It’s the continuation of the suit that has galvanised CalPERS and other shareholders and activists.
While they are critical of the world’s largest oil and gas producer’s climate record, there’s also a larger concern about the implications of the lawsuit for shareholder rights more broadly.
The potential of the suit to deter shareholder activism and shareholder-developed resolutions was highlighted when the US Chamber of Commerce and the US Business Roundtable filed amicus briefs in the action supporting Exxon’s position.
In the US, companies can apply to the Securities and Exchange Commission to block shareholder resolutions that affect a company’s ordinary business, or which have been rejected in the past.
During the Biden administration, however, the SEC has increasingly denied those requests when, in its view, they have broad societal impact. Exxon has criticised the SEC for shifting its approach to these requests when administrations in Washington change.
Exxon, which has claimed the activists’ proposal infringed on management’s authority and sought to change the nature of its ordinary business, or put it out of business altogether, isn’t just seeking to go around the SEC. It wants to gain a judgment from the court that would force the SEC, and climate activists, to change their approach.
Loading
Companies, not just in America, rail against shareholder-led resolutions that they regard as nuisance proposals distracting from their primary obligation to create value for shareholders.
It costs little for activists that might acquire a relative handful of shares, the Exxon activists appear to own only a few hundred shares, whereas fighting a legal action could, regardless of the outcome, cost millions of dollars.
That’s why CalPERS argues that decades of shareholder rights are under threat from Exxon, the decision to continue the action has the potential to chill the willingness of activist groups to try to force companies to confront their agendas, whether climate-related or some other progressive cause.
Even if Exxon hadn’t decided to respond as aggressively as it has to Arjun Capital and Follow This, it is unlikely the activists would have gained much support for their resolution.
Loading
While a small activist hedge fund shocked Exxon and the global oil and gas industry in 2021 by successfully getting two directors nominated to the board, with an agenda that mixed an attack of Exxon’s poor financial performance and its weak response to climate change, circumstances have changed significantly since that campaign.
Not the least of those changes is that Exxon’s share price has almost doubled since 2021 on the back of significantly increased production and higher oil and gas prices in an environment where energy security has become a more pressing concern for governments and companies, particularly after Russia invaded Ukraine and Europe stopped buying Russian gas.
A growing realisation that demand for oil and gas will be maintained for longer than the more optimistic expectations in response to climate change once contemplated, and the pressure from shareholders to pursue growth and profit maximisation strategies has seen all the oil majors reassess their emissions and production targets.
Only last week, shareholders in Shell, which was targeted by Follow This and other activists seeking to impose stricter emissions targets, overwhelmingly rejected the resolution.
The previous attempts in 2022 and 2023 by Follow This and Arjuna Capital to impose their agenda on Exxon were also defeated easily, gaining the support of only 10 per cent of the vote last year.
Larry Fink’s BlackRock, the world’s largest asset manager, has lost mandates and become less vocal on progressive issues.Credit: Reuters
The waning impact of the climate activists is part of a larger picture in the US, where a Republican Party assault on investment that takes into account environmental, social and governance (ESG) issues has been highly effective in muzzling the sector’s proponents.
Asset management giant Black Rock, where Larry Fink was once a leading and very vocal advocate for ESG investment, has been sued by Republican-governed states, has lost mandates and become conspicuously quieter on social issues.
About 18 US states have proposed or passed what could be regarded as anti-ESG legislation prohibiting state institutions from using ESG screening or ESG managers for their investments.
Loading
The flow of funds into exchange-traded funds pursuing ESG-driven investment strategies has dried up and a significant number of those funds have either disappeared or changed their strategies.
The “anti-woke” conservative campaigns have politicised ESG and intimidated managers, while encouraging corporate leaders to relegate ESG issues behind the maximisation of profits.
The shift in corporate opinion is highlighted by the US Business Roundtable’s support for Exxon in the action against Arjun Capital.
In 2019, the business lobby group, which represents about 200 of America’s largest companies, produced a new statement of its principles of corporate governance.
Where for more than 20 years it had held the Friedmanite conviction that the core purpose and duty of managements and boards was to make money for shareholders, in the 2019 statement it said that no longer accurately described the ways in which CEOs sought to create value.
The long-term interests of shareholders were inseparable from those of other stakeholders, the group argued at the time, highlighting issues such as diversity, social inclusion and, of course, the environment.
Times and positions are, it seems, changing.