The ICCR says that the oil and gas giant is undermining both the US SEC and investors by its actions.
Institutional investors have sent a message letter to ExxonMobil’s board of directors, asking the oil and gas giant to drop a lawsuit it filed against shareholder advocates.
Exxon has filed a report court case in January against investment manager Arjuna Capital and activist group Follow This in a Texas court, seeking a declaration in support of the company’s right to exclude the resolution from the 2024 vote. The decision bypasses the process of US Securities and Exchange Commission (SEC) for suspending or filing shareholder resolutions.
Despite the fact that Arjuna Capital and Follow This have existed since then dropped the shareholder proposal, which the requested medium-term emissions reduction targets for Scopes 1-3 emissions, Exxon plans pursue the lawsuit.
The Interfaith Center on Corporate Responsibility (ICCR) – a broad coalition of more than 300 institutional investors representing $4 trillion in invested capital – sent a letter on February 8 outlining investor concerns surrounding the lawsuit.
“We believe this costly and unnecessary lawsuit poses a serious threat to shareholder rights,” wrote ICCR CEO Josh Zinner. “It also sends a clear message that the company wants to end any debate from its shareholders on actions needed to address climate risk. To downplay a shareholder request that Exxon shows it is considering [the climate] The threat raises serious questions about the country’s commitment to address these risks.”
Zinner also called the disregard Exxon has shown for investors seeking to limit portfolio risk “breathtaking.”
“Given Exxon’s preference to fight in court rather than giving shareholders the freedom to vote at the annual general meeting (AGM), we have decided to withdraw the climate proposal,” the spokesperson said. Mark van Baal, Founder of Follow This. “Now that we have withdrawn and committed not to resubmit the proposal to Exxon, the company has no reason to continue the lawsuit.”
Breaking the code
Exxon has made the unusual decision to take the matter to court, rather than filing a no-action petition with the SEC. Such requests may be made within 14 days after a shareholder resolution has been tabled, provided that arguments can be made as to false or misleading statements, relevance, ordinary course of business, duplication and substantial implementation.
The ICCR letter alleges that the lawsuit is a clear attempt to undermine the authority and credibility of the SEC. Without the SEC staff as arbiter, investors will be forced to turn to the courts to protect their rights, which would usher in a new era of heavy and costly investments. disputeit added.
“Exxon’s lawsuit not-so-subtly criticizes the SEC staff for its recent approach to shareholder proposals, which has been more lenient toward prescriptive proposals like this one,” said Amy Roy, partner at US law firm Ropes & Gray.
Research has shown that the number of no-action challenges from companies during the 2023 proxy season fell to 184 from 241 the year before. The second double sided 46% of the time at companies, compared to 28% in 2022.
Exxon now claims it only challenges the shareholder proposal because of its highly prescriptive nature, arguing that Arjuna Capital and Follow This are not typical shareholders, but climate issues. activists strictly pursue a climate-oriented agenda.
“It seems pretty clear that the defendants here are self-proclaimed activists who are promoting certain climate-oriented goals as a matter of policy,” Roy said. “This differentiates ESG-focused asset managers who want to understand climate-related financial risks and opportunities for the companies in their portfolios to ensure long-term creation.”
However, the ICCR disagrees. According to Zinner, investors view climate change as a systemic economic risk that puts their entire portfolios at risk. Still, there are real concerns that Exxon will turn to court as a default option to resolve disputes with its shareholders in the future.
“We would not view the lawsuit as a signal that Exxon is not prioritizing the climate transition,” Roy argued. “Exxon’s public statements and financial disclosures make clear that the company is focused on the climate transition, and that it regularly engages with shareholders to discuss climate-related risks and opportunities.”
“Let’s not forget Exxon’s decades-long and well-documented activities campaign of disinformation regarding climate change, which has hampered our ability to change the current trajectory of global warming,” Zinner countered.
a study published by Harvard University and the University of Potsdam noted that Exxon has known for decades about the dangers of greenhouse gas emissions and was able to accurately predict the extent of damage caused by the continued use of fossil fuels.
Exxon CEO Darren Woods has done that before turned down the need for oil and gas companies to set emissions intensity targets, and labeled Follow This an “anti-oil and gas group.” Against that backdrop, Exxon announced a profit increase of $36 billion last year – above its own expectations.
Case or controversy
In its filing, Exxon requested relief from the Texas court by March 19. The oil and gas giant must file its proxy statement by April 11, ahead of the Annual General Meeting of Shareholders on May 29.
Roy from Ropes & Gray wonders whether the Texas court still has jurisdiction to decide the outcome of the lawsuit, now that the proposal has been withdrawn.
“Under the U.S. Constitution, federal courts may only hear a case based on a ‘case or controversy’ – that is, a current dispute between the parties, and not hypothetical legal questions,” she explained. “Now that the disputed proposal has been withdrawn, the question is whether this is still the case [such a thing].”
Regardless of the outcome, Roy said it is unlikely that many companies would be as motivated as Exxon to pursue lawsuits against climate-focused shareholders. “Although we suspect many companies will be closely watching the eventual outcome of the lawsuit,” she added.