Last month, oil giant ExxonMobil shocked the financial world by suing investors Arjuna Capital and Follow This for filing a shareholder proposal that sought further reductions in the company’s greenhouse gas (GHG) emissions.

Investors should be alarmed. The lawsuit not only seeks to punish Arjuna and Follow This for submitting an important climate proposal, but threatens to intimidate all investors seeking stronger environmental, social, and governance (ESG) policies. Exxon’s request that Arjuna and Follow This pay its legal fees is particularly disturbing: few shareholders could afford to pay the bills of Exxon’s white-shoe law firms Jones Day and Gibson Dunn. A small investor could reasonably fear going bankrupt.

Should Exxon’s claims prevail, the lawsuit could decimate the shareholder-resolution process. Because shareholder proposals play a critical role in safeguarding human rights, climate justice, and governance norms, this litigation could wreak havoc on people, the planet, and the companies themselves.

Exxon appears to have won the first round: in order to avoid a costly court battle, Arjuna and Follow This withdrew their proposal, but in a strange twist, Exxon has refused to drop the suit. It has asked the court to declare that it would have had the right to exclude the resolution.

A perplexed Texas judge has asked Exxon to explain how the case could possibly continue given the withdrawal, observing that “the Court struggles to see what the ongoing case or controversy is.” Exxon is, apparently, determined to make its point.

DESTRUCTIVE IMPACTS

The lawsuit claims that accelerating the reduction of GHG emissions is not a topic worthy of shareholder concern. Not true. A crisis that threatens the planet poses a threat to every company and shareholder, a reality that is reflected in the emerging investor consensus over the importance of companies setting GHG emissions-reduction targets.

Scores of investors, including the world’s largest asset managers like BlackRock, Vanguard, and State Street regularly support climate resolutions (e.g., BlackRock estimates it supported 47% of environmental and social resolutions in 2021).

Oxfam’s own shareholder resolutions have similarly encouraged companies to adopt responsible ESG policies that could not only protect people and the environment but facilitate long-term financial growth, such as COVID-19 vaccine equity at Moderna and Pfizer and human rights impact assessments at Walmart.

The fact is, businesses that look to their long-term value by integrating ESG concerns perform better than those that don’t. Shareholders have every reason to demand that companies not let the lure of short-term profits squander their environmental and financial future.

Further, the lawsuit describes Arjuna as being “driven by an extreme agenda” and gaming a system that is “ripe for abuse.” This is misleading. There is nothing “extreme” about asking companies to curb GHG emissions following the hottest year on record. What’s more, filing a shareholder resolution—on any topic that investors find important to a company’s long-term value—is legal and falls squarely within the shareholder rights guaranteed by the Securities and Exchange Act.

SILENCING DISSENT

The lawsuit’s potential for harm extends well beyond the damage it could do to Arjuna Capital and Follow This. If successful, the suit could set a dangerous precedent and embolden companies to target any investor who dares to speak on behalf of environmental justice and human rights with the threat of litigation.

Given the costs of paying attorneys to defend resolutions in federal court—to say nothing of the expense of paying large multinational companies’ potentially staggering legal bills—this kind of bullying could force many investors to abandon shareholder resolutions entirely.

Which is likely the point. Such aggressive action is akin to so-called “SLAPP.” SLAPP stands for strategic litigation against public participation; companies and governments file SLAPP suits to intimidate human rights defenders, journalists, and environmental activists that publicly scrutinize their behavior.

Because the complaint repeatedly refers to Arjuna’s founder Natasha Lamb as “manifestly biased” and homes in on Ms. Lamb’s testimony in New York State’s securities fraud trial against Exxon, one wonders whether the recent action was partially motivated by desire for retribution.

This suit may herald the introduction of SLAPP into the investor space. Just as SLAPP has had a chilling effect on public critique, suing shareholders is certain to stifle investor voices—and not just those of socially responsible investors, but of mainstream investors who recognize that issues like climate change pose an existential threat to the planet and financial returns alike.

SHIRKING ACCOUNTABILITY

Finally, the lawsuit marks another example of corporate America resisting accountability for its long-term impacts.

For decades, corporations championed a “shareholder primacy” model that valued investor returns above all. But as investors are coming to appreciate the symbiotic relationship between strong ESG performance and long-term returns, executives—many of whose paychecks depend on short-term profits—are retreating from the shareholder-first approach that had historically favored long-term returns.

The lawsuit is also landing at a time when Big Oil and its trade associations are vigorously pushing an anti-ESG agenda, with over a hundred anti-ESG bills targeting asset managers, pension funds, banks, and other financial institutions that even consider ESG risks in investment decisions. The private sector, in other words, appears to be pursuing new methods of evading accountability to anyone but their own executives.

INVESTORS MUST FIGHT BACK

Anyone with a retirement account or who values the planet’s health should take a strong stand against attacks on the shareholder-resolution system. We encourage investors to continue exercising their rights to file shareholder proposals; to advocate that large-asset managers, public pension funds, and proxy advisory firms discourage companies from litigating against their shareholders; and to stand tall against corporate moves to silence their voices. It is no exaggeration to say that the future of people and the planet depend upon it.