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Oil giant ExxonMobil XOM is locked in a fierce battle over climate change and corporate governance. ExxonMobil is suing two sustainable investment firms, Arjuna Capital and Follow This, in an attempt to prevent shareholder proposals from being voted on at the company’s annual shareholder meeting.
The proposal calls on Exxon to set bolder emissions reduction targets and address for the first time a wide range of emissions (“Scope 3” emissions) resulting from customers’ use of its products.
Exxon has historically resisted aggressive climate action, but this proposal threatens the company’s core business and “forces ExxonMobil to change the nature of its normal operations or go out of business altogether.” It claims to be a thing.
The company claims the proposal infringes on management’s authority, while supporters say it is an important way for shareholders to protect their investments from climate risks.
The crux of the issue:
- Investment firms Arjuna Capital and Follow This have submitted a proposal asking Exxon to accelerate its own emissions reductions and match those of its customers.
- Exxon argues that the proposal would disrupt its daily operations, change its product mix, and potentially even force it out of business.
- This lawsuit arose under the following circumstances:
- Growing political opposition to ESG investing (environmental, social, governance).
- Declining interest in ESG funds on Wall Street.
- Increases SEC oversight of attempts by companies to block shareholder proposals.
Exxon filed the lawsuit in a court in Texas, a state known for its pro-business leanings, to circumvent the traditional Securities and Exchange Commission approval process.
Under the Biden administration, the SEC has become less receptive to companies’ attempts to kill such proposals.
This lawsuit shines a spotlight on the escalating ESG debate. On the one hand, there are advocates who believe such considerations are critical to tackling climate change, and on the other, there are those who see these proposals as unwarranted interference in corporate operations.
The potential consequences of this legal battle are far-reaching. The court’s decision could either empower shareholders on climate issues or uphold Exxon’s claims, setting a precedent for future litigation. Even if the proposal reaches a shareholder vote, it could face a hill given the lukewarm response to such efforts last year.
But regardless of the immediate outcome, the lawsuit is already causing ripples in the corporate world. The case could prompt other companies to reevaluate their approaches to ESG and shareholder engagement.
In fact, the Journal recently reported that some CEOs do not publicly discuss their ESG efforts, opting for alternative terminology such as “responsible business” or focusing on specific goals such as sustainability. It was reported that there was. This shift reflects the increasing complexity and politicization of ESG.
Ultimately, this legal battle highlights the growing tensions at the intersection of climate change, corporate responsibility, and investor activism. This resolution will influence the future shaping of how economic priorities are balanced with the demands of climate change.
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