On
The challenged proposal is co-sponsored by
Exxon's pitch
Exxon argues that the relevant
Second, the 2024 proposal is effectively a do-over of proposals submitted in 2022 and 2023, which Exxon's shareholders overwhelmingly rejected - and the proxy rule only authorizes resubmission of previously-defeated proposals under certain conditions, which Exxon insists have not been met here.
But why has Exxon taken this to court, rather than following the typical path of requesting
It has been widely reported that the staff in the current administration has shifted its approach away from granting companies requested "no action" relief authorizing exclusion of such proposals. Not surprisingly, Exxon's court allegations underscore that the
ESG investing vs. activism
What are the broader implications of this action? ESG critics will no doubt applaud Exxon for standing up to so-called "woke" activist investors like Arjuna and Follow This, who in fact concede that they are pursuing a climate-focused agenda when investing in oil company shares. But those critics can also be expected to go a step further, and tout the action as being a wholesale attack on ESG investing practices generally. This characterization goes too far, however, as the complaint does not make such a broad attack or provide a basis to do so.
Exxon's complaint takes pains to clarify that "Arjuna and Follow This are not like most shareholders." This is because they "become shareholders solely to campaign for change through shareholder proposals that are calculated to diminish the company's existing business." As activist investors, they do not purchase oil company shares to achieve returns on behalf of clients, but only to hold enough shares to be allowed to submit shareholder proposals.
By contrast, Exxon explains that "[m]ost shareholders invest in companies to help the companies grow and see a return on their investment." And this aptly describes the vast majority of asset managers that integrate environmental, social and governance (ESG) considerations into their investment processes. As made clear in disclosures across the industry, the incorporation of ESG factors to assess companies' investment risks and opportunities is done in pursuit of maximizing financial returns - not to further climate or other social agendas.
ESG-integrated asset managers frequently hold substantial investments in fossil fuel companies, rather than the nominal amounts held by activists like Arjuna and Follow This. These traditional managers have every incentive - consistent with their fiduciary duties - to exercise their proxy voting rights in support of the companies' long-term financial performance, in order to maximize the investment returns of the portfolios they manage for their clients.
Critics of ESG investing rely upon a fundamentally false premise to the contrary: that ESG-integrated investment and proxy voting practices are necessarily in pursuit of social agendas rather than investment returns. This false premise has been consistently rebutted in other recent litigation, and it likewise finds no support in Exxon's complaint.
Indeed, nowhere does Exxon allege or even suggest that the many traditional asset managers who hold Exxon stock and engage with Exxon's management on ESG-related topics are pursuing any goal other than investment returns.
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