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🛢️ This Big Oil lawsuit could change activist investing

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If you take just one thing from this email…

Oil and gas giant Exxon Mobil is suing activist investors Arjuna Capital and Follow This. This lawsuit could significantly reshape the future of activist investing because, if Exxon wins, it will make it much harder for activist investors to make the changes they want to.

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🛢️ This Big Oil lawsuit could change activist investing

Alternative Energy GIF by Creative Courage

Credit: Giphy

What's going on here?

Exxon Mobil (a huge American oil and gas company) is suing two activist investors who are pushing the company to set more ambitious emissions targets.

What is an activist investor?

An activist investor is a fund which buys a significant amount of a company's shares. They then use this position to influence or change that company's operations to align with what the activist investor wants them to do.

However, as we see here, their actions can sometimes lead to conflicts with the company's leadership.

What are these activist investors trying to do?

The two activist investors, Arjuna Capital and Follow This, are making a shareholder proposal urging Exxon to set more aggressive emissions targets.

For over a decade, they’ve been doing this with all five of the major Western oil-and-gas companies (which are Exxon, BP, Chevron, Shell and TotalEnergies).

I was looking at the activist investors’ websites. If you want to support (and have a spare €99) you can literally just buy a share in Exxon on Follow This’s site.

Why’s this a problem?

Understandably, Exxon doesn’t want to be bossed around when it comes to their green initiatives.

So, when they receive these sorts of ‘shareholder proposals’, Exxon typically asks the SEC (the US financial regulator) whether they can exclude it from their proxy statements (the document sent to all shareholders for voting).

In the era of Donald Trump, the SEC would generally be okay with that. But now, under the administration of President Biden, the SEC has become more likely to side with activist investors.

So, that’s why Exxon have tried to bypass this route altogether this time.

What’s Exxon Mobil doing now?

Exxon has taken the aggressive step of suing the two activist investors, Arjuna Capital and Follow This.

In its lawsuit, Exxon argues that by pushing their agendas, these activist investors actually harm shareholder value, and force companies on the receiving end to pay high legal and admin costs to oppose them. They say the activists shouldn’t be allowed to do this.

What’s the big picture effect?

The case, which is still ongoing, is an important one — especially if Exxon win.

⚖️ Legal: If they get a judgment in their favour, it will set a precedent make it harder for activist investors to make shareholder proposals like this.

It’ll be a win for the oil companies, and a loss for those fighting for faster corporate change.

🏛️ Political: This story shows how politics can shift the focus of regulatory departments. The SEC is meant to be independent of the government. But it’s clear that the government of the day influences it — there’s a difference between the SEC under Trump and Biden.

If you want to read more on this, check out this article by the US law firm Ropes & Gray.

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