Did ExxonMobil mislead investors about the financial risks of climate change? That’s the charge in an unprecedented trial against the oil and gas giant that got underway Tuesday and is likely to feature testimony by Rex Tillerson.
The proceedings, which have been described as “historic” by environmental law experts, is expected to see former US secretary of state Tillerson give evidence and will be closely watched by energy companies and climate campaigners.
The litigation dates to October of last year, when the New York attorney general filed a lawsuit against the American multinational on behalf of investors victimized by the alleged fraud.
In opening arguments, Kevin Wallace, acting chief of the investors’ protection bureau at the attorney’s office, said Exxon had defrauded investors by underestimating the costs of climate change mitigation policies.
He said that the company had for years been insisting that its projections were more realistic than competitors’ and included the risks associated with governments’ tightening legislation to limit greenhouse gas emissions.
“Investors were concerned about the impact (of climate change) and were asking for information. Exxon gave them many explanations, but they were not true and accurate,” Wallace told the court.
“Investors are now entitled to the truth and to recompense,” he added during the 45-minute address.
Wallace provided excerpts of information Exxon communicated to shareholders in which it boasted of having a rigorous system to project costs, including for mitigating the effect of carbon emissions by 2040.
In fact, the company used less severe projections in its internal calculations to avoid negatively impacting profitability forecasts, Wallace alleged.
As a result, the group’s shares would have ended up being overvalued, costing shareholders anywhere between $416 million and over $1.16 billion, he said.
Exxon’s lawyer, Ted Wells, replied that the complaint is “unconnected from the truth,” adding that the trial would prove that the firm did “absolutely nothing wrong.”
“It makes no sense. We would not be in the business of cheating ourselves,” he told the court.
Wells said the company had two ways of measuring the risk of climate change based on different types of forecasts, and that neither was intended to deceive investors.
The star witness during the trial is expected to be Tillerson, who headed Exxon from 2006 until joining President Donald Trump’s administration in January 2017. Trump sacked him in March 2018.
Both the prosecution and the defense have indicated that they will call him to the stand.
The trial is the first of its kind and is the result of four years of investigations by prosecutors.
Some environmental activists, who have been campaigning against Exxon since 2015 under the banner #ExxonKnew, attended the Manhattan hearing after protesting outside of court Tuesday.
In a report released on Monday, five academics, including two at Harvard, likened energy giants’ discourse on climate change to that of tobacco companies who long played down the dangers of smoking.
Whatever the outcome of the trial, Hana Vizcarra, an environmental expert at Harvard Law School, says it will impact how large energy companies communicate their climate risk, particularly because Exxon is facing other lawsuits brought against it by shareholders that are yet to come to trial.
“Investors and shareholders want more information on the climate and how it affects companies,” Vizcarra told AFP.
“Almost all oil and gas companies now produce climate-related reports — the question is what information should be included in these reports,” she added.
The lawsuit does not specify damages sought but seeks to force Exxon to cease the alleged fraudulent statements and requires Exxon to pay back amounts wrongly acquired.
In August 2018, the US Securities and Exchange Commission ended an investigation into Exxon’s decision not to write down assets because of future climate change regulations, taking no action against the company.