ExxonMobil sues to block shareholder climate petition

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ExxonMobil has filed a lawsuit to try to stop a shareholder climate resolution from going to a vote at its annual investor meeting, in a first for the US oil major that marks an escalation in the battle between companies and climate activist groups.

Exxon is suing Follow This, an Amsterdam-based investor activist group, and Arjuna Capital, a registered investment adviser, in an attempt to block a motion they have put forward calling on the company to accelerate the pace of reductions in greenhouse gas emissions.

Companies rarely go to court to block shareholder motions, and Exxon’s case marks the first time it has done so.

“With this remarkable step, ExxonMobil clearly wants to prevent shareholders using their rights,” responds Mark van Baal of Follow This. “Apparently, the board fears shareholders will vote in favour of emissions reductions targets.”

The lawsuit is likely to be closely watched by corporate America, and if Exxon wins it may have a chilling effect on shareholder petitions.

The Securities and Exchange Commission, the US financial regulator, has been criticised by some companies privately as allowing too many motions by climate activists to be voted on at annual meetings.

Big technology companies and Wall Street banks have most often been the targets of activist shareholder proposals at annual meetings.

Follow This and Arjuna’s proposal calls on Exxon shareholders to push the company “to go beyond [its] current plans” and accelerate the pace of reductions in greenhouse gas emissions. The new effort should include targets and timetables, it says.

Similar motions failed to reach majority support at previous Exxon annual meetings, with the vote in favour from shareholders slipping from 27.1 per cent in 2022 to 10.5 per cent in 2023.

Exxon, which filed the lawsuit on Sunday in a US district court in Texas, claims the proposal by Follow This and Arjuna violates SEC rules for such investor petitions.

SEC rules prevent shareholder proposals from being resubmitted year after year if they do not garner increasing investor support over a period of time.

Exxon said the 2024 proposal by Follow This and Arjuna did not meet the required SEC threshold to be resubmitted.

It also claimed the proposal violated an SEC rule that prevents shareholder proposals from attempting to “micromanage” business decisions.

Exxon has set a goal to reduce emissions from its own operations to net zero by 2050. The bulk of emissions behind global warming come from the burning of oil and gas, however, rather than energy used in operations.

In contrast with some European rivals, Exxon has resisted pressure to introduce a target for emissions arising from consumer use of its products, known as scope 3, which would in effect force it to produce less oil and gas.

Exxon suffered a blow at its 2021 annual meeting when Engine No. 1, an activist hedge fund, won three seats on its board with a demand that the company pursue a more aggressive strategy on emissions reduction.

The Exxon lawsuit comes two years after the SEC eased its policies for shareholder proposals, a move that has led to a surge in investor petitions at US companies.

These proposals are relatively inexpensive for activist investors to put forward, and they have used them to agitate for change at companies.

But Exxon said the SEC had been too lenient in allowing shareholder proposals to go to a vote at companies, and that its lawsuit was needed to put a lid on petitions that do not win significant support.

Exxon is due to hold its annual meeting on May 29. It has asked for a decision by the court by March 19 before it files its shareholder materials.