Climate Change: New York vs. Exxon and the Coming Earthquake in the Financial Market | Assaad W Razzouk

Assaad W Razzouk  CEO of Sindicatum Sustainable Resources   Posted: 09/11/2015 11:04 GMT Updated: 09/11/2015 11:59 GMT

Late last week, New York State decided to examine whether Exxon Mobil, the oil company, may have violated state consumer protection laws or the Martin Act, New York’s powerful shareholder-protection statute.

The Martin Act gives the New York Attorney General broad powers to combat financial fraud and makes any “fraud, deception, concealment, suppression or false pretense” by a public company illegal.

The Attorney General’s move follows an impressive eight months investigation by the Pulitzer Prize winning InsideClimate News. In it, the publication showed that as far as back as the 1970s, Exxon knew that most fossil fuels might have to be left in the ground. Exxon should have therefore disclosed the extent to which its revenues and profits were at risk. But Exxon didn’t – instead choosing to suppress this information and to engage in mis-information campaigns over several decades.

If the Attorney General can show that Exxon knowingly misled its investors by lying about potential risks it knew about, then serious financial consequences will follow. The evidence gathered by InsideClimate News should make his job relatively straightforward.

An earthquake starts with an initial rupture. That’s what the Attorney General just triggered. This nucleation will now propagate to the $150 trillion capital markets, the global financial system concerned with raising capital through shares, bonds, and other long-term investments.

In the capital markets, companies (such as Exxon) must ensure that material risks to their business are disclosed. Equally, investors (such as buyers of Exxon shares) have legal obligations to assess risks to ensure these are in line with their investment mandates.

For example, pension funds, which account for approximately twenty five per cent of the capital markets, are meant to invest with a long term horizon in order to provide retirement income to people some 40 years after they have started contributing money to them. A pension plan invested in Exxon (or BP, Shell and other fossil fuel companies) should therefore take into account the fact that climate change poses catastrophic risks to people and to assets, and price the material risks to its investments as the use of fossil fuels is inevitably limited.

But to this day, pension funds and the financial markets are for the most part sitting and waiting on the side lines, ignoring climate risks by hiding behind the flimsy excuse that they need governments to set a price on carbon first, before they are able to price climate risks into their investments.

(read more).

Global Climate Change
Environment Ethics
Environment Justice

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