XOM Exxon Mobil Corp

By Bradley Olson and Michael Rapoport 

The federal investigation of how Exxon Mobil Corp. values assets in a world of increasing climate change regulations elicited sharp reactions on Wednesday, with some investors seeing it as a tipping point in a campaign to get companies to disclose climate risks, and some oil industry leaders calling it a politically motivated attack.

But many agreed on one thing: It was a potentially transformative moment for U.S. companies, which now have to worry about regulators' scrutiny of future climate change impacts more seriously than before.

The probe by the U.S. Securities and Exchange Commission is focused on how Exxon calculates the impact to its business from climate change, including what figures the company uses to evaluate the viability of future projects.

The SEC hasn't publicly disclosed it is investigating Exxon, but the probe was confirmed by an Exxon spokesman on Tuesday.

Defenders of Exxon saw the probe as an indication that the SEC has moved into partisan politics, taking up a cause championed by some Democratic state attorneys general, who have led probes into the company's response to climate change.

"It seems like to me it's a witch hunt," Scott Sheffield, chief executive of oil producer Pioneer Natural Resources Co., said during an industry conference Wednesday, adding that Exxon is often a target in such matters because of its size.

Some investors and activists, meanwhile, cited what they saw as Exxon's insularity, and its refusal to face up to potential threats to its future value, as a potential rationale for the SEC.

The company's pushback amid pressure from some shareholders on the issue is emblematic of the response of many U.S. oil and gas companies, a strategy that is likely to change in the face of new SEC scrutiny, said Anne Simpson, the investment director for sustainability at the California Public Employees' Retirement System.

"Exxon has not been open to the questions and concerns of its long-term investors on this issue," she said. "Five years ago it may have been plausible for Exxon to say that it did not have to think about a transition in energy use, but it can't say that now."

Exxon and the SEC declined to comment on Wednesday.

The central question for companies and regulators is how the global response to climate change -- which has begun to come together after a landmark agreement to reduce emissions between nearly 200 countries in Paris last year -- will affect industries from oil and gas to utilities and transportation.

While many companies, investors and analysts agree that many industries will be affected as countries move to reduce emissions, there remains considerable debate about the extent of the impact.

Moody's Investors Service in June said it would begin to assess the credit implications of a transition away from carbon-intensive energy use. Coal companies and power utilities are among the most exposed, according to Moody's.

A 2015 report by BlackRock Inc., which manages nearly $5 trillion in assets, opined that efforts to mitigate climate change will produce winners and losers that won't always be obvious. Some low-cost operators, for example, may "do fine," the report said.

For years, an array of investors and activists have pressured U.S. regulators to insist that companies do more to assess how their fortunes may rise or fall as the global effort to reduce emissions intensifies. Under guidance issued by the SEC in 2010, companies must disclose the impact of climate change and the potential risk to their future business if it is deemed material.

Critics say the SEC hasn't done enough to force companies to tell investors more about their exposure to climate change. The agency is currently looking at the possibility of imposing stiffer disclosure requirements.

"The SEC has been noticeably quiet in enforcing the climate disclosures it called for," said Michael Gerrard, an environmental-law expert at Columbia Law School.

According to a 2014 report from Ceres, an advocacy group that has pushed for more corporate disclosure about the effects of climate change, 41% of S&P 500 companies didn't address climate change in their 2013 securities filings, and those that did varied widely in the detail and quality of their disclosures.

Some oil companies have pushed back against the idea of fuller climate change disclosures, in comment letters to the SEC on its current potential overhaul of disclosure requirements. Chevron Corp. said in a July letter that its annual report already contained a significant discussion about the potential risks of additional regulation of greenhouse gases, and we "do not believe requiring a more structured disclosure of risk would aid the reasonable investor in understanding the risks facing the company."

Exxon weighed in last month. While it didn't specifically mention climate change, it said the SEC "should avoid promoting political, social, and public policy objectives" in its disclosure requirements.

--Erin Ailworth contributed to this article.

Write to Bradley Olson at Bradley.Olson@wsj.com and Michael Rapoport at Michael.Rapoport@wsj.com

(END) Dow Jones Newswires

September 21, 2016 19:03 ET (23:03 GMT)

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