Over the past year the price of oil has collapsed and taken ExxonMobil’s share price with it. As the oil giant prepares to release its latest set of results this week, the company continues to show little genuine interest in preparing for a less carbon-intensive future.

Even as world leaders gathered in Paris for the recent climate summit, where hundreds of nations and corporations stepped forward to underscore their commitment to action, ExxonMobil followed an odd course that has been lost in all the fanfare surrounding the international gathering.

Here’s what was missed: while appearing to pay lip service to the need for climate action, ExxonMobil suggested that the supposedly high cost of a low-carbon future would make any such action prohibitively expensive. The company claimed that limiting global warming to 1.6C, just above the goal set out in the Paris climate pact, would raise carbon costs to $2,000 per ton by the end of the century. Think $20-plus for a gallon of gasoline and you will have a sense of the scare and paralysis Exxon was hoping to inspire, even as it appeared to concede the need for action on the climate..



Despite its disingenuous head fake in Paris, Exxon’s narrative of preferring, and even encouraging, inaction in the face of climate change is the oil giant’s well-established modus operandi. As recent news accounts have shown, Exxon funded organizations for decades that denied the risks of climate change, despite the company’s own internal research confirming those very risks.



Reducing carbon emissions is a direct threat to Exxon’s current carbon-oriented business planning. But Exxon’s risky path also poses a very real threat to the pension funds, institutional investors, and individuals who could very well end up paying through the nose for the oil giant’s desire to sweep climate concerns under the rug.



And that is why ExxonMobil’s day of reckoning is fast approaching. New York attorney general Eric Schneiderman has launched an investigation into whether ExxonMobil misrepresented the risks of climate change and the costs of addressing them.



Specifically, the attorney general points to a recent report to investors, where Exxon employed a set of wildly exaggerated assumptions about the costs of a low-carbon future to make the startling claim that its hydrocarbon reserves were immune from climate risk. High costs, it argued, would prevent society from taking climate action.



The Exxon report, a linchpin of the investigation, was written in response to a shareholder proposal filed with the company in 2014 by Arjuna Capital, an investment firm. The proposal asked the company to report on how it was managing its “carbon asset risk”. Or, more specifically, the risk that up to two-thirds of all fossil fuel reserves currently valued on the balance sheets of energy companies might end up “stranded” – too costly to extract when carbon emissions are appropriately priced and therefore non-monetizable. The best climate science tells us that leaving these reserves unburned, indeed, must occur if we are to avoid the risk of catastrophic climate change.



Exxon’s 30-page report, Managing the Risks, failed to address one key thing: the risks referred to in its title. Instead, the report dodged a hard look at the risks by employing questionable math. Specifically, Exxon said that the government intervention required to force a low-carbon future (which could evidently strand much of the firm’s carbon assets) would eventually cost consumers up to 44% of their total income. Governments, Exxon argued, would never impose such a burden. Therefore, Exxon concluded its reserves would not be adversely affected.



The problem with this tortured analysis is that independent economists consistently estimate the cost to consumers of a low carbon future would be far less — more like 2% of income if we act today. Not 44 percent. The management experts at McKinsey peg this at just 0.4-1.6% of GDP in 2030. Economist William Nordhaus recently estimated the transition to a low-carbon economy would require a carbon price of only $25 per metric ton, far below the $2,000 scare projection from ExxonMobil.



The ExxonMobil report also made the dubious assumption that carbon emissions would stay constant over time, rather than decline in response to a price on carbon. This contradicts the very MIT study Exxon relied upon, which assumes emissions fall over time, making carbon abatement cheaper.



Furthermore, whatever increased cost to consumers from higher energy prices does occur might be offset elsewhere. For example, if the revenues from a carbon tax were rebated to consumers or used to reduce corporate income taxes, the net impact on the economy might be a boost, rather than a drag. Indeed, oil giant Statoil projects that achieving a low-carbon scenario will lead to the highest estimated GDP growth from 2030 onward, providing a sharp contrast with the high costs of inaction in less proactive scenarios.



The good news is that, contrary to Exxon’s claims, a low-carbon future need not be costly to society. But it would be a huge shock to the bottom lines of Exxon’s shareholders if they are left holding the bag with high-cost stranded carbon assets.



Exxon is pushing up against a shifting tide. A defensive approach to climate change does not bode well for companies whose very survival is dependent on adapting to a low-carbon future. As investors, we are obliged to tell ExxonMobil that denial is no longer a credible business plan.



Natasha Lamb is director of equity research and shareholder engagement and a portfolio manager at Arjuna Capital. Dr Bob Litterman is a former head of risk management at Goldman Sachs. Dr Litterman has synthetically hedged out stranded asset exposure in his personal portfolio, including a short in Exxon.

