Photo: Ben P L
Exxon Mobile Corp. is being sued by the state of New York for allegedly misleading investors on the risk that climate change regulations posed to its finances.
For years, Exxon told investors that it was accounting for the likelihood of stronger regulation by applying an increasing cost of emissions to its business planning and investment decisions, according to the lawsuit. However, Exxon did less than it claimed, deceiving investors on the company’s true financial exposure to climate change regulations.
Exxon marketed the company as a secure long-term investment and sought long-term investors such as life insurance companies and pension funds.
“Investors put their money and their trust in Exxon – which assured them of the long-term value of their shares, as the company claimed to be factoring the risk of increasing climate change regulation into its business decisions,” Attorney General Barbara Underwood said. “Yet as our investigation found, Exxon often did no such thing.”
The lawsuit alleges Exxon told investors that it accounted for the risk of climate change regulation by applying a “proxy cost” of carbon.
The fraud reached the highest levels of the company, the lawsuit alleges. Exxon’s management, including former chairman and CEO Rex Tillerson, knew for years that the company wasn’t following what investors were told. The company used a second set of proxy costs that were lower than the publicly disclosed ones. Exxon’s management also knew that using these lower figures made Exxon more susceptible to climate change regulatory risk.
The lawsuit alleges that the fraud continued even after Exxon increased its proxy cost guidance to match its public representations. When the company realized that applying the higher proxy costs would result in “massive” costs and “large write-downs,” Exxon management decided to apply an “alternate methodology.” Under this “alternate methodology,” Exxon didn’t apply any proxy cost and, instead, allegedly chose to assume that existing climate regulations would remain unchanged indefinitely.