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Ultra Fails to Transparently Disclose Risks 2015 Proxy Memo: EXXON MOBIL Impacts of Hydraulic Fracturing Operations Hydraulic Fracturing – Quantitative Reporting Exxon Mobil Annual Meeting: May 27, 2015, Dallas, TX Resolution This Proposal asks “the Board of Directors to report to shareholders, by December 31, 2015, and annually thereafter, the results of company policies and practices, above and beyond regulatory requirements, to minimize the adverse environmental and community impacts from the company’s hydraulic fracturing operations associated with shale formations.” Rationale for a Yes Vote Horizontal drilling and hydraulic fracturing operations have the potential to create significant environmental and social impacts – from air pollution and water quality harm, to extensive community disruption, to greenhouse gas emissions, and even earthquakes -- resulting in increased risk to the company and shareowners from community opposition, regulatory scrutiny, and potential legal liability. This Proposal reflects rising public expectations for quantifiable disclosure from companies undertaking hydraulic fracturing activities. Shareholder proposals requesting such enhanced reporting have earned support from 28% - 40% of shareholders, indicating sustained concern from shareholders about the inadequacy of existing company risk management disclosures. As public expectations for company disclosure and transparency rise, investment value may be undermined by company environmental policies and practices that lag public and regulatory expectations. In order to measure the effectiveness of company policies and practices intended to mitigate environmental and community impacts, investors need: rigorous disclosure of steps to minimize risk, reporting on key indicators of success, and clearly defined steps undertaken by the company to continually improve operations. Currently, Exxon is not providing the data necessary for investors to verify whether the company’s policies and practices effectively manage impacts and risks. Filers Lead filers of this proposal are As You Sow (on behalf of the Park Foundation). BACKGROUND ON GROWING CONCERNS REGARDING HYDRAULIC FRACTURING OPERATIONS NG As natural gas production has expanded in the United States, controversies associated with the hydraulic fracturing process have grown. In the rush to drill for natural gas, incidents have occurred of poorly constructed wells, equipment failures, degraded local and regional air quality, water contamination, private lawsuits, strained community relations, and related government enforcement actions. As a result of the many impacts communities have experienced, the industry has faced public backlash, including costly bans and moratoria. Companies that fail to transparently mitigate the significant environmental and community impacts of their operations face significant business risks including enforcement actions and loss of their social license to operate. 1 2015 Proxy Memo: EXXON MOBIL Impacts of Hydraulic Fracturing Operations Rising Expectations for Quantitative Disclosure Prominent regulatory bodies are echoing investor calls for increased transparency and disclosure of company policies and progress toward achieving best practices. The International Energy Agency, the Department of the Interior, and an array of states are pressing for increased disclosure requirements regarding hydraulic fracturing operations. In particular, and as noted in proponents’ resolution, the Department of Energy secretary's shale advisory panel recommended in 2011 that companies "adopt a more visible commitment to using quantitative measures as a means of achieving best practice and demonstrating to the public that there is continuous improvement in reducing the environmental impact of shale gas production."1 (emphasis in original). HYDRAULIC FRACTURING OPERATIONS RESULT IN SIGNIFICANT ENVIRONMENTAL AND SOCIAL IMPACTS Hydraulic fracturing operations typically use millions of gallons of water and thousands of gallons of chemicals, generating large volumes of wastewater, and releasing polluting air emissions, including greenhouse gas emissions. These industrial operations can also be socially disruptive -- often damaging roads, creating extensive traffic congestion, increasing burdens on emergency services, and even increasing rates of crime,2 among other issues. These impacts can lead to strained community relations, bans and moratoria, and can have financial implications for companies when not appropriately addressed. A. WATER-RELATED IMPACTS Much of the controversy surrounding hydraulic fracturing has centered on water use and wastewater management. The high volumes of water and chemicals used during the hydraulic fracturing and extraction process has prompted concerns about potential water contamination and shortages, and has increased tension within communities concerned about finite water resources. These concerns have prompted calls for increased chemical disclosure, restrictions on companies’ access to water, and better water management practices. The high volumes of water used during hydraulic fracturing also pose substantial operational, and thus business, risks to companies as drought increases in many areas across the country. 