New York sues Exxon for deceiving investors on climate

Lawyers for Exxon Mobil Corp. stood before a New York judge in August and told the state’s attorney general to “put up or shut up” after spending three years investigating the company’s public disclosures about climate change, saying authorities should sue the energy giant or move on.

On Wednesday, New York chose to strike.

Attorney General Barbara Underwood filed a fraud lawsuit against Exxon in state court in Manhattan, accusing the company of misleading investors about how future regulations could affect its business. The complaint capped a tumultuous investigation that reached the highest levels of Exxon’s leadership, including former Chief Executive Officer Rex Tillerson.

Central to the probe and the lawsuit are Exxon’s use of so-called proxy costs for carbon to calculate the financial impact of future regulations on the business. The costs are supposed to assure long-term investors including institutional shareholders and pension funds that they wouldn’t be taken by surprise. New York says it was a ruse.

“Exxon built a facade to deceive investors into believing that the company was managing the risks of climate-change regulation to its business when, in fact, it was intentionally and systematically underestimating or ignoring them, contrary to its public representations,” Underwood said in a statement.

Exxon spokesman Scott Silvestri called the lawsuit “tainted” and meritless.

“These baseless allegations are a product of closed-door lobbying by special interests, political opportunism and the attorney general’s inability to admit that a three-year investigation has uncovered no wrongdoing,” Silvestri said in an email.

The Irving, Texas-based company in March lost a lawsuit in which it sought to have the investigation halted because the case was politically motivated.

In Wednesday’s lawsuit, New York said Exxon’s management, including Tillerson, knew for years that the company was deviating from its public claims by using a second set of proxy costs that were lower than the publicly disclosed figures.

“Exxon’s management also knew that using these lower figures made Exxon more susceptible to climate-change regulatory risk, but did not align these two sets of proxy costs for years,” Underwood said in the statement.

The suit claims Exxon discovered that if it actually applied the publicly represented proxy costs internally, it would result in “massive” costs, “large writedowns” and shorter asset lives, the state says.

For example, the state alleges, Exxon’s failure to apply its publicly represented proxy costs to 14 of its oilsands projects in Alberta, Canada, resulted in undercounting of anticipated greenhouse-gas related expenses by more than US$25 billion over the lifetime of the projects, according to the statement.