Norway’s $1.5T Oil Fund Challenges ExxonMobil Over Climate Lawsuit

Key Takeaway

• Norway’s $1.5 trillion sovereign wealth fund opposes ExxonMobil's lead director re-election over a climate lawsuit against shareholder groups.
• Calpers and other major investors criticize Exxon's legal action as harmful to shareholder rights, planning to vote against most directors.
• The lawsuit has support from the US Chamber of Commerce but faces backlash for potentially undermining shareholder democracy on climate issues.

ExxonMobil's Legal Dispute

Norway’s $1.5 trillion sovereign wealth fund, Norges Bank Investment Management (NBIM), has announced its decision to vote against the re-election of Jay Hooley, ExxonMobil's lead independent director, at the company's annual meeting on May 29. This move comes in response to ExxonMobil's lawsuit against two climate-focused shareholder groups, Arjuna Capital and Follow This, which sought to compel the company to take more significant action on reducing greenhouse gas emissions. Although the groups have since withdrawn their motion and requested the court to dismiss the case, a judge ruled that proceedings could continue against Arjuna Capital, while the case against Follow This was dismissed due to jurisdictional issues.

NBIM emphasized the importance of protecting shareholder rights, stating, "Norges Bank Investment Management continues to place utmost importance on the protection of shareholder rights and raises concern around the potential impacts of litigation against shareholders stemming from the submission of a shareholder proposal." This sentiment echoes broader concerns within the financial community about the potential chilling effect on shareholder democracy, particularly for smaller investors filing motions on climate issues.

Investor Reactions

NBIM's stance aligns with that of Calpers, the largest US public pension plan, which has also committed to voting against the re-election of all Exxon directors. Calpers criticized Exxon's legal action as "reckless" and harmful to shareholder rights. Marcie Frost, Calpers' chief executive, and Theresa Taylor, president of its Board of Administration, stated, "The repercussions of this lawsuit could be devastating. If successful, the legal action could diminish the role — and the rights — of every investor in improving a company’s bottom line."

ExxonMobil defended its lawsuit, arguing that it was necessary to address what it sees as an abuse of the shareholder proposal system. The company stated, "It’s time to stop the abuse of the system, and we’re pleased the judge agreed that we’re entitled to our day in court. We’re one step closer to restoring the integrity of a process that is supposed to allow shareholders’ voices be heard, particularly the vast majority of our shareholders who rejected the proposal in the last two years."

Broader Implications

The lawsuit has garnered support from the US Chamber of Commerce and the Business Roundtable, which argue that public corporations are overwhelmed with proposals from activist shareholders pushing social and political agendas that do not align with shareholder value. They stated, "The court should take this opportunity to confront this abuse of the proxy-solicitation process."

However, other major investors have expressed concerns. The $260 billion New York State Common Retirement Fund plans to vote against the re-election of all but two of Exxon’s directors, citing the company's "failure to demonstrate minimal transition readiness" and the lawsuit against shareholders. Norway’s sovereign wealth fund also described the lawsuit as a "worrisome development" and "very aggressive."

Mark van Baal, founder of Follow This, criticized Exxon's actions, stating, "Exxon’s goal was to get a court ruling, to get a precedent, to block any shareholder from filing shareholder resolutions that ask for emissions reductions. This is an unwarranted and cynical attack on shareholder rights in the world’s leading capital market."

Street Views

• Norges Bank Investment Management (Bearish on ExxonMobil's governance):

  "Norges Bank Investment Management continues to place utmost importance on the protection of shareholder rights and raises concern around the potential impacts of litigation against shareholders stemming from the submission of a shareholder proposal."

• Calpers, Marcie Frost (Bearish on ExxonMobil's governance):

  "Calpers’ current disagreement with ExxonMobil isn’t about climate change. It’s about company executives seeking to silence shareholder speech that they don’t like."
  "The only motivation we see for going to court is to change the rules in favour of corporate America... The cost of upholding the fundamental tenets of shareholder democracy is small. The cost to effective corporate governance imposed by a sweeping court ruling, one that would limit shareholder rights or even intimidate investors from speaking up, would be far greater."

• Mark van Baal, Follow This (Bearish on Exxon's strategy):

  "Exxon’s goal was 'to get a court ruling, to get a precedent, to block any shareholder from filing shareholder resolutions that ask for emissions reductions,' adding that the company wanted to circumvent the SEC."
  "This is an unwarranted and cynical attack on shareholder rights in the world’s leading capital market."

• John Fleming, Louisiana state treasurer (Neutral on Shareholder Activism):

  "While shareholder activism can be a force for positive change, it must be geared towards maximising shareholder returns, not destroying the target company for political purposes."