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New York takes the lead on climate risk transparency

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The New York attorney general’s investigation of Exxon Mobil Corp. may serve as a road map for how the state plans to probe companies that fail to adequately disclose critical information related to climate change.

In November 2015, New York Attorney General Eric Schneiderman’s office opened an investigation into possible financial fraud by the energy giant under the state’s Martin Act after news surfaced that the company conducted research on climate change and its direct and indirect effects, but failed to include the information in its financial statements to investors and the U.S. Securities and Exchange Commission.

“That’s an important development because state AGs can investigate securities fraud,” said Jim Coburn, senior manager of investor programs for Boston-based investor coalition Ceres. “If the federal government is not doing that, it’s important for the states to step in. But it’s an inefficient way to get disclosure, because it’s the SEC’s job to do this.” 

The Martin Act gives the state’s attorney general broad power and discretion to combat financial fraud, experts say.

For example, a judge upheld a subpoena issued against outside auditor PricewaterhouseCoopers L.L.P. seeking documents related to the firm’s work with Exxon Mobil, which asserted accountant-client privilege in refusing to allow PwC to comply with the subpoena.

“The Exxon case most notably could end up pushing the envelope in terms of defining a fiduciary duty to shareholders and regulatory obligation to report and integrate climate risk into business operations,” said Cameron Prell, counsel in the energy group with Crowell & Moring L.L.P. in Washington.

Exxon Mobil has fought back, suing both the New York attorney general and Massachusetts Attorney General Maura Tracy Healey, who announced her office was also investigating the company in March 2016 in U.S. District Court in Fort Worth, Texas, to block their requests for information. A Texas judge had ordered Ms. Healey to participate in a deposition in Texas before canceling the order on Dec. 12 without explanation.