By Karen Savage
Two shareholder lawsuits accusing Exxon officials of lying to investors and the public about the risks of climate change, have been consolidated by a federal judge in Texas.
U.S. District Judge Ed Kinkeade on Tuesday ordered the cases, Von Colditz v. Woods, et al, and Montini v. Woods et al, be consolidated into a single action. Cases are often consolidated to avoid duplicate actions and to avoid wasting the court’s resources.
Both suits, which were filed in May in the U.S. District Court for the Northern District of Texas, accuse current and former Exxon executives and board members of violating federal securities law, breaching fiduciary duties and wasting corporate assets. Current chief executive Darren Woods and his predecessor, Rex Tillerson, are named in the suit.
Exxon is facing a similar lawsuit in New Jersey, where a group of investors filed a lawsuit this week alleging that several of the company’s officials, directors and board members officials “knew, were reckless, or were grossly negligent in not knowing” that Exxon was misleading its investors regarding the risks of climate change to its business.
All three are derivative suits and were filed by shareholders against Exxon’s directors and management for failing to exercise their authority for the benefit of the company and all of its shareholders. Derivative suits often arise when fraud, mismanagement or dishonesty is ignored by officers and the board of directors of a corporation and it allows the shareholders to sue on behalf of themselves and on behalf of the corporation.
Shareholders in these suits allege that Exxon officials failed to protect their investments as well as the company from the risks of climate change. They claim the oil giant failed to disclose that its Canadian oil sands operations were operating at a loss and failed to disclose that carbon proxy costs were not used to calculate operating costs.
They also allege the company failed to incorporate a carbon proxy cost when it assessed the value of its reserves and did not accurately calculate the value of its Rocky Mountain dry gas operations.
A corporation’s future profitability is calculated by using an estimate—or proxy cost—to represent the price the corporation would pay for potential climate change-related regulations implemented by governments, such as those reducing greenhouse gas emissions. A proxy cost is also used to determine future energy demand.
While the proxy costs can vary based on use and geographical location, corporations by law must consistently apply them in both internal and external communications. Exxon has been accused of using one set of numbers for internal calculations and another for communications with investors and the public to downplay the risks.
During a lengthy investigation, the New York attorney general’s office examined Exxon’s climate change accounting and its communication with investors and “uncovered significant evidence of potentially materially false misleading statements by Exxon about its application of a proxy cost of GHGs [greenhouse gas emissions] to its investment and impairment decisions,” according to a court filing by John Oleske, lead attorney for the attorney general’s office.
Following the investigation, New York filed a lawsuit against Exxon in October, alleging the company has deceived investors for years by deliberately downplaying the climate risks to its business and long-term financial health and seeking to force Exxon to correct its climate risk accounting method and pay unspecified damages, restitution and any money it’s generated based on fraudulent public disclosures of climate risks.
Shareholders in the Texas and New Jersey cite evidence uncovered by the attorney general’s office indicating that Exxon lied to investors about the effect of increasing climate regulations on its investment decisions and global operations.
“Exxon represented to investors and the public that it was incorporating higher costs of GHG regulation into its business decisions than documents indicate that it actually was using, thereby potentially misleading investors and the public about the extent to which [Exxon] was protecting its business from regulatory risks related to climate change,” Montini said in his suit, referring to sworn testimony in New York’s investigation.
Exxon is facing a separate suit led by the Pennsylvania Carpenters Pension Fund alleging that the company has fraudulently inflated its stock and misrepresented what it knows about the risks of climate change, endangering the value of their retirement funds.
In that case, Ramirez v. Exxon, which was filed in the same court, Kinkeade denied Exxon’s attempt to stop the suit and said the plaintiffs have established sufficient claims of securities fraud against the company and several executives, including Tillerson.
Exxon did not immediately respond to a request for comment.