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OPINION: Exxon Activists Should be Banished With Vote, Not Court

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(Reuters Breakingviews) – Exxon Mobil  is trying to banish a climate activist proposal in a Texas court. The $385 billion oil giant would be better off leaving its own shareholders to do so. After all, similar measures have resoundingly failed before. Choosing to instead fight against a vote is counterproductive for a company that has struggled against investor concerns in the past.

Activists Arjuna Capital and Follow This are seeking a vote at Exxon’s next shareholder meeting on a measure calling for the company to set long-term targets on Scope 3 emissions. Such goals encompass greenhouse gases emitted both when the company produces fossil fuels and customers burn them. Exxon argues the proposal would harm its business and therefore isn’t in shareholders’ interest. Follow This says targets may help pre-empt the risk of abrupt policy interventions, litigation costs from climate-related lawsuits, or investing in stranded assets.

Shareholders would probably side with the company. Last year, about 90% voted against a similar activist proposal. Exxon, however, argues in a Sunday court filing that this new measure should be struck down without going to a vote because it impinges on the company’s ability to run its day-to-day business and, more importantly, resubmits a question that has already been decided.

A couple of factors pushed Exxon towards court. Winning the blessing of the U.S. Securities and Exchange Commission for nixing shareholder proposals has gotten more difficult under President Joe Biden’s administration. At the same time, the number of proposals at public companies is rising, particularly submissions addressing environmental and social issues, which were up 52% last year from 2021, SEC Commissioner Mark Uyeda has said.

Sure, there’s a cost to allowing votes, particularly in potentially distracting management if, say, both pro- and anti-ESG activists want a company to take contradictory measures only indirectly related to short-term profit. But votes strongly in favor of management are the best rebuttal. Then a company can honestly say it is doing what it knows shareholders want. Exxon’s tack instead risks looking like it’s ignoring investors’ will.

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Furthermore, the company has proved an inaccurate judge of what shareholders want in the past. In 2017, it fought against a non-binding proposal that it report on risks and impacts to the company’s business from climate change policy and lost. In 2021, it lost a proxy fight centered on both returns and climate concerns. The right choice now is to instead hear the proposal out and take a winnable vote, rather than seeming to continue its stubborn approach.

Exxon Mobil filed a complaint in a Texas court on Jan. 21 to prevent a climate proposal from being voted on at a shareholder meeting in May. This is the first time Exxon has sought to exclude a shareholder proposal in court.

Investors led by U.S. activist investment firm Arjuna Capital and Dutch activist group Follow This are asking Exxon to target Scope 3 emissions reductions, which include emissions from both the production of fossil fuels and their use by customers. Of the five major Western oil firms, Exxon is the only one which does not have such targets.

Exxon argues the proposal is similar to one put to votes in 2022 and 2023. Last year, 10.5% voted in favor. The company said that the current proposal does not serve shareholders’ interests. Follow This has said that setting Scope 3 targets may help pre-empt risks of abrupt policy interventions, litigation and liability for the costs of climate change, or ending up with stranded assets.

Editing by Jonathan Guilford and Sharon Lam

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