A Tedious And Boring Analysis Of Two Items In ExxonMobil’s 2022 10-K

Channeling Chico Escuela, the ESG Culture Wars been berry, berry good to me! I mean, without them I wouldn’t have had the opportunity to write such entertaining (at least to me) pieces taking down former Vice President Mike Pence, Florida Governor Ron DeSantis, Rep. Jim Jordan (R-OH), the Texas Section 809 Boycott Provision, the Texas Senate fossil hearings, initiatives by the American Legislative Exchange Council (ALEC) and the State Financial Officers Foundation (SFOF), and the new ant-ESG/anti-woke asset manager Strive Asset Management. My most recent contribution to the political theater that will and must play out over the next few years is “Indiana House Bill 1008: Here’s How To Lose $6.7 Billion In Pension Investments In 10 Years.” What fun I’ve had! This kind of stupid crazy is easy to spoof and deconstruct.

Along with the these thespian thrills, I’ve also written some serious and substantive pieces such as “Turning Down the Heat in the ESG Debate: Separating Material Risk Disclosures from Salient Political Issues” and “Rescuing ESG from the Culture Wars,” both with my Republican buddy Dan Crowley. I’ve done the same looking at the specific issue of climate change, a topic at the heart of the ESG Culture Wars, in “Looking At Climate Change Through The Eyes Of ExxonMobil” and “A Conversation with Greg Goff About The Energy Transition And ESG.” Exciting and motivating as the ESG Culture Wars are to some folks, in the end the underlying substantive issues need to be addressed. And they must be addressed in a bipartisan way. Which, by definition, leaves out the audience-drawing theatrics in much of what is going on today. A more pragmatic and constructive conversation, to be sure, but a more challenging one by definition. And less entertaining because no drama 💃🏾!

Being pragmatic can also really get you down into the weeds into topics that may seem tedious, even boring. But, hey, I’m a fan of tedious and boring too! Who else would have written as their first book a 372-page tome on transfer pricing 🐥? I was so committed to this book that while writing it, I spent a dinner on a blind date discussing it. Believe it or not, that woman married me and here we are nearly 39 years later. She is absolutely wonderful and I am one very lucky man.

But back to boring. If you like boring too, you’ll enjoy this piece. If you aren’t, you should stop here and go pull up some anti-ESG rant, like this one of Andy Puzder on Newsmax, or something else like this insane SFOF video or whatever else you can find on YouTube or wherever. Cuz’ here’s what I’m gonna do. I’m going to analyze the six pages in “Item 1. Business” and “Item 1A. Risk Factors” in ExxonMobil’s 178-page 2022 10-K through the lens of the Sustainability Accounting Standards Board’s (SASB) identified risk factors for the oil & gas exploration and production industry.

What’s the point of doing this, you may be asking yourself? Pretty simple, actually. I am going to show that ESG is about material risk factors. It is not, however much Mr. Pence and the rest that crowd claim it to be, “a pernicious strategy, because it allows the left to accomplish what it could never hope to achieve at the ballot box or through competition in the free market. ESG empowers an unelected cabal of bureaucrats, regulators and activist investors to rate companies based on their adherence to left-wing values.” While Republican ire at ESG has almost exclusively focused on investors, it is fair to ask if these left-wing values have been imposed by them on companies. (A bit hard to believe given that 69 percent of the top five corporate executives in the S&P 1,500 are Republican.) Like in producing a glossy sustainability report organized in terms of ESG, as ExxonMobil has done, as a way to appease the progressives.

But a 10-K is different. It is an official filing document with the SEC. I have yet to hear of any anti-ESG warrior asking for the SEC to quit demanding these reports of a company’s financial performance along with a “Management Discussion and Analysis” and other useful information to investors. In fact, it’s quite the opposite. The Republican cry, like from SEC Commissioner Hester M. Peirce, is that companies and investors should focus on financially material issues. I actually agree with them and so the question then comes down to what is financially material. Hard to argue that the items discussed in “Business” and“Risk Factors” are not financially material.

Skipping to the punch line, ExxonMobil includes every single one of SASB’s material issues for its industry in its 10-K. This is admittedly done to varying degrees and some of these topics, like employee health and safety and human rights, are covered in more depth in the “Social” section of the company’s sustainability report where it states “We work to safeguard the health and security of our employees and the public, responsibly manage our social impacts, and uphold respect for human rights in our operations.” But for the anti-ESG purists, I’m stickin’ with the 10-K.

You don’t have to take my word for it. You can check it out for yourself. But as an academic shackled by a commitment to seeking truth through facts, something which many politicians of all stripes are blessedly free from (Praise be), I’ll make it easy for you and do it here.

Let’s start with what SASB has identified are the material risk factors for ExxonMobil’s industry as shown in the diagram below. Note that SASB doesn’t use ESG per se but has five categories (Human Capital, Environment, Social Capital, Business Model & Innovation, and Leadership & Governance) that contain a total of 26 topics. The average number in the 77 industries organized into 11 sectors is around five or six. For this industry there are 10.

