The New York Attorney General’s office is waiting to hear back from Exxon Mobil. The oil and gas company was served with a subpoena earlier this week requesting information and documents related to climate change – what the company has said to shareholders, internal research on climate change, projections of the impact on profits and business, as well as marketing materials and records of funding for outside groups active on climate-change issues.
The underlying question is whether Exxon Mobil misrepresented what it knew about climate change to the public and to shareholders.
All publicly held companies are obligated under U.S. securities laws to inform shareholders of “material” risks. A risk or piece of information is considered material if there’s a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote or invest.
“It’s very typical for any large company to disclose a whole laundry list of risks,” said Lynn Stout, distinguished professor of corporate and business law at Cornell University, “from the potential failure of product being developed to issues like this: the impact of climate change and possible regulatory responses.”
The Securities and Exchange Commission offered clarification regarding climate change and disclosure of risk in 2010, pointing out that companies must follow the same principle of disclosure for climate change as any other issue.
Donna Dabney, executive director of the Governance Center at the Conference Board, said that while climate change is certain, its degree, timetable and specific impact on a company have not always been clear. “The issue with climate change is that companies have trouble with the probability part,” she said.
Exxon Mobil is an oil and gas company for which the impact of climate change is patently significant, and which has conducted its own research on climate change in years past.
“Exxon Mobil has consistently in public communicated a message of doubt and uncertainty about climate science, but what recent revelations show is in private they were having a very, very different conversation,” said Naomi Oreskes, professor of the history of science at Harvard and author of The Merchants of Doubt, referring to reporting by Inside Climate News and the LA Times.
Exxon didn’t respond to request for comment.
The alleged incongruity between what executives at Exxon knew and what they said is the basis of the investigation by the New York Attorney General’s office. Attorneys are investigating under a state law related to securities fraud called the Martin Act.
“The phrases in the Martin Act are very very broad,” said JW Verret, senior scholar at George Mason’s Mercatus Center, “and an attorney general can use that and the incredible penalties associated with it to leverage settlements very quickly, and they have.”
The New York Attorney General’s office, using the same law, was part of a probe of Bank of America after the financial crisis that led to a settlement of almost $17 billion.
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