Exxon’s attempt to use the US courts to block a shareholder proposal suffered a fatal blow this week, when a judge dismissed the final part of its lawsuit.
The oil giant had initially mounted a case against Dutch campaign group Follow This and US-based activist investment house Arjuna Capital, after they co-filed a resolution asking it to step up its ambition on decarbonising its Scope 3 emissions.
Exxon argued that the request represented a misuse of the shareholder voting process, which was designed to give ‘legitimate’ investors a chance to express their views about how the company was being run, not as a tool for campaigners to pursue environmental goals.
Follow This insisted that the request was about ensuring Exxon’s survival in a low-carbon economy.
In the hope of getting Exxon to back down, Follow This and Arjuna withdrew the proposal. But Exxon argued that the courts still needed to wade in where the US Securities and Exchange Commission (SEC) had not, to set a legal precedent around who can file proposals.
Ultimately, the judge said Follow This operated outside the jurisdiction of the US courts. On Monday, the case against Arjuna was also dropped, because the resolution has been withdrawn so there was nothing to rule on.
The judge wasn’t enthusiastic about letting the pair off the hook, saying that “while the court sympathises with Exxon’s predicament, it’s hands are tied by the constitution”.
What next?
The outcome hardly qualifies as a triumph for those in favour of these kind of proposals.
While Arjuna and Follow This have dodged a legal battle, they have surrendered their campaign in the process; both “unconditionally and irrevocably” pledging never to file at Exxon again.
And it’s unlikely any other NGO will want to risk taking up the baton (although European campaigners may be reassured by the ruling that Follow This is beyond the jurisdiction of US judges).
If activist groups are scared off, it raises the question of whether Exxon has made itself untouchable, despite having its case thrown out.
The company’s main argument has been that Follow This and Arjuna only hold shares in order to pursue climate goals, meaning they shouldn’t behave like they represent the interests of the firm’s broader investor base.
Last month, 39 asset owners and managers pushed back against this argument, signing a letter that expressed concerns about what Exxon’s lawsuit meant for shareholder rights.
“We recognise that an increasing number of proposals do not necessarily align with the interests of long-term investors,” they said. “However, we want to protect the right of shareholders to use their vote to decide for themselves when a proposal, sustainability-related or otherwise, is in their best interests and that of their stakeholders.”
It warned that fighting resolutions through the courts could “deter the filing of proposals concerning the sustainability issues that are material to the performance of our equity and fixed income portfolios”.
Will investors step in to fill the void?
But sources at some of the world’s largest asset managers have told IPE that Exxon has assured them it wouldn’t challenge conventional fiduciary shareholders through the courts.
“If investors believe these kind of requests are truly about value creation, then why are they hiding behind these little activist investors and not just doing it themselves?” asks Robert Eccles, chair of KKR’s Sustainability Expert Advisory Council and a visiting professor at Oxford University’s Said Business School.
IPE wrote to the bulk of the 39 signatories to last month’s letter asking them just that: would they consider filing a climate resolution at Exxon themselves next year, to demonstrate that the campaigners’ concerns are relevant to the broader investor base.
Of the investors that responded, most said that they couldn’t file because they no longer owned any shares in Exxon.
Pension funds like AP7, PGGM and the Church of England are among a wave of asset owners to divest the firm after failing to successfully engage with it on climate.
This has come through in recent voting results. Support for Follow This’ proposal at Exxon dropped from 28% in 2022 to 11% in 2023, on the back of the exodus.
“I hope this situation makes investors realise they should keep their shares and use the power it gives them,” said Mark van Baal, founder of Follow This.
“There are no responsible investors in tobacco companies, but that hasn’t changed tobacco companies, and it would suit Exxon to be in that same situation – with no critical shareholders left.”
Some investors to have retained shares in Exxon said they would not rule out filing their own resolutions next year.
Dutch asset manager Achmea, who co-filed a climate resolution at Exxon in 2023, said a “subsequent filing or co-filing depends on the situation and will be reviewed and assessed on a case-by-case basis”.
Clémence Humeau, head of sustainability coordination and governance at AXA Investment Management, told IPE: “Filing or co-filing resolutions are typical options that we consider when determining a credible escalation strategy for specific engagements that are not progressing.”
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