On 17th May, Exxon Mobil led Form DEFA14A and communicated to their shareholders regarding the climate change reporting issues raised in the 2023 Glass Lewis Proxy Report. These issues are related to additional direct methane measurement, additional report on worst-case spill and response plans, greenhouse gas (GHG) reporting on adjusted basis, report on asset retirement obligations under the International Energy Agency (IEA) Net Zero Emissions (N ZE) scenario and energy transition social impact report. For each reporting issue identied, the Board reconnnended the shareholders vote against Glass Lewis' suggestions. Particularly related to reporting on asset retirement obligations under [EA NZE scenario, Exxon Mobil asserted: The robust disclosures in our Advancing Climate Solutions progress report (ACS) provide shareholders insights into the resiliency of our business. We acknowledge Glass Lewis'l conclusion that the additional reporting requested by this proposal is neither required by U.S. GAAP nor current industry practice. Our 2023 ACS details the potential impact of the International Energy Agency's Net Zero Emissions (IEA NZE) scenario by 2050 on remaining asset lives, asset retirement obligations, and asset-use optionality. As we have shared, we test our portfolio against a range of scenarios and projections, conrming that our exible strategy enables us to adapt to the energy transition at the pace society demands. In the ACS, we modelled our portfolio through 2050 and described our approach to repurposing downstream assets in support of a lower-emission future, including evolving the product slate toward biofuels, 9_h_en_1_ica_l_s_ and base stocks, and converting some of our reneries to terminals. Further, consistent with the request of the proposal, we solicited a Wood Mackenzie audit and published the audit statement in its entirety. Their audit concluded that our modelling accurately reected the IEA NZE scenario assumptions. In their analysis, Glass Lewis states that asset retirement obligations could represent a material financial risk to the company. We are unable to understand how they have arrived at this conclusion. In accordance with GAAP, we do not incorporate into our financial statements those types of risks that are as remote as the IEA NZE path. Glass Lewis apparently believes the likelihood of the IEA NZE scenario is well beyond what the IEA itself contends: that the world is not on the NZE path and that this is a very aggressive scenario. It is clear that the IEA NZE does not, by the scenario authors' own assessment, meet the level of likelihood required to be considered in our nancial statements. Likewise, it is highly unlikely that society would accept the degradation in global standard of living required to permanently achieve a scenario like the IEA NZE. We ask shareholders therefore to reject the proponent's conclusion, which was not based on a sound, underlying analysis. With the robust disclosures we already provide, as guided by shareholder input, our Board recommends a vote AGAINST \"Item 12 Report on Asset Retirement Obligations Under [EA NZE Scenario.\" The following excerpts are from an opinion piece in Bloomberg regarding Exxon Mobil's 14A filing. What Exxon Won't Tell about Climate Costs (Bloomberg Opinion, 24 May 2023) - Selected Excerpts Paying for restaurant meals is a cost. Taking classes to learn how to cook your own meals is an investment. Similarly, suffering through the effects of climate change is a cost, but spending money to avoid the worst climate outcomes is an investment. The difference is meaningful as Exxon Mobil Corp. has inadvertently reminded us. In a regulatory filing last week, the oil giant argued it shouldn't have to bother disclosing more-detailed estimates of the cost of phasing out its fossil-lel business to meet the International Energy Agency's (IEA) Net Zero Emissions (NZE) by 2050, calling the goal too unrealistic to merit careil accounting. That's fair enough, considering the world isn't on a path to keeping its net-zero promises. But then Exxon apparently couldn't resist adding: \"[I]t is highly unlikely that society would accept the degradation in global standard of living required to permanently achieve a scenario like the IEA NZE.\" The IEA's net-zero scenario is indeed a remote possibility. But a lot of shareholders more than half of whom voted for a net-zero accounting in 2022 want to see such details anyway as a form of stress test. Presumably, they worry that what seems aggressive today may not be within a generation. And they might be displeased that what little disclosure Exxon does provide is, shall we say, impressionistic, with future cash ows represented with vague charts. People may well balk at the behavioural changes and increased spending required to stop burning fossil fuels. But that's only one side of the ledger. If society won't accept the \"degradation in the global standard of living\" that Exxon alludes to, then it implicitly would be accepting the degradation that will be inflicted by unaddressed climate change in the form of oods, mass migration, shrinking food supply and a host of other frightening and economically damaging effects. Exxon's warning that society isn't ready to confront a diminished \"standard of living\" also glosses over the fact that inaction on climate change might preserve immediate convenience only to worsen the quality of life over the longer term. (When asked for comment, an Exxon a statement after this piece was published, Exxon said: \"Whatever the likelihood of the IEA NZE scenario today, we've done the work to test the resiliency of our business under the IEA NZE. What we've found is that our low-carbon solutions business may very well grow to be bigger than our current oil and gas operations under this scenario, and we're investing in that today\") We have an awful habit of talking about the \"costs\" of decarbonization. In reality, time and money spent strategically to address the problem is an investment. We should reserve \"costs\" for the damage inicted on people and infrastructure by ignoring a glaring problem. Required: 1. Applying what you have learned in ACCT90033IAS (e.g., Weeks 2, 7 and 10), identify three accounting issues/problems/challenges arising from the quoted passages on pg. 2-3. Your answers to this question should identify and explain the accounting issues/problems/challenges but not their solutions and then relate them to what you have learned this semester. (10 marks, 200 words approximately) Answer: During Weeks 2, 7, and 10, we studied Corporate Governance, ESG, and ethics. Through our studies, we gained valuable insights into the responsibilities of the board of directors towards stakeholders. We learned that ESG disclosure is imperative in the current global climate, particularly in relation to global warming. The study puts major emphasis on ethical considerations for rms, specically the importance of setting a proper tone from the top. The Exxon Mobil case is a relevant example of corporate governance, ESG, and ethical issues. The knowledge acquired in weeks 2, 7, and 10 is applicable to this case due to specic reasons. Firstly, Exxon Mobil's board prioritises maximising shareholder value, and disclosing information related to environmental, social, and governance factors is a resource-intensive process that demands expertise and time. Secondly, Exxon Mobil responded to the market's demand for ESG disclosure by utilising Glass Lewis Proxy. Lastly, Exxon Mobil must establish a robust control environment within their corporate structure to establish a positive tone at the top and ensure ethical conduct. 