By Brent Bennett
May 28, 2024
On Wednesday, ExxonMobil, the largest energy company in the US, will face another challenge to its leadership. The California Public Employees’ Retirement System (CalPERS), the largest state public pension fund in the US, led a group of pension funds to vote against all Exxon directors. Glass Lewis, one of the world’s largest proxy advisory firms, recommends voting against Exxon’s lead independent director.
The reason for the latest turmoil is Exxon’s new lawsuit against two activist investors, Arjuna Capital and Follow This, for continuing to push a shareholder resolution that requires Exxon to reduce greenhouse gas emissions and, over time, stop producing oil and gas, regardless of cost. to the company and its shareholders.
Exxon said the lawsuit was necessary because the Securities and Exchange Commission, which by law must act as a neutral arbiter to determine whether shareholder resolutions can be rejected or should be voted on, changed its policy to allow resolutions unrelated to the company. mundane business goals but with “broad social impact.” Without the SEC as a gatekeeper, Exxon would have to spend millions each year to defeat activist proposals that would destroy billions of dollars in shareholder value if implemented.
A remarkable development is the public support that the US Chamber of Commerce and the Business Roundtable, which retained the law firm Lehotsky KellerĀ¾famous for its (now successful) efforts to end the SEC’s climate disclosure rulesĀ¾to write an amicus curiae brief supporting ExxonMobil. lawsuit.
The brief contains several reprimands about environmental, social and governance (ESG) activism, concluding that until the courts weigh in, activist investors have the freedom to “push an ideological agenda that is divorced from the company’s successāor worse, as in this case, directly antagonistic to As the summary makes clear, “success” refers to financial and sustainability success, not success in achieving environmental or social goals.
What is surprising is not the brief itself, but how far from the new position the Chamber and the Round Table have taken on this issue. In August 2019, the Roundtable published the first update since 1997 to its policy statement on corporate objectives. Signed by about 200 CEOs of America’s largest companies, they concluded that “Every stakeholder is important. We are committed to providing value to all, for the future success of our company, community and country.
The new statement represents a clear shift in the Roundtable’s stance, which previously focused solely on providing value to companies. shareholders. Two years later, in May 2021, one of the signatories of the document, Darren Woods of ExxonMobil, replaced three board members due to a dispute over the company’s stance on climate change and its refusal to invest in low-carbon businesses. It seems that “stakeholder capitalism” is de rigueur for corporate America. Companies that do not participate can expect challenges to leadership from activist shareholders and powerful institutional investors.
But now the tables have turned. Exxon, fresh off some of its most profitable years in history, is taking up the fight for ESG activists. The SEC backs down, after withdrawing its climate disclosure rules until lawsuits over the rules are resolved. The Business Roundtable and the U.S. Chamber, which seems to be quick to support stakeholder capitalism, now speak of an ideological agenda that is “divorced from corporate success.”
At Exxon’s annual meeting on May 29, the ball will be in the court of big institutional investors, especially the Big Three asset managersĀ¾BlackRock, Vanguard, and State StreetĀ¾who own a large portion of Exxon’s stock. A vote against Exxon’s leadership would show a continuation of past support for climate change activists who are forcing oil and gas companies to change their business models. A vote for Exxon’s leadership would signal that Wall Street has reached its limits in applying ESG principles and its willingness to surrender to political activists.
If the statements in the Business Roundtable’s amicus brief are any indication of changing attitudes in corporate America toward ESG activists and public pension allies, Exxon’s leadership will likely win this battle. The biggest winners will be Exxon’s millions of shareholders, who want the company to generate the best financial returns for them, and the majority of Americans, who want the company to leave politics to politicians and focus on creating products and services that improve lives. and increase prosperity.
Brent Bennett, Ph.D., is the policy director for Life:Powered, an initiative of the Texas Public Policy Foundation to raise America’s energy IQ, and a senior fellow at the National Center for Energy Analytics.
This article was originally published by RealClearEnergy and is available via RealClearWire.
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