Trial began on Tuesday in New York’s action against ExxonMobil. The claims are not that ExxonMobil failed to recognize the potentially catastrophic effects of climate change on its businesses; they are not that ExxonMobil ignored its own scientists’ concerns about those effects; and they are not that ExxonMobil funded climate change deniers for years.

New York is suing based on securities law violations and fraud. ExxonMobil, according to New York, lied to investors and the public. And owes investors somewhere between $500 million and $1 billion for those lies.

The basis for New York’s lawsuit is that ExxonMobil started telling the investing public that it recognized that climate change and related regulations would have a deleterious effect on its business lines and that ExxonMobil was incorporating a risk factor into all its planning, decision making, and investments, ranging between $20 per ton (for developing countries like India and China) and $80 per ton (for developed countries like the US and Canada). This risk factor, which ExxonMobil referred to variably as the GHG cost, proxy cost, and proxy GHG cost (GHG means greenhouse gas), according to ExxonMobil, reflected the anticipated increased costs of doing business based on expected increases in regulation of GHG around the world.

This sounds great — ExxonMobil recognized the risks its business lines faced and incorporated a publicly-disclosed monetary value as a risk factor into its projections, planning, and investments. The problem is, according to the New York Attorney General, ExxonMobil didn’t. (The complaint, filed in October 2018, can be accessed here.)

ExxonMobil told the public one thing — we are addressing the business costs associated with climate change in everything we do with specific numbers — but ExxonMobil wasn’t doing what it said. Instead of applying the publicly disclosed numbers (the GHG proxy costs), ExxonMobil used different, lower numbers that were set out in its internal documentation. Those numbers were not publicly disclosed. Investors, according to the New York Attorney General, were misled by ExxonMobil’s false public statements.

But that’s not all. When ExxonMobil’s GHG Manager called for ExxonMobil to use the public GHG proxy costs, instead of the internal, lower costs, ExxonMobil realized that doing so would tank some of its important projects in Canada. (These are tar sands projects, which require a lot of effort, time, and money to extract oil; ExxonMobil counts them as untapped resources on its books.) Basically, if the publicly disclosed GHG proxy cost was used — $80 per ton for Canada as a developing country — the projects would lose significant value. So ExxonMobil used $5 per ton instead. And didn’t tell the investing public. Similarly, instead of using the publicly disclosed GHG proxy cost for developing countries ($20 per ton), ExxonMobil used $0 per ton. And didn’t tell the investing public. Or its investors.

Instead, ExxonMobil published two reports — in response to investor requests and to avoid shareholder votes that could have required ExxonMobil to disclose its actual practices — claiming that ExxonMobil applied GHG proxy costs ranging from $20 to $80 per ton, depending on the location of the project, business, or proposed investment. According to the New York Attorney General, those reports were false: ExxonMobil was not in practice doing what it told investors and the public it was doing.

This is the type of action that I think investors and regulators will be pursuing in the future to address climate change. Instead of getting into arguments about climate change — Is it happening? Did this business cause climate change/pollution/temperature rise? Who should pay for it? Is this company doing enough to address climate change? — this type of challenge goes to what companies are actually doing and telling people. It’s a business risk that companies are well positioned to understand and proactively address.

In today’s market, businesses in all industries make disclosures to the public, their investors, and the government. What those disclosures say actually matters.

ESG reporting and disclosures are becoming more widespread, as businesses respond to investor and governmental demand. In the public and private markets, investors are demanding greater transparency, and greater harmonization of reporting across businesses and sectors. This allows investors and regulators to understand the actual risks and compare those risks across sectors. It also helps businesses understand what they and their industries are doing and what steps they can take to address climate-related risks.

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosures issued standards in 2017 to standardize and harmonize ESG reporting. I am an advocate of that work, as I believe that standardization is a boon for businesses and investors. As large investors and governments demand more accountability (such as the California pension law that went into effect January 1, 2019 requiring the State’s pension funds to publicly report on their climate-related financial risks), what businesses say in their disclosures about climate-related matters takes on a new dimension of importance.

On Thursday, Massachusetts upped its engagement in the fight against ExxonMobil. The Commonwealth filed a 200+ page complaint with allegations that echo New York’s — fraud against investors for misrepresenting the risk factors (what’s on trial in New York now), plus allegations of deception based on failing to disclose enough about climate change and green-washing. Massachusetts is going after ExxonMobil based on its consumer protection laws. We will watch how that case unfolds.