Key Question as Exxon Climate Trial Begins: What Did Investors Believe?

Notes shared by an Exxon manager in 2014 said the oil giant had incorrectly ‘implied’ to investors that it was using a higher estimate for future climate costs.

Exxon investor meeting. Credit: Brian Harkin/Getty Images
ExxonMobil went on trial in New York on Oct. 22 on civil allegations that it defrauded investors by misleading them about risks it faces from future climate regulations. A similar case was filed against the oil giant the same week in Massachusetts. Credit: Brian Harkin/Getty Images

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New York’s investor fraud case against ExxonMobil revolves around a central question: Did the oil giant mislead investors about the company’s financial risks connected to climate change?

Part of the answer may hinge on notes that Exxon’s former greenhouse gas manager emailed to a colleague in 2014.

As the trial got underway this week, the New York Attorney General’s Office called that former manager, Guy Powell, to the stand to explain.

The notes had been attached to a presentation about how Exxon estimated the future financial impact of government climate policies. The company had two sets of estimates at the time: one that was shared with investors and another that was used only internally. The public estimate, which Exxon referred to as its “proxy cost,” was higher, suggesting a future with stricter limits on emissions. The internal figures, which it called a “greenhouse gas cost,” were lower.

Powell and his manager Mark Shores, who actually gave the presentation, were preparing to recommend to Exxon executives that the company align these two costs. The notes said that the company had incorrectly “implied” to investors in recent reports that it was using the higher public estimate in its internal calculations.


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The attorney general’s office has said that this presentation amounted to a recognition by Exxon’s own employees that the company had a problem, that it wasn’t being straight with investors, intentionally or not. After the May 2014 presentation, Exxon management took the recommendation and aligned the two costs.

Jonathan Zweig, the lawyer questioning Powell for the attorney general’s office, asked Powell if he wrote the presentation. Powell said he couldn’t recall.

Did he recall having any input on the notes? Powell couldn’t recall.

When Zweig asked if he could recall anyone who had either written or had input on the notes, Powell said he could not, though he acknowledged that he had sent them to Shores.

Zweig then read from a deposition Shores had given before the trial, in which he said it was Powell who wrote the notes.

When Zweig asked Powell why his team was recommending in 2014 that the company align these costs, he said it was a reflection of their shifting view of how nations would ultimately implement carbon taxes and other policies.

The notes made no mention of this reasoning.

“That rationale you just explained,” Zweig said, “it is not the same as this rationale here, is it?” he said, pointing to the notes.

“It is not,” Powell replied.

Investors Take the Stand

The key question before the judge is not whether Exxon had good reason to use two different estimates, but whether it was straightforward with investors about the fact that it did.

Over the first few days of testimony, lawyers for each side have examined and cross examined witnesses, including two activist investors and three Exxon executives, including Powell. They circled again and again back to a series of meetings, phone calls and reports to investors that Exxon officials made between late 2013 and late 2014.

The attorney general’s office has tried to show that any reasonable investor who had read those company reports and had taken part in those meetings would have presumed that the public proxy cost, which was listed in the reports and in presentations at the meetings, was the only estimate the company was using for the cost of carbon.

The attorney general’s office called two witnesses who testified that that was what they had believed—Natasha Lamb, with the responsible investment group Arjuna Capital, and Michael Garland, who helps oversee New York City’s pension funds and who was also involved in discussions with Exxon. They said they thought that this proxy cost was used across the company’s planning, including when considering whether major projects would have to pay to pollute.

Exxon’s lawyers have maintained that the company never said the proxy cost applied to the costs at specific projects—it was the greenhouse gas cost, they said, that represented that direct cost—and that anyone who made that assumption was failing to read the fine print or ask the right questions.

Both Lamb and Garland acknowledged that they hadn’t asked detailed questions about how Exxon applied its proxy cost.

What’s more, Exxon’s representatives have said, the company did disclose that it used a separate carbon cost estimate.

They have pointed to one sentence in a report the company issued in March 2014, which they say was the first disclosure of the existence of the internal greenhouse gas cost. The sentence comes on page 18 of the report, within a paragraph discussing the proxy cost. Directly preceding the paragraph is a map that shows what Exxon’s proxy costs were. The sentence reads: “Perhaps most importantly, we require that all our business segments include, where appropriate, GHG costs in their economics when seeking funding for capital investments.”

Excerpt: Exxon report

David Rosenthal, vice president and controller at Exxon, told lawyers for the attorney general that he never told the activist investors that the company had a separate cost, but he pointed to this sentence as a clear disclosure of its existence.

When Kim Berger, one of the attorney general’s lawyers, pointed out that the sentence came within a paragraph discussing the proxy cost, Rosenthal said: “I would have assumed … a person who took part in our discussions would have known we were talking about something different.”

Drama in the Court

The week ended with a series of testy exchanges between Justice Barry Ostrager, who has been overseeing the case since the investigation began in 2015, and the attorney general’s lawyers.

First, Ostrager reprimanded Zweig for “agonizingly repetitious” testimony. Only minutes later, after lawyers for Exxon concluded a brief cross-examination of Powell, the attorney general’s office appeared caught off guard without its next witness ready.

Kevin Wallace, with the attorney general’s office, said that Exxon had said it had reserve an hour and a half for cross examination. The next witness is an Exxon employee, Wallace explained, and out of courtesy, the office hadn’t asked the witness to come to New York from Texas when testimony wasn’t expected until Monday.

Ostrager scolded Wallace and said if he is left without a witness again he will force him to rest the attorney general’s case.

The attorney general’s office and Ostrager have clashed before. Last year, the judge scolded them for trying to have him removed from the case because he owned Exxon stock. He instead agreed to sell his stake in the company.