Exxon Mobil is facing a class action relating to its stock price decline mainly due to the alleged misreporting of the company’s “stranded assets”, at a time of global efforts to cut emissions and low oil prices in what is being seen as the first shareholder lawsuit about inadequate disclosures of climate risk.
‘Stranded assets’ is a term developed by Carbon Tracker, the NGO, describing how fossil fuel reserves already far exceed the carbon budget to avoid global warming of 2°C.
Robbins Geller Rudman & Dowd LLP, a US law firm specialised in prosecuting investor class actions involving financial fraud, has called on other plaintiffs to come forward and join the suit, for which they have 60 days. Other law firms, such as Bronstein, Gewirtz & Grossman, LLC have followed on the same announcement. .
According to Courthouse News Service the action was filed in Texas and Pedro Ramirez Jr. is the lead plaintiff.
The class action alleges that Exxon misled investors as it failed to disclose internal reports acknowledging that as a result of climate change risk, “a material portion of Exxon’s reserves were stranded and should have been written down”.
The complaint also alleges that in order to keep its reserves overstated, Exxon miscalculated the “price of carbon”, or as defined by the law firms’ statements, “the cost of regulations such as a carbon tax or a cap-and-trade system to push down emissions”.
As a result, it’s alleged, Exxon common stock traded artificially at $95 per share between 19 February and 27 October 2016, with rating agencies grating AAA debt rating, which helped the company sell $12bn of corporate debt, according to the law firms.In September the Securities and Exchange Commission (SEC) following on the heels of similar probes such as that of the New York Attorney General Eric Schneiderman, launched an investigation on Exxon’s stranded assets valuation and reporting.
The stock eventually fell more than 13% to $82.54 per share on 20 September, when the SEC announced the probe.
“It does have implications for other oil companies”
Alice Garton, senior corporate lawyer at ClientEarth, a public interest environmental law firm, told RI that the lawsuit is “credible” and “unique” in the sense that it involves concrete financial risks stemming from the concept of stranded assets.
“It’s an interesting development and it does have implications for other oil companies, so if the value of the assets continues to decline then you would expect to see more oil majors writing down their reserves as well.” Garton said ClientEarth is not involved in the class action but it continues to monitor the reporting practices of fossil fuel companies, particularly the annual reports of UK listed ones.
On 28 October when Exxon released its quarterly results, the company said it might have to write down close to 20% of its reserves.
An Exxon spokesman told Courthouse News that the lawsuit is “frivolous” and “completely without merit.”