Oil giant, ExxonMobil has filed a lawsuit seeking to prevent a shareholder-proposed climate resolution from reaching a vote at its annual investor meeting.
This unprecedented move marks a significant escalation in the ongoing battle between corporations and environmental activists.
According to a Financial Times report, the lawsuit targets Follow This, an Amsterdam-based investor activist group, and Arjuna Capital, a registered investment adviser.
Both are behind a proposed resolution urging ExxonMobil to accelerate its greenhouse gas emissions reductions.
Companies rarely go to court to block shareholder motions, and Exxon’s case marks the first time it has done so.
It highlights a growing sense of frustration in some corporate circles with the Securities and Exchange Commission, the US financial regulator, which has been criticized for allowing too many motions by environmental activists to be voted on at annual meetings.
Shareholder petitions:
The report noted that the lawsuit is likely to be closely watched by corporate America, and if Exxon wins it could have a chilling effect on shareholder petitions.
Big technology companies and Wall Street banks have sometimes faced nearly a dozen shareholder proposals each at their annual meetings.
According to the report, 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, the proposal says.
Similar motions were rejected at previous Exxon annual meetings, with support among shareholders slipping from 27.1% in 2022 to 10.5% in 2023.
Exxon, which filed the lawsuit on Sunday in a US district court in Texas, said the proposal by Follow This and Arjuna violates SEC rules for such investor petitions.
SEC rules prevent shareholder proposals
SEC rules prevent shareholder proposals from being resubmitted year after year if they do not garner increasing investor support over a while.
Exxon said the 2024 proposal by Follow This and Arjuna did not hit the required SEC threshold to be resubmitted.
It also said the proposal violates an SEC rule that prevents shareholder proposals from attempting to “micromanage” business decisions.
Exxon has set a goal to reduce emissions from its operations to net zero by 2050.
But in contrast with some European rivals, it has resisted pressure to introduce a target for emissions arising from consumer use of its products, which would in effect force it to produce less oil and gas.
The report noted that 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 for 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.
According to the report, 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 has 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.
This a very interesting case I’d love follow to it’s end. Thanks for the piece