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May 19, 2024

ExxonMobil Sues to Block Shareholders’ Climate Change Proposals

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Jan 23, 2024

ExxonMobil has filed an unprecedented lawsuit to prevent shareholders from voting on proposals that would force the oil giant to take more ambitious action on climate change. The move sets up a high-stakes legal battle over shareholder rights and corporate accountability on global warming.

Exxon Seeks to Skirt SEC to Stop Climate Votes

The company filed the lawsuit in federal court in Fort Worth, Texas in an attempt to bypass Securities and Exchange Commission rules that allow shareholders to file resolutions and vote on them at annual meetings. At issue are proposals from investment funds focused on environmental, social and governance issues that would direct Exxon to reduce emissions from both its own operations and the use of its products.

Exxon argues the resolutions are an “abuse of the shareholder proposal process” and were filed to “promote a social agenda rather than for the economic benefit of the Company and its shareholders.” The firm says the proposals contain “vague and ambiguous language” regarding emissions reporting that would force it to devote resources toward “implementing and overseeing a burdensome reporting obligation.”

Shareholder advocates criticized the move as an extreme measure to evade accountability and suppress the voices of its investors. They argue Exxon should address emissions concerns that pose both financial and environmental risks instead of spending company resources to fight shareholders in court.

Dueling Shareholder Factions Bring Climate Fight to a Boil

The lawsuit represents a boiling point in a long-running battle between Exxon management resistant to emissions curbs and climate-conscious investors seeking more corporate action.

Tensions have escalated as Exxon doubled down on oil and gas while shareholder support for emissions resolutions gained momentum. Major investors like BlackRock and hedge fund Engine No. 1 have pushed firms on climate issues, securing board seats at Exxon after a proxy fight in 2021.

“Exxon would prefer to fight pitched battles against its own investors in court instead of taking simple steps to align its policies with Paris Agreement goals,” said one of the targeted investors, Follow This.

| Shareholder Support for Emissions Resolutions |
|—|
| Year | Avg Support |
| 2016 | 38% |
| 2020 | 48% |
| 2022 | 63% |

Exxon counters that it has detailed plans to reduce operational emissions and is making “significant progress” on low carbon solutions. The company says it supports effective policy solutions like carbon pricing, not “symbolic” measures from activist investors.

The lawsuit aims to stop proposals filed by Follow This and the Church of England’s pension board requesting a report on how Exxon’s lobbying aligns with the Paris Agreement’s goal of limiting global warming. A separate proposal from the New York State retirement fund seeks short, medium and long-term emissions reductions.

Legal Battle Could Determine Investor Rights

The suit alleges the resolutions contain false and misleading statements and asks the court to allow Exxon to keep them off its shareholder ballot. Approval would establish a concerning precedent empowering companies to circumvent transparency and block investor oversight, shareholder advocates say.

“This is definitely a new frontier,” said Heidi Welsh of the Sustainable Investments Institute on corporations suing shareholders over proposals. “This has only happened maybe once before.”

Exxon counters that the move protects shareholders from special interests pushing “agenda-driven and unnecessary measures” at the expense of core business.

Experts say the central question is whether the court agrees with Exxon’s view that the proposals are not about standard business oversight but an unrelated political agenda. The answer could have lasting influence over shareholder rights on environmental and social issues.

Already proxy advisory firms ISS and Glass Lewis have told clients they disagree with Exxon’s arguments and recommended investors support the climate resolutions. The SEC, which historically sided with investor proposals, declined to block them after an Exxon request last fall.

High Stakes Trial Slated for Spring

Exxon’s annual shareholder meeting is scheduled for late May. To prevent a vote, the firm seeks an injunction in federal court in Fort Worth, home to Exxon subsidiary XTO Energy. A trial is expected this spring.

The suit alleges investors are abusing the resolution process for self-interest and have “threatened the Company” with demands unrelated to shareholder value. It invokes a seldom-tested SEC rule allowing firms to keep proposals off ballots if filed “primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes.”

Experts say Exxon faces an uphill battle convincing a judge that climate lobbying oversight and emissions targets constitute unrelated “social policy.”

Shareholder advocates depict the suit as desperate attempt to escape accountability that reveals the company’s unwillingness to modernize its business model. They say Exxon should prepare to compete in a decarbonizing world instead of clinging to the past.

“The risk of devastating climate change is real,” said New York State Comptroller Thomas P. DiNapoli. “Exxon would be better served by adapting its business model to address this risk.”

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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