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Legal action by ExxonMobil ends green investor group climate resolution

Exxon CFO declined to comment on whether the decision to sue would bring about the end for so-called Trojan horse activism

ExxonMobil legal action leads to withdrawal of green shareholder group resolution. Photograph: Reuters

Fri Feb 2 2024 - 15:33

Investors have withdrawn a climate resolution at ExxonMobil after the oil supermajor took legal action against the groups, in a development likely to have a chilling effect on shareholder activism.

Follow This, an Amsterdam-based green shareholder group, said that in response to the lawsuit filed by Exxon last week, it had decided to abandon its call for the company to set more ambitious climate targets.

“Given Exxon’s preference to fight a battle in court rather than allow shareholders the freedom of a vote at its annual meeting, we decided to withdraw the climate proposal,” founder Mark van Baal said in a statement on Friday.

The decision not to continue pushing for a shareholder vote on the resolution comes after Exxon took the unusual step of suing Follow This and its co-filer, investment adviser Arjuna Capital, to block the motion, arguing that it breached Securities and Exchange Commission guidelines.

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Activists have filed motions against companies ranging from Wall Street banks to Big Tech groups in recent years, calling on them to take stronger positions on environmental, social and governance matters.

Companies rarely go to court to block shareholder motions and Exxon’s case marks the first time it has done so. Instead, they usually appeal to the SEC for permission to remove unwanted resolutions from the ballot.

But Exxon argued that the regulator had become too willing to allow such motions to proceed to a vote. Exxon said it had withdrawn a request for an expedited hearing of its case but that it was not dropping the case.

“We believe there are still important issues for the court to resolve. There is no change to our plans, the suit is continuing,” it said in a statement.

Arjuna Capital did not immediately respond to a request for comment.

The activist investors’ decision was announced hours after Exxon reported its second-best annual profits in a decade as it cranks up oil production in the US and Guyana.

Speaking on Thursday, ahead of the announcement, Exxon’s chief financial officer Kathy Mikells declined to comment on whether the company’s decision to sue marked the beginning of the end for so-called Trojan horse activism.

“We support the right of investors to bring proposals,” she said. “But the process to get proxy proposals excluded is just flawed, with activists that are masquerading as investors who make the same proposals year after year that are garnering only minimal support along the way.”

In 2021 Exxon was defeated in a shareholder rebellion from activist hedge fund Engine No. 1, which despite a tiny stake in the company won three seats on the board with a demand that it make more serious plans for the energy transition.

Exxon has since set a goal to reduce emissions from its own operations to net zero by 2050, but in contrast with many of its peers it does not have a target to cut so-called Scope 3 emissions from use of its products.

The proposal submitted by Follow This and Arjuna called on Exxon “to go beyond [its] current plans” and accelerate the pace of reductions in greenhouse gas emissions, including Scope 3.

Similar motions failed to reach majority support at previous Exxon annual meetings, with the vote in favour from shareholders slipping from 27.1 per cent in 2022 to 10.5 per cent in 2023.

Exxon, which filed the lawsuit in a US district court in Texas, claims the proposal by Follow This and Arjuna violates SEC rules for such investor petitions. It said previous iterations of the motion had failed to garner sufficient support to be resubmitted under SEC guidelines.

It also said the proposal violated an SEC rule that prevents shareholder proposals from attempting to “micromanage” business decisions. – Copyright The Financial Times Limited 2024

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