Oil giant ExxonMobil has resorted to legal action against two activist investors, seeking to prevent their proposal on accelerated climate action from being put to vote at the company’s next annual meeting.
“With this remarkable step, ExxonMobil clearly wants to prevent shareholders using their rights,” said Mark van Baal of Follow This, the shareholder activist group Exxon is suing alongside a second defendant, activist investment firm Arjuna Capital.
“Apparently, the board fears shareholders will vote in favour of emissions reductions targets,” van Baal told the Financial Times.
Groups like Amsterdam-based Follow This use shareholder motions to pressure companies to act on environmental and social issues like climate change. In this case, the motion calls on Exxon to “go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas emissions across Scope 1, 2, and 3, and to summarize new plans, targets, and timetables.” Follow This has put forward similar motions before, but they were soundly defeated, with last year’s motion receiving less than half (11%) of the support it garnered the year prior (27%).
Exxon cites the annually-repetitive motions as one justification for its lawsuit—according to rules made by the U.S. Securities and Exchange Commission (SEC), shareholder proposals cannot be resubmitted year after year if investor support does not increase over time. Given that support decreased for the repeated motion in its last vote, Exxon argues that this lat4est proposal does not meet the SEC’s required threshold for resubmission, explains law firm Ropes & Gray.
Exxon also says the shareholder motion should be excluded from voting because it “deals with a matter relating to the company’s ordinary business operations”—a category that can be excluded under SEC rules. That’s because the activists seek to have Exxon “change its day-to-day business by altering the mix of—or even eliminating—certain of the products that it sells,” and the “overarching objective is to force [Exxon] to change the nature of its ordinary business or go out of business entirely.”
Exxon says the investor groups are pursuing “an extreme agenda.”
Companies do not usually sue to block shareholder motions. Instead, they seek guidance from the SEC. However, recent policy and political shifts at the agency, influencing its stance on climate-related motions, may have led Exxon to view the SEC as biased, Ropes & Gray writes.
Exxon brought the lawsuit to a district court in Fort Worth, Texas, where it was assigned to Judge Mark Pittman. Pittman was appointed to the court by Donald Trump, and has issued controversial rulings in the past, including a 2022 decision declaring President Joe Biden’s student debt relief plan unlawful and another that said Texas’ law to ban 18- to 20-year-olds from carrying handguns in public was unconstitutional, Reuters reports.
Though Exxon says its lawsuit is focused on this one specific proposal, activist investors worry that a favourable ruling for the company could set a precedent, leading other oil and gas producers to use the court system to block shareholder motions.
“We’re concerned that this action could have a chilling effect, particularly on small investors who don’t have the resources to battle Exxon or other companies in the courts,” said Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility (ICCR), which represents religious investors and other socially-aware asset managers.
