In a Texas court, Exxon Mobil is attempting to have a proposal from a climate activist banished. It would be wiser for the $385 billion oil company to leave this to its own stockholders. After all, similar actions have been utterly unsuccessful in the past. It is counterproductive for a corporation that has previously struggled against concerns from investors to decide to oppose a vote.
At Exxon's upcoming shareholder meeting, Arjuna Capital and Follow This, two activist groups, are hoping to put a motion up for voting that would require the company to establish long-term goals on Scope 3 emissions. These goals cover greenhouse gas emissions from the company's production of fossil fuels as well as from customers burning them. Exxon claims the plan is not in the best interests of shareholders since it would negatively impact its company. Follow This says targets could lessen the chance of rash policy changes, expensive legal defenses against climate-related claims, or investments in stranded assets.
The company would most likely have the support of its investors. A similar activist initiative was rejected by over 90% of voters last year. In a court filing on Sunday, however, Exxon argues that this fresh measure ought to be overturned without a vote because it interferes with the company's daily operations and, more significantly, resubmits an issue that has already been resolved.
Exxon was driven into court by a couple of things. It has become increasingly challenging to obtain the approval of the US Securities and Exchange Commission to reject shareholder recommendations under President Joe Biden's presidency. Meanwhile, SEC Commissioner Mark Uyeda has stated that more proposals are being submitted to public businesses, especially those that deal with social and environmental issues. Last year's submissions increased by 52% from 2021.
Allowing votes does come with a price, especially if it could divert management in the event that, for example, pro- and anti-ESG activists advocate for different courses of action that are only indirectly related to profit in the short term. The best response, however, is a vote resoundingly in support of management. At that point, a business can genuinely say that it is acting in the best interests of its investors. Instead, Exxon's strategy runs the risk of ignoring investors' desires.
Furthermore, the business has a history of being a poor arbiter of shareholder desires. It lost its fight against a non-binding request in 2017 to report on the risks and effects of climate change policy on the company's operations. It lost the proxy fight in 2021, which focused on both returns and climate issues. Rather than seeming to stick with its stubborn stance, the wise decision at this point would be to listen to the proposal and hold a vote that can be won.
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On January 21, Exxon Mobil submitted a complaint in a Texas court to stop a climate plan from coming up for a vote during its shareholder meeting in May. For the first time ever, Exxon is attempting to have a shareholder proposal excluded in court.
Investors led by the American activist investment firm Arjuna Capital and the Dutch activist organization Follow This are urging Exxon to focus on Scope 3 emissions reductions, which cover emissions caused by the production of fossil fuels and their consumption by customers. Exxon is the only major Western oil company without such targets out of the five.
Exxon claimed that the proposal is very similar to one that was on the ballot in 2022 and 2023. 10.5% of voters were in favor last year. According to the company, the existing proposal fails to satisfy the needs of the shareholders. Follow This said that establishing Scope 3 targets could assist in mitigating the risks associated with sudden changes in policy, legal action, and responsibility for the expenses associated with climate change, or the possibility of having stranded assets.