Air Date: Week of February 16, 2024

The activist shareholders’ resolution called on Exxon to set targets limiting Scope 3 emissions, which include emissions from customers burning gasoline in their cars. (Photo: Mr. Satterly, Wikimedia, Public Domain)

ExxonMobil recently sued activist investors in federal court in Texas for a repeated effort to bring a climate resolution to a vote at the company’s annual shareholder meeting. The giant oil company has persisted even though the activists have withdrawn the petition. Pat Parenteau of Vermont Law and Graduate School joins Host Paloma Beltran to explain the backstory and chilling effect Exxon’s actions could have on investor engagement.

Transcript

BELTRAN: Much of the world aims to slash greenhouse gas emissions in the coming decades, and even some fossil fuel companies are adding clean energy to their portfolios. But others are digging in and fighting back. ExxonMobil recently sued activist investors in federal court in Texas for a repeated effort to bring a climate resolution to a vote at the company's annual shareholder meeting in May. The investment firm Arjuna Capital and shareholder activist group Follow This had filed a resolution last year asking Exxon to adopt tighter emission targets on what are known as “Scope 3” emissions. Those are the greenhouse gas emissions that happen when we fill up at an ExxonMobil pump and then burn that gasoline in our cars. The Securities and Exchange Commission is in the process of drafting rules that would require companies to disclose Scope 3 emissions so that shareholders are aware of climate-related financial risks. But Exxon claims that since a similar resolution was already defeated, the activists are out of line, and the company is using its huge economic muscle to push back against them. Critics say it sends an intimidating message to any activists who try to challenge the oil giant, despite the responsibility of shareholders of public companies to see that they are well run and well managed. Even though Arjuna Capital and Follow This have withdrawn their proposed shareholder resolution, Exxon hasn’t dropped its lawsuit. In a statement on the Living on Earth website, loe.org, Exxon said in part, “the intent of our lawsuit is simple – we want clarity on a process that has become ripe for abuse.” Here to discuss is Pat Parenteau, an Emeritus professor at Vermont Law and Graduate School. Pat, welcome back to Living on Earth!

PARENTEAU: Thanks, Paloma, good to be with you.

BELTRAN: So what was the resolution brought forward by these shareholder groups? And what are these shareholders asking Exxon to do?

PARENTEAU: So the resolution is fairly short. And it's asking Exxon to set targets and timetables to reduce what are called Scope 3 greenhouse gas emissions. And what that means is, it's all of the emissions connected with the supply chain that delivers Exxon's products, of course, gasoline, to consumers. So the Scope 3 emissions are the largest segment of emissions that Exxon is responsible for, it's the biggest chunk of their emissions, it's about 70-plus percent of the total emissions that Exxon is putting into the atmosphere every year. So that's what the shareholders were trying to put on the ballot for the meeting, which is in May, for Exxon shareholders, the annual meeting.

BELTRAN: And from what I understand, after this resolution, Exxon pushed back and actually sued the shareholders. What is Exxon's strategy here? Why would a company sue its shareholders? And why would they continue to do so after the resolution was dropped?

An Exxon Mobil building in Houston, Texas, where the company is headquartered. The company filed its lawsuit against the activist investors in the in the Northern District of Texas federal court. (Photo: WhisperToMe, Wikimedia Commons, Public Domain)

PARENTEAU: Well, part of this, frankly, relates back to when a group of shareholders were able to put members on the board of directors for Exxon. And this was obviously over Exxon management's objections. And the management of Exxon has been smarting from this move to put shareholders on their board, which, frankly, want them not only to reduce their emissions, but ultimately, to change their whole business plan. So in context, you know, this is part of all the pressure that's being put on Exxon, and Exxon is now pushing back. Normally, what happens when shareholders seek to put a resolution on the agenda, Exxon has to go to the Securities and Exchange Commission and request permission to block the resolution from being placed on the ballot for the annual meeting. Exxon did not do that in this case. This is the first time that Exxon has ever bypassed going through the Securities and Exchange Commission and gone directly to court to stop the resolution from being placed on the ballot. So, first time.

BELTRAN: And, you know, Pat, you mentioned Exxon bypassed the regular SEC legal process. How might this affect investor engagement?

