Exxon Mobil is suing two activist investors to prevent its proposal calling for emissions cuts at the oil giant from reaching a shareholder vote.
In a complaint filed Sunday in the U.S. District Court for the Northern District of Texas, Exxon accused investors Arjuna Capital and Follow This of abusing the process for proposing shareholder votes to advance its priorities. with votes “calculated to diminish the company's existing business.” .”
Arjuna submitted a proposal in December for a non-binding resolution calling on 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 the proposal shortly after, according to the complaint.
The proposal “does not seek to improve ExxonMobil's economic performance or create value for shareholders,” Exxon said in the lawsuit, but rather “constrains and micromanages” the company's operations.
Exxon said it already planned to exclude the proposal from appearing on the shareholder ballot at the company's annual meeting in May, arguing that U.S. securities law allows the company to reject petitions that “address matters related to business operations.” of the company”. In an unusual twist, the company also sued investors in an effort to obtain a “declaration” from a judge supporting its decision to exclude the proposal.
The company said the guidance from Securities and Exchange Commission staff was informal and could be subject to interpretation. A court ruling in Exxon's favor could lead to stricter scrutiny of the types of shareholder proposals that companies allow to be voted on in the future.
Under the Biden administration, the SEC has adopted a stricter standard for companies' challenges to activist proposals, said Joshua T. White, a finance professor at Vanderbilt University.
“This is Exxon saying, 'If the SEC is no longer an option for us to leave out of the proxy proposals that we believe will destroy value, then we will go straight to court,'” he said.
Exxon noted in its lawsuit that a large majority of shareholders rejected similar proposals presented 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 company's website that the move showed that Exxon “wants to prevent shareholders from using their rights.”
Natasha Lamb, co-founder of Arjuna, said in a statement that the company had “a fundamental right and duty to express concern about climate risk, its impacts on the global economy and shareholder value.”
Exxon's complaint comes amid a backlash against climate and related measures, with some companies and investors beginning to distance themselves from environmental, social and governance (or ESG) initiatives.
The volume of ESG proposals at companies increased in 2023, but support among shareholders fell from the previous year, the steepest drop for environmental proposals. according to the Conference Board. Paul Washington, executive director of the Conference Board's ESG Center, said that shift reflected increasingly bold and unpopular proposals from activist funds, not a shift in commitment from institutional investors.
“The decline in support does not really reflect a decline in the importance investors place on ESG factors,” Washington said. “That's still there.”
Investors have withdrawn more than $13 billion from ESG funds last year, according to a recent Morningstar report.
ESG issues have also become a hot political topic on Capitol Hill and on the campaign trail. Republicans in Congress have proposed measures to restrict investments that take into account ESG factors, and some presidential hopefuls have vowed to crack down on the movement.
Laurence D. Fink, chief executive of BlackRock and a long-time supporter of “conscious capitalism,” expressed frustration at a conference in June about how the term ESG had been politically “weaponized.”
