By Karen Savage
Only weeks after Exxon released a set of reports intended to ease shareholders’ concerns about the way the oil giant was managing the risks posed by climate change, Exxon’s own greenhouse gas manager said those reports may have misled investors, according to the New York attorney general’s office.
The allegation was part of testimony given Friday, the fourth day of the trial to determine whether Exxon violated New York’s Martin Act by deceiving investors over climate change. Attorney General Leticia James alleges that Exxon committed fraud by disclosing that it used one set of numbers to calculate climate risk to shareholders while using a different, undisclosed calculation to privately plan how to invest the company’s own funds.
Exxon doesn’t deny it used different numbers, but contends the two are different calculations and maintains it has made accurate disclosures to investors.
James contends the disclosures were not adequate.
As evidence, the AGs office pointed the court to notes attached to an email sent in May 2014 by Guy Powell, Exxon’s then-greenhouse gas manager, to other company employees. The notes were talking points to accompany slides showing proposed revisions to Exxon’s DataGuide, an internal company planning document that is updated annually.
One proposed update was to align the greenhouse gas cost in the DataGuide with the proxy cost of carbon, which is listed in the Energy Outlook, Exxon’s annual report on global energy demand.
The rationale given for the update was that “in recent reports released by [ExxonMobil] (Energy and Climate and Energy and Carbon Managing the Risks), we have implied that we use the [Energy Outlook] basis from proxy cost of carbon when evaluating investments.”
Investors testified earlier this week that they were misled to believe that Exxon used only one proxy cost of carbon when assessing how climate change would impact the future of its business.
Powell testified he doesn’t recall writing the notes, nor does he recall who wrote them.
Exxon has said it used the proxy cost of carbon to determine how climate-related regulations might affect the future demand for energy and a separate number—greenhouse gas (GHG) cost—to calculate the costs climate-related regulations might have on greenhouse gas emissions generated by potential projects.
Prior to 2014, Exxon’s proxy cost of carbon—as listed in the Energy Outlook—was $60 per ton in 2030 for more regulated countries and its greenhouse gas cost—as listed in the DataGuide—was valued at $40 per ton of carbon.
The suggested edits were accepted and the 2014 DataGuide was aligned with the Energy Outlook.
The AG’s office says the timing of the alignment, just months after the release of Energy and Climate and Managing the Risks, raises red flags.
Bob Bailes, Exxon’s greenhouse gas manager prior to Powell, disagreed.
“We don’t set our guidance based on a publication, we’re not trying to trick ourselves,” Bailes testified, adding that alignment of the two numbers was based on the world’s progress on climate change and the anticipation of a global agreement on the regulation of greenhouse gas emissions.
Whatever the reason for the update, it appears Exxon did not disclose the change to investors.
Exxon vice president and controller David Rosenthal testified Thursday that the company first disclosed publicly it used a separate set of greenhouse gas costs to evaluate future investments in its Managing the Risks report, which was released prior to the DateGuide’s update. Rosenthal also said he is unaware of any additional company disclosures.
Attorneys for Exxon limited their cross-examination of Powell to around 10 minutes, leaving the AG with no other witnesses to call on Friday. Many of the people on the AG’s witness list are current or former Exxon employees, many based in Dallas or elsewhere. They aren’t expected to arrive in New York until shortly prior to scheduled testimony.
The lack of witnesses exasperated Judge Barry Ostrager, who has said the trial will conclude no later than Nov. 12.
“Going forward, if you don’t have a witness, you rest,” Ostrager said.
“The entire case?” an attorney for the AG’s office asked.
“Yes,” Ostrager said, adding it is the AG’s obligation to organize witness schedules to ensure court hours are occupied with testimony.
“I am stunned because ExxonMobil can now get us to rest by telling us they’ll need an hour and a half and elect not to cross,” said Kevin Wallace, acting chief of the attorney general’s investor protection bureau, who indicated he had expected Exxon’s cross-examination of Powell to last the rest of the afternoon.
“Same with Exxon—if they don’t have a witness, they rest,” Ostrager said, adding that attorneys from both sides should be able to coordinate.
“You’ve been working with each other for years,” he said, referring to the AG’s lengthy investigation and Exxon’s exhaustive attempts to wrangle free from the lawsuit.