The war between Exxon Mobil and its ESG activist shareholders, Follow This and Arjuna Capital, continues to rage as the oil magnate fights to prove that climate transition demands violate Securities and Exchange Commission (SEC) rules.
On January 21st, Exxon Mobil filed a lawsuit in a federal court against the two investors for putting what the company called an “extreme agenda” on the ballot for a shareholder vote: a proposal to rapidly eliminate greenhouse gas emissions including those referred to as “Scope 3,” or emissions from the entire process of a business’s operations. Exxon has built its case on the claim that the investors’ actions constitute “micromanaging” (which is now a legal term after being introduced by the SEC in 2021). The SEC said at the time that climate targets set by shareholders would not be defined as micromanagement “so long as the proposals afford discretion to management as to how to achieve such goals.”
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In its formal complaint, Exxon said Arjuna Capital and Follow This have “become shareholders solely to campaign for change through shareholder proposals that are calculated to diminish the company’s existing business … [They] are aided in their efforts by a flawed shareholder proposal and proxy voting process that does not serve investors’ interests and has become ripe for abuse.”
As Bloomberg noted at the time, Exxon’s decision to outright sue its shareholders rather than go through an administrative appeal process with the SEC marked an aggressive escalation in corporate pushback against ESG civil society groups. Exxon did this on purpose because it apparently believes the SEC will rule against defining the firms’ actions as micromanagement. A judge, it wagers, might have a different interpretation.
“[A] remarkable step… ExxonMobil clearly wants to prevent shareholders using their rights. Apparently, the board fears shareholders will vote in favor of emissions reductions targets,” said Follow This founder Mark van Baal. His sentiment was echoed by Arjuna Chief Investment Officer Natasha Lamb, who said the shareholder has “a fundamental right” to raise concerns about climate change.
Even when the activist shareholders withdrew their climate resolution from the annual board meeting in early February, Exxon told the judge to keep the case open, seemingly so that a precedent could be set. “[There are] still important issues for the court to resolve,” Exxon said, adding that the investors’ motivations must be determined, and the growing number of similar shareholder proposals must be addressed.
“There is no good reason to believe they will stop,” Exxon went on. “[The SEC] permits this type of conduct under its current application of the rules.”
Omidyar Network reporter and Harvard Business Review editor Walter Frick, who takes the side of the investors, wrote: “The stakes here go beyond any one company. Even if a judge rules against Exxon, its shareholders will probably vote against the proposal, as they have before. But in what world is it micromanagement to ask that Exxon concern itself with the impact of burning oil? Whatever one thinks Exxon should do, surely it’s not a mere detail.”
He described the ongoing suit as a conflict between economic worldviews, with Milton Friedman’s theory that companies’ sole responsibility is to generate profits for shareholders on the one hand and the environmental and social corporate responsibility thesis championed by economists like Oliver Hart and Luigi Zingales on the other.
“That’s what Exxon and its anti-ESG allies likely fear most. If activist investors demonstrate that even many shareholders are uncomfortable with its vision of the energy future, then action from government won’t be far behind,” he concluded.
Shane Devine is a writer covering politics, economics, and culture for Valuetainment. Follow Shane on X (Twitter).
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