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The Attorney General of New York State, Barbara Underwood, has filed a lawsuit against the energy giant, Exxon Mobil Corp., alleging that it had misled investors as to the real risks that climate change regulation poses to his business.
The lawsuit comes after an investigation of about three years and does not charge the company
XOM, -2.78%
by contributing to climate change as the main emitter of greenhouse gases or by suppressing climate science, as has been claimed in the past. The complaint alleges instead that Exxon misled investors during public presentations about what the regulation would mean for its balance sheet, its profits and the value of oil and gas reserves and other assets. The lawsuit is brought under the Martin Act, New York's anti-fraud law, which is considered one of the country's most stringent blue sky laws.
"This is a very serious allegation of fraud, which implies that they have documents to support," said attorney Daniel Riesel, associate at Sive , Paget & Riesel, specialist in environmental law.
Exxon considered that the trial was unfounded and that it was a product of "closed-door lobbying of special interests, political expediency and the inability of the Attorney General to admit that a three-year investigation 'had uncovered any wrongdoing'.
"The company looks forward to refuting these claims as soon as possible and to obtain that this baseless civil suit be dismissed," the company said in e-mail comments.
For years, Underwood said the company assured investors that it took into account the enhanced regulation of greenhouse gas emissions, the primary factor of climate change, "by applying in a rigorous and consistent manner the increasing cost of these issues to its business planning, investment decisions and calculations, the amount and value of the Company's reserves and resources, impairment assessments and forecasts of future oil and gas demand.
"However, Exxon did not respect these statements and did much less than it claimed, misleading investors about the company's actual financial exposure to the regulations and growing policies adopted to mitigate the adverse effects of climate change."
In case you missed it: Exxon says it did not mislead climate investors, calls statements "foolhardy"
Exxon assured institutional investors, including pension funds and life insurers, that it was a safe long-term investment. The company has thus positioned itself with the State Pension Fund, which serves more than one million employees, and the pension system of its teachers, which has more than 425,000 members, who hold they both $ 1.5 billion of Exxon shares.
These New York pension funds have repeatedly asked for more information on the risks associated with climate change and have been informed that the company fully takes into account the risk of stricter regulations in its commercial decisions.
Exxon said it takes risk into account by applying an "indirect cost" of carbon to its finances, a substitute for calculating the expected cost of regulation expected to fight global greenhouse gas emissions. In fact, it applied a much lower indirect cost based on internal numbers to the one publicly disclosed to investors and, in many cases, did not apply any indirect costs, depending on the case.
The fraud has reached the highest levels of society, until former President and CEO Rex Tillerson, until his dismissal by President Donald Trump in March, said Underwood Secretary of State American.
"Exxon's management also knew that using these lower figures made Exxon more vulnerable to regulatory risk related to climate change, but it did not align those two indirect costs for years" , says the release.
The fraud continued after Exxon increased the internal indirect cost forecasts to comply with public guidelines, but in fact applied an undisclosed "alternative method" to avoid disclosing "massive" costs and significant impairment losses ".
The lawsuit further alleges that Exxon did not apply indirect costs to other areas of its business, in particular by assessing the volume of its oil and gas reserves, deciding on the reduction. the value of the main assets and estimating the demand for its products in the transport sector. .
As a result, the Company underestimated greenhouse gas costs for 14 of its oil sands projects in Alberta, Canada, by more than $ 25 billion over the life of these projects, indicated the pursuit. It underestimated GHG costs by up to 94% for its $ 11 billion Kearl oil sands assets in Alberta.
Read also: According to a report, the frequency of wildfires in California could increase by 50% by 2050
Related: Florida and Texas expected to suffer the biggest economic shock of climate change
He overestimated the expected economic life of the reserves of Cold Lake, an oil sands asset of Alberta, 27 years, the equivalent of more than 300 million barrels of oil, or billions dollars of income.
The complaint was filed in the New York Supreme Court and seeks damages, restitution of all sums obtained through alleged fraud and restitution.
The complaint also calls for a full review of Exxon's non-application of an indirect cost, consistent with its statements and the economic and financial consequences of that decision.
Sive's Riesel, Paget & Riesel said that Exxon could defend itself by asserting that indirect costs were rough estimates based on likely regulatory requirements that, in their view, were not likely.
"They will have to prove their intention," he said.
The lawsuit is not the first that Exxon has had to deal with climate policies. In June, a federal judge dismissed lawsuits filed by the cities of San Francisco and Oakland, alleging that five of the world's largest oil companies – Exxon, BP PLC.
BP -3.10%
BP., -0.06%
Royal Dutch Shell PLC
RDS.A, -2.79%
RDSA, -0.41%
ConocoPhillips
COP, -5.10%
and Chevron Corp.
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– should pay to protect city dwellers from the impacts of climate change.
The judge argued that the case should be settled "by our political branches".
Read also: Even small investors can influence climate change and other policies. here's how
In August, the Securities and Exchange Commission dropped an investigation into the information provided by Exxon, as reported by the Wall Street Journal.
At the same time, state and city officials in New York have decided to dispose of their public investment funds in fossil fuels over time.
And some Exxon investors have pushed the company to disclose new information about the adverse effects of climate change on its business.
In the past, Exxon would have minimized the risks of climate change in public research, while relying on in-house research that showed it to be well-informed for its own planning. L & # 39; Company has changed course in recent years and was a supporter of the United States remaining in the Paris Agreement, the climate agreement that Trump concluded in its first year in office.
Exxon shares lost 1.5% in the afternoon and lost 6% in 2018, while the Dow Jones Industrial Average
DJIA, -2.41%
has gained about 1% and the S & P 500
SPX, -3.09%
increased by 0.9%.
For more, see: Opposition by the Trump administration is pushing companies to better disclose climate-related risks
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