ICGN Letter to SEC on Shareholder Proposals

Letter from Jen Sisson, CEO of ICGN on 10th December 2025

Dear Chairman Atkins, and Commissioners Uyeda, Peirce and Crenshaw,

Subject: Comments on the SEC Statement on Rule 14a-8 - No-Action Requests

The International Corporate Governance Network (ICGN) would like to offer its perspective on the SEC Division of Corporation Finance statement, published on November 17, 2025, regarding no-action requests under Rule 14a-8.

Led by investors responsible for assets under management of over US$90 trillion, ICGN promotes high standards of corporate governance globally. Our members – both asset owners and asset managers – have significant exposure to the U.S. market.

We are deeply concerned by the Division of Corporation Finance’s announcement that it will not substantively respond to most Rule 14a-8 no-action requests for the 2025–2026 proxy season. We are concerned that the narrowing of shareholder proposal rights appears part of a broader shift that reduces the avenues through which investors can engage with portfolio companies, compounded by recent changes to interpretations of Section 13D and 13G. Taken together, these developments risk adding tensions between company owners and management, and diminish investor confidence in U.S. corporate governance standards and thereby weaken the appeal of U.S. capital markets globally.

Why shareholder resolutions are an important mechanism

Shareholder resolutions are a vital mechanism for company owners to surface ideas and raise concerns with company management and all shareholders. They have been a key driver of corporate governance improvements in the United States. For example, shareholder resolutions have been successful in promoting annual director elections and establishing simple majority vote requirements. Shareholder proposals helped these good governance practices to become norms, based on a market-led approach, without regulation or standards. Hundreds of constructive dialogues, resulting in increased corporate transparency and improved governance, have been facilitated by shareholder resolutions at minimal cost to issuers and investors.

Each investor has their own approach to decide how to vote on a shareholder resolution. Across the market, resolutions that obtain significant shareholder support tend to be those that are not overly prescriptive for company management and that concern issues investors deem financially material for the success of the company. Shareholders tend to support proposals that can catalyse improvements in governance, reporting, risk management, and long-term strategic thinking. Academic research shows that governance provisions restricting shareholder rights, such as limits on the ability to propose resolutions, are associated with lower firm valuation and weaker stock performance.

Shareholder resolutions can help provide accountability when other mechanisms fail. They also signal investor sentiment to the company. High support levels for a proposal can drive rapid governance improvements, but even modest levels of support can prompt constructive engagement between boards and investors.

Why the SEC No Action Process should be protected

ICGN believes that the ability to file shareholder proposals is a fundamental ownership right.

For decades, issuers and investors have relied on SEC staff guidance, and although purely advisory, it has served as an independent, impartial, trustworthy check that provided procedural clarity and curbed potentially arbitrary exclusion of shareholder proposals by boards of directors.

According to the Statement, a company will be able to obtain an SEC ‘no-objection’ based solely on the company’s unqualified representation that it has a reasonable basis to exclude the proposal based on the provisions of Rule 14a-8, SEC guidance and/or judicial decisions. Without conducting an evaluation of the adequacy of the representation, the SEC’s staff will not object to the company omitting the proposal from the ballot.

By stepping back from the process, the SEC risks significantly diminishing shareholder voice and reducing important checks and balances that exist to protect the long-term interest of the company and its owners. Without the traditional buffer of a staff no-action determination, boards of directors may face increased opposition from investors concerned that relevant shareholder proposals may have been omitted without a valid reason. Furthermore, without SEC staff guidance, companies may be exposed to increased litigation, as proponents of shareholder resolutions that have been omitted by companies may seek judicial clarification in the absence of SEC staff assessment.

We regret to hear that the SEC intends to withdraw from substantive 14a-8 review. Rule 14a- 8 has facilitated a critically important private ordering process - but private ordering only works with regulatory oversight.

A call for the SEC to reconsider its Statement and launch a public consultation

ICGN recognises the resource pressures the Division faces, but the shareholder proposal process plays a vital role in surfacing material risks and enabling constructive investor- company dialogue. We believe that the existing process is well understood and has been supportive of well-functioning markets, and therefore we strongly support the SEC No Action Process being protected.

The Division’s independent review has historically provided transparency, predictability and a neutral reference point for both companies and investors. Removing or significantly narrowing that role risks eroding investor voice, imposing disproportionate burdens on minority and smaller proponents, and increasing costly litigation. As we believe this is not in the interest of efficient and fair capital markets, we respectfully ask that the SEC reconsider its statement.

We are concerned that this shift is occurring through staff announcements and public remarks, rather than through the formal rulemaking process. As highlighted in our 20 October letter, we encourage the Commission to consider returning to public consultation processes on matters that substantively alter policy, following a formal notice-and-comment process under the Administrative Procedure Act. We believe that the absence of public consultations on important announcements which may negatively affect shareholder rights, risks lowering the quality of the highly regarded due process and governance standards in the United States, thereby presenting a risk to the attractiveness of U.S. capital markets and impact the valuation of U.S. companies by investors.

We would welcome the opportunity for further dialogue on these issues. Should you have any question, please contact Severine Neervoort, Global Policy Director at policy@icgn.org.

To learn more, please visit ICGN’s Website.

SEC chair’s remarks on the future of the U.S. shareholder proposal process are “deeply concerning”

Freedom to Invest

U.S. Securities and Exchange Commission Chair Paul Atkins’ recent comments pointing to the end of the shareholder proposal process are “deeply concerning,” as such changes would be an abdication of the agency's investor protection mandate.  

The practice of filing shareholder proposals has a long history, gaining prominence in 1942 with the introduction of a version of SEC Rule 14a-8, which investors and companies rely on to ensure a fair and balanced process. Proposals are almost always non-binding, even when they receive a majority supporting vote, meaning companies are not legally required to act on them. Still, they have led to the broad adoption of governance best practices and risk mitigation policies essential for long-term value creation.  

Atkins’ recent statements in Delaware indicate that the agency will seek to reform the shareholder proposal process dramatically. 

Andrew Collier, Director, Freedom to Invest, said: 

“The shareholder proposal process has been a cornerstone of investment stewardship and good governance for decades. The process helps protect the retirement savings of tens of millions of Americans from financial risks that threaten corporate bottom lines. If the SEC intends to break longstanding precedent and deprive shareholders of their traditional input into corporate decision-making, then the agency should solicit public comment. The SEC should not make dramatic shifts in policy without allowing investors to voice their practical and economic concerns as fiduciaries acting in the best interests of clients and beneficiaries”.

Freedom to Invest brings together investors, companies, and other stakeholders to champion the freedom to consider all material financial risks in their decision-making. Learn more here.

