Fri, Apr 12 2024 12 April, 2024

ExxonMobil lawsuit signals turning point in climate shareholder activism

The ExxonMobil lawsuit represents a first of its kind but is happening against the backdrop of a wider pushback against climate activism by energy companies.

ExxonMobil's Baton Rouge refinery in Baton Rouge, Louisiana. (Photo: Adobe Stock/JHVEPhoto)

ExxonMobil’s lawsuit against two shareholder activism groups in the U.S. highlights a widening divide between shareholders returns and environmental responsibility among energy corporations, with a successful outcome potentially creating a snowball effect as companies start to push back against rising pressure to step up decarbonisation efforts and increasing litigation risks, experts told Gas Outlook.

At the end of January, ExxonMobil filed a lawsuit against shareholders Follow This and Arjuna Capital in order to exclude their proposal from the company’s 2024 proxy statement, a document that publicly traded companies are required to file to the Securities and Exchange Commission (SEC) and which contains key information for shareholders ahead of a vote.

The two shareholder activist groups had put forward a proposal to implement stricter scope 3 emission targets.

Specifically, the proposal’s text stated that “shareholders support the Company, by an advisory vote, to go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas (GHG) emissions across scope 1, 2, and 3, and to summarize new plans, targets, and timetables.”

In taking legal action against the two shareholder groups, ExxonMobil said that similar proposals had already been rejected by shareholders on previous occasions, adding that it has already provided estimated scope 3 emissions from oil and gas production data from previous years, and that “setting scope 3 targets is a flawed approach with significant unintended consequences.”

“We support the rights of shareholders to submit proposals, but these rights are increasingly being infringed by activists masquerading as shareholders,” it said.

“The SEC has rules in place to stop this approach, and our lawsuit simply calls for the proxy rules   be enforced as they were written.”

In early February, ArjunaCapital and Follow This decided to withdraw the proposal, however the oil and gas supermajor did not drop the lawsuit against them.

ExxonMobil did not respond to a request for comment on this decision.

ExxonMobil “continuing its legal action amounts to tactics of intimidation and bullying to silence our fair ask to tackle the climate crisis,”  Follow This’ founder Mark van Baal told Gas Outlook.

“These emissions, specifically scope 3 emissions, are the concern of more and more investors who want to safeguard the long-term future of the company and the global economy in view of the climate crisis,” he stressed.

He said the company wanted to prevent “shareholders from voting on its greenhouse gas emissions” by circumventing “the SEC in order to seek a court ruling that Exxon is not violating the securities laws by omitting shareholder proposals that support the company to accelerate the pace of reductions for all its GHG emissions – scope 1, 2, and 3 -, the root cause of the climate crisis.”

“Exxon wants to prevent any shareholder to exercise the right to table a shareholder proposal about whether or not to accelerate efforts to cut all greenhouse gas emissions” including scope 3, he continued.

The ExxonMobil lawsuit against activist shareholders Arjuna Capital and Follow This “is highlighting the fundamental clash between shareholders’ interests and their responsibility towards stakeholders, and between profits and environmental and climate protection,” Joanna Peltzman, a lawyer specialised in ESG and environmental litigation at Paris-based law firm Osborne Clarke, told Gas Outlook.

“While it’s difficult to predict whether this will create a new area of litigation, a positive result for ExxonMobil could have a snowball effect,” she anticipates.

While the lawsuit represents a first of its kind, it is happening against the backdrop of a wider pushback against climate activism by energy companies.

In November, Shell sued Greenpeace for $2.1 million in damages over a protest targeting an oil platform in the North Sea, calling for an indefinite block on all protests  against Shell’s infrastructure at sea or in port around the world.

Greenpeace was also the target of a defamation lawsuit being filed in France by TotalEnergies over a report claiming that Total had massively underestimated its 2019 GHG emissions.

While “legislation in the U.S. and France is different we’re seeing cases of oil majors pushing back against environmentalists, for example with the TotalEnergies defamation lawsuit against Greenpeace,” she said.

“Generally speaking, boards of directors will increasingly need to give evidence to stakeholders and shareholders that they are putting in place an environmental and client strategy.”

“Already in France a law has been put forward in 2019, to change the civil code in order for companies to implement an ESG strategy in their statute.”

Moving forward, “fossil fuel companies have been fighting shareholder activism and proposals relating to scope 3 emissions reporting tooth and nail… It’s unlikely that will change as the industry faces stricter rules,” Paul Benson, a lawyer for climate NGO ClientEarth told Gas Outlook.

“But this doesn’t mean shareholder activism will fade away,” he anticipates.

“Challenges may lie ahead, but investor pressure is mounting and will take on added significance as the risks that climate change and the energy transition present to the industry escalate.”  

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