Darren Woods, ExxonMobil's CEO; Source: ExxonMobil

ExxonMobil: Lawsuit against ‘activists masquerading as shareholders’ has investors’ interests at heart

U.S.-headquartered energy giant ExxonMobil has pressed ahead with legal action against Arjuna Capital, a compatriot investment player, and Follow This, a Dutch green shareholder firm, to stop the re-submission of their proposal on Scope 3 emission-reduction targets, which ultimately aims to wind down the company’s oil and gas business. The oil major claims that this lawsuit is in the best interest of its shareholders.

Darren Woods, ExxonMobil's CEO; Source: ExxonMobil

Key highlights:

  • ExxonMobil sues Arjuna Capital and Follow This over proposal to up greenhouse gas (GHG) emission reduction ante
  • Lawsuit described as a way to protect shareholders’ interests as the proposal’s mission was to put an end to oil and gas activities
  • Proposal withdrawn but U.S. giant determined to get to the bottom of the issue due to its belief that such proposals do not foster long-term growth in shareholder value

As the latest proposal was simply another resubmission, ExxonMobil recently explained that it filed a lawsuit on January 22, 2024, to exclude Arjuna Capital and Follow This’ shareholder proposal from its 2024 proxy statement due to its shareholders overwhelmingly rejecting proposals with substantially the same subject matter over the past two years.

While portraying the current process to get proxy proposals excluded as flawed, the U.S. oil and gas heavyweight is adamant that it has a responsibility to fight back, thus, its lawsuit intends to obtain clarity on a process the firm believes to have become “ripe for abuse.” This is in line with the company’s belief that activists with minimal or even no shares should not be permitted to re-submit proposals that do not grow long-term shareholder value.

“Repeatedly submitting proposals that investors overwhelming reject is not in the interests of investors or a working shareholder proposal system. We have a responsibility to call attention to the misuse of proposals by professional activist groups who have publicly stated they do not care about growing shareholder value while they pursue their own agendas. We hope to continue the dialogue on these issues,” underlined ExxonMobil.

Activists put pressure on ExxonMobil over lack of Scope 3 target

While emphasizing that Arjuna Capital and Follow This do not own any direct shares, the U.S. oil major explained that the duo submitted proposals related to Scope 3 emission-reduction targets in December 2023, before the firm provided its estimated Scope 3 emissions from the use of its oil and natural gas production for several years.

The U.S. player claims to have been very clear in its ‘Advancing Climate Solutions‘ report and previous proxy statements about the rationale and reasons behind its belief that setting Scope 3 targets is “a flawed approach with significant unintended consequences.”

According to ExxonMobil, the previous rejections did not detract Arjuna Capital and Follow This from handing over its most recent proposal, which addressed substantially the same subject matter as the 2022 and 2023 proposals that the lion’s share of shareholders rejected.

After its climate resolution, urging ExxonMobil to drive down emissions by 2030, fell to 11% in 2023 from 28% in 2022, Mark van Baal, Founder of Follow This, stated: “It’s incomprehensible that most investors still accept these supermajors’ refusal to cut emissions this decade. They all know the science: to avoid climate disaster, global emissions must almost halve by 2030.”

Given the nature of the latest proposal, the previous failed attempts, and the U.S. company’s view on the issue, the oil major underscores that the most recent proposal was designed to put it out of business, as proponents said.

The U.S. giant justifies its claim by pointing out that Arjuna Capital believes “Exxon should shrink” while Follow This says its proposals are “Trojan Horse” proposals designed to draw to a close the company’s business in oil and natural gas.

Lawsuit proceeds despite proposal withdrawal

With this at the forefront, ExxonMobil filed a complaint in the U.S. district court to prevent the proposal from going to vote during its 2024 annual shareholder meeting in May, as it is convinced that this proposal violates the written rules, despite recent examples in Staff Legal Bulletin 14L and subsequent decisions that have allowed similar proposals in some cases.

Once February 2, 2024, rolled in, Arjuna Capital and Follow This withdrew their shareholder proposal. However, ExxonMobil still asked the court on February 5, 2024, to continue the suit because, even though the proposal was withdrawn, the company remains unyielding in its belief that the underlying issue remains and must be resolved.

“We believe the increase in the number of proposals each year – coupled with the decrease in votes in favor of these proposals plus far fewer no-action requests being submitted in a system that no longer honors them – show a system that’s not serving the best interests of investors,” highlighted the oil major.

This view also got backed by the U.S. Chamber of Commerce, representing about 300,000 direct members, and the Business Roundtable, representing CEOs of more than 200 of America’s leading companies, which filed a brief with the court on February 28, 2024, in support of ExxonMobil’s position.

While the U.S. energy giant has not set a Scope 3 emission-reduction target, it is actively pursuing a versatile emission-reduction approach to leave its mark on the global decarbonization scene, as it is convinced that there is no single silver bullet to the climate change woes. The firm’s CEO, Darren Woods, outlined last year that a plan to tackle climate change and energy needs simultaneously would need to go beyond expanding wind, solar, and EVs.

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“To be clear, we support the rights of shareholders to submit proposals, but these rights are increasingly being infringed by activists masquerading as shareholders. The SEC has rules in place to stop this approach, and our lawsuit simply calls for the proxy rules to be enforced as they were written. We believe all investors have a vested interest in clear interpretations, regardless of viewpoint,” concluded ExxonMobil.

The past few years have seen a rise in lawsuits on climate grounds, launched by environmental groups suing global oil and gas players, however, Big Oil has not thrown in the towel as it continues to fight back as good as it gets.

These back-and-forth legal moves are even more prominent when they include large energy corporations. However, activists have managed to force the hand of some governments, like the UK, to amend their climate agenda to entail a faster move to net zero.

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While a lawsuit ClientEarth initiated against Shell’s board of directors was thrown out of court, the UK-headquartered energy giant embarked on bringing forth one of the biggest legal challenges Greenpeace has ever faced, in response to the 13-day occupation of its new circular FPSO last year by the environmental group’s activists.