investors had “concerns around costs associated with the decommissioning of Exxon’s assets in the event of an accelerated energy transition”, adding that such information was “vital for the company’s shareholders”.

The lack of disclosure relates to Exxon’s downstream assets, which are used to convert oil and gas into the finished product. LGIM said Exxon had claimed such obligations could not be reasonably estimated as they would run well into the future.

LGIM also warned Exxon’s business “is not aligned” with the Paris agreement to limit global warming to 1.5C, noting that it had divested shares in some of its funds around concerns that the oil company was not addressing climate change risks.

John Geissinger, chief investment officer at Christian Brothers Investment Services, said a resolution was proposed last year for an audited report assessing the financial effect of climate change, including the cost of decommissioning assets.

“Despite this, the company’s disclosures still give investors little insight into how . . . costs might accelerate, and how large they might be. Exxon may assume an asset can operate indefinitely, but this may not prove out. Investors are simply asking: what is the total cost of meeting these liabilities?”

The latest challenge against Exxon comes a couple of years after activist investor Engine No. 1 successfully overhauled the oil company’s board after warning that its focus on fossil fuels put it at “existential risk”.

Last month, LGIM said businesses and financial markets were failing to price in the risks of climate change, telling investors to prepare for a “bumpy ride”. It said a delayed shift to a low-carbon economy could leave global equities more than a third lower than in a rapid transition.

The bosses of oil and gas majors have also attracted attention over executive pay following a year of bumper profits. Exxon paid its chief executive Darren Woods $36mn last year, a 52 per cent increase from 2021 and more than double his 2020 pay.

Exxon did not immediately respond to a request for comment.