WSJ -- SEC Drops Probe of Exxon’s Climate-Change Disclosures ..................................
Aug. 3, 2018
SEC Drops Probe of Exxon’s Climate-Change Disclosures
Regulators decided against trying to penalize the energy giant over its disclosures and how it accounted for oil and gas assets
By Dave Michaels and Bradley Olson
WASHINGTON -- Securities regulators dropped an investigation into whether Exxon Mobil Corp. misled investors about its accounting practices and the risks that climate change and greenhouse-gas regulations posed to its business.
The Securities and Exchange Commission in a Thursday letter informed Exxon that it closed the probe and decided against trying to penalize the energy giant over its disclosures and how it valued oil and gas assets. The letter was reviewed by The Wall Street Journal.
Exxon in a statement confirmed the probe had ended, saying it began in January 2016 and involved more than 4.2 million pages of records. “After a thorough investigation, including a review of these documents, the SEC issued its closure letter,” company spokesman Scott Silvestri said in the statement.
The SEC’s investigation began under former chairman Mary Jo White, who was picked by former President Barack Obama. It ended under SEC Chairman Jay Clayton, a new leader appointed by President Trump. The decision ends what was a surprise foray by the federal regulator into questioning how a major oil producer valued its assets in a world of increasing climate-change regulations.
An SEC spokesman declined to comment.
Investigations by the attorneys general of New York and Massachusetts continue into how Exxon has accounted for the impact of climate change on its assets. New York investigators have alleged in court papers that Exxon appears to have used internal estimates to account for climate impacts that differed from public statements. Exxon has denied those charges and said its statements accurately reflect the “proxy cost” of carbon it uses in internal estimates.
Before the probes began, Exxon was the only major oil-and-gas company that hadn’t written down the value of its reserves in the previous decade, an issue New York investigators had taken an interest in. In accounting terms, the value of such assets often falls when prices decline. Since the fourth quarter of 2016, Exxon has booked more than $3 billion of impairments.
Under U.S. law, public companies must tell shareholders about risks or uncertainties that matter to shareholders’ investment decisions. Environmental groups and some activist investors have pushed the SEC to force companies to disclose more about how they weigh their exposure to climate change.
The SEC advised public companies in 2010 that they should consider the impact of greenhouse-gas regulations, international agreements among governments to limit emissions, and the physical effects of climate change, such as severe weather. The SEC said all of those factors wouldn’t apply to every public company, and it declined to mandate any specific disclosures about climate change.
Securities lawyers say the decision is specific to Exxon’s case and may not portend a change in terms of how the SEC reviews companies’ statements about climate change. Proving that a company suppressed the threat of climate change is difficult because the trend may not immediately -- or anytime soon -- affect its performance.
“Given the time horizon over which climate change could have an impact, it’s challenging to prove that any risk or uncertainty is material to a company in the present day,” said Keith Higgins, a former SEC director and now chairman of the securities and governance practice at Ropes & Gray LLP.
Write to Dave Michaels at dave.michaels@wsj.com and Bradley Olson at Bradley.Olson@wsj.com
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