Updated February 29, 2024 at 6:46 PM ET
ExxonMobil faces dozens of lawsuits from states and localities alleging the company lied for decades about its role in climate change and the dangers of burning fossil fuels. But now, ExxonMobil is going on the offensive with a lawsuit targeting investors who want the company to slash pollution that's raising global temperatures.
Investors in publicly-traded companies like ExxonMobil try to shape corporate policies by filing shareholder proposals that are voted on at annual meetings. ExxonMobil says it's fed up with a pair of investor groups that it claims are abusing the system by filing similar proposals year after year in an effort to micromanage its business.
ExxonMobil's lawsuit points to growing tensions between companies and activist investors calling for corporations to do more to shrink their climate impact and prepare for a hotter world. Interest groups on both sides of the case say it could unleash a wave of corporate litigation against climate activists. It is happening at a time when global temperatures continue to rise, and corporate analysts say most companies aren't on track to meet targets they set to reduce their heat-trapping emissions.
"Exxon is really upping the ante here in a big way by bringing this case," says Josh Zinner, chief executive of an investor coalition called the Interfaith Center on Corporate Responsibility, whose members include a defendant in the ExxonMobil case. "Other companies could use this tactic not just to block resolutions," Zinner says, "but to intimidate their shareholders from even bringing these [climate] issues to the table."
ExxonMobil said in an email that it is suing the investor groups Arjuna Capital and Follow This because the U.S. Securities and Exchange Commission (SEC) isn't enforcing rules governing when investors can resubmit shareholder proposals. A court is the "the right place to get clarity on SEC rules," ExxonMobil said, adding that the case "is not about climate change."
Other corporations are watching ExxonMobil's case, says Charles Crain, a vice president at the National Association of Manufacturers, which represents ExxonMobil and other industrial companies.
"If companies are decreasingly able to get the SEC to allow them to exclude proposals that are obviously politically motivated, then the next question is, well, can the courts succeed where the SEC has failed — or, more accurately, not even tried?," Crain says.
Activists push companies for more aggressive climate strategies
The shareholder proposal from Arjuna and Follow This called for ExxonMobil to cut emissions faster from its own operations and from its supply chain, including the pollution that's created when customers burn its oil and natural gas. That indirect pollution, known as Scope 3 emissions, accounts for 90% of ExxonMobil's carbon footprint, according to Arjuna and Follow This. The proposal is similar to others that the investor groups submitted to ExxonMobil in recent years and which ExxonMobil says received scant support from other shareholders.
After ExxonMobil sued the groups in federal court in Texas in January, Arjuna and Follow This withdrew the proposal and promised not to submit it to ExxonMobil again. But ExxonMobil refuses to drop its case.
Arjuna declined to comment. The firm said in a court filing that ExxonMobil''s climate targets aren't as ambitious as those of other big oil and gas companies, and that its shareholder proposal was meant to "foster better investment outcomes by addressing the material threat that climate change poses" to the company.
Mark van Baal, founder of Follow This, said in a statement that ExxonMobil is trying to stifle shareholders.
"Apparently, Exxon does not want shareholders to vote on whether the company should accelerate its efforts to reduce emissions," van Baal said. "This is 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."
Companies are offering more transparency on climate, but activists say they need to see action
Last year was the hottest ever recorded on Earth, and the effects were devastating. Rising temperatures are driving more extreme weather, from heat waves to floods and droughts. And scientists say the impacts will only get worse because humans keep putting more greenhouse gasses into the atmosphere, mainly from burning fossil fuels like coal, oil and natural gas.
Thousands of peoples' lives are disrupted or harmed by extreme weather, and the economic costs are enormous. Weather disasters in the United States last year inflicted at least $92.9 billion in damages, according to the National Oceanic and Atmospheric Administration.
