Investors Urged to Stand up to ExxonMobil
Shareholders argue the company’s aggressive legal action undermines shareholder rights and the US SEC’s authority.
Tensions are rising between oil and gas major ExxonMobil and its climate-focused shareholders, as investors push back against the company’s intimidation tactics.
Exxon filed a lawsuit in January against investment manager Arjuna Capital and activist group Follow This in response to their shareholder proposal, which requested medium-term emissions reduction targets for Scopes 1-3 emissions.
Despite the shareholder proposal having since been dropped, Exxon has chosen to pursue the lawsuit.
“Exxon’s determination to continue to press this case clearly demonstrates that this is not about concern for a particular proposal, but about undermining the authority of the US Securities and Exchange Commission (SEC) and silencing shareholder voices on climate risk,” Josh Zinner, CEO of the Interfaith Center of Corporate Responsibility (ICCR), told ESG Investor. “We see it as akin to a SLAPP suit.”
SLAPPs – which stands for strategic lawsuits against public participation – are legal actions typically brought by corporations or individuals with the intention of harassing, intimidating and financially or psychologically exhausting opponents via improper use of the legal system.
Exxon has now taken aim at sustainability-focused shareholders and shareholder networks in its 2024 proxy statement. The company argued that the shareholder proposal process has been “abused” and “hijacked” by activists looking to advance their own agenda – which it said often conflicted with growing investors’ value.
In response, the ICCR filed a proxy exempt solicitation, pointing out that the increasing urgency of the climate crisis means it is imperative that investors see portfolio companies set meaningful decarbonisation targets.
“We felt that we needed to set the record straight on the importance of the shareholder proposal process,” Zinner explained.
The solicitation also pointed to Exxon’s history of anti-climate policy lobbying and funding of climate misinformation campaigns – such as the now-defunct Global Climate Coalition.
“Exxon’s lawsuit was not filed in a vacuum,” Zinner noted. “It mirrors attacks on investors concerned about climate and other systemic risks from members of the US Congress backed by anti-ESG special interest groups – including, of course, the fossil fuel industry.”
Exxon’s 2024 proxy review did nonetheless include a recommendation for shareholders to vote against a proposal calling for the company to remove executive pay incentives tied to greenhouse gas (GHG) emissions reduction.
“ExxonMobil’s executive compensation programme is tied to a wide range of strategic objectives designed to drive sustainable growth in shareholder value, while positioning the company for long-term success in an uncertain future – including one with significantly lower emissions,” Exxon said.
Wildfire catching?
In this context, investors are increasingly concerned about the widespread implications of Exxon’s decision to pursue legal action – most notably, that other carbon-intensive US companies may follow suit.
“We do feel that most companies are committed to engaging with investors and are unlikely to go to court to challenge their shareholders, but certainly Exxon has set a dangerous precedent that some may follow,” said Zinner.
Mary Minette, Senior Director of Shareholder Advocacy at Mercy Investment Services, noted that the firm has engaged on climate-related themes with several companies across high-emitting markets.
“Most of them are productive and cordial and don’t take this adversarial stance,” Minette said.
Speaking at ESG Investor’s Stewardship Summit earlier this month, ShareAction CEO Catherine Howarth emphasised that shareholders should consider voting against the appointment of board and C-suite members at Exxon, in light of its chosen path.
Institutional investors Wespath Benefits and Investments and Mercy Investment Services have already filed an exempt solicitation calling for shareholders to vote against the election of Darren Woods, Exxon’s Executive Chair and CEO, and Joseph Hooley, the company’s Governance Chair.
“The reason we want to vote against these two individuals is because we see this as a governance issue,” said Minette. “The board should be exercising more oversight – this does seem like a situation where they are not doing their job. Voting against directors [or the C-suite] is a legitimate avenue for shareholders to express their opinion.”
Woods, who earned US$36.9 million last year, also faces criticism for comments in which he blamed the public for Exxon’s lack of climate ambition.
Additionally, ESG-aligned investors have been advised to vote against company boards that seek to challenge shareholder resolutions through the courts, as part of the As You Vote 2024 Proxy Vote Guidelines.
Other investors – including Norges Bank, the California Public Employees’ Retirement System (CalPERS) and Rathbones – have publicly challenged and questioned Exxon’s recent actions.
“It’s good news that investors on both sides of the Atlantic – and no doubt further afield, too – intend to use their voting power at Exxon’s forthcoming AGM [on 29 May] to challenge the CEO’s disturbing decision to pursue climate-conscious shareholders through the courts,” ShareAction’s Howarth told ESG Investor.
She added: “Fiduciary investors have a clear obligation to defend long-established shareholder rights that exist to protect the assets and the interests of millions of people across our economies. ExxonMobil would prefer to operate in a wild west economy where might is right. This must be resisted for the sake of good order in global capital markets.”
Meanwhile, others are choosing divestment as a response, with the New York State Common Retirement Fund having announced it would restrict investments in eight oil and gas companies – including Exxon – earlier this year.
Bully tactics
As well as shareholders, Exxon’s chosen course of action undermines the authority of the SEC, Zinner and Minette agreed.
US-based companies have long had the right to file no-action requests with the regulatory agency within 14 days of a shareholder resolution being filed – provided a case can be made as to false or misleading statements, relevance, ordinary business, duplication, and substantial implementation.
By choosing to file a lawsuit in a Texan court, Exxon has subverted this process.
“Exxon is trying to throw out a long-used system that has worked fairly for decades, and it’s astonishing,” said Minette. “It’s a poor decision on the company’s part because it’s not going to do its reputation any good. Exxon looks like a bully.”
Zinner also emphasised the importance of the SEC defending its rules and statutory authority, both in and out of the courts. “We support that authority,” he said.
The SEC, alongside the Federal Trade Commission, is currently evaluating pending oil company consolidations planned by Exxon, citing antitrust and climate-related concerns.
The oil and gas major is also under pressure from regulators outside the US. Last year, its pension plan was the first scheme to be fined by the UK’s The Pensions Regulator (TPR) for failing to report on trustees’ management and governance of climate-related risks and opportunities.
Going forward, it will be vital that investors continue to fulfil their fiduciary duty and engage with investee companies on systemic long-term risks such as climate change, Zinner insisted.
“It’s so important [that they] engage with companies on [sustainability-related] issues – despite the blowback and rhetoric, it’s a critical part of the work they do as fiduciaries,” he said. “We call on investors to push back against Exxon’s aggressive behaviour. It’s important that it doesn’t become the norm.”
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