ExxonMobil’s market capitalisation exceeds $400bn. Follow This, a Dutch climate activist group, controls shares in the oil supermajor that at last count were worth less than $4,000.
Follow This has repeatedly tried to use its tiny holding as a lever to force Exxon to expand pledges to cut greenhouse gas emissions. This year the oil company has had enough.
Minutes after midnight in Amsterdam on January 22, Exxon hit Follow This and another investor, Arjuna Capital, with a lawsuit alleging their climate petition breached US securities rules.
The small investors quickly backed off and dropped their proposal, but Exxon is pressing ahead. This week its lawyers told a federal judge that the case was not moot, saying that Follow This and Arjuna have manipulated shareholder activism “for the sole purpose of attacking ExxonMobil from within” and adding: “There is no good reason to believe they will stop.”
The showdown between the largest western oil company and a small activist group follows a proliferation of shareholder resolutions on an array of environmental, social and governance matters in recent years. It is a new flank in a broader conflict over ESG investing.
“Companies writ large are watching to see how this case progresses,” said Charles Crain, a vice-president at the National Association of Manufacturers, a Washington-based industry group that counts an Exxon representative on its board. He expressed concern over “the extreme degree to which activists have hijacked the proxy ballot with politically motivated proposals”.
Exxon is pursuing its legal case three years after suffering a historic proxy defeat to tiny hedge fund Engine No. 1, which managed to oust three of its board members with a demand for more serious plans to address climate change.
But while Engine No. 1 held more than 944,000 shares, Follow This represents shareholders who own 37, according to the latest number reported to Exxon.
Follow This is led by Mark van Baal, a Dutchman with a mop of curly silver hair who has long argued that investors should use their shareholder voting rights to pressure oil companies into cutting emissions.
His group relies on a strategy where climate-conscious, typically small investors buy up shares with the explicit purpose of introducing proposals at annual meetings. The “Trojan horse” strategy holds that if an oil company followed its resolutions it would “conclude that there is no room for further investments in exploring for more oil and gas”, Follow This says.
Follow This initially targeted Shell, formerly headquartered in the Netherlands, filing its first climate resolutions there in 2016. In the years since, it began making proposals at BP and Chevron, where in 2021 more than 60 per cent of shareholders backed a resolution to force the group to cut its carbon emissions. The majority of shareholders at oil producer ConocoPhillips and refiner Phillips 66 also backed similar Follow This resolutions in 2021.
Some past efforts to throw out its proposals have failed, notably at Occidental Petroleum in 2022. However, investor support for climate proposals has more recently declined.
Van Baal started his group as a one-man operation, and it still counts just a handful of staff. But its agenda has proven popular in Europe. Katharina Lindmeier, senior responsible investment manager at Nest, which divested from Exxon in 2021, said Follow This “do a lot of the heavy lifting” when it comes to the resolutions, making it easier for other big investors to co-file with them.
Exxon’s lawsuit was not a huge surprise, she said, because there has been a large increase in shareholder proposals following the Securities and Exchange Commission’s 2021 decision to allow more of these petitions to go to a vote.
The company filed suit in the US district court of northern Texas, arguing that Follow This and Arjuna’s proposal was “driven by an extreme agenda” and “calculated to diminish the company’s existing business”. Exxon says the proposal is in breach of SEC rules that prohibit repeat motions that fail to meet a certain threshold of votes and prevent investors from “micromanaging” business.
The company enlisted a legal team that includes David Woodcock, the former head of the SEC’s Texas office, and Noel Francisco, a former solicitor-general in the Trump administration.
The now-withdrawn resolution called on Exxon to set accelerated targets to reduce emissions from its own operations and those that come from its products. The company has pledged to reduce the former to net zero by 2050, but does not have a goal for the latter.
“What Exxon is trying to do here is to really try to fundamentally shift the balance of corporate power between corporations and their investors by making investors think twice about exercising their rights to file a shareholder proposal,” said Andrew Logan, senior director at Ceres, a coalition of investors and environmental groups.
“What is particularly pernicious about the way they’re going about this is the way they are trying to make this as expensive as possible for the filers . . . Exxon is going out of its way to maximise what those costs are.”
Natasha Lamb, a managing partner and chief investment officer at Arjuna Capital, last week accused the company of resorting to “tactics of intimidation and bullying”.
Exxon, van Baal and Lamb declined to comment further on the litigation on Tuesday.
Submitting shareholder proposals has been relatively inexpensive for environmental activists, but the cost of defending them in court could run into hundreds of thousands of dollars, said Josh Zinner, chief executive of the Interfaith Center on Corporate Responsibility, which represents religious organisations that file such proposals.
“That is part of the goal here of [Exxon] is to make it prohibitively costly, for particularly smaller investors to make their voices heard,” he said, comparing the lawsuit to so-called strategic lawsuits against public participation.
Exxon’s litigation is not the only live case involving shareholder proposals. The right-leaning National Center for Public Policy Research has sued the SEC, arguing a shareholder proposal it filed at the supermarket chain Kroger concerning equal opportunities for employees should not have been blocked by the regulator. Oral arguments are scheduled next month.
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