Why Is ExxonMobil Suing Its Own Shareholders?
Most companies aren’t in the practice of suing their own shareholders. But ExxonMobil isn’t most companies. This week, news broke that the multinational oil and gas producer is suing two activist investor groups, Arjuna Capital and Follow This, to keep them from even raising the question of whether Exxon should do a little more to cut its greenhouse gas emissions.Specifically, Exxon is looking to get a declaration from a judge supporting its decision to remove a proposal from the ballot for the next season of proxy voting this spring, when shareholders vote on questions about corporate operations. The nonbinding resolution in question, first brought by Follow This, asks shareholders to ask ExxonMobil 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.” Let’s break that down. Scope 1 and 2 emissions refer to those resulting from operations. Scope 3 emissions result from the sale and combustion of company products. While Exxon and other fossil fuel producers have boasted about efforts to reduce their Scope 1 and 2 emissions, which are responsible for around 15 percent of industry emissions, they have generally fought attempts to regulate and reduce Scope 3 emissions. In 2021, Exxon did eventually disclose its Scope 3 emissions for the first time after pressure from investors.Exxon claims that following through on the Arjuna and Follow This resolution would present a “sweeping intrusion into ExxonMobil’s ordinary business operations.” What’s not clear, though, is what exactly it has to be worried about—or why Exxon is seeking an assist from the courts. ExxonMobil doesn’t necessarily need a court to allow it to exclude shareholder resolutions from the ballot. Even if it did, the question is nonbinding and stands very little chance of passing. As the company itself notes, climate-related resolutions brought in previous years have been overwhelmingly voted down. Last year’s version of the Follow This and Arjuna Proposal at issue in Exxon’s suit was opposed by 89.5 percent of shareholders, following similar trends at Chevron, Shell, and BP. Still, the company warns that the shareholder activists are out to “shrink” the oil giant: “Defendants’ overarching objective is to force ExxonMobil to change the nature of its ordinary business or to go out of business entirely.”Exxon’s decision to file the suit is a kind of end run around the Securities and Exchange Commission. Ordinarily companies would file a so-called Rule 14a-8 no-action request with the SEC in order to strike a shareholder proposal from the ballot, and argue that certain exclusions under the rule apply to the proposal or the investor bringing it. But the SEC under the Biden administration has reportedly been more willing to reject such requests from company executives. Notably, the suit was filed in the U.S. District Court in the Northern District of Texas. If that sounds familiar, it may be because a judge from that same court—Donald Trump appointee Matthew Kacsmaryk—is responsible for an unprecedented ruling last spring to rescind the Food and Drug Administration’s 23-year-old approval of the anti-abortion pill mifepristone. The decision was overturned before heading to the Fifth Circuit Court of Appeals, where it was upheld. The Supreme Court agreed to take up the case last year and is expected to make a decision in June. In a different case, it’s worth noting, Kacsmaryk did dismiss an attempt by 26 Republican state attorneys general to block a rule permitting environmental, social, and governance factors to be used when selecting retirement plan investments. (The group appealed the decision earlier this month.)Exxon’s case has been assigned to Judge Mark Pittman, another Trump appointee in Texas’s Northern District, who is perhaps best known for striking down the White House’s student debt relief plans as well as a ban on letting 18-year-olds in Texas buy handguns. Pittman is an active member of the Federalist Society, which receives funding from ExxonMobil. Between Supreme Court cases that could kneecap climate and environmental regulations and a judicial branch packed with Federalist Society members, it’s no wonder Exxon has decided to go running to the courts.
Most companies aren’t in the practice of suing their own shareholders. But ExxonMobil isn’t most companies. This week, news broke that the multinational oil and gas producer is suing two activist investor groups, Arjuna Capital and Follow This, to keep them from even raising the question of whether Exxon should do a little more to cut its greenhouse gas emissions.
Specifically, Exxon is looking to get a declaration from a judge supporting its decision to remove a proposal from the ballot for the next season of proxy voting this spring, when shareholders vote on questions about corporate operations. The nonbinding resolution in question, first brought by Follow This, asks shareholders to ask ExxonMobil 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.”
Let’s break that down. Scope 1 and 2 emissions refer to those resulting from operations. Scope 3 emissions result from the sale and combustion of company products. While Exxon and other fossil fuel producers have boasted about efforts to reduce their Scope 1 and 2 emissions, which are responsible for around 15 percent of industry emissions, they have generally fought attempts to regulate and reduce Scope 3 emissions. In 2021, Exxon did eventually disclose its Scope 3 emissions for the first time after pressure from investors.
Exxon claims that following through on the Arjuna and Follow This resolution would present a “sweeping intrusion into ExxonMobil’s ordinary business operations.” What’s not clear, though, is what exactly it has to be worried about—or why Exxon is seeking an assist from the courts. ExxonMobil doesn’t necessarily need a court to allow it to exclude shareholder resolutions from the ballot. Even if it did, the question is nonbinding and stands very little chance of passing. As the company itself notes, climate-related resolutions brought in previous years have been overwhelmingly voted down. Last year’s version of the Follow This and Arjuna Proposal at issue in Exxon’s suit was opposed by 89.5 percent of shareholders, following similar trends at Chevron, Shell, and BP. Still, the company warns that the shareholder activists are out to “shrink” the oil giant: “Defendants’ overarching objective is to force ExxonMobil to change the nature of its ordinary business or to go out of business entirely.”
Exxon’s decision to file the suit is a kind of end run around the Securities and Exchange Commission. Ordinarily companies would file a so-called Rule 14a-8 no-action request with the SEC in order to strike a shareholder proposal from the ballot, and argue that certain exclusions under the rule apply to the proposal or the investor bringing it. But the SEC under the Biden administration has reportedly been more willing to reject such requests from company executives.
Notably, the suit was filed in the U.S. District Court in the Northern District of Texas. If that sounds familiar, it may be because a judge from that same court—Donald Trump appointee Matthew Kacsmaryk—is responsible for an unprecedented ruling last spring to rescind the Food and Drug Administration’s 23-year-old approval of the anti-abortion pill mifepristone. The decision was overturned before heading to the Fifth Circuit Court of Appeals, where it was upheld. The Supreme Court agreed to take up the case last year and is expected to make a decision in June. In a different case, it’s worth noting, Kacsmaryk did dismiss an attempt by 26 Republican state attorneys general to block a rule permitting environmental, social, and governance factors to be used when selecting retirement plan investments. (The group appealed the decision earlier this month.)
Exxon’s case has been assigned to Judge Mark Pittman, another Trump appointee in Texas’s Northern District, who is perhaps best known for striking down the White House’s student debt relief plans as well as a ban on letting 18-year-olds in Texas buy handguns. Pittman is an active member of the Federalist Society, which receives funding from ExxonMobil. Between Supreme Court cases that could kneecap climate and environmental regulations and a judicial branch packed with Federalist Society members, it’s no wonder Exxon has decided to go running to the courts.