Advisory Proxy Resolutions Are More Important Than Ever

Authors- Karl Sandstrom and Bruce Freed

U.S. Supreme Court Justice Anthony Kennedy observed in the Citizens United decision that shareholders of publicly traded companies could employ the procedures of corporate democracy to ensure that shareholder value was not diverted to political causes and candidates that they found objectionable.  The proxy process is the principal way shareholders can exercise that power.

Investors have used the process to file resolutions seeking disclosure and board oversight of corporate political spending and have met with remarkable success: Political transparency and accountability are becoming the norm among publicly traded companies.

Today, the right of shareholders to register their opinion about companies’ use of their investment dollars for political causes is at risk.  Securities and Exchange Commission Chairman Paul Atkins and the Trump administration are pushing to eliminate proxy resolutions that are advisory, which would be a fatal blow to resolutions calling for political transparency and board oversight.

Proxy access is critical to protecting investors.  Investors should not be deprived of the ability to recommend to a company procedures that safeguard their investment and align their interests with the company’s. Investors simply should not be put at risk of having shareholder value used to advance political causes and candidates without disclosure and approval by elected directors.

Broad transparency and accountability by major companies are products of proxy access.  Without proxy access, shareholders would not be able to take advantage of Justice Kennedy’s observation and would be left blind to a company’s political engagement and compelled to underwrite speech that they find objectionable.

Transparency and accountability serve as a check on corporate managers using corporate resources to advance their own personal political preferences.

Transparency and board oversight also serve as a safeguard against corruption.  Recent experience is replete with examples of corporate officers using corporate resources to corruptly engage in politics.  Corruption puts at risk a shareholder’s investment and financial fortune at risk.

The S.E.C.’s proxy access rules have been central to the Center for Political Accountability’s  successful collaboration with shareholder advocates in engaging companies to improve disclosure and oversight of their election-related spending. The fact that its resolution has garnered very substantial investor support –a 41.6 percent average vote in the 2025 proxy season — is testament to the value investors place on political engagement that is transparent and accountable.

At the same time proxy access has facilitated dialogue between management and investors, helping to remove suspicion and identifying common concerns.  The resolution has been regularly withdrawn at companies following constructive engagement and adoption of responsive policies.

Demonstrating the value of proxy access, this year’s proxy season shareholders exercised their right and rendered a notable five majority votes on resolutions for corporate political disclosure and accountability, at the following companies: Meritage, 57.7%; CBOE Global Markets Inc., 55.8%; Crown Holdings Inc., 52.7%; Spirit AeroSystems, 51.4%; and Teradyne Inc., 51.0%.

These results show that political transparency and accountability are not gadfly concerns but reflections of investor recognition of the risks associated with political spending and the obligation that a company owes to its investors to reveal and justify the company’s use of shareholder value to advance a political cause or candidate.

It is hard to discern how investors benefit from denying them an effective way to register their opinions with a company on issues of high public and personal and financial interest.  The Constitution protects us from being compelled to support political speech with which we disagree.  It is difficult to take advantage of that right if no avenue is left open to vindicate it.  It is that avenue that Justice Kennedy was presuming would be left open.  The SEC should take heed of that opinion.

Karl Sandstrom is Senior Advisor to the Center for Political Accountability and a former member of the Federal Election Commission. Bruce Freed is President of the Center for Political Accountability.

Please access the full article here.

State Financial Officers to SEC Chair Atkins on Rule 14a-8

December 3, 2025
The Honorable Paul S. Atkins
Chair
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Dear Chair Atkins:

We write to express concern over recent changes in the SEC’s administration of Rule 14a-8 and the implications of your public statements encouraging companies to exclude shareholder proposals based on untested interpretations of state law. These changes would suppress shareholder governance, diminish corporate transparency and accountability, and create risks to profitability and reputation for companies—further undermining the confidence that has attracted global investors to American firms and markets. We urge you to reconsider.

We recognize that the Commission must balance limited resources and administrative efficiency with its broader responsibilities. However, the Commission’s recent changes to the no-action process, indicating that the staff will not substantively evaluate companies’ legal basis for excluding proposals in the current proxy season, reflect not merely an operational adjustment but a substantive departure from the SEC’s historical role as a neutral arbiter of shareholder access. This shift has significant practical consequences for investors and capital markets more broadly. Additionally, you recently made public comments at a corporate governance event in Delaware, encouraging companies to exclude non-binding proposals on the basis of an untested legal theory, effectively inviting firms to circumvent a process that has long enabled constructive engagement with investors.

Shareholders retain other tools, including director votes and public campaigns. But sidelining the Rule 14a-8 process narrows the available space for thoughtful, productive engagement. In doing so, it increases the likelihood that investors will escalate their concerns through more disruptive and adversarial channels. Rather than alleviating pressure on corporate boards, these changes risk fueling board-level instability and reputational risk if companies appear to block investor voice.

Our concerns are grounded not in ideological preference but in fiduciary duty. The ability of long-term investors to raise governance and risk concerns through non-binding proposals has contributed significantly to the resilience and transparency of U.S. markets. Curtailing that mechanism places long-term value creation efforts at risk and undermines the accountability that global investors have come to expect from American companies.

The Securities and Exchange Commission is tasked with investor protection as a core tenet of its three-part mandate. Under your tenure, the Commission has repeatedly made significant policy changes affecting shareholders’ rights to engage with the companies they own, without undertaking formal rulemakings or soliciting public comment. We are deeply concerned by this trend as it inhibits the feedback mechanism between the marketplace and its regulator. We urge you to reconsider this course and reaffirm the Commission’s longstanding role in ensuring that shareholder rights are respected and transparently administered.

We remain ready to work constructively with you and your colleagues to ensure that U.S. markets stay the most trusted and transparent in the world.

Signed, 

Elizabeth A. Steiner, Oregon State Treasurer

Michael W. Frerichs, Illinois State Treasurer

Deborah B. Goldberg, Massachusetts State Treasurer and Receiver-General

Dave Young, Colorado State Treasurer 

Brooke Lierman, Maryland State Comptroller

Erick Russell, Connecticut State Treasurer

Brad Lander, New York City Comptroller

Laura M. Montoya, New Mexico State Treasurer

Mike Pellicciotti, Washington State Treasurer

Zach Conine, Nevada State Treasurer

James A. Diossa, Rhode Island State Treasurer

Julie Blaha, Minnesota State Auditor

Mike Pieciak, Vermont State Treasurer

Fiona Ma, California State Treasurer

Thomas P. DiNapoli, New York State Comptroller

Colleen C. Davis, Delaware State Treasurer

Malia M. Cohen, California State Controller

The Cost of Limiting Shareholder Voice: How New Restrictions Threaten Economic Growth

Karl Sandstrom and Bruce Freed
Center for Political Accountability

Restricting shareholder proposals undermines the checks and balances that protect markets, innovation, and social responsibility.  

