by Kevin Killough
A vote during the ExxonMobil 2024 shareholder meeting Wednesday will pit those who think an oil company should act according to the concerns of climate activists against those who think companies should act to produce the best investment returns for their shareholders.
It is the latest front in the growing fight between proponents and opponents of environmental, social and governance (ESG), as the movement struggles to maintain the clout to effect social change through investments.
“These activists have hijacked the shareholder proposal process by buying shares with the express purpose of strong arming companies like ExxonMobil to adhere to their radical Net Zero agenda. In other words, they are trying to force a company to act against its own interests,” Derek Kreifles, CEO of the State Financial Officers Foundation (SFOF), said in a statement.
Fiduciary duties
ExxonMobil filed a lawsuit in January against a group of activist investor groups whose shareholder proposal was aimed at getting the company to address climate change by reducing its emissions. The proposal would require restricting the amount of oil and gas it produces, which would effectively be at odds with the company’s profitability.
The groups had put forth similar proposals in the past, and they failed to get enough votes to pass. With the group attempting yet again to use shareholder proposals to advance a climate agenda, Exxon decided to take the matter to court. The activists withdrew their proposal, but Exxon is pursuing the case nonetheless.
In response to the company’s leadership deciding to proceed with the case, Democratic state treasurers, union pension managers, and California’s public pension plan are urging major asset managers to vote against ExxonMobil’s board of directors, arguing the company’s leaders are trying to silence shareholder concerns.
“You have a right to have your concerns heard by corporate directors and executives. They work for you,” Marcie Frost, California Public Employees Retirement System CEO, said in a statement.
In response to the campaign, 21 state financial offices from the SFOF sent a letter to 18 asset managers ahead of Exxon’s shareholder meeting to support the company’s lawsuit and urge the asset managers to not act against their fiduciary duties.
“These activists have been flooding corporate proxy statements with politically motivated proposals thinly veiled as business risk mitigation measures. Those of you who lead publicly traded companies know well that ESG proposals have been increasing in frequency year by year,” the letter states.
In a statement, Utah Treasurer Marlo Oaks asked the asset managers to support board members who are trying to “reign in activists who are a drain on resources and, in this case, desire the ultimate demise of the business itself.”
Shrinking companies
The shareholder resolution the activist groups proposed asked Exxon to address its greenhouse gas emission targets, and noted the company was behind its competitors with these targets.
Exxon’s complaint filed in federal court argues that, unlike shareholders who invest in a company to get a return on that investment, activist shareholder groups become shareholders “solely to campaign for change through shareholder proposals that are calculated to diminish the company’s existing business.”
A federal judge, according to Reuters, had determined that the case against one of the two groups, Amsterdam-based Follow This, lacked jurisdiction in the U.S., but the judge allowed the suit to continue against the other group, Arjuna Capital, which has $352.7 million in assets under management, because of the likelihood the group could file a similar proposal in the future.
Arjuna’s mission, Exxon’s complaint explains, is to “shrink” energy companies. A New York court, the lawsuit notes, found the company’s chief investment officer to be “manifestly biased” against Exxon.
When blocking shareholder proposals, companies typically go through the Securities and Exchange Commission (SEC), which has a rule that allows the proposals to be scrapped when it relates to a company’s ordinary business operations. However, Bloomberg Law explains, in 2021, the SEC decided that environmental and social proposals could merit a shareholder vote.
Compared to last year’s proxy season, the SEC this proxy season has received 36% more requests from companies looking to block shareholder proposals from their annual meeting voting materials, Bloomberg Law also reported.
Alex Stevens, manager of policy and communications for the Institute for Energy Research, told Just the News that the SEC’s decision to broaden the scope of shareholder proposals effectively allowed a review of those proposals regardless of the financial impact to the target company.
Steven said the groups likely withdrew their proposal because they didn’t want the courts reviewing the system that has made it much easier for such proposals to be voted on, and Exxon is still moving forward with the suit because it wants that judicial review.
Ultimately, shareholder activists are using political tactics to undermine markets, Stevens said, which are great at determining what should be produced and how to do it in the most efficient way.
“Rather than pursuing their political goals in a manner that’s consistent with transparent democratic political processes to change policy in a direction they like, what is happening is a select minority of people are assuming the responsibility of making decisions on behalf of all of us,” Stevens said.
Too successful
Before it was excluded from Exxon’s complaint, Follow This argued that the lawsuit is intended to stop shareholders from using their voting rights.
“Apparently, the board fears investors will vote in favour of emissions reduction targets. It seems that ExxonMobil is afraid of its shareholders,” Mark van Baal, Follow This founder, said in a statement.
The statement goes on to defend its proposal for Exxon to reduce emissions saying that fossil fuels can be replaced by renewable energy. Follow This didn’t provide any evidence to support this claim, and energy experts are doubting the potential for an energy transition away from fossil fuels in the timelines that climate activists demand.
In an article on his Substack, energy expert Robert Bryce provided detailed charts from a variety of government data sources that raise doubts that the transition is happening at all. From 2004 to 2022, Bryce wrote, global spending on wind and solar totaled $4.1 trillion. Yet, in that time, the amount of primary energy from fossil fuels rose 3.4 times faster than wind and solar. In 2023, natural gas-fired generation increased 9.5 times faster than wind and solar combined. Despite adding 6 gigawatts of new capacity in 2023, electricity output from wind actually fell 2.1%
Financially, oil and gas companies have produced good outcomes for investors — something environmental groups condemn them for — while some sectors of the green economy are struggling. This is why investors are pulling billions out of so-called sustainable funds.
Since the pandemic, the oil and gas industry managed to produce profits despite supply chain issues, inflation and interest rates, but these same difficulties forced a few of offshore wind projects to be canceled.
The oil and gas industry managed to produce record-high productionwhile President Joe Biden and the Democrats took hundreds of hostile actions against the industry. But automakers are losing billions on electric vehicles, even though the cars enjoy extensive consumer incentives and political support.
David Blackmon, energy writer and analyst, told Just the News that the success of oil companies is a big reason why shareholder activism is such an attractive target for climate activists.
“I think they’re frustrated by the fact that the Democratic Party’s chosen industries — the rent seeking industries: electric vehicles, wind and solar — are all in trouble at this point,” Blackmon said. “So it’s not surprising we see the boosters of it resorting to these kinds of heavy political tactics.”
Shareholder rights
In a statement explaining why it’s calling for a vote against Exxon’s board members, CalPERS, which has $464.6 billion in assets under management, said that climate change is “a serious threat to long-term investment returns,” but the organization said their concern is that the company puts at risk the ability for shareholders to raise proposals to counter worker safety or excessive executive compensation. CalPERS is California’s money manager for their Public Employees’ Retirement System, which ranges from teachers, first responders and even judges.
“Might future shareholders who seek answers from a company’s leaders be ignored because of the legal precedent now sought by ExxonMobil?” CalPERS said.
Exxon’s position is that the company supports the rights of shareholders to submit proposals.
“But these rights are increasingly being infringed by activists masquerading as shareholders. 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,” Exxon said in a statement.
In 2021, another anti-fossil fuel activist group, Engine No. 1, successfully installed three Exxon board members who were supportive of the goal of getting the company to reduce the amount of petroleum it produces. Support for ESG has since declined, and in 2023, support for ESG shareholder proposals was cut nearly in half.
On Wednesday, Exxon’s shareholders will decide if the company’s current leadership is on the right path or if it should bend to the will of activists.
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Kevin Killough is a reporter for Just the News.
Photo “Exxon Engineer” by ExxonMobil.
