Exxon Mobil greens up its act

The oil giant reaches out to its critics, says Fortune's Marc Gunther.

By Marc Gunther, Fortune senior writer

NEW YORK (Fortune) -- On issues ranging from global warming to corporate governance to gay rights, Exxon Mobil used to ignore detractors - or thumb its nose at them.

That's changed. The oil giant has been quietly reaching out to critics, most importantly around the issue of climate change.

Exxon invited environmentalists, socially responsible mutual funds and religious investors to a two-day retreat in suburban Virginia late last year with company executives. It is participating in a project organized by Resources for the Future, a Washington-based environmental think tank, that will analyze the government's options for mandatory reductions in greenhouse gases.

In its ubiquitous corporate advertising, the company is talking about what actions should be taken to reduce greenhouse gas emissions, instead of questioning the science of climate change.

That's a turnabout from the late 1990s and early 2000s when Exxon (Charts) led the opposition to the Kyoto Protocols and provided funding for think tanks that challenged mainstream science. In particular, Exxon infuriated greens by supporting the Competitive Enterprise Institute, an advocacy group that ran a series of unintentionally hilarious TV ads last year in which an announcer said, "Carbon dioxide: They call it pollution. We call it life."

As it happens, Exxon stopped funding CEI in 2005, a decision that became public only recently. In a telephone interview, Ken Cohen, Exxon's vice president of public affairs, acknowledged that the company has made a conscious effort for several years to open up, in part because it felt misunderstood or unfairly maligned.

"We've quietly started meeting with leaders of various environmental groups as well as other NGOs that work on issues like transparency and human rights," Cohen said.

As for the company's position on climate change, Cohen said: "We should be putting ourselves on a path, as a society, to reduce emissions in ways that are cost-effective and sustainable."

Asked if that means that ExxonMobil now supports government regulation of greenhouse gases, either by imposing mandatory caps or taxes on fossil fuels, Cohen said that's the issue that business, government officials and NGOs now need to address. "There is a role for policy," he said. "The devil's in the details, and we want to be part of that discussion."

Longtime Exxon watchers aren't sure what to make of all this. Andrew Logan, an oil and gas analyst for Ceres, a coalition of institutional investors and environmentalists, said the company seems to have "moved from outright denial to what seems to be a more nuanced position" on climate change. "Given how large and how influential Exxon is, even small moves on their part can have a large impact," he said.

Janet Sawin, director of the energy and climate change program at the Worldwatch Institute, participated in an Exxon stakeholder dialogue last year: "My sense is that it's more about a tactical shift," she says. "They realize that they are losing in their attempt to confuse and obfuscate the science of climate change. They see the change in congressional leadership, and they want to be in there to influence the course of discussion."

Driving forces

Several forces appear to be driving the changes at Exxon. One is simply pressure: Exxon's image has taken a thumping. The company has been targeted for boycotts by groups ranging from Greenpeace to the Human Rights Campaign. Last fall, in a controversial move, two U.S. Senators, Jay Rockefeller and Olympia Snowe, sent a letter to Exxon urging the company to stop funding groups that deny the science of climate change.

The company has also had difficulty communicating its social and environmental successes. Exxon's funding of CEI got a lot more attention than its support for a $225 million Global Climate and Energy Project at Stanford, which is researching alternative energy and transportation fuels.

And while rival BP (Charts) became the darling of corporate responsibility types (despite shoddy environmental and safety practices) for promoting a world "Beyond Petroleum," Exxon got little credit for its operational skills - its nuts-and-bolts efforts to reduce oil spills, workplace injuries and energy usage, among other things.

Most important, probably, in explaining Exxon's culture shift is the broader shift in the political climate. The new Democratic Congress and influential Fortune 500 companies are calling for mandatory federal caps on greenhouse gases. Exxon can't afford to be seen simply as a naysayer.

Whether the changes at Exxon will extend to issues like gay rights or how the company's board operates is impossible to tell. Of the biggest 100 companies in the Fortune 500, Exxon is one of only two that do not explicitly prohibit discrimination on the basis of sexual orientation. Cohen said Exxon does not discriminate "on any basis, period," including sexual orientation, and adding special categories detracts from that basic objective.

Shareholder activists, meanwhile, have urged reforms on Exxon's board. Among other things, they don't want the board to renominate former Pfizer CEO Hank McKinnell as a director. After being forced out last year by Pfizer (Charts), McKinnell collected about $200 million in retirement, deferred compensation and pension benefits, making a "poster boy for pay-for-failure," in the words of one critic.

Project Exxon, an informal coalition of shareholder advocates, environmentalists, public pension funds and foundations, has again filed a set of shareholder resolutions with Exxon. The veteran shareholder advocate Robert A.G. Monks expressed hope that the company this year would engage in discussions with the group, something it refused to do under longtime CEO Lee Raymond. A combative figure, Raymond gave way to chief executive Rex Tillerson in 2005,

"The former CEO hated the annual meeting, couldn't wait to gavel it through," said Monks. "His successor is certainly more civilized."

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