A serious governance clash is unravelling over a decision by the board of ExxonMobil to launch legal action against activist investors for filing climate proposals for the firm’s AGM.

In the past week, Calpers, a major shareholder, has suggested it could vote against reappointment of the energy giant’s chief executive, Darren Woods, over the issue. And it has also emerged that proxy adviser Glass Lewis is advising a vote against the reappointment of lead independent director Joseph Hooley, to register “dissatisfaction” with the company.

The clash stems from an Exxon decision in January to sue activists Arjuna Capital and Follow This over their effort to submit a proxy proposal, focused on the company’s climate plan, rejected last year by shareholders. Exxon is pushing ahead with the legal action, even though the proposal was withdrawn.

At the end of last week, Michael Cohen, chief operating officer at Calpers, a public pension fund managing assets of $465bn (£369bn), told the Financial Times he was “deeply concerned” by Exxon’s legal action and there were “conversations happening” on whether to vote against re-election of Darren Woods.

Cohen worried that the Exxon legal suit amounted to an effort of “shutting down shareholders’ ability to speak their mind”.

Hooley unacceptable

This week a Reuters report revealed Glass Lewis was focused on a vote against Joseph Hooley. Reuters cites a Glass Lewis report which said: “The company’s unusual and aggressive tactics in this matter could threaten to deter both investors’ willingness to submit and ability to vote on materially relevant issues.”

Exxon’s proxy statement reveals the company’s anger: it claims Arjuna Capital and Follow This only “masquerade” as investors, while the oil and gas industry is subject to “ongoing abuse” through the “misuse” of proxy proposals.

The proxy report reads: “The intent of our lawsuit is simple—we want clarity on what the rules actually require for a process that has become ripe for abuse.” It says regulators at the Securities and Exchange Commission (SEC) state that clear definition of proxy rules are “only obtainable through federal court”.

Exxon adds that it was “clear” to the company that the Arjuna/Follow This action did not meet rules designed to ensure that proxy proposals relate to a “company’s ordinary business” or were resubmitting a previously rejected proposal.

The clash comes as the debate of transition to a low carbon economy intensifies around the world.

Litigious climate

Efforts by the SEC to introduce new climate risk reporting rules were recently put on hold after litigation was launched challenging the watchdog’s right to do so.

This is all part of the larger “culture wars” clash in US politics, which has seen many on the right claim ESG and climate policies, in particular those that challenge legacy industries such as oil and gas, as “woke”.

Even as right-wing politics has rallied round a critique of ESG and climate transition, US boards appear to be adapting all the same. Recent research from the New York Stern School Centre for Sustainability reveals 43% of board members on Fortune 100 companies have ESG credentials, up on 29% five years ago.

The debate about ESG and climate transition is moving venue, from boardrooms and proxy statements to the law courts. Activists have already used climate litigation but Exxon’s efforts indicates legacy industries are willing turn to the law too. This may have been inevitable given the strength of feeling on both sides. The big question is whether— given the general direction climate and policy is taking—it will make any difference. It will certainly make Exxon’s 29 May AGM popcorn viewing.