Shareholder proposals are a key tool for activist investors addressing climate change, enabling them to raise issues like emissions goals during a company’s annual meeting for a vote.
This process involves extensive exchanges of letters among shareholders, companies, and the U.S. Securities and Exchange Commission (SEC). The proposals, often detailed and lawyer-reviewed, are frequently accused of “micromanagement” by companies.
According to new data from the Sustainable Investing Institute and Ceres, companies attempting to exclude investor input from annual meetings had a 68 percent success rate with the SEC this proxy season.
The Role of Shareholder Activism
Shareholders do not manage a company, a principle influencing what investors can address at annual meetings, explained Andrew Shalit, a shareholder advocate at Green Century Funds. “It’s not our responsibility to make day-to-day decisions,” he said.
Disputes arise over what constitutes “detailed management decision,” leading companies like Walmart and Tractor Supply to accuse Green Century Funds of “micromanaging.” Companies can request the SEC’s informal permission to exclude proposals.
Green Century Funds requested emissions data from companies like Lowe’s, which agreed, while Tractor Supply and Walmart excluded similar proposals with SEC permission. The SEC stated: “The Proposal seeks to micromanage the Company.”
Last year, Green Century Funds’ proposal to Amazon to “measure and disclose scope 3 greenhouse gas emissions” was excluded. Simplified language in a subsequent proposal avoided exclusion, gathering 15 percent of votes at the 2024 annual meeting.
‘Little Bit of Political Football’
The SEC’s response rate to no-action requests fluctuates. This proxy season’s 68 percent approval for companies aligns with the Trump administration’s average. In 2022, the SEC sided with companies 38 percent of the time, according to data from Gibson, Dunn & Crutcher LLP.
Heidi Welsh from the Sustainable Investment Institute notes that political dynamics can influence agency staff behavior. The SEC rescinded Trump-era bulletins and issued a new one under Biden, aiming to clarify climate proposal rules.
At SEC Speaks 2024, Michael Seaman stated that the review process is procedural, not political. “The conclusion should not be that the staff is being inconsistent,” he said.
Kirsten Spalding from Ceres highlighted that the SEC’s process depends on the merit of proposals. “It really comes down to the merit of the proposals,” she said.
Investors today seek detailed company strategies and implementation plans, Spalding noted. “Forward-looking plans and backward-looking risk assessments are all within the realm of appropriate topics for shareholder resolutions.”
In 2024, As You Sow filed resolutions for greater disclosure of transition plans at several U.S. banks. Wells Fargo, Bank of America, and Goldman Sachs filed for no-action decisions with the SEC, which were granted. “I was highly surprised that the SEC decided this was micromanaging,” said Fugere from As You Sow.
A More Aggressive Approach
This proxy season, ExxonMobil’s lawsuit against activist investors over a climate proposal marked a significant event. Exxon aimed for legal clarification on shareholder proposals following the 2021 staff bulletin, accusing activists of masquerading as shareholders. The lawsuit was dismissed by a court last week.
“There is a real pushback against the idea of investor voice,” said Welsh. While the lawsuit is settled for Arjuna and Exxon, the broader issue remains unresolved.
Original Story at insideclimatenews.org