Editors’ Note: Excerpted from BuzzFeed News, October 22, 2019.
By Zahra Hirji and Dan Vergano
The New York State attorney general is taking ExxonMobil to trial in a historic case, accusing the oil giant of misleading investors about the company’s financial risks due to climate change.
Under the direction of Attorney General Letitia James, this is the first climate fraud lawsuit to go to trial in the United States. James is acting under New York’s Martin Act, a 1921 anti-fraud law meant to protect investors against false statements, even ones made without proof of intent to deceive.
The oil and natural gas international mega corporation was headed by Rex Tillerson, former Secretary of State under Donald Trump. The historic lawsuit comes as more and more legal action is being taken against Exxon and other fossil fuel companies by cities and states seeking to hold them accountable for their contribution to climate impacts.It is possible that Tillerson could testify. New York’s investigation previously revealed Tillerson used a second secret email address as the company’s CEO.
New York prosecutors began their investigation about four years ago and sued Exxon last October. Under the direction of Attorney General Eric Schneiderman, who later resigned amid a harassment scandal, in November 2015 New York issued its first subpoena to Exxon demanding documents on the company’s internal accounting on climate risk.
Exxon has been working very hard to prevent this day from ever happening.
The investigation followed parallel investigations by InsideClimate News and the Los Angeles Times showing how the oil company’s own researchers confirmed that fossil fuels have contributed to global warming in the 1970s and 1980s. (Subsequent reporting revealed oil researchers were studying climate change back in the 1950s.) The information about Exxon’s climate research threw the company’s later efforts to cast doubt on climate science and fund misinformation campaigns into sharp focus.
“Exxon has been working very hard to prevent this day from ever happening,” Michael Gerrard, director of Columbia University’s Sabin Center for Climate Change Law, told BuzzFeed News. They’ve brought lawsuits in both federal court and state court to halt or delay action on the investigation, and waged a public relations campaign, he added.
The crux of this Exxon case hinges on whether they were keeping “two sets of books,” said climate activist Kert Davies, who helped expose Exxon’s past funding of climate denial. This would portray climate risk to shareholders “differently in public than they are behind closed doors.”
The New York attorney general has declined to comment, instead pointing BuzzFeed News to a pretrial memo filed on Oct. 7 that spells out Exxon’s alleged deceit. In anticipation that governments would adopt aggressive new climate policies including charging companies for their climate pollution, such as carbon dioxide, Exxon said in public disclosures that it was accounting for how a warming world threatened the business.
Specifically, Exxon disclosed to investors “that it was applying a cost of carbon approaching $80 per ton across its business to account for that risk,” per the memo. “But ExxonMobil did no such thing. For many years, ExxonMobil’s undisclosed internal guidance directed its employees to apply a far lower cost of carbon than the company purported to use.”
By claiming to use a higher carbon cost than it actually was, “ExxonMobil made its assets appear significantly more secure than they really were, which had a material impact on its share price,” according to the memo. The New York attorney general estimates the damage to Exxon shareholders ranges from about $476 million to $1.6 billion.
At trial, Exxon is expected to acknowledge it had two sets of carbon costs but will argue investors should have known this and how the different prices were used based on disclosures.
“Reasonable investors who reviewed ExxonMobil’s disclosures understood that climate risks factored into ExxonMobil’s decision-making, which is all that could have mattered to them. Those investors also understood that ExxonMobil did not disclose the proprietary details about how it weighed those risks,” the company wrote in its own pretrial memo. Moreover, the company accuses the New York attorney general office of finding “no evidence of wrongdoing.”
Company spokesperson Scott Silvestri told the Los Angeles Times the investigations into Exxon were “politically motivated and resulted from a coordinated effort by anti-fossil fuel groups and contingency-fee lawyers involved in other lawsuits against industry.
If Exxon loses this case, they’ll have to pay damages to the state of New York. But the company has to worry about more than a payout and a hit to its reputation. Exxon could also face additional legal challenges from other states, and possibly even at the federal level, according to Mark Latham of Vermont Law School.
The fallout could impact many other companies, too. “It’s a big deal,” said Latham, adding that any company “that generally downplayed the risk of climate in public documents they disclosed to the US Securities and Exchange Commission and others” would be at risk of future litigation if Exxon loses.
Thematically, the case is similar to the “public nuisance” cases filed by cities and states against Exxon and other energy companies over the costs of climate change, David Bookbinder, chief counsel of the Niskanen Center environmentalist think tank, told BuzzFeed News.
But the New York case only involves Exxon’s conduct after 2010. “That’s very different, and might be critical,” said Bookbinder, who was the chief climate counsel for the Sierra Club in the 2007 Supreme Court case, Massachusetts vs. EPA, that ruled carbon dioxide was a pollutant under the federal Clean Air Act.
In 2015, the New York attorney general settled with Peabody Energy, a coal company, over its public pronouncements that it was unable to forecast the impact of future environmental regulations on its business. At the same time, the company was shown to be making those forecasts internally and withholding them in their filings. The case is seen as a template for the Martin Act case against Exxon.
Massachusetts has also been investigating whether Exxon deceived investors on climate risk, and is looking to soon take legal action of its own, according to Bloomberg Environment.In an Oct. 10 letter, the state attorney general’s office wrote Exxon to alert them the office “intends to commence an action against ExxonMobil for violations” of the Massachusetts Consumer Protection Act. The company is trying to delay those efforts and reportedly countered that Massachusetts was distracting the company while it prepares for the New York trial.