Illegal child marriages. Coerced sterilization. Debt bondage. Until recently, shareholders had the right to raise such human rights concerns through formal proposals to corporate boards, a right protected by the Securities and Exchange Commission (SEC) for nearly a century. Recent regulatory and interpretive changes, however, are creating new challenges for this fundamental avenue for accountability.

The sugar cane industry, for example, has become emblematic of harmful supply chain practices, involving some of the most visible and widely reported examples of concerning business practices. Companies including Pepsi, Coca-Cola, and Mondelez have faced investigations into alleged labor abuses, including debt bondage. At Pepsi’s 2025 annual meeting, shareholders sought to submit a proposal requesting a report on the company’s efforts to address human rights violations in its supply chain. The company excluded the proposal, citing SEC staff’s revised interpretation of Rule 14a-8, outlined in Staff Legal Bulletin 14M (SLB14M). 

SLB14M provides guidance on the application of Rule 14a-8, which allows eligible shareholders to submit proposals for inclusion in a company’s proxy statement. The bulletin also specifies the circumstances under which companies may exclude these proposals. Citing that revised interpretation, Pepsi argued that the reported abuses occurred in franchise operations (which are “expected” to follow a code of conduct), not in Pepsi’s direct supply chain, and that the franchise sales were not “significantly related” to Pepsi’s business. Essentially, Pepsi claimed that the source of the ingredients sold under its brand did not materially affect its own business because the company itself did not purchase them. The SEC agreed with Pepsi, preventing shareholders from voting on the proposal. 

Pepsi did not dispute reports that its products sold in India were allegedly made with sugar obtained through a supply chain linked to debt bondage and coerced hysterectomies. Instead, the company contended that these issues were unlikely to materially impact its operations. According to the SEC’s interpretation, shareholders may only make proposals with significant financial implications for the company itself, no matter the broader social or environmental consequences.

While SEC rules often shift with administrations, this case reflects a larger trend: a narrowing of shareholder voice. Several recent developments illustrate the pattern:

• A judge ruled in January that American Airlines’ retirement plan violated the law by allowing BlackRock, its asset manager, to use proxy voting to promote ESG objectives. 

• In February, a coalition of Republican state auditors, comptrollers and treasurers from 18 states issued a letter to the SEC  and Department of Labor urging them to adopt regulations for asset managers that prohibit the use of ESG or DEI goals.  

• A  House Judiciary Committee report argued that investors supporting lower carbon emissions created an illegal “climate cartel.”

•  Pending legislation was introduced in Congress in January seeking to reduce shareholders’ rights to bring forth proposals.

• A speech from an SEC Commissioner at the “SEC Speaks” Conference 2025 signaled forthcoming rules that could further limit shareholder proposals on major policy issues, including public health or wages.

• New staff interpretations of SEC rules restrict large shareholders from engaging with management or holding directors accountable for social and environmental performance.  

Collectively, these developments constrain shareholders’ capacity to influence corporate behavior towards more sustainable or ethical practices. Critics of shareholder engagement argue that investors should focus solely on financial returns, treating social and environmental considerations as irrelevant. This is a false dichotomy on two levels. First, environmental and human rights issues often carry real financial risks. Second, systemic harm, from environmental degradation to inequality, affects the broader economy and threatens the diversified portfolios and returns of investors.

The Economic Opportunity in Sustainable Business Practices:

The sugar supply chain demonstrates both the risks and opportunities for companies and investors. Brands derive tremendous value from reputation. The perception that Pepsi products are linked to labor abuses can erode consumer trust and is a significant concern for the company. Addressing these issues presents an opportunity to safeguard brand equity and strengthen customer loyalty. For shareholders, engagement extends beyond a single company’s prospects. Human rights and sustainability issues influence global economic conditions, which in turn impact the returns of diversified investors. By encouraging companies to adopt responsible practices, shareholders can help stabilize markets, support GDP growth and mitigate systemic risk. 

The Path Forward: Strengthening Market-based Solutions

Notably, this regulatory shift is occurring under a Republican-controlled administration and Congress, which has historically advocated for private property rights. Policymakers should ensure that proposal mechanisms remain consistent with free-market principles, enabling investors to allocate capital efficiently and hold companies accountable. If financial market rules are being revised, it should not be forgotten that the strength of our economy is based on a free capital market, which allows investors to fund a broad array of enterprises that create authentic value over the long term. 

Limiting shareholder voice affects far more than greenhouse gas emissions and DEI. It alters the balance of power in capital markets, shifting decision-making from investors to executives and politicians. Investors are losing the power to push back when corporate executives risk the future of the company or the economy to boost profits. And this doesn’t just harm investors. This means our markets will become less effective allocators of capital, as decisions are made by unrestrained executives driven by short-term incentives or politicians swayed by political maneuvering, rather than by a commitment to the integrity of capital markets. 

The Innovation Opportunity

Recent SEC actions show the practical consequences. In March, SEC staff allowed Wells Fargo to exclude a proposal on workers’ rights and collective bargaining, a proposal that observers note likely would have been allowed a few months prior. Limiting shareholder engagement reduces opportunities for market-driven innovation in workforce development, climate solutions and sustainable growth strategies. Climate issues illustrate the stakes vividly. Analysts project that unchecked greenhouse gas emissions could reduce global GDP by 50 percent between 2070 and 2090. Economic modeling suggests that decisive global climate action could lead to a $43 trillion gain in net present value to the global economy by 2070. Investor engagement can accelerate the transition to cleaner energy and sustainable business models, creating economic opportunities while mitigating systemic risks. Ignoring investors’ voices on these matters rejects the role that capital has played in creating the economic engine of the U.S. economy.

Workers depending on 401(k) plans, such as those in the American Airlines plan, could face real financial consequences if investor oversight is curtailed. Estimates suggest that the current trajectory of emissions could depress the entire equities market by up to 40 percent. The fossil fuel industry’s shortsightedness and the current administration’s policies are exacerbating the environmental crisis and creating economic and retirement instabilities. 

Limiting shareholder voice threatens far more than individual investors. It weakens the very mechanisms that keep U.S. markets dynamic, resilient and capable of driving long-term growth. The muzzling of investors is part of a larger story: environmental data is being scrubbed from federal websites, critical scientific inquiry is being stalled and dissenters are being penalized. Historically, U.S. markets and democracy alike have relied on open debate and the free flow of information. Undermining shareholder oversight is part of a broader erosion of transparency that threatens both markets and the very norms that underpin a free society. Shareholder input is not a political preference but a market stabilizer, an innovation driver and a critical check on corporate governance. Preserving this function is essential to sustaining the economy, the integrity of capital markets and the broader social and environmental systems on which long-term prosperity depends. 

Representative Sean Casten talks Shareholder Value

This is an excerpt from the House Financial Committee Meeting on 10th September, Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value.

