Exxon’s Climate-Change Accounting Goes on Trial

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Exxon Mobil Corp.

and New York’s legal professional common are headed for a showdown this week over accusations the corporate deceived traders, a uncommon trial over how the oil business accounts for the impression of local weather change.

The trial, which begins Tuesday in state court docket in Manhattan, is the end result of a sprawling investigation into Exxon and its accounting practices that spanned 4 years and three New York attorneys common. It is predicted to incorporate as a witness former Secretary of State

Rex Tillerson,

who was Exxon’s chief government from 2006 to 2016.

The legal professional common’s workplace mentioned the corporate instructed traders that it was taking into consideration the long run prices of laws it anticipated governments to undertake in response to local weather change. But Exxon’s inside calculations didn’t match its public representations, the workplace mentioned.

The legal professional common’s workplace mentioned the corporate’s misrepresentations brought on traders to overvalue its inventory. It estimated the harm to shareholders to be between $476 million and $1.6 billion.

“Exxon in effect erected a Potemkin village to create the illusion that it had fully considered the risks of future climate-change regulation,” the criticism says.

Exxon has denied wrongdoing and mentioned an affordable investor wouldn’t count on to know such inside particulars. The firm has additionally accused the attorneys common concerned, all Democrats, of being motivated by politics in bringing the case, which the workplace has denied.

The oil business has mentioned that it’s tough to estimate the long run prices of climate-change regulation, which is unsure politically and varies throughout nationwide boundaries, as traders have demanded extra data.

The trial is being watched carefully, mentioned

Jennifer Rowland,

an analyst at financial-services agency Edward Jones.

A verdict within the legal professional common’s favor may harm Exxon’s status and bolster federal lawsuits filed by shareholders in Texas and New Jersey that make related allegations, which Exxon has additionally denied. It may additionally spur future investigations.

“It could open up a big can of worms,” Ms. Rowland mentioned. “Other companies could be looked at and questioned about what assumptions they have made.”

A win for Exxon may insulate the corporate from related fits and would signify one other blow for climate-change lawsuits. Federal judges have tossed different climate-change circumstances, together with when New York, San Francisco and different cities sued oil firms previously a number of years to recoup prices incurred from the results of rising world temperatures.

Tuesday’s proceedings mark solely the second trial of a case the place local weather change is a central problem in U.S. historical past, mentioned

Michael Gerrard,

director of Columbia Law School’s Sabin Center for Climate Change Law. In the primary, he mentioned, a federal decide in 2007 upheld a Vermont regulation on emissions requirements that had been challenged by auto makers and sellers.

The New York legal professional common’s workplace sued Exxon final October, saying its climate-change disclosure strategies have been “sanctioned at the highest levels of the company.”

Prosecutors mentioned Mr. Tillerson was conscious of misrepresentations to traders. They mentioned the then-chief government used a distinct e-mail deal with, with the alias Wayne Tracker, for inside correspondence about these issues.

A spokeswoman for Mr. Tillerson referred a request for remark to Exxon. An Exxon spokesman didn’t reply to a request for remark.

In a deposition, Mr. Tillerson mentioned he used the Wayne Tracker deal with due to the heavy quantity of e-mail going to the account that used his actual identify. He additionally referred to differing calculations as an “academic debate.”

Central to the trial is the calculation of proxy prices, or formulation the corporate used to calculate the danger of future regulation. Such disclosures have been vital to traders as a result of they spoke to the corporate’s monetary well being, the legal professional common’s workplace mentioned.

The variations have been generally stark. In oil-sands tasks in Alberta, Canada, Exxon understated the prices of future authorities regulation by $25 billion, the workplace mentioned.

Exxon has mentioned regulation in Alberta “has been and remains in flux, with rival political factions enacting and repealing climate regulations regularly.”

Exxon says affordable traders understood it weighed local weather dangers whereas not disclosing proprietary particulars. It had other ways of calculating regulation dangers and utilized them in applicable contexts, its legal professionals wrote.

The case is divisive partly as a result of it depends on the Martin Act, a broad New York state regulation that has been employed to pursue Wall Street fraud.

“This is an abuse of the Martin Act,” mentioned

Tom Stebbins,

government director of the Lawsuit Reform Alliance of New York, which fights what it views as extreme litigation. “By all indications, this is a lawsuit to carry out a political agenda.”

Bernie Nash,

co-head of the state attorneys common apply at agency Cozen O’Connor P.C., mentioned the case was an atypical use of the Martin Act. In the previous, the courts have allowed for broad makes use of of the Martin Act, he mentioned.

“Philosophically, no statute is limitless and you don’t know when you’ve exceeded it until the court says so,” Mr. Nash mentioned.

Write to Corinne Ramey at Corinne.Ramey@wsj.com

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