PARENTEAU: Well, it certainly is a chilling effect, isn't it? I mean, if the price for you putting a resolution on the agenda is you get sued, that's going to discourage a lot of shareholders, and certainly the smaller shareholders. And I think that's a legitimate concern, that Exxon is bullying these small investors, because they know they don't have the resources, basically, to fight legally in court with Exxon. And so Exxon is, you know, they're using a hammer, frankly, approach to this situation. Exxon may have a legitimate point that you can't just keep repeating over and over the same resolution. That's legitimate. But there is a process for determining that through the SEC. And that's obviously why that process is there. And of course, Exxon went to Texas to file this case, no surprise there. That's a home-court advantage for them. And they directed this case to a Trump appointee, who has ruled in favor of oil companies before. So this is a staged attempt, you know, to not just knock out this resolution, but discourage anybody else from thinking about doing the same thing.

An Exxon oil refinery in Baton Rouge, Louisiana, in 2017. Exxon has faced pressures from governments, shareholders, and international markets regarding the company’s disinformation about the climate and contributions to climate change. (Photo: Wclarke, Wikimedia Commons, CC BY-SA 4.0)

BELTRAN: How does Exxon's behavior when it comes to emissions resolutions like the ones brought forward by these shareholders compare to other fossil fuel companies?

PARENTEAU: Well, Exxon is the outlier in this regard. The other major Western, as we call them, oil companies like BP, Shell, Conoco, they have all adopted resolutions that were very, very similar to the resolution that these two groups are trying to get Exxon to adopt. In other words, these other resolutions do deal with Scope 3 emissions, which are admittedly the most difficult ones to deal with. But the point is, Exxon is digging in its heels. It's part of a pattern that we've seen with Exxon in responding, for example, to cases we've talked about before, where states and cities are suing them for the damage from climate change, and they are countersuing these governmental entities, they are pillorying them in the media, insulting the individual mayors and governors that are bringing these cases and so forth. So this is the playbook for Exxon, they play rough. You know, this is a no-holds-barred kind of defense of what Exxon is doing.

BELTRAN: And in this case, the Norwegian sovereign wealth fund, which owns a sizable chunk of Exxon stock, issued a response to Exxon's lawsuit. What does this mean, Pat?

Pat Parenteau is emeritus professor of law at Vermont Law School and formerly served as EPA Regional Counsel. (Photo: Courtesy of Vermont Law and Graduate School)

PARENTEAU: Yeah, so that's a major shareholder, I mean, percentage-wise, it may only be 1%. But you're talking about a company that's valued in the hundreds of billions, right. So that's the kind of shareholder that has the muscle, I think, to push one of these resolutions. The Norwegian sovereign wealth management fund did not file its own resolution, it supported these other groups' resolution. But it'll be interesting to see if one of the major institutional investors decides to take up the cause and come back at Exxon, maybe with a more refined resolution, one that is different enough from the ones that were previously tried that you could legitimately say it's a new resolution, and you don't run into this repeated resolution problem. But there are plenty of ways to frame a resolution. The best benchmark for these resolutions is to refer to the commitments made in the Paris Agreement. And there's a term of art that we could use called Paris-compliant corporate policies. And many corporations—Google, Microsoft, others—have signed up for these Paris-compliant protocols, if you will. So it may be that one of these major investor groups can frame a resolution that's different enough from the ones that were voted down before that they can get it back on the ballot in a future annual meeting, and then see what happens.

BELTRAN: So what power do shareholders have in continuing to raise their voice on climate and transparency issues like the ones brought forward by Arjuna and Follow This?

PARENTEAU: Shareholders have a tremendous amount of power. I mean, you know, the divestment movement that was launched by Bill McKibben and 350.org over 10 years ago, has, frankly, had a major impact on the fossil fuel industry. I mean, trillions of dollars have been divested. So you know, there's that aspect of institutional investors simply disinvesting and reinvesting in other cleaner sources of energy, that's part of it. The other thing that's going on that should be mentioned is that the SEC is still working on finalizing a rule requiring more robust disclosure of emissions from companies like Exxon, and also identifying that there is a material risk to shareholders from companies that are not transitioning away from fossil fuels. So what I'm suggesting is there are different avenues to put pressure on the companies, there's going to be pressure coming from the government, pressure coming, frankly, from the international markets in the European Union, and pressure coming from shareholders, as well as pressure coming from these lawsuits against the company seeking damages. So all of these different vectors. I think, ultimately, the goal would be to move these companies much more quickly into the transition that is inevitable if the question is how soon can we get there?

BELTRAN: Pat Parenteau is an emeritus professor at Vermont Law and Graduate School. Thank you for joining us.

PARENTEAU: Hey, Paloma, it's always a pleasure.

Response from ExxonMobil: