By Jennifer A. Dlouhy
An investigation by New York's attorney general into allegations that Exxon Mobil sponsored and then suppressed research confirming the risks of climate change decades ago shows scrutiny of the issue is intensifying.
New York Attorney General Eric Schneiderman subpoenaed documents from the Irving-based oil giant as part of a probe aimed at determining whether the company failed to disclose the business risks of climate change to investors as well as the public. Exxon Mobil vigorously denies those claims.
A similar investigation targets coal company Peabody Energy, according to the New York Times.
The inquiries could have implications beyond just Exxon Mobil Corp. and Peabody, as other oil, gas and coal companies face questions on what they knew about climate change, when they knew it, and whether they adequately warned shareholders about the financial risks.
Activists were pressing energy companies to better disclose the business risks of climate change even before InsideClimate News and the Los Angeles Times reported on Exxon documents showing the company warned management decades ago that major reductions in fossil fuel use would be needed to avert global warming.
Peter Huang, a business law professor at the University of Colorado and expert in risk disclosure, predicted this will become "a broader issue."
"There's nothing unique about Exxon Mobil or Peabody Energy that makes them different from other energy companies" when it comes to broad business risks from climate change and regulation around it, Huang said. "Presumably climate change, a carbon tax or fracking are material things that reasonable investors want to know about; the question is how much do (companies) disclose and what do they say."
Financial reporting rules require publicly listed companies to disclose trends and uncertainties that could have a material impact on their financial standing or operations. According to the Supreme Court, the threshold is information that a "reasonable" investor would view as important to an investment decision or would significantly change the total mix of information available on the company.
Ken Cohen, vice president of public and government affairs for Exxon Mobil, said the company has included information about the business risk of climate change in its annual 10-K filings, a corporate citizenship report and other documents provided to shareholders. That disclosure began in 2007, Cohen said, about the same time Exxon Mobil started using a proxy cost for carbon in its internal planning.
"We are proud of our record of disclosing to investors and the investment community what we believe are material facts applicable to our business," Cohen told reporters Thursday during a conference call.
Exxon Mobil is assessing its response to the New York subpoena, which is "broad" and seeks documents related to climate change, Cohen said. He stressed that Exxon Mobil "unequivocally" rejects allegations it suppressed climate change research.
Calls for disclosure
For several years, activists have been pressing oil, gas and coal companies to disclose how climate change affects their core business of extracting and selling fossil fuels. And environmentalists have been pushing state attorneys general to more aggressively investigate the issue, likening its potential to litigation against the tobacco industry. But at this point, Schneiderman's inquiry "is all about the documents," former Maine Attorney General James Tierney said. "This is not about a lawsuit. Where it's going to go is going to be based on what the documents say."
Absent a smoking gun, Schneiderman's quest may never progress beyond a subpoena for documents, Tierney stressed. "He believes he has reasonable grounds to ask for documents," Tierney said, but that's different than having reasonable grounds to press a case.
New York has led the crusade for greater climate change risk disclosure, with Gov. Andrew Cuomo, a former state attorney general, petitioning the Securities and Exchange Commission to clarify how businesses should reveal the threats. The SEC subsequently clarified that material risks from climate change should be detailed in companies' annual 10-K filing.
"Investors should understand what the risks are of the companies they are investing in," said Edward Lloyd, a law professor at Columbia University. "Disclosing that is clearly in the interest of the investors and probably the companies as well. If you are going to disclose such things, you have to investigate them and in analyzing the risks, you may then come up with a solution."
Other state attorneys general could follow Schneiderman's lead and launch their own investigations. But a New York corporate fraud statute, the Martin Act, gives Schneiderman significant power to pursue claims that companies have not fully confessed the environmental risks they face.
Even without separate inquiries, the Exxon Mobil and Peabody inquiries could spur other companies to be more expansive in describing how climate change affects their bottom lines.
"My sense is this will spread, so much so to the point that companies that fail to disclose will be in trouble," Huang said. "The prudent thing to do would be to disclose, to say this is a risk -- it's hard to quantify -- but it's a risk."
Democratic presidential candidates Bernie Sanders and Hillary Clinton have called for a federal investigation, echoing several lawmakers who say the allegations against Exxon Mobil raise troubling similarities to the tobacco industry's suppression of data showing smoking was harmful. Bill McKibben, the founder of 350.org, praised Schneiderman for "holding to account arguably the richest and most powerful company on Earth," and said the move should encourage other state attorneys general to follow suit.
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