This week, the Office of the Attorney General of New York State issued a lawsuit to Exxon Mobil, alleging the oil giant misled investors on climate change data and if it poses any risk to their investment(s).
The lawsuit is actually a culmination of New York state investigations over Exxon Mobil, dating as far back as November 2015. At that time, the New York AT first subpoenaed the company for their financial records and internal documents and communications.
The lawsuit claims that Exxon Mobil told investors the company was in control of risk management for both existing and potential, future climate change regulation. Allegedly, then, they were not actually managing those risks (as they had described). And since Exxon Mobil did not build political risk into their financial models, the numbers made the company look like they would be more profitable in the future. And this would, of course, make the company appear like a better investment than it ultimately would be.
More specifically, though, the lawsuit complains that Exxon had told their investors it was applying a carbon dioxide “proxy cost” to all of its present and future investments. This new fee would help the company to better estimate how much profit they might lose if, for example, wells that are located in a country that has optimized a carbon cap or tax; or if a major country made the decision to implement a new policy to reduce oil and gas demand overall.
New York Attorney General explains, “Exxon’s proxy cost representations were materially false and misleading because it did not apply the proxy cost it represented to investors. This was especially true of investments with high GHG emissions, where applying the publicly represented proxy cost would have had a particularly significant negative impact on the company’s economic and financial projections and assessments.”
The lawsuit also states, however, that Exxon “presented highly misleading analysts to investors to reassure them the company faced little to no risk of its asset becoming stranded under a two-degree scenario.” To clarify, a “stranded” asset is an investment that does not have the ability to achieve its full ROI before use of that asset is no longer possible. In this case, Exxon has allegedly omitted to comment that oil/gas might not achieve a full return on investments before they are able to use stockpiles or before the fuel becomes obsolete.