Last week, as a WSJ article reports, Exxon began defending itself in New York state court about whether it improperly accounted for the cost of climate change regulations (they were also sued in Massachusetts). The NY suit was brought under New York’s sweeping Martin Act and arises out of a 4-year investigation – so of course there’s some controversy. According to the article, Exxon has denied wrongdoing – and said a reasonable investor wouldn’t expect to know these details. But then there’s an unrelated Reuters article about how investors want more transparent “climate-change accounting” so they can better understand & price risks. Here’s an excerpt:
Using a broad measure, global sustainable investment reached $30.1 trillion across the world’s five major markets at the end of 2018, according to the Global Sustainable Investment Review. This equates to between a quarter and half of all assets under management, due to varying estimates of that figure.
Condon said most investors were still more focused on returns than wider sustainability criteria but were becoming concerned that companies may expose them to possible future climate-related financial losses.
To try to price risk, the world’s biggest financial service providers are investing in companies which provide ESG-related data. This year alone, Moody’s bought Vigeo Eiris and Four Twenty Seven, MSCI bought Carbon Delta and the London Stock Exchange bought Beyond Ratings. S&P acquired Trucost in 2016. Independent climate risk advisors Engaged Tracking say they attracted two-thirds of their clients in the past year. All six companies provide data, assessments and consulting on the climate exposure of companies or bonds.
To reiterate, these investors weren’t reacting to Exxon’s disclosure specifically, or its court case. And we obviously don’t know what’ll happen there. But if there’s a scale weighing the pros & cons of a more standard disclosure framework for environmental costs & risks, the specter of this type of litigation – and investor appetite – seem to drop in on the “pro” side…
-Liz Dunshee, TheCorporateCounsel.net October 28, 2019
