SEC Investigates ExxonMobil As Climate Science Witch Hunt Continues in Congress

In an ongoing climate science witch hunt, U.S. Rep. Lamar Smith issued controversial subpoenas to state attorneys general and NGOs investigating ExxonMobil. Hearings began this week in the House Science Committee, of which Smith is the chair. Smith says the investigation infringes on ExxonMobil's First Amendment rights. But the attorneys general, as well as groups like Greenpeace and 350.org, say Smith violated their free speech rights by attempting to derail the investigation through excessive subpoenas.

Tom Wakely, the Democratic candidate who is challenging Smith for his congressional seat in the November election, agrees. "To abuse political power for the purpose of advancing corporate interests -- and to do so under the guise of academic integrity and freedom of speech -- is the epitome of corruption. Lamar Smith is completely overstepping his bounds as the chairman of the House Science Committee."

But other branches of the federal government refused to roll over for ExxonMobil, which is also one of Smith’s largest benefactors. According to several press accounts, the U.S. Securities and Exchange Commission (SEC) launched an investigation into the oil and gas giant on two fronts: the company's accounting procedures and its valuation of assets.

The SEC says ExxonMobil failed to lower the estimated value of its oil and gas reserves after the prices of these commodities fell, and it plans to evaluate further, the Wall Street Journal reported on Wednesday. And the problem appears to be exclusive to Exxon among the big-four oil giants. Shortly after global oil prices tumbled downward, BP lowered its assets’ valuation by $3.6 billion in order to reflect a more accurate estimate of its reserves. ExxonMobil’s largest competitors, Shell and Chevron, also reduced the dollar value of their assets, as most energy industry analysts estimate oil prices will stay low for another two year at minimum.

The SEC investigation will also focus on how ExxonMobil is, or is not, accounting for the long-term risks climate change poses to its financial performance. In a world where both developed and developing countries are investing in renewables in order to expand energy access and mitigate potential climate change risk – even during a time when fossil fuel prices are low and many subsidies for renewables have been either reduced or eliminated – the fact that more of those reserves may stay in the ground, and therefore never sold, could have a longstanding impact on ExxonMobil’s valuation and stock price.

The bottom line is that it is illegal for a company to misrepresent asset values and other financial information to investors.

In an emailed statement to TriplePundit, Annie Leonard, executive director of Greenpeace, said:

“This investigation is a welcome opportunity for transparency from the fossil fuel industry. We know Exxon has published projections showing that demand for oil and natural gas will continue growing for decades to come -- projections which are flatly incompatible with limiting global warming to 2 degrees Celsius, as called for by the Paris climate accords. What we don’t know is how Exxon’s balance sheet would change if the world meets the climate challenge.”

The SEC requires companies to disclose risks related to climate change, and has for several years. Critics of the agency, however, say the huge step to mandate climate disclosures was followed by years of tiptoeing around the issue. Earlier this year, three former U.S. Treasury Secretaries, Republicans George Schultz and Henry Paulson and Democrat Richard Rubin, urged the SEC to take greater action on how it monitors financial disclosures tied to climate change.

Congress, however, balked at any constructive discussion of the issue, leading the House to pass a spending bill that included an amendment prohibiting the SEC from enforcing its climate risk disclosure rules. But advocates of more stringent accounting practices say that such legal maneuvering is foolhardy. They point to the example of coal producer Peabody Energy, a stock that earlier this decade was valued at over $700 a share. Natural gas largely led to the company’s decline, but more institutional investors and individual buyers of securities have also turned away from coal over climate change concerns.

Yet Peabody was accused of knowing that coal prices would collapse, and communicating internally. Instead of telling its shareholders, company execs said they believed the discussion over climate change would not affect Peabody's business. The company declared bankruptcy earlier this year, and its stock currently trades at about $1.50 in over-the-counter trading. Hence the argument that, had the company been more forthcoming with its shareholders, fewer people would have lost their money (or as much money if they could have shed the stock sooner with better information).

So, investors are the big winner of the SEC decision to follow through on what the agency is supposed to do. The big loser is Smith, chair of the House Science Committee. For almost a year, he used his position to take a stand on what he says is an attack on ExxonMobil’s First Amendment rights.

The SEC reportedly based its investigations on the work of New York Attorney General Eric Schneiderman, who is part of an investigation on whether ExxonMobil’s climate science research is linked to any fraudulent activity by the company. Smith in turn used the power of subpoenas to demand information about these investigations from Schneiderman, other state attorneys general and NGOs. These organizations in turn pushed back against what they call Smith’s abuse of power, which led to the congressional hearings last week.

"Lamar Smith's vendetta against the state attorneys general and climate science groups investigating ExxonMobil is evidence in itself that the corporation has something to hide," Wakely told 3p. "It's no coincidence that Smith is so preoccupied with keeping Exxon's research on climate change under wraps given the fact that he's received nearly $700,000 in funding from the oil and gas industry."

Smith and his allies are lone warriors in what is both a social and market shift toward new forms of energy. “Millions of people around the globe have long demanded action to hold Exxon accountable. This investigation marks a moment of reckoning for the corporation,” Katherine Sawyer of Corporate Accountability International told TriplePundit in an email. “Coupled with attorneys general investigations into Exxon’s campaign of climate denial, the SEC’s probe means the corporation’s days of deception are numbered.”

Image credit: SEC/Flickr