Those threats put pressure on companies. Corporations regularly issue reports on climate change and sustainability. And many, including ExxonMobil, say they're trying to eliminate or offset their greenhouse gas emissions by midcentury. But independent researchers say few companies have shown credible plans to achieve their targets.
"What we've seen, unfortunately, is that even in the face of disclosure and more transparency from these companies, not much has actually changed from a strategy perspective," says Kevin Chuah, an assistant professor at Northeastern University's D'Amore-McKim School of Business.
The impact of rising temperatures has also led states and municipalities to sue ExxonMobil and other oil and gas companies for the threats that their communities are facing, and the industry's alleged efforts to muddy the public's understanding of climate science. The latest lawsuits were filed by the city of Chicago and the state of California.
An industry group called the American Petroleum Institute says the lawsuits are meritless and politicized. ExxonMobil says it has acknowledged repeatedly that "climate change is real." The company noted in its statement to NPR that it is pursuing more than $20 billion of "low emission investments" between 2022 and 2027. ExxonMobil said that would be on top of the nearly $5 billion it recently spent buying a company that specializes in capturing carbon dioxide emissions and injecting them into oil wells to boost production.
However, those investments are a fraction of what the company is spending on its traditional energy business. A deal ExxonMobil struck last year to buy the oil and gas company Pioneer Natural Resources alone is valued at almost $60 billion.
Critics say ExxonMobil's lawsuit is part of a broader effort to limit investor activism
Activist investors like Arjuna and Follow This use shareholder proposals to push corporations to go further on climate. But they've struggled in recent years to get support from broader groups of shareholders. Experts say investors are hesitant to back new climate proposals when companies already have policies to disclose and cut emissions. And they say investors worry that proposals have gotten too prescriptive and might interfere with how companies are run.
Despite a drop in support for shareholder proposals on climate change, investors aren't giving companies a pass, according to an investor survey by the accounting firm EY. The firm said 56% of the investors it talked to still want companies to make climate change and environmental conservation a priority this year.
"I think these are financially material issues," says Chuah of Northeastern University. "And therefore many investors are bringing these concerns up."
ExxonMobil says it is committed to cutting emissions from its operations. But the idea that activist investors like Arjuna and Follow This can quickly push the company out of the oil and gas business with new climate policies is "simplistic and against the interests of the vast majority of ExxonMobil shareholders," the company said in a court filing in Texas.
ExxonMobil said in a statement to NPR that while shareholders are entitled to submit proposals to the company, they don't have "an unlimited right to put forth any proposal to do anything."
"Their intent is to advance their agenda rather than creating long-term value for shareholders," ExxonMobil said of Arjuna and Follow This.
Parts of corporate America have grown frustrated with the shareholder proposal process since the SEC issued guidance in 2021 that made it harder for companies to turn away some resolutions. The SEC specifically cited shareholder proposals that ask companies to set targets and timeframes to address climate change, saying it would no longer view those kinds of resolutions as inappropriate as long as companies are free to decide how to meet the goals.
The National Association of Manufacturers has argued that forcing companies to publish shareholder proposals that deal with "contentious issues unrelated to [their] core business or the creation of shareholder value," including climate change, violates their First Amendment right of free speech. And Republicans in Congress introduced legislation last year that would allow companies to reject shareholder proposals concerning environmental, social or political issues.
"Certainly, there are material climate-related topics that are going to be relevant for a company considering its growth into the future," Crain says. But he says activists too often pursue a "political goal" rather than try to help companies "understand and mitigate those climate related risks or opportunities for their operations."
Crain declined to discuss individual companies or shareholder proposals, and he says there isn't an objective way to determine when a shareholder proposal is politically motivated.
ExxonMobil's critics say its lawsuit is part of a broader effort to curtail shareholder activism, especially around social and environmental issues. "And the reason is because it's one of the few effective avenues left to hold companies accountable," says Zinner of the Interfaith Center on Corporate Responsibility.
Copyright 2024 NPR. To see more, visit https://www.npr.org.
