Exxon Describes 2 Formulas for Climate Accounting in Court Filing

The oil giant responded to allegations that it used two sets of greenhouse gas accounting numbers, one shared publicly and another for internal business decisions.

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New York Attorney General Eric Schneiderman
New York Attorney General Eric Schneiderman used the word "sham" in describing how Exxon shared greenhouse gas accounting information under former CEO Rex Tillerson. Credit: Andrew Burton/Getty

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This story was updated on June 14 with a response from the New York attorney general about the two formulas Exxon described.

ExxonMobil defended itself in court documents Friday following claims by New York Attorney General Eric Schneiderman that the company used two sets of books in evaluating climate risk, one set of numbers for describing the risks to investors and the other for business decisions. Schneiderman had described the practice as a “sham” perpetrated by the oil giant while Rex Tillerson was its chief executive.

Exxon’s lawyers wrote that the company had “truthfully and consistently” told the public that it “addresses potential impacts of future climate-related policies.” They also accused Schneiderman of playing to the media and of disclosing confidential and proprietary records that were attached as exhibits to his brief filed last week in New York Supreme Court.

Schneiderman’s brief was “prepared for the press rather than this Court,” the lawyers wrote in a reply filed with Judge Barry R. Ostrager.

Asked about the Exxon filing, Schneiderman spokeswoman Amy Spitalnick said: “As detailed in our filing last week, the attorney general’s office has a substantial basis to suspect that Exxon’s proxy cost analysis may have been a sham. This office takes potential misrepresentations to investors very seriously and will vigorously seek to enforce this subpoena. We look forward to next week’s hearing.”

Schneiderman last week said Exxon had mislead investors by using two sets of numbers in its greenhouse gas accountingone shared publicly with investors and a “secret” set used internally by the company. The different numbers suggested Exxon was telling shareholders it was adequately preparing for potential threats to profits while using internal figures that downplayed the risk as it moved forward with business decisions.

The company’s reply, submitted by Exxon attorney Theodore Wells, didn’t respond directly to Schneiderman’s allegations that it used separate numbers.

“ExxonMobil has truthfully and consistently told the public that, when projecting the global demand for energy, it addresses potential impacts of future climate-related policies, including the potential for restrictions on emissions, through the use of a proxy cost of carbon,” the brief said.

The attorneys general of New York and Massachusetts have been investigating whether Exxon mislead investors about climate change, using each state’s fraud statutes that protect consumers from making investment decisions based on misleading information. Schneiderman issued the first subpoena in the fall of 2015, shortly after InsideClimate News and later the Los Angeles Times published separate accounts of Exxon’s knowledge of climate risks since the late 1970’s.

The latest legal bickering is over Schneiderman’s decision to issue additional subpoenas for Exxon records and take depositions of company officials. Exxon is asking Ostrager to quash the subpoenas. A hearing is scheduled for next week.

Although Exxon didn’t respond directly to Schneiderman’s allegations that it used separate numbers internally and with investors, the company acknowledged that it used two formulas to address distinctly different potential impacts of greenhouse gas-related policies on its business.

The first is a comprehensive global examination of possible effects of regulations that governments may employ to managing the risks of climate change, the brief said. The second is a more targeted evaluation of the direct financial impact of existing and potential future regulations that’s done on a project-by-project basis.

“ExxonMobil’s use of different metrics, in different circumstances, to accomplish different goals evinces prudent financial stewardship, applying appropriate assumptions in appropriate cases,” the brief said. “There is nothing untoward or surprising about any of this.”

Schniederman, in a response filed on June 14, said Exxon’s explanation of using two formulas to calculate a proxy cost of greenhouse gas emissions amounted to an admission that it was not employing the same assessments that it had been touting to investors and the public.

Most notably, Schneierman said Exxon’s formulas excluded 90 percent of emissions from its proxy cost computations.

“Unable to dispute these facts as documented in its own files, Exxon resorts to an elaborate, unsupported discourse on the propriety of its now-admitted use of ‘different figures’ for ‘different purposes’,” Schneiderman’s response said. “Exxon’s rationalizations contradict a decade’s worth of its public statements to investors about a “rigorous” and “consistent” risk management practice against which “everything gets tested.” In doing so, Exxon has further inculpated itself—and strengthened the factual basis for OAG’s ongoing investigation.”

Exxon also disputes Schneiderman’s contention that the company has destroyed records, including as many as seven year’s worth of emails that Tillerson generated using an anonymous account under the name “Wayne Tracker.” The hunt for the missing emails was described by an Exxon information technology officer in documents released by the attorney general.

“The claim is baseless,” as is the attorney general’s overall accretion that Exxon must be compelled to cooperate with the probe, Exxon said in its brief. “Rather than supply a legitimate basis for his continued investigation, the attorney general offers only a paltry few documents buried under a mountain of distortions and self-serving characterizations. Such ‘minimal, equivocal documentary proof’ is insufficient to support further investigation.”

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