Rep Sean Casten:

Thank you Mr. Chairman. Thanks to our witnesses. And I want to just preface this by acknowledging that I'm going to be a little bit pedantic, but this conversation is, I'm trying to find a polite way to say this. It's really dumb. Let's just acknowledge some things that I should not be debated, but I can't believe we're suggesting they're not true. Shareholders are actually the people who own companies. The executives of a company serve at their pleasure. They are tasked to carry out the will of those shareholders. They are custodians of shareholders investment, but they are not actually the people in charge and shareholders are not monolithic in terms of their interests, in terms of how they define value. Hearing my colleagues say the only thing that matters is shareholder value. What the hell does that mean? Maybe I'm a shareholder who thinks that a company's free cashflow should go to paying dividends.

Maybe I'm a shareholder who think that value would be maximized if we reinvested that cashflow. Maybe I'm a shareholder in Kodak who thinks we should be pivoting to digital photography because you're committed to a technology that isn't going to survive. Maybe I'm a shareholder in a car company who thinks we should be pivoting to EVs. It doesn't matter whether you're right. You have different opinions about value. And the way that companies adjudicate those disputes is to have a high functioning board executives who are competent people who surface their opinions. We try to resolve them in some collaborative fashion. And if you can't resolve them in some collaborative fashion, ultimately you go to a majority vote. This is not freaking complicated right now, the idea that some voters are more worthy of having their opinions heard than others. Some voters, only the ones we agree with understand what value is.

I guess that's on brand for the party of January 6th, but that's not actually the way that you make good decisions, right? So I say this not as a member of Congress. I say this as someone who spent 16 years as a CEO who ran a company where I was a minority investor because I didn't have the couple hundred million dollars that we needed. So we had a bunch of other money that came in, and sometimes I disagreed with our investors. Sometimes I persuaded them of my opinion, sometimes they won, sometimes I won. I maintained I was probably right more often than I won, but it didn't matter. They didn't have the votes. And our board understood. And I understood that sometimes my economic interests were at odds with the shareholders. Right? Now, I could have come to Washington and said that as a activist for the interests of minorities, I will come here and represent our nation's poor, underappreciated CEOs. But I don't think that's actually the way economy works. So Mr. Mueller, I guess, do you agree that there are conflicts of, and that I don't know when Enron collapsed was a part of that because of board oversight failures and conflicts of interest with management, just yes or no? Yes. Okay. And do you agree that it's important for boards to have independent directors who are distinct from management?

Witness Ron Mueller:

Yes.

Rep Sean Casten:

Okay, good. So does the New York Stock Exchange, so does Nasdaq. That all makes a lot of sense. Ms. Keel, would you agree that transparency and executive compensation is a good thing to have in corporate structures?

Witness Ferrell Keel:

Yes.

Rep Sean Casten:

Would you agree that shareholders should have a say on board of directors compensation?

Witness Ferrell Keel:

Yes.

Rep Sean Casten:

Under the Dodd-Frank Act are companies legally required to act in response to a shareholder vote on executive compensation?

Witness Ferrell Keel:

No.

Rep Sean Casten:

No, they're not. They're non-binding advisory opinions. In general, are companies legally required to take action on shareholder proxies?

Witness Ferrell Keel:

Technically no. But effectively, yes.

Rep Sean Casten:

Well, according to your firm, shareholder proposals are typically advisory in nature and not binding in a corporation.

Witness Ferrll Keel:

Technically, yes.

Rep Sean Casten:

True. That is all my experience. That is the law. We're talking about the law. We're not talking about technically. We're talking about should we change the law and we are in agreement that the law does not actually say these proposals are binding. The law says they are advisory, they get factored in, and then we have a high functioning board. Mr. Copeland, you had said earlier that I think you had on public choice theory and that Congress proves that you shouldn't just decide things by majority vote. That's not how boards work. As we just established, the law says that these are advisory opinions. So we're sitting here having this whole conversation about a boogeyman who doesn't exist. This conversation is about do shareholders have rights, do shareholders own companies, and do they have any rights to express their opinions of value in corporate boardrooms? Mr. Lander, you want to add anything here? Am I missing anything as a fiduciary? That was very well said. I hope our next hearing is not dumb. Yield back.

Shareholder Proposals and the Right of Investors to Express Collective Voice on Materiality

The U.S. securities markets are built on the principle that materiality is defined by investors. Courts and the SEC recognize that information is “material” if a reasonable investor would view it as important in deciding how to vote or invest.

The shareholder proposal process under Rule 14a-8 is a crucial tool for investors to express this judgment collectively. Proposals allow investors to identify and elevate issues they deem material and to signal through voting outcomes the significance of those issues to the company’s investor base. Protecting this right ensures that shareholders retain the ability to guide corporate board and management on the risks and opportunities that matter to their investors.

Key Takeaways

• Collective voice defines materiality. Through voting outcomes on shareholder proposals investors indicate what issues are material to them.

• Shareholder proposals operationalize this right. They are a structured, market-based tool for investors to communicate material concerns directly to boards and management.

• Disclosure law reinforces this principle. Materiality under securities law is typically determined under a “reasonable investor” standard – i.e., what investors consider significant in consideration of the total mix of information.

• Restricting this voice undermines exercise of fiduciary duty and market accountability.

Shareholder Proposals: Expressing Collective Voice

• Structured Process: Proposals let investors raise concerns in a 500-word request included in proxy materials.

• Voting as a Signal: Support levels communicate clearly to companies what investors deem significant.

• Proven Accountability: Proposals have driven reforms on governance (independent chairs, majority voting), risk management (opioid oversight, predatory lending), and systemic challenges (climate resilience, online child safety).

• Dialogue & Resolution: Many proposals are resolved through engagement, improving governance and disclosure before a vote is even needed.

Why This Right Matters

• Fiduciary Duty and Materiality: Long-term, heavily diversified investors cannot diversify away systemic risks—such as climate disruption, public health crises, or financial instability. Shareholder proposals are the primary tool for these investors to express collectively which risks they consider material to preserving long-term portfolio value, making this right a cornerstone of fiduciary duty.

• Material to Business, Not a Distraction: Far from being a distraction, shareholder proposals surface core issues that boards may otherwise overlook or downplay. By elevating concerns about governance, risk management, or systemic challenges, proposals make companies more resilient, responsive, and ultimately more profitable over time.

• Forward-Looking Materiality: Shareholder proposals often highlight issues that may be uncertain today but are probabilistically material tomorrow. By surfacing such risks early, they ensure companies and investors can act before crises crystallize, consistent with the “reasonable investor” standard in securities law.

• Consistent with judicial definition of materiality. The Supreme Court has held that a fact is “material” under securities laws if there is “a substantial likelihood that a reasonable shareholder would consider it important” or if its disclosure would have “significantly altered the ‘total mix’ of information made available.” This definition originates in TSC Industries v. Northway, 426 U.S. 438 (1976), and was expressly adopted in Basic Inc. v. Levinson, 485 U.S. 224 (1988), which added that for contingent or speculative information, materiality depends on both the probability of the event and its potential magnitude.

