Exxon has recently filed a lawsuit against its activist investors, Arjuna Capital and Follow This, in order to stop them from filing climate-change proposals during the company’s shareholder meeting. The Exxon shareholder proposals ultimately urge the company to “go beyond current plans” to cut its greenhouse gas emissions. The lawsuit sidesteps the traditional system created by the Securities and Exchange Commission of seeking to exclude potentially improper shareholder proposals.
The shareholder proposals specifically urge Exxon to diminish carbon emissions and broaden the range of emissions it monitors. “Investors face economy-wide risks from climate change,” Natasha Lamb, co-founder and chief investment officer at Arjuna Capital, said. “We have a fundamental right and duty to voice concern over climate risk, its impacts on the global economy, and shareholder value.”
According to Exxon, the proposals are “driven by an extreme agenda” and that the only reason why these activist organizations became shareholders was exclusively to campaign for change that is “calculated to diminish the company’s existing business.”
In its complaint, the energy giant said the Exxon shareholder proposals, “do not seek to improve [the company’s] economic performance or create shareholder value,” rather they are “trying to shrink the very company in which they are investing by constraining and micromanaging [its] ordinary business operation.”
Although Exxon has already demonstrated its efforts in reducing its greenhouse gas emissions, which includes those emissions that result directly from its business operations, the company has not implemented a plan to reduce emissions that result from the use of its products.
Exxon Sidesteps Traditional Proposal-Exclusion Procedure
When companies are faced with shareholder proposals that they would like to exclude from a proxy statement, they ordinarily file a “Rule 14a-8 no action request” with the SEC. A company can usually succeed in such a request if it can show that the proposal “relates to the company’s ordinary business operations.”
Although Exxon has asserted such a contention, the company did not do so with the SEC; instead, the oil giant sidestepped the agency and filed its lawsuit in a Texas federal court. The company addressed its decision to do so in its complaint: “The plain language of Rule 14a-8 supports excluding the 2024 Proposal, but current guidance by SEC staff about how to apply the rule can be at odds with the rule itself.”
In recent years, the SEC has raised the bar for companies seeking to challenge activist proposals by adopting a stricter standard. During this year, American Express and many other companies were denied in their requests to exclude certain shareholder proposals regarding environmental impacts, abortion, discrimination, and civil rights. Because of the SEC’s stringent view of “Rule 14a-8 no action requests,” Exxon opted for an unconventional approach in filing its lawsuit with the District Court in Northern Texas.
Although Exxon’s strategic sidestep may be unorthodox, it is not the first time that such a move has been used. Apache Corp. pushed the SEC to the side when it filed a similar lawsuit in the Southern District of Texas to strike activist shareholder proposals it saw as improper. The company prevailed in its lawsuit and set the stage for others to take the legal avenue.
From 2011 to 2014, three more companies followed suit and filed lawsuits in U.S. District Courts. All three companies prevailed in their lawsuits and were permitted to exclude certain shareholder proposals. However, in 2014, three more similar lawsuits were filed but were later dismissed for lack of jurisdiction.
Exxon hopes for a favorable ruling before March 19, anticipating two crucial deadlines in the upcoming spring. The company must submit its proxy statement by April 11, in preparation for its annual shareholder meeting scheduled for May 29. 
PHOTO BY HARRISON KEELEY, USED UNDER CREATIVE COMMONS LICENSE: CC BY 4.0
Jacob Horowitz is a contributing editor at Compliance Chief 360°