The world’s first shareholder-led lawsuit over alleged inadequate disclosures of climate risk has been filed against Exxon. ClientEarth thinks it could be the first of many such legal actions.
The filing of the case, in the US, follows revelations in Exxon’s third quarterly financial reports that it may be forced to write down nearly 20% of its oil and gas assets (the equivalent of 3.6 billion barrels of oil sands reserves and one billion barrels of other reserves that the company now concedes were not profitable to produce under current oil process).
Shareholders are pursuing the lawsuit on the basis that information disclosed to the market by Exxon was materially false and misleading. This led to a 13% drop in Exxon’s overall value.
The claim stems from Exxon’s failure to write down its existing oil reserves despite the continuing low oil price, and given its knowledge of the potential risks of those assets being stranded due to increased regulation of greenhouse gas emissions. Investors claim this led the company to overstate the value of Exxon’s reserves, artificially inflating the company’s value.
Despite the continued low oil price, developments in international climate change law (including the adoption of the Paris Agreement), heightened domestic regulatory pressure and competition from renewables, Exxon has continually insisted to investors that none of its proven hydrocarbon reserves are, or ever would, become stranded.
A new wave of shareholder action?
ClientEarth senior corporate lawyer Alice Garton said: “Where information disclosed about the potential impact of climate risk to the business is false, misleading or incomplete, and this affects the share price, investors can sue. We expect to see more of these cases.
“This development should be taken very seriously by all fossil fuel companies. It’s no longer feasible to say the low oil price environment is temporary. The Paris Agreement is now in effect. Fossil fuels are in structural decline. The US election may give a temporary buoyancy to the industry but this is no renaissance – it will be short-lived.
“ClientEarth is investigating how far UK companies should also be reflecting this structural decline in their accounts and, where we find shortcomings, will bring legal challenges.”
InfluenceMap recently identified this risk to investors in a new report on big oil’s climate disclosure failures, which shows that this risk may be spread throughout the sector. The report ranks Exxon in the top three poorest performers. Dylan Tanner, Executive Director of InfluenceMap said: “Our analysis shows a glaring gap in Exxon’s projections with those of the business community at large, key policymakers and indeed some of its competitors.
“While Exxon may no longer be denying climate science directly, investors are right to question its thinking on its business model and how climate issues will impact its reserves.”
The lawyers representing the investors have opened the case to all shareholders eligible to participate.
Read the ClientEarth investor briefing on Exxon litigation.