Global Industry: The Exxon’s Climate Change Proxy Costs

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ExxonMobil facilities

New York’s top cop told a judge that an investigation into Exxon Mobil Corp.’s public statements about climate change uncovered “significant evidence” the oil giant may have misled investors.

In a court filing Friday, New York Attorney General Eric Schneiderman provided detailed findings from the fraud probe for the first time, saying Exxon may have been using two sets of numbers — one public and one secret — to calculate the future impact of the Earth’s warming on its assets.

“That evidence suggests not only that Exxon’s public statements about its risk management practices were false and misleading, but also that Exxon may still be in the midst of perpetrating an ongoing fraudulent scheme on investors and the public,” Schneiderman said.

If true, the claims risk inflaming investors who this week backed a non-binding resolution urging the Irving, Texas-based company to consider whether it can prosper under strict greenhouse gas limits. While Exxon opposed the vote, it has accepted climate-change science and doesn’t support President Donald Trump’s decision to pull the U.S. out of the 2015 Paris Climate Accord.

Exxon’s public statements have accurately described its use of proxy costs, company spokesman Scott Silvestri said in an email. He said the documents provided by Exxon to Schneiderman during the litigation “make this fact unmistakably clear.”

“This investigation is about politics and publicity, not law enforcement,” Silvestri said.” He called the claims “inaccurate and irresponsible.”

Exxon Investors to Company: Make Climate Curb Fallout Public

Exxon has a separate lawsuit against Schneiderman pending in federal court in New York in which the company seeks to force an end to the probe on the grounds that it was started in “bad faith.” Republicans in Washington have backed the company, with members of the House Committee on Science, Space, and Technology saying Schneiderman may have improperly coordinated with environmentalists and other state attorneys general before starting the investigation.

Schneiderman and his Massachusetts counterpart, Maura Healey, have been investigating since 2015 whether Exxon misled the public and investors by withholding information about how climate change could impact the company’s finances.

Naomi Ages, who leads Greenpeace’s climate liability project, said in an email that Schneiderman’s disclosures bolster the organizations views that Exxon has misled the public. Exxon is “saying one thing to the public and its shareholders about climate risk while basing its internal decisions on entirely different information,” she said.

Schneiderman’s filing focused on Exxon’s claim that it applies so-called proxy costs to greenhouse gas emissions, which the company says “reasonably approximates the range of potential future government actions with respect to climate change.” He said Exxon regularly cites the proxy costs to “assure investors that none of Exxon’s projects or assets will be materially affected by future climate change-related regulations.”

That claim may be vastly exaggerated, Schneiderman said in his filing in New York state court.

“Exxon has identified only a single, anomalous instance in which a proxy cost was actually applied,” the attorney general said. “Exxon’s documents reveal a widespread lack of awareness among employees of the proxy cost policy, or how it should be applied.”

The use of proxy costs “may be a sham,” Schneiderman alleged.

Exxon also has “secret internal versions of proxy costs,” according to the filing. In one instance, the company told an employee from its majority-owned Imperial Oil Ltd. not to apply it to its Canadian oil sands projects, according to the filing.

Exxon has refused to make the employee available to testify, “contending for the first time that it lacks control over its majority-owned subsidiary from which it has been producing documents for months,” he said.

Proxy Costs

The proxy costs match a dollar amount to projected tons of greenhouse gases by a certain future year, according to the filing. In one example outlined in court documents, Exxon told investors it applied proxy costs that reached $60 per ton of greenhouse gases by 2030, and $80 per ton by 2040 for projects in developed countries.

But documents provided by Exxon under a subpoena show that lower dollar amounts were being used internally, according to the filing.

“It appears that this discrepancy was known at Exxon’s highest levels,” John Oleske, a senior enforcement lawyer for New York, said in another filing on Friday.

Schneiderman claims an Exxon climate change manager wrote in a 2010 email that publicly disclosed proxy cost figures were “more realistic” than those used internally.

Tillerson wrote in an email in 2011 that he was “happy with the difference” because using a lower proxy cost was “conservative” from the perspective of investing in carbon capture and storage projects, which allows Exxon to claim emissions reduction credits, according to the filing.

Exxon Can’t Find Up to a Year of Tillerson ‘Tracker’ Emails

Schneiderman’s filing also revealed the existence of an alias email account under the name “J.E. Gray” that was created for Exxon Chief Executive Officer  Darren Woods. Schneiderman, who discovered the account through a court-ordered deposition of an Exxon technology employee, has sought thousands of emails from such accounts during the probe.

“The secondary account was never used and therefore it contains no email responsive to the subpoena,” Silvestri said.

The revelation of the J.E. Gray email account comes months after Schneiderman accused Exxon of failing to disclose the “Wayne Tracker” alias account that belonged to former CEO and now Secretary of State Rex Tillerson, who used the account to discuss sensitive topics with the board.

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net. To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net Paul Cox.

Copyright 2017 Bloomberg News.

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