Green shareholders try to sabotage America’s energy industry

Management teams need a plan to deal with ideologically driven shareholder proposals.
Management teams need a plan to deal with ideologically driven shareholder proposals.


A wave of destructive proposals began after a 2020 briefing to the Biden transition team.

When the spring proxy season kicks off in April, executives at public companies should expect a flood of political shareholder proposals focused on issues like climate change rather than traditional business concerns. From 2021 to 2023, the number of environmental and social shareholder proposals jumped 52%. It wasn’t an accident.

Weeks after the last presidential election, a well-connected network of asset managers and nonprofits began an effort to use shareholder proposals to push European-style climate policies on U.S. companies and consumers. In December 2020, the Shareholder Rights Group and the Interfaith Center of Corporate Responsibility—the latter an association of religious organizations, other nonprofit groups, unions and investors with more than $2 trillion in total assets—presented a briefing paper to the Biden transition team that called on the new administration to allow shareholder proposals “to set greenhouse gas targets aligned with global climate goals," in particular the Paris climate accord’s goal of net zero carbon emissions by 2050.

The Securities and Exchange Commission complied. In November 2021, new SEC guidance cleared the way for shareholder resolutions proposing Paris-aligned “timeframes or targets to address climate change." From 2022 to 2023, shareholder votes on climate-specific proposals soared by nearly 70%. According to Vanguard, the “most common subject" of the environmental proposals in 2023 was “target-setting for greenhouse gas emissions." The bulk of these proposals, as a Harvard Law School report pointed out, were filed by the handful of asset managers and nonprofits that pushed the Biden administration to relax shareholder proposal rules.

Fortunately, these activists have mostly failed. Shareholders approved only 3% of environmental and social proposals last year. However much corporate leaders say they want to address climate change, the actual sacrifices that European-style climate policies demand are unpopular with U.S. companies.

As J.P. Morgan’s board put it in opposing a shareholder proposal to reduce its carbon emissions in line with the Paris agreement: “Our climate ambitions are subject to important prerequisites and considerations . . . including the necessity of technological advances" and “the evolution of consumer behavior and demand." Translation: We can’t cut emissions, and even if we wanted to our customers probably wouldn’t like it. BlackRock was blunter in its recap of last year’s climate-focused proxy season: “Poor proposal quality was met with decline in shareholder support."

Shareholder activists aren’t giving up. This year they have already filed resolutions seeking emissions reductions at Amazon, Berkshire Hathaway, and Home Depot. Management teams need a plan to deal with ideologically driven shareholder proposals.

Investor education is crucial. Executives must explain that there is a more effective way for investors to change the orientation of companies around long-term strategic issues—through annual director elections. If a company is actually risking its enterprise value because it hasn’t properly addressed climate risk, that’s a much better route than committing to “overly prescriptive or unduly constraining" resolutions, to quote BlackRock’s description of what companies faced last proxy season. Directors have a fiduciary duty to assess risks to shareholder value and more flexibility to set strategic goals in light of those risks.

Companies should also maintain detailed records and report to their investors on the costs of responding to shareholder proposals. SEC Commissioner Mark Uyeda estimates that companies spend around $150,000 to respond to each proposal, not including the opportunity costs—employees could be doing other things. And if corporations want to improve the quality of shareholder proposals, they should stop funneling money to nonprofit shareholder activists. Apart from George Soros’s Open Society Foundations, the biggest donors to Interfaith Center of Corporate Responsibility include the targets of the organization’s antibusiness policy prescriptions: Bank of America, Abbott Laboratories, Citigroup, ConocoPhillips, Johnson & Johnson, among others.

Finally, companies should consider asserting their legal rights. In January, Exxon filed a lawsuit to exclude a climate proposal submitted by Shareholder Rights Group member Arjuna Capital and the nonprofit Follow This. Nearly 90% of Exxon shareholders rejected the same proposal in 2023. The proponents’ public statements revealed the obvious contradiction between the proposal and the desire of most investors to see a financial return on their capital. Arjuna has stated that “Exxon should shrink," and Follow This concedes that it buys shares in energy companies “to stop climate change, not to make a financial profit."

Arjuna Capital and Follow This dropped their proposal after Exxon sued, but the case is still pending because the company seeks assurances that the activists won’t pick the proposal up again. Taking ideological proponents to court may help investors in another way. It may reveal the degree to which this is a coordinated effort to open the door to purely ideological proposals that undermine shareholder returns.

Mr. Toth is a founding partner of PNT Law, based in Austin, Texas.

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