ExxonMobil (XOM) recently said that if low energy prices persist through the end of the year, it will make adjustments in the value of its crude reserves.
That will mean a write-down or elimination from the balance sheet of about 4.6 billion barrels of oil sand reserves in Canada, which become uneconomical to extract. If prices rise again, ExxonMobil will simply re-book the reserves.
This technical adjustment is the kind of exercise performed by all energy companies, which take pains to estimate the future value of what they own, as accurately as possible for their shareholders.
An accounting adjustment, if it occurs, absolutely shouldn't be confused with the kind of write-down that some environmental activists are demanding from ExxonMobil and other energy companies. The activists, backed by New York Attorney General Eric Schneiderman, want ExxonMobil to make the judgment that future climate change regulations and changes in consumer demand will be so extreme that they will render huge quantities of reserves useless.
The activists have embarked on a campaign of political blackmail, but ExxonMobil won't succumb. That is the right decision.
Shareholders are served poorly when companies make accounting changes to conform to ideology.
Schneiderman's war on ExxonMobil didn't begin the deployment of climate change disclosure requirements as a weapon.
Standing with a half-dozen other attorneys general and former Vice President Al Gore, Schneiderman initially announced with great fanfare in March that he would pursue ExxonMobil for hiding the truth about climate change, much as tobacco companies suppressed their knowledge of the harm of smoking.
That claim, however, was soon rendered ludicrous. Since 1983, ExxonMobil scientists have published dozens of mainstream climate change research papers in peer-reviewed journals.
As his attorneys general colleagues dropped their investigations, Schneiderman changed direction. Now, he wants to nail ExxonMobil for making inaccurate forecasts of the impact of climate change on its business.
Schneiderman, for example, is looking at whether ExxonMobil is discounting the risk of climate change by placing too high a valuation on its oil reserves in official disclosures with the Securities and Exchange Commission.
If global warming accelerates, his logic goes, then ExxonMobil would be stuck with "stranded assets."
In other words, fossil fuel reserves wouldn't be worth what the company says.
"There may be massive securities fraud here," Schneiderman told The New York Times. "If, collectively, the fossil fuel companies are overstating their assets by trillions of dollars, that's a big deal."
Publicly traded companies lay out multiple risks to their businesses in SEC filings such as civic unrest, a general economic downturn or natural disasters.
On Jan. 27, 2010, the SEC issued a 29-page interpretive guidance document to remind companies that climate change may be a risk as well.
The SEC's chairwoman at the time, Mary Schapiro, said that the commission was "not opining on whether the world's climate is changing, at what pace it might be changing or due to what causes."
Instead, the commission wanted companies to disclose the potential impact of climate change legislation, regulations and international accords on their businesses, as well as any negative effects on the production process or consumer preferences.
"For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products," according to the SEC statement nearly seven years ago.
Companies complied, but activists wanted more.
In August, two Obama Administration officials applied pressure to the SEC in an OpEd, calling on the commission to "adopt detailed and standardized industry specific requirements for disclosure and, once in place, aggressively hold public companies to account."
Using financial disclosures to secure political and social ends is nothing new. Labor unions and others have pushed the SEC to require companies to report political contributions and to reveal more about executive compensation, whether the amounts involved are truly material to the operation of the business or not.
But when it comes to climate change, there is something even more pernicious at work. Activists want to force companies not merely to disclose but to adjust their balance sheets to reduce the value of their fossil fuel holdings.
Thus, the real goal isn't to protect investors. It is more likely an attempt to lower the stock price of traditional energy companies and raise that of alternative-energy firms, an encouragement for more capital to flow to solar and wind over oil and gas.
The truth is that companies do tell their shareholders about the risks of climate change and try to value their assets accordingly.
For example, ExxonMobil, on page 3 of its 2015 Form 10-K filing with the SEC, lists "climate change and greenhouse gas restrictions" as a "risk factor."
The filing says that regulations, current and future, "could make our products more expensive, lengthen project times and reduce demand for hydrocarbons."
In the same document, ExxonMobil lays out its forecasts for energy supply and demand through 2014 with a thorough discussion of factors including climate change.
Investors have always had and continue to have the ability to take publicly available information and, just as important, the opinions of professional investment advisers, the media and even environmental activists, into account in their decisions to buy or sell energy stocks.
We will bet that every one of them knows about climate change and the risks it poses, financial and otherwise, and we will further bet that their views will be baked into the stock price, no matter what the SEC requires.
It is hard to tell whether Schneiderman is serious about his talk of "massive securities fraud" or whether he is desperately deploying new rhetoric to cover the embarrassment of dropping his initial claims against energy companies. Either way, it is time for him to stand down.
If investors truly think that ExxonMobil, Chevron or any other energy company is going to suffer dire consequences because of climate change, their stocks will reflect those concerns. That is the way markets work.