Troubled waters

The excited talk in US markets this week is all about ExxonMobil’s decision to push ahead with legal action against two sustainability-focused activist groups.

This is even though both activists dropped their shareholder motion calling for a much more ambitious plan from the energy giant to cut emissions.

The decision has earned Exxon headlines around the world, but also criticism from the head of the world’s largest sovereign wealth fund.

Nicolai Tangen, chief executive of Norway’s oil fund, told the Financial Times: “It’s a worrisome development. We think it’s very aggressive and we are concerned about the implications for shareholders’ rights.” The fund views the withdrawn shareholder proposal as being like many it has supported in the past.

Exxon said at the weekend that it would push ahead with its legal action in the US. Reuters reported that Exxon was going ahead against the groups, Follow This and Arjuna Capital, claiming their proposals on emissions did not serve investor needs and amounted to an “extreme agenda”.

Exxon have taken to the courts in a situation where a company would usually seek a ruling from regulators at the US Securities and Exchange Commission (SEC). However, some boards appear to have lost faith that the SEC will rule in their favour.

Arjuna, according to Reuters, describes the continued Exxon action as “tactics of intimidation and bullying”.

US corporate governance observers are on the edge of their seats worried about the possibility that Exxon may be in the process of setting a precedent for other high-emissions companies. We’ll be watching with gritted teeth.

Home front

It is astonishing that, in the midst of war, Ukraine’s parliament, the Verkhovna Rada, has moved to improve governance at state-owned companies. Yahoo News reports that new laws will mandate approval of strategic development plans by supervisory boards. They will also set remuneration plans for chief executives to be approved by government.

New proposals are also included to make it harder to dismiss board members. Previously board members could be sacked without formal grounds.

Just goes to show governance is always important, whatever the circumstances.

Sang-froid vs heated debate

For close observers of governance developments, the following may not come as a surprise: research reveals that while, in the US, support for ESG-focused shareholder proposals appears to be on the wane, in Europe they are holding steady.

Analysis from market analysts Morningstar, shows support for ESG proposals in the US fell to 50% in 2023, its lowest in three years. In Europe, meanwhile, support was at 98%, the same level as the previous two years.

Cooling on ESG is understandable in the US, where the subject has become embroiled in a highly polarised political debate. The fund manager BlackRock has said publicly that the term “ESG” has become “weaponised”. In Europe, ESG remains a broadly neutral political topic, though there is change in some markets (the UK being one of them).

Differences may be opening up, but let’s hope that Europe retains its je ne sais quoi when it comes to sustainability.