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WSJ: Exxon Sues Two ESG Investors

In a federal lawsuit filed in Texas on Sunday, the Houston-based oil giant said investment firms Arjuna Capital and Follow This became Exxon shareholders only to put forward proposals that would “diminish the company’s existing business.” 


Arjuna submitted a proposal in December asking shareholders to pass resolutions committing Exxon “to go beyond current plans, further accelerating the pace of emission reductions in the medium-term.” Follow This joined the proposal the following day, Exxon said. In a departure from Exxon’s current policy, they advise the oil company to target the emissions of its suppliers and customers in addition to its own. 


“Defendants are asking Exxon Mobil to change its day-to-day business by altering the mix of—or even eliminating—certain of the products that it sells,” the oil company said in the lawsuit. Their goal, it alleged, is “to force Exxon Mobil to change the nature of its ordinary business or to go out of business entirely.”


Arjuna Capital and Follow This have put forward investor proposals for more than a decade at Exxon and other oil-and-gas companies. 


“With this remarkable step, ExxonMobil clearly wants to prevent shareholders using their rights,” said Mark van Baal, founder of Follow This. “Apparently, the board fears shareholders will vote in favor of emissions reductions targets.”


Natasha Lamb, a managing partner of Arjuna Capital, said investors face economywide risks from climate change.

“We have a fundamental right and duty to voice concern over climate risk, its impacts on the global economy and shareholder value,” Lamb said.

The lawsuit comes amid mounting political opposition to some investors’ recent emphasis on environmental, social and governance—or ESG—issues at public companies. Republican presidential candidates including Vivek Ramaswamy took shots at ESG investing on the campaign trail. 


A growing number of business leaders are refraining from using the ESG acronym altogether in their public statements. On Wall Street, some firms are closing once-popular ESG funds as interest fades. 



Under Securities and Exchange Commission rules, Exxon said, a company can exclude a shareholder proposal from its proxy statement if it “deals with a matter relating to the company’s ordinary business operations” and if it is substantially the same as previous proposals included in a company’s proxy materials within the five prior years and doesn’t meet criteria to be resubmitted.


Exxon argued that the proposal was similar to one put forward in 2022 and 2023. Last year, 10.5% of shareholders voted in favor of the proposal, a result that failed to reach a 15% threshold that a proposal needs to be resubmitted. 

Last year, efforts by investors to push Exxon and

Chevron on climate change fizzled out as shareholders struck down numerous proposals to cut greenhouse-gas emissions and report on climate benchmarks, among other initiatives. Almost all failed to garner more than 25% of the shareholder votes, and some received far less support than similar ones had the year before. 


Arjuna and Exxon have a long and contentious history.

Arjuna’s Lamb was the first witness in the 2019 trial over a case brought by the New York attorney general against Exxon alleging the oil company had played down the risks of future climate-change regulations to its business. New York State Supreme Court Justice Barry Ostrager ruled New York’s attorney general’s office had failed to prove that Exxon misled investors. 


Exxon’s stance on climate change has evolved over the past 20 years. After years of denial, Exxon acknowledged that burning fossil fuels contributes to climate change in 2006. Internal documents show company executives continued to cast doubt on the severity of climate change for years afterward. 


In 2021, Exxon lost a historic proxy fight against investment firm Engine No. 1, which urged the company to prepare for the energy transition and successfully placed three directors on Exxon’s board. In recent years, Exxon has launched a business to invest $20 billion through 2027 in carbon capture, lithium and other low-carbon technologies. 

Companies, countries and organizations are attracting consumers and investors with promises to be more environmentally friendly. But what happens when they fall short? Here’s how greenwashing is misleading consumers about how sustainable products and services are.


The new lawsuit highlights companies’ increasing use of courts—particularly in the conservative appeals circuit that includes Texas—to question federal regulators. Last month, the U.S. Chamber of Commerce won a ruling from the U.S. Court of Appeals for the Fifth Circuit that struck down a recent SEC rule affecting stock buybacks. The Chamber sued alongside two Texas business groups to obtain standing in the jurisdiction.


Under normal circumstances, companies that want to exclude shareholder proposals from their proxy statements submit a request to the SEC. Exxon’s move is an unusual attempt to bypass that process as the SEC during the Biden administration has become less inclined to let companies block proposals


In the lawsuit, Exxon said the shareholder proposal and proxy voting process has become “ripe for abuse by activists.” 


In 2021, the SEC reversed a Trump-era policy that made it easier for public companies to reject shareholder proposals, which—though typically nonbinding—have long been a thorn in the side of executives. The guidance indicated that SEC staff would be more receptive to shareholder proposals regarding issues that have “a broad societal impact” and focus less on an issue’s relevance to a particular company.

SEC Commissioner Mark Uyeda said the number of ESG shareholder proposals last year were up 52% from 2021.

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