New York sues ExxonMobil for misleading investors on climate change risks

New York State Attorney General Barbara D. Underwood sued ExxonMobil on Wednesday, accusing the oil giant of defrauding investors of the financial risks of climate change and lying about how it calculated the risks. potential costs of carbon.

Unlike other lawsuits against big oil companies alleging the concealment of scientific studies confirming climate change, the New York suit accuses ExxonMobil of having assured its investors that it was using a theoretical price of carbon in the evaluation of projects while she often used a different price or no price. at all.

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The lawsuit stated that "this fraud has reached the highest levels of society", including Exxon's former executive director and former Secretary of State, Rex Tillerson, who, according to the prosecution , had known for years that the company "sidetracked" public statements and used two sets of calculations on the future regulation of greenhouse gas emissions.

"The Attorney General actually blames them for holding two sets of books: one for internal use, one for external use," said Tom Sanzillo, director of finance of the Institute for the Economics and Economics. financial analysis of energy, which conducts research on energy and the environment. . "The result is a distortion of the value of the company."

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ExxonMobil spokesman Scott J. Silvestri called the trial unfounded. "The New York Attorney General's Office has doubled its flawed investigation by filing a complaint against ExxonMobil," he said. "These unfounded allegations are the product of in camera lobbying by special interests, political expediency and the inability of the Attorney General to admit that a three-year investigation did not reveal any wrongdoing. "

The lawsuit indicates that the accounting calculations made by ExxonMobil had a significant impact on the assumed value of the company. The company's failure to apply indirect costs to 14 of its oil sands projects in Alberta, Canada, has underestimated future greenhouse gas expenditures by more than $ 25 billion the life of the project. He also said the oil giant had not applied any indirect costs to the company's Cold Lake reserves, a major oil sands asset in Alberta, "resulting in an overestimate of its projected 28-year economic life."

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Earlier lawsuits against major oil companies have claimed to have concealed internal and private studies confirming climate change and its human contributions, but lawsuits for damages have been dropped.

ExxonMobil has also taken small steps to combat climate change. It recently paid $ 100 million to a new technology fund to reduce greenhouse gases. And he donated $ 1 million to a prestigious group of economists and former officials, who supports a carbon tax starting at $ 40 a ton.

The prosecution of the New York Attorney General focuses on the company's financial reporting.

"Exxon told investors that it is applying an" indirect cost "of carbon, taking into account the risk of government regulation of climate change," said the Attorney General's office in a statement. "Exxon explained to its investors that she had used this approximate cost in her investment decisions, her business planning, her estimates of oil and gas reserves of companies, her valuations of the viability of its long-term assets and estimates of future oil and gas demand. "

However, according to the complaint, "Exxon often did not apply the indirect costs as they are represented in its commercial activities. In many cases, Exxon has applied much lower proxy costs or no proxy costs. "

The prosecution seeks an order prohibiting Exxon from misrepresenting its climate calculations and asking it to correct its false statements – "in other words, telling investors the truth".

The lawsuit also asks the court to award damages and restitution related to the alleged fraud.

"Estimating climate-related liabilities is more of an art than science, because the calculations are uncertain and long-term," said Pavel Molchanov, securities analyst at Raymond James, in an e-mail. "Unless the New York board has documented and documented evidence of deliberate deception on the part of management, it will be difficult to prove the case."

Molchanov said that "the vast majority of retail investors have no awareness of this problem because it is so technical." He added that "among the institutional investors, there is a greater awareness, although I doubt that this problem is decisive in both cases".

But environmental activists have said that the case is important. "ExxonMobil needs to clean up as an energy company to protect our climate," said David Hawkins, director of climate policy at the Natural Resources Defense Council. "Communicating with its investors about the need to switch to fossil fuels would be an important first step."