The right to file and vote on shareholder proposals is the collective voice of investors on materiality. It is the practical expression of the “reasonable investor” standard in securities law. Weakening this right would strip investors of a cornerstone of corporate accountability and market stability. Protecting it ensures that materiality remains defined by those who bear the risk and reward of investment: the investors themselves.

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Authored by the Shareholder Rights Group.

Why Minority Support for Precatory Shareholder Proposals Promotes Transparency and Accountability

Sanford Lewis, Director of the Shareholder Rights Group.

While shareholder proposals on governance are perennial favorites that win majority support from shareholders, advisory proposals that continue to receive significant support from a bloc of investors highlight areas in which enhanced corporate disclosure could be material to a significant portion of a firm’s investors. Shareholder proposals that allow investors to aggregate collective support for improved disclosure by companies are an important part of the functioning of heterogeneous capital markets.

A July 3 post on the Blue Sky Blog asserted that the low voting outcomes for anti-ESG proposals reflect a general sentiment of shareholders in opposition to precatory proposals on ESG. But the voting outcomes this year do not bear out this conclusion. The article mistakenly concluded that this year’s 2 percent average voting for the anti-ESG proposals is not far from the supporting votes on ESG proposals overall this season.

A credible source of analysis, Morningstar, reports that the overall support for pro-ESG proposals averaged 20 percent this year. There is a large difference between 2 percent and 20 percent support. In fact, 20 percent support is recognized by many as the level that often compels boards and management to take note and consider responsive action.

Take proposals related to diversity, equity, and inclusion (DEI). There was a huge gap in voting outcomes this year between proposals that  focused on eliminating corporate diversity programs, which averaged support of 2 percent or less, and voting outcomes on proposals that sought better disclosure on diversity. Many investors continue to view board and employee diversity as a material issue relevant to a company’s capacity to function in a diverse society. Most tellingly, Georgeson reports that this year, proposals asking companies to disclose EEO data that the companies previously filed with the government received an average of 33 percent support. Instead of blanket opposition to precatory proposals, this outcome exemplifies the discernment of investors in supporting proposals that promise materially useful disclosure at low cost. Making those EEO reports public improves information to the market at essentially zero cost to the companies – this is a bargain for investors. In contrast, even a more expensive approach to assessing corporate diversity programs, asking companies to conduct racial equity audits, received 18 percent support, on average.

The suppressed top voting outcomes this year for environmental and social proposals reflect an ongoing political and legal campaign that pressures the largest asset managers, suppressing their significant volume of votes for many environmental and social proposals. Nevertheless, voting shareholders still demonstrate discernment and support for many shareholder proposals that sought improved corporate environmental and social disclosure.

Voting evidence from this season shows that shareholder proposals allow blocs of investors to express their collective voice regarding opportunities for improving corporate disclosure that would aid their investment strategies and decisions. A majority vote is not required for shareholder proposals to persuade the board and management regarding market demand for better disclosure on an issue viewed by their investors as significant to their company.

The shareholder proposal rule is structured to ultimately screen out repetitive proposals that are truly viewed as low quality by voting investors. In a 2020 rulemaking, the SEC  concluded that if a proposal receives less than 5 percent support the first time it is submitted, a proposal on substantially the same subject should not be allowed to be resubmitted for three years. The commission viewed this increase over the prior 3 percent threshold as better calibrated to ensure that the proposal that is resubmitted could have a realistic prospect of eventually obtaining broader support.  Notably, the number of pro-ESG proposals that are receiving support below that commission-determined threshold has essentially held steady, not risen. Instead, this year, a surge in anti-ESG proposals filed by new proponents drove up the total number of proposals receiving less than 5 percent support. They have a right to file those proposals, and shareholders have a right to reject them. That’s the marketplace of ideas working, not failing.

The shareholder proposal process allows shareholders, rather than the SEC, to make the first call as to whether a proposal is strong enough to merit ongoing consideration and whether the issue reflects a material concern for a significant portion of investors. While governance proposals may win the most votes in the current climate, other precatory proposals allow investors of nuanced strategies to exercise their voting rights and encourage better disclosure of emerging material interests to the market.  Precatory proposals continue to provide a dynamic opportunity for engagement and deliberation between and among investors and their companies.

Health and Safety in the Fast Food Industry

MIKAIL HUSAIN, ESG Analyst, SOC Investment Group

LOUIS MALIZIA, Corporate Governance Director, SOC Investment Group

In recent years, the food service industry has been rife with workplace health safety issues. Food service workers have been attacked, stabbed, shot, and killed by customers in the restaurants where they work. According to one study, between 2017 and 2020, at least 77,000 violent or threatening incidents took place at California fast-food restaurants. Recent data indicate that the cost of workplace violence could be as much as $56 billion annually – and that’s likely an undercount. However, workplace health and safety issues are not limited to customer violence. Workers have also been made to work under unsafe and unsanitary conditions, such as restaurants with high kitchen temperatures and restaurants infested with vermin.

These issues and the media response they elicit are clear operational and reputational risks for the companies, which can lead to difficulties with staff retention in an industry with high turnover. According to the U.S. Chamber of Commerce, the food service and hospitality industry has a consistently high “quit rate.” Understaffing at fast food restaurants can lead to longer wait times for customers, diminished employee productivity, and an increase in safety hazards. Workplace health and safety issues in fast food restaurants have led to worker strikes and protests of working conditions, as well as fines and temporary restaurant closures imposed by regulators.

Why should investors care? If left unaddressed, workplace health and safety issues can expose companies and their shareholders to unnecessary risk. In recent years, shareholders have recognized the risks posed by workplace health and safety issues and are pressing companies to take more action to address them. In 2023, Dollar General shareholders demonstrated this with a majority vote in support of a health and safety audit proposal.

To address these risks, SOC Investment Group has filed health and safety audit proposals at McDonald’s, Yum! Brands, Restaurant Brands International, and Chipotle for the 2025 proxy season. The proposals are similar to the proposal we filed last year at Chipotle, which received 30% support from shareholders, well above the average support level of 18% for social proposals in the S&P 500 in 2024. The resolution requests that the companies’ boards of directors commission an independent third-party audit on the impact of company policies and practices on the safety and well-being of workers throughout company-branded operations.

We believe any relaxation of safety standards in pursuit of short-term benefits creates risks for workers, customers, and shareholders and may result in long-term reputational damage that can be difficult to reverse. In addition to these risks, companies that neglect health and safety in the short term may face increased regulatory and business risks that can erode margins and reduce long-term shareholder returns.

Further Reading.

