Dive Brief:
- Vanguard, the nation’s second-largest asset management firm, supported ExxonMobil CEO Darren Woods and its board of directors at the energy giant’s board meeting May 29, but expressed concerns over the oil company’s ongoing lawsuit against shareholder Arjuna Capital in a release explaining the votes.
- Vanguard’s investor stewardship team said it questioned why Exxon decided to continue to pursue investors Arjuna Capital and Follow This in court, despite the shareholder proposal at issue being withdrawn. A judge recently dismissed Follow This, a Dutch organization, as a defendant but ruled the suit against Arjuna Capital could continue.
- “We would have concerns if a company leveraged its resources to pursue such legal cases with the intent of chilling the shareholder proposal process more generally,” Vanguard said. Ultimately, the firm said it supported the board slate after engaging with Exxon and coming to the conclusion that the company displayed appropriate oversight.
Dive Insight:
Woods and the rest of Exxon’s 12-member board of directors sailed through to election and re-election at the energy giant’s annual meeting May 29, with an average of 95% of shareholders’ support. California Public Employees’ Retirement System — the nation’s largest pension fund — and other state finance officials began public opposition campaigns against Exxon in the lead-up to the vote over its decision to bypass the Securities and Exchange Commission’s no-action process and initiate litigation against its shareholders.
Exxon filed the lawsuit against Arjuna Capital and Follow This in January, after the pair filed a shareholder resolution asking the energy company to ramp up its scopes 1 and 2 emissions reductions targets and set a goal for scope 3 emissions. The shareholders withdrew the proposal shortly after — which Exxon said was similar to proposals it received the past two years — but Exxon has continued its legal fight.
Vanguard said it believes Exxon’s board made “a compelling argument” for why the company’s decision to pursue its shareholders in court was “in the interest of shareholders in this case.”
“While the company’s decision to continue to pursue the lawsuit gives us some pause given the potential chilling effect on future shareholder proposals, we do not, at this time, see evidence that the board has overseen actions that have negatively impacted shareholder returns,” Vanguard said.
Vanguard said it discussed its concerns about the lawsuit with Exxon in February, who told the asset manager it resorted to litigation because, in its view, the SEC has failed to enforce its own rules. Additionally, the agency’s guidance states that “only a court … can decide whether a shareholder proposal can be excluded from a company's proxy materials.”
A recent analysis of the SEC’s no-action process and rulings by Shareholder Rights Group — whose membership includes Arjuna Capital, Ceres and As You Sow, among others — found that the agency is labeling an increasing number of climate proposals as micromanagement. A rise in shareholder proposals has been met by a year-over-year rise in excluded proposals. The SEC ruled that 68.4% of proposals submitted in 2024 were able to be excluded, up from 56.3% in 2023.
Shareholder Rights Group said the exclusion rates were on par with the Trump administration’s SEC, which excluded 69% of proposals submitted for no-action requests between 2017-2020.
“To the issuers and other market participants that have been critical of shareholder proposals, it should demonstrate that the SEC staff takes feedback from the market in its exclusion decision-making, and that the process remains a functional system for screening proposals,” the group said.
Vanguard said it will monitor any future developments on company use of litigation related to shareholder proposals or other shareholder rights.
Despite Arjuna Capital recently vowing to never submit any other greenhouse gas or climate-related proposals to Exxon’s board in a May 27 letter, Exxon is still seeking a ruling in the case. In the letter to Exxon’s board, Arjuna Capital Managing Partner Natasha Lamb said the investor “cannot alone bear the brunt of Exxon’s war on shareholder rights.”
The two parties filed additional briefs to the Texas Northern District Court in the last two weeks on why the promise is or is not sufficient, which Judge Mark Pittman has taken as renewed briefings on Arjuna Capital’s motion to dismiss, according to court documents.
A hearing for the motion to dismiss is scheduled for the morning of June 17 at Eldon B. Mahon Federal Courthouse in Fort Worth, Texas.
