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Exxon files lawsuit against climate resolution by Arjuna Capital and Follow This [1]

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Date: 2024-01

RESPONSE Follow This

ExxonMobil has asked a judge in Texas to rule that a climate resolution should not be on the agenda of its upcoming shareholders’ meeting (AGM) on May 29, Follow This has learned through Reuters (article below). Follow This has not yet seen the court filing.

“With this remarkable step, ExxonMobil clearly wants to prevent shareholders using their voting rights,” responds Mark van Baal, founder of Follow This. “Apparently, the board fears investors will vote in favour of emissions reduction targets. It seems that ExxonMobil is afraid of its shareholders.”

The resolution requests medium-term emissions reduction targets. ExxonMobil is the only one among the five Western supermajors without targets for its product emissions (so-called Scope 3 targets). Shell, BP, Chevron, and TotalEnergies have set Scope 3 targets after shareholder votes for similar Follow This climate resolutions.

“Extreme agenda”

ExxonMobil calls the request in the resolution part of an “extreme agenda” aimed at diminishing the company’s existing business. In fact, the resolution asks for a shareholder vote in support of emissions reduction targets.

“ExxonMobil appears to interpret reducing emissions as decreasing business even though fossil fuels can be replaced by renewable energy. The resolution leaves the strategy of how to achieve emissions reductions entirely up to the board. ExxonMobil’s interpretation shows a lack of imagination beyond oil and gas.”

Writing on the wall

“We don’t know why ExxonMobil took this remarkable step,” comments Van Baal. In 2022 and 2023, ExxonMobil accepted the resolution on the ballot and consequently advised shareholders to vote against it, which a majority did.

“Maybe they see the writing on the wall. More and more institutional investors want to tackle the climate crisis and they realise Big Oil has a key role to play, like the 27 institutional investors who recently co-filed a similar climate resolution at Shell alongside Follow This.”

In compliance with their shareholder rights and the rules of the U.S. Securities and Exchange Commission (SEC), Arjuna Capital and Follow This filed a proposal, commonly referred to as a climate resolution, for the upcoming ExxonMobil AGM in May.

Core text of the resolution (full text below)

Resolved: Shareholders support the Company, by an advisory vote, to go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas (GHG) emissions across Scope 1, 2, and 3, and to summarize new plans, targets, and timetables.

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From the Reuters news article

January 22, 2024

HOUSTON, Jan 21 (Reuters) – Exxon Mobil Corp on Sunday filed a complaint in a Texas court seeking to prevent a climate proposal by activist investors from going to a vote during the company’s shareholder meeting in May. This is the first time Exxon is seeking to exclude a shareholder proposal by filing a complaint in court. The case was assigned to a judge with a track record of ruling in favor of conservative causes.

Exxon says the investors are “driven by an extreme agenda” and that their repeated proposals do not serve investors’ interests or promote long-term shareholder value. Investors led by U.S. activist investment firm Arjuna Capital and shareholder activist group Follow This are asking Exxon and other oil majors to adopt tighter climate targets. They want Exxon to set so-called Scope 3 targets to reduce emissions produced by users of its products. Exxon is the only one among the five Western oil majors which does not have such targets.

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Exxon says Arjuna and Follow This pursue a strategy to “become shareholders solely to campaign” for changes “calculated to diminish the company’s existing business.” Follow This said last year that investing in the energy transition and setting a Paris-aligned medium-term target covering Scope 3 is of shareholders’ best interest. Goals would prevent risks of losing access to capital markets, of facing policy interventions and incurring in losses associated with stranded assets, it said.

Exxon is seeking relief by March 19. Its proxy statement needs to be filed by April 11, in time for its annual shareholder meeting on May 29.

Read the new article on Reuters: Exxon files lawsuit against investors’ climate proposal

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Text of the proposal

Emission Reduction Targets

Resolved: Shareholders support the Company, by an advisory vote, to go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas (GHG) emissions across Scope 1, 2, and 3, and to summarize new plans, targets, and timetables.

Whereas: In the absence of effective climate change mitigation, up to 10 percent of global economic value could be lost by 2050. #1 The Intergovernmental Panel on Climate Change (IPCC) has advised that GHG emissions must be halved by 2030 and reach net zero by 2050 to limit global warming to 1.5 degrees Celsius. Every incremental increase in temperature above 1.5 degrees will increase physical, transition, and systemic risks for companies and investors alike. #2

Current Goals: Exxon has acknowledged the importance of reduction goals for Scope 1 and 2 emissions by setting intensity targets across its value chain. The Company has also set GHG intensity targets for its upstream sector and upstream operations in the Permian.

Yet, Exxon’s current 2030 targets are significantly below the IPCC’s recommendation of 50 percent absolute emission reductions. The Company’s current metrics are all on an intensity basis, which allow the Company to increase its absolute emissions. Furthermore, Exxon lacks any Scope 3 target, which account for 90 percent of its carbon footprint. #3

Capital Expenditures: The International Energy Agency reports peak global demand for coal, oil, and gas could be reached before 2030. #4 Despite this trajectory, Exxon anticipates total annual capital expenditures and exploration expenses of 23 to 25 billion in 2024, increasing up to 27 billion per year from 2025 to 2027. While Exxon plans 20 billion in total low carbon spending through 2027, this amounts to only about 15 percent of its overall total planned capital expenditures. This spending will increase Exxon’s oil and gas output by 10 percent. #5 Carbon Tracker projects that even under a moderate transition scenario, continued oil and gas investments could lead to commodity oversupply, resulting in lower pricing, negatively impacting existing and new project revenue. #6

Cost of Capital: Exxon’s cost of capital may substantially increase if it fails to control transition risks by significantly reducing absolute emissions. In October, federal bank regulatory agencies issued Principles for Climate-Related Financial Risk Management for Large Financial Institutions, warning such institutions to thoroughly address risks associated with climate change within their investments. #7

Peer Targets: Oil and gas peers BP, TotalEnergies, Repsol, and Eni recognize climate transition risks and have set more ambitious, medium-term emission reduction targets. These companies aim to reduce absolute Scope 1, 2, and 3 targets by at least 30 percent by 2030. Other peers Chevron, Equinor, Shell, and Suncor have set goals to decrease Scope 3 emissions.

1 https://www.swissre.com/dam/jcr:5d558fa2-9c15-419d-8dce-73c080fca3ba/SRI_%20Expertise_Publication_EN_LITE_The%20economics_of_climate_change.pdf

2 https://www.ipcc.ch/2022/04/04/ipcc-ar6-wgiii-pressrelease/

3 https://corporate.exxonmobil.com/news/reporting-and-publications/advancing-climate-solutions-progress-report

4 https://www.nytimes.com/2023/10/24/climate/international-energy-agency-peak-demand.html

5 https://investor.exxonmobil.com/news-events/press-releases/detail/1154/exxonmobil-corporate-plan-more-than-doubles-earnings

6 https://carbontracker.org/reports/navigating-peak-demand/

7 https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231024b.htm

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[1] Url: https://www.follow-this.org/exxon-files-lawsuit-against-climate-resolution-by-arjuna-capital-and-follow-this/

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