Shifting Policy Terrain on Shareholder Engagement

NATALIA RENTA , Associate Director, Corporate Governance and Power, Americans for Financial Reform Education Fund

The current administration has hit the ground running with policy changes designed to stymie shareholder engagement and corporate accountability, with particularly visible and harmful attacks targeting corporate progress on racial equity. Our opponents laid the groundwork for these actions through bills passed by the House of Representatives last Congress and Project 2025.

One of the first executive orders Trump issued tasked the Attorney General with writing a report with recommendations on how to encourage the private sector to end diversity, equity, and inclusion (DEI) initiatives. It also tasked the Attorney General and other agency heads with coming up with a “strategic enforcement plan” to “deter DEI programs or principles.” While a judge temporarily blocked implementation of portions of this and another anti-DEI executive order, many large corporations quickly pulled away from their DEI initiatives.

Meanwhile, the Securities and Exchange Commission (SEC) took various steps to tilt the shareholder advocacy playing field in favor of corporate boards and executives and against shareholders pushing them to address important risks. First, the SEC wreaked havoc by updating a Q&A that, in effect, incentivizes large asset managers to cast pro-management votes and halt any positive engagements with companies on critical issues shareholder advocates have put to the fore. It does so by expanding the types of shareholder advocacy that could be construed as “changing or influencing” control of a company, which would trigger further regulatory requirements from investors who own over 5% of a company’s shares. Following the release of the Q&A, BlackRock and Vanguard temporarily halted meetings with companies.

The SEC also made it harder for shareholder proponents to get their voices heard by issuing Staff Legal Bulletin 14M, which changed how the SEC staff evaluates company requests to effectively let them exclude shareholder proposals from proxy statements. As Commissioner Crenshaw noted, this bulletin “moves the goalposts smack dab in the middle of this year’s shareholder proposal process.” She also noted that corporations will be able to make additional arguments to exclude shareholder proposals while shareholders won’t be able to change their proposals to be in line with the parameters set by the new legal bulletin.

Unfortunately, we can expect more actions by the SEC to further incentivize asset managers to cast pro-management votes, coerce proxy advisors to recommend pro-management votes, weaken corporate disclosures, and make it harder for shareholder proponents to get their proposals in proxy statements.

We can also expect detrimental shifts in policy from the Department of Labor as it will likely attempt to rescind a Biden-era rule that makes clear ERISA fiduciaries can take into account relevant environmental, social, and governance factors when making investment decisions and encourages fiduciaries to exercise shareholder rights, including proxy voting. Republican Attorneys General sued to block the rule, but a district court judge in Texas has upheld the rule twice, including this past February.

As the policy terrain continues to shift, shareholder advocates will have to remain vigilant and experiment with new strategies to get their voices heard and make change.

For more perspectives on the 2025 Proxy Season, click here.

ICCR Letter to BlackRock on Integrating ESG Risk Factors

In November of 2024, ICCR wrote Larry Fink, the CEO of BlackRock, expressing a number of concerns regarding BlackRock’s 2024 proxy voting record on shareholder proposals related to environmental and social and governance (ESG) risks.

Dear Mr. Fink,

We are writing on behalf of the Interfaith Center on Corporate Responsibility (ICCR), a coalition of over 300 global institutional investors that collectively represent more than $4 trillion in managed assets, to reflect the concerns of a number of investors and clients regarding BlackRock’s 2024 proxy voting record on shareholder proposals related to environmental and social and governance (ESG) risks. Our members, many of whom are shareholders and clients of BlackRock, are long-term investors who have raised these concerns with you before through conversations and correspondence.

While we are mindful of the recent pressures fund managers face from parties attempting to discredit ESG, the fiduciary case for integrating material ESG risk factors into investment decisions and proxy voting is clear and irrefutable. BlackRock’s own research1 indicates that the long-term implications of inaction on climate change could reduce global economic output by nearly 25 percent over the next two decades, making addressing climate change a material issue for fiduciaries. Yet despite this, BlackRock's recently released 2024 Global Voting Spotlight reports that the firm “supported (only) four out of the 161 shareholder proposals on climate and natural capital that we voted on”. This was 2.5% of votes cast on climate resolutions. The firm’s proxy voting record on shareholder resolutions related to impacts on people was no better as BlackRock “supported 16 out of the 332 shareholder proposals we voted on (~5%), 14 at U.S. companies and two in EMEA”. We believe this an abdication of fiduciary duty and is also bad business.

BlackRock’s survey of institutional investors clearly indicates that your clients care about proxy voting on sustainability (which emerged as the number one criterion for selecting managers by 20% of 200 institutional investors surveyed, second only to “access to proprietary deals’ - selected by 23% of respondents) so you will not be surprised that we are raising these concerns again.

Furthermore, BlackRock’s 2024 proxy voting record and rationale appear at times to be unclear. The most recent NPX filings indicate BlackRock voting against disclosure asks that it supported only last year, and offering vague voting rationale on other asks arguing that: “The request is either not clearly defined, too prescriptive, not in the purview of shareholders, or unduly constraining on the company”. The 2024 Global Voting Spotlight also indicates that in over 60% of the cases, BlackRock did not support a shareholder resolution because the "company has a process in place to address business risk” even in cases when the company did not make appropriate disclosures about the processes in place to address the issue(s) to the shareholders, the proponents or the SEC. At DexCom, BlackRock opposed a majority supported 2024 shareholder proposal calling for political spending disclosure in an election year. This is a clear example of BlackRock’s understanding of material risks raised by shareholder proposals diverging from the majority of shareholders at the company. Given how important proxy voting on sustainability is to your clients we hope you will address some of these apparent inconsistencies.

In February 2024, we welcomed BlackRock’s announcement that it was developing a new sustainability-focused stewardship offering for clients who want its active ownership work to drive decarbonization and sustainability outcomes3. The announcement explained that this service was in response to client demand as a survey of 200 institutional investors globally, representing nearly $9tn in assets under management indicated that 98% of them have set some kind of transition investment objective for their portfolios. However if managing climate risk is a key element in maximizing long-term value for clients then we would expect BlackRock to pursue that consistently as part of your fiduciary duty. BlackRock’s own Resilience Through Change; 2024 Insurance Global Report indicates that 99% of the 410 senior executives representing US 27T of AUM surveyed reported having set at least one type of transition objective within their investment portfolio, a clear indication of the materiality of climate risks among the majority of that sector.

As we look at the hundreds of climate related and social resolutions, we believe many more than 4 resolutions make a strong business case related to shareholder value and are not overly prescriptive. It seems like BlackRock has instituted a new high bar for shareholder resolutions that is almost impossible to meet. We are concerned about what motivated this change and fear that pressure from conservative investors played a role in the shift. In addition, we note that many other investment firms guided by the same fiduciary standards as BlackRock have a much higher number of percentage of votes for resolutions.

