Investor Rebellion Brews Over Exxon Lawsuit – ESG Investor

The ICCR says the oil and gasoline main is undermining each the US SEC and buyers by means of its motion. 

Institutional buyers have despatched a letter to ExxonMobil’s board of administrators, asking the oil and gasoline main to desert a lawsuit it has introduced towards shareholder proponents. 

Exxon filed the lawsuit in January towards funding supervisor Arjuna Capital and activist group Observe This in a Texan court docket, asking for a declaration backing the corporate’s proper to exclude the decision from its 2024 poll. The choice circumvents the US Securites and Trade Fee’s (SEC) course of for shelving or tabling shareholder resolutions. 

Regardless of Arjuna Capital and Observe This having since dropped the shareholder proposal, which requested medium-term emissions discount targets for Scopes 1-3 emissions, Exxon intends to pursue the lawsuit. 

The Interfaith Heart on Company Accountability (ICCR) – a broad coalition of greater than 300 institutional buyers representing US$4 trillion in invested capital – despatched a letter on 8 February, outlining investor issues across the lawsuit.  

“We imagine this pricey and pointless swimsuit constitutes a severe risk to shareholder rights,” ICCR CEO Josh Zinner wrote. “It additionally sends a transparent message that the corporate is searching for to close down any debate by its shareholders on actions wanted to deal with local weather threat. To trivialise a request from shareholders that Exxon exhibit that it’s taking [the climate] risk severely raises severe questions on its dedication to deal with these dangers.” 

Zinner additionally dubbed the disregard that Exxon has proven for buyers searching for to mitigate portfolio dangers as “breathtaking”.  

“Given Exxon’s desire to combat a battle in court docket somewhat than permit shareholders the liberty of a vote at its annual normal assembly (AGM), we determined to withdraw the local weather proposal,” mentioned Mark van Baal, Founding father of Observe This. “Now that we now have withdrawn and promised to not re-file the proposal with Exxon, the corporate has no purpose to proceed the lawsuit.” 

Breaking the code 

Exxon has made the weird choice to take the difficulty to court docket, somewhat than submitting a no-action request with the SEC. Such requests will be filed inside 14 days of a shareholder decision being dropped at the desk, offered a case will be made as to false or deceptive statements, relevance, abnormal enterprise, duplication, and substantial implementation. 

The ICCR’s letter claims that the lawsuit is a transparent try to undermine the SEC’s authority and credibility. With out the SEC employees as arbiter, buyers will probably be compelled to attraction to the courts to guard their rights, which might sign a brand new period of onerous and dear litigation, it added.  

“Exxon’s swimsuit ranges not-so-subtle criticism on the SEC employees for its latest method to shareholder proposals, which has been extra permissive in direction of prescriptive proposals like this one,” mentioned Amy Roy, Companion at US legislation agency Ropes & Grey. 

Analysis has proven that the variety of no-action challenges introduced by firms through the 2023 proxy season fell to 184, from 241 the earlier 12 months. The SEC sided with firms 46% of the time, in comparison with 28% in 2022. 

Exxon now claims it is just difficult the shareholder proposal on account of its extremely prescriptive nature, arguing that Arjuna Capital and Observe This will not be typical shareholders, however local weather activists strictly pursuing a climate-focused agenda. 

“It appears pretty clear that the defendants listed below are self-proclaimed activists selling explicit climate-focused objectives as a coverage matter,” mentioned Roy. “That is distinct from ESG-focused asset managers searching for to know climate-related monetary dangers and alternatives for the businesses of their portfolios to make sure long-term creation.” 

Divergent views 

The ICCR, nonetheless, disagrees. In accordance with Zinner, buyers view local weather change as a systemic financial threat that imperils their complete portfolios – but there’s actual concern that Exxon will invoke the courts as a default choice to settle variations with its shareholders going ahead.  

“We’d not see the swimsuit as a sign that Exxon is just not prioritising local weather transition,” Roy contended. “Exxon’s public statements and monetary disclosures clarify that the corporate is concentrated on local weather transition, and it repeatedly engages with shareholders to debate climate-related dangers and alternatives.” 

Exxon agreed to set interim Scope 1 and a pair of decarbonisation targets at its 2020 AGM and introduced its web zero by 2050 pledge in 2022.  

“Let’s not neglect Exxon’s decades-long and well-documented marketing campaign of misinformation relating to local weather change, which hindered our skill to change the present course of world warming,” countered Zinner.  

A research revealed by Harvard College and the College of Potsdam famous that Exxon has recognized concerning the risks of greenhouse gasoline emissions for many years and was capable of precisely predict the extent of damages attributable to continued fossil gasoline use. 

Exxon CEO Darren Woods has beforehand dismissed the necessity for oil and gasoline firms to set emissions depth targets, and labelled Observe This as an “anti-oil and gasoline group”. Towards that backdrop, Exxon introduced elevated earnings of US$36 billion final 12 months – above its personal expectations. 

Case or controversy 

In its submitting, Exxon requested aid from the Texan court docket by 19 March. The oil and gasoline main is because of file its proxy assertion by 11 April, forward of its AGM on 29 Could. 

Ropes & Grey’s Roy questioned whether or not the Texan court docket nonetheless has the jurisdiction to determine the result of the lawsuit, now that the proposal has been rescinded.  

“Underneath the US Structure, federal courts could solely hear an motion that’s based mostly upon a ‘case or controversy’ – that’s, a stay dispute between the events, not hypothetical authorized questions,” she defined. “With the challenged proposal now having been withdrawn, there’s a query as as to if there stays [such a thing].” 

Whatever the end result, Roy mentioned it was unlikely that many firms could be as motivated as Exxon to pursue litigation towards climate-focused shareholders. “Though we suspect many firms will probably be conserving a detailed eye on the result – if any – of the litigation,” she added.