We value the constructive dialogues we have with the boards of our investee companies. We believe healthy challenge underpins successful corporate governance. The spectre of corporate litigation against shareholders risks creating a chilling effect, weakening investor oversight of boards.
To this point, we are pleased to share that we have signed a public statement alongside 38 other global investors representing $5.2 trillion in assets. This is in response to Exxon Mobil’s board decision to take legal action against two small shareholders: Follow This and Arjuna Capital.
The investors filed a shareholder resolution asking Exxon to accelerate the pace of greenhouse gas emissions reductions in the medium term, in keeping with global efforts to combat climate change. In response, Exxon is pressing charges against the investors. Despite the resolution being withdrawn, Exxon has decided to proceed with the case against Arjuna (Follow This was removed from the case by an early court decision).
Why this matters for investors
We are not significant shareholders in Exxon, but this action has potentially far-reaching consequences for all investors on two levels. First, it seeks to frame climate change as a narrow campaign issue, rather than a systemic economic threat. This undermines urgently needed action to protect future prosperity. Second, it risks weakening corporate governance standards and, in turn, market efficiency in the world’s largest capital market, with potential reverberations globally.
As long-term stewards of our clients’ assets, we view climate change as a material threat to long-term value creation. Global scientists paint a stark picture of probable and severe consequences for humanity. The transition towards a low-carbon economy will lead to disruption, posing challenges to fossil fuel companies like Exxon, but it also introduces opportunities for those offering cleaner alternatives. Against this backdrop, we believe it is important to press companies to build alignment with a 1.5°C-temperature pathway, thereby ensuring resilience for the company concerned and the broader economy.
This investor statement, however, is not just about the right of shareholders to press for action on global warming. It is, above all, about shareholder rights to raise legitimate concerns with company boards. Critically, Exxon has chosen to bypass the normal avenue for appealing these resolutions to the Securities and Exchange Commission, raising questions over the stability of the existing regulatory regime set up to protect shareholder rights.
Were investors to pull back from their responsibility to hold boards accountable, it could have far-reaching impacts on market efficiency and wealth creation. This should concern board directors and regulators as much as shareholders.
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