17 May 2023 3 min read

We’re calling on ExxonMobil to increase transparency on asset retirement costs

By Dror Elkayam , John Hoeppner

Shareholder proposal seeks greater clarity on the potential costs Exxon could incur in an accelerated energy transition.


LGIM America (LGIMA), together with Christian Brothers Investment Services (‘CBIS’), is a lead filer of a shareholder proposal at ExxonMobil’s* 2023 AGM calling for more disclosure regarding Exxon’s asset retirement obligations (AROs).

In this blog, we explain what AROs are, why they’re important, and how we consider and act on this issue, which is gaining momentum across the investment community.

AROs – the unavoidable costs to retire oil and gas assets

Given uncertainty around the lifespan of some oil and gas (O&G) assets, primarily wells, pipelines and refineries, most O&G companies have only recognised the decommissioning costs of a subset of the assets on their balance sheets.

For example, if it is reasonable to assume that an O&G producing asset would dry up in 10 years’ time, then the cost to retire it will be added to the balance sheet on a discounted basis. However, if an oil refinery is assumed to be operational for many decades to come, the cost to retire it will not be recognised or disclosed, and the company is unlikely to leave aside cash for decommissioning.

While this is permitted by the accounting framework (US GAAP, IFRS), it leaves shareholders with absolutely no insight regarding the magnitude of these eventual liabilities, and the full scale of asset retirement costs to which the company may be exposed as the world transitions to net zero.

Who can predict the future?

Most fossil fuel companies conduct scenario analysis and apply their own assumptions to estimate the potential impact on their business of various climate change trajectories. Some may be more bullish than others regarding the role of oil and gas in the global energy mix over the next decades.

Scenarios that anticipate global emissions falling more quickly imply that certain assets, such as wells, pipelines and refineries, may need to be retired sooner than expected. The acceleration of these costs may result in higher ARO balances in the company’s accounts. It may also mean that the company may not have access to the cash flows required to meet such obligations because it will stop using and generating cash from the related assets sooner than anticipated.

Put simply, the more confident companies are about the longevity of fossil fuel assets, the lower the liabilities they record on their books, given the inability to assign an expiry date to such assets. Nevertheless, we note that some O&G companies are already providing insight into ‘unrecognised’ liabilities by disclosing the undiscounted costs to decommission their long-lived assets.

What is LGIM doing about it?

Climate change is one of the defining issues of our time. For investors, we believe it is a financially material risk. Since the road to net zero will be bumpy, we expect companies to take sufficient action to decarbonise in anticipation of a carbon-constrained economy.

Building on our established climate engagement programme, we have held many conversations with Exxon over the years about their approach to the energy transition. While we note that some progress has been made since our decision in 2019 to divest the company from a range of LGIM funds under our Climate Impact Pledge, primarily on account of the state of company’s commitments and disclosure, we’ve identified several persistent gaps in disclosure which have still not been plugged.

Therefore, together with CBIS, LGIMA co-filed a shareholder resolution asking for more transparency on the retirement costs of Exxon’s asset base.

In our view, this is a highly relevant and financial material matter, and by filing this proposal we are seeking greater clarity into the potential costs Exxon may incur in the event of an accelerated energy transition.

For more information about how we are voting, please refer to our pre-declaration blog.


*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.

Dror Elkayam

Senior Global ESG Manager, Investment Stewardship

Dror joined the investment stewardship team in 2021 as a Global ESG Analyst, leading engagements with the energy and mining sectors, as well as the development of LGIM’s ESG scores. Dror Joined LGIM from Georgeson, a boutique corporate advisory firm, where he acted as an adviser to investors and corporates on shareholder engagement strategies, in preparation for general meetings, proxy contests and M&A in the UK and globally. Prior to that, Dror had spent nearly five years at Bloomberg as an ESG specialist. Dror graduated from Bar-Ilan University in 2012 with a BA in Economics and Business Management and obtained the CFA chartership in 2019.

Dror Elkayam

John Hoeppner

Head of US Stewardship and Sustainable Investments

John joined LGIMA in 2018 as Head of US Stewardship and Sustainable Investments. He is the US representative of the Investment Stewardship team. John is charged with shaping the firm's corporate engagements and driving demand for sustainable investing strategies in the US market. He joined from Mission Measurement where he led the Impact Investing practice, and launched an ESG data and consulting business. Prior, John held multiple senior product positions in the asset management divisions of UBS and Northern Trust. John championed a range of corporate and product related sustainable investment efforts. He started his investment career at Cambridge Associates on the capital markets research team. John earned a Bachelor of Commerce from McGill University in Montreal, Canada.

John Hoeppner