Furthermore, while we appreciate your case-by-case approach to assessing shareholder proposals, ICCR members and many of your clients are investors with diversified portfolios and ignoring systemic risks like climate and racial justice may benefit one of their companies but passes that cost on to the other companies in their portfolio. PRI and CAF’s recent guidance on stewardship also states that: “Using influence to promote short-term performance or the performance of individual companies, industries, or markets, without regard to overall value, does not constitute stewardship”.

There is growing evidence that asset owners are becoming increasingly concerned about asset manager’s proxy voting on ESG shareholder proposals5 and many are taking action6. And it seems these concerns are well placed. The UK Asset Owner Stewardship Review highlights a growing misalignment between asset owners and asset managers when it comes to exercising stewardship and proxy voting at major Oil and Gas companies. This misalignment is more pronounced (i) in recent years, (ii) on shareholder resolutions (vs management proposals) and (iii) at American companies (vs. European ones). There is also worrying evidence that asset managers’ corporate engagements are not moving the needle with companies.

As clients and shareholders our members want to see BlackRock as both a market and an ESG leader and would welcome efforts on behalf of the firm’s leadership to reiterate their commitment to ESG and to commit to a critical review of their proxy voting guidelines and record. We welcome the opportunity to continue the dialogue with you on the issues raised.

Sincerely,

Josh Zinner, CEO Interfaith Center on Corporate Responsibility

Katie McCloskey, Vice President of Social Responsibility, Mercy Investment Services

David A. Klassen, Chief Investment Officer, The Pension Boards - United Church of Christ, Inc.

Matthew Illian, Director of Responsible Investing, United Church Funds

Ethan Birchard, Executive Director, Friends Fiduciary Corporation

How Investors Deploy Shareholder Proposals

Patrick Miller speaks with Sanford Lewis regarding investors who file shareholder proposals at publicly-traded US companies related to social and environmental issues. They discussed the process for submitting these proposals pursuant to SEC rules.

HOST: Patrick Miller is the Founding Attorney at Impact Advocates APC.

*Disclaimer: The information in these recordings is provided for informational purposes only. You should consult with an attorney before you rely on this information. This information should not be seen as legal advice and does not create an attorney-client relationship. This interview is meant to be a general discussion and may not include all relevant information regarding the issues covered.

Why Faith Groups Have Historically Practiced Responsible Investing

The full statement can be found on ICCR’s website.

Religious organizations steward their organizational finances and the investments managed on behalf of their constituents and beneficiaries in alignment with the beliefs, teachings, and values of their respective faiths. Many religious organizations develop investment guidelines, which include strategies such as screens to exclude industries that they believe cause injury to society, shareholder engagement with portfolio companies to mitigate environmental and social harm, and investing in companies or projects that are making a direct and positive impact.  This practice, known as faith-consistent investing, is one form of what today is commonly referred to as sustainable and responsible investing. Faith-consistent investing is a fundamental right protected under the First Amendment, which guarantees both free speech and religious freedom, and ensures that investors are able to make their investment decisions in accordance with their beliefs.

The Interfaith Center on Corporate Responsibility (ICCR) is a coalition of over 300 faith and values institutional investors who, for more than 50 years, have been leaders in faith-consistent and sustainable investing. Our genesis as an organization is grounded in the advocacy of multiple faith groups to address the racist apartheid regime in South Africa. Faith-consistent investing leads religious investors to assess how corporate policies and practices may adversely impact the health of people and the planet, which has a direct impact on the long-term performance of their portfolios.

Faith-based investor engagements with portfolio companies, through dialogue and the filing of shareholder proposals, are a natural extension of these beliefs and are central to both our duties as trusted fiduciaries seeking competitive returns and our responsibilities as faithful stewards supporting the fundamental values of our religious traditions. For this reason, we are concerned about any attempts by legislators or policymakers to interfere with investors’ fundamental freedom to make investment choices and/or engage with portfolio companies in alignment with their investment philosophies and institutional values. This includes letters received from the House Judiciary Committee in 2024 by several of ICCR’s faith-based members requesting informational disclosures under the pretense of exploring violations of antitrust laws.

While each faith institution has its own set of priority issues that it addresses through its respective ministries and advocacy work, there are many issues where faith investors’ interests converge. Actions to mitigate the climate crisis ravaging our planet, to uphold human rights, including the fair treatment of workers, and to ensure equitable and affordable access to healthcare are just a few examples of priority issues of common concern among many faiths.  The 2016 Edinburgh Finance Declaration is one example of the world’s leading faiths articulating their shared values. We believe that companies that adopt forward-looking policies and practices to mitigate environmental and social risks are well-positioned for long-term financial success and value creation. Conversely, companies that ignore these risks may endanger the performance of the capital we are called to steward, and impose enduring external costs on society, the economy, and the planet that sustains us. Over the past 50+ years, ICCR member engagements with corporations on these issues have resulted in improved conditions for various stakeholders, including workers, customers, communities, and shareholders. For instance, most of the world’s faiths emphasize stewardship of the planet, care for creation, and moral responsibility toward the environment, which makes them deeply concerned about the climate crisis. Faith investors working in climate-vulnerable communities witness firsthand how climate change adversely affects these areas. Without the adoption of meaningful climate mitigation and adaptation measures, extreme poverty and inequality, risks to land, food and water security, forced migration and geopolitical conflict, along with global health risks, will all intensify. Consequently, faith investors often align with other like-minded investors to tackle climate risk and advocate for a reduction of GHG emissions from our portfolio companies. Faith-based investors actively promote worker justice, which includes workplace health and safety protections, the provision of a living wage, and the freedom to associate and engage in collective bargaining. Faith-based investors have advocated for health equity, engaging with the world’s largest healthcare companies to ensure that medicines and healthcare services are affordable and accessible reaching those most in need.

Importantly, while we often cooperate in investor spaces around strategies to spur corporate action, we make independent investment decisions to provide risk-adjusted returns to our individual constituents and beneficiaries in line with our respective faith beliefs. The U.S. Constitution provides that “Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof,” and the First Amendment protects the religious liberty that is foundational to this great nation. This ban against government interference in faith-consistent practices is essential when considering all aspects of the life and work of religious institutions, including their investment decisions.  It preserves their autonomy to invest their organizational assets and the pensions of their millions of beneficiaries in a manner consistent with their religious beliefs.  In recognition of the constitutional limits of entanglement between the federal government and religious institutions, Congress included a Church plan exemption in the Employee Retirement Income Security Act of 1974 (ERISA).

We want to reiterate our belief that companies committed to addressing their impacts on society and the environment are better positioned for financial success over the long term. For this reason and because our faith calls us to do so, we will continue to invest and engage with our portfolio companies to realize that goal.

