ExxonMobil’s market capitalization is over $400 billion. Follow This, a Dutch climate activist group, controls shares in the oil giant that were worth less than $4,000 at last count.
Follow This has repeatedly tried to use its small holding as leverage to force Exxon to extend its pledges to reduce greenhouse gas emissions. This year the oil company has had enough.
Minutes after midnight on Jan. 22 in Amsterdam, Exxon Follow This and another investor, Arjuna Capital, filed a lawsuit claiming that their climate petition violated U.S. securities rules.
The small investors quickly backed down and dropped their proposal, but Exxon persevered. This week, attorneys for the federal judge told a federal judge that the case was not moot. They said Follow This and Arjuna have manipulated shareholder activism “for the sole purpose of attacking ExxonMobil from within” and added: “There is no good reason to believe they will stop.”
The confrontation between the largest Western oil company and a small activist group follows a proliferation of shareholder resolutions on a range of environmental, social and governance issues in recent years. It is a new flank in a broader conflict over ESG investing.
“Major companies are watching this unfold,” said Charles Crain, vice president of the National Association of Manufacturers, a Washington-based industry group that has an Exxon representative on its board. He expressed concern about “the extreme extent to which activists have hijacked the proxy vote with politically motivated proposals.”
Exxon continues its lawsuit three years after suffering a historic defeat by small hedge fund Engine No. 1, which managed to oust three of its board members with demands for more serious plans to tackle climate change.
But while Engine No. 1 owned more than 944,000 shares, Follow This represents shareholders who own 37, according to the last figure reported to Exxon.
Follow This is led by Mark van Baal, a Dutchman with a mop of silver curly hair who has long argued that investors should use their voting rights as shareholders to pressure oil companies to reduce emissions.
His group uses a strategy in which climate-conscious, usually small investors buy up shares with the explicit purpose of submitting proposals at annual meetings. The “Trojan Horse” strategy means that if an oil company were to follow through on its resolutions, it would “conclude that there is no room for further investment in the exploration of more oil and gas,” Follow This says.
Follow This initially focused on Shell, which was previously headquartered in the Netherlands, and submitted its first climate resolutions there in 2016. In the years that followed, it began making proposals at BP and Chevron, where in 2021 more than 60 percent of shareholders supported a resolution to enforce climate change. the group to reduce its CO2 emissions. The majority of shareholders of oil producer ConocoPhillips and refiner Phillips 66 supported similar Follow This resolutions in 2021.
Some past attempts to override his proposals have failed, most notably at Occidental Petroleum in 2022. Recently, however, investor support for climate proposals has waned.
Van Baal started his group as a one-man company and still has only a handful of employees. But its agenda has proven popular in Europe. Katharina Lindmeier, senior responsible investment manager at Nest, which spun off from Exxon in 2021, said Follow This “does a lot of the heavy lifting” when it comes to the resolutions, making it easier for other big investors to file with them to serve.
Exxon’s lawsuit wasn’t a big surprise, she said, because there has been a big increase in shareholder proposals following the Securities and Exchange Commission’s 2021 decision to put more of these petitions to a vote.
The company filed suit in U.S. District Court in North Texas, arguing that Follow This and Arjuna’s proposal was “motivated by an extreme agenda” and “intended to shrink the company’s existing business.” Exxon says the proposal violates SEC rules that prohibit repeated motions that don’t meet a certain voting threshold and prevent investors from “micromanaging” matters.
The company brought in a legal team that includes David Woodcock, the former head of the SEC’s Texas office, and Noel Francisco, a former attorney general in the Trump administration.
The now-withdrawn resolution called on Exxon to set accelerated targets to reduce emissions from its own operations and those of its products. The company has pledged to reduce the former to net zero by 2050, but has no target for the latter.
“What Exxon is trying to do here is really try to fundamentally shift the balance of power between companies and their investors, by making investors think twice about exercising their right to submit a shareholder proposal,” said Andrew Logan, senior director at Ceres. a coalition of investors and environmental groups.
“What’s particularly damaging about the way they’re going about this is the way they’re trying to make this as expensive as possible for the petitioners. . . Exxon is committed to maximizing these costs.”
Natasha Lamb, managing partner and chief investment officer at Arjuna Capital, last week accused the firm of resorting to “tactics of intimidation and bullying”.
Exxon, van Baal and Lamb declined to comment further on the lawsuit on Tuesday.
Filing shareholder proposals has been relatively inexpensive for environmentalists, but the cost of defending them in court can run into hundreds of thousands of dollars, said Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility, which represents religious organizations that file such proposals. .
“That’s part of the goal here [Exxon] is to make it prohibitively expensive for smaller investors in particular to have their voices heard,” he said, comparing the lawsuit to so-called strategic lawsuits against public participation.
The lawsuit against Exxon is not the only current case involving shareholder proposals. The right-wing National Center for Public Policy Research has sued the SEC, arguing that a shareholder proposal it submitted to supermarket chain Kroger on equal opportunity for employees should not have been blocked by the regulator. Oral arguments are scheduled for next month.