ExxonMobil (XOM) has taken the bold step to sue two of its own investors to block a shareholder proposal. Let’s break down what happened.
Sustainable investment firms Arjuna Capital and Follow This put forward a proposal that would commit the oil and gas company to go beyond its emissions reduction targets. In the lawsuit, Exxon alleges that Arjuna and Follow This became shareholders for the sole purpose of submitting proposals like this one, with the goal to change the company’s business model or force it out of business. Several similar proposals put forward to ExxonMobil in the past two years have failed to garner significant support.
While the two impact-investing firms have indeed advocated for change in the oil and gas sector through investor initiatives for more than a decade, the lawsuit is about more than that. After all, shareholders who can vote on issues are a key part of publicly traded companies.
The Exxon lawsuit comes during a challenging time for ESG investing.
ESG, which stands for environmental, social and governance, and describes a more value-oriented kind of investing, is facing growing opposition from some politicians, business leaders and analysts. Some of the criticism centers on the non-financial nature of ESG criteria, making their effects on businesses harder to assess. Some businesses have begun to distance themselves from these values in the wake of the criticism. Exxon’s lawsuit could be a bellwether for future litigation and shareholder activism in this respect.
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