Since I’ve already alerted you to a boring piece, eodem spiritu I’ll use a boring format. I’ll simply take each category and each material issue and show that ExxonMobil addresses it in either “Item 1. Business” or Item 1A. Risk Factors.”


· GHG Emissions: In the “Risk Factors” section on “Climate Change and the Energy Transition” (pp. 4-5) the company states “The company’s objective to play a leading role in the energy transition, including the company’s announced ambition ultimately to achieve net zero with respect to Scope 1 and 2 emissions from operations where ExxonMobil is the operator, carries risks that the transition, including underlying technologies, policies, and markets as discussed in more detail below, will not develop at the pace or in the manner expected by current net-zero scenarios.”

· Air Quality: In “Item 1. Business” (p. 2) the company states, “With respect to the environment, throughout ExxonMobil’s businesses, new and ongoing measures are taken to prevent and minimize the impact of our operations on air, water, and ground, including, but not limited to, compliance with environmental regulations. These include a significant investment in refining infrastructure and technology to manufacture clean fuels, as well as projects to monitor and reduce air, water, and waste emissions, and expenditures for asset retirement obligations.”

· Waste & Wastewater Management: See above. Also, in the “Risk Gactors” section on “Government and Political Factors” in the discussion on “Regulatory and litigation risks” (p. 3) the company notes that “changes in environmental regulations or other laws that increase our cost of compliance or reduce or delay available business opportunities (including changes in laws affecting offshore drilling operations, water use, emissions, hydraulic fracturing, or production or use of new or recycled plastics.”

· Ecological Impacts: See Air Quality and Water & Wastewater Management above.

Human Capital

· Employee Health & Safety: In the section on “Operational and Other Factors” in the discussion of “Safety, business controls, and environmental risk management” (p.5) the company notes “Our results depend on management’s ability to minimize the inherent risks of oil, gas, and petrochemical operations, to effectively control our business activities, and to minimize the potential for human error. We apply rigorous management systems and continuous focus on workplace safety and avoiding spills or other adverse environmental events.”

Social Capital

· Human Rights & Community Relations: In “Item 1. Business” (p. 1) that company states that “With over 160 nationalities represented in the company, we encourage and respect diversity of thought, ideas, and perspective from our workforce. We consider and monitor diversity through all stages of employment, including recruitment, training, and development of our employees. We also work closely with the communities where we operate to identify and invest in initiatives that help support local needs, including local talent and skill development.”

Business Model & Innovation

· Business Model Resilience: This is covered in the “Risk Factors” section “Climate Change and the Energy Transition” (pp. 4-5) which covers net-zero scenarios, greenhouse gas restrictions, technology and lower-emission solutions, and policy and market development. “The company’s objective is to play a leading role in the energy transition, including the company’s announced ambition ultimately to achieve net zero with respect to Scope1 and 2 emissions.” In the discussion about “Research and development and technological change” (p. 5) in the section on “Operational and Other Factors” the company states that “To maintain our competitive position, especially in light of the technological nature of our businesses and the need for continuous efficiency improvement, ExxonMobil’s technology, research, and development organizations must be successful and able to adapt to a changing market and policy environment, including developing technologies to help reduce greenhouse gas emissions.”

Leadership & Governance

· Business Ethics: In “Item 1. Business” (p. 1) the company references its “Code of Ethics” which is a detailed explanation of how the company addresses this issue.

· Management of the Legal & Regulatory Environment: This is discussed in the sections on “Government and Political Factor” (pp. 3-4) which states that “ExxonMobil’s results can be adversely affected by political or regulatory developments affecting our operations.” This can be due to access limitations, restrictions on doing business, lack of legal certainty, regulatory and litigation risks, and security concerns.

· Critical Incident Risk Management: In “Safety, business controls, and environmental risk management” (p. 4) the company notes “We employ a comprehensive enterprise risk management system to identify and manage risk across our businesses. We also maintain a disciplined framework of internal controls and apply a controls management system for monitoring compliance with this framework. Substantial liabilities and other adverse impacts could result if we do not timely identify and mitigate applicable risks, or if our management systems and controls do not function as intended.”

And Le Voila, quod erat demonstrandum! But what to do with this tedious and boring analysis, you may be asking? Seems to me there are two possible courses of action.

The first is for those brave anti-ESG warriors to haul in SEC Chairman Gary Gensler and demand an investigation of ExxonMobil’s presumably fraudulent 10-K since it has included 10 ideological issues being driven by those pesky pernicious progressives.

The second is to use the House Hearings on ESG to have a thoughtful discussion about what ESG really is. The identification of material risk factors that matter to shareholder value creation. And how companies and investors can ensure they are doing this. Sure, probably not the most entertaining way to hold them but certainly the most constructive one.


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