CalPERS Warns Exxon of “Strong Response” to Lawsuit
Public sector pension giant notifies oil major of consequences to decision to sue shareholders over climate shareholder resolution.
The California Public Employees’ Retirement System (CalPERS), one of the world’s biggest pensions schemes, has warned ExxonMobil it will face consequences for its controversial decision to sue shareholders over a climate shareholder resolution.
CalPERS issued the warning after a group of ExxonMobil investors, employees and unions wrote to the pension fund urging it to vote against two of the company’s directors, including CEO and chairman Darren Woods, in protest against what they called an “attack on shareholder democracy”.
The move is the latest twist in an ongoing battle between the oil giant and climate-conscious investors over smaller shareholders’ rights to file resolutions.
In January, Exxon made the unusual decision to take legal action to prevent a shareholder resolution – which called for the group to adopt mid-term emissions reduction targets – from going to vote at its annual general meeting (AGM) later this month.
The two small shareholders who led the resolution, Arjuna Capital and Follow This, subsequently withdrew it. But Exxon still decided to press on with legal action, which many interpreted as an attempt to frighten off other investors from attempting similar action in the future.
In the letter to Exxon shareholders CalPERS and its sister fund the California State Teachers Retirement System (CalSTRS), the group of asset owners, unions and environmental groups led by California Common Good asked the pension giants to “hold [the company] accountable for its unprecedented and extreme lawsuit against its shareholders and its ongoing undermining of the efforts to fight climate change”.
“We ask that CalPERS and CalSTRS predeclare a vote against Exxon’s Board of Directors and stop purchasing Exxon’s bonds,” the letter said.
CalPERS has not confirmed whether it will vote against the two directors, but Fiona Ma, California State Treasurer and a trustee of the pension fund said Exxon’s actions were “a serious threat to shareholder rights and require a strong response”.
“As the largest public pension fund in the country, we have a responsibility to lead on issues that threaten to undermine shareowners,” she said in a statement released on Thursday to coincide with the meeting of investors. “As fiduciaries to our members, we must consider labour practices, environmental impact, and anything else that has the potential to affect the long-term value of the companies we invest in.”
‘Vitriolic’ attack condemned
During an online investor meeting on Thursday, Mary Minette, Senior Director of Shareholder Advocacy at Exxon shareholder Mercy Investment Services, urged other investors to join them in voting against Woods and the company’s lead independent director, Joseph Hooley, who are both up for re-election at the AGM on May 29.
She said she was surprised when ExxonMobil “took the extreme step of taking two of its shareholders to court to keep their proposal off the proxy ballot”, and “shocked when the company elected to continue its lawsuit even after those shareholders agreed to withdraw their proposal.”
Minette also condemned the company’s “vitriolic” language, which she said described shareholders as “serial proponents with fringe concerns”.
“Exxon is a public company – anyone who buys its stock is a shareholder and has a right to avail themselves of the rights granted to shareholders,” she added.
The aim of the vote is not to unseat the two directors, but to send a clear message to the Exxon’s board that “bully” tactics are not acceptable, Minette explained.
Climate laggard
Shareholder resolutions have become a popular tool among investors to pressure companies to improve their climate policies in recent years.
Exxon, which lags many of its competitors in climate disclosure and investment in lower-carbon alternatives to oil and gas, has been on the receiving end of a large number of such resolutions. But the Houston-based oil giant has hit back, claiming such resolutions are often filed by “activists masquerading as shareholders” and the process had “become ripe for abuse”.
“We believe activists with minimal or even no shares should not be permitted to re-submit proposals that do not grow long-term shareholder value,” the company notably said in a statement in February.
The lawsuit is part of a growing hostility to ESG concerns in the US that has seen Exxon’s home state of Texas restrict state government contracts with firms that take punitive stances towards fossil fuels and firearms. According to the Columbia Law School’s database, the US is the global hotspot for climate-related litigation, but so far the majority of it has been led by environmental groups against fossil fuel companies and governments – rather than the other way round.
Pundits are worried Exxon’s use of litigation against climate-conscious investors could have a “chilling effect” on future shareholder action.
Speaking at the investor briefing on Thursday, Illinois State Treasurer Michael Frerichs said Exxon’s attempt to prevent smaller shareholders from filing resolutions was “outrageous and unacceptable”, and posed a “serious threat” to American prosperity and competitiveness.
“Investors cannot allow their voices to be silenced,” he added. “The cornerstone of American democracy and wealth is a free market with shareholder voices that are considered in a democratic way. That means management teams of companies have to field ideas from their own investors that they may not agree with.”
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