A Rip Current in Climate Litigation? Exxon Mobil sues shareholders

Litigation has become a firmly entrenched avenue for pursuing climate-related goals. Much academic and journalistic coverage focuses on claims against national governments in domestic courts. Successes like Urgenda v Netherlands and Leghari v Pakistan underline the potential of such litigation to compel states to act against climate change. Actions against private companies have also proliferated in recent years; however, fewer successes have been forthcoming. The Milieudefensie case is one of few successful actions against a private company: a Dutch court ordered Royal Dutch Shell to reduce its group-wide emissions, pursuant to civil rules on negligence. Many other claims against private companies have failed, whether under doctrines of negligence or otherwise. A prominent recent example is the UK case of ClientEarth v Shell  in which the environmental NGO ClientEarth, as the owner of 27 shares in Shell, unsuccessfully brought a claim[1] under UK company law against the directors of Shell (now no longer “Royal” or “Dutch”).  

A recent case in the United States puts the proverbial shoe on the other foot, with ExxonMobil apparently noticing an opportunity concealed within the threat of climate-related litigation. On January 21st, Exxon filed a claim against two investors, Arjuna Capital and Follow This, seeking relief from a shareholder proposal which would require Exxon to set targets relating to Scope 3 emissions (i.e. emissions in Exxon’s broader value chain, mainly from the consumption of its petroleum products). Exxon suggests that the defendants are benefitting from a system that enables “abuse by activists with minimal shares and no interest in growing long-term shareholder value”. Despite the offending proposal having been withdrawn, Exxon remains unsatisfied. The claim currently continues before a court in Texas, the most prolific petroleum-producing state in the US and location of Exxon’s corporate headquarters. In a recent development, Exxon’s claim has been endorsed by the US Chamber of Commerce and the Business Roundtable, who made a joint amicus curiae submission to the court.

The defendants, Arjuna Capital and Follow This, represent two very different species of “activism”. Arjuna is a registered investment adviser in the US, in the tightly-regulated business of investing on behalf of clients (albeit “while promoting a more vibrant economy, a healthier environment, and a more just society”). Exxon’s complaint suggests that Arjuna does not itself hold any stock in ExxonMobil; rather, Arjuna is said to have received an authorisation to submit the relevant proposal from two of its clients. Follow This is instead a Dutch non-profit organisation which “organise[s] shareholder support for climate resolutions”. Anybody can combine the purchase of a single share in an oil major with a one-time donation of €5 to Follow This, in return for which it acts on the shareholder’s behalf at general meetings of the company in question. While exact data is difficult to come by, one would assume that Follow This owns a fairly small portion of the $426bn of listed Exxon shares. 

Nevertheless, Exxon pulls no punches. In its complaint, Exxon asks the court to exclude the relevant proposal under SEC Rule 14a-8(i)(7) and (i)(12). These relate, respectively, to the exclusion of shareholder proposals that concern a company’s ordinary business operations, and to resubmitted proposals that address “substantially the same subject matter” as previous proposals. Indeed, making the SEC adopt a more restrictive approach towards shareholder proposals is a major factor motivating this claim. The complaint further describes the defendants as “driven by an extreme agenda” and “[misusing] the shareholder proposal rules”. While some of this language could be ascribed to the unyielding zeal of Exxon’s lawyers, the claims themselves seem unconvincing. If (per Reuters, as linked above) “Exxon is the only of the five Western oil majors which does not have [Scope 3] targets”, it seems reasonable to demand such targets be set. I wouldn’t dare comment on the legal merits of Exxon’s claim under the rules mentioned above; interestingly, though, the Chief Governance and Compliance Officer of Norway’s $1.5tn sovereign wealth fund has suggested that the offending proposal “is quite similar to shareholder proposals we have supported earlier”. 

Even though this matter was described by the Norwegian fund’s CEO as “worrisome” and “very aggressive”, Exxon’s actions (and the support it has garnered from business groups) could dramatically cool pro-sustainability proposals and mobilisation in the United States, especially if the SEC changes its approach as a result of this claim. Will similar effects be felt further afield? Exxon’s claim could be ascribed to the peculiarly intense and heavily-politicised debate about “ESG” in the United States. This could also feed into the broader debate about corporate purpose and the role of companies[2] – is “growing long-term shareholder value” Exxon’s only purpose? Ultimately, though, neither the outcome nor a withdrawal of this specific claim might matter. Instead, there is now a clear example of the judicial sword being wielded by the big corporation. Clearly, even in our multipolar zeitgeist, litigation remains a powerful weapon and deterrent. In suing Arjuna Capital and Follow This, ExxonMobil has fired a warning shot at all shades of climate “activist”. At a time when nearly three out of four businesses identify “ESG disputes” as a major risk to their activities, Exxon is using litigation to fight its way out of a corner. This threat – of being sued by the big corporation – would be ominous in any political or social setting. 
 

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By Pranav Putcha, PhD Researcher (Law) in EU Sustainable Finance Regulation at EUI. 

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[1] For a fuller discussion of this case and the judgment handed down by the UK Supreme Court, see this post on the ECGI blog by S. Irem Akin. 

[2] As discussed by multiple contributors to the ECGI Blog, e.g. Nurgozhayeva and Puchniak; Albuquerque and Cabral.