Corporate board members should have great interest in the outcome of a recently filed lawsuit by energy giant ExxonMobil that seeks to stop shareholders from filing climate-related proposals that ask companies to set targets to reduce greenhouse gas emissions related to the use of oil and gas. The lawsuit is the first of its kind in the U.S. and represents the latest development in the ongoing backlash against ESG. The Court’s decision could affect the entire shareholder proposals process in the future.
ExxonMobil is suing Arjuna Capital and Dutch activist investor Follow This, claiming that the two groups’ constant filing of climate proposals year after year is an attempt to use the proposal process to “micromanage” their business, which is against SEC rules. According to news reports, in a statement, ExxonMobil said, “The breakdown of the shareholder proposal process, one that allows proponents to advance their agendas through a flood of proposals does not serve the interests of investors.” The company is seeking a decision on whether the activists’ proposals violate SEC investor petition rules by March 19, ahead of the company’s annual meeting on May 29.
Arjuna Capital and Follow This argue that the lawsuit is an attempt to prevent shareholders from exercising their right to ask companies to address issues that may significantly impact the company. Directors and shareholders will wait until the court offers its decision.
In the meantime, consider the following steps:
• Review how climate issues impact your business. A regular review of the board’s position on climate and environmental issues should be standard practice, complete with appropriate analysis on how the company is working toward meeting any stated reductions in greenhouse gas emissions and any benefits from climate related policies that have been enacted. This information will be valuable when confronting potential climate proposals in the future.
• Continue to engage large shareholders on climate issues. Communicating with shareholders to better understand the wide array of expectations connected with climate and environmental issues can help boards stay a step ahead of activists with climate agendas. If the board’s policies on climate are in close alignment with shareholder expectations, there will be less likelihood that a shareholder proposal will receive enough votes for approval.
• Publicly state the company’s approach to climate and environmental issues. Boards strive to feel comfortable about addressing climate and environmental issues publicly because they are not going to go away. If a company is afraid to discuss its policies or record on the climate and environment, then there is probably more work to do. However, even publicly stating changes and goals to improve a company’s environmental record can make a positive impression with investors.