Dive Brief:
- A federal judge from the U.S. District Court for the Northern District of Texas dismissed ExxonMobil’s lawsuit against activist investor Arjuna Capital Monday. Judge Mark Pittman ruled that Arjuna Capital’s pledge to not submit any other climate or greenhouse gas proposals to the energy giant — following the withdrawal of its original climate proposal — rendered the case moot.
- “The second time’s the charm for Arjuna, as its ‘unconditional and irrevocable’ pledge ensures Exxon the offending conduct won’t recur,” Pittman wrote in his ruling. The Texas judge had previously ruled the suit could continue against Arjuna Capital, but dismissed activist investor Follow This, who co-filed the original proposal, due to it being based in the Netherlands.
- Exxon sought to continue the lawsuit in pursuit of a ruling on whether the original proposal — which asked the company to ramp up scope 1 and scope 2 emissions reduction targets and set a scope 3 target — would have been excludable. Follow This CEO Mark van Baal said in an emailed release Tuesday that the ruling “stalls Exxon’s attack on the rights of all shareholders.”
Dive Insight:
There had been concerns in the investor community about Exxon’s decision to pursue legal action against Arjuna Capital and Follow This, which bypassed the usual Securities and Exchange Commission process for getting shareholder proposals excluded. Exxon filed the lawsuit in January and continued to pursue a ruling after the two investors subsequently pulled the proposal.
The pursuit of its investors led the California Public Employees’ Retirement System, the nation’s largest pension fund, and other state finance officials to oppose the re-election of Exxon CEO Darren Woods and its board of directors — who were re-elected with 95% average support — at last month’s annual meeting.
While Pittman said “the SEC is behind the ball on this issue,” he concluded the court is unable to “advise Exxon of its rights without a live case or controversy.” Of the 259 proposals submitted to the regulatory agency in 2024, 68% were deemed excludable, up from 56.3% in 2023, according to a recent analysis by Shareholder Rights Group — of which Arjuna Capital is a member.
Pittman said Exxon’s nitpicking of Arjuna Capital’s language in its final vow to leave the energy giant alone left him “unsure what would moot Exxon’s claim” if that did not suffice. The judge said Exxon’s insistence on continuing the case could lend credence to Arjuna Capital’s claim that the case is being used as a proxy for how the SEC interprets its own rules.
“If Exxon is primarily concerned with Arjuna, then Arjuna’s covenant is great news,” Pittman wrote. “If Exxon is using Arjuna as a proxy for a battle against the SEC, Arjuna’s covenant is a gut-punch. And if the truth is in the middle, and Exxon simultaneously wants to stop Arjuna whilst making a point to the SEC, then Arjuna’s covenant is a Pyrrhic victory.”
In the letter to Exxon’s board vowing to not submit any other climate proposals, Arjuna Capital Chief Investment Officer Natasha Lamb said the investor “cannot alone bear the brunt of Exxon’s war on shareholder rights.” Lamb said in an emailed statement Tuesday that Arjuna Capital is “pleased that the court reached the right result.”
“Climate change presents real headwinds to the oil and gas industry, and deflection will not change that simple fact,” Lamb said. “Investors understand these risks and are looking to their companies to engage with them on measured approaches to risk mitigation, not engage in litigation.”
Woods said in a statement Tuesday that Exxon believes its lawsuit has been about “preserving” shareholder rights by making sure the rules governing shareholder engagement are enforced.
“Our lawsuit put a spotlight on the widespread abuse of the shareholder proxy submission process,” Exxon’s CEO said. “Making repeated proposals that garner a small minority of support doesn’t serve anyone’s interest except the proponent’s.”
Van Baal — who called withdrawal of the proposal “the toughest decision in the history of Follow This” — said the ruling ensured that the withdrawal was not “in vain,” shareholder rights were not compromised and a precedent about the application of SEC rules was not set. The shareholder group’s co-founder said the dismissal could prevent “a dangerous wave of litigation against shareholders.”
“Exxon will not be able to reach its true goal with the lawsuit: circumventing the SEC to seek a court ruling to prevent any shareholder from filing emissions proposals in the future,” van Baal said. “If allowed to continue, this case could have had detrimental effects on shareholder proposals focused on climate.”
