ExxonMobil’s Victory over Climate Activists Is a Win for Its Shareholders

By Isaac Willour

Friday, June 07, 2024

 

Last year at ExxonMobil’s annual meeting, wealth manager and National Review regular David Bahnsen offered the energy giant a key piece of friendly advice: Don’t apologize for being an energy company. “I invite the company to do something which shareholder activists never do: to defend the business that you as a company are in,” Bahnsen told Exxon’s board. “Defend what it is that you do every day to keep the lights on, yours and the world’s as well. The silent majority . . . will welcome that.”

 

It couldn’t be a more crucial time to defend the energy business. Exxon has been feeling the heat from climate activism’s corporate wing since January, after the company initiated a lawsuit to prevent activist investor groups Arjuna Capital and Follow This from placing proposals on the company’s ballot. The proposed measures would have further pressured the company to reduce its Scope 3 emissions, produced indirectly as a result of business activity (travel, commuting, etc.) that are notoriously difficult to measure. In short, the proposals would have limited Exxon’s ability to compete in the oil and gas business, thereby negatively affecting its shareholders.

 

Instead of merely seeking to remove the proposals from the ballot, Exxon sued, asserting that the shareholder-proposal process had “become ripe for abuse.” The lawsuit, which is against Arjuna Capital, is still working its way through the legal system, and hopefully its outcome will clarify when exactly activist shareholders can (and can’t) push their way onto a corporate ballot. As an analyst working at a conservative corporate-engagement (or proxy consulting) firm, I’ve seen evidence of such abuse everywhere — I see it in almost every shareholder meeting I attend. Exxon’s shareholder-proposal battle isn’t about Scope 3 or differing perspectives on climate risk but about troubleshooting a process that has become a platform for radical ESG activists to suggest that the future of oil and gas companies should ultimately live outside, well, oil and gas.

 

The blowback came. Although Arjuna Capital withdrew its shareholder proposal, blue-state pension managers weren’t so ready to back down. Key among them was the California Public Employees’ Retirement System (CalPERS), which vowed to use its $1 billion stake to vote against Exxon’s board. “CalPERS will not be silenced,” said pension CEO Marcie Frost in a statement released last week before Exxon’s 2024 annual meeting, claiming that the company’s actions were “very, very dangerous to every shareholder.” The battle lines were drawn. On one side, pro-ESG investors and blue-state pensions such as CalPERS; on the other side, other Exxon shareholders and state financial officers in red states like Louisiana, Alabama, and Utah, who supported the board’s defense of its fiduciary duty. Who would win?

 

The silent majority validated Exxon and rejected ESG. After all the drama and talk of shareholder censorship and backlash, Exxon’s board of directors was elected by 95 percent, a mere percentage point less than what it had garnered at last year’s meeting when Bahnsen made his appeal. The ESG movement talked a big game, stepped up to the plate, and struck out. CalPERS was silenced. The activist solution was thrown out by the overwhelming majority of shareholders and roundly rebutted by Exxon CEO Darren Woods, who offered an intense and thorough defense of Exxon’s industrial practices during the meeting. Exxon didn’t apologize, didn’t compromise, and didn’t back down — and it won.

 

What’s the lesson for ordinary Americans, many of whom have never stepped into a shareholder meeting or helped put a proposal on a corporate ballot? ESG activists are losing big on issues ranging from fossil fuels to divestment from Israel because companies and their shareholders are realizing that activists have nothing of value to offer. Their proposals are wildly unpopular despite the large amounts of money marshaled to rally support for them. Shareholders, unsurprisingly, don’t want companies to apologize for being what they are. Energy companies that apologize for being energy companies or act as if oil and gas production is a regrettable but necessary evil will not inspire confidence in shareholders who expect a return — if you’re not sure that what you produce is a good thing, why should anyone invest in you?

 

It’s the job of energy companies to be in the energy business and create value doing so. Last week, ExxonMobil successfully tested the validity of this model: Ignore the distraction of ESG radicalism, create value for the shareholders you actually work for, and the silent majority will stand behind your brand with confidence. “Don’t apologize to the mob” is as much of a strategy in business as it is in politics — and Exxon just proved that. We can only hope other companies will follow suit.