2. Using the case information and your business acumen, analyse the rationales for Exxon Mobil's recommendation to its shareholders to vote against reporting asset retirement obligations under the IEA NZE scenario. Do you think the rationales are reasonable from the accounting perspective? Why or why not? Do you think Exxon Mobil believes they can achieve IEA NZE by 2050? Why or why not? (10 marks, 200 words approximately) Answer: Exxon Mobil's recommendation to its shareholders to oppose the disclosure of asset retirement obligations under the IEA NZE scenario appears justifiable from an accounting standpoint. GAAP mandates companies to disclose financial risks that are likely and can be estimated while excluding those that are unlikely or uncertain. Exxon Mobil contends that the probability of attaining the IEA NZE scenario by 2050 is minimal, and hence, it is unnecessary to incorporate it in their financial records. Exxon Mobil argues that it is improbable for society to attain the IEA NZE scenario due to the resulting decline in the global standard of living. Exxon Mobil's argument may be viewed as myopic as there is a growing expectation from investors and stakeholders for transparency and disclosure regarding climate risk. The IEA NZE scenario is a recognised framework utilised by governments, businesses, and investors to formulate decarbonization strategies. Disclosing asset retirement obligations under the IEA NZE scenario would offer investors valuable insight into the potential financial impact of climate change on Exxon Mobil. Exxon Mobil's statement implies that they are evaluating their business's resilience under the IEA NZE scenario, but it is unclear whether they believe they can achieve it by 2050. It remains inconclusive as to whether the stakeholders are confident in achieving the goal by 2050 or are simply planning for various potential outcomes and forecasts. Exxon Mobil is likely implementing a flexible strategy to adapt to the uncertain and complex energy transition at a pace aligned with societal demands.3. Imagine that you are a professional accountant advising Exxon Mobil regarding whether to disclose more detailed estimates of the climate costs suggested by the Glass Lewis Report (see the text box on p2). Evaluate your recommendations in terms of three pros and three cons. Explain what you recommend (to disclose more or not to disclose more) and your reasons. (10 marks, 200 words approximately) Answer: The case demonstrates that the Glass Lewis Proxy report includes several disclosure concerns regarding climate costs. The report includes direct methane measurement, leak and response plans for the worst-case scenario, glasshouse gas (GHG). Clearly, this is a comprehensive report to tackle multiple issues; thus, Cons: Exxon Mobil is a natural gas company whose business model generates a signicant amount of greenhouse gas emissions, which must adhere to stringent regulations to avoid affecting society. This exhaustive disclosure addresses a variety of challenges faced by the oil and gas industry. For instance, the upstream industry, which is the production of crude oil, is covered by the worst-case leak report. In addition, downstream activities such as petroleum and aircraft fuel fall under glasshouse gas (GHG) rules. To reduce the gap (i.e., information asymmetry), investors require companies to be more open and disclose more about their ESG activities. Consequently, this report will evaluate Exxon Mobil's efforts to disclose more market-required ESG-related activities. It is costly to collect information regarding these measures. Many of these measures are not quantifiable (e. g., social impact), so information will not be readily available. The absence of standardisation will afford management the opportunity to manipulate results. As the public's demand for information about ESG-related activities rises, I incline more towards disclosure from my standpoint. This is because I believe it will assist investors in reducing the information asymmetry associated with ESG data. 4. In 2021, an activist equity fund won three board seats at Exxon, and the Board subsequently pledged to net zero commitment to address climate concerns. However, on 31 May 2023, shareholders voted against a set of proposals to cut greenhouse-gas emissions. Suppose you are a consultant for the three new Directors. Propose and explain three actions you would recommend to them regarding accounting and! or non-accounting disclosure to help balance the short-term protability of the company and its long-term commitment to sustainable climate solutions. (10 marks, 200 words approximately) Answer: Our consultancy team proposes the following recommendations to assist the three recently appointed directors at Exxon in achieving a balance between short-term protability and long-term commitment to sustainable climate solutions: 1. Exxon should enhance its disclosure of climate risks and opportunities by providing comprehensive and transparent information regarding its net zero connnitrnent and climate risk management strategies. Quantitative disclosures on emissions reduction targets, progress, and investments in low-carbon technologies may be included. The provision of scenario analysis demonstrating the potential impact of various climate scenarios on the company's operations is recommended. 2. Exxon should incorporate climate considerations in its decision-making processes, encompassing capital allocation, risk management, and strategic planning. This entails incorporating the nancial ramications of climate-related hazards and prospects into investment decision-making. Executive compensation should be linked to climate performance metrics by the company. 3. Exxon should involve stakeholders, such as investors, customers, employees, and communities, in discussions regarding climate issues and seek input on its climate strategy. Establishing trust and garnering support for the company's shift towards a low-carbon future is crucial to ensure alignment with stakeholder expectations. Exxon can showcase its dedication towards tackling climate change and establishing a sustainable future, while simultaneously maintaining profitability in the near lture, through the implementation of these measures. This will aid the company in retaining the backing of its shareholders and other stakeholders while establishing itself as a frontrunner in the shift towards a low-carbon economy