Exxon Goes to Court For Allegedly Misleading Investors over Climate Change Costs

A lawsuit has been filed by New York’s attorney general, alleging that oil company Exxon lied to investors as to the true value of the company when governments worldwide introduce more stringent environmental regulations.

According to the Associated Press, “the lawsuit, which is set to go to trial Tuesday, claims that the Texas energy giant kept two sets of books - one accounting for climate change regulations and the other underestimating the costs - to make the company appear more valuable to investors.”

According to documents from the Supreme Court of the State of New York, “Exxon in effect erected a Potemkin village to create the illusion that it had fully considered the risks of future climate change regulation and had factored those risks into its business operations. As a result of Exxon’s fraud, the company was exposed to far greater risk from climate change regulations than investors were led to believe.”

CBS News is reporting that the lawsuit contends that the revenue the company reported to investors should have been billions of dollars lower, alleging that the difference in numbers cost shareholders between $476 million and $1.6 billion.

New York state alleges that “by representing that it was applying higher projected carbon costs than it was actually using, ExxonMobil made its assets appear significantly more secure than they really were, which had a material impact on its share price.”

“It’s a big no-no to tell your investors one thing and do another,” Pat Pomaino, director of socially responsible investing at Zevin Asset management told CBS News.

The AP’s Cathy Bussewitz writes that “the complaint says that in order to account for future climate change regulations, Exxon told the public it was applying an estimated cost- or proxy cost - of carbon dioxide and other greenhouse gases to its investment decisions. It also said it would apply the proxy cost when it evaluates the value of its asset and estimates future demand for oil and gas.”

“But the complaint says that instead, Exxon applied lower or no proxy costs for years when making investment decisions or assessing its oil and gas reserves. As a result, the company may have been exposed to far greater risk from climate change regulations that investors were led to believe… an expert witness for the state estimated potential damages to shareholders of $476 million to $1.6 billion,” Bussewitz writes.

Exxon has denied the allegations leveled against the company, adding that they are politically-motivated and it looks forward to exoneration. “The New York Attorney General’s allegations are false,” the company said in a statement. “We tell investors through regular disclosures how the company accounts for risks associated with climate change. We are confident in the facts and look forward to seeing our company exonerated in court.”

“If companies like Exxon accurately account for the necessary degree of regulation to prevent even more dangerous global warming from happening, it will make less and less sense to continue to invest in developing fossil fuel projects,” Michael Burger, executive director of the Sabin Center for Climate Change Law at Columbia University said.

Burger added that while there are numerous lawsuits filed against oil companies like Exxon, this is one of the first cases to reach a trial day.

Carroll Muffett, president of the Center for International Environmental Law told the BBC that “it’s a major milestone as a part of a growing wave of cases that Exxon and other major oil companies are facing, not only here in the United States, but in fact in jurisdictions around the world.”

“Regardless of the outcome, the reality that is clear and not inescapable is that the future of Exxon [and other fossil fuel] companies is filled with litigation and it’s only going to grow,” Muffet concluded.

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