ExxonMobil lawsuit against activist shareholders greenlit amid growing investor outrage

A Texas judge has rejected a motion to dismiss the lawsuit brought by ExxonMobil against two activist shareholders seeking stricter climate policies, meaning the case will proceed in court despite growing investor outrage regarding the tactic.

ExxonMobil filed the lawsuit in January to prevent two of its investors, Arjuna Capital and Follow This, from putting a resolution to include Scope 3 emissions in the oil major’s climate agenda to a vote at its May annual general meeting (AGM).

The two shareholders almost immediately withdrew the proposal, but Exxon refused to drop the case, arguing that without legal action, they would be able to simply file it again at a later AGM.

Now, US District Judge Mark Pittman has validated the oil and gas firm’s argument by rejecting the motion to dismiss the case requested by Arjuna Capital and Follow This.

“As worded, Arjuna’s letter allows defendants to take the 2024 proposal, add an Oxford comma here, shorten a sentence there, and submit the results anew for Exxon’s shareholders,” Pittman wrote in the order.

However, he also ruled that Exxon could not pursue its claim against Follow This, since the organisation is based in the Netherlands, outside of the court’s jurisdiction.

A precedent against shareholder activism

By forging ahead with the lawsuit, ExxonMobil is looking to set a precedent that would weaken the influence of investor groups such as Follow This, which buy shares in polluting companies to push them forward on the climate transition.

In a statement about the lawsuit, the company said Follow This and Arjuna’s proposals were driven by “an extreme agenda” that doesn’t serve investors’ interests, and asked the court to “apply the SEC’s proxy rules as written to stop this abuse and eliminate the significant resources required to address them”.

But the move has been criticised as a tactic of “intimidation and bullying”, by the defendants but also by other ExxonMobil shareholders, who are now rising against the board and CEO.

ExxonMobil shareholders refuse to be “silenced”

Several other ExxonMobil shareholders, including the largest pension fund in the US, CalPERS (which holds US$495 billion in assets and 2 million members), have now come forward to protest the company’s legal action.

In a letter dated May 20, CalPERS CEO Marcie Frost and Board President Theresa Taylor announced that the fund would vote in opposition to all 12 members of ExxonMobil’s board of directors and its CEO at the company’s May 29 AGM.

“Decades of shareholder rights are under threat from a lawsuit filed by the leaders of a powerful US corporation, designed to punish two small groups that dared to speak truth to power. If successful, the legal action could diminish the role – and the rights – of every investor in improving a company’s bottom line,” they added, urging other shareholders to do the same “to send a message that our voices will not be silenced”.

Other investors, such as the New York State Common Retirement Fund, Illinois State Treasurer Michael Frerichs and the Interfaith Center on Corporate Responsibility, have also denounced what they called “an attack on shareholder rights” – and in some cases, the company’s inaction on climate change.

Shell investors reject climate resolution

At another oil and gas AGM this week, shareholders rejected a proposal to align Shell’s climate targets with the Paris Agreement, including Scope 3 emissions. The proposal was also filed by Follow This and was backed by 18.6% of shareholders in a tense meeting punctuated by heated interventions by climate activists.

Oil and gas majors are being increasingly criticised by investor groups and financial think tanks for their insufficient (and often downgraded) climate transition plans, but a majority of their shareholders continue to reject proposals to raise climate ambitions, as per senior management’s recommendations.