S&P Global Market Intelligence: SEC proposed rule would have blocked 614 ESG resolutions since 2010, data shows

Author: Esther Whieldon

Since 2010 more than 600 environmental, social and governance-related resolutions likely would have never advanced under a newly proposed rule by the U.S. Securities and Exchange Commission, according to data the Sustainable Investments Institute shared with S&P Global Market Intelligence.

The SEC in November 2019 proposed to increase the amount of support a shareholder resolution required to be reconsidered in the years following an initial vote. Rather than resolutions needing at least 3% support the first year, 6% the second year, and 10% the third and subsequent years after an initial vote to be reconsidered, the SEC would raise those thresholds to 5%, 15% and 25%, respectively. The agency estimated the changes would cut the number of shareholder proposals by 7%.

While the rule has yet to be finalized, the Sustainable Investments Institute, or Si2, compiled a database of ESG resolutions voted on from the beginning of 2010 through Nov. 18, 2019. Si2 found that 614 ESG-related resolutions, or about 30%, of the 2,019 proposals voted on at company annual meetings over that period would not have been eligible for resubmission. That total is almost three times the number of resolutions — 206 resolutions — that could have failed existing threshold requirements over that time, according to Market Intelligence's analysis of the data.

Of the 614 potentially impacted resolutions, political activity, climate change and human rights issues would have taken the biggest hit.

Companies are coming under increased pressure from investors to disclose how ESG risks could impact their bottom line, and they are addressing those risks and opportunities. But groups such as the U.S. Chamber of Commerce and Business Roundtable have pushed for reforms to the shareholder resolution process.

Investor Coalition Fights Opioids Crisis

By LAURA E. WEISS, CQ

It began as a suggestion from a county health official to leaders of a group of nuns’ money management program. They were addressing climate change, modern-day slavery and immigration — why not the opioid epidemic?

A year and a half later, the mammoth coalition of investors born from that idea wields $2.2 trillion of influence, urging the largest U.S. drug companies to take accountability for playing a role in the opioid crisis. The group, Investors for Opioid Accountability, has cut deals with companies in the business of making or distributing opioid painkillers to review how they oversee sales of the highly addictive drugs and make other corporate governance changes aimed at improving supervision of opioid sales.

“No one is untouched by the opioid crisis in the country — or even globally now as it’s beginning to turn out — but we lead with the investor lens because that is our responsibility and our duty to give an investor voice to it,” says IOA co-leader Meredith Miller. She says the coalition”s 46 members — including state treasurers, public pension funds, faith-based investors and union benefit funds — are hearing from their ministries, citizens or union members about the crisis.

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IOA’s shareholder proposals include requests for reports on board oversight of risks related to opioid sales, mechanisms for recouping executive pay in the case of misconduct, disclosure of lobbying spending, independent board leadership and other adjustments to oversight mechanisms and how the CEO and other top leaders are paid.

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IOA has claimed several victories so far. The coalition’s opioid risk report proposal won support from 62 percent of investors in Assertio Therapeutics Inc., which makes opioid painkiller Nucynta. The same proposal neared majority approval at AmerisourceBergen Corp., one of the “big three” U.S. drug wholesalers. IOA says it has a commitment from another large distributor, Cardinal Health Inc., to publish risk reports, recoup executive pay in cases of misconduct and split the roles of CEO and board chair. McKesson, the country’s sixth-largest company, and several manufacturers have also agreed to changes including reviews of how directors oversee opioid sales, avoiding votes on IOA’s proposals.

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ESG factors as a good signal for future risk

Jane Jagd, Bank of America

What if we told you how to avoid stocks that go bankrupt?

We think you would listen. Environmental, Social & Governance (ESG) factors are too critical to ignore, in our view. In our earlier report ESG: good companies can make good stocks, we found that ESG-based investing would have offered long-term equity investors substantial benefits in mitigating price risk, earnings risk and even existential risk for US stocks — ESG would have helped investors avoid 90% of bankruptcies in the time frame we examined. Our findings were encouraging enough to warrant a closer look. We here assess how US corporations, regulators and investors are positioned for ESG, and how the market is responding.

ESG is the best signal we have found for future risk

Prior to our work on ESG, we found scant evidence of fundamental measures reliably predicting earnings quality. If anything, high quality stocks based on measures like Return on Equity (ROE) or earnings stability tended to deteriorate in quality, and low quality stocks tended to improve just on the principle of mean reversion. But ESG appears to isolate non-fundamental attributes that have real earnings impact: these attributes have been a better signal of future earnings volatility than any other measure we have found.

US corporates may be behind the curve . . .

Despite empirical evidence of its efficacy, ESG is not drawing much enthusiasm from US corporates. Among companies participating in our survey at our March 2017 BofAML US Investor Relations conference, almost half of the survey respondents indicated they have no resources dedicated to ESG initiatives, and no intentions of implementation. Globally, the theme is burgeoning: ESG-related regulations have doubled since 2015; over 6,000 EU member state companies will be required to publish disclosures; and 12 global stock exchanges require written ESG guidance – but not one is in the US!

. . . but investors are ahead of it & PE multiples are responding

In our May survey of BofAML institutional clients, 20% cited using ESG, well above the estimated 5% of float that corporations believe is held by ESG-oriented investors. In another investor survey, 66% raised issues on sustainability disclosures, and 85% called for improved disclosure in filings. And the investment industry is changing to accommodate governance: for the first time ever, FTSE Russell ruled out the addition of zero voting rights stocks, citing “concerns raised by shareholders.” The market is listening: shareholder-friendly companies have seen significant multiple expansion — and we see strong signs that this re-rating continues.

Read the full text here.

Shareholder Proposals and trouble at Bayer's Acquisition

In 2016, shareholder John Harrington, the president of Harrington Investments Inc., filed a proposal at Monsanto regarding health risks from the company’s flagship weedkiller Roundup. The proposal noted “an increasing number of independent studies assessing the toxicity of glyphosate, the active ingredient in Roundup, associate it with cancer, birth defects, kidney disease, and hormone disruption, causing world-wide concern about its safety”. The proposal requested a report assessing the effectiveness and risks associated with the company’s policy responses … to the impact of recent reclassification of glyphosate as “probably carcinogenic,” and quantifying potential material, financial risks or operational impacts on the Company in the event that proposed bans and restrictions are enacted.

On its 2016 vote, the proposal received 5.3% voting support. Refiled in 2017, it still only received 5.5% support. Yet, this relatively small group of shareholders proved to be prescient in identifying a material issue.

Only two months after Monsanto was acquired by the German pharmaceutical company Bayer in June 2018, a jury granted a $289 million award in a suit alleging public health threats and cancer of a plaintiff caused by Roundup. This news sliced billions of dollars from Bayer’s valuation. Bayer’s market capitalization has descended steeply in the following months, from $99.1 billion as of August 10, 2018 (the date of the jury verdict), to $64.8 billion as of November 20, 2018 and after losing another jury verdict, $56.2 billion by May 24, 2019.

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