Exxon Sues to Prevent Climate Proposal From Getting a Shareholder Vote

Exxon Mobil is suing two activist investors to prevent their proposal calling for emissions cuts at the oil giant from going to a vote of shareholders.

In a complaint filed in U.S. District Court for the Northern District of Texas on Sunday, Exxon accused the investors, Arjuna Capital and Follow This, of abusing the process for proposing shareholder votes to advance their priorities with votes “calculated to diminish the company’s existing business.”

Arjuna filed a proposal in December for a nonbinding resolution that urged Exxon to accelerate its plans to reduce its carbon emissions and expand the scope of the emissions it measures to include its suppliers and customers. Follow This joined in support of the proposal shortly thereafter, according to the complaint.

The proposal “does not seek to improve ExxonMobil’s economic performance or create shareholder value,” Exxon said in the complaint, but is instead “constraining and micromanaging” the company’s operations.

Exxon said it already planned to exclude the proposal from appearing on the ballot for shareholders at the company’s annual meeting in May, arguing that U.S. securities law allows the company to toss petitions that “deal with matters relating to the company’s ordinary business operations.” In an unusual twist, the company also sued the investors in an effort to secure a “declaration” from a judge supporting its move to exclude the proposal.

The company said guidance from staff at the Securities and Exchange Commission was informal and could be subject to interpretation. A court ruling in favor of Exxon could generate stricter scrutiny of the kinds of shareholder proposals that companies allow to be put to a vote in the future.

Under the Biden administration, the S.E.C. has adopted a stricter standard for company challenges to activist proposals, said Joshua T. White, a finance professor at Vanderbilt University.

“This is Exxon saying, ‘If the S.E.C. is no longer an option for us to leave proposals off the proxy that we think will destroy value, then we’re just going to go straight to the courts,’” he said.

Exxon noted in its suit that a large majority of shareholders rejected similar proposals submitted by Follow This in 2022 and by Follow This and Arjuna in 2023.

Mark van Baal, founder of Follow This, said in a statement on the firm’s website that the move showed Exxon “wants to prevent shareholders from using their rights.”

Natasha Lamb, a co-founder of Arjuna, said in a statement that the firm had “a fundamental right and duty to voice concern over climate risk, its impacts on the global economy and shareholder value.”

Exxon’s complaint comes during a backlash against climate and related measures, with some companies and investors beginning to distance themselves from environmental, social and governance — or E.S.G. — initiatives.

The volume of E.S.G. proposals at companies increased in 2023, but support among shareholders fell from the year before, the sharpest decline for environmental proposals. according to the Conference Board. Paul Washington, executive director of the Conference Board’s E.S.G. Center, said that shift reflected increasingly bold and unpopular proposals by activist funds, not a change in commitment by institutional investors.

“The decline in the support is not really reflective of a decline in the importance that investors place in E.S.G.,” Mr. Washington said. “That’s still there.”

Investors have pulled more than $13 billion from E.S.G. funds in the past year, according to a recent report by Morningstar.

E.S.G. issues have also become a hot-button political issue on Capitol Hill and on the campaign trail. Republicans in Congress have proposed measures to restrict investments that take E.S.G. factors into account, and some presidential hopefuls have sworn to crack down on the movement.

Laurence D. Fink, the chief executive of BlackRock and a longtime supporter of “conscious capitalism,” expressed frustration at a conference in June about how the term E.S.G. had become politically “weaponized.”

source

Leave a Reply

Your email address will not be published. Required fields are marked *