2004 Imperial Oil Shareholder Proposal on Greenhouse Gas Emissions

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The Fonds Élizabeth Bergeron has submitted one shareholder proposal that is reproduced below.

Proposal No. 4
Be it resolved that Imperial Oil Limited annually issue a report to shareholders that has been verified by credible third party auditors on: specific emission reduction initiatives undertaken by the company to address risks and liabilities arising from climate change, including targets and actual emissions.

• Climate change has significant potential economic consequences. Fossil fuels, including petroleum products, contribute to increased greenhouse gas emissions, the source of climate change. Companies who produce fossil fuels, or depend on their sale as a major source of revenue, are incurring financial risks and potential liabilities.

• A growing number of investors take "carbon risk" into account. Through the 2003 Carbon Disclosure Project, a group of 87 institutional investors with assets of over $9 trillion under management wrote to the 500 largest public companies in the world by market capitalization, asking for the disclosure of investment-relevant information concerning their greenhouse gas emissions.

• MunichRe, an international re-insurance company, projects that direct climate-related losses could reach US$300 billion annually by 2050. SwissRe, another re-insurer, sees inaction on climate change as a possible liability issue and is considering the potential coverage implications for companies, directors and officers who do not address this risk. SwissRe states the most effective way to address risks posed by the climate change is to reduce the degree of human intervention in the natural climate system.

• While the Kyoto Protocol has not yet entered into force, this should not obscure the fact that legislation encouraging the transition to low carbon intensity fuels, either through setting emissions limits or through introducing renewable portfolio standards (RPS) and other "green incentives", is now a fact of life across the EU as well as in many parts of the U.S., Japan and Canada. There is also a possibility that the federal government decides to impose mandatory reductions on the oil sector. This could have significant financial impact on Imperial Oil
which emissions per unit-of-production has increased over the years (by 17% for bitumen
production and 12% for conventional oil and gas production between 1990 and 2002).

• Since 1997, Canadian companies have reported emission reductions to the Voluntary Challenge
and Registry (VCR), an industry/government initiative. A 2002 review of the VCR, by the
Pembina Institute, states: "There are a large number of major inconsistencies in the methodology used by firms in calculating the emissions they report, and data reported to VCR are rarely subject to verification by independent professional auditors. This makes it difficult to compare the performance of different firms or to have confidence in instances of progress that are reported. The use of emissions offsets present particular problems; some claimed offsets are quite misleading and amount to little more than accounting tricks." (The Case for Kyoto: The Failure of Voluntary Corporate Action)

• Although Imperial Oil has submitted VCR reports since the inception of the program, none have been audited by a third party. Last year, Suncor began providing stakeholders with audited sustainability reports.

To assure that actions taken by Imperial Oil to address climate change are sufficient to mitigate
financial risks and potential liabilities, we urge shareholders to vote FOR this proposal.

The directors recommend that you vote against this proposal for the following reasons.

Imperial already reports annually to the Canadian public on its greenhouse gas emissions in its report to the federal Voluntary Challenge and Registry (VCR). These reports are readily accessible on either Imperial's own website or that of VCR inc., the agency responsible for managing the VCR program. The VCR reports include, in addition to a report on the company's actual emissions, descriptions of initiatives undertaken to reduce emissions.

Since the inception of the "gold-silver-bronze" award system for VCR reports, Imperial's submissions have consistently been awarded "gold" for completeness and clarity of reporting. Imperial's 2001 report also won a VCR Leadership award for "extraordinary commitment, action and/or leadership towards the voluntary reduction of GHG emissions."

While there can be inconsistencies in the methodologies used by different firms reporting under the VCR program, this is primarily due to the lack of consistent standards in what is still an evolving field. Wherever practicable, Imperial in its VCR reports uses methodologies commended by its major industry associations in order to ensure consistency.

However, the absence of clear, generally accepted standards for greenhouse gas emission reporting further reduces any value in third party audits, in that there is no standard against which reported results can be assessed. Even where companies have elected to have independent auditors verify emissions reports, those auditors have noted the absence of any accepted standards to audit the data against.

Attributing possible future financial risks and potential liabilities to greenhouse gas emissions at this time is extremely speculative and depends heavily on the evolution of future government policy. This is why the company, in addition to tracking and reporting on its emissions, works closely with governments, through its major industry associations, to support the development of appropriate policy that will protect Canada's environment and also promote the development
of Canada's energy resources and economy.

Third party verification of actual emissions data would not change in any way the highly speculative nature of any assessments of potential future liabilities.

Imperial already substantially complies with the proposed resolution in terms of reporting its emissions and initiatives taken to reduce them. The only new element in the resolution is a requirement for third party verification. However, Imperial believes this would neither improve the accuracy of the reports nor do anything to address the major uncertainties of
lack of clear, recognized reporting methodologies and of potential liabilities because of political uncertainties. Instead it would simply involve additional expense for no real benefit.

[this text of the proposal, its supporting statement, and management response has been excerpted from the 2004 Imperial Oil Management Proxy Circular]

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