The Big Oil lawsuit that could change activist investing

Exxon Mobil is suing two activist investors over a shareholder proposal that pushes for the oil giant to set more aggressive emissions targets, in a highly unusual lawsuit that could impact activist investing across corporate America.

Some quick background: For over a decade, activist investors Arjuna Capital and Follow This have put forward proposals at all five major Western oil-and-gas firms seeking emissions cuts beyond the companies’ current commitments.

Most of these proposals have been rejected, including two recent attempts at Exxon that received 28% shareholder approval in 2022 and 10% approval in 2023 – but the two groups are back at it again this year.

• Typically, companies like Exxon that want to exclude shareholder proposals from their proxy statements do so by submitting a request to the SEC for approval.
• But, in an unprecedented move for the company, Exxon instead filed a lawsuit attempting to bypass that process, since the SEC under the Biden admin has been more likely to side with activist investors compared to the Trump admin.

💥 The potential impact: Exxon is seeking a legal precedent that stops investors from pushing agendas that would 1) harm shareholder value, and 2) force the firms to pay extensive legal and administrative costs in opposition. A judgment in the oil giant’s favor would tighten the SEC’s rules around shareholder proposals, likely discouraging activist investors from using similar initiatives to push for corporate change in the future.

👎 Zoom out: Exxon’s lawsuit comes amidst recent corporate backlash against investing in environmental, social, and governance (ESG) initiatives, with investors pulling a combined $13 billion from ESG funds over the past year.