This week, Exxon Mobil (XOM) released its 2017 10-K report. While news of Exxon abandoning joint projects with Rosneft -- and the corresponding $200 million after-tax loss -- dominated the headlines, two overlooked items may bear serious consequences for the company. Exxon failed to acknowledge the serious risks posed by ongoing climate litigation and investigations. And, for the first time, Exxon listed "Reputation" as a risk factor category.

Exxon is currently facing multiple investigations into its climate deception from state attorneys general, in addition to climate lawsuits from New York City and several California municipalities. The company has fired back with countersuits and aggressive PR campaigns, but a casual reader of the 2017 10-K would have little to no indication that these threats exist.

Exxon is an outlier in this regard. Chevron and ConocoPhillips, Exxon’s closest U.S. competitors, have explicitly detailed climate litigation risk:

ConocoPhillips (2017 10-K, Note 12—Contingencies and Commitments)

Chevron (2017 10-K, Item 1A)

Exxon, by comparison, lumps climate litigation into its boilerplate legal disclosures

Careful investors may question Exxon's omission as these legal challenges continue to mount.

Exxon did, however, make significant changes to its Item 1A, notably this section on reputation.

As with all financial filings, Item 1A represents a delicate dance: Exxon wants to paint the most optimistic and confidence-building outlook, knowing that failure to disclose a material risk can result in lawsuits and enforcement actions. Which is to say, this was a careful and deliberate choice by Exxon executives.

We can only speculate what forced this change. It could indicate that the company feels more exposed to public scrutiny (e.g. several high profile lawsuits questioning Exxon’s role in deceiving the public and saddling cities with climate damages). It could be a willingness to admit that reputational risk is always a material risk when your business model depends on permitting, public financing, and consumer choice.

Investors and analysts may seek additional clarity.

Exxon’s closest U.S. competitors, Chevron and ConocoPhillips, give passing reference to reputational harm in their respective 2017 10-K filings, though in both cases it is consistent with previous years’ filings.

Chevron - in a section on cybersecturity threats

Conoco - discussing broad operational risks

Exxon’s 2017 Item 1A included a few additional notable changes including:

A new section on competition

And a more detailed view of demand-side risks from renewable energy

Image of Exxon gas station by Mike Mozart. Used under creative commons licence.

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Kelly mitchell 1 e1614381547765