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Apr 03, 2020

ExxonMobil blocks climate change proposals

First proxy season under revised SEC approach to Rule 14a-8 no-action requests

ExxonMobil has been able to exclude most – but not all – of the climate change-related shareholder proposals filed ahead of its AGM this year.

The energy company has secured no-action relief from the SEC allowing it to avoid having investors vote on six climate change-linked proposals. Only one such request has been denied by the agency.

In three cases, the SEC filed a letter explaining its decision. This is the first proxy season under a revised approach from the division of corporation finance to handling companies’ requests to exclude shareholder proposals from their AGMs. A key part of that shift has been that the staff in many cases is now not responding via letter to no-action requests. In announcing the revised approach last September, officials wrote that: ‘The staff intends to issue a response letter where it believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8.’

In those cases where the division does not file a letter, it now posts on a new online table links to correspondence regarding the no-action request, and explains the division’s reasoning by citing sections of Rule 14a-8.

The one proposal ExxonMobil did not get permission to exclude comes from Steven Milloy, requesting that the company publish an annual report of the ‘incurred costs and associated significant and actual benefits that have accrued to shareholders, the public health and the environment, including the global climate, from the company’s environment-related activities that are voluntary and that exceed US and foreign compliance and regulatory requirements.’

According to Milloy’s filing, the resolution is targeted at the practice of ‘greenwashing,’ which he describes as ‘the expenditure of shareholder assets on ostensibly environment-related activities but actually undertaken merely for the purpose of improving the company’s or management’s public image.’

ExxonMobil sought to have the proposal excluded on the basis of: ‘Rule 14a-8(i)(3), because the proposal is so inherently vague and indefinite as to be materially misleading in violation of Rule 14a-9; Rule 14a-8(i)(7), because the proposal relates to the company’s ordinary business operations; and Rule 14a-8(i)(10), because the proposal has been substantially implemented.’

The division, without filing a letter explaining its decision, states online that it is ‘[U]nable to concur’ with any of those three arguments.

One decision that prompted the division to file a letter involves a proposal from BNP Paribas Asset Management. It reads: ‘Shareholders request that the board of directors conduct an evaluation and issue a report within the next year (at reasonable cost, omitting proprietary information) describing if, and how, ExxonMobil’s lobbying activities (direct and through trade associations) align with the goal of limiting average global warming to well below 2 degrees Celsius (the Paris climate agreement’s goal). The report should also address the risks presented by any misaligned lobbying and the company’s plans, if any, to mitigate these risks.’

In its supporting statement, BNP Paribas Asset Management writes that corporate lobbying activities that are inconsistent with meeting the goals of the Paris accord ‘present regulatory, reputational and legal risks to investors.’

ExxonMobil argues, however, that it could exclude the proposal under Rule 14a-8(i)(11), which allows the omission of a proposal that ‘substantially duplicates another proposal previously submitted to the company by another proponent that will be included in the company’s proxy materials for the same meeting.’

BNP Paribas Asset Management disputes this, but ultimately the division staff filed a letter stating that it agrees with ExxonMobil, adding: ‘We note that the proposal is substantially duplicative of a proposal previously submitted by Boston Trust Walden that will be included in the company’s 2020 proxy materials because the two proposals share a concern for seeking additional transparency from the company about its lobbying activities and how these activities align with the company’s expressed policy positions, of which one is the company’s stated support of the Paris climate agreement.’

Another case resulting in an SEC letter involves a proposal from Arjuna Capital on behalf of Adam Seitchik. It requests that ExxonMobil’s board create a climate-risk committee to evaluate the board and management’s climate strategy and to ‘better inform board decision-making on climate risks and opportunities.’

The company argues that it can exclude the proposal on the basis that it constitutes micromanagement. The proponent disputes this, pointing to recent decisions by the division denying no-action relief against other companies’ micromanagement claims that ‘are grounded in an understanding that shareholder proposals directed toward board structure and participation are governance proposals that do not micromanage in setting forth reasonable details.’

The staff disagrees, and in its response states: ‘In our view, the proposal micromanages the company by dictating that the board charter a new board committee on climate risk. As a result, the proposal unduly limits the board’s flexibility and discretion in determining how the board should oversee climate risk.’

A request for comment from ExxonMobil was not returned.

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...