1 U.S. Department of Energy Secretary of Energy Advisory Board, “Shale Gas Production Subcommittee Second Ninety Day Report,” November 18, 2011, page 9, http://www.shalegas.energy.gov/resources/111811_final_report.pdf; See also International Energy Agency, “golden rules for a Golden Age of Gas” (2012), http://www.iea.org/publications/freepublications/publication/WEO2012_GoldenRulesReport.pdf. APG, a $450 billion Dutch pension fund (serving 4.5 million pensioners) noted in 2012 that it had decided not to invest in a U.S. company using hydraulic fracturing because of the company’s “lack of transparency. .and concerns about the social and environmental practices of the relevant manager.” APG “requested more quantitative reporting on performance indicators and the application of best practice standards,” see “Investing in Sustainability, May 2012,” p.8, http://www.apg.nl/apgsite/pages/images/investing-in-sustainability-2012-1_tcm124_147592.PDF. 1 Joel Berger and Jon Beckmann, “Sexual Predators, Energy Development, and Conservation in Greater Yellowstone,” Journal of Conservation Biology, 24, no. 3 (June 2010):301-306, http://onlinelibrary.wiley.com/doi/10.1111/j.1523- 1739.2010.01449.x/abstract. 2 Joel Berger and Jon Beckmann, “Sexual Predators, Energy Development, and Conservation in Greater Yellowstone,” Journal of Conservation Biology, 24, no. 3 (June 2010):301-306, http://onlinelibrary.wiley.com/doi/10.1111/j.1523- 1739.2010.01449.x/abstract. 2 2015 Proxy Memo: EXXON MOBIL Impacts of Hydraulic Fracturing Operations B. WASTE DISPOSAL As public concern over the chemical content and water contamination risks of hydraulic fracturing fluid increases, companies are finding it increasingly difficult and expensive to ensure safe disposal of drilling residuals and flowback waters. As stricter standards are imposed, companies are increasingly opting to treat waste water themselves or send it to deepwater injection sites. Deepwater injection, however, is being scrutinized as the source of a series of earthquakes that are impacting communities and structures. C. AIR IMPACTS The contribution of natural gas extraction to declining or harmful regional and local air quality has prompted increasing concerns among local residents, including residents whose health has been negatively impacted by nearby operations, increasing the likelihood of tightened oversight and regulation of the industry. Emissions from hydraulic fracturing operations have also been linked to increased ozone and methane levels, further tarnishing natural gas’s reputation as the more ‘climate-friendly’ alternative. D. COMMUNITY IMPACTS The influx of industrial activity associated with hydraulic fracturing operations exposes host communities to increased health risks, water degradation and competition, crime, noise and light pollution, truck traffic, and increased burdens on emergency services, among others. A significant body of literature points to negative impacts on the surrounding community:3 Companies that fail to comprehensively address and mitigate the impacts of their hydraulic fracturing operations on the surrounding community risk losing their social license to operate. PUBLIC EXPECTATIONS ARE GROWING REGARDING COMPANY DISCLOSURE AND ENVIRONMENTAL PROTECTION MEASURES; CONTINUED BANS AND MORATORIA. A central concern for communities across the country is a desire to have a better understanding of the practices taking place, sometimes literally, in their back yards. As a result of public concern about the environmental and health harms associated with hydraulic fracturing, governments -- from local towns to nation states -- have enacted bans and moratoria on hydraulic fracturing operations. Most prominently, the State of New York recently prohibited hydraulic fracturing across the state after conducting an exhaustive review of evidence and finding that the risks of fracking outweighed the economic benefits to the state.4 Such actions represent denial of companies’ “social license to operate” and can result in negative impacts to a company’s bottom line as revenues or potential revenues are lost. Exxon has experienced such loss of potential; Exxon is the largest producer of natural gas in Germany, which has maintained a moratorium on fracking despite intense industry lobbying from Exxon and others. Additional moratoria were adopted
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