If the climate activists have their way, there will be “little” left of the company and that is “not in the interests” of the other shareholders, nor of the world as a whole. The activists are pushing an “extreme agenda” and “abusing” a procedure that is full of “flaws”.
The striking accusation that the American oil company ExxonMobil filed this week against environmental group Follow This and another activist ‘green’ shareholder, the American asset manager Arjuna Capital, does not lie. In recent years, Follow This and Arjuna have tried to put pressure on Exxon to become more sustainable more quickly through special ‘climate resolutions’ at the annual shareholder meetings.
But if it were up to Exxon, this ‘resolution circus’ would now be over. It has asked a court in its home state of Texas to rule against the latest resolution, intended for the upcoming meeting in May, so that it can be wiped from the agenda.
If Exxon gets its way with the reportedly conservative court, there is a chance that it will become more difficult in the future for green shareholders to pressure oil companies to become more sustainable in this way. After all, then there is case law. Mark van Baal of the defendant Follow This: “Exxon seems intent on banning resolutions on reducing emissions.”
The other major Western oil companies, Shell, Chevron, TotalEnergies and BP, will therefore probably also follow the case with interest. They have also been confronted with climate resolutions from Follow This in recent years. The organization has emerged as the great climate pest of the ‘olies’.
Unique
It is the first time that a major oil company has gone to court to have an unwelcome motion removed from the agenda for the shareholders’ meeting, says director Rients Abma of Eumedion, the Dutch trade association of major investors. Until now, oil companies have also resisted such actions to a greater or lesser extent, but more in the background. “In the US, the usual route to ban such resolutions is through [de Amerikaanse beurswaakhond] the SEC.”
There, companies can ask for a kind of ‘approval’ from the supervisor to prevent resolutions if, for example, they would amount to ‘micro-managing’ the company’s management. Chevron, Exxon and ConocoPhillips, among others, have taken this path in the past with similar resolutions, although this has always been in vain in recent years. “The fact that Exxon skips that step and goes directly to court is unique. Although there are other, non-fossil companies that also did it.”
This route does not exist in the United Kingdom, where Shell is located. Only if shareholders have very few shares or are late in their motions can they be excluded. Shell says it has therefore never attempted to withhold climate resolutions on these grounds. But Shell and the other oil companies based in Europe do talk strongly to other investors before and behind the scenes, to convince them not to vote in favor of the climate resolutions.
At the previous meeting, in 2023, Shell said that a Follow This resolution “does not help the climate”, because phasing out oil without sufficient alternative clean energy (wind and solar) would only lead to Shell killing its own company, and other oil producers would then produce more. It would also be bad governance, according to Shell, because investors should not determine the course of a company.
But Exxon is taking up the challenge, Abma sees. And is apparently prepared to accept pain in the process. The lawsuit could cause Exxon a lot of negative PR. Exxon’s main complaint is essentially the same as the objections of the European oil companies: environmental movements should not take the place of management, because it knows better what the right thing is.
In addition, there is another argument that can only be made in the US: the agenda rules there do not allow investors to always submit the same (or largely identical) motions. Certainly not if the majority of the other shareholders previously disapproved. At Exxon, Follow This has failed to obtain a majority several times.
‘Logical consequence’
Remarkably, the battle between oil companies and the ‘green camp’ has been conducted the other way around in recent years, says Willem Schramade, professor of finance at Nyenrode Business University and an expert in the field of making business more sustainable. “It was of course the environmental groups that started lawsuits. I personally think it is a bad move by Exxon, but the step is perhaps a logical consequence of the hardening of the game.”
There are more and more of these kinds of ‘climate cases’. There are now nearly 2,500 running worldwide, according to one recent research from Oxford University (although not all of them are against oil companies). In the Netherlands, Milieudefensie enforced in court three years ago that Shell must become more sustainable more quickly. Last week, the environmental group announced that it would also go after a bank, ING. Exxon, Chevron, BP and Total also have lawsuits pending against them.
It is not surprising that Exxon is the first to fight back in court, say sources in the oil industry who wish to remain anonymous because they prefer not to comment on issues at competitors. Of all the major Western oil companies, Exxon is the most passionate about oil. The group invests considerably less in clean energy than, for example, Shell and BP. And it, alone among the Western oil giants, has no goals to reduce CO2-reduce emissions released when customers use their fuels. Those customers should do that themselves, says CEO Darren Woods.
And more than the European oil companies, Exxon is also more familiar with going to court. Because the US is simply a country where litigation is easier. Exxon is a seasoned legal fighter.
Tilting sentiment
There may be great outrage in the climate camp. There you have those dirty oil companies again, who are killing the world purely for profit and are now doing everything they can with their expensive lawyers to continue polluting, is the idea.
But from Exxon’s perspective, it is not surprising to strike back now for another reason, Professor Schramade thinks. In the US, strong sentiment has recently grown against overly rigorous sustainability. Asset managers and other large institutional investors who want to invest ‘green’ are publicly attacked by Republican politicians.
“The political winds are favorable for them,” says Schramade. “They are surfing on a populist wave. Exxon is now very consciously addressing this matter.” An additional incentive is that the Democrats also regularly give Exxon arguments to stick to its strategy. President Joe Biden criticized Exxon last year “made more money than God”, while millions of Americans suffered from extreme energy prices. But in the same breath he also suggested that Exxon should pump a little more oil to keep prices at the pump low. Schramade: “These are of course perverse incentives.”
At the last shareholders’ meeting, Exxon noticed the shifting sentiment in a very concrete way. Follow This’s climate resolution then received considerably less support than before: 11 percent compared to 28 percent in 2022.
More polarization
Where things go remains to be seen. Should Exxon succeed in court, other oil companies could follow suit, Schramade thinks. And he also thinks that there will be a counter-reaction from the green shareholders. They will undoubtedly challenge such a statement or try to change the agenda rules through political lobbies. That fight could easily last for years. “This won’t stop anytime soon. We can expect more polarization.”
Follow This is indeed not throwing down the hatchet. When asked, founder Van Baal says that he feels encouraged that his organization is on the right track. “Apparently at Exxon they are afraid that the shareholders will support our proposal after all. Otherwise they would put it to them.”
There are also concerns in the oil world itself about the hardening of the game. All that legal wrangling is ultimately of no use to anyone, insiders believe. If you want to force greening of oil companies through the courts, in theory the activists will eventually have to take them all to court. Including the major oil giants that are not listed on the stock exchange, but are owned by states such as Saudi Arabia, Iran and Russia. They are responsible for the lion’s share of all oil production and therefore the CO2emissions in the world. That will be an endless prayer, is the argument.
So it would be better to have the ‘dialogue’ after all. Critics of oil companies should also look at themselves, say insiders in the oil world. Because ultimately the transition starts with the customers, they believe. Their companies can produce more clean energy, but if there is no demand from customers because it is too expensive, it will of course never work out.
You can see these as statements from the oil lobby, but there are also activist green shareholders who seem to share the view. The Church of England pension fund – one of the largest investors in the UK, which announced last year that it was selling its shares in Shell – recently announced that it will now also be submitting green resolutions among oil company customers. This concerns, for example, cement factories and airlines. The fund also believes they should do more. In the Netherlands, pension fund PMT, with many participants active in the oil industry, announced similar steps.
To assure
There are also concerns outside the sector. Director Abma of the Eumedion investors’ association believes that the route via the shareholders’ meeting is the golden mean. He regrets that Milieudefensie announced this week that it would also go after ING. “I would have preferred that the environmental movement had played it through the shareholders’ meeting, because this is more constructive.”
He realizes that something like this is more difficult in the Netherlands than in the US. Due to company law, climate resolutions such as Follow This wants to submit at Dutch shareholder meetings are in fact “hopeless”. Ironically, this is a consequence of traumatic experiences from the past, where activist shareholders who were purely profit-oriented tried to get their way through resolutions, without regard to the possible social consequences of their demands. Think of hedge fund TCI that wanted to tear ABN Amro into pieces in 2008.
But Abma hopes that this will change soon. His organization is lobbying in The Hague to somehow make it possible to submit ‘public interest resolutions’. Or at least give investors the opportunity to vote annually on companies’ sustainability reports.
For the time being, however, further escalation seems to be the motto. Schramade concludes: what we are seeing now is inherent to a transition. If an established system is tampered with, which has benefited a company like Exxon for so long, conflicts will naturally arise. “But ultimately those oil companies are fighting a rearguard action,” he thinks. Sooner or later they will have to change. “Although